ZEE MARKETING (GUJ.) PRIVATE LIMITED,AHMEDABAD vs. THE DY. COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-1(1), AHMEDABAD

ITSSA 19/AHD/2023Status: DisposedITAT Ahmedabad08 March 2024AY 2016-175 pages
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What were the facts?

The assessee, Zee Marketing (Guj.) Private Limited, filed an appeal against the order of the CIT(A)-11, Ahmedabad, which upheld the disallowance of travelling expenses and addition of power and fuel expenses. The assessment year is 2016-17. The original assessment order was passed by the ACIT, Central Circle-1(1), Ahmedabad, under Section 143(3) r.w.s. 153A of the Income Tax Act, 1961. The disallowance of travelling expenses of Rs. 2,92,650/- was based on the Assessing Officer's (AO) finding that the travel was undertaken by Shri Tehmul B Sethna, and the assessee's income receipts were from Ahmedabad-based companies, suggesting no business or clients in Delhi or Mumbai where the travel centered. The CIT(A) was not satisfied about the capacity in which the expenses were incurred and whether they were business expenses. The addition of Rs. 1,72,553/- as power and fuel expense arose because the AO found that several entities conducted business from the appellant's premises, and the AO considered only Rs. 57,517/- as the appellant's share of fuel expenses.

What did the Tribunal hold?

On the issue of travelling expenses, the Tribunal, relying on the jurisdictional High Court's judgment in Sayaji Iron & Engg. Co. vs. CIT, held that expenses incurred by the Director of the company should be treated as business expenditure and allowed. The Tribunal noted that the Hon'ble Court observed that such expenditures, if part of the terms and conditions of service or remuneration as per the Companies Act, 1956 (Sections 198 and 309), are business expenditures for the assessee-company and not disallowable. The Tribunal deleted the addition made in the hands of the appellant on this ground. Regarding power and fuel expenses, while the Tribunal was not fully satisfied with the appellant's plea, it restricted the addition to 10% of the expenditure incurred by the appellant. The AO was directed to give relief accordingly. The ratio for the travelling expenses issue is that expenses incurred by a director, if in accordance with their terms of appointment or remuneration as per the Companies Act, are business expenses for the company and not disallowable as personal expenses.

What were the issues?

1. Whether the disallowance of travelling expenses of Rs. 2,92,650/- is justified, considering the expenditure was incurred by the Director of the appellant company and relied upon the jurisdictional High Court's judgment in Sayaji Iron & Engg. Co. vs. CIT (supra)? The assessee contended that since the expenditure was incurred by the Director, it should be treated as a business expense and not personal. The revenue did not controvert this submission. 2. Whether the addition of Rs. 1,72,553/- as power and fuel expense is justified, given that the appellant claims the expenditure was necessary to run its business, including providing power to other parties renting parts of its premises, as per rental agreements? The assessee argued that this is a business expense and should be allowed. The revenue, through the AO and upheld by the CIT(A), disallowed a portion of this expense, considering it not solely attributable to the appellant's business.

Which sections of the Income-tax Act were involved?

Section 143(3),Section 153A,Section 198,Section 40(c),Section 40A(5),Section 2(31)

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Income Tax Appellate Tribunal, “A” BENCH, AHMEDABAD

Before: SMT.ANNAPURNA GUPTA&

PER Ms. MADHUMITA ROY - JM: The instant appeal filed at the behest of the assessee is directed against the order dated 23.12.2022 passed by the Ld. Commissioner of Income Tax (Appeals)-11, Ahmedabad (in short ‘CIT(A)’) arising out of the order dated 30.12.2018 passed by the ACIT, Central Circle-1(1), Ahmedabad under Section 143(3) r.w.s. 153A of the Income Tax Act, 1961, (hereinafter referred to as ‘the Act’) for Assessment Year 2016-17. IT(SS)A No. 19/Ahd/2023 (Zee Mar

The order continues below.

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