Fancy number plates not a business expense, says Income Tax Appellate Tribunal

Asia's Tech News Daily

sopariwala exports pvt ltd., sopariwala exports, ashok maheshwary & associates llp, itat, institute of chartered accountants, mumbai, india

Exclusive number plates for CXOs cannot be classified as a business expense, the Income Tax Appellate Tribunal (ITAT) has said. Tax experts say the verdict could set a precedent for assessing officers to decide what expense can be incurred by a company and what cannot.

The ITAT’s Mumbai bench held that the expense for obtaining a special number for a car is not at all a business expenditure and hence, there is no question of allowing it as a revenue expenditure or capitalising it and allowing depreciation.

The tribunal’s ruling came in response to a plea by Mumbai-based Sopariwala Exports and Sopariwala Exports Pvt Ltd.

Former Institute of Chartered Accountants of India president Ved Jain said, “It is a settled law that the assessing officer cannot sit in the armchair of a businessman to decide which expenses need to be incurred and which not.”

However, Jain said a fancy number plate for a car being used by the business or by directors employed by the company was an allowable expense. “It is also a settled law that expenses incurred on employees – despite being personal in nature – are allowable expenditure in the hands of company,” he said.

Other tax experts concur.

“Sometimes, there is a thin line between expenses that are incurred for commercial expediency and (those incurred for) personal prestige,” said Amit Maheshwari, partner, Ashok Maheshwary & Associates LLP. “Expenses incurred for commercial expediency cannot be questioned as they have been left in the hands of the businessmen – to decide whether to incur such expenses or not.”

The assessing officer in the Sopariwala case had opined that there was no benefit to the business in any way and disallowed the expenditure. The assessee pleaded before the Commissioner Income Tax (Appeals) that the special number was useful as the company had visiting foreign customers.

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