Case Law Details
News Laundry Media Private Limited Vs DCIT (ITAT Delhi)
Summary: The ITAT Delhi held that an ad hoc disallowance of business promotion, petrol, and tour & travel expenses under Section 37(1) cannot be sustained merely on suspicion that personal use may be involved. The assessee, a media company engaged in motion picture, radio, television, and related activities, had furnished ledger accounts, invoices, vouchers, flight tickets, restaurant bills, and other supporting documents to substantiate the expenses. The Assessing Officer disallowed 25% of the expenditure on the ground that the exact details of meetings and purposes could not be verified and personal use could not be ruled out. Although the CIT(A) reduced the disallowance to 10%, the Tribunal observed that neither the books of account were rejected nor any specific defect, bogus claim, inflated expenditure, or non-business use was identified by the Revenue. Since the assessee had discharged its burden of proof and the Revenue failed to bring any incriminating material on record, the entire disallowance was deleted.
Core Issue: Whether an ad hoc disallowance of business promotion, petrol and tour & travel expenses under section 37(1) can be sustained merely on the presumption that personal use cannot be ruled out, despite the assessee producing ledger accounts, invoices, vouchers and supporting evidence, and where no specific defect, bogus claim or incriminating material was brought on record by the Revenue.
Facts: The assessee company was engaged in motion picture, radio, television and other media activities and reported a turnover of approximately ₹5.42 crore during AY 2022-23. During scrutiny assessment following a survey under section 133A, the AO examined certain expenses comprising business promotion expenses of ₹1,65,203, petrol expenses of ₹1,10,721, and tour and travel expenses of ₹2,15,279. The assessee explained that business promotion expenses related to meetings with freelance journalists, writers, media professionals, investors, subscribers and persons involved in public affairs and current affairs reporting. Petrol expenses represented reimbursement to directors for use of their personal vehicles for official work, while tour and travel expenses were incurred for journalists and reporters undertaking assignments, interviews and reporting activities. The assessee furnished ledger accounts, invoices, vouchers and supporting documents for all such expenses. However, the AO observed that the exact details of persons met and the precise purpose of every meeting could not be established and therefore personal use could not be ruled out. Consequently, the AO disallowed 25% of the expenditure amounting to ₹1,22,800 under section 37(1).
CIT(A) Findings: The CIT(A) recorded that the assessee had furnished extensive documentation including ledger accounts, restaurant bills, flight tickets and invoices. The appellate authority specifically noted that the tour and travel records contained identifiable flight bookings for employees such as Atul Chaurasia and Manisha Pande and that business promotion expenses were supported by invoices for promotional materials such as mugs and stickers bearing company taglines. The CIT(A) also acknowledged that the disallowance had been made purely on an estimated basis without any concrete defect being identified. Nevertheless, the CIT(A) sustained a reduced disallowance of 10% of the expenditure.
ITAT Findings: The Tribunal deleted the entire disallowance. It held that the assessee had discharged its primary burden by producing books of account, ledger extracts, invoices, vouchers and supporting evidence establishing that the expenditure was incurred in the course of business. The Tribunal noted that neither the AO nor the CIT(A) rejected the books of account, pointed out any false claim, identified any specific non-business expenditure or brought any incriminating material on record to show personal use, inflation of expenses or bogus claims. Mere inability of the assessee to explain every meeting to the minutest detail could not justify an ad hoc disallowance.
The Tribunal further observed that the petrol expenses were only reimbursements to directors for business travel in vehicles owned by them and that the company did not bear maintenance, insurance or repair expenses of those vehicles. Similarly, tour and travel expenses were supported by details of employees undertaking travel for journalistic assignments and no enquiry was conducted by the Revenue from such employees to disprove the business purpose. The Tribunal also found that the expenditure was not disproportionate to the scale of operations of the company and there was no material suggesting inflation or fictitious expenditure. In these circumstances, an estimated disallowance based solely on suspicion or possibility of personal use was held to be unsustainable.
Relevant Principle under Section 37(1): Once the assessee furnishes supporting documents and demonstrates that expenditure was incurred wholly and exclusively for business purposes, the burden shifts to the Revenue. In the absence of specific defects, rejection of books, evidence of personal use or any incriminating material, disallowance cannot be made on a purely ad hoc or estimated basis.
Relevant Para: Para 5.
Held: Ad hoc disallowance of business promotion, petrol and tour & travel expenses cannot be sustained merely because complete minutest details of each expenditure are not available or because personal use is hypothetically possible. Where the assessee has produced ledger accounts, invoices and supporting evidence and the Revenue has neither rejected the books nor identified any specific defect or non-business expenditure, disallowance under section 37(1) based on estimation is unsustainable. Accordingly, the entire disallowance was deleted and the appeal of the assessee was allowed.
FULL TEXT OF THE ORDER OF ITAT DELHI
This appeal in ITA No. 2995/Del/2026 for Assessment Year: 2022-23 has arisen form the learned CIT(A)’s appellate order u/s 250 of the Income-tax Act, 1961(in Short “Act”) dated 04.02.2026 in DIN & Order No: ITBA/APL/S/250/2025-26/1085554823(1), which in turn has arisen from the assessment order dated 31.03.2024 passed by the AO u/s 143(3) of the 1961 Act (DIN & Order No. ITBA/AST/S/143(3)/ 2023-24/1063794600(1)).
2. The brief facts of the case are that the assessee filed return of income for the impugned assessment year , on 02.11.2022 , declaring total income at Rs. Nil. The same was processed u/s 143(1). The assessee is primarily engaged in motion picture , radio, television and other media activities. A survey u/s 133A was carried out on 10.09.2021 at the premises of the assessee at B-113, Sarvodaya Enclave, Delhi-110017. The return of income was selected by Revenue for compulsory scrutiny. Statutory notices u/s 143(2) and 142(1) were issued by the AO. The assessee participated in assessment proceedings.
The AO observed that the assessee has incurred expenses of Rs. 1,65,203/- relating to business meetings in restaurants , expenses of Rs.1,10,721/- and Rs. 2,15,279/- relating to Petrol Expenses and Tours and Travel Expenses respectively. The AO observed that purposes of incurring expenses could not be ascertained from these expenses and incurring of personal expenses are not ruled out . It was also enquired by the AO that if these expenses were personal in nature, whether the same are treated as perquisite in the salary and due taxes were deducted. The AO issued SCN to the assessee. The assessee responded to SCN. The assessee submitted that so far as business promotion expenses are concerned, the assessee has incurred expenses on meeting with freelance journalists, writers and other people in Media and technology space including common people having interest in country’s current affairs , reportage , demography , political and financial interest. These expenses also included meeting with various investors and subscribers for future growth and promotion. The assessee submitted that these expenses were incurred wholly and exclusively for the business activities of the assessee. The assessee submitted before the AO that vouchers , invoices and receipts for incurring expenses were duly submitted. The assessee submitted that it is not possible to give exact information as to who was met and why the meeting was called. So far as Petrol Expenses were concerned, the assessee submitted that the assessee reimbursed the amount incurred by the Directors namely Mr. Abhinandan Sekhri and Mr. Raman Kirpal wherever they used vehicle for official purposes. The vehicles are owned by Directors. The company is not paying for maintenance, repairs and insurance etc. . These expenses were incurred wholly and exclusively for the purposes of business. It was submitted that despite incurring of all the expenses by the Directors, the assessee company has reimbursed only Rs. 1,10,721/- to the Directors towards petrol expenses used for business meetings. It was submitted that the assessee has already provided the vouchers, bills and receipts for the expenses incurred. It was submitted that the expenses were incurred wholly and exclusively for the purposes of business. It was submitted that it is not possible to provide exact information whom they met and why the meetings took place. Regarding Tour and Travels Expenses, the assessee submitted that the assessee has incurred expenses for legitimate business purposes relating to journalistic activities etc. . It was submitted that reporters are sent on various assignments to gather information, conduct interviews, and report on stories. It was submitted that the expenses were incurred wholly and exclusively for the purposes of business. The AO rejected the contentions of the assessee, and observed that keeping in view facts and circumstances of the case, these expenses could not be fully verifiable and usage for personal purposes could not be ruled out. The AO disallowed an amount of Rs. 1,22,800/- being 25% of the above expenses u/s 37(1) of the 1961 Act.
3. Aggrieved, the assessee filed first appeal with ld. CIT(A). The assessee participated in appellate proceedings. The ld. CIT(A) observed that the assessee has indeed submitted extensive documentation, including ledger accounts and sample invoices for travel and restaurant bills . For example, “Tour and Travel” record show specific flight booking for employees like Atul Chaurasia and Manisha Pande . Business Promotion record include specific invoices for items like mugs and stickers with company taglines. The disallowance has been made purely on estimation without bringing any concrete defect on record. The ld. CIT(A) observed that disallowance of 25% of the expenses is excessive, and ld. CIT(A) restricted the disallowance to 10% of the aforesaid expenses. Thus, the appeal of the assessee was partly allowed by ld. CIT(A).
4. Still Aggrieved, the assessee has filed second appeal with ITAT. The ld. Counsel for the assessee submitted that adhoc disallowance was made by the authorities below wrt Business Promotion Expenses , Petrol Expenses and Tour & Travel Expenses. It was submitted that the AO made disallowance of 25% of these expenses, while ld. CIT(A) restricted the same to 10% of these expenses. It was submitted that these expenses were incurred wholly and exclusively for the purposes of business of the assessee. My attention as brought to the paper book filed by the assessee containing 118 pages. My attention was drawn to Page 29 wherein ledger account of Business Promotion Expenses is placed. My attention was also drawn to invoices for incurring of these expenses /page 30-46. It was submitted that total expenses towards business promotion was Rs. 7,20,535.58, out of which Rs. 1,65,203/- were incurred by Mr. Abhinandan Sekhri and Mr. Raman Kirpal, Directors wholly and exclusively for the purposes of business, which was reimbursed to them. My attention was also drawn to Petrol Expenses ledger account which is placed at Page 47/PB. The petrol invoices are placed in page 48-52/PB. Similarly , my attention was drawn to Page 53/PB wherein ledger account of Tour and Travel expenses are placed. The invoices related thereto are placed in paper book /page 54-81.It was submitted all these expenses were incurred wholly and exclusively for the purposes of assessee’s business.
4.2 The ld. Sr. DR relied on the orders of the authorities below.
5. I have considered rival contentions and perused the material on record. I have observed that the assessee is engaged in motion picture , radio, television and other media activities. The assessee has placed on record audited Balance Sheet and Profit and Loss account (page 10-22/PB). The business turnover of the company during the year under consideration is Rs.5.42 crores. The expenditure under dispute are Rs. 1,65,203/- relating to business meetings in restaurants , expenses of Rs.1,10,721/- and Rs. 2,15,279/- relating to Petrol Expenses and Tours and Travel Expenses respectively. I have observed that the assessee has explained that these expenses were incurred wholly and exclusively for the purposes of business. The assessee has submitted details of these expenses along with the invoices for incurring these expenses. However, the assessee could not explain these expenses to the minutest details such as to with whom meetings took place and why meetings took place.The AO made adhoc disallowance of 25% while ld. CIT(A) restricted to 10%. The ld. CIT(A) duly recorded in his order that the assessee has indeed submitted extensive documentation, including ledger accounts and sample invoices for travel and restarent bills . For example, “Tour and Travel” record show specific flight booking for employees like Atul Chaurasia and Manisha Pande . The ld. CIT(A) has recorded in its order that Business Promotion record include specific invoices for items like mugs and stickers with company taglines. The ld. CIT(A) further recorded in his order that disallowance has been made purely on estimation without bringing any concrete defect on record.The assessee has filed paper book with ITAT containing 118 pages. In my considered view, the assessee has discharged its primary onus , while the authorities below have not brought any incriminating material to prove that these expenses were incurred for personal purposes. Even no specific defect in incurring of these expenditure is pointed out by the authorities below. Books of accounts are also not rejected by the authorities below.The assessee has even explained that cars are owned by Directors , and only petrol is reimbursed for travel in car for business purposes. Petrol expenses for non business purposes visit are not paid , and further cars are owned by the Directors, for which even no maintenance, insurance and repairs are charged by the Directors. The assessee has furnished even the details of persons who travelled for business purposes as well purpose of their visit. No enquiry was made by the authorities below from such persons. Further, I have also observed that these expenses vis-a-vis scale of operations as is reflected in the turnover, is not exorbitant which could lead to conclusion that expenses are inflated on the touchstone of preponderance of probabilities nor are there allegation that these expenses are bogus or not incurred at all , while the assessee has duly submitted all the relevant details to discharge its primary onus.Thus, in my considered view, the adhoc disallowance as was upheld by ld. CIT(A) is not sustainable. I therefore delete the disallowance. I order accordingly.
6. In the result, the appeal filed by the assessee is allowed.
Order is pronounced in the Open Court on 27.05.2026.
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