HC Deletes Car and Telephone Expense Disallowance for Company

Case Details: Raunaq International Ltd. vs. Commissioner of Income-tax IN [2026] 186 taxmann.com 963 (Delhi)

Judiciary and Counsel Details

• Dinesh Mehta & Vinod Kumar, JJ.
• Dr Shashwat Bajpai & Mayank Chaturvedi, Advs. for the Appellant.
• Vipul Agrawal, SSC, Ms Sakshi Shairwal & Akshat Singh, JSCs for the Respondent.

Facts of the Case

The assessee was a company. The dispute concerned the disallowance of 1/6 of telephone and car expenses on the grounds of personal use. For AYs 1995-96 to 1999-2000, similar disallowances had been set aside by the Commissioner (Appeals), and those orders had been affirmed by the Tribunal, including orders for AY 1998-99 and AY 1996-97.

AO disallowed 1/6th of the car and telephone expenses, treating them as personal in nature, noting that no log book was maintained for car use and complete details of telephone expenses were not furnished.
The matter reached before the Delhi High Court.

Delhi High Court Held

The Delhi High Court held that it is not in dispute that the addition of this nature made in the assessment orders of AY 1995-96 to AY 1999-2000 had been set aside by the Commissioner of Income Tax (Appeals), and the Tribunal had affirmed the orders of the first appellate authorities. Such being the position, the Tribunal ought to have maintained consistency unless there was a striking change in the facts.

The only new thing that had come to the notice or knowledge of the Tribunal was that a company is a separate legal person. Still, simply because a company can be said or considered to be a person does not necessarily mean that its expenses must be disallowed as personal in nature.

Even if expenses borne by the company are reimbursed to employees or even Directors, they will be treated as part of the complete package given to those employees, as a necessity of the company’s business. Therefore, such expenses, duly approved by the Competent Authority, must be allowed in toto. Until the concept of fringe benefits was introduced, every penny spent by a company or by employees (subject, of course, to the limits prescribed in the Companies Act or other laws) was allowable.

Therefore, the Tribunal erred in its understanding of the true import of the concept of a company as a person. Disallowance may be made only if there is a finding that the amount spent was of a personal nature and had no nexus to the company’s business.

List of Cases Referred to

• Standard Chartered Bank v. Directorate of Enforcement [2005] 145 Taxman 154/275 ITR 81 (SC) (para 4).