Ceremonial Expenses performed as part of Tradition shall be Allowable as Business Expenditure: ITAT [Read Order]

The Pune Bench of Income Tax Appellate Tribunal (ITAT) has held that ceremonial expenses performed as part of tradition would be allowable as business expenditure.

The assessee Bhimashankar Sahakari Sakhar was a sugar co-operative society. The Assessing Officer had disallowed ceremonial expenditure on the ground that it was not related to the business purpose of the assessee or exclusively for commercial expediency in functioning of the assessee‟s business. 

These ceremonial expenses are intrinsically linked to the assessee‟s business and it was customary for all the sugar factories to observe and celebrate certain functions for the welfare of the workers of the factory. These functions had given a moral boost to the working efficiency of the employees. At the same time, they could not be expected to contribute to these functions.

Hanmant D Dhawle appeared on behalf of the revenue. Ramnath P Murkunde who appeared on behalf of the assessee submitted that the expenses for the ceremony and functions were borne by the assessee and in so much as they were intrinsically weaved within the basic functioning of the assessee‟s business, and should be allowable as business expenses.

The Division Bench of R.S. Syal (Vice President) and Partha Sarathi Chaudhury (Judicial Member) upheld the decision of Commissioner of Income Tax Appeal (CIT(A)) and dismissed the appeal of revenue observing that,  “These ceremonies are required to be performed on account of tradition and to a certain extent as compulsion since these functions are followed in every sugar factory. The expenses have to come from the account of assessee only. It cannot be expected to be collected from the employees. These expenses take the colour and character of business expenses.” 

To Read the full text of the Order CLICK HERE

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