Industrial Cables Pvt. Ltd. V. Commissioner of Income Tax & ANR.

ITA/10/2005

AI Insights

Industrial Cables Pvt. Ltd. appealed against the order of the Income Tax Appellate Tribunal which restored the disallowance of a deduction for expenses incurred on a guest house and affirmed the addition of interest on an interest-free loan to a sister concern. The Tribunal's decision was based on Section 37(4) of the Income Tax Act, 1961, which disallows deductions for guest house expenses. The High Court dismissed the appeal, agreeing with the Tribunal's interpretation of the law and the facts of the case, including the absence of any statutory provision allowing for the set-off of presumptive recoveries from employees against guest house expenses.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 821861 (HC-CHANDIGARH)
• Appeal Type: Others
• Pronouncement Date: 03-12-2025
• Assessment Year: misc
• Other Referred Cases: ITA-68-2002, ITA-86-2005
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Revenue
• Court: HIGH COURT
• Department Lawyers: SAURABH KAPOOR
• Assessee Lawyers: DIVYA SURI
• Keywords: Assessment Year 1995-96; Deduction; Guest House Expenses; Income Tax; Interest free loan; Interest free loan
• Section: 260A; 37(4)

Judgement Text

" IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH **** 201 ITA-10-2005 (O&M) Date of Decision: 03.12.2025 INDUSTRIAL CABLES PVT. LTD. ...Appellant Vs. COMMISSIONER OF INCOME TAX & ANR. …Respondents CORAM:- HON'BLE MR. JUSTICE JAGMOHAN BANSAL HON'BLE MR. JUSTICE AMARINDER SINGH GREWAL Present:- Mr. Divya Suri, Advocate for the petitioner Mr. Saurabh Kapoor, Advocate for respondent-Income Tax Department *** JAGMOHAN BANSAL, J. (ORAL) 1. The appellant through instant appeal under Sectio 260 A of the Income Tax Act, 1961 (for short ‘1961 Act’) is seeking setting aside of order dated 23.09.2004 passed by Income Tax Appellate Tribunal (for short ‘Tribunal’) for the Assessment Year 1995-96. 2. The appellant has raised two questions with respect to addition/deduction. The appellant claimed deduction of Rs.6,24,819/- with respect to expenses incurred on guest house. The appellant claims that it paid lesser dearness allowance to its employees who used guest house, thus, there should be presumptive receipt from the employees against the actual expenditure incurred on guest house. The Assessing Authority denied deduction of expenses, however, Commissioner of Income Tax (Appeals) allowed the same. The matter travelled to Tribunal which by impugned order Printed from counselvise.com DEEPAK BISSYAN 2025.12.04 10:11 I attest to the accuracy and integrity of this document ITA-10-2005 (O&M) -2- set aside order of Commissioner of Income Tax (Appeals) and restored order of Assessing Authority. Relevant extracts of impugned order read as:- “We have given careful consideration to the rival contentions. In our considered view, the disallowance of Guest House expenditure is to be made in accordance with the provisions of Act. The assessee has incurred the expenditure and claimed deduction thereof. Since the disallowance is statutorily provided, there is no scope for allowing set off of constructive recovery from the employees. As per the assessee's version as and when the employees stays in the Guest House of the company, he is entitled to lesser D.A and whatever actual D.A. has been paid to the employee is claimed as a deduction. In our view, the mere fact that the employees would be entitled to the higher D.A if they had not stayed in the Guest House of the Company does not justify to set off of the presumptive receipt from the employees against the actual expenditure incurred by the assessee company in respect of the Guest House. In our considered view, if the employees of the assesee had stayed in any other accommodation, the assessee would have incurred more expenditure which would qualify for deduction as expenditure incurred for the purposes of business but since the employees of the company have stayed in the Guest House owned by the assessee, the expenditure incurred in respect of the same falls for the disallowance u/s 37(4). Allowing the set off of the presumptive recovery, would defeat the provisions of section 37(4) which in our view, would be going against the legislative wisdom and the same is not justified. The Assessing Officer has not dealt with the claim of presumptive recovery specifically in any other year. In any case, the law does not permit set off for presumptive recovery We, therefore, do not approve of the view expressed by the Commissioner of Income-tax (Appeals) in this regard. We, therefore, set aside the order of the Commissioner of Income- tax (Appeals) and restore the disallowance of Rs. 6,24,819/-.” Printed from counselvise.com DEEPAK BISSYAN 2025.12.04 10:11 I attest to the accuracy and integrity of this document ITA-10-2005 (O&M) -3- 3. The expenses were disallowed by Tribunal relying upon Section 37(4) of 1961 Act. Section 37(4) reads as:- “(4) Notwithstanding anything contained in sub-section (1) or sub-section (3), (i) no allowance shall be made in respect of any expenditure incurred by the assessee after the 28th day of February, 1970, on the maintenance of any residential accommodation in the nature of a guest- house (such residential accommodation being hereafter in this sub-section referred to as \"guest-house\") ; (ii) in relation to the assessment year commencing on the 1st day of April, 1971, or any subsequent assessment year, no allowance shall be made in respect of depreciation of any building used as a guest-house or depreciation of any assets in a guest-house.” 4. It is apt to mention here that aforesaid sub-section stands omitted w.e.f. 01.04.1998. In the instant appeal period involved is prior to April’ 1998. By Section 37(4), the Legislature has categorically denied expenses with respect to guest house. There is no challenge to said provision. In view of Section 37(4), there is no infirmity in the impugned order. 5. The appellant has raised another issue with respect to addition made on account of interest on interest-free loan advanced by appellant to its sister concern. The said question was raised by Department before this Court in ITA-68-2002. This Court vide order dated 21.12.2006 answered against the assessee. 6. Learned counsel for the appellant submits that appellant has preferred appeal before Hon’ble Supreme Court against order dated 21.12.2006 passed by this Court. The appeal is still pending. Printed from counselvise.com DEEPAK BISSYAN 2025.12.04 10:11 I attest to the accuracy and integrity of this document ITA-10-2005 (O&M) -4- 7. Learned counsel for the respondent submits that appeal is pending before Hon’ble Supreme Court, however, there is no stay in favour of the appellant. 8. The issue of interest on interest-free loan advanced by appellant to its sister concern stands answered by this Court in ITA-68-2002 as well as ITA-86-2005. 9. In view of orders passed in ITA-68-2002 and ITA-86-2005 by this Court, question of addition made on account of interest on interest-free loan advanced by appellant to its sister concern is answered against the appellant. 10. In the wake of above discussion and findings, this Court is of the considered opinion that the instant appeal deserves to be dismissed and accordingly dismissed. 11. Pending application(s), if any, stands disposed of. (JAGMOHAN BANSAL) JUDGE (AMARINDER SINGH GREWAL) JUDGE December 03, 2025 Deepak DPA Whether Speaking/reasoned Yes/No Whether Reportable Yes/No Printed from counselvise.com DEEPAK BISSYAN 2025.12.04 10:11 I attest to the accuracy and integrity of this document "