2012 (11) TMI 841 - AT - Income Tax

Disallowance of Business Promotion expenses Held that - Assessee had incurred expenses for the purpose of business and to maintain cordial relations with the suppliers and other persons and to maintain good business reputation and to meet the market competition. Also there is no dispute of having incurred expenditure which have been argued to have been incurred by making account payee cheques for purchasing the said gifts. No such expenditure, which has been prohibited by law, has been brought on record by the AO and in the facts and circumstances of the case, such expenses by taking the volume of the turnover and the income declared being second year operation of the assessee s business, the expenditure incurred is reasonable - no infirmity in the order of CIT(A), who has rightly deleted the addition so made - this ground of the revenue is dismissed. Disallowance of Legal and Professional charges - Held that - Amount has been paid through cheques after deducting tax at source. Copies of the bills and TDS certificate are on record. Moreover, the AO can not sit in the arms of the businessman and cannot decide how to run the business. This is a well settled legal proposition laid down by various courts of law. In the facts and circumstances of the case, no infirmity in the order of CIT(A), who has rightly deleted the addition so made - ground raised by Revenue is dismissed.

Summary

Issues Involved:
- Disallowance of business promotion expenses
- Disallowance of legal and professional expenses
- Lack of evidence for expenses under both heads

Issue 1: Disallowance of Business Promotion Expenses
In the case, the Revenue raised multiple grounds of appeal regarding the disallowance of business promotion expenses. The Assessing Officer (AO) disallowed significant amounts claimed as business promotion expenses, citing lack of evidence and failure to produce lists of recipients for gifts distributed. The ld. CIT(A) deleted the additions made by the AO, emphasizing that the expenses were incurred for business purposes, to maintain good relations, and were reasonable considering the business growth. The Tribunal concurred with the ld. CIT(A), noting that the expenses were justifiable, not prohibited by law, and necessary for maintaining business reputation and competitiveness. Consequently, the Tribunal dismissed the Revenue's appeal on this ground.

Issue 2: Disallowance of Legal and Professional Expenses
Another issue raised by the Revenue was the disallowance of legal and professional expenses. The AO disallowed payments made to specific entities, questioning the necessity and purpose of these expenses. However, the ld. CIT(A) accepted the explanations provided by the assessee, highlighting the professional services rendered and the legitimate nature of the payments made. The Tribunal agreed with the ld. CIT(A), emphasizing that the AO lacked concrete adverse material to challenge the claim of the assessee. The Tribunal upheld the deletion of these additions, stating that the payments were made through legitimate channels and after due deduction of taxes, thereby dismissing the Revenue's appeal on this ground as well.

Issue 3: Lack of Evidence for Expenses Under Both Heads
The Revenue also contended that the assessee failed to provide evidence for expenses under both heads during the assessment proceedings. However, the ld. CIT(A) found the explanations satisfactory and allowed the claims, as the expenses were duly vouched and paid through proper channels. The Tribunal reiterated that the AO's additions lacked substantiation and upheld the ld. CIT(A)'s decision to delete the additions. Consequently, the Tribunal dismissed the Revenue's appeals on these grounds, emphasizing the absence of adverse material to justify the disallowances.

In conclusion, the Appellate Tribunal, in the given judgment, upheld the decisions of the ld. CIT(A) to delete the additions made by the AO concerning business promotion and legal/professional expenses. The Tribunal emphasized the legitimacy, reasonableness, and necessity of the expenses incurred by the assessee for business purposes, ultimately dismissing the Revenue's appeals across all three issues raised.