2013 (9) TMI 75 - AT - Income Tax

Disallowance u/s 37(1) - Sales promotion expenses - Genuineness of the claim - Onus to prove - Held that - Assessing Officer has not appreciated the facts of the case in their proper prospective. The assessee has debited Rs. 2,38,36,827 under the head sales promotion expenses whereas the Assessing Officer has disallowed a sum of Rs. 3,75,49,810. A perusal of the copy of the ledger account of sales promotion shows that the assessee is receiving reimbursement from its clients which are credited to the scheme reimbursement account such reimbursements are made by companies like Cadbury (India) Ltd., Wipro, Colgate Palmolive (India) Ltd., Timex Watches and UDV India. These companies are reimbursing the claim made by the assessee which itself proves that the assessee-company is actually incurring certain expenses on account of sales promotion otherwise why would such big companies reimburse the claims made by the assessee. The Assessing Officer grossly failed to appreciate this fact. The Assessing Officer further erred in adding the entire amount received as reimbursement to the amount disallowed which is not understandable. Further, in our humble opinion, if the sellers are not filing their sales tax return, parties dealing with such person cannot be questioned or held responsible for such lapses. The whole payment has to be considered in the light of the provisions of section 37(1) of the Act which provides that any expenditure not being in the nature of capital expenditure or personal expenses of the assessee laid out or expanded wholly and exclusively for the purposes of the business or profession shall be allowed in computing the income chargeable under the head Profits and gains of business or profession - Decided against Revenue. Disallowance of foreign travel expenses - Held that - out of the total disallowance of Rs. 8,10,521, the learned Commissioner of Income-tax (Appeals) has allowed Rs. 1,33,852 as expenses incurred for the purpose of business. Nothing has been brought before us in support of the claim by the authorised representative nor by the Departmental representative to controvert the findings of the learned Commissioner of Income-tax (Appeals). We find that the learned Commissioner of Income-tax (Appeals) has given a reasonable finding on allowing the expenses only to the extent of Rs. 1,33,852 - Decided against Revenue.

Summary

Issues Involved:
1. Deduction on account of sales promotion expenses.
2. Allowability of foreign travel expenses.

Issue-wise Detailed Analysis:

1. Deduction on Account of Sales Promotion Expenses:
The Revenue appealed against the Commissioner of Income-tax (Appeals) decision to allow the deduction of sales promotion expenses amounting to Rs. 3,75,49,810 under section 37(1) of the Income-tax Act. The Assessing Officer (AO) had disallowed these expenses due to doubts about their genuineness, citing discrepancies in the addresses and names of the proprietors, non-filing of sales tax returns by the parties, and suspicious bank transactions. The AO also noted that the invoices appeared to be prepared during the assessment proceedings.

The Commissioner of Income-tax (Appeals) observed that the AO failed to appreciate the nature of the assessee's business, which involves marketing consumer products for multinational companies to institutions like canteen stores departments. The Commissioner noted that the expenses were supported by account payee cheques and proper invoices, and the assessee had filed confirmations from the parties involved. The Commissioner concluded that the expenses were genuine and allowable under section 37(1), leading to the deletion of the disallowance.

Upon appeal, the Tribunal examined the rival submissions and found that the AO did not properly appreciate the facts. The Tribunal noted that the assessee had received reimbursements from reputable companies like Cadbury (India) Ltd. and Colgate Palmolive (India) Ltd., indicating that the expenses were indeed incurred. The Tribunal also pointed out that the AO erred in adding the reimbursement amount to the disallowed expenses and that the assessee could not be held responsible for the sellers' non-compliance with sales tax provisions. The Tribunal upheld the Commissioner of Income-tax (Appeals) decision, confirming that the sales promotion expenses were genuine and allowable.

2. Allowability of Foreign Travel Expenses:
The Revenue also contested the Commissioner of Income-tax (Appeals) decision to allow Rs. 1,33,852 out of the total foreign travel expenses of Rs. 8,10,520 claimed by the assessee. The AO had disallowed the entire amount, questioning the business feasibility of such expenses.

The Commissioner of Income-tax (Appeals) allowed a portion of the expenses, finding them to be incurred for business purposes. The Tribunal reviewed the findings and noted that neither the assessee's representative nor the Departmental representative provided additional evidence to challenge the Commissioner's decision. Consequently, the Tribunal upheld the Commissioner of Income-tax (Appeals) decision to allow Rs. 1,33,852 as business expenses.

Similar Appeals for Different Assessment Years:
The Tribunal also dealt with similar appeals for the assessment years 2003-04, 2005-06, and 2006-07, where the issues were identical, though the amounts differed. Following the same reasoning as in the 2004-05 case, the Tribunal dismissed the Revenue's appeals for these years as well.

Conclusion:
The Tribunal confirmed the Commissioner of Income-tax (Appeals) decisions, allowing the sales promotion expenses and a portion of the foreign travel expenses, dismissing the Revenue's appeals for all the assessment years in question. The order was pronounced on August 31, 2012.