2016 (1) TMI 719 - AT - Income Tax

Addition of an expenditure for Business/Sales promotion Expenses - Held that - From a perusal of the statement, it is clear that the assessee has filed complete details of the bills and vouchers in respect of the entire sales promotion expenses. The CIT(A) observation that the appellant had produced all bills relating to sales promotion except to the extent of ₹ 1,38,32,946/- is there fore incorrect. It is further noticed that in respect of payment made to P.A.Time Industries, no bills and vouchers have been filed. The payments to this party totalling ₹ 8,70,000/- is negligible compared to the volume of expenditure incurred by the assessee under this head. Even in respect of this expenditure the payment in question has been made by account payee cheques. A perusal of the bills and vouchers shows that the expenditure in question has been incurred on purchase of gift items. Thus it is clear that the assessee has established incurring of business promotion/sales promotion expenses. AO/CIT(A) have not given any valid basis as to why these expenses should not be regarded as permissible deduction. CIT(A) having accepted that the expenditure in question is wholly and exclusively for the purpose of business of the assessee ought to have allowed the entire deduction. He ought not to sustained part of the addition on a wrong assumption that bills in relation to a part of the expenditure were not filed by the Assessee and on this basis sustained part of the disallowance made by the AO. - Decided in favour of assessee. Disallowance of expenses in respect of 17 non-operational branch offices - CIT(A) deleted the addition - Held that - the expenses in question were incurred for upkeep and functioning of the branches and had to be allowed as deduction. We are of the view that in the light of the facts as brought before CIT(A) the addition was rightly deleted by CIT(A). - Decided in favour of assessee.

Summary

Issues:
1. Disallowance and addition of expenditure for Business/Sales promotion Expenses.
2. Disallowance of expenses for non-operational branch offices.

Issue 1: Disallowance and addition of expenditure for Business/Sales promotion Expenses

The appellant, a firm acting as a corporate agent of life insurance products, claimed a deduction of Rs. 4,04,99,695 under "Business/Sales promotion Expenses" during assessment proceedings. The Assessing Officer (AO) disallowed the claim as the appellant failed to provide evidence that the expenses were for business promotion/sales promotion, deeming them unwarranted. However, before the Commissioner of Income Tax (Appeals) [CIT(A)], the appellant submitted all required evidence, asserting that the expenses were solely for business purposes. The CIT(A) reviewed the evidence, including bills and payment proofs, and confirmed a disallowance of Rs. 1,38,32,946 while deleting Rs. 2,66,66,749 of the total disallowance. The Revenue challenged this decision, arguing that the disallowed amount should not have been deleted without giving an opportunity to the AO. The Tribunal found that the appellant had provided complete details of the expenses, including bills and vouchers, and established the business promotion/sales promotion nature of the expenses. The Tribunal held that the CIT(A) should have allowed the entire deduction as the expenses were wholly and exclusively for business purposes. Consequently, ground no. 2 raised by the appellant was allowed, and ground nos. 1 to 3 raised by the Revenue were dismissed.

Issue 2: Disallowance of expenses for non-operational branch offices

The AO disallowed Rs. 19,99,898 expenses related to 17 vacant branches of the appellant, citing them as non-operational. The appellant explained to the CIT(A) that these branches were not truly vacant as staff members were deputed temporarily, and business was generated through these branches. The appellant argued that expenses for maintenance, rent, electricity, etc., were justified. The CIT(A) accepted the explanation and allowed the deduction, stating that the expenses were necessary for branch upkeep and functioning. The Tribunal upheld the CIT(A)'s decision, noting that the expenses were incurred for legitimate purposes and should be allowed as deductions. Consequently, ground no. 4 raised by the Revenue was dismissed.

In conclusion, the Tribunal partly allowed the appeal filed by the assessee regarding the disallowance and addition of Business/Sales promotion Expenses while dismissing the appeal filed by the Revenue. Additionally, the Tribunal dismissed the Revenue's appeal concerning the disallowance of expenses for non-operational branch offices.