2017 (4) TMI 1601 - AT - Income Tax

Disallowance of sales promotion expenses - Whether expenditure for the purpose of business? - HELD THAT - Assessee is manufacturing Indian-made foreign liquor and supplying the same to Tamil Nadu State Marketing Corporation. Tamil Nadu State Marketing Corporation, in turn, is selling the same to the customers through retail outlets across the State. For the purpose of promoting Indian-made foreign liquor manufactured by assessee-company, they are supplying some gift articles to the customers at the retail vending shops. Assessee claimed the expenditure while computing the total income. AO disallowed the claim of the assessee on various reasons - CIT(Appeals) for the assessment years 2010-11, 2003-04 and 2004-05, allowed the claim of the assessee holding that it is an expenditure for the purpose of business. The orders of the CIT(A) for assessment years 2003-04, 2004-05 and 2010-11 were, in fact, confirmed by this Tribunal 2015 (3) TMI 1418 - ITAT CHENNAI - In fact, for the assessment year under consideration, CIT(A) followed the order of this Tribunal for assessment years 2003-04, 2004-05 and 2010-11. Since the CIT(Appeals) has followed the order of this Tribunal and restricted the disallowance to 7.5% and allowed the claim of the assessee to the extent of 92.5%, this Tribunal do not find any reason to interfere with the order of the lower authority and accordingly the same is confirmed.

Summary

Issues: Disallowance of sales promotion expenses.

Analysis:
1. The appeals of both the Revenue and the assessee were directed against the order of the Commissioner of Income Tax (Appeals) for assessment year 2008-09. The Revenue contended that the assessee, engaged in the manufacture of Indian-made foreign liquor, claimed marketing and promotion expenses for purchasing gift articles given to customers at retail shops. The Revenue argued that the Assessing Officer disallowed a similar claim in a previous year, and this year, despite changing the supplier of promotional articles, the claim was disallowed again. The CIT(Appeals) restricted the disallowance to 7.5% and allowed 92.5% of the claim. The Revenue appealed against the 92.5% allowance, while the assessee appealed against the 7.5% disallowance.

2. The assessee's counsel argued that similar issues had been considered in previous years, where the Tribunal confirmed the CIT(Appeals)'s decision to restrict the disallowance to 7.5%. The counsel contended that the CIT(Appeals) had made a reasonable decision based on the available evidence, and there was no merit in the Revenue's appeal.

3. The Tribunal reviewed the material on record and noted that similar disallowances of sales promotion expenses had been considered for previous assessment years. The assessee supplied gift articles to promote its liquor sold through Tamil Nadu State Marketing Corporation's retail outlets. The Tribunal observed that the CIT(Appeals) had allowed the claim in previous years, and those decisions had been upheld by the Tribunal. In line with previous judgments, the CIT(Appeals) restricted the disallowance to 7.5% and allowed 92.5% of the claim for the current assessment year.

4. The Tribunal found no reason to interfere with the lower authority's decision, as the CIT(Appeals) had followed the Tribunal's previous orders regarding similar disallowances of sales promotion expenses. Consequently, both the appeals of the Revenue and the assessee were dismissed, upholding the CIT(Appeals)'s decision to allow 92.5% of the claim and restrict the disallowance to 7.5%.

5. The judgment was pronounced on 28th April 2017 in Chennai, confirming the decision on the disallowance of sales promotion expenses for the assessment year 2008-09.