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2019 (5) TMI 1596 - AT - Income TaxDisallowance of business promotion expenses u/s 37(1) - club membership fees of Appellant's representative - addition holding the same as expense not related to the business of Appellant - HELD THAT - On being asked by the Bench whether said Mrs Lata Vaswani has rendered any consultancy/professional services to the assessee for which any bills/invoices were raised by her in favour of the assessee, the Ld. Counsel for the assessee replied in negative. The assessee also could not bring on record any agreement entered into between said Mrs. Lata Vasvani and the assessee to define commercial relationship of the assessee with said Mrs Lata Vaswani which could have proved that Mrs. Lata Vasvani was working for the assessee in any capacity to promote business of the assessee. It is also not demonstrated by the assessee that any business were infact generated by said Mrs. Lata Vasvani in favour of the assessee. It could also not been explained by the assessee reasons /justification for taking this club membership with MCA in the name of Mrs Lata Vaswani instead of taking the same in the name of the assessee or its directors/employees. Thus there is a complete failure on the part of the assessee to prove genuineness of these expenses and there is a failure to prove that these expenses were incurred wholly and exclusively for the purpose of business of the assessee. The assessee had failed to discharge the onus as was casted on the assessee by virtue of Section 37(1) and in our considered view, there is no merit in the appeal filed by the assessee which stood dismissed. - Decided against assessee
Issues Involved:
1. Disallowance of business promotion expenses under Section 37(1) of the Income-tax Act, 1961. Detailed Analysis: Issue 1: Disallowance of Business Promotion Expenses under Section 37(1) of the Income-tax Act, 1961 Background: The assessee, engaged in trading shares and securities, claimed business promotion expenses of ?9,98,215/- towards club membership fees paid to Mumbai Cricket Association (MCA) for Mrs. Lata Vasvani. The Assessing Officer (AO) initially accepted this claim in the assessment order dated 19.11.2012, but the Commissioner of Income Tax (CIT) later found the order erroneous and prejudicial to the interests of the Revenue, leading to a revisionary order under Section 263. The CIT's concerns included the lack of verification of Mrs. Lata Vasvani's association with the assessee and the absence of evidence proving the expenses were incurred wholly and exclusively for business purposes. Proceedings and Findings: - Assessing Officer's Reassessment: The AO, in compliance with the CIT's directions, reassessed the claim and found that Mrs. Lata Vasvani was neither an employee nor a director of the assessee company and there was no agreement or evidence of her working for the assessee. Consequently, the AO disallowed the expenses, concluding they were not incurred wholly and exclusively for business purposes and were of a gratuitous nature. - CIT(A) Appeal: The assessee appealed to the CIT(A), who upheld the AO's disallowance. The CIT(A) emphasized the lack of evidence demonstrating Mrs. Lata Vasvani's relationship with the company or her contribution to its business. The CIT(A) concluded that the expenses did not meet the criteria under Section 37(1) and were unrelated to the business activities of the assessee. - Tribunal's Decision: The assessee further appealed to the Tribunal, arguing that Mrs. Lata Vasvani was a representative promoting the business and facilitating meetings with business associates. However, the Tribunal found that the assessee failed to provide any substantial evidence of Mrs. Lata Vasvani's role or any business generated through her efforts. The Tribunal noted that no payments were made to her apart from the club membership fee and there was no agreement or documentation supporting her involvement with the assessee. The Tribunal concluded that the expenses were not incurred wholly and exclusively for business purposes as required under Section 37(1) and upheld the disallowance. Legal Precedents: The Tribunal referred to legal principles from the Hon'ble Bombay High Court and the Supreme Court, emphasizing that for an expense to be deductible under Section 37(1), it must be incurred wholly and exclusively for business purposes and should not be of a personal or capital nature. The Tribunal also highlighted that the onus is on the assessee to prove the commercial expediency of such expenses. Conclusion: The Tribunal dismissed the appeal, affirming the disallowance of ?9,98,215/- as business promotion expenses. The Tribunal held that the assessee failed to demonstrate the nexus between the expenses and its business activities, thus not meeting the requirements under Section 37(1) of the Income-tax Act, 1961. Order: The appeal filed by the assessee in ITA No. 4663/Mum/2017 for AY 2010-11 was dismissed. The order was pronounced in the open court on 22.05.2019.
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