2019 (6) TMI 1289 - AT - Income Tax

Addition u/s. 40A(2)(b) - payment made for getting sales lead from related party - neither furnish details of such sales leads nor details of business actually generated through those leads - HELD THAT - Thus, in nut shell the assessee could not prove that these payments made to its related party were actually incurred wholly and exclusively for the purposes of business of the assessee. The assessee has also not filed any paper book even before tribunal containing evidences to prove that these expenses were incurred wholly and exclusively for the purposes of business of the assessee. The onus is on the assessee to prove that these reimbursement of expenses to related party were wholly and exclusively incurred for the purposes of business of the assessee , which the assessee in the instant case failed to discharge. There is no material on record to prove that these expenses were incurred for business of the assessee, we are inclined to confirm additions as were upheld by CIT(A) and hence we are not inclined to interfere with well reasoned appellate order passed by CIT(A). - Decided against assessee Purchase of gold coins - allowable business expenses u/s 37(1) - HELD THAT - Assessee has purchased gold coins to the tune of ₹ 4,16,333/- which it claimed to have given as gift for business purposes . The assessee although had given the list of the persons to whom gold coins were gifted but the nexus of gift of gold coin to business of the assessee could not be proved. The assessee could not prove that these expenses were incurred wholly exclusively for the purpose of business of assessee and that the assessee did infact generated business from the persons to whom gift of gold coins were given. The onus is on the assessee to prove that it satisfied mandate of Section 37(1) that these expenses were incurred wholly and exclusively for the purposes of the business of the assessee and these expenses were neither personal expenses nor capital expenses, which the assessee had failed to discharge in the instant case. - Decided against assessee.

Summary

Issues:
1. Addition of expenses incurred for related parties.
2. Disallowance of sales promotion expenses for gold coins.

Analysis:

Issue 1: Addition of expenses incurred for related parties
The appeal was against the appellate order upholding the addition of expenses of ?21,77,660 for related parties. The AO added the amount under section 40A(2)(b) to the income of the assessee. The assessee claimed that the expenses were incurred by the holding company on its behalf and were not for tax benefit. However, the AO found discrepancies in the submission as details of customers and transactions were not provided. The CIT(A) upheld the AO's decision as the assessee failed to provide specific details to support the expenses. The tribunal, after considering the submissions, observed that the assessee could not prove that the payments to related parties were for the business purpose. As the assessee failed to provide evidence to justify the expenses, the tribunal confirmed the additions made by the CIT(A).

Issue 2: Disallowance of sales promotion expenses for gold coins
The second issue involved the disallowance of ?4,16,633 for the purchase of gold coins by the assessee. The AO disallowed the expenses under Section 37(1) as the assessee could not explain how the gold coins were related to the business. The CIT(A) rejected the contentions of the assessee as the nexus between the gifts and the business was not established. The tribunal noted that the assessee failed to prove that the expenses were wholly and exclusively for the business purpose. As the assessee could not demonstrate the business connection of the gold coin gifts, the tribunal dismissed the appeal. The onus was on the assessee to prove the business purpose of the expenses, which it failed to do.

In conclusion, the tribunal dismissed the appeal for the assessment year 2014-15, upholding the additions made by the authorities regarding expenses for related parties and sales promotion expenses for gold coins. The tribunal found that the assessee did not provide sufficient evidence to support the business purpose of the expenses, leading to the dismissal of the appeal.