2019 (12) TMI 1251 - AT - Income Tax

Disallowance of Event Management Expenses - eligible for deduction u/s 37 - HELD THAT - From the preceding discussion, there is no ambiguity in the genuineness of the expenses incurred by the assessee. As such, there was no evidence brought on record suggesting that the impugned expenses were in the nature of bogus expenses. Onus lies on the assessee to justify the expenses incurred by it by furnishing the details as desired by the authorities below. CIT (A) we note that the learned CIT (A) agreed that such expenses were incurred in connection with the business of the assessee. Assessee failed to furnish the following detail - Details of the invitees,The procedure adopted for selecting invitees, There is no evidence on record suggesting that there was no personal guest of the directors in such event/gathering. CIT (A) made the disallowance to the tune of 50% of the total event management expenses. To our mind, it was the onus of the assessee to furnish at list of the invitees but the learned AR before us has not brought anything on record. In fact, in such kind of business gathering the companies keep a database of the parties who attended the function. This database is crucial for the company which can be utilized in connection with the activity carried on by it. Assessee failed to furnish such details which creates suspicion in the mind so as to whether the impugned expenditure was incurred in connection with the business. Indeed, it appears that the assessee has earned handsome/attractive margin on the sale of shop/office but that is not the criteria laid down under the provisions of section 37 of the Act for the deductibility of the expenses. Thus in the absence of sufficient documentary evidence as discussed above, we are not inclined to reduce the disallowances to the extent of hundred percent but in the interest of justice and fair play, we limit the disallowance to the extent of 25% of the total expenses. Thus the assessee gets the relief in part. Hence the ground of appeal of the assessee is partly allowed.

Summary

Issues Involved:
1. Disallowance of Event Management Expenses under section 37 of the Income Tax Act, 1961.

Detailed Analysis:

Issue 1: Disallowance of Event Management Expenses
1. The assessee challenged the addition of ?4,25,000 on account of event management expenses.
2. The assessee, a private limited company engaged in construction and sale of properties, claimed to have incurred ?8,50,000 for an event organized to sell a property, resulting in a gross margin of ?10,56,84,422.
3. The Assessing Officer (AO) viewed the event as more of a celebration than a business activity, stating that prospective buyers would focus on the property rather than the event.
4. The AO disallowed the expenses, considering them irrelevant and unreasonable for business purposes.
5. The Commissioner of Income Tax (Appeals) deleted 50% of the disallowed expenses, citing conditions for allowance under section 37 and the necessity of expenses being wholly and exclusively for business purposes.
6. The CIT(A) found the event relevant to the business but noted the lack of details on invitees and selection procedures, confirming a 50% disallowance.
7. The Appellate Tribunal noted the genuineness of expenses but highlighted the absence of crucial details like invitee lists and evidence of no personal guests of directors at the event.
8. The Tribunal limited the disallowance to 25% due to insufficient documentary evidence, emphasizing the necessity of justifying expenses for deductibility under section 37.
9. The appeal was partly allowed, granting relief to the assessee in part.

This detailed analysis covers the issues involved in the legal judgment regarding the disallowance of event management expenses under section 37 of the Income Tax Act, 1961.