2021 (5) TMI 344 - AT - Income Tax

Disallowance of business promotion expenses - HELD THAT - Admittedly, the business promotion expenses have been incurred for the purpose of improving sales of the assessee. There is merit in the submission of Ld. A.R. that the question of applying bright line test does not arise in the facts of the present case. Every businessman would be incurring advertisement and business promotion expenses in anticipation of higher sales in accordance with his sales promotion strategy. To his bad luck, if the advertisement and business promotion expenses do not fructify, the same should not lead to disallowance of expenses, which have otherwise been genuinely incurred by the assessee, i.e. the said expenses would continue to be considered as expenses incurred wholly and exclusively for the purpose of business. In the instant case, the A.O. has not examined the details furnished by the assessee. Accordingly, we are of the view that this issue requires fresh examination at the end of the A.O. Accordingly, we set aside the order passed by the Ld. CIT(A) and restore this issue to the file of the A.O. for examining it afresh by duly considering the information and explanations furnished/that may be furnished by the assessee. After affording adequate opportunity of being heard to the assessee, the A.O. may take appropriate decision in accordance with law. - Appeal filed by the assessee is treated as allowed for statistical purposes.

Summary

Issues:
1. Condonation of delay in filing appeal.
2. Disallowance of business promotion expenses.

Condonation of Delay in Filing Appeal:
The appellant filed an appeal against the order of Ld. CIT(A) which was 363 days beyond the limitation period. The appellant sought condonation of delay, citing reasons such as accumulated losses, lack of tax liability due to losses incurred, and professional advice. The appellant relied on precedents where delay was condoned by higher courts. The Tribunal, after hearing both parties, accepted the reasons presented by the appellant and condoned the delay, admitting the appeal for hearing.

Disallowance of Business Promotion Expenses:
The appellant, engaged in selling wellness products, claimed business promotion expenses of ?4.04 crores, which were disallowed by the Assessing Officer (A.O.) and confirmed by Ld. CIT(A). The A.O. questioned the necessity and impact of these expenses on business growth, noting the lack of documentary evidence. The appellant argued that the expenses were incurred for business purposes, challenging the application of the bright-line test and the necessity for expenses to directly increase sales. The Tribunal observed that the A.O. did not adequately consider the details provided by the appellant and set aside the order, directing a fresh examination by the A.O. to consider the information and explanations furnished by the appellant.

In conclusion, the Tribunal allowed the appeal for statistical purposes, emphasizing the need for a proper examination of business promotion expenses by the Assessing Officer.