2021 (5) TMI 523 - AT - Income Tax

Disallowance of payment made to Related Parties u/s. 40(A)(2)(b) - assessee reimbursed amount to M/s. Ventura Securities Ltd. on sales lead received in the ratio of 90 10 out of total expenditure incurred by the related party - assessee failed to furnish the details of customers generated out of sales leads AND could not show how the sales were improved with the sale leads - HELD THAT - The expenses so incurred are reimbursed by the assessee to that entity in certain ratio towards its share of expenses. The assessee would gain out of such marketing advertising which could not be identified with specific clients. The arrangement so made would make it difficult for assessee to furnish the specific customer-list as desired by Ld. AO. We find that similar arrangement is continuing since AY 2011-12 and the assessee is making similar payment since then. The assessment for AY 2011-12 as well as for AY 2016-17 was framed u/s. 143(3) wherein similar claim made by the assessee was accepted. Further, payer as well as payee, both are in highest tax bracket and therefore, the invocation of provisions of Sec. 40A(2)(b) would not be justified. Hence, on the facts and circumstances of the case, we are inclined to delete this addition - Decided in favour of assessee. Disallowance of Gift Article Expenses - assessee was asked to justify its deduction in terms of Sec. 37(1) and in the absence of satisfactory explanation forthcoming from the assessee, the amount was disallowed - HELD THAT - As the purchase of coins is duly supported by the invoice. It has been submitted that as per normal business practice, coins were distributed to sub-brokers to incentivize them to generate good business for the assessee. The details of the brokers to whom the coins have been distributed as performance reward was already placed before Ld. CIT(A). We find that the claim has been disallowed more on mere presumption that expenses were not incurred for business purposes. As against this, the assessee had placed requisite documentary evidences on record, in support of the claim. Therefore, the addition so made would not be sustainable. By deleting the same, we allow this ground of appeal.

Summary

Issues:
1. Recalled matter due to ex-parte disposal
2. Disallowance of payment to Related Parties u/s. 40(A)(2)(b)
3. Disallowance of Gift Article Expenses

Issue 1: Recalled matter due to ex-parte disposal
The matter was recalled as the appeal was earlier disposed-off ex-parte, but later recalled for fresh hearing. The appeal pertains to Assessment Year 2014-15, where the assessee was aggrieved by two additions confirmed by the Ld. CIT(A). The assessee is a subsidiary company of M/s. Ventura Securities Limited, engaged in commodities broking generated through sub-brokers and references.

Issue 2: Disallowance of payment to Related Parties u/s. 40(A)(2)(b)
The disallowance of payment made to Related Parties u/s. 40(A)(2)(b) was challenged. The assessee reimbursed a specific amount to M/s. Ventura Securities Ltd. for sales leads, but failed to provide details of customers generated from these leads. The disallowed amount was contested based on the argument that the payment was towards marketing and advertising expenses shared with the related party. The Tribunal found the arrangement consistent since AY 2011-12, accepted similar claims in previous assessments, and noted both parties were in the highest tax bracket. Consequently, the addition was deleted.

Issue 3: Disallowance of Gift Article Expenses
The disallowance of Gift Article Expenses was also contested. The assessee purchased gold coins for distribution to sub-brokers as incentives for generating business. Despite providing supporting invoices and details of recipients, the deduction was disallowed on the presumption of not being incurred for business purposes. The Tribunal found the claim supported by documentary evidence and deemed the disallowance unsustainable, leading to the allowance of this ground of appeal.

In conclusion, the appeal was allowed based on the Tribunal's findings on both issues, with the order pronounced on 10th May 2021.