2022 (12) TMI 927 - AT - Income Tax

Disallowance of marketing expenses incurred during the year - Disallowance of marketing expenditure u/s 37(1) by treating the same as non-genuine/non-business transaction/expenditure - HELD THAT - In order to determine the genuineness of the payment made by the assessee AO issued notices under section 133(6) - only 2 parties namely, M/s EIH Ltd and The Lalit Golf and Spa Resort failed to respond to the aforesaid notice. In order to substantiate the genuineness of the payment to these 2 entities, assessee furnished the bank account statement, which reflected the payment made to these parties, invoices raised by these entities to the assessee, details of tax deducted on payment made to these parties, PAN No. and complete address. It is no doubt true that payment through the bank channel is not conclusive proof of the transaction. At the same time, when the assessee has provided all the information available with it regarding the transaction, merely on the basis that the entity has not responded to notice issued u/s 133 (6) the transaction cannot be doubted and be treated as non-genuine, particularly when the same has been entered into with entities which are well-known Hotel chains in India. It is also not the claim of the Revenue that these entities are not in existence or the documents furnished by the assessee are bogus. Thus we find no basis in upholding the addition by the AO merely on the basis that only 2 out of 17 parties failed to respond to the notice issued u/s 133(6) of the Act. We direct the AO to delete the addition. Grounds raised in assessee s appeal are allowed.

Summary

Issues:
Challenge to impugned order under section 250 of the Income Tax Act for the assessment year 2015-16. Disallowance of marketing expenses. Failure to prove genuineness of expenses. Discharge of onus to prove expenses. Interest levy under section 234B. Penalty proceedings under section 271(1)(c).

Analysis:
The appeal was filed by the assessee against the order passed by the Commissioner of Income Tax (Appeals) challenging the disallowance of marketing expenses incurred during the year. The Assessing Officer disallowed the expenses of Rs. 22,43,401 under section 37(1) of the Income Tax Act, treating them as non-genuine business transactions due to lack of response from two parties, M/s EIH Ltd and The Lalit Golf and Spa Resort, to notices issued under section 133(6) of the Act. The AO held that failure to respond to notices raised doubts on the genuineness of the transactions.

The CIT(A) upheld the AO's decision, leading to the appeal before the ITAT. The assessee contended that it provided PAN numbers, TDS details, bank account details, and complete addresses of the parties to the AO but was unable to contact them to respond to the notices. The assessee argued that the entities were reputable hotel chains, and non-response to notices should not cast doubt on the genuineness of the transactions.

The ITAT considered all submissions and evidence. It noted that the assessee had provided substantial documentation, including bank statements, invoices, tax details, PAN numbers, and addresses of the parties in question. The ITAT observed that non-response to notices alone was not sufficient to deem the transactions non-genuine, especially given the reputation of the entities involved. The Revenue did not dispute the existence of the entities or the authenticity of the documents provided by the assessee.

As a result, the ITAT found no basis to uphold the disallowance of expenses and directed the AO to delete the addition of Rs. 22,43,401. The ITAT allowed grounds 2-6 raised in the assessee's appeal. Grounds 1, 6, and 7 were also addressed, with ground 6 allowed for statistical purposes and ground 7 dismissed as premature. An additional ground of appeal was not pursued during the hearing and was dismissed accordingly. The appeal by the assessee was partly allowed for statistical purposes.

In conclusion, the ITAT ruled in favor of the assessee, emphasizing that non-response to notices alone should not lead to the disallowance of genuine expenses, especially when supported by substantial evidence and documentation.