2015 (9) TMI 1044 - AT - Income Tax

Disallowance of advertisement and sale promotion expenses - CIT(A) deleted the disallowance - Held that - The undisputed fact is that the Assessing Officer has not disputed the genuineness of the expenses. It is also not a case where the expenses have not been incurred wholly and exclusively for the purposes of business. When the twin conditions having been fulfilled i.e. genuineness of the expenses and wholly and exclusively incurred for the purposes of the business, we decline to interfere with the findings of the Ld. CIT(A). - Decided against revenue. Disallowance of sales commission paid to M/s. Aquarius Engineers Pvt. Ltd., Pune - CIT(A) was of the opinion that the Assessing Officer was not justified in restricting the sales commission to 5% in place of 7.5% and accordingly, directed the Assessing Officer to delete the addition - Held that - The addition has been made u/s. 40A(2) of the Act. The Assessing Officer has restricted the payment of commission from 7.5% to 5%. However, we find that not even a single comparable case has been brought on record to justify this act of the Assessing Officer. Without bringing any comparable case, in our considered opinion, no disallowance can be made u/s. 40A(2) of the Act. Considering the disallowance from all the possible angles, we do not find any reason to interfere with the findings of the Ld. CIT(A) - Decided against revenue.

Summary

Issues:
1. Disallowance of advertisement and sale promotion expenses
2. Disallowance of sales commission paid to a related company under section 40A(2)

Issue 1: Disallowance of advertisement and sale promotion expenses

The Assessing Officer disallowed an amount against advertisement and sales promotions, questioning the substantial increase from the previous year. The assessee justified the expenses for participating in exhibitions, emphasizing the necessity for manufacturers to showcase products. The Ld. CIT(A) found the expenses genuine and wholly for business purposes, hence directing deletion of the addition. The Revenue challenged this decision, but the Tribunal upheld it, noting the genuineness and business necessity of the expenses.

Issue 2: Disallowance of sales commission paid to a related company under section 40A(2)

The Assessing Officer disallowed a portion of the sales commission paid to a related company, citing section 40A(2) of the Act. The assessee explained that the related company handled marketing and sales activities, justifying the commission paid. The Ld. CIT(A) disagreed with the Assessing Officer's decision to restrict the commission to 5% instead of 7.5%. The Tribunal observed a lack of consistency in the Assessing Officer's actions across assessment years and the absence of comparable cases to support the disallowance. Consequently, the Tribunal dismissed the Revenue's appeal, emphasizing the lack of grounds to interfere with the Ld. CIT(A)'s findings.

In conclusion, the Tribunal upheld the Ld. CIT(A)'s decisions on both issues, emphasizing the genuineness and business necessity of the expenses incurred and the lack of justification for the disallowance of sales commission. The Tribunal dismissed the Revenue's appeal, affirming the decisions in favor of the assessee.