2016 (9) TMI 556 - AT - Income Tax

Disallowance of advertising and publicity expenses - Held that - We may point out that the lack of financial resources for conduct of business and major income or low income by the payee cannot be a basis for making disallowance as to basis of doubt only. The payee is a tax payer and if he left the earlier place of business then he may be called from new address to explain his position and in the extent of return of notice unserved on the old address can be obtained from the payer assessee to establish its claim. We are of the considered opinion that the CIT(A) upheld the addition on wrong premise and by considering the irrelevant facts and thus we decline to accept conclusion drawn in the first appellate order. At the same time, from the explanation and documents filed by the assessee we clearly observe that the assessee submitted all relevant documents, evidence and explanation within his control to establish its claim and by showing that the payee M/s Vision and Images received payment through banking channels towards bills raised for logo and wall painting which is nothing but actual advertisement and publics expenses. The DR did not take the assessee to submit new address of the payee thus addition cannot be made only because notice u/s 133(b) of the Act could not be served upon the assessee due the reasons beyond control. We may also point out that 10 years have been elapsed after transaction thus at this stage we cannot expect the assessee to submit more evidence s to support its claim which is suffice to establish genuineness of the claim which was incorrectly disallowed by the authorities , in view of above discussion, we demolish the conclusion of the CIT(A) and we direct the A.O to allow the claim of the assessee. Disallowance of interest paid by the assessee to M/s GE Capital TFL - Held that - On careful consideration of the same we are of the considered opinion that as per CBDT, vide Instruction NO. 1425/CBDT dated 16/11/87 the amount of payment of interest are hire purchases cannot be characterized as interest payable and this provisions of Section 194A of the Act are not attracted in such transactions

Summary

Issues:
1. Disallowance of advertising and publicity expenses
2. Disallowance of interest paid on hire purchase

Issue 1: Disallowance of advertising and publicity expenses

The appellant contested the disallowance of ?40,59,064 out of advertising and publicity expenses paid to M/s Vision & Images, alleging that the party was used as a conduit for fake bills. The appellant argued that the disallowance was made without proper appreciation of facts and should be set aside. The appellant presented evidence of genuine expenditure incurred on logo and wall paintings, emphasizing the importance of advertising in boosting sales. The appellant also highlighted that the payee's income was low, which should not be a basis for disallowance. The Departmental Representative supported the Assessing Officer's decision, but the Tribunal found the grounds for disallowance insufficient. The Tribunal concluded that the payee's financial status and inability to serve a notice did not justify the disallowance. The Tribunal noted that the appellant provided relevant documents and evidence to support the claim, and the disallowance was based on incorrect premises. Ultimately, the Tribunal directed the Assessing Officer to allow the appellant's claim, ruling in favor of the appellant.

Issue 2: Disallowance of interest paid on hire purchase

The appellant challenged the disallowance of ?25,136 representing interest paid to M/s GE Capital TFL on hire purchase. The Tribunal referred to CBDT instructions stating that such payments on hire purchases are not characterized as interest payable under Section 194A of the Income Tax Act. Consequently, the Tribunal accepted the appellant's contentions and allowed the appeal on this issue as well.

In conclusion, the Appellate Tribunal ITAT Delhi ruled in favor of the appellant on both issues, directing the Assessing Officer to allow the appellant's claims for advertising and publicity expenses as well as interest paid on hire purchase.