2018 (3) TMI 879 - AT - Income Tax

Addition on account of advertising expenses, Entertainment & Hospitality Expenses and festival celebration - Held that - On perusal of above statement, we find that no disallowance was made in the A.Ys 2008-09, 09-10 & 10-11. We further find that no submissions were made by the ld.DR before us that the appeal, if any, challenging the same is pending before the Tribunal or the Hon ble High Court. We find that the CIT-A was not correct in confirming the same. In view of above, no disallowance can be made on adhoc basis. Addition on account of gift and presents and general expenses - Held that - We find from the assessment order that the assessee produced the vouchers and supporting evidence before the AO. All the expenses as claimed are fully verifiable and supported by third party vouchers. The case laws as relied on by the assessee before us are relevant to the facts of the present case. The Hon ble High Courts and Tribunals held that the AO cannot make addition on estimation. No submissions were made by the ld.DR before us that the appeal, if any, challenging the same is pending before the Tribunal or the Hon ble High Court. In view of above, no such disallowance can be made on adhoc basis. Charging of interest on dividend distribution tax (DDT) - Held that - It is observed from record that no discussion whatsoever was made by the AO in the assessment order in this regard. Inspite of which, the assessee raised a issue before the CIT-A challenging the said addition. The CIT-A did not adjudicate the issue as there was no such issue decided by the AO. In view of the same, we remand the matter to the file of the AO to decide and adjudicate the same afresh.

Issues Involved:
1. Confirmation of addition on account of advertisement expenses.
2. Confirmation of addition on account of entertainment and hospitality expenses.
3. Confirmation of addition on account of festival celebration, gift, presents, and general expenses.
4. Charging of interest on dividend distribution tax (DDT).
5. Confirmation of disallowance of various expenses (Other expenses, Traveling expenses, Advertisement, Promotion & Selling expenses).
6. Charging of interest under section 234B instead of section 234C.

Issue-wise Detailed Analysis:

1. Confirmation of Addition on Account of Advertisement Expenses:
The assessee company, engaged in manufacturing and sale of desulphurizing compounds, was disallowed ?4,01,828/- by the AO under the head "Advertisement Expenses," deeming it not incurred wholly and exclusively for business purposes. The CIT-A upheld this disallowance. The assessee contended that the expenditure was meager compared to the turnover of ?135.66 crores and argued that no such disallowance was made in previous years. The tribunal found that no such disallowances were made in earlier years and that the disallowance was made on an ad hoc basis, which is not maintainable in law. Therefore, the addition of ?4,01,828/- was deleted.

2. Confirmation of Addition on Account of Entertainment and Hospitality Expenses:
The AO disallowed ?2,43,617/- out of ?4,87,234/- claimed under "Entertainment & Hospitality Expenses," considering it personal in nature. The CIT-A confirmed this addition relying on judgments from the Supreme Court and Karnataka High Court. The assessee argued that these expenses were for business purposes and no such disallowance was made in previous years. The tribunal found that the disallowance was made on an ad hoc basis, which is not maintainable in law, and thus, deleted the addition of ?2,43,617/-.

3. Confirmation of Addition on Account of Festival Celebration, Gift, Presents, and General Expenses:
The AO disallowed 25% of ?13,47,073/- (i.e., ?3,36,768/-) claimed under festival celebration, gifts, presents, and general expenses, considering them excessive and personal. The CIT-A upheld this disallowance. The assessee provided vouchers and supporting evidence, arguing that all expenses were fully verifiable and supported by third-party vouchers. The tribunal found that the disallowance was made on an ad hoc basis, which is not maintainable in law, and deleted the addition of ?3,36,768/-.

4. Charging of Interest on Dividend Distribution Tax (DDT):
The CIT-A did not adjudicate the issue of charging interest on DDT as it was not discussed by the AO in the assessment order. The tribunal remanded the matter back to the AO to decide afresh after giving the assessee an opportunity of hearing.

5. Confirmation of Disallowance of Various Expenses:
For the A.Y 2012-13, the AO disallowed 15% of ?3,29,53,000/- (i.e., ?49,42,950/-) claimed under other expenses, traveling expenses, and advertisement, promotion & selling expenses, citing internal vouchers not correlating with third-party evidence. The CIT-A confirmed this disallowance. The assessee argued that the accounts were audited and fully verifiable. The tribunal found that the disallowance was made on an ad hoc basis, which is not maintainable in law, and deleted the addition of ?49,42,950/-.

6. Charging of Interest under Section 234B Instead of Section 234C:
The tribunal found that interest under section 234B/C should be charged on declared returned income, not on assessed income, following the jurisdictional High Court decision. The AO was directed to modify the order accordingly.

Conclusion:
The appeals for both A.Y 2011-12 and A.Y 2012-13 were allowed in part, with the tribunal deleting ad hoc disallowances and remanding the issue of interest on DDT back to the AO. The tribunal emphasized that no disallowance should be made on an ad hoc basis, reinforcing the principle that such disallowances are not maintainable in law.

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