2019 (11) TMI 806 - AT - Income Tax

Disallowance being 6/7 portion claimed as business promotion expenses - HELD THAT - The assessee produced all the bills/vouchers etc., that assessee made genuine payment to Lodhi Hotel which are not in dispute. Considering the totality of the facts and circumstances of the case and in the light of long staying guest agreement and other material on record which is also confirmed by the owner of the property in question, it is clear that assessee had taken the accommodation in Lodhi Hotel for business purposes only and used it for wholly and exclusively for the business purposes. In preceding A.Y. 2013-2014 A.O. disallowed 10% out of total expenses only. Therefore, considering the rule of consistency, the A.O. at best should have disallowed 10% out of sale promotion expenses instead of making the impugned addition in the assessment year under appeal. Set aside the Orders of the authorities below and restrict the disallowance out of total sale promotion expenses in 10% only. The addition is restricted to ₹ 4,10,534/-. Appeal of assessee is partly allowed.

Summary

Issues:
Challenge to adhoc disallowance of business promotion expenses.

Analysis:
1. The appeal was against the confirmation of adhoc disallowance of a portion of claimed business promotion expenses. The assessee company, engaged in property trading, claimed &8377; 42,98,352 as business promotion expenses, out of which &8377; 35,18,868 was disallowed by the Assessing Officer (A.O.).

2. The A.O. issued notices to verify the expenses, and the company explained the arrangement with another company for accommodation. Despite explanations, the A.O. disallowed the expenses due to lack of proof of a direct link between expenses and business purpose.

3. The assessee challenged the disallowance before the Ld. CIT(A), providing documents to support the expenses were for business purposes. The CIT(A) upheld the disallowance, stating lack of evidence showing the premises as the business address of the company.

4. The Counsel for the Assessee argued that the accommodation was taken for business purposes, supported by agreements and bills. They highlighted past assessments where similar expenses were not disallowed to emphasize consistency.

5. The Judicial Member considered the long staying guest agreement and other evidence, concluding that the accommodation was used solely for business purposes. Noting past assessments, the disallowance was restricted to 10% of the total expenses, amounting to &8377; 4,10,534.

6. The decision was based on the rule of consistency, limiting the disallowance to 10% of the claimed expenses. The appeal was partly allowed, and the addition was restricted to &8377; 4,10,534.

7. In conclusion, the appeal was partly allowed, and the disallowance of business promotion expenses was restricted to 10% of the total claimed expenses, as per the rule of consistency and evidence provided by the assessee.