2023 (7) TMI 234 - AT - Income Tax

Addition relating to Advertisement Marketing Expenses - whether allowable business expenditure u/s 37? - assessee failed to substantiate that the impugned amounts were incurred wholly and exclusively for the purpose of business of assessee and not for personal purpose or non business purpose - HELD THAT - CIT(A) categorically noted that the assessee did not furnish any detail or even in the name of Indian clients to whom the gifts, parties, lunches etc. were given. He further noted that the information given by the assessee was vague and proves nothing and purchases of branded apparels and luxury items have been made for giving gifts to customer without identifying the person huge amounts has been incurred on providing gifts and hospitality to foreign customers without identifying the guests which make it clear that these are expenses of personal nature only and as the items purchased were not the items which can be given to an organisation or customer and the same were purchased as per personal choice and consumption. These facts factual finding have not been negatived by assessee. Addition of 25% of credit card expenses by CIT(A) - CIT(A) concluded that the perusal of the credit card statement shows that most of the expenses were purely personal in nature, being items like apparels, electronic items shoes, sun glasses etc. We are unable to find any fault in the conclusion derived by the CIT(A) in this regard as the ld. counsel of assessee could not substantiate that the expenses incurred by the assessee through credit card was for the purpose of business of assessee and there was no element of personal purpose or non business purpose. Therefore disallowance being 25% of total claim is quite correct and justified. CIT(A) confirmed disallowance holding that it was incurred for personal purpose and not for business purposes as the assessee did not furnish the guest list and not even furnish the photographs or any other evidences substantiating that the said expenditure was incurred on get together party at factory premises on 31.12.2013 with a view to promote business of assessee. Even before us there is no evidence before us substantiating the claim of assessee therefore the disallowance made by the ld. CIT(A) does not require any interference. Genuineness of expenditure - Assessee maintaining a guest house at the ARALIAS Gurgaon and the expenses incurred at the club of said guest house used by the guest of appellant company staying in the guest house - It is a well settled principal of tax jurisprudence that the person that who makes a claim is also under obligation to substantiate the same failing which the tax authorities are validly entitled to make disallowances or additions as the case may be. In the present case the assessee has submitted has reiterated the submission which were made before the ld. CIT(A) has also submitted voluminous paper book but has failed to controvert or demolish observations and comments of the ld. CIT(A) enhancing the addition. Therefore we are unable to see any valid reason to interfere with the findings arrived by the ld. CIT(A) and hence we uphold the same. Assessee appeal dismissed.

Summary

Issues Involved:
1. Enhancement of disallowance of Advertisement & Marketing Expenses.
2. Nature of expenses incurred through credit card by JMD during foreign visits.
3. Validity of disallowance based on audited accounts.
4. Segregation of personal and business expenses on credit card.

Summary:

1. Enhancement of Disallowance of Advertisement & Marketing Expenses:
The assessee contended that the CIT(A) erred in enhancing the disallowance of Advertisement & Marketing Expenses from Rs. 3,00,000/- to Rs. 18,18,624/-. The CIT(A) conducted a detailed enquiry and analysis of documentary evidence and concluded that the assessee failed to substantiate that the expenses were incurred wholly and exclusively for business purposes. The ITAT upheld the CIT(A)'s decision, noting that the disallowance was justified as the assessee could not provide adequate evidence to support the business nature of the expenses.

2. Nature of Expenses Incurred Through Credit Card by JMD During Foreign Visits:
The CIT(A) found that a significant portion of the credit card expenses, amounting to Rs. 55,42,668/-, was incurred by the JMD during foreign visits. The assessee claimed these expenses were for business purposes, such as entertaining clients. However, the CIT(A) noted that the assessee did not provide specific details or identify the clients for whom these expenses were incurred. The CIT(A) observed that many expenses were personal in nature, such as purchases of branded apparels and luxury items. Consequently, the CIT(A) disallowed 25% of the total credit card expenses, amounting to Rs. 13,85,670/-, which the ITAT found to be justified.

3. Validity of Disallowance Based on Audited Accounts:
The assessee argued that the disallowance was based on surmise and guesswork, despite the accounts being audited. The CIT(A) and ITAT noted that the audit of accounts does not preclude the tax authorities from disallowing expenses if they are not substantiated with proper evidence. The ITAT upheld the CIT(A)'s disallowance, emphasizing that the assessee failed to provide adequate evidence to support the business nature of the expenses.

4. Segregation of Personal and Business Expenses on Credit Card:
The CIT(A) observed that the assessee did not adequately segregate personal and business expenses incurred through the credit card. The assessee claimed to have used business prudence to segregate the expenses but failed to provide a clear basis for this segregation. The CIT(A) noted that many expenses were personal in nature, such as purchases of apparels, electronic items, and luxury goods. The ITAT upheld the CIT(A)'s disallowance of 25% of the total credit card expenses, finding no fault in the CIT(A)'s conclusion that the expenses were not wholly and exclusively for business purposes.

Conclusion:
The ITAT dismissed the appeal of the assessee, upholding the CIT(A)'s enhancement of disallowance of Advertisement & Marketing Expenses, disallowance of credit card expenses, and other related disallowances. The ITAT found that the assessee failed to substantiate the business nature of the expenses and did not provide adequate evidence to support their claims.