2023 (10) TMI 465 - AT - Income Tax

Business promotion expenses - CIT (A) treating the business promotion as eligible expenses u/s 37 - HELD THAT - CIT(A) has extensively dealt with the issue on the basis of nature of business of the assessee. The whole model of the business of assessee is dependent upon the agents or distributors who are given incentives and there is a business expediency with promotion of the business of assessee due to these expenditures as in A.Y. 2013-14 so in the present assessment year also, as assessee had brought on record the effect of business promotion expenses in the increase of the turn over and net profit. AR during the course of arguments has demonstrated that all the relevant details of the business promotion expenditure including a list of persons to whom such items has been given was produced. He also demonstrated that the area of interest of assessee company being FMCG distribution/ advertisement expenses form substantial part of the expenditure for which the comparative detail with other company was also filed. Thus, we are not inclined to interfere in the decision of Ld. CIT(A) in following his findings in assessee s own case for A.Y. 2013-14. The ground is dismissed. Disallowance of packing expenses and office expenses - CIT(A) deleted the addition - HELD THAT - The nature of business activity of the assessee was such which required extensive involvement of individuals and on that account certain expenditures if made on the support of self drawn vouchers, the same cannot be doubted when otherwise there is no defect in the books and the business turnover. Ld. CIT(A) has been reasonable to hold that such adhoc disallowances are not justified and the findings require no interference. The grounds are decided against the revenue.

Summary

Issues Involved:
1. Disallowance of business promotion expenses.
2. Disallowance of packing expenses.
3. Disallowance of office expenses.

Summary:

Issue 1: Disallowance of Business Promotion Expenses
The Revenue challenged the deletion of Rs. 1,68,90,932/- disallowed by the AO under section 37 of the Income Tax Act, 1961, as business promotion expenses. The AO argued that the expenses were not wholly and exclusively for business purposes, citing incomplete details of distributors receiving gifts and incentives. The CIT(A) deleted the disallowance, referencing findings from A.Y. 2013-14, noting that the AO failed to substantiate the disallowance with specific instances or evidence. The Tribunal upheld the CIT(A)'s decision, observing that the nature of the assessee's business model necessitated such expenses for business promotion and growth, as evidenced by increased turnover and net profit.

Issue 2: Disallowance of Packing Expenses
The AO disallowed Rs. 3,00,000/- for packing expenses due to lack of proper vouchers. The CIT(A) deleted this disallowance, referencing A.Y. 2013-14, where it was held that self-made vouchers are common in business for small petty expenses, and the AO had not specified any unsupported expenses. The Tribunal agreed, noting that the nature of the assessee's business justified such expenses and there were no defects in the books or business turnover to warrant the disallowance.

Issue 3: Disallowance of Office Expenses
The AO disallowed Rs. 1,91,846/- for office expenses, again citing non-production of vouchers. The CIT(A) deleted this disallowance, applying the same rationale as for packing expenses. The Tribunal upheld this decision, emphasizing that the nature of the business and the absence of defects in the books justified the expenses, and adhoc disallowances were not warranted.

Conclusion:
The Tribunal dismissed the Revenue's appeal, affirming the CIT(A)'s deletion of disallowances for business promotion, packing, and office expenses. The decision was based on the nature of the assessee's business, the necessity of the expenses for business promotion, and the lack of specific evidence from the AO to justify the disallowances. The order was pronounced on 09 October, 2023.