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2025 (1) TMI 1278 - AT - Income TaxDisallowance being sales promotion expenses - HELD THAT -Assessee had acquired a new unit and the expenditure was incurred for which bills related to sales promotion expenditure were filed before the Ld. CIT(A) and the same was allowable as the business expenditure u/s 37(1). CIT(A) did not allow the expenditure as no details of the unit acquired nor other details were filed. Since the details of the unit acquired have been filed before us the expenditure relates to 10.01.2010 while the unit was acquired on 14.08.2009 and the bills have been filed hence the expenditure claimed is allowed as a deduction u/s 37(1) of the Act being in the nature of sales promotion expenses. Decided in favour of assessee.
ISSUES PRESENTED and CONSIDERED
The core legal issues considered in the judgment include: 1. Whether the delay of 860 days in filing the appeal should be condoned. 2. Whether the disallowance under Section 14A of the Income Tax Act, 1961, amounting to Rs. 86,224/-, was correctly upheld by the Commissioner of Income Tax (Appeals). 3. Whether the disallowance of Rs. 4,81,477/- as sales promotion expenses was justified. ISSUE-WISE DETAILED ANALYSIS 1. Condonation of Delay - Relevant Legal Framework and Precedents: The legal framework involves the provisions under the Income Tax Act regarding the filing of appeals and the discretion of the Tribunal to condone delays if sufficient cause is shown. - Court's Interpretation and Reasoning: The Tribunal considered the affidavit filed by the director of the applicant, which explained that the initial appeal was filed within the limitation period but was dismissed due to jurisdictional issues. The appeal was then refiled in the appropriate jurisdiction. - Key Evidence and Findings: The affidavit detailed the timeline and reasons for the delay, including the jurisdictional error and subsequent actions taken. - Application of Law to Facts: The Tribunal found that the assessee was prevented by sufficient and reasonable cause from filing the appeal within the statutory time limit. - Conclusions: The delay of 860 days was condoned, allowing the appeal to be admitted for adjudication on merits. 2. Disallowance under Section 14A - Relevant Legal Framework and Precedents: Section 14A of the Income Tax Act deals with the disallowance of expenditure incurred in relation to income not includible in total income. Rule 8D of the Income Tax Rules provides the method for determining such disallowance. - Court's Interpretation and Reasoning: The Tribunal noted that the Assessing Officer applied Rule 8D, and no suo moto disallowance was made by the assessee. - Key Evidence and Findings: The exempt income was Rs. 1,50,000/-, and the disallowance was Rs. 86,224/-. The Department did not press these grounds of appeal. - Conclusions: The Tribunal dismissed the grounds of appeal related to the disallowance under Section 14A. 3. Disallowance of Sales Promotion Expenses - Relevant Legal Framework and Precedents: Section 37(1) of the Income Tax Act allows for the deduction of business expenditures that are wholly and exclusively incurred for business purposes. - Court's Interpretation and Reasoning: The Tribunal examined the submissions and evidence provided by the assessee, including the acquisition of a new manufacturing unit and related expenses. - Key Evidence and Findings: The assessee provided bills and an agreement for the acquisition of a business unit, which were initially not furnished to the CIT(A). The balance sheet and asset schedule supported the claim of business expansion and related expenses. - Application of Law to Facts: The Tribunal found that the expenses were incurred for business purposes, as evidenced by the acquisition details and sales promotion activities. - Conclusions: The Tribunal allowed the deduction of Rs. 4,81,477/- as sales promotion expenses under Section 37(1), reversing the disallowance made by the CIT(A). SIGNIFICANT HOLDINGS - The Tribunal held that the delay in filing the appeal was condoned due to sufficient cause, allowing the appeal to proceed on its merits. - Regarding the disallowance under Section 14A, the Tribunal dismissed the appeal, as the Department did not press these grounds and the disallowance was upheld by the CIT(A). - Crucially, the Tribunal allowed the deduction of sales promotion expenses, establishing that the expenses were incurred wholly and exclusively for business purposes, as evidenced by the acquisition of a new unit and related activities. The appeal was thus partly allowed, with the Tribunal providing relief on the issue of sales promotion expenses while dismissing the other grounds.
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