2019 (3) TMI 313 - AT - Income Tax

Adhoc disallowance being 10% of sale promotion expenses - allowable business expenses - HELD THAT - We find that though assessee has given the list of the item distributed to various customers however nowhere it is borne out from the records as to whether distribution of gold and diamond ring and chains were part of the sales promotion activities. Neither any pamphlet of any scheme of sales promotion has been filed nor has any business purpose been shown specifically when the items distributed are more of a personalized in nature. In absence of any proper evidence to demonstrate that these items were actually used for business purpose AO was far more reasonable in disallowing only 10% of the said expenditure. Accordingly ground raised by the assessee on this score is dismissed. Disallowance being exhibition expenses incurred on the ground that these did not pertain to impugned Assessment Year - allowable business expenditure - HELD THAT - When the payment of participation for exhibition purpose has been made in this year then ostensibly such a payment is revenue in nature incurred for the purpose of business then the same has to be allowed in the year in which it has been incurred because for participating in the exhibition it was essential that payment has to be made in advance even if such an exhibition of international trade fair was to be held in the next Assessment Year. Hence the expenditure incurred cannot be disallowed on this ground. The exhibition expenses paid by the assessee in this year has to be allowed as business expenditure and thus the ground raised by the assessee on this score is allowed.

Summary

Issues:
1. Adhoc disallowance of Rs. 2,06,254 being 10% of sale promotion expenses.
2. Disallowance of Rs. 7,75,861 being exhibition expenses incurred for the next year.

Analysis:

Issue 1: Adhoc disallowance of Rs. 2,06,254 for sale promotion expenses
The assessee, engaged in manufacturing automobile parts, claimed expenses on diamond and gold jewellery under 'Sales Promotion'. The Assessing Officer disallowed 10% of the expenditure due to lack of documentary evidence. The CIT (A) upheld the disallowance. The appellant argued that the jewellery was for sales promotion, supported by details in the paper book. However, the tribunal found no evidence linking the jewellery to business promotion activities, leading to the dismissal of the appeal.

Issue 2: Disallowance of Rs. 7,75,861 for exhibition expenses
The assessee paid Rs. 5,75,861 to book a space for an exhibition in the next year. The Assessing Officer disallowed the expense as it did not relate to the current year. The CIT (A) upheld the disallowance citing the exhibition's schedule. The tribunal noted the payment was for participation in an international trade fair, supported by relevant documents. As the payment was for a business purpose, it was allowed as a business expenditure for the current year, leading to the partial allowance of the appeal.

In conclusion, the tribunal partly allowed the appeal, allowing the exhibition expenses as a business expenditure for the current year but upholding the adhoc disallowance of sale promotion expenses.