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2022 (8) TMI 782 - AT - Income TaxBogus sales promotion expenses - CIT(A) had restricted this disallowance to the extent of 12.5% of the sales promotion expenses - HELD THAT:- As perused the contents of the copy of stock register of the assessee reveals is that it is a stock record of various items ranging from Pencil in CD Box, bottle opener, digital diary, Leather folder box and such other several items purportedly used for the purpose of gifting. The items have been recorded as" In" on the basis of purchase bills and "Out" on the basis of delivery challans. Both are internal documents of the assessee itself and have no evidentiary value therefore for the purpose of proving that gift items were actually distributed by the assessee. The "Out" entry, we have noted, also records the branch of the assessee, i.e. Punjab, Indore etc where issued or certain names against it, which the assessee pleads are those of its MR's some of whom have confirmed distributing gifts. Again all of these are of no assistance to the assessee being its own internal recordings and documents. As for confirmation/receipts from dealers receiving gift items, the same we have noted, was examined by the AO who had contended that the veracity of the said documents was not verifiable since they did not bear any address of the recipient. He also pointed out that even the nature of the article gifted was not mentioned in the said receipt. The details of MR's who distributed the gifts also therefore does not establish the fact of gift having been actually distributed by the assessee. These are only self serving documents and no cognizance of the same can be taken for finding whether the assessee had in fact distributed gift articles to its customers/clients. The bills being found bogus by the Ld. CIT(A) which finding has remained unchallenged before us, the stock record being a self serving document, the receipts from recipients of gifts not mentioning the goods received, there is nothing to even suggest what was actually purchased and distributed by the assessee as gift. There is no way to establish in this case that what was purchased was distributed by the assessee as gift. It is impossible to apply any profit theory in this situation, to restrict the disallowance to profit earned thereon, which theory, we have noted from the orders of the Hon'ble High Courts rests on the premise that the sale from the alleged bogus purchases being admitted, the purchases must have been made though from the grey market at comparatively lower rates saving taxes and duties thereon and hence earning extra profits in the process not disclosed in the books. The reasoning of the ld. CIT(A) therefore for restricting the disallowance to the extent of 12.5% of the total expenses is therefore we hold flawed, illogical and not sustainable. Since the ld. CIT(A) has himself found the entire purchases of sales promotion articles from these two parties as bogus, and there is no evidence to prove distribution of these gifts, there is no recourse left but to disallow the entire expenses. We draw support from the findings in this regard, the decision of N.K. Industries Ltd [2016 (6) TMI 1139 - GUJARAT HIGH COURT] where in identical set of facts, held that there was no case for restricting the disallowance to a particular percentage and the entire expenses need to be disallowed. Thus we hold that the entire sales promotion expenses pertaining to these two parties M/s. Gajanand Traders and M/s. Devanand Enterprise need to be disallowed and direct the A.O. to do so. - Decided in favour of Revenue.
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