Business promotion personal nature gift expenses disallowance without specifying any specific items not connected with business activity deleted by ITAT

Business promotion personal nature gift expenses disallowance without specifying any specific items not connected with business activity deleted by ITAT

ABCAUS Case Law Citation:
ABCAUS 1077 (2016) (12) ITAT

Assessment Year: 2011-12
Date of Judgment: 01-12-2016

Brief Facts of the Case:
During the assessment proceedings, The Assessing Officer (AO) examined the expenses claimed under the head “Business Promotions” with comparative figures of the preceding year . It was found by the AO that there was a substantial increase in the expenses claimed under the head. The expenses under the said head had increased by approx 40% as compared with the preceding year.

The assessee was asked to justify the increase in the expenses and to produce the supporting documentary evidence for these expenses for verification. The assessee submitted that the firm had incurred certain expenditures on meeting with business associates at hotels, giving General Knowledge Books/gifts to the business dealers etc. These expenses were booked under the head ‘Business Promotion Expenses’. Ledger account was also produced.

The Assessing Officer noted that many of the bills/vouchers related to purchase of shawls, novels, traveling bags etc. which were claimed to have gifted to the assessee’s business associates. However, no evidence could be produced in support of the same. No evidence was also produced to prove that gifts were, in-fact, made to dealers or business delegates.  Moreover, according to the AO, many of these expenses were in the nature of personal gifts given by the assessee firm’s partners, which clearly could not not qualify as business expenses. The AO, therefore, disallowed 15% of the expenses and made the addition of Rs. 3,44,363/-.

On appeal, CIT(Appeals) dismissed the grounds raised by the assessee.

Observations made by the Tribunal:
The Tribunal observed that the Assessing Officer had noted in the assessment order that assessee had furnished the requisite information and details called by him. The books of account, bills/vouchers for sale/purchases, expenses etc. were produced and examined at the assessment stage. The assessee also produced bills and vouchers in support of claim of business promotion expenses. The assessee explained that these business promotion expenses have been incurred for meeting with business associates and giving them certain gifts.

The ITAT further observed that the AO , had  not pointed out any specific items which were not connected with the business activity of the assessee. Instead the AO had simply noted that these expenses were personal in nature and no confirmation has been filed.

The Tribunal was of the view that when the bills and vouchers of the expenses had been produced for examination of the Assessing Officer, it was his duty to point out which of the expenditure specifically had not been incurred for business purpose.  The mere presumption that these were personal gifts and no confirmation had  been filed, would not justify the disallowance of business promotion expenses on adhoc basis.

Held:
The orders of authorities below set aside and the addition was deleted.