Sales Promotion expenses allowed based on percentage to sales when such expenses were allowed on similar ratio in preceding year.
Sales Promotion expenses allowed based on percentage to sales
ABCAUS Case Law Citation:
ABCAUS 1213 (2017) (04) ITAT
The appellant assessee company was aggrieved by the order of the Commissioner of Income Tax (Appeals) in sustaining inter alia disallowance of sales promotion expenses.
Assessment Year : 2013-14
Date/Month of Pronouncement: April, 2017
Brief Facts of the Case:
The case of the assessee was picked up for scrutiny and the assessment under section 143(3) of the Income Tax Act, 1961 (Act) was framed. While framing the assessment, the Assessing Officer (AO) inter alia made disallowance out of Sale Promotion Expenses of Rs. 37,16,458/-.
Aggrieved by this, the assessee preferred the appeal before CIT(A), who after considering the submissions partly allowed the appeal and restricted the disallowance made out of sale promotion disallowance to the extent of 50% of the total disallowance.
Observations made by the Tribunal:
The Tribunal observed that the assessee had been claiming such expenses in all the assessment years and the revenue had been allowing such an expenses to the assessee in past and as per assessee, there was no change into facts and circumstances in the present case.
It was noted that the CIT(A) though restricted the disallowance to 50% had not assigned any basis for restricting the same to 50%.
It was observed that it is settled position of law that assessee is required to prove the expenses by placing evidence in support thereof. However, the sole basis for disallowance of the expenditure was that the assessee, before CIT(A) had not disclosed the identity of the persons whom such gifts were given for the purpose of sole promotion.
The ITAT observed that the assessee had given the name of the few persons, also the Tribunal noted the following pattern of sales promotion expenses;
|AY 2012-13||AY 2013-14||Increase|
|Gross Profit (GP)||Rs. 1,34,81,233/-||Rs. 1,85,96,260/-||Rs. 51,15,027/-|
|Sales Promotion Expenses||Rs. 26,34,937/-||Rs. 37,16,458/-||Rs. 10,81,521/-|
It was noticed that the gross profit of the assessee was Rs. 1,85,96,260/- against which the assessee had claimed sale promotion expenses of Rs. 37,16,458/-. The revenue had allowed the sale promotion expenses in the assessment year 2012-13 of Rs. 26,34,937/- when the gross profit was 1,34,81,233/- in the present year, there is increase in gross profit of 50 lakhs. However, the Sale Promotion Expenses increased to about 11 lakh.
The ITAT directed the Assessing Officer to delete the disallowance.