The Income Tax Appellate Tribunal (ITAT), Bangalore Bench while remitting the matter back to the Assessing Officer (AO) ruled that the Business Promotion Expenses incurred exclusively for the purpose of business can not be disallowed.
The assessee company, Unicity Health Private Limited is engaged in the business of selling health-based wellness products through multi-level marketing. The assessee is a group company of Unicity Group, USA. During the course of scrutiny proceedings, the A.O. noticed that the assessee has claimed business promotion expenses of Rs.4.04 crores. On questioning, the assessee explained that its business has started picking up in 2013-14 onwards and hence, in order to improve the business further, several incentive schemes like Dubai Reward Trip, Bongkok Reward Trip, Goa Reward Trip were organized in 2014.
The AO wanted to apply for a bright-line test. He also observed that the assessee has not furnished any documentary evidence except a chart giving the breakup details of business promotion expenses and certain comments. The AO also observed that the assessee has failed to furnish copies of invoices or the actual nature of expenses. Further, this expenditure has not helped the cause of business also by way of increase in sales. Accordingly, the A.O. expressed the view that it is not clear as to whether these expenses have helped the assessee to improve its business. Accordingly, the A.O. disallowed the entire claim of Rs.4.04 crores. The CIT(A) also confirmed the same.
The assessee submitted that the business promotion expenses have been incurred for the purpose of improving sales of the assessee.
The coram of George George K. and B.R. Baskaran noted that the A.O. has not examined the details furnished by the assessee. Accordingly, the Tribunal was of the opinion that this issue requires fresh examination at the end of the AO. Accordingly, the ITAT set aside the order passed by the CIT(A) and restored this issue to the file of the A.O. for examining it afresh by duly considering the information and explanations furnished/that may be furnished by the assessee. After affording an adequate opportunity of being heard to the assessee, the AO may take appropriate decisions in accordance with the law.
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