The Delhi bench of the Income Tax Appellate Tribunal (ITAT) held that the disallowance under Section 37 of the Income Tax Act, 1961 cannot be made when the details have been furnished by the assessee for the business promotion expenditure.
The assessee is a company engaged in the business of trading FMCG (Fast Moving Consumer Goods) and home appliances, Organic Khad which is based on the chain of agents/ distributors engaged in sales almost all over India. The assessee filed a return of income which was selected for scrutiny and the Assessing Officer had made certain disallowances.
The Assessing Officer considered the expenditures were not wholly and exclusively for the purpose of business and that disallowance of expenses under this head has also been made in the previous years also. Accordingly, the disallowance of 25% of business promotion expenses of Rs. 6,75,63,728/- for the year under consideration at Rs. 1,68,90,932/- was made. The Commissioner of Income Tax (Appeal) [CIT(A)] has deleted the additions.
The Departmental Representative submitted that CIT(A) has failed to appreciate the factual discussion of the issue while the Authorized Representative submitted that the disallowances were rightly deleted for the reason that there were consistently being claimed and in the assessment year 2018-19 the assessment order passed under Section 143(3) of the Income Tax Act does not make any addition in that regard.
The Two-member bench comprising of M. Balaganesh (Accountant member) and Anubhav Sharma (Judicial member) held that the CIT(A) has extensively dealt with the issue on the basis of the nature of the business of the assessee. The whole model of the business of the assessee is dependent upon the agents or distributors who are given incentives and there is business expediency with promotion of the business of the assessee due to these expenditures as in A.Y. 2013-14 so in the present assessment year also, as the assessee had brought on record the effect of business promotion expenses in the increase of the turnover and net profit.
The Authorized Representative during the course of arguments has demonstrated that all the relevant details of the business promotion expenditure including a list of persons to whom such items have been given were produced. He also demonstrated that the area of interest of the assessee company FMCG distribution/ advertisement expenses form a substantial part of the expenditure for which the comparative detail with other companies was also filed. Thus, the bench wasn’t inclined to interfere in the decision of CIT(A), and the appeal of the revenue was dismissed.
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