Expenses Incurred for Gifts to Customers by Company during Festivals Allowable u/s 37 of Income Tax Act: ITAT [Read Order]

The Delhi Bench of Income Tax Appellate Tribunal (ITAT) has held that the expenses incurred for gifts to customers by company during festivals would be allowable under Section 37 of the Income Tax Act, 1961.

The assessee IREO Waterfront Pvt. Ltd., had incurred expenses on account of omega watches and silver articles given for Diwali gifts given as gift.The AO had disallowed the same as not meant for business purposes of the assessee by stating that the assessee failed to produce the details of persons along with reasons and confirmations to whom the expensive gifts were distributed.

It was not in dispute that the aforesaid gifts were given by the assessee to its land aggregators who were identifying and brokering the land deals on behalf of the assessee company and to brokers who were affecting bulk sales for the assessee company, on the occasion of Diwali.

The assessee stated that no details were ever called for by the AO regarding this expenditure and the assessee came to know of this only from the assessment order. It was not in dispute that the assessee was in the real estate business wherein purchase of land and sale of projects was the most critical and commercially important activity and hence it was very important for the assessee to keep land aggregators and brokers in good humor.

S. Krishnan appeared on behalf of the assessee and Mohd. Gayasuddin Ansari appeared on behalf of the revenue.

The two-member Bench of Saktijit Dey, (Judicial Member) and M. Balaganesh, (Accountant Member) observed that It was customary to incur these expenses on various auspicious occasions especially festivals like Diwali to be given to brokers, persons who work on behalf of the assessee company, customers and suppliers of the assessee, in order to keep them in good humor.

It was also a fact that by incurrence of these expenditures at the proper time like Diwali occasion would certainly strengthen the relationship of the assessee with the persons who work for the Assessee Company, customers and suppliers which in turn would enable the company to have continued relationship with the parties.

The tribunal Bench deleted the disallowance on account of gifts holding that the said expenditure was for the purpose of business as per the principle of commercial expediency. 

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