Gift to Customers not Deductible as Business Expenditure since Its Nature and Identity of Recipients was not Disclosed: ITAT [Read Order]

The Income Tax Appellate Tribunal (ITAT), Delhi bench has observed that gift to the customers cannot be treated as Business expenditure for granting income tax deduction since the assessee failed to prove the nature of the gift and the identity of the recipients.

In the instant case, the Assessing Officer observed that the assessee- company, in their return, has claimed expenses incurred for the purchase of gift items as business expenditure. He rejected the claim by finding that these gifts were purely personal in nature and not for legitimate business needs of the company.

The first appellate authority dismissed the appeal of the assessee by observing that the assessee has failed to even disclose the identity of the recipient of gifts either during the assessment proceedings or during the appellate proceedings. It was also observed that the assessee also failed to establish the business exigencies of the appellant vis-a-vis the aforesaid gifts.

The bench observed that “it is, no doubt, customary in our country to give gifts to clients which serve as expenses on business promotion. However, while examining such deduction of expenses of this nature, it is to be kept in mind that these deductions are prohibited if they are presumptive of tax evasion and meant to reduce the business profits. In the instant case, the assessee has not been able to submit any evidences in support of its contention that the gifts were given to its various identifiable customers. So the same also remains unverified. The assessee has also not furnished any substantial evidence as to the persons to whom such gifts given were actually fruitful towards promoting the business profits of the assessee.”

Upholding the order of the lower authorities, the bench observed that “in absence of any nexus between the  and the business of tgiftshe appellant company, the findings reached by the ld. CIT(A) cannot be said to be without any basis and as such, involvement of non-business use in the present case cannot be ruled out at all, as is evident from the nature of gifts noted by the Assessing Officer in the assessment order. Bills and vouchers of the gifts purchased were mostly found in the name of the assessee and some of the bills, some names were written by hand, which nowhere suggest to place credence on the contention of the assessee that these gifts were given to its customers even.”

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