The Delhi bench of the Income Tax Appellate Tribunal ( ITAT ) has held that the gifts and presents given to the customers by way of cash cannot be allowed as business expenditure under the provisions of the Income Tax Act, 1961.
The assessee claimed that the Diwali gifts and presents given by them in the form of cash must be allowed as business expenditure. However, the Assessing Officer was of the view that the miscellaneous expenses like Diwali gifts and presents given by the assessee cannot be allowed on the ground that from the ledger account of gifts and presents for the respective period, it is found that gifts and presents for the respective period have been done in cash which is against the provisions of Section 40A(3) of the Income Tax Act, 1961.
According to the assessee, it is the case of the taxpayer that these expenses were incurred exclusively for business purposes which is to maintain high morale of the employees which resulted into cost reduction and more profit of the company in the overall operation.
Upholding the assessment order, the Tribunal held that when undisputedly taxpayer has incurred these expenses allegedly on gifts and presents by way of cash, the same cannot be attributed to Diwali gifts and presents etc. which is also against the provisions contained u/s 40A(3) of the Act.
“So, we hereby confirm the addition made by the AO and consequently, corporate grounds are decided against the taxpayer,” the Tribunal said.
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