The Ahmedabad Bench of Income Tax Appellate Tribunal ( ITAT ) has held that the gifts to business associates and expenditure should be considered as business promotion expenses and are deductible under Section 37 of the Income Tax Act 1961.
Section 37 provides that any expenditure spent entirely and solely for the purposes of the company or profession shall be allowed in calculating the income liable to be paid under the “profits and gains of business or profession.”
R. K. Trading Company, had debited a sum towards sales promotion expenses, and claimed the same in the profit & loss account. The Assessing Officer (AO) found that it was on account of costly given gifts to certain parties. The AO disallowed this amount out of total claim made by the assessee. The reasons assigned by him is that the assessee failed to give a list of persons to whom such valuable gifts have been made for business promotion.
M. K. Patel, who appeared for the appellant submitted that the expenditure in question had been incurred in the normal course of the business of the appellant and the same had been incurred for the purpose of business of the appellant and disclosure of name of the parties would adversely affect the business of the appellant and in order to keep the business secret, the appellant was compelled to withhold the names.
He further pleaded that nondisclosure of the name would not operate to disentitle the appellant’s legitimate claim of expenditure which had been genuinely incurred on account of sales promotion which was directly related to the business of the appellant. He also submitted that all bills and accounts were duly submitted.
Anam Benish,who appeared for the revenue, submittedthat, appellant had not furnished the names of the persons to whom the gift/presentation articles had been given, and the transactions were appeared bogus.
The Ahmedabad Bench of, Waseem Ahmed, (Accountant Member)and Madhumita Roy (Judicial Member)allowed the appeal relying upon the contentions of assessee that gifts to business executives expenses were deductible under Section 37 of the Income Tax Act 1961.
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