The Mumbai Bench of Income Tax Appellate Tribunal (ITAT) has allowed the Cleartrip’s claim towards the advertisement and sales promotion expenditures.
Assessee, Cleartrip Private Limited had incurred Advertisement and publicity expenses. The AO held that assessee along with its fellow subsidiaries of cleartrip was doing worldwide business, so the benefits of this expense have gone to subsidiaries. Hence, 20 % of such expenses were disallowed by the AO and CIT (A) confirmed it. Both the lower authorities confirmed their action based on the findings in earlier Assessment Years.
The matter reached the coordinate bench, it rejected the 20 % adhoc disallowance but set aside the matter to the file of the AO to lift the corporate veil and decide the issue by obtaining details of foreign fellow subsidiaries and then disallow the expense in proportion to turnover.
Fereshte D. Sethna, on behalf of the assessee submitted that identical issue first arose in the case of the assessee for A.Y. 2012-13, which had been decided by the coordinate bench; vide order dated 13 April 2023.
It was submitted that the co-ordinate Bench rejected the adhoc disallowance made by the Assessing Officer and sustained by the Commissioner of Income tax (Appeals). However, the co-ordinate Bench directed the Assessing Officer to lift the corporate veil and collect all the information related to advertisement and sales promotion expenses as well as the expenses incurred by the sister concern and apportion the same on the basis of the turnover.
Manish Sareen, on behalf of the revenue vehemently supported the order of the lower authorities and submitted that that though the coordinate bench in assessee’s own case had decided that ad hoc disallowances not proper however restored the matter back to the file of the learned assessing officer for disallowance of appropriate proportion based on the turnover on examination.
The two-member Bench of Prashant Maharishi, (Accountant Member) and Sandeep Singh Karhail, (Judicial Member) noted that the assessee had submitted that the conditions for allowance of expenditure under Section 37 of the Income Tax Act were satisfied in the case of the assessee. Assessee had incurred this expenditure for its own benefit and its own business.
It was further that stated that the even if there was an incidental indirect third-party benefit, it would not result into characterization of expenditure as not incurred wholly and exclusively for the business of the assessee, no disallowance in the hands of the assessee could be made
The Bench allowed the appeal filed by the assessee in absence of any evidence placed by the assessing officer that these expenditures had resulted in benefit to the third party and these are not incurred wholly and exclusively for the purposes of the business of the assessee.
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