The Jaipur Bench of the Income Tax Appellate Tribunal ( ITAT ), held that Marketing and Survey expenses are allowable as deduction under Section 37(1) of the Income Tax Act, 1961.
The AO under Section 143(3) of the Income Tax Act assessed total income at Rs. 2 crores by making additions on account of various disallowances including disallowance of Rs. 60 lakhs on account of Marketing and Survey Expenses out of total expenditure of the assessee, M/s Rajasthan Patrika Private Limited.
In the original assessment proceeding the AO asked the assessee to produce personally certain parties along with their books of accounts, purchase and sale bills and copies of their return of income for A. Y. 2005-06. The assessee could not produce the said persons and the inspector found that the person concerned were not having any connection at the addresses noted in the bills claimed to have been issued by them.
The AO concluded that the two parties/concerns to whom the payments were made, was never existing at the address given by the assessee. Based on these findings the AO concluded that the expenses / payments to both of them as bogus andadded a sum of Rs. 60 lakhs.
The Coordinate Bench of the Tribunal concluded that the assessee has made out a case of violation of principles of natural justice and set aside the issue relating to Marketing and Survey expenses back to the file of the AO to decide afresh after considering the entire evidence and giving the assessee an opportunity of being heard.
In addition to records showing that the marketing survey was conducted consisting of the detailed marketing survey report, these agencies were paid by account payee cheque, TDS has been deducted, ITRs and assessment orders were also placed on record. There is not a single observation of the AO on these evidences and not only that the detailed survey report consisting of various information as discussed hereinabove, none of this information were used to verify the genuineness of the claim of the assessee
The AO has disallowed the claim for the Jaipur city only and similar expenditure were considered as allowable in the other centers where the assessee operates and the claim of the assessee is supported by various circumstantial evidences and cannot ignore the other evidence in support that the assessee has filed for this marketing and survey expenditure claimed by the assessee.
A Bench comprising Dr S SeethaLakshmi, Judicial Member and Rathod Kamlesh Jayantbhai, Accountant Member observed that “we are of the considered view that the expenditure claimed by the assessee isduly supported by the required evidence so as to substantiate the expenditure to the extent of Rs. 60 lakhs and is allowable under section 37(1) of the Income Tax Act.”
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