No Disallowance u/s 37 of Income Tax Act can be made on Expenditure of Advertisement and Sales Promotion in Absence of Evidence that Benefit Third Party: ITAT [Read Order]

The Mumbai Bench of Income Tax Appellate Tribunal (ITAT) held that in absence of any evidence placed by the Assesing Officer(AO) that the expenditure of Advertisement and Sales Promotion has resulted into benefit to the third party disallowances cannot sustain.

The assessee Cleartrip Private Limited is a company engaged in the business of travel agency and providing travel related services through its Web portal to various customers. It is a wholly owned subsidiary of Cleartrip Inc., Mauritius. Cleartrip Inc., Mauritius is a wholly owned subsidiary of Cleartrip Inc., Cayman Island. Several individuals and private equity funds have invested in Cleartrip Inc. Cayman Island.

The assessee filed its return of income on at a loss of ₹59,95,10,511.The Assessing Officer (AO) found that assessee has received ₹33,33,15,000 as share premium from Cleartrip Inc., Mauritius. The assessee has issued 1,66,65,750 equity shares at a face value of ₹10 each at a premium of ₹10 having total issue price of ₹20 per share.

During the assessement proceeding the AO made disallowance of advertisement and sales promotion expenditure of ₹ 219,553,823. Aggrieved by the assessment the assessee filed an appeal before the Commissioner of Income Tax (Appeals) [CIT(A)], which confirmed the disallowance being 20% of the advertisement and sales promotion expenditure incurred by the assessee.

Further aggrieved the assessee filed an appeal before the Tribunal. The Authorised Representative repeated submission made for AY(Assessment Year) 2016-17.

The  Departmental Representative vehemently supported the orders of the lower authorities and submitted that in case of the assessee in earlier years the coordinate bench set-aside the issue back to the file of the learned assessing officer with certain directions.

The Bench comprising of Prashant Maharishi, Accountant Member and Sandeep Singh Karhail, Judicial Member observed that no adverse facts or finding of the AO was drawn to our attention. Lower authorities did not attempt to show that the assessee for its own business not wholly and exclusively incurs expenses.

The Tribunal found that the issue in this appeal is identical to the ground in appeal of the assessee for AY2016 – 17, wherein it was held

 “In absence of any evidence placed by the learned assessing officer that these expenditure has resulted into benefit to the thirdparty and these are not incurred wholly and exclusively for the purposes of the business of the assessee, we do not find any reason to sustain the disallowance.Accordingly, solitary ground raised by the assessee against the disallowance of expenditure of advertisement and sales promotion expenditure of ₹ 207,770,391/– being 20% of the total expenditure of advertisement and sales promotion expenses incurred by the assessee is allowed”

The Tribunal directed the AO to delete the disallowance of the expenses as the facts in this case are no different. Therefore, according to the Tribunal’s decision in assessee’s appeal for AY 2016 – 17, The Bench directed the AO to delete the disallowance of advertisement and sales promotion expenses of ₹ 219,553,823.

Hence the appeal filed by the assessee was allowed.

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