Reimbursement of Sales Promotion Expenses incurred through Credit Card to Directors cannot be Disallowed: ITAT [Read Order]

Reimbursemen - Sales Promotion Expenses - Credit Card - Directors - ITAT - taxscan

The Income Tax Appellate Tribunal ( ITAT ), Mumbai bench, while deleting a disallowance, has held that the reimbursement of sales promotion expenses incurred through Credit Card to the directors of the Company is allowable under the provisions of the Income Tax Act, 1961.

The assessee, M/s. Well Wisher Construction Pvt. Ltd challenged an order of the Assessing Officer wherein the officer disallowed the business promotion expenses claimed by the assessee observing that the evidences are only hotel bills of VIVANTA holiday village at Goa and the credit card payments made in the name of both Directors. The AO observed that assessee had not furnished any information regarding meetings, conferences, presentation etc that had happened. Accordingly, he concluded that these are merely personal expenses debited in the company’s profit and loss account and disallowed the entire sum of Rs 2,42,514/- in the assessment.

On first appeal, the CIT(A) upheld the order. Before the Tribunal, the assessee contended that it is engaged in the business of real estate development and in that regard , the directors had to meet various people at various places to market the real estate project for the purpose of sale of apartments. Hence the business nexus is proved beyond doubt.

Shri M.Balaganesh (Accountant Member) & Smt Kavitha Rajagopal (Judicial Member) observed that since the payments were incurred out of credit cards belonging to the directors, the assessee company had reimbursed the same to the directors.

“It is not personal in nature. Moreover, payment to Ambey Valley City has been made through Cheque No. 003239 from the bank account of the assessee company in the sum of Rs 1,55,411/-. The entire bills issued by various vendors were duly placed by the assessee before the ld. AO .Without looking into any of those bills, the ld.AO by mere suspicion, surmise and conjecture , proceeded to treat the entire expenses as personal in nature and disallowed. We hold that the action of the ld. AO and ld. CIT(A) is certainly unsustainable in the eyes of law. The observations made by us hereinabove for Ground No.1 supra together with case laws relied upon thereon would hold good for this ground also. Accordingly, we direct the ld.AO to delete the disallowance made on account of business promotion expenses in the sum of Rs 2,42,514/-,” the ITAT said.

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