Expenditure on Sales Promotion allowable as Business Deduction: ITAT Grants ₹2.4Cr Relief to Havells India [Read Order]

The Delhi Bench of the Income Tax Appellate Tribunal (ITAT) has removed a disallowance of around ₹2.47 crore in sales incentives, agreeing that provisions made are a deductible contractual liability and not a contingent one.

The Revenue has filed an appeal against the order of the Commissioner of Income Tax (Appeals) [CIT(A)] for Assessment Year 2010-11. One of the main issues in dispute was the disallowance of ₹2,47,68,964 relating to "Shahenshah Scheme".

The Assessing Officer (AO) had treated the provision for sales incentives to dealers and distributors as a non-deductible contingent liability, observing that actual outflows were substantially lower than the amount provided.

The assessee Havells India Ltd argued that "the Shahenshah Scheme" is a legally enforceable liability under a contract that is essential to promote business. It emphasized that it is calculated on a scientific basis and relied on rulings of the Tribunal in its own cases of earlier assessment years (2006-07 to 2008-09).

On the other hand the revenue department took the view that there is no immediate payment of the expenses and therefore it is contingent.

​

​The ITAT Bench consisting of C.N. Prasad [Judicial Member], and Amitabh Shukla, [Accountant Member] found that the issue is covered by prior coordinate bench rulings of the Tribunal on the assessee’s own case.

​The tribunal held that "The Co-ordinate Bench of Tribunal in earlier years has decided the issue in favour of the assessee by holding that the provision made by the assessee ‘Shahenshah Scheme’ to be on scientific basis."

Accordingly, the ITAT rejected all grounds raised by the revenue department which included disputes on Corporate Guarantee Fee rates at 0.5% and Section 80IC claims on interest income.

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates