Unsubstantiated Personal Expenses of Directors not allowable as Business Promotion Expenses: ITAT [Read Order]

The Delhi bench of the Income Tax Appellate Tribunal ( ITAT ), constituted of Anil Chaturvedi (Accountant Member) and Anubhav Sharma (Judicial Member) held unsubstantiated personal expenses of directors are not allowable as Business Promotion Expenses.

In the present appeal filed by the assessee Gryphon Appliances Ltd. it was submitted that the assessee/ appellant had incurred Rs. 53,65,666 towards business promotion expenses.

The assessee claimed that  Rs. 44,74,666/- as expenses toward business promotion pertaining to business activity of Appellant. The Appellant had voluntarily disallowed Rs. 8,91,000 towards personal expenses of the Managing Director/ Directors.

Further the assessee contended that it is pertinent to mention that the entire expenses has been made by Bank/Credit cards and as such are fully vouched leaving no scope for suspicion of wrongful claim. Hence, the disallowance is unjustified.

The counsel for the appellant/assessee, Sushil Wadhwa, claimed that the Tax Authorities below erred by failing to acknowledge that the directors' personal expenses were Suo motto deducted while claiming the expenditure.

The bench noted that there is no dispute that the expenditure was incurred in the previous year.

Additionally, it was added that since capital expenses, personal expenses of the assessee, or expenses for sales promotion were not described under sections 30 to 36 of the Act, the only condition to be looked at was whether the expenses were intended out or spent wholly and only for business-related purposes.

Both the orders of the Assessing Officer and the Commissioner of Income Tax (Appeals) [CIT(A)]  were taken note of by the bench. The AO explicitly makes reference to the the fact in assessment order that “while examining the books of account the Accounts Receivables of the assessee stated that it does not have any bills/ vouchers in respect of expenses claimed under this head except for the statement of credit cards.”

Further, CIT(A) also no invoices or bills were furnished.

The bench remarked that the order of CIT(A) shows that a notice was issued to the appellant company to show cause as to why the addition be restricted to 20% only and not be enhanced to the entire expenditure that is 100%. However, the assessee has not filed any reply to the same and nor brought to the knowledge of the bench if any reply to this notice was submitted.

The bench persisted to review the credit card statement that was made available, and it became clear that all of the expenditures were made by the directors using the credit card and totaled Rs. 44,74,666. These expenditures were made on food, lodging, clothing, fashion accessories, duty-free purchases, cosmetics, spa treatments, and gift shops.

The tribunal noted that in case of business promotion expenses, the assessee is expected to show that the expenses intended to achieve any specific or general business target or how it could have helped the promotion of business or business interest of the assessee.

To Read the full text of the Order CLICK HERE

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