Case Law Details
Sai Ganesh Educational Society Vs ITO (ITAT Hyderabad)
ITAT Hyderabad: 100% Disallowance of Promotion Expenses Unjustified; 50% Adhoc Disallowance Sustained
In this case, the assessee society claimed sales promotion expenses of ₹25.53 lakh, which had increased sharply by about 495% compared to the previous year. The AO disallowed the entire expenditure due to lack of proper supporting evidence such as bills, PAN details, and verifiable vouchers, and the CIT(A) upheld the full disallowance.
Before the ITAT, it was argued that such expenses were inherent to the assessee’s educational promotion activities and had been consistently incurred in earlier years, though complete documentation could not be furnished.
The Tribunal held that while the assessee failed to fully substantiate the expenditure, complete disallowance was excessive and unjustified, especially when incurrence of such expenses was not in dispute and similar expenses were incurred in earlier years.
Balancing the lack of evidence with business realities, the ITAT directed that only 50% of the expenditure be disallowed, granting partial relief to the assessee. The appeal was thus partly allowed.
FULL TEXT OF THE ORDER OF ITAT HYDERABAD
This appeal filed by the assessee is directed against the order of the learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre [in short “NFAC”], Delhi, dated 10.17.2025, pertaining to the assessment year 2018-19.
2. The brief facts of the case are that, the assessee is a society engaged in the activity of promotion of education to public on non-profitable basis and has filed its return of income for the assessment year under consideration declaring total income of Rs. 3,09,880/-. The case was selected for limited scrutiny under CASS for the purpose of verifying large sales promotion expenses vis-a-vis gross receipts. Notices under Sections 143(2) and 142(1) of the Income-tax Act, 1961 were issued and served on the assessee. During the course of assessment proceedings, on verification of information available on record, the A.O. noticed that the assessee had claimed sales promotion expenses of Rs. 25,53,000/- during the financial year 2017-18, which was substantially higher compared to the earlier year. The A.O. called upon the assessee to furnish details and explanation regarding the nature and genuineness of such expenditure. In response, the assessee furnished certain details including ledger copies and stated that the expenditure was incurred towards organizing admissions, field visits and promotional activities. However, the assessee failed to furnish proper documentary evidence such as bills, PAN details of parties and complete supporting evidences to substantiate the claim.
3. The A.O., after considering the submissions of the assessee, observed that the sales promotion expenses had increased abnormally by about 495% compared to the preceding year, despite no corresponding increase in receipts. The A.O. further observed that the vouchers furnished by the assessee were not reliable as they lacked basic details such as PAN of recipients, mode of payment and proper authentication, and in many cases, signatures and handwriting appeared inconsistent. The A.O. also noted that the assessee failed to establish the identity of the recipients and genuineness of the expenditure with credible evidence. In the absence of satisfactory explanation and supporting documents, the A.O. treated the sales promotion expenses of Rs. 25,53,000/- as non-genuine and disallowed the same. Accordingly, the said amount was added to the total income of the assessee. Thus, the A.O. completed the assessment under Section 143(3) of the Act by determining total income at Rs. 28,62,880/- as against returned income of Rs. 3,09,880/-.
4. Aggrieved by the assessment order, the assessee preferred an appeal before the Ld. CIT(A). Before the Ld. CIT(A), the assessee was provided with several opportunities to present its case and furnish necessary details and evidences in support of the grounds of appeal. The assessee filed submissions contending that the expenditure was incurred wholly and exclusively for the purpose of business and was supported by vouchers and books of accounts. The assessee further submitted that the increase in expenditure was on account of expansion of activities and efforts to increase admissions. However, the assessee could not furnish sufficient documentary evidence to fully substantiate the genuineness of the expenditure.
5. The Ld. CIT(A), after considering the submissions of the assessee, the remand report of the A.O., and perusing the material available on record, observed that, the assessee failed to establish the genuineness of the sales promotion expenses with credible evidence. It was further observed that the assessee could not satisfactorily explain the abnormal increase in expenditure and failed to produce verifiable supporting documents such as proper vouchers, identity of recipients and other evidences. In the absence of satisfactory explanation and supporting material, the Ld. CIT(A) held that the A.O. was justified in disallowing the sales promotion expenses and accordingly upheld the addition. Thus, the appeal filed by the assessee was dismissed
6. Aggrieved by the order of the Ld. CIT(A), the assessee is in appeal before the Tribunal.
7. The learned counsel for the assessee, Shri A. Srinivas, C.A., submitted that, the lower authorities have erred in making and sustaining a 100% disallowance of sales promotion expenses without properly appreciating the nature of the assessee’s activities. The learned counsel for the assessee contended that the assessee is engaged in educational promotion activities, which necessarily involve expenditure on admission campaigns, awareness programs, and field visits, and such expenses have been consistently incurred in earlier years as well. It was further submitted that although there was a substantial increase in the expenditure during the year under consideration, the same was attributable to expansion of activities and increased efforts to mobilize admissions. The learned counsel for the assessee fairly admitted that certain supporting evidences could not be furnished in entirety during the assessment proceedings; however, it was argued that complete disallowance of expenditure is not justified, especially when the incurrence of such expenditure is not in dispute. The learned counsel for the assessee, therefore, pleaded that a reasonable view may be taken and an appropriate portion of the expenditure be allowed considering the facts and circumstances of the case.
8. he learned Senior A.R. for the Revenue, Ms. Helen Ruby Jesindha, on the other hand, relied on the orders of the Assessing Officer and the Ld. CIT(A). It was submitted that the assessee has not furnished sufficient supporting evidences to substantiate the claim of sales promotion expenses, and despite opportunities provided during the assessment as well as appellate proceedings, the assessee failed to discharge the onus cast upon it. It was further contended that in the absence of proper documentary evidence and considering the substantial increase in the expenditure, the authorities below were justified in disallowing the same.
9. I have heard both parties, perused the material available on record, and had gone through the orders of the authorities below. The A.O. disallowed 100% of sales promotion expenses amounting to Rs. 25,53,000/- on the ground that there is a substantial increase in such expenses to the extent of 495% when compared to the earlier financial year 2016-17. The A.O. further noted that the assessee could not produce any supporting evidence for the sales promotion expenses. It was the explanation of the assessee before the A.O. that the assessee society conducted various camps at different locations for promoting admissions into various schools, for which it had earned incomes and paid amount, which is evident from the increase in receipts for the year under consideration and the admissions into the schools.
10. I find that, the assessee is incurring business promotion expenditure year on year, which is evident from the order of the A.O., wherein the A.O. noted that the assessee had incurred sales promotion expenses of Rs. 5,15,230/- during the financial year 2016-17. However, the only reason for the A.O. to disallow the entire expenditure is non-submission of relevant supporting evidences. In my considered view, when the assessee is incurring sales promotion expenses year on year and has also furnished relevant details of camps conducted at different locations for promoting admissions into schools, the A.O. ought not to have disallowed the entire amount of expenditure incurred towards sales promotion expenses. Since the assessee has also not produced relevant supporting evidence in respect of the sales promotion expenses even though there is a steep hike in the above expenditure to the extent of 495%, in my considered view, a reasonable amount should be allowed towards sales promotion expenses. Thus, taking into account the facts of the present case and the details submitted by the assessee, I direct the A.O. to disallow 50% of the sales promotion expenses of Rs.25,53,000/-.
11. In the result, the appeal filed by the assessee is partly allowed.
Order pronounced in the Open Court on 22nd April, 2026.
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