ITAT Allows Advertisement Expenses as Sponsorship & Promotional Activities Were Business-Related

Bengal Peerless Housing Development Company Ltd. Vs DCIT (ITAT Kolkata)

The appeal was filed by the assessee against the order of the Commissioner of Income-tax (Appeals), Panaji, for Assessment Year 2013-14. The dispute primarily related to disallowances made by the Assessing Officer in respect of advertisement and publicity expenses, legal and professional fees, and a deduction claimed in relation to an earlier year’s disallowance.

With regard to advertisement and publicity expenses, the Assessing Officer observed that the assessee had claimed expenditure of ₹42,20,000 and sought details and supporting evidence. After examining the expenditure, the Assessing Officer disallowed ₹21,45,198, holding that the expenses were not incurred wholly and exclusively for the assessee’s business and were therefore not allowable under Section 37(1) of the Income-tax Act. The disallowed items included expenditure on sponsorships, advertisements relating to green movement initiatives, football tournaments, and promotion of a football team. The Commissioner (Appeals) confirmed the disallowance.

The Tribunal examined the nature of the expenditure and found that the expenses had been incurred in connection with sponsorship of a football team, promotion of football-related events, and support for a green movement. The Tribunal held that the Assessing Officer’s conclusion that the expenses were not incurred wholly and exclusively for business purposes was incorrect. According to the Tribunal, these expenses were incurred for promoting the assessee’s business and were therefore allowable as business expenditure. The order of the Commissioner (Appeals) was set aside and the Assessing Officer was directed to delete the addition of ₹21,45,198.

The second issue concerned disallowance of ₹7,18,000 out of legal and professional fees of ₹62,16,879 claimed by the assessee. The Assessing Officer considered certain expenses to be outside the nature of legal expenses and disallowed them. The Commissioner (Appeals) upheld the disallowance.

After reviewing the matter, the Tribunal observed that the disputed payments were monthly retainership expenses. It noted that retainership arrangements are common business practices and that differences in classification or nomenclature of expenditure do not alter the fact that the expenses were incurred for business purposes. The Tribunal further observed that the Assessing Officer had not questioned the genuineness of the expenditure. Accordingly, the Tribunal set aside the order of the Commissioner (Appeals) and deleted the addition of ₹7,18,000.

Another issue related to expenditure of ₹20 lakh paid to Kalighat Milan Sangha towards sponsorship and promotion of football matches. In Assessment Year 2012-13, the expenditure had been disallowed under Section 40(a)(ia) because no bill had been received before 31 March 2012 and tax had not been deducted at source. The Assessing Officer had noted that tax was deducted in the following financial year and had observed that the expenditure should be allowed in the subsequent year. During appellate proceedings, the Assessing Officer reiterated this position in a remand report. Although the Commissioner (Appeals) confirmed the addition, he observed that the assessee could claim the deduction in the year in which tax was deducted and paid.

The Tribunal held that the deduction should be allowed in accordance with the provisions of the Act when tax is deducted and deposited. Since tax was deducted and deposited during Financial Year 2012-13, relevant to Assessment Year 2013-14, the assessee was entitled to deduction of ₹20 lakh in that year. The Tribunal therefore set aside the order of the Commissioner (Appeals) and directed the Assessing Officer to allow the deduction.

FULL TEXT OF THE ORDER OF ITAT KOLKATA

This is an appeal preferred by the assessee against the order of the Commissioner of Income-tax (Appeals), Panaji(hereinafter referred to as the “Ld. CIT(A)”] dated 27.11.2025 for the AY 2013-14.

2. The issue raised in ground no.1 is general in nature and needs no specific adjudication.

3. The issue raised in ground no.2 is against the confirmation of disallowances as made by the ld. AO of ₹21,45,198/- on account of advertisement and publicity expenses out of total claim of ₹42,20,000/-, purely on adhoc basis.

3.1. The facts in brief are that the ld. AO during the course of assessment proceedings, observed from the profit and loss account that the assessee has claimed an expenditure of ₹42,20,000/- on account of advertisement and publicity. Accordingly, the assessee was asked to furnish the evidences showing party wise detail and purpose of incurring such expenditure. The assessee submitted before the ld. AO that the expenses were incurred in the ordinary course of business. Thereafter, the ld. AO identified few expenses and disallowed the same aggregating to ₹21,45,198/-. We note that the detail of these expenses is given by the ld. AO in Para no.1.1-page no.2 of the assessment order. We note that the expenses were mainly incurred by the assessee foir the purpose of business and the same are extracted as under:-

3.2. According to the ld. AO, the expenses were not incurred by the assessee in connection with the business of the assessee and consequently, the same was added to the income of the assessee by holding that these were not incurred wholly and exclusively for the purpose of business and hence not allowable u/s 37(i) of the Act.

3.3. In the appellate proceedings, the ld. CIT (A) confirmed the order of the ld. AO finding on this issue.

3.4. After hearing the rival contentions and perusing the materials available on record, we find that the expenses were incurred by the assessee in connection with the sponsorship of football team and for the promotion of the same. Besides, the assessee also incurred some expenses on green movement. Considering the nature of these expenses, we are of the view that the finding of the ld. AO that these expenses were not incurred wholly and exclusively for the purpose of business is wrong and cannot be sustained. In our opinion, the assessee has incurred these expenses for promoting its business and therefore, allowable as business expenses. Accordingly ,we set aside the order of the ld. CIT (A) and direct the ld. AO to delete the addition.The ground no.2 is allowed.

4. The issue raised in ground no.3 is against the order of ld. CIT (A) confirming the disallowances of ₹7,18,000/- on account of legal and profession fee out of ₹62,16,879/- claimed by the assessee in the profit and account .

4.1. Facts in brief are that the ld. AO observed from the profit and loss account that the assessee has claimed ₹1,31,51,531/- towards other expenses which included legal and profession fee charges of ₹62,16,879/-. Accordingly, the assessee was asked to furnish the details and evidences for the same, which were duly furnished by the assessee. The ld. AO noted that the expenses incurred by the assessee as per table below, which were not in the nature of legal expenses and accordingly, disallowed the same.:-

4.2. The ld. CIT (A) confirmed the order of the ld. AO. After hearing the rival contentions and perusing the materials available on record, we find that the assessee has incurred these expenses by way of monthly retainership expenses. We note that this type of retainerships are very common and usal in the business now a days where the people are retained by monthly retainer. There may be a difference of opinion about the heads of expenses/nomenclatre however, the expenses were surely expended in connection with the business of the assessee. The ld. AO has not expressed any doubt about the genuinity of the expenses. Consequently, we set aside the order of ld. CIT (A) and delete the addition. The ground no 3 is allowed.

5. The issue raised in ground no.4 is in support of other grounds of appeal, wherein the assessee claimed that no disallowances could be made without rejecting the books of accounts u/s 145(3) of the Act.

6. The issue raised in ground no.5 is in respect of expenses incurred on advertisement of ₹20 lacs paid to M/s Kalighat Milan Sangha on 30.03.2012, which was claimed as deduction in A.Y. 2012-13. However, the same was disallowed by the ld. AO. In the appellate proceedings, the ld. AO in the remand report pointed out that TDS on the said expenses was deducted and paid in terms of first proviso to Section 40(1)(ia) of the Act and therefore requested to direct the ld. AO to allow the claim in A.Y. 2013-14.

6.1. the facts in brief are that in A.Y. 2012-13, i.e. the preceding assessment year, the ld. AO disallowed expenses of ₹20 lacs incurred under the head advertisement and publicity by invoking the provisions of Section 40(i)(ia) of the Act. The ld. AO observed that the assessee has paid ₹20 lacs on 30.03.2012 to M/s Kalighat Milan Sangha. The ld. AO also noted that the above party was given sponsorship of football matches and the payment was made for the promotion of the business of the assessee. The ld. AO only disallowed the claim on the ground that no bill was received on or before 31.03.2012, and no TDS was deducted. The ld. AO also observed that TDS was deducted in the next F.Y. 2012-13 and therefore, these expenses are to be allowed in the subsequent year.

6.2. In the appellate proceedings, the ld. CIT (A) referred to the remand report passed by the ld. AO but confirmed the addition, however, the ld. CIT (A) recorded an observation that the assessee may claim the deduction in computing his income in which TDS was deducted and paid. The ld. CIT (A) during the year did not consider the claim. In our opinion, the said expenses are to be allowed in terms of the direction of the ld. CIT (A) which is a correct and in consonance with the provision of the Act that the expenses are to be allowed when the TDS is deducted and deposited. Since, the TDS is deducted and deposited during the F.Y. 2012-13, relevant to A.Y. 2013-14. Therefore, the assessee is entitled to the deduction of ₹20 lacs in the financial year 2012-13 relevant to 2013-14. Consequently, we set aside the order of ld. CIT (A) and direct the ld.AO to allow the deduction in computing the income of the assessee. The appeal of the assessee is allowed. The ground no 5 is allowed.

7. The other grounds raised by the assessee are not adjudicated and left open to be decided if the need arises for the same.

8. In the result, the appeal of the assessee is partly allowed.

Order pronounced on 20.05.2026.