Exhibition participation fees allowable in year of payment despite exhibition in next A.Y.

M/s. Talbros Engineering Ltd. Vs ACIT (ITAT Delhi)

Assessee had made a payment of sum of Rs.5,75,860/- for participation in exhibition to M/s. Messee Franfurt Trade Fairs India (P) Ltd. for a stall in the international trade fair for the automobile industry. The payment made by the assessee is not in dispute which is evident from the letter written by M/s. Messee Franfurt Trade Fairs (P) Ltd., the copy of which is appearing at page 2 of the paper book and also the copy of invoice and receipt which are appearing at pages 73 and 74 of the paper book. When the payment of participation for exhibition purpose has been made in this year then ostensibly such a payment is revenue in nature incurred for the purpose of business, then the same has to be allowed in the year in which it has been incurred, because for participating in the exhibition it was essential that payment has to be made in advance even if such an exhibition of international trade fair was to be held in the next Assessment Year. Hence, the expenditure incurred cannot be disallowed on this ground. Accordingly, we agree with the contention of the learned counsel that the exhibition expenses paid by the assessee in this year has to be allowed as business expenditure and thus, the ground raised by the assessee on this score is allowed.

Business expenditure cannot be allowed because the items distributed are more of a personalized in nature.

Though assessee has given the list of the item distributed to various customers, however, nowhere it is borne out from the records as to whether distribution of gold and diamond ring and chains were part of the sales promotion activities. Neither any pamphlet of any scheme of sales promotion has been filed nor has any business purpose been shown specifically when the items distributed are more of a personalized in nature. In absence of any proper evidence to demonstrate that these items were actually used for business purpose, we hold that Assessing Officer was far more reasonable in disallowing only 10% of the said expenditure. Accordingly, ground raised by the assessee on this score is dismissed.

FULL TEXT OF THE ITAT JUDGMENT

The aforesaid appeal has been filed by the assessee against the impugned order dated 09.09.2014, passed by CIT (Appeals)-II, Faridabad for the quantum of assessment passed u/s. 143(3) for the Assessment Year 2010-11. In the grounds of appeal, the assessee has raised the following two issues:-

(i) Adhoc disallowance of Rs.2,06,254/- being 10% of sale promotion expenses and;

(ii) Disallowance of Rs.7,75,86 1/- being exhibition expenses incurred on the ground that these did not pertain to impugned Assessment Year.

2. The facts in brief are that the assessee-company is engaged in the business of manufacturing of automobile Learned Assessing Officer during the course of assessment proceedings with regard to the expenses claimed under the head ‘Sales Promotion’, noted that assessee had claimed expenditure on account of purchase of following diamond and gold jewellery:-

3. In response to the show cause notice, the assessee has merely stated that these expenses were incurred for business promotion to various customers. However, the Assessing Officer disallowed 10% of the said expenditure on the ground that no documentary evidence has been filed. These expenses cannot be said to have been incurred solely for the business

4. This has been confirmed by the ld. CIT (A) also wherein he has followed the appellate order for the earlier years wherein the ld. CIT (A) had upheld 20% of disallowance under the same head. Since Assessing Officer had disallowed @ 10%, he confirmed the same.

5. Before us, learned counsel Mr. Somil Agarwal submitted that the assessee has given all the details regarding the purchase of jewellery which was purely for sales promotion before giving to the various customers and these details are appearing in the paper book from pages 69 and he has also given a comparative chart of sales promotion distributed to the customers in various years, which has been given at page 70 of the paper book. Thus, looking to the past history and the fact that all these expenditure are fully verifiable, no adhoc disallowance should have been made.

6. On the other hand, learned DR strongly relied upon the order of the authorities below and submitted that the issue is that assessee could not substantiate the incurring of such expenditure for the purpose of business. Hence, the disallowance made by the Assessing Officer is very reasonable which should not be tinkered with.

7. After hearing both the parties and on perusal of the impugned order and material referred to before us, we find that though assessee has given the list of the item distributed to various customers, however, nowhere it is borne out from the records as to whether distribution of gold and diamond ring and chains were part of the sales promotion activities. Neither any pamphlet of any scheme of sales promotion has been filed nor has any business purpose been shown specifically when the items distributed are more of a personalized in nature. In absence of any proper evidence to demonstrate that these items were actually used for business purpose, we hold that Assessing Officer was far more reasonable in disallowing only 10% of the said expenditure. Accordingly, ground raised by the assessee on this score is dismissed.

8. The next issue raised by the assessee is disallowance of exhibition expenses paid to M/s. Messee Frankfurt Trade Fairs India (P) Ltd. for the purpose of exhibition. Before the Assessing Officer, the assessee submitted that the payment of 5,75,861/- have been made during the year for booking a space for exhibition to be held next year and such an amount paid for participation in exhibition was non refundable even if the assessee cancels it on at later stage. However, the Assessing Officer held that since expense does not pertain to year under consideration, therefore, same cannot be allowed u/s.37.

9. Ld. CIT (A) too has confirmed the said addition on the ground that these exhibition was supposed to be held on 14.09.20 10 to 19.09.20 10 relevant Assessment Year 2011-12, since, the bill for exhibition has been raised on 05.02.2010 for the Assessment Year 2010-11, therefore, amount paid by the assessee was not incurred in relation to the business since assessee had not participated in the exhibition in this year.

10. After hearing both the parties and on perusal of the relevant findings and the material placed on record, we find that assessee had made a payment of sum of Rs.5,75,860/- for participation in exhibition to M/s. Messee Franfurt Trade Fairs India (P) Ltd. for a stall in the international trade fair for the automobile industry. The payment made by the assessee is not in dispute which is evident from the letter written by M/s. Messee Franfurt Trade Fairs (P) Ltd., the copy of which is appearing at page 2 of the paper book and also the copy of invoice and receipt which are appearing at pages 73 and 74 of the paper book. When the payment of participation for exhibition purpose has been made in this year then ostensibly such a payment is revenue in nature incurred for the purpose of business, then the same has to be allowed in the year in which it has been incurred, because for participating in the exhibition it was essential that payment has to be made in advance even if such an exhibition of international trade fair was to be held in the next Assessment Year. Hence, the expenditure incurred cannot be disallowed on this ground. Accordingly, we agree with the contention of the learned counsel that the exhibition expenses paid by the assessee in this year has to be allowed as business expenditure and thus, the ground raised by the assessee on this score is allowed.

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

Order pronounced in the open Court on 31 st July, 2018.