Case Law Details
Rajeev Verma Vs ACIT (ITAT Delhi)
The issue under consideration is whether AO and CIT(A) are correct in disallowing the Business Promotional Expenditure declared by the assessee?
In the present case, during the course of assessment proceedings, the Assessing Officer (AO) observed that the assessee had debited an amount as business promotion expenses and the assessee was required to furnish detailed ledger account of these expenses. From the perusal of the ledger account it was observed that the major part of the expenditure was towards purchase of precious items, gold items and cash payments for various gift items. The AO required the assessee to further explain as to how these business promotion expenses had helped in promotion of the business as many of the payments were in cash or were for purchase of jewellery and other precious items. The AO also pointed out some discrepancies in the serial number of the bills and their corresponding dates and, thereafter, went on to disallow an amount and added the same to the income of the assessee.
ITAT states that, there is no denying that the gross turn-over of the assessee has been increasing. Even the profit returned by the assessee has shown the corresponding proportional increase. The only failure on the part of the assessee has been that he could not establish the business nexus of the impugned expenditure to the satisfaction of the lower authorities. It is the opinion of the lower authorities that the assessee could not establish a link between the gifts given and the sales orders received. However, it may not be practically possible for all businesses to maintain a complete list of the gifts given to their various customers and demonstrate that a particular sales order was received as a result of a particular gift. The Act also does not prescribe demonstrating such live linkage. In the present case, there is no denial b the department that the assessee has been carrying on business regularly, the department also does not allege that there is any personal element involved in the impugned expenditure. It is also an accepted business practice in India that customary gifts are usually handed out during festive occasions. Although, handing out gold items or semi-precious items may be frowned upon by the revenue authorities, all the same it cannot be a reason for disallowing the expenditure, especially when it is settled law that the revenue cannot step into the shoes of a businessman and direct how the business should be conducted. However, ITAT also feel that the reasonableness of quantum of expenditure vis a vis the turnover would have to be justifiable. Accordingly, it is our considered opinion that interest of justice would be served if the disallowance is restricted to 40% of the initial total disallowance.
Therefore, the appeal of the assessee partly allowed.
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Author Bio
employee business promotion is applicable for tds deducted and also how to get entry posted