Advocate Akhilesh Kumar Sah
Schwing Stetter (India) Private Limited case: Where except for the debit entries, assessee did not produce any evidence to show that the expenditure was incurred wholly and exclusively for the purpose of business expenditure, held as unallowable for deduction while computing total income
In Schwing Stetter (India) Private Limited vs. DCIT [I.T.A. No.1361/CHNY/2015, A.Y.: 2006-07, decided on 03.01,2019], one of the ground in the appeal was as under:-
“Disallowance of expenditure towards gift- Rs.11,20,515/-
a. The learned CIT(A) ought to have appreciated that the expenditure towards gifts pertains to marriage gift, Diwali gifts and farewell gifts.
b. While dismissing the issue, the learned CIT(A) erred in not considering the decision given in the case of ‘CIT(A) vs. Avery cycle Industries Limited (2006) 206 CTR P H 347, 2008 296 ITR 393 PH’ (copy enclosed), relied upon by the appellant.
c. The learned CIT(A) erred in not noting that the appellant has also paid Fringe Benefit Tax on the expenditure.”
Counsel for the assessee submitted that gifts were given to various customers and assessee had furnished all details of such gifts. According to him, these gifts were given for commercial expediency and the expenditure was incurred solely for the business of the assessee. Reliance was placed on the breakup of expenditure placed at paper book pages 52 to 54. According to him, individual expenditure were all small except for one item of C1,87,380/-, which was incurred in relation to sales promotion. Thus, as per the Authorised Representative(AR), the claim ought not have been disallowed.
Per contra, Departmental Representative strongly supported the orders of the lower authorities.
The learned Members of the ITAT considered the rival contentions and perused the orders of the authorities below reason why CIT(A) confirmed the disallowance for expenditure towards gift which is reproduced hereunder:-
‘’I perused the list of ledger break-up of gift expenses provided by the appellant during the appeal proceedings in the paper book. The entries show wide range of debits varying from Rs.150/- to Rs.1,OO,OOO/- without any details, except ‘TRFR TO GIFT’, ‘GIFT FOR CUSTOMER’, ‘DIWALI GIFT’, ‘’TRFR FROM MISC. EXP’’, TRFR FROM ENTERT, GIFT EXP. DBTD TO SALES PRO-TSFRD’, ‘WEDDING GIFT’, MARRIAGE GIFT’, ‘GIFT FOR VENDOR’, etc. On 31.03.2006 alone amongst so many other debit entries pertaining to Gift, amounts of Rs.1,89,380/-, Rs.3,51,093/-, Rs1,OO,OOO/-, Rs.75,OOO/- and Rs.50,OOO/- have also been shown as Gift expenses. The appellant had not produced any other details and documents either before me or the AO, to elicit confidence in the veracity of the claim. Except the list of debit entries said to be pertaining to Gift expenses, nothing was produced during the course of appeal proceedings to establish that the amounts were spent wholly and exclusively for the purposes of business or profession. Similarly the details and nature of the gift expenses and their relation and relevance with the business have not been’ proved by the appellant. A cursory look at the information available in the list of gift amount debit entries shall not fail to evoke doubts and cast aspersions on the bonafides of the claim of the appellant. Therefore, the AO is right in treating the expenditure toward’s gifts as not incurred wholly and exclusively for the purpose of business and in treating the same as expenditure of personal in nature. Thus the gift expenditure of Rs.11,20,515/- does not qualify to be allowed u/s 37 of the Act in computing the income chargeable under the head ‘ Profits and Gains of business of profession’’.
The learned Members of the ITAT observed that CIT(A) has specifically noted that except for the list of the debit entries, assessee did not produce any evidence to show that the expenditure was incurred wholly and exclusively for the purpose of business. In other words assessee could not show the business expediency of the gifts, nor could identify the recipients. The learned Members of the ITAT held that in such circumstances, the claim was rightly disallowed by the AO.