Parshwanath Realty Pvt. Ltd. Vs ADDL/JT/DY/ACIT/ITO (ITAT Ahmedabad)
Income Tax Appellate Tribunal (ITAT) Ahmedabad has dismissed an appeal filed by Parshwanath Realty Pvt. Ltd., upholding a decision by the Commissioner of Income Tax (Appeals) that restricted the disallowance of exhibition expenses to 75%. The case centered on the interpretation of Section 37 of the Income Tax Act, which governs expenses laid out “wholly and exclusively” for business purposes.
Parshwanath Realty Pvt. Ltd., engaged in building construction and civil contracting, had incurred exhibition expenses totaling Rs. 36,61,750 for the Assessment Year 2018-19. These expenses were related to an event, “Gihed Credai Converse,” hosted by “Parshwanath Corporation,” a firm in which Parshwanath Realty Pvt. Ltd. holds a 10% partnership interest.
During assessment proceedings, the assessee contended that the expenses were incurred to promote the “Parshwanath Group” as a whole, arguing for business expediency. It was submitted that while a direct benefit might not immediately accrue, the expenditure ultimately served the business interest by building the overall image of Parshwanath Corporation, from which the assessee, as a partner, was entitled to a share of profits.
However, the Assessing Officer (AO) rejected this explanation. The AO maintained that the exhibition and promotion expenses were not directly linked to any actual or foreseeable business activity of Parshwanath Realty Pvt. Ltd. and therefore did not satisfy the “wholly and exclusively” criterion under Section 37. The AO further reasoned that Parshwanath Corporation is a separate legal entity for tax purposes, and expenses incurred on its behalf could not be treated as a business expense of the assessee company. Even if an indirect benefit was assumed, it would be shared with other partners, making it difficult to consider the expenses as solely for the assessee’s business. Consequently, the AO disallowed the entire amount of Rs. 36,61,750.
