Rampur Arvind Vs ACIT (Karnataka High Court)
The Karnataka High Court dismissed the assessee’s appeal under Section 260A of the Income Tax Act, 1961, challenging the order of the Income Tax Appellate Tribunal (ITAT), Bengaluru, which had upheld the disallowance of business promotion expenditure of Rs.53,48,852 claimed under Section 37(1) of the Act for Assessment Year 2009-10.
The assessee, an individual engaged in the business of providing hospitality services and civil contracting, filed the return of income declaring total income of Rs.28,78,250. During scrutiny assessment under Sections 143(2) and 142(1), the Assessing Officer noticed that the assessee had claimed Rs.53,48,852 as business promotion expenditure.
According to the assessee, the expenditure represented commission or incentive payments made to executives of private business houses for procuring business relating to service apartments. The assessee contended that these payments were made to officials in the Human Resources Departments of client companies to secure business and were incurred wholly and exclusively for business purposes. It was further submitted that the payments were, at the highest, secret commissions paid to private persons and not bribes to public servants. Therefore, Explanation (1) to Section 37(1) was stated to be inapplicable.
The Assessing Officer treated the payments as bribes and disallowed the entire claim of Rs.53,48,852 under Section 37(1), adding the amount to the assessee’s income by order passed under Section 143(3). The Commissioner of Income-tax (Appeals) confirmed the disallowance, and the ITAT dismissed the assessee’s further appeal.
