DCIT Vs Lotus Herbals Pvt. Ltd. (ITAT Delhi)
Delhi ITAT ‘E’ Bench in DCIT, CC-20 vs Lotus Herbals Pvt Ltd (ITA Nos.2442 to 2445/Del/2023 for AYs 2013-14 to 2016-17 & ITA No.200/Del/2023 for AY 2019-20, order dated 23-12-2025) dismissed all five appeals of the Revenue, upholding the deletion of massive disallowances relating to Advertisement, Marketing & Promotion (AMP) expenses and salary paid through credit notes.
The case arose out of reassessment and regular assessments where AO, relying heavily on survey findings and non-response to notices u/s 133(6), treated AMP expenses as bogus/non-genuine, alleged disproportionate brand-building benefiting sister concerns, and disallowed salary payments routed through credit notes as sham. CIT(A) deleted the additions after calling for a remand report.
ITAT noted that in the remand proceedings, AO himself accepted the genuineness, identity and services of vendors, based on PAN, GST, ITRs, invoices, vouchers, confirmations and turnover certificates. Vendors had declared higher turnover than receipts from the assessee and were regular suppliers year after year, demolishing the “bogus expense” theory. Once AO accepted facts in remand, Revenue could not turn around in appeal.
On the issue of salary paid through credit notes, Tribunal accepted the commercial reality that beauty advisors and sales staff were deployed at retailer/showroom level to promote Lotus products, a well-accepted industry practice. Such costs, though routed through distributors via credit notes, were held to be legitimate marketing & sales promotion expenses u/s 37, not sham salary payments. Mere absence of formal agreements or timing of accounting entries during survey was held insufficient to deny deduction.
ITAT also rejected Revenue’s argument of brand-building for sister concerns, holding that AMP expenditure was incurred wholly for assessee’s business, consistently allowed in other years, including AY 2019-20 & AY 2020-21. Principle of consistency and lack of contrary material weighed heavily against the Department.
Resultantly, all AMP disallowances and credit-note salary additions were deleted, and Revenue’s appeals were dismissed in entirety, reaffirming that commercial expediency cannot be substituted by AO’s suspicion and that survey-based conjectures must yield to documentary evidence
FULL TEXT OF THE ORDER OF ITAT DELHI
