By Rasheela Basheer – On March 23, 2022 7:20 am
The Ahmedabad bench of the ITAT has held that the expenses towards gifts purchased for sales promotion shall be allowable as deduction even if the assessee failed to provide the list of the recipients.
The assessee firm at the relevant time was engaged in the business of installation of computer and providing after-sale services; sale of computers and peripheral and collection from Government department on behalf of suppliers of computers. It has filed its return of income electronically and while perusing the documents, the AO noted that the assessee has debited a sum of Rs.1,29,93,438/- towards sales promotion expenses, and claimed the same in the profit & loss account. The ld.AO found that it has given costly gifts to certain parties.
The AO disallowed this amount out of total claim made by the assessee by holding that the assessee failed to give list of persons to whom such valuable gifts have been made for business promotion. On appeal, the ld.CIT(A) has restricted this disallowance to Rs.9.50 lakhs.
The assessee contended that it was in the business of trading in computer spares and peripheral. It was also providing maintenance services and in order to remain in the market, and also to maintain assessee’s hold in the market, it is essential to incur expenditure on sale promotion.
While upholding the order of the CIT(A), the Tribunal bench comprising Mr. Rajpal Yadav (Vice President) and Mr. Waseem Ahmed (Accountant Member) observed that “the assessee is a well organized business house, who has achieved turnover of more than Rs.102 crores; meaning thereby, its affairs must have been managed in professional manner, where complete details might have been maintained. The assessee has given no details to whom such gift items were given. It is case of the assessee that in order to maintain secrecy of its line of business, it is not incumbent upon him to disclose personal details of recipients. It has shown bills and vouchers for the purchases. All the details have been maintained scientifically. An estimation of disallowance could only be made, if there are some lapses in the detailed maintained by the assessee. The reasoning given by the AO is altogether different which did not meet approval of the CIT(A). Thereafter, the ld.CIT(A) ought to have not made adhoc disallowance. The ld.CIT(A) was not justified in partially confirming the disallowance.”To Read the full text of the Order CLICK HERE
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