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Facts
The assessee, a Chartered Accountant, incurred business promotion expenses including gold coins as gifts. The Assessing Officer disallowed the entire expenses for lack of details and verification. The CIT(A) upheld the disallowance.
Held
The Tribunal partially allowed the appeal, sustaining 50% of the gold coin expenses and a portion of other expenses, while deleting the rest. The decision was based on the partial substantiation of the expenses as being for business promotion.
Key Issues
Whether business promotion expenses, particularly gifts of gold coins, are allowable as a deduction under Section 37 of the Income Tax Act when not fully substantiated with complete details of recipients and their assistance.
Sections Cited
37
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PER PAWAN SINGH, JUDICIAL MEMBER;
This appeal by assessee is directed against the order of Ld. CIT(A)-30, New Delhi dated 12.06.2025 for assessment year (AY) 2016-17. The assessee has raised following grounds of appeal:
1. That the learned Commissioner of Income tax (Appeals) has erred in law and on fact in upholding addition made by Assessing Officer that business promotion expenses amounting to Rs. 36,10,758/- were not incurred wholly and exclusively for the purpose of business and profession.
2. That any other reliefs deemed fit in the facts and circumstances of the case may be granted.
The appellant craves leave to add, to alter, to amend, or to delete the above ground of appeal at or to prior to hearing of the appeal as may be required to enable the Learned Income Tax Appellate Tribunal to dispose off this appeal according to the law.”
Brief facts of the case are that assessee is an individualand Chartered Accountant by profession. The assessee is engaged in professional services of financial consulting and fund raising services. The assessee filed his return of income for A.Y. 2016-17 on 17.10.2016. In the computation of income, the assessee has shown income from business and profession of Rs. 33,58,326/- and after set off of brought forward losses of Rs. 36,54,232/-, the assessee has shown nil income. The case was selected for scrutiny. During the assessment, the assessing officer accepted that assessee is engaged in the activities of investment banking involving arranging loans for corporates. The assessee is also a practicing Chartered Accountant. The majority of income receipt are from investment banking which is about 90% of total income.
During assessment, the assessing officer also noted that assessee has shown / debited business promotion expenses of Rs. 36,10,758/-. The assessee was asked to furnish details of such business promotion expenditure along with documentary evidence in the form of bills and vouchers for verification. The assessee filed reply and furnished ledger copy of business promotion expenses with vouchers. The assessing officer was not satisfied with the evidences furnished by assessee. The assessing officer was of the view that all the vouchers are not supported with bills or receipts. Some of the vouchers are for purchases of gold payment of Café Coffee Day, Metro shoes and Garware Club House, credit card retail statement, hotel bills, lifestyle bills and travel bills etc. The assessing officer recorded different bifurcation of total expenses on page-3 of his order. The assessing officer further recorded that out of total sale promotion expenses of Rs. 36,10,758/-, the assessee has shown Rs. 28,57,368/- for purchase of gold coins. The assessee was asked to substantiate such expenses for purchasing of gold coins. In response to such show cause notice, the assessee stated that gold coins are purchased for giving gifts at regular intervals for assignment for arranging loans through references. It was also contended that he may or may not require to pay professional fees but to give gifts to get supports form them.
The assessing officer was of the view that it is the tactics of the assessee to reduce the tax liability. The assessee has not furnished the name and address, PAN of such persons and no TDS were made on such expenses. The assessee has claimed expenses under the head business promotion expenses without furnishing details and avoiding TDS on such payments. The list furnished by assessee shows that assessee has gifted gold coins of cost of Rs. 49,00,000/-. The names of most of the persons are not furnished. The assessing officer disallowed the entire business promotion expenses.
Aggrieved by the action of assessing officer, the assessee filed appeal before ld. CIT(A). Before ld. CIT(A), the assessee filed his written submission. The submissions of assessee are recorded in para 7 of order of ld. CIT(A). In the submission, the assessee explained that assessing officer made addition without appreciating detail bills, ledger and other submissions. The assessing officer added entire expenses incurred on total business centre charges for meeting clients, travelling expenses, and entertainment and meeting expenses. All the expenses were incurred wholly and exclusively for the purpose of business and were classified as business promotion expenses.
Such expenses were necessitated to generate business or getting assignment for which the assessee earned revenue and income was offered to tax, in the absence of such expenses, such income was not possible.
The ld. CIT(A) on considering the submission of assessee upheld the action of assessing officer. The ld. CIT(A) held that out of total expenses, the assessee debited to Rs. 28,57,368/- for purchase of gold coin and Rs. 7,53,390/- as payment to Café Coffee Day, Metro shoes, Club Houses, Credit Card bills, Hotel bills etc. The assessee has not able to produce detail of expenses and merely furnished bills of purchase of gold, which cannot be considered sufficient proof that it was used for business purposes only. The onus was on the assessee to prove that expenses claimed by him were incurred and exclusively for the purpose of business within the scope of section 37 of Income Tax Act. Further aggrieved, the assessee has filed present appeal before Tribunal.
We have heard the submissions of both the parties and perused the record carefully. The learned Authorised Representative (ld. AR) of the assessee is a Chartered Accountant (CA) by qualification. He is providing financial consulting and fund raising services to various clients cross India. The majority of business receipts are from financing and loan raising activities on which the assessee is earning percentage of commission. Total receipts of the assessee during the year were more than Rs. 70.00 lacs. The assessee in his computation of income debited business promotion expenses of Rs. 36,10,758/- was on account of various expense and purchase of gold coins for giving gifts on various festive occasions like Diwali and other customary occasions to persons who are helpful to the assessee for giving his business.
The assessee provided such gift items wholly and exclusively for the growing of his business. The disallowance under section 37 of the Income Tax Act is not justified when such expenses is directly in connection with the business activity. The main basis for disallowance by lower authorities was that name, address and PAN no. of person to whom gifts were not provided. The gifts were shown to avoid the TDS and to reduce the tax liability. It was also an objection that assessee has intentionally shown gift below Rs. 50,000/-. Such observation of lower authorities is only based on surmises and assumption without reference of fact. The assumption that gift is shown to save the tax is grossly incorrect and devoid of any merit. The lower authorities failed to appreciate that gifts were made to business associates in India and is customary and generally acceptable in social and legal norms. The person who assisted in procuring business needs to be reciprocated on festival or on the best opportunity. The assessee provided complete details of all gift items, ledger account and names of the person to whom gold coins were given. The assessee also furnished the name of jewellery house from whom the assessee purchased such gold coins. No investigation of facts was carried out by assessing officer. Majority of expenditure is on gold coins. Second major component is on account of various meetings, tours or club expenses. The assessee incurred such expenses in well-known Club or touring destination again no verification from such business houses or from touring destination was carried out. The ld. AR of assessee while referring certain decision of Higher Courts would submit that “wholly and exclusively” does not include “necessarily”. It is for the assessee to decide whether the expenses should be incurred in the course of business. The expenditure may be incurred voluntarily and without any necessity provided it is incurred for promoting the business to earn profit which is allowable deduction under section 37. The ld. AR of the assessee submits that he has given a written note on his submission which may be considered. To support his submission, the ld. AR of the assessee relied upon the decision in: Sassoon J. David & Co. Pvt. Ltd. (1979) 1 Taxman 485 (SC) Chandulal Keshavlal & Co. (1960) 38 ITR 601 (SC) CIT vs Chandulal Deshavlal & Co. and Sasson J. David & Co. (P) Ltd. vs CIT 2 Great Value Foods (ITA No. 314/Asr/2011 IREO Waterfront Pvt. Ltd. (ITA No. 2849 & 2850/Del/2016 Rajeev Verma vs ACIT (ITA No. 6143/Del/2016) R.K. Trading Company (ITA No. 2609/Ahd/2017) ISGEC Heavy Engineering Ltd. vs DCIT (ITA No. 798/Chd/2019) Bharat Anand vs ACIT (ITA No. 3844/Del/2019) DCIT vs KPMG Assurance and Consulting Services Ltd. (ITA No. 2272 & 2411/Mum/2023) & C.O. 126/Mum/2023)
On the other hand, the ld. Sr. DR for the revenue supported the order of lower authorities. The ld. AR of the assessee submits that assessee has shown nil income. Against the alleged professional receipt, the assessee set of carry forward losses and against remaining receipt, the assessee has shown business promotion expenses. The details of expenses furnished by assessee are not verifiable. The assessee has given various details in his ledger, majority of which are personal in nature. By referring certain entries like expenditure in SaJ Resort which is about Rs. 1,00,000/- at page no. 12, no details were furnished as to who has availed such resort facility. Similarly, the gold coins which are major part of business promotion and no address or PAN no. of such recipient was provided. How they assisted business is not disclosed by assessee. In the absence of such detail, the expenses were not verifiable. The lower authorities have given clear finding that such expenses are shown only to reduce the taxable income. The ld Sr DR for the revenue prayed for dismissal of the appeal.
We have considered the rival submissions of both the parties and have gone through the orders of lower authorities carefully. I have also deliberated on various case laws relied by ld. AR of the assessee. Similarly, I have seen the various documents which are in the form of ledger account purchase/tax invoices of gold coin purchased from Ummed Jewellers or Kirtimumar I Jain.
The assessing officer doubted the business promotion expenses by holding that assessee has shown expenditure of Rs. 7,53,390/- incurred on purchase of Metro Shoes, or payment to Café Coffee Day, Club Houses, Credit Card bills, Hotel Bills, Travel Bills. No supporting documents of such bills were furnished. Similarly, the assessee has shown expenditure incurred on purchase of gold coin worth Rs. 28,57,368/-. On comparison of ratio business promotion expenses, I find that almost 3/4th expenses are on account of gold coins only. No doubt that assessee has provided a list of 59 persons to whom the assessee gifted gold coin of 18 grams each, except in one case PNP Maritime Services Pvt. Ltd. to whom the assessee has shown 5.00 grams and 18 grams. In the remark column, the assessee in majority of cases as mentioned that ‘gift coin has given as they helped with others to procure assignment’ or ‘extended help’. The assessee has shown total weight of gold coin of 1049 grams which were gifted during the financial year, as per page 52 of paper book. Considering the total business receipt of assessee during the relevant financial year, the cost of gift article particularly gold coins do not inspire confidence. Since the assessee has not given address, phone no. and majority of persons are from different institutions and the specific assistance by such persons is not explained. Therefore, 50% of such cost of gift particular of gold coin is sustained and 50% is deleted. So far as other expenses on various occasions and majority of which are on account of Club expenses, very small expenses or on Saj Resort are allowed. To be more specific, out of total business promotion expenses of Rs. 36,10,758/-, Rs. 14,28,684/- is sustained and remaining of Rs. 21,82,074/- is deleted. In the result, grounds of appeal of assessee are partly allowed.
In the result, the appeal of the assessee is partly allowed.
Order was pronounced in the open Court on 18/08/2025.