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Income Tax Appellate Tribunal, DELHI Bench “E”, NEW DELHI
Before: SHRI AMIT SHUKLA & Dr. B.R.R. KUMAR
PER B.R.R.KUMAR, ACCOUNTANT MEMBER :
This is an appeal by the assessee against the order dated 26/07/2017 of CIT (A)-5, New Delhi, for AY 2013- 14.
The assessee company is engaged in the business of manufacturing and export of writing instruments and allied machines relating to writing instruments. The return of income declaring an amount of Rs. 606,66,000/- was filed by the assessee on 28.09.2013.
During the assessment proceedings, the AO formed that the assessee has incurred sales and business promotion expenses of Rs. 206,32,900/-. The AO disallowed 10% of sales and business promotion expenses on the grounds that the expenses involved gifts, hotel expenses and other personal expenses of the Director.
Ld. CIT(A) confirmed the addition holding that expensive items such as Pashmina Shawals, luxury collections, silver bowls cannot be treated as business expenses. Holding thus Ld.CIT(A) has toned down the disallowance by 50%, in absolute terms to Rs. 10,31,645/-
During the hearing before us, it was argued that the company employes 1200 people and is one of the major exporter of pens from India. Pen is a low value product and requires extensive marketing and quality. All expenses incurred on advertisement, fairs, exhibitions, marketing, travel, business meetings are debited to sales promotion are regular business expenditure and no element of personal expenditure is involved. Ld. DR supported the order of the ld. CIT(A) and argued the assessee has not produced the entire bills. The Ld. AR rebutting the arguments submitted that the assessee has produced all the vouchers in supporting bills and evidences and the disallowance made by the revenue was on adhoc basis without pointing into any bill or voucher or expenditure which is not meant for business purpose. On going through the record, we find that the purchase of shawls and bowls cannot necessarily be treated as personal expenditure but generally given to dealers and customers during the festivals, fairs and exhibitions. The reasoning that the incurring of heavy expenditure of sales promotion expenses itself cannot be a logical ground to disallow 5% of the total market expenses. Similarly, the revenue’s observation that the expenses include snacks, lunch and dinners cannot necessarily lead to a conclusion that they are not sales promotion. Marketing also includes conducting of meetings, conferences which involve provision of snacks, lunch and dinners. Hence, we hold that the disallowance made by the AO and confirmed by the Ld. CIT(A) cannot be avowed with.
In the result, appeal of the assessee is allowed. Order pronounced in open court on 30th day of November, 2021.