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Facts
The assessee claimed large sales promotion expenses, but failed to provide documentation to substantiate their genuineness and volume. The AO disallowed 50% of these expenses, amounting to Rs. 71,88,348/-, due to lack of evidence.
Held
The Tribunal noted that the CIT(A) refused to accept additional evidence due to non-compliance with Rule 46A. However, the genuineness of expenses cannot be determined without examining this evidence. Therefore, the matter was restored to the AO for fresh assessment.
Key Issues
Whether the CIT(A) erred in refusing to admit additional evidence filed by the assessee and whether the disallowance of sales promotion expenses without proper examination of evidence was justified.
Sections Cited
250, 143(3), 46A
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, LUCKNOW ‘A’ BENCH, LUCKNOW
A.Y. 2016-17 Trigat Life Sciences Private Limited, vs. Deputy Commissioner of 301, 3rd Floor, Kusum Deep Income tax-6, Lucknow New Complex Chowk, Lucknow, U.P. PAN:AACCT7404N (Appellant) (Respondent) Assessee by: None Revenue by: Sh. R.K. Agarwal, CIT DR Date of hearing: 30.07.2025 Date of pronouncement: 29.08.2025 O R D E R PER NIKHIL CHOUDHARY, A.M.: This is an appeal filed by the assessee, against the orders of the ld. CIT(A), NFAC under section 250 of the Income Tax Act, 1961 on 27.02.2025, dismissing the appeal of the assessee filed against the orders of the ld. DCIT, Circle-6, Lucknow, under section 143(3) on 27.11.2018. The grounds of appeal are as under: -
1. The Ld. Commissioner of Income-tax (Appeal) has erred in law and on facts in passing the order, which is unlawful, unjustified and against the principles of natural justice.
2. The Ld. Commissioner of Income-tax (Appeal) has erred in law and on facts in passing the order without giving adequate opportunity of being heard.
3. The Ld. Commissioner of Income-tax (Appeal) has erred in law and on facts in passing the order with intangible addition of 50 percent sales promotion expenses of Rs 7188348 on estimated basis.
4. The Ld. Commissioner of Income-tax (Appeals) has erred in law and on facts in passing assessment order which is contrary to the facts and law.
A.Y. 2016-17 Trigat Life Sciences Private Limited 5. The appellant craves leave to add, amend, alter or withdraw any ground of appeal or raise any new ground of appeal during the pendency of appeal.”
The facts of the case are, that the assessee filed a return of income for the assessment year 2016-17 declaring total income of Rs.27,04,340/-. The case was selected for limited scrutiny to examine, ‘large sales promotion expenses viz a viz gross receipts (Part A-P&L of ITR)’. Accordingly, the scrutiny of the case was taken up for this purpose. The ld. AO noted that the assessee company was involved in trading of pharmaceuticals in the State of Uttar Pradesh, it had drug licenses and got its medicines manufactured under license from approved drug and pharmaceutical manufactures, under its registered brand name. The ld. AO observing that the assessee had claimed large sales promotion expenses, asked the assessee to submit the details of the same justifying the said expenses. However, the assessee did not make any submission in this regard and the ld. AO therefore noted, that no documents were submitted by the assessee that could substantiate the volume and genuineness of sales promotion expenses, as claimed by the assessee in its ITR. Therefore, after considering the fact that certain amount of sales promotions expenses was necessary for business, the ld. AO for want of documentation, disallowed 50% of those expenses and made an addition of Rs. 71,88,348/- in that regard.
Aggrieved by this order, the assessee filed an appeal before the ld. CIT(A), Lucknow, which was subsequently transferred to the NFAC. During the course of appeal proceedings, the assessee filed certain fresh evidences in the form of supporting bills for sales promotions expenses, gift items, dinner at restaurant, gift given to Doctors and retail traders and other incentives given to large purchasers of medicines and prayed that the same may be admitted under Rule 46A. However, the Ld. CIT(A) found that the assessee had failed to substantiate the claim with valid reasons and failed to explain why these were not filed before the ld. AO, in spite of the fact that the reasonable and sufficient opportunity had been provided. He also A.Y. 2016-17 Trigat Life Sciences Private Limited observed that the Hon’ble Kerela High Court in the case of C. Unnikrishnan vs. Commissioner of Income-Tax (1998) 233 ITR 485 had observed, that where the material on record makes it clear that no attempt was made before the ld. AO or shows no regard to follow the requirement of Rule 46A, the additional evidence could not be admitted. Furthermore, he pointed out that the Hon’ble ITAT Delhi in the case of Mrs. Jyotsna Suri vs. DCIT (1997) 61 ITD 139, had held an assessee could not adduce additional evidence before the appellate authority as a matter of right and the ld. CIT(A) was justified in refusing to entertain additional evidence, if they had not been produced before the ld. AO. The ld. CIT(A) also quoted from the orders of A.K. Babu Khan vs. CWT (1976) 102 ITR 757 (Andhra Pradesh), the case of Bobbili Gowresu vs. Kottu Subhadramma AIR 1957 AP 961, the case of Arjan Singh Alias Puran vs. Kartar Singh AIR 1951 SC 193 and the case of Ram Prasad Sharma vs. CIT (1979) 233 taxman 469 (Allahabad). He, therefore, declined to accept this additional evidence and he rejected the appeal of the assessee.
Aggrieved with the said order, the assessee filed this appeal before us. It is observed that the case came up for hearing on two occasions and no appearance was made by anyone on behalf of the assessee. On the first date of hearing, notice was issued to the assessee under RPAD and it has been informed that the same has been served. Despite this, there was no response. In the circumstances, we do not deem it appropriate to keep this appeal pending. Accordingly, we proceed to decide the issue on its merits. It is seen that the ld. CIT(A) has refused to accept the additional evidences filed before him, on account of the fact that they did not meet the conditions specified in Rule 46A, but we note that the fact of the genuineness and admissibility of the claim of expenses cannot be determined until these additional evidences are examined, which is the mandate that was given to the Assessing officer Therefore, in the interest of justice, we restore this matter back to the file of the ld. AO with a direction to the assessee to furnish all these evidences before the ld. AO and also make it submissions