SMT LAKSHMI ,TUMKUR vs. INCOME TAX OFFICER WARD-6(2)(4), BANGALORE

It was submitted by learned AR of the assessee that ground No.1 is general and the ground No.2 regarding the assessee’s objection to reopening is not pressed. He also submitted that the only issue to be decided on merit is as per ground No.3 in respect of disallowance of Rs.1,17,48,077/- which was incurred by the assessee under the head “Trade Promotion” Expenses towards salary, incentive conveyance, etc., for Uninor products.

Regarding this issue on merit, it was submitted by learned AR of the assessee that the assessee has already expired on 17.02.2013 and the wife of the assessee has been brought on record as legal representative of the assessee but she is not aware about the total facts and she is unable to produce the required evidences. He submitted that under these facts, this is the request that the comparative figures of trade promotion expenses as percentage of Commission Income for earlier year and later year should be compared with the present year to decide the issue in dispute instead of inability of the L/R of the assessee to produce evidence because of the facts of the present case. He submitted a chart of such comparison and pointed out that in the preceding year i.e. 2011-12, Commission received was Rs.64.98 lakh and the Trade Promotion Expenditure incurred in that year was Rs.53.99 lakh and the percentage of such expenditure is 83%. He also pointed that in the subsequent year i.e. 2013-14, Commission received was Rs.47.71 lakh and the Trade Promotion Expenses incurred in that year was Rs.40.01 lakh which amounted to 84%. Thereafter, he pointed out that in the present year, commission received was on higher side of Rs124.82 lakhs and the Trade Promotion Expenditure incurred was Rs.117.48 lakh which amounted to 94%. It was his submission that although the percentage of expenditure in the present year is slightly higher but this is also should be considered that more expenditure was incurred in the present year to promote the business of which the advantage was expected to be received by the assessee in the subsequent year but because of the death of the assessee on 17th February 2013 i.e. such advantage could not be received by the assessee but still there should be no disallowance in the present year because the expenditure was incurred for the purpose of the business. As against this, learned DR of the Revenue supported the orders of the authorities below.

We have considered the rival submissions. We find that the Assessment Order has been passed by the AO under section 144 of the Income Tax, 1961 hereinafter called “the Act”), because the legal representative of the late assessee could not make proper compliance. As per the impugned order of learned CIT(A), it is seen that it is noted by learned CIT(A) in para 6 of his order that the assessee Shri. G. P. Venkatesh Gupta expired on 17.02.2013 and on his demise, the business was totally closed because the deceased assessee did not have any children and only survivor was his wife who is not educated and has no knowledge about the business. In the light of these facts, we feel that under these facts, inability to produce necessary evidence by the L/R of the assessee alone should not be a basis to decide about the allowability of the expenses in question. We feel that under these facts, the comparability of percentage of expenses in the present year with the expenses of the succeeding year i. e. A. Y. 2013 – 14 should play an important role about allowability of the expenses in question because in that year also, the assessment was completed by the AO u/s 143 (3) and no disallowance was made. We find that in the subsequent year i.e., Assessment Year 2013-14, the assessment was completed by the AO under section 143(3) of the Act on 15.03.2016 as per the copy of the Assessment Order available on pages 36 to 37 of the Paper Book and we find that there is no disallowance out of trade promotion expenses in that year. As per the Chart submitted by learned AR of the assessee, in that year, the percentage of Trade Promotion expenses to Commission received income was 84% as against 94% in the present year. In the light of these facts that in scrutiny assessment for Assessment Year 2013- 14, Trade Promotion Expenses to the extent of 84% was accepted by the AO himself, we feel that confirming disallowance of 10% of the Trade Promotion expenses in the present year will meet the ends of justice as against 100 % disallowance made by the AO and confirmed by CIT(A). We order accordingly and direct the AO to restrict the disallowance out of Trade Promotion Expenses to Rs.11,74,800/- which is 10% of the expenses incurred in the present year. Ground No.3 is partly allowed.

Ground No.4 is in support of ground No.3 only and ground No.5 is regarding charging of interest under sections 234B and 234C of the Income Tax Act, 1961 which is a consequential issue and no separate adjudication is called for regarding ground Nos.4 and 5 and ground No.2 is rejected as not pressed.

In the result, the assesseee’s appeal is partly allowed. Pronounced in the open court on the date mentioned on the caption page.