Loading judgment…
Facts
The assessee, engaged in financial services, claimed large sales promotion expenses. The AO disallowed the expenses due to an abnormal increase and lack of explanation. The CIT(A) partly allowed the appeal, restricting the disallowance to 75%. The assessee also faced delays in filing the appeal due to a director's illness and subsequent demise.
Held
The Tribunal condoned the delay in filing the appeal, recognizing the sufficient cause presented by the assessee due to the director's illness and death. The Tribunal set aside both the AO's and CIT(A)'s orders, remanding the case to the CIT(A) for fresh adjudication after granting the assessee an opportunity to be heard and obtaining a remand report from the AO.
Key Issues
Whether the delay in filing the appeal can be condoned and whether the sales promotion expenses were incurred wholly and exclusively for business purposes.
Sections Cited
143(3), 250, 37(3A), 115JB, 46A, 250(6)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, PATNA BENCH AT KOLKATA
Before: SHRI SONJOY SARMA & SHRI RAKESH MISHRA
PER RAKESH MISHRA, ACCOUNTANT MEMBER:
This appeal filed by the assessee is against the order of the CIT(A)- NFAC, Delhi [hereinafter referred to as Ld. 'CIT(A)'] passed u/s 250 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) for AY I.T.A. No.: 622/PAT/2024 Assessment Year: 2018-19 Bluechip Asset Private Limited (Previously Known as Bluechip Advisory Pvt. Ltd.). 2018-19 dated 30.01.2024, which has been passed against the assessment order u/s 143(3) of the Act, dated 12.03.2021. 1. 1. The Registry has informed that the appeal filed by the assessee is barred by limitation by 208 days. An application seeking condonation of delay has been filed by the assessee, the contents of which are as follows:
“1. That the applicant is filed appeal before ITAT within the time of 60 days from the date of receipt of order. There is delay of 193 Days in filling of appeal.
That the, reason of delay filling of appeal that one of the director "Shanti Devi (DIN-01935923) was ill from last year. Due to illness of the director, we have not proper reply to CIT(A) also. And they have passed order accordingly as we have not reply on time to CIT(A).
That the, The Director (Shanti Devi (DIN-01935923) has passed away (dead) on 21/07/2024. The whole family is engaged in hospitalization and diagnosis center. Due to this, we were not in position to reply properly to CIT(A) as well as appeal before time limit to ITAT. The death certificate and laboratory report is being enclosed here with.
It is request to you that kindly allow the condonation of appeal.”
Considering the application seeking condonation of delay and the reasons stated therein, we are satisfied that the assessee had a reasonable and sufficient cause and was prevented from filing the instant appeal within the statutory time limit. We, therefore, condone the delay and admit the appeal for adjudication.
The assessee is in appeal before the Tribunal raising the following grounds of appeal:
“1. The Appellant is a company "Bluechip Assets Private Limited" (as per meaning of Companies Act 2013) having Registered office at (407, Indrapuri, Keshri Nagar, Patna-800014). Previously our company known as Bluechip Advisory Private Limited. I.T.A. No.: 622/PAT/2024 Assessment Year: 2018-19 Bluechip Asset Private Limited (Previously Known as Bluechip Advisory Pvt. Ltd.).
The Appellant is in the business of consultancy firm of share market, mutual fund and other related filed.
That the applicant is filed appeal before ITAT within the time of 60 days from the date of receipt of order. There is delay of 193 Days in filling of appeal.
That the, reason of delay filling of appeal that one of the director "Shanti Devi (DIN-01935923) was ill from last year. Due to illness of the director, we have not proper reply to CIT(A) also. And they have passed order accordingly as we have not reply on time to CIT(A).
That the, The Director (Shanti Devi (DIN-01935923) has passed away (dead) on 21/07/2024. The death certificate is being enclosed here with. The whole family is engaged in hospitalization and diagnosis center. Due to this, we were not in position to reply properly to CIT(A) as well as appeal before time limit to ITAT. It is request to you that kindly allow the condonation of appeal.
The Appellant has make huge expenses on business promotion, so that business can be grow. In this field of business, we have to give free gift, hosting seminar etc.
The Applicant has submitted all the original bills that we have make expenses in the head of business promotion. We have distributed gift to customer as well as prospective customer.
The Applicant is facing challenge to increase the business, so that they have decided to advertise the business of this company.
That the company has made actual expenses on this 10. FOR THAT, as per facts and circumstances of the Case there is no service Tax Liability arises, so Interest and penalty mentioned in the order will also not chargeable.
FOR THAT, The Appellant/ Authorized representative of Applicant would like to add, to alter, to amend and/or Modify the ground during the course of hearing.
FOR THAT, The Appellant/ Authorized representative of Applicant further would like to file additional written submissions before or at the time of or after personal hearing.”
Brief facts of the case are that the assessee is a company engaged in the business of financial services and investment management. The I.T.A. No.: 622/PAT/2024 Assessment Year: 2018-19 Bluechip Asset Private Limited (Previously Known as Bluechip Advisory Pvt. Ltd.). assessee filed the return of income showing total income of Rs. 9,14,260/- and book profit u/s 115JB of Rs. 4,73,275/-. The case of the assessee was selected for limited scrutiny for the reason ‘large sales promotion expenses vis-à-vis gross receipts’. The Ld. AO examined the fluctuation in the sales promotion including publicity expenses which had increased from Rs. 2,11,818/- to Rs. 30,95,943/- i.e. an increase of 1461% whereas the gross receipts increased only by 18.5% and the assessee could not explain the reasons for sudden increase in the sales promotion expenses and also failed to establish the connection with sales promotion expenditure and business activity. The reasons for distributing the gifts, details of persons to whom they were distributed and how they were related to the business of the assessee were also not mentioned. Accordingly, the expenditure of Rs. 30,95,943/- claimed towards sales promotion was disallowed as per the provisions of Section 37(3A) of Act which was proposed to be added to the income of the assessee after issuing a show cause notice with draft assessment order. Final assessment order was passed at the total income of Rs. 40,10,200/-. Aggrieved with the assessment order the assessee filed an appeal before the Ld. CIT(A) who has extracted the notices issued by Ld. AO, compared the amount of sales promotion expenses in the two years and partly allowed the appeal of the assessee by observing as under and directed the Ld. AO to restrict the disallowance of sales promotion expenses to 75% of the amount claimed: “6.3 The Assessing Officer has asked for the details of the sales promotion expenses incurred. The appellant has submitted that the expenditure has been incurred for the purchase and distribution of gifts to its customers. In support of its claim, the appellant has furnished before the Assessing Officer the copies of purchase bills. The Assessing Officer has disallowed the entire sales promotion expenditure claimed disregarding the purchase bills I.T.A. No.: 622/PAT/2024 Assessment Year: 2018-19 Bluechip Asset Private Limited (Previously Known as Bluechip Advisory Pvt. Ltd.). submitted. The Assessing Officer has questioned the need for such expenditure in the line of business of the appellant It is submitted by the appellant that it is engaged in the business of Stock Consultancy, and it was decided that gifts would be distributed to its customers to improve its business and achieve its revenue targets. It is necessary for any business to undertake sales promotion activities so as to promote its products and services and to attract new customers. It is also a business practice to distribute gifts to customers or employees for achieving targets. Hence, it cannot be said that such expenditure has not been incurred wholly and exclusively for the purpose of business. However, it is seen that there has been a huge and abnormal spike in the amount of sales promotion expenses incurred during the year. While only an amount of Rs. 2,11,818/- was incurred in AY 2017-18, such figure was Rs. 30,95,943/- for the year under consideration. Surprisingly, there has been no expenditure under this head for the subsequent AY 2019-20. The Assessing Officer has asked the assessee to substantiate with documentary poof, its claimed that the expenditure has been incurred wholly and exclusively for the purpose of business. The appellant could not furnish any evidences in this regard. Even during the appellate proceedings, no further evidences or written submission have been filed in spite of several opportunities afforded. The only submissions made along with the appeal memo is that the appellant decided to incur sales promotion expenses to improve its business during the year by distribution of gifts to its customers and its employees for achieving targets.
4 Considering the facts and circumstances, to meet the end of justice, the AO is directed to restrict the disallowance of sales promotion expenses to 75% of the amount claimed. The ground of appeal raised by the appellant is treated as partly allowed.
In the result the appeal is partly allowed.”
The Ld. AR drew our attention to para 6.3 of the Ld. CIT(A)’s order and also pages 18 to 22 of Form No. 36 in support of the claim that the vouchers for expenses were filed and out of the expenses claimed of Rs. 36,01,605/-, the bills for Rs. 56,842/- were available.
In the grounds of appeal the assessee has contended that proper reply could not be submitted to the Ld. CIT(A) as one of the directors, Shanti Devi was ill since last year who passed away on 21.07.2024 and I.T.A. No.: 622/PAT/2024 Assessment Year: 2018-19 Bluechip Asset Private Limited (Previously Known as Bluechip Advisory Pvt. Ltd.). the whole family was engaged in hospitalization and diagnosis center and due to this the assessee was not in a position to reply properly to the Ld. CIT(A) as well as file appeal before time limit before the Tribunal.
We have considered the submissions made. It appears that the evidence could not be filed before the Ld. CIT(A) due to the reasons mentioned, therefore, in the interest of justice and fair play to both the parties, both the orders of the Ld. AO as well as the Ld. CIT(A) are set aside as the assessee has justified the non-compliance before the Ld. CIT(A). The assessee shall be at liberty to raise all contentions before the Ld. CIT(A) who shall grant an opportunity to the assessee of being heard and also seek the remand report from the Ld. AO as per Rule 46A of the Income Tax Rules, 1962 and thereafter, decide the appeal as per the provisions of section 250(6) of the Act and in accordance with law.
In the result, the appeal filed by the assessee is allowed for statistical purposes. Order pronounced in the open Court on 04th April, 2025. [Sonjoy Sarma] [Rakesh Mishra] Judicial Member Accountant Member Dated: 04.04.2025 Bidhan (P.S.) I.T.A. No.: 622/PAT/2024 Assessment Year: 2018-19 Bluechip Asset Private Limited (Previously Known as Bluechip Advisory Pvt. Ltd.). Copy of the order forwarded to:
Bluechip Asset Private Limited (Previously Known as Bluechip Advisory Pvt. Ltd.), 407, Indrapuri, Keshri Nagar, Patna, Bihar, 800014. 2. CIT(A), NFAC, Delhi.
CIT(A)-
CIT-
CIT(DR), Patna Bench, Patna.
Guard File. //// By order