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Before: Shri Bhavnesh Saini & Shri L.P. Sahu
2005-06 2006-07 6,15,91,757 27,36,198 4.44% Allowed 2. 2006-07 2007-08 5,41,58,380 18,12,901 3.35% Allowed 3. 2007-08 2008-09 4,62,85,299 18,47,838 3.99% Partially Allowed
4. 2008-09 2009-10 7,04,26,871 12,16,165 1.73% Allowed 5. 2009-10 2010-11 7,29,35,094 17,14,534 2.35% Allowed 6. 2010-11 2011-12 3,22,64,141 4,58,170 1.42% Under Appeal
1. Assessment Year 2006-07 A disallowance of Rs.4,43,5137- out of above was made which was allowed by the CIT(A) as per the copy of the Order enclosed at Pages 23to 28.
Assessment Year 2007-08 No disallowance/no scrutiny assessment Pages 21to 22. 3. Assessment Year 2008-09 Disallowance of Rs. 18,80,3267- was made out of which the disallowance of Rs.11,51,260/- was upheld because this amount was incurred on expensive gifts such as diamonds, gold bangles and Hon'ble ITAT has held that the nature of items were of very personal nature. However, for the balance amount of Rs.6,95,578/-, the matter was restored to the file of the Assessing Officer, who has still to decide about the disallowance. Copy of Order of Hon'ble ITAT on this is enclosed at Pages 07 to 11 of these synopsis.
4. Assessment Year 2009-10 No disallowance, remains after Order of CIT(A) - copy enclosed at Pages 12 to 20 of these synopsis.
5. Assessment Year 2010-11 The Assessing Officer has disallowed the amount but the same was allowed by the CIT(A) and the Departmental Appeal in ITAT was dismissed as per the copy of the Order enclosed for your ready reference and records at Pages 01 to 06 of these synopsis. Historically it will be observed that the assessee has been generally incurring these expenses on normal gifts which have always been allowed and only in Assessment Year 2008-09 certain items of gifts which were of gold and diamond were disallowed by the Hon'ble ITAT. Therefore, Assessing Officer's reliance on ITAT Order for the Assessment Year 2008-09 is misplaced as that order was on peculiar facts that items of gifts disallowed were of diamond and jewellery. Otherwise also if seen with reference to the total gross receipts of the assessee, as per the chart given above, the expenses during the year under consideration are only 1.42% of its gross receipts as against as high as 4.4% in Assessment Year 2006- 07 which had been subject to scrutiny and ultimately allowed. As already clarified, these type of expenses have always been accepted to have been incurred wholly and exclusively for the purpose of business and keeping in view the complete history of these expenses, the expenses during the year under consideration being the lowest of all the years which has so far been examined, may kindly be held to be allowable to the assessee.
The ld. DR relied on the orders of the authorities below.
After hearing both the sides and perusing the entire materials on record, we observe that it is, no doubt, customary in our country to give gifts to clients which serve as expenses on business promotion. However, while examining such deduction of expenses of this nature, it is to be kept in mind that these deductions are prohibited if they are presumptive of tax evasion and meant to reduce the business profits. In the instant case, the assessee has not been able to submitted any evidences in support of its contention that the gifts were given to its various identifiable customers. So the same also remains unverified. The assessee has also not furnished any substantial evidence as to the persons to whom such gifts given were actually fruitful towards promoting the business profits of the assessee. The ld. CIT(A) in the impugned order has categorically observed that the assessee has failed to even disclose the identity of the recipient of gifts either during the assessment proceedings or during the appellate proceedings. The ld. CIT(A) has also examined the records and found that the assessee also failed to establish the business exigencies of the appellant vis-a-vis the aforesaid gifts. The ld. AR could not be able to controvert these findings of the ld. CIT(A) by submitting any evidences before us contrary to it. Therefore, in our opinion, in absence of any nexus between the gifts and the business of the appellant company, the findings reached by the ld. CIT(A) cannot be said to be without any basis and as such, involvement of non-business use in the present case cannot be ruled out at all, as is evident from the nature of gifts noted by the Assessing Officer in the assessment order. Bills and vouchers of the gifts purchased were mostly found in the name of the assessee and some of the bills, some names were written by hand, which nowhere suggest to place credence on the contention of the assessee that these gifts were given to its customers even.
The next contention of the assessee is that such disallowances have a history in assessee’s favour. He has referred to assessment years 2006-07, 2007-08, 2008-09, 2009-10 and 2010-11, when it is stated that such disallowances have been deleted or not made by the Assessing Officer itself. It is also submitted that therefore rule of consistency should be followed by the authorities below. We have gone through respective orders of the aforesaid years and we find that in A.Y. 2006-07, such expenses were allowed on the premise that those expenses had been subjected to Fringe Benefit Tax. So is the position with respect to A.Y. 2008-09. For A.Y. 2007-08, no scrutiny assessment was made u/s. 143(3) of the Act. In A.Y. 2008-09, the Tribunal while deciding this issue had disallowed substantial part of such expenditure and rest of the expenditure were remanded to the Assessing Officer for verification. In A.Y. 2010-11, the similar disallowances were deleted by Tribunal. Therefore, from the above series of facts, it is evident that the history of the assessee has not been so glorious as claimed by the assessee, but the disallowances have been dealt with by various authorities in view of the attending facts of each year, as noted above. Therefore, in our opinion, the previous history does not render any help to the assessee. In view of the above discussion, we observe that the assessee has not been able to establish that the expenditure claimed as above were laid wholly or exclusively for the purpose of business or that the same were open for verification so as to ascertain that the impugned gifts were given for business promotion of assessee. Therefore, we find no infirmity in the order of the ld. CIT(A) while disallowing the claim of the assessee made u/s. 37(1) of the Act. Accordingly, the appeal of the assessee is found to have no merit and is liable to fail.