M/S. IMPERIAL AUTO INDUSTRIES LTD.,NEW DELHI vs. DCIT, FARIDABAD

Briefly stated facts are that for the assessment year 2012-13, the assessee filed their return of income on 30/09/2012 and during the scrutiny, as against the returned income of Rs. 28,21,18,470/-,the income of the assessee was assessed at Rs. 27,43,98,953/-by making certain additions. In appeal, Ld. CIT(A) deleted certain additions, but insofar as the addition of Rs. 10 Lacs made by the assessing officer on adhoc basis, Ld CIT(A) restricted the same to Rs. 5 Lacs, stating that the assessee has not denied that part of the expenses claimed under the heading “Business Promotion Expenses” were not wholly and exclusively for business purpose as stated by the AO.

It is the submission of the Ld. AR that vide paragraph No. 2.4 of his order, Ld. AO observed that the assessee has submitted that expenses are very much genuine, but a part thereof may be disallowed treating the same as for non-business purposes, whereas Ld CIT(A) also observed that even during the appellate proceedings the assessee has not denied that part of the expenses claimed under the heading business promotion expenses were not wholly and exclusively for business purpose. Ld. AR brought to our notice that, by way of letter dated 26/09/2014 addressed to the Ld. AO, the assessee stated that,- “the assessee company is doing its business with various Original Entrepreneur Manufacturers, those in need to be attended and accompanied during the course of the inspections, vacations, advises, discussions, opinions, guidelines, feasibilities and to maintain running business. This is a regular practice and utmost need of every business entity. The assessee company is having various production units at various locations in India as described in our earlier reply submitted on 16/05/2014 as point No.

These expenses are purely and comprehensively for business purpose. We are appending below the Page | 2

Basing on this, the Ld. AR submits that there is no truth in the observations of the authorities below that the assessee never stated that the entire expenditure was not for business purposes. Ld. AR submits that there is no basis for the authorities to make the disallowance of the expenses under the category of “Business Promotion Expenses” and at the same time neither the AO nor the Ld CIT(A) pointed out any discrepancy in the books of accounts of the assessee. He submits that without rejecting the books of accounts or pointing out any discrepancy therein, is not open for the authorities to make any disallowance on ad hoc basis. Ld. DR relies upon the orders of the authorities below.

We have carefully gone through the record. It is an undisputed fact that neither the Ld. AO not the Ld CIT(A) pointed out any discrepancy relating to the “Business Promotion Expenses” with reference to the books of accounts of the assessee. Books of accounts of the assessee are not rejected. Though, the Ld. AO and for that matter Ld. CIT(A) made the ad hoc disallowance, Page | 3 there does not appear to be any basis for the same. It is not in dispute that vide letter dated 26/09/2014 the assessee has always been maintaining that expenses are purely and comprehensively further business purpose. There is no dispute that any of these expenses are not for business purpose. It is not the case of the Revenue that any of these expenses is towards personal expense of any person relating to the assessee. In these circumstances, we find it difficult to sustain the ad-hoc disallowance, in the absence of authorities pointing out any discrepancy in respect of these expenses with reference to the books of accounts maintained by the assessee. There is no basis for quantifying the disallowance. We, therefore, find it difficult to sustain the orders of the authorities below, as such, while upholding the contention of the assessee, we find that the disallowance has to be deleted.

In the result, appeal of the assessee is allowed.