MARVEL SUPPORT CONSULTANCY SERVICES,JAIPUR vs. ACIT, CIRLCE, JAIPUR

आयकर अपीलीय अधिकरण] जयपुर न्यायपीठ] जयपुर IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES,”A” JAIPUR Mk0 ,l- lhrky{eh] U;kf;d lnL; ,oa Jh jkBksM deys'k t;UrHkkbZ] ys[kk lnL; ds le{k BEFORE: DR. S. SEETHALAKSHMI, JM & SHRI RATHOD KAMLESH JAYANTBHAI, AM vk;dj vihy la-@ITA No. 293/JP/2022 fu/kZkj.k o"kZ@Assessment Years : 2018-19 cuke Marvel Support Consultancy Services ACIT/ DCIT, Private Limited Circle-01, Vs. 303, 3rd Floor Okay Plus Building, Jaipur Malviya Nagar Industrial Area Malviya Nagar, Jaipur LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AAGCM 8636 H vihykFkhZ@Appellant izR;FkhZ@Respondent vk;dj vihy la-@ITA No. 295/JP/2022 fu/kZkj.k o"kZ@Assessment Years : 2018-19 cuke Deputy Commissioner of Marvel Support Consultancy Income-tax, Services Private Limited Vs. 3rd Circle-01, Jaipur 303, Floor Okay Plus Building, Malviya Nagar Industrial Area Malviya Nagar, Jaipur LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AAGCM 8636 H vihykFkhZ@Appellant izR;FkhZ@Respondent fu/kZkfjrh dh vksj ls@ Assessee by : Sh. P. C. Parwal (CA) jktLo dh vksj ls@ Revenue by : Sh. A. S. Nehra (Addl. CIT) lquokbZ dh rkjh[k@ Date of Hearing : 01/11/2022 mn?kks"k.kk dh rkjh[k@Date of Pronouncement: 14/12/2022 vkns'k@ ORDER

PER: RATHOD KAMLESH JAYANTBHAI, AM

These are the cross appeals filed by the assessee and

revenue which is directed against the order of the National Faceless

2 ITA Nos. 293 & 295/JP/2022 Sh. Marvel Support Consultancy Services, Jaipur vs. ACIT/DCIT, Circle-01, Jaipur

Appeal Centre, Delhi [hereinafter referred to as (NFAC)/CIT(A)]

dated 06.06.2022 for the Assessment Year 2018-19 which in turn

arise from the order of the NeAC dated 20.05.2021 passed under

section 143(3) r.w.s. 144B of the Income Tax Act [ here in after

referred to as ‘Act’].

grounds in this appeal;

“1. Under the facts and circumstances of the case, the learned CIT(A) erred in confirming the action of Assessing Officer allowing TDS credit of Rs. 4790086 instead of Rs. 5642822 even Assessee claimed respective income in the respective year in which TDS was claimed. 2. Under the facts and circumstances of the case, the learned CIT(A) misconstrued/Mis-Interpret the facts and law and the denial of tax credit for TDS under rule 37BA which is contrary to facts, unjustified, arbitrary, erroneous and bad, both in the eye of law and on facts and legally not tenable. 3. Under the facts and circumstances of the case, the decision of learned CIT(A) is quite illegal, arbitrary, without any basis and based on guess, conjectures and bad in law. 4. The appellant prays to leave to, add, alter or amend aforesaid grounds of appeal’s at or before the time of hearing of appeal.”

grounds in this appeal;

“1. Whether under the facts and the circumstances, the Ld.CIT(A) was justified in deleting the additions made u/s 37(1) of the Act of Rs. 2,63,00,865/-.”

3 ITA Nos. 293 & 295/JP/2022 Sh. Marvel Support Consultancy Services, Jaipur vs. ACIT/DCIT, Circle-01, Jaipur 4. The fact as culled out from the records is that return of income

was filed on 28/10/2018 declaring total income of Rs. 83,47,660/-.

The case of the assessee was selected for limited scrutiny

assessment under the E-assessment scheme, 2019 on the two

issue (i) Unsecured Loans (ii) Business Expenses. Notice u/s 143(2)

of the Income Tax Act, 1961 was served on 28/09/2010. Notice u/s

142(1) of the Act was issued on 11/12/2019 calling details in respect

issues for which case has been selected for the scrutiny. The

assessee submitted details on 10/11/2020, 5/09/2020 and

27/02/2021. The assessee is a service company, engaged in back-

end support activities for banking & insurance companies which

majorly consist of infrastructure support, marketing campaigns

through road shows, distribution of pumps-lets, installation of

canopies, mailers and SMS to insurance company’s customers,

distribution and delivery of insurance policies to customers. The

business promotion & marketing expenses incurred by the assessee

are for the promotion of business of clients. During the year, the

assessee claimed sales promotion of Rs. 5,51,07,678/- which is

48% of total turnover of Rs. 11,52,27,253/-. Sale promotions

expenses claimed is 49% of total expenses of Rs. 11,20,79,703/-.

4 ITA Nos. 293 & 295/JP/2022 Sh. Marvel Support Consultancy Services, Jaipur vs. ACIT/DCIT, Circle-01, Jaipur

on behalf of the assessee has placed their written submission which

is extracted here in below;

“Facts & Submission:- 1. In the return filed by the assessee it claimed credit of TDS of Rs.56,42,822/- (APB 67-68). It includes TDS credit of Rs.8,52,736/- (APB 68-69) which was deducted by the deductor in AY 2017-18 (APB 35-40) but the same was not claimed in that year in as much as income in relation to said TDS was offered for tax in the year under consideration. 2. The AO in the computation sheet (APB 11) allowed the credit of TDS at Rs.47,90,086/- instead of Rs.56,42,822/- claimed by the assessee. 3. The Ld. CIT(A) at Pg 14 of its order observed that income is taxable in the year under consideration but the deductor deducted the tax in earlier year and included the same in the TDS return of that year. Therefore, the deductor should revised the TDS return for earlier year as well as of this year. After the deductor revises the TDS return, AO can give credit of balance amount of TDS. Therefore, AO cannot be directed to give credit of TDS which is not reflected in the deductor’s TDS return. 4. It is submitted that the Ld. CIT(A) has grossly misconstrued the provision of section 199 read with Rule 37BA and the income tax return form. Sub-rule 3 of Rule 37BA specifically provides that credit of tax deducted at source and paid to the Central Government shall be given for the AY for which such income is assessable. The income of Rs.90,23,072/- on which tax of Rs.8,52,736/- was deducted has been assessed in the year under consideration and therefore as per the provisions of the Act, credit of the same has to be allowed in the year under consideration. In the return filed for AY 2017-18 in which such tax was deducted at source, assessee has not claimed the credit as is evident from S. No.15B1 (APB 35-40) where such amount has been reflected as carried forward. Therefore, the Ld. CIT(A) has erred in taking a view that the deductor should revised the TDS return for earlier year as well as of this year ignoring that there is no provision for such revision under the Act. 5. Reliance is placed on the decision of Hon’ble ITAT, Indore Bench in case of Shivganga Drillers (P) Ltd. Vs. CPC (2022) 195 ITD 555 where it is held that if assessee company had offered to tax relevant income out of which TDS was deducted in AY 2017-18, credit of TDS was to be allowed during AY 2017-18 in accordance with mandate of section 199

5 ITA Nos. 293 & 295/JP/2022 Sh. Marvel Support Consultancy Services, Jaipur vs. ACIT/DCIT, Circle-01, Jaipur

read with Rule 37BA even though payers had deducted TDS in financial year relevant to AY 2018-19.

In view of above, AO be directed to allow the credit of TDS of Rs.8,52,736/- not allowed by him.

Departmental Appeal

Only Ground Whether under the facts & circumstances, the Ld. CIT(A) was justified in deleting the addition made u/s 37(1) of the Act of Rs.2,63,00,865/-. Facts:- 1. The assessee is engaged in providing customized back end support services. It mainly consists of infrastructure support, marketing campaigns through road shows, distribution of pamphlets, installation of canopies, mailers and SMS to customers, arranging conferences, etc. as per the requirement of customers.

6 ITA Nos. 293 & 295/JP/2022 Sh. Marvel Support Consultancy Services, Jaipur vs. ACIT/DCIT, Circle-01, Jaipur

Submission:-

Jaipur Electro Pvt. Ltd. Vs. CIT (1997) 223 ITR 535 (Raj.) (HC) The relevant Para 11 of the order reads as under:-

7 ITA Nos. 293 & 295/JP/2022 Sh. Marvel Support Consultancy Services, Jaipur vs. ACIT/DCIT, Circle-01, Jaipur

is the best judge to determine the business expediency and, therefore, when he claims to have incurred a certain expenditure for business expediency his version should ordinarily be accepted. This principle, however, does not debar the assessing authorities to enquire and investigate as to whether such expenditure was actually incurred by the businessman and if incurred whether the same was incurred wholly and exclusively for business consideration. The doctrine that the businessman is the best judge of business expediency does not affect the right, nay duty, of the assessing authorities to know whether it was incurred for business purposes and not for other extraneous considerations.

Kamal Raheja Vs. ITO (2017) 162 ITD 55 (Luck.) (Trib.) Where AO disallowed on adhoc basis expenses claimed by assessee under head conveyance and entertainment by assuming that there was disproportionate increase, since section 37(1) nowhere empowers AO to disallow expenditure in above said manner and expenses had been incurred wholly and exclusively for purpose of business, disallowance of said sum should be deleted.

DCIT Vs. ABC Bearing Ltd. (2017) 157 DTR 242 (Mum.) (Trib.) Assessee having produced complete details of expenditure, adhoc disallowance by AO at 25 per cent as reduced by CIT(A) to 10 per cent on mere surmises without indicating any instance of non-business expenditure could not be sustained.

Pricewaterhouse Coopers Pvt. Ltd. Vs. ACIT (2020) 183 ITD 354 (Kol.) (Trib.) Where DRP/AO without rejecting books of account of assessee had made adhoc disallowance on suspicion while there was no material showing expenditure not for purpose of business, adhoc additions were to be deleted.

Katira Construction Ltd. Vs. ACIT (2020) 185 ITD 173 (Rajkot) (Trib.) Where books of account of assessee have not been rejected, onus is on AO to point out specific expenses which were not incurred in connection with business and thereafter he can make disallowance under provision of section 37 and as such there is no provision provided under Act empowering AO to make disallowance on adhoc basis despite fact that assessee consents for such disallowance during assessment proceedings.

In view of above, addition made by the AO is rightly deleted by Ld. CIT(A) and therefore, ground of the department be dismissed.”

First, we will take up ITA No. 293/JP/2022 filed by the assessee.

8 ITA Nos. 293 & 295/JP/2022 Sh. Marvel Support Consultancy Services, Jaipur vs. ACIT/DCIT, Circle-01, Jaipur 6. The only grievance raised by the ld. AR of the assessee in the

appeal filed by the assessee is that the ld. AO and ld. CIT(A) has not

allowed the credit for TDS for an amount of Rs. 56,42,822/- as

claimed by the assessee but has allowed only to the extent of Rs.

47,90,086/-. Thus, effectively short credit of Rs. 8,52,736/- not given

by lower authorities.

as against the claim for credit of TDS for an amount Rs. 56,42,822/-

only credit to the extent of Rs. 47,90,086/- was allowed. Thus, credit

of prepaid taxes to the extent of Rs. 8,52,736/- was denied. Being

aggrieved, the assessee carried the matter in appeal before the ld

CIT(A) and the relevant findings of the ld. CIT(A) is recorded at para

6 which is reiterated here in below :-

“6. Ground No. 3 In this ground, the assessee is challenging the TDS credit given of Rs. 47,90,086 as against claim of Rs.56,42,822/- 6.1 Following argument was given in appeal: QUOTE: Assessee in the return of income filed for the year under assessment had claimed TDS credit of Rs.56,42,822/-. However, AO had given TDS credit of Rs. 47,90,086/- only in order u/s 143(3) and not given TDS credit of Rs.8,52,736/ TDS of Rs.8,52,736/- had been deducted by deductor in AY 2017-18 on advance payment the work of which has been done in AY 18-19. Income for the same had been booked by assessee in AY 2018-19 as per applicable accounting standards and claimed TDS of the same in AY 2018-19. Assessee in the return of income of AY 2017-18 had carried forward TDS credit of Rs.8,52,737/- Copy of ITR is enclosed at Annexure 21 specific page 22 to 27 wherein TDS of Rs.8,52,737/has been carried forward.

9 ITA Nos. 293 & 295/JP/2022 Sh. Marvel Support Consultancy Services, Jaipur vs. ACIT/DCIT, Circle-01, Jaipur

As per sub rule 3 of rule 37BA "Credit for tax deducted at source and paid to the Central Government, shall be given for the assessment year for which such income is assessable." Therefore as per the provisions of the law, TDS credit carried forward by assessee in AY 2017-18 of Rs.8,52,737/- should be given in AY 2018-19 as the assessee has amount on which TDS is deducted in AY 17-18 is assessed in AY 18-19. In view of above, it is kindly requested to direct AO to give TDS credit of Rs.8,52,737/- to the assessee. UNQUOTE 6.2 I have considered the matter. The procedure for giving credit to TDS is laid down in Rule 37BA. The same is extracted as under: [Credit for tax deducted at source for the purposes of section 199. 37BA. (1) Credit for tax deducted at source and paid to the Central Government in accordance with the provisions of Chapter XVII, shall be given to the person to whom payment has been made or credit has been given (hereinafter referred to as deductee) on the basis of information relating to deduction of tax furnished by the deductor to the income-tax authority or the person authorised by such authority. (2)279(i) Where under any provisions of the Act, the whole or any part of the income on which tax has been deducted at source is assessable in the hands of a person other than the deductee, credit for the whole or any part of the tax deducted at source, as the case may be, shall be given to the other person and not to the deductee : Provided that the deductee files a declaration with the deductor and the deductor reports the tax deduction in the name of the other person in the information relating to deduction of tax referred to in sub-rule (1).] (ii) The declaration filed by the deductee under clause (1) shall contain the name, address, permanent account number of the person to whom credit is to be given, payment or credit in relation to which credit is to be given and reasons for giving credit to such person. (iii) The deductor shall issue the certificate for deduction of tax at source in the name of the person in whose name credit is shown in the information relating to deduction of tax referred to in sub-rule (1) and shall keep the declaration in his safe custody. (3) (1) Credit for tax deducted at source and paid to the Central Government, shall be given for the assessment year for which such income is assessable. (ii) Where tax has been deducted at source and paid to the Central Government and the income is assessable over a number of years, credit for tax deducted at source shall be allowed across those years in the same proportion in which the income is assessable to tax. 27a [(3A) Notwithstanding anything contained in sub-rule (1), sub-rule (2) or sub-rule (3), for the purposes of section 194N, credit for tax deducted at source shall be given to the person from whose account tax is deducted and paid to the Central Government account for the assessment year relevant to the previous year in which such tax deduction is made.]

10 ITA Nos. 293 & 295/JP/2022 Sh. Marvel Support Consultancy Services, Jaipur vs. ACIT/DCIT, Circle-01, Jaipur (4) Credit for tax deducted at source and paid to the account of the Central Government shall be granted on the basis of- (i) the information relating to deduction of tax fumished by the deductor to the income-tax authority or the person authorised by such authority; and (ii) the information in the return of income in respect of the claim for the credit, subject to verification in accordance with the risk management strategy formulated by the Board from time to time.] From a reading of the Rule, it is seen that credit to TDS has to be given: 1. On basis information furnished by the deductor in the TDS return. 2. In the assessment year in which the income is assessable and 3. On basis of information contained in the return of income. In case of present assessee, the income is taxable in this year. But the deductor deducted tax in the earlier year and apparently, included the same in the TDS return of that year. Under this circumstances, the order of the AO cannot be faulted. The only option available, in my considered view, is that the deductor should revise the TDs returns for earlier year as well as that of this year. The TDS on payment for this year should be included in the TDS return for this year. Once the deductor revises the TDS return, the AO can give credit to the balance amount of TDS. In view of the above, the AO cannot be directed to give credit to TDS which is not reflected in the deductor's TDS return.”

CIT(A) the assessee has taken up this issue vide ground no. 1 & 2

by filling an appeal against the order of the ld. CIT(A). On this issue

the ld. AR of the assessee submitted before the bench that in the

ITR-6 for A.Y. 2017-18 there is specific column from where

assessee can carry forward and disclose the amount of TDS

deducted for taking carryforward to subsequent year [Assessee’s

paper book Page No. 35 ] in column 15B(1). Based on these

arguments the ld. AR of the assessee submitted that the lower

authorities erred in law as well as in fact in interpreting provisions of

11 ITA Nos. 293 & 295/JP/2022 Sh. Marvel Support Consultancy Services, Jaipur vs. ACIT/DCIT, Circle-01, Jaipur section 199 read with rule 37BA. The ld. AR thus, explained that

though the TDS has been deducted in A. Y. 2017-18 but the same

was shown as to be carried forward in the year under consideration

i.e. A. Y. 2018-19. In the light of this fact ld. AR seek necessary

direction to the ld. Jurisdictional A.O. to allow the claim which is in

accordance with the provision of law and rules framed there under.

contention and factual arguments supported by the evidence. But at

the same time, he has contended that let this issue of offering the

income be verified in accordance with the ITR filed by the assessee

to the extent of the amount shown as carry forward in A.Y 2017-18

may be considered subject to verification that the relevant income

has already been offered in the A.Y 2018-19. The ld. AR of the

assessee fairly accepted the proposition of ld. DR.

before us and orders of the lower authorities. Looking to the factual

aspect of TDS credit to be given in the year under consideration

based on the evidence in the form of ITR filed by the ld. AR of the

assessee claiming that the same is already disclosed in the ITR-6

12 ITA Nos. 293 & 295/JP/2022 Sh. Marvel Support Consultancy Services, Jaipur vs. ACIT/DCIT, Circle-01, Jaipur filed. The ld. DR fairly accepting the contention of the assessee not

objected to the factual aspects of the case. Based on these

arguments supported by the evidences which was fairly accepted by

the revenue we are of the considered view that since the law is clear

on the issue as to allow the carry forward of the credit TDS in

subsequent year and the credit for TDS is required to be matched

with the income declared by the assessee. Since the ld. AR

demonstrated us that the assessee has followed the applicable

method permitted under the law and therefore, he has not objected

to the propositions of ld. DR to get this factual aspect be verified by

the jurisdictional AO. Based on these set of facts and arguments

advanced before us we are of the considered view that the credit for

prepared taxes carry forward for A.Y 2017-18 as claimed by the

assessee in A.Y 2081-19 is required to be allowed subject to

verification of the amount carry forward with that of the income

offered in the year under consideration.

assessee is allowed. Ground no. 3 & 4 being general in nature the

same did not require any adjudication.

13 ITA Nos. 293 & 295/JP/2022 Sh. Marvel Support Consultancy Services, Jaipur vs. ACIT/DCIT, Circle-01, Jaipur 12. In terms of these observation the appeal filed by the assessee

in ITA No. 293/JPR/2022 is allowed.

ITA No. 295/JP/2022 for the Revenue

taken challenging the action of the ld. CIT(A) deleting the addition

made by the ld. AO out of the sales promotion expenses for an

amount of Rs. 2,63,00,865/-. The fact as succinctly culled from the

assessment order is that there is considerable increase in the claim

of sales promotion expenses for A.Y. 2018-19 as compared to A. Y.

2017-18 & 2016-17, the sales promotion expenses to turnover ratio

25 % and 16% respectively. Whereas the assessee claimed sales

promotion of Rs. 5,51,07,678/- which is 48% of total turnover of Rs.

11,52,27,253/-. To verify this claim of sales promotion expenses, the

details were called from the assessee. The assessee submitted

client wise sales promotion expenses chart showing sales

promotion, bills and bank statement in respect of sales promotion.

As regards the other details assessee submitted that no ratio of

sales promotion expenses with that of gross profit of the assessee

can be calculated. As already stated, the company is in service

14 ITA Nos. 293 & 295/JP/2022 Sh. Marvel Support Consultancy Services, Jaipur vs. ACIT/DCIT, Circle-01, Jaipur sector, the competition is un-matchingly increasing day by day.

There are many other companies who are ready to provide the

services to assessee’s client at much lower rates as compared to

assessee. Assessee has no option other than to reduce its

margin/rates. The severe competition has effected the assessee so

badly that its business has almost vanished. In 2018, the revenue

has gone down to Rs. 1152 lacs as against Rs. 3408 lacs in 2017

and in 2019 to Rs. 87 lacs only.

13.1 On 23.02.2021 notice was issued to seek the purpose for the

expenses, nature of services provided to client / parties, who

attended the event, how such expenses were utilized wholly and

exclusively for the purpose of business. Further the assessee was

requested to furnish the client wise list of income earned, a copy of

agreement. The assessee furnished a chart with the date of

payment. However for each entry of sales promotion expense, the

assessee has not furnished the purpose for such expenses, nature

of service provided by those parties, details of event, and how such

expenses were utilized wholly and exclusively for the purpose of the

business of the assessee. On perusal of the client wise list of sale

promotion expenses and income earned from such clients, it is

15 ITA Nos. 293 & 295/JP/2022 Sh. Marvel Support Consultancy Services, Jaipur vs. ACIT/DCIT, Circle-01, Jaipur

noted that there is no consistency/pattern in claim of expenses. Huge

variation is seen in % claim of sale promotion expenses over revenue

from client. Following is the data of revenue and sale promotion expenses

in respect of the clients of the assessee.

Party Name Revenue from clients Sales promotion expenses Ratio % Ashar Mehta 8,78,267 59,397 7 Associates AU Small Finance 423,00,000 38,438,750 91 Bank Future General India 29,16,968 252,450 9 Insurance Co. Ltd HDFC Bank 1,86,22,724 9,684,431 52 Hdfc Standard Life 36,53,866 68,454 2 Insurance Co. Ltd. Liberty Videocon GIC 11,39,990 309,155 27 Ltd. LOGIMATIX 81,66,642 1,721,814 21 CONSULTANTS PVT LTD Mindpool Management 3811315 200,000 5 Solution Pvt. Ltd. OTS Solutions Pvt. Ltd. 15,00,000 103,288 7 Raghav Enterprises 25,00,000 27,42,959 109 Reliance General 50,14,200 1,440,065 29 Insurance Co. UNIVERSAL SOMPO 1,22,955 86,914 71 GIC LTD Grand total 9,06,26,927 5,51,07,677 61 13.2 It is surprised to see that in once case, more expenses have been

incurred than the revenue generated from that client. No prudent

business enterprise will spend 109%, 91%, 71%, 51% of its earning on

the sales promotion of the client.

13.3 The increase of 23% in the claim of sales promotion expenses as

compared to earlier year is not realistic as not supported by the details

and supportive documents. However for each entry of sales promotion

expense, the assessee has not furnished the purpose for such expenses,

nature of service provided by those parties, details of event, and how

16 ITA Nos. 293 & 295/JP/2022 Sh. Marvel Support Consultancy Services, Jaipur vs. ACIT/DCIT, Circle-01, Jaipur

such expenses were utilized wholly and exclusively for the purpose of the

business of the assessee. The few hotel bills submitted by the assessee

were for stay of some persons, but how it is related to sales promotion

activity for clients is not explained. For the limited details submitted by the

assessee, it cannot concluded that sales promotion expenses has been

incurred wholly and exclusively for the business of the assessee. The

onus is on the assessee to prove that sales promotion of Rs. 551,07,678/-

has been expended wholly and exclusively for the business of the

assessee.

13.4 The ratio of sales promotion expenses to turnover for F.Y 2016-17

was 25%. In view of the above discussion and facts of the case, it is

considered rational to limit the sales promotion expenses to 25% of the

turnover of Rs. 11,52,27,253/- which amounts to Rs. 2,88,06,813/-.

Balance amount of expenses amounting Rs. 2,63,00,865/- is disallowed

u/s 37(1) of the Act and added to the income of assessee.

preferred an appeal before the ld. CIT(A) who has considered the appeal

of the assessee and has allowed the claim of the assessee and deleted

the addition. The relevant finding of the ld. CIT(A) is reiterated here in below :

“4.3 I have considered the matter. It is seen that the reason leading to disallowance were mainly that of substantial increase in ratio of sales promotion expenses as compared to turnover; no consistency in revenue

17 ITA Nos. 293 & 295/JP/2022 Sh. Marvel Support Consultancy Services, Jaipur vs. ACIT/DCIT, Circle-01, Jaipur

from particular clients as compared to expenses; non furnishing of purpose and nature of each entry of expenses and that of sales promotion expenses being too high as compared to total expenses. While deciding the matter, the AO had neglected an important aspect of expenses. It is the contention of assessee that the said business promotion and marketing expenses were incurred by assessee for promotion of business of clients. None of the expenses were for promotion of assessee's business. Keeping this fact in mind, it is seen in during the previous year, assessee had total receipt of Rs.4.23 Cr from AU Small Finance Bank. Sales promotion expenses recorded was Rs.3.84 Cr. In this regard, the assessee stated that expenses was incurred by the party and assessee received 10% mark up for the work performed by it. Therefore, it is seen that assessee was receiving only markup portion as profit and major portion of so called business promotion expenses was incurred for client only and not for promotion of assessee's business. After exclusion of AU Small Finance Bank, sales promotion expenses came down to Rs.1.67 Cr on residual turnover of Rs.7.29 Cr. That gave expenses at 23% of receipt. 4.3.1 Be that as it may, the AO had a doubt regarding excessive expense being incurred. This doubt per se cannot be reason for resorting to addition. It can provide the foundation for further investigation. In this regard, the AO had not pointed out any specific instance of booking of bogus expenses. No particular defect has been pointed out in the audited account. In view of this, lump sum disallowance is uncalled for.” Ground no. 1 is allowed.

the addition of Rs. 2,63,00,865/- this appeal is filed by the revenue

solely challenging the action of deleting the addition. To support the

contention raised in this appeal the revenue has relied upon the

written submission and the same is reiterated here in below:

“Written brief by the DR in support of departmental appeal May I please to your Honors The above cited appeal has been filed by the department against the order of Id CIT(A), NFAC, Delhi in Appeal No NFAC/2017-18/10020255

18 ITA Nos. 293 & 295/JP/2022 Sh. Marvel Support Consultancy Services, Jaipur vs. ACIT/DCIT, Circle-01, Jaipur

dated 6.6.2022. Appeal was filed by the assessee against the order of the FAO u/s 143(3) of the Act dated 4.5.2021.

Brief facts:

The assessee is in the field of providing services to corporates for infrastructure/market support. It has claimed sales promotion expenses of Rs 5,51,07,678 against receipts of Rs. 11,52,27,253 which are around 48% of receipts. Selection of the case was for limited scrutiny for examination of correctness, reasonableness and genuineness of sales promotion expenses vis a vis total business receipts of the assessee. The FAO observed that in earlier years sale promotion expenses were 25% and 16% of receipts, respectively, in AY 2017-18 and 2016-17. During assessment proceedings, the FAO has asked for the details and supporting evidences in respect of sales promotion expenses. After examination of details and part evidences filed, the FAO arrived at the conclusion that claim was excessive and thus he has restricted the claim at 25% of receipts and balance amount of Rs 2,63,00,865 was disallowed u/s 37 of the Act assigning following reasons:

(1) Assessee has not furnished the purpose of expenses, nature of services provided, details of event and how the particular expenses was related to any particular receipts. (Para 7 of the A.O)

(2) No consistency in party wise receipts and related expenses and there was huge variation in percentage of claim of expenses vis a vis receipts from a particular party. He observed that in certain cases expenses are up to 91% of receipts and even in one case the expenses are more than the receipts (109% ) (Para 7 of the A.O)]

(3) Assessee has not brought on record any estimation shared with the client or correspondence to the effect that how much expenses will be incurred by the assessee and on what accounts.(Para 12 of the A.O)

Before CIT(A), the assessee submitted its arguments, which have been quoted by the CIT(A) in para 4.2( page 6 to 13 of the order). Ld CIT(A) has deleted the entire addition with following findings in para 4.3 and 4.3.1 of his order

19 ITA Nos. 293 & 295/JP/2022 Sh. Marvel Support Consultancy Services, Jaipur vs. ACIT/DCIT, Circle-01, Jaipur

Arguments in support of departmental appeal

20 ITA Nos. 293 & 295/JP/2022 Sh. Marvel Support Consultancy Services, Jaipur vs. ACIT/DCIT, Circle-01, Jaipur

clearly pointed out bogus, un-reasonable or non-genuine expenses. The assessee has submitted only copies of bills of goods and services of expenses but without any supporting documents as to which particular client, any particular bills pertained and for which specific events. The assessee has conveniently avoided production of service agreements with the clients and purchase orders issued by it to the various persons for purchasing goods and services for its clients. Impliedly, the AO has given the finding that he was not satisfied with the documents submitted by the assessee and that is why he has restricted the claim of expenses to 25% of total receipts based on past history of the case and balance has been disallowed being excessive, unreasonable and unproved expenses.

In view of above, it is submitted that the addition made by the FAO was justified and its deletion by the Id CIT(A) is not correct and legally justified. The Hon'ble Bench is therefore requested to kindly allow the departmental appeal and restore the order of the FAO on the issue of sale promotion expenses disallowed by FAO.

Enclosures: 10 bills and letter of AU small Finance Bank, as referred to above.”

21 ITA Nos. 293 & 295/JP/2022 Sh. Marvel Support Consultancy Services, Jaipur vs. ACIT/DCIT, Circle-01, Jaipur

vehemently argued that the reasoning given by the ld. CIT(A) is merely on

ground that the doubt per se cannot be reason for resorting to addition but

can provide the foundation for further investigation. The ld. CIT(A) neither

done the required investigation nor called for any remand report in the

matter. Not only that the he drawn our attention to the provision of section

37(1) which also restrict the expenses if the same is not related to business

or offending in the nature. In addition, ld. DR submitted that as compared to

the previous year the expenditure under the head sales promotion claimed

by the assessee is much higher. Therefore, to verify the claim of sales

promotion expenses, the details were called for from the assessee so as to

submit the details in the format.

“4. To verify the claim of sale promotion expenses, the details were called as under:- 1. Name, PAN and address of the parties to whom payments have been made. 2. Specify the details of any transaction with related parties if any in context of sales promotion expense. 3. Mode of payment along with supporting documentary evidence. Details of TDS deducted on payments made for sales promotion expenses and date of deposit in Government account. 4. Percentage increase in the quantum in comparison with last year sales promotion expenses and justification for the increase. 5. Provide the ratio of sales promotion expense with that of Gross profit of the business and provide a justification thereto. 5. The assessee submitted Client wise Sales Promotion Exp, chart showing sales promotion, bills and bank statement in respect of sales promotion. The assessee has stated that "no ratio of sales promotion expense with that of gross profit of the business can be calculated. As already stated, the company is in service sector, the competition is un matchingly increasing day by day. There are

22 ITA Nos. 293 & 295/JP/2022 Sh. Marvel Support Consultancy Services, Jaipur vs. ACIT/DCIT, Circle-01, Jaipur many other companies who are ready to provide the services to assessee's client at much lower rates as compared to assessee. Assessee has no option other than to reduce its margin/rates. The severe competition has affected the assessee so badly that its business has almost vanished. In 2018, the revenue has gone down to Rs.1152 lacs as against Rs.3408 lacs in 2017 and in 2019 to Rs.87 lacs only.”

assessee and submitted that in connection with the claim of the

expenses specific questions raised by the Assessing Officer relating

two questions that who attended the conferences who are persons

stayed in the hotel. Secondly, the gift articles purchased and

claimed by the assessee as sales promotion expenditure are purely

in the nature of personal expenditure and how it is related to the

business of the assessee is not explained. The ld. DR drawn our

attention to chart wherein the claim of sales promotion expenses

and the relevant revenue from the client receipt is declared by the

Assessing Officer and the relied upon part is extracted herein

below:-

“7. The assessee has furnished a chart with the date of payment. However for each entry of sales promotion expense, the assessee has not furnished the purpose for such expenses, nature of service provided by those parties, details of event, and how such expenses were utilized wholly and exclusively for the purpose of the business of the assessee. On perusal of the client wise list of sale promotion expenses and income earned from such clients, it is noted that there is no consistency/pattern in claim of expenses. Huge variation is seen in % claim of sale promotion expenses over revenue from client. Following is the data of revenue and sale promotion expenses in respect of the clients of the assessee.

23 ITA Nos. 293 & 295/JP/2022 Sh. Marvel Support Consultancy Services, Jaipur vs. ACIT/DCIT, Circle-01, Jaipur

Party Name Revenue from Sales promotion Ratio clients expenses Ashar Mehta Associates 8,78,267 59,397 7 AU Small Finance Bank 4,23,00,000 3,84,38,750 91 Future General 29,16,968 2,52,450 9 India Insurance Co Ltd. HDFC Bank 1,86,22,724 96,84,431 52 HDFC standard 36,53,866 68,454 2 Life Insurance Co. Lt Ltd. Liberty Videocon 11,39,990 3,09,155 27 GIC Ltd. Logimatix Consultants Pvt. 81,66,642 17,21,814 21 Ltd. Mindpool Management 38,11,315 2,00,000 5 Solutions Pvt. Ltd. OTS E Solutions Pvt. Ltd. 15,00,000 1,03,288 7 Raghav Enterprises 25,00,000 27,42,959 109 Reliance General Insurance 50,14,200 14,40,065 29 Co. Universal Sompo GIC Ltd. 1,22,955 86,914 71 Grand Total 9,06,26,927 5,51,07,677 61

expenses are ranging from 2% to 109% of the Revenue and

therefore, there is no consistency in the claim of sales promotion

expenditure claimed by the assessee. The ld. DR further drawn our

attention to the bills submitted by the assessee wherein the personal

expenditure like necklace and rocket purchased from Kalyan

Jewellers were claimed as sales promotion expenditure. The ld. DR

further submitted that invoice issued by Kanwal Collections wherein

purchase of dinner sets is claimed as sales promotion expenditure

how it is related to the business of the assessee and whether the

24 ITA Nos. 293 & 295/JP/2022 Sh. Marvel Support Consultancy Services, Jaipur vs. ACIT/DCIT, Circle-01, Jaipur same are given under the breach of law is not considered by the ld.

CIT(A) while considering the appeal of the assessee. Therefore, ld.

DR further drawn our attention to the provisions of section 37(1) of

the I.T. Act wherein the law itself restrict allowance and prescribe

the condition that the expenditure should not be in the nature of

capital expenditure and personal expenditure of the assessee. He

also drawn our attention to explanation (1) of section 37(1) which

contains as under:-

“37 (1) Any expenditure (not being expenditure of the nature described in sections 30 to 36 [***] and not being in the nature of capital expenditure or personal expenses of the assessee), laid out or expended wholly and exclusively for the purposes of the business or profession shall be allowed in computing the income chargeable under the head “Profits and gains of business or profession.” [Explanation 1]- For the removal of doubts, it is hereby declared that any expenditure incurred by an assessee for any purpose which is an offence or which is prohibited by law shall not be deemed to have been incurred for the purpose of business or profession and no deduction or allowance shall be made in respect of such expenditure.]” 19. Since the assessee has not submitted all these details and

without submission of these details or allowing the ld. AO to have his

version the ld. CIT(A) has vide non speaking order deleted the

addition. Thus, the claim was incorrectly allowed by the ld. CIT(A)

and he has summarily without giving any detailed finding on the

issues raised by the AO allowed the claim of the assessee. The ld.

CIT(A) has allowed the claim of the assessee considering that AO

has raised only doubt and not verifying the various aspects of the

25 ITA Nos. 293 & 295/JP/2022 Sh. Marvel Support Consultancy Services, Jaipur vs. ACIT/DCIT, Circle-01, Jaipur case. But at the same time, the assessee has not submitted the

relevant details as specifically called for in consonance with the

reasons for selection of case for scrutiny and considering the

provision of section 37(1) of the Act the claim is excess and not

allowable. The ld. DR further submitted that the assessee failed to

substantiate the difference of the expenditure with respect to the

Revenue that they have accounted and ld. CIT(A) has allowed as

claim of the assessee without taking remand report on the various

aspects as raised before the first appellate authority and in the

interest of justice he submitted that the assessee is required to be

verified basis on the facts as per provision of the law. Therefore, the

issue may be set aside to the file of the ld. AO who examine all

these aspects and can consider the claim of the assessee.

assessee is doing customized back office support services and

providing various arrangements of handling conferences booking of

hotels, arranging sign board and the expenditure may vary and the

fact that the ratio expenditure ranges between 2% to 109% which

itself suggest the correctness of the claim and it gives the correct

picture of business of the assessee and the expenditure claimed are

wholly and exclusively in nature of business expenditure and is

26 ITA Nos. 293 & 295/JP/2022 Sh. Marvel Support Consultancy Services, Jaipur vs. ACIT/DCIT, Circle-01, Jaipur allowable u/s 37(1) of the Act. Before the ld. AO all these details

were furnished. Thus, the AO has made choose and pick and

prepared a chart which is not correct. As regards, the expenditure

claimed on higher side which is on account of management of public

issue of AU Small Finance Bank wherein the much of the

expenditure is claimed by the assessee and if the AO is not

satisfied, he might have issued a notice as per provision of section

133(6) of the I.T. Act and have got verified the details. The ld. AR of

the assessee submitted that the National Faceless Appellate

Proceeding cannot be challenged by the Department on the grounds

that they have not received fair chance to represent the case. He

vehemently argued that the expenditure claimed by the assessee

under the head of sales promotion is not commensurate with the

receipt the expenditure incurred are not verifiable so as to confirm

whether the expenditure incurred and claimed by the assessee are

in the nature of prohibited under the common law and are not of the

personal nature of the assessee. The assessee is merely receiving it

as reimbursement of the expenditure incurred on behalf of the

respective payee. The ld. AR of the assessee drawn our attention to

Para 3.1 to 13 of the assessment year wherein the ld. AO has made

comparison of sales promotion expenses for A.Ys 2017-18 & 2016-

27 ITA Nos. 293 & 295/JP/2022 Sh. Marvel Support Consultancy Services, Jaipur vs. ACIT/DCIT, Circle-01, Jaipur 17, the expenditure ranging between 25% and 16% respectively

which itself proves that the expenditure claimed under this head

purely in the nature of reimbursement of expenditure paid on behalf

of the client and the same is allowable as the income is offered

gross and not net of the reimbursement received.

NFAC. The Department should not raise these appeals. As regards,

the expenditure incurred for 109% in case of receipt from Raghav

Enterprises raised where the services was related to supply of men

power. Therefore, it has resulted expenditure more as compared to

the income received by the assessee considering the nature of

services given. This variation itself shows that the assessee is giving

fair details and information to the AO. The Department has only

chosen 10 bills which will not render a question to the various other

expenditure claimed by the assessee and the argument of ld. DR is

merely on account of the difference of expenditure incurred as

compared to receipt. The ld. AR of the assessee further submitted

that the finding of the NFAC/ ld. CIT(A) is very apt and considered

the various facets and the case he has in detail made a comparison

of the expenditure claimed by the assessee excluding the receipt of

28 ITA Nos. 293 & 295/JP/2022 Sh. Marvel Support Consultancy Services, Jaipur vs. ACIT/DCIT, Circle-01, Jaipur AU Small Finance Bank which is exceptional item and has allowed

the claim of the assessee and there is no factual error of these

findings of NFAC/ ld.CIT(A) objected by the department. Therefore,

the appeal of the department is not maintainable. The ld. AR of the

assessee further drawn our attention to fact that confirmation letter

was filed from the AU Small Finance Bank to support the claim was

on 10% mark up and 90% expenditure which is accounted of sales

promotion expenditure. As regards, the bill of hotels and Kalyan

Jewellers, these are be item purchase as per instructions AU Small

Finance Bank for the management of their public issue and

arranging various meeting of the investors at various locations and

therefore, it has nothing to do with the issue related to the personal

expenditure or capital expenditure so far as to the business of the

assessee is concerned.

there is an excess claim of expenditure is not supported in the

assessment proceedings and confirmation of AU Bank is nothing but

self-serving document submitted by the assessee themselves, the

assessee dealing with corporate clients. There is no agreement or

any written instructions and the contravention of any provision of the

29 ITA Nos. 293 & 295/JP/2022 Sh. Marvel Support Consultancy Services, Jaipur vs. ACIT/DCIT, Circle-01, Jaipur law is not apparent from the various personal nature expenditure

claimed by the assessee. It is also not evident from the details

submitted for the expenses incurred for hotel booked, whether the

person stayed are not under the contravention of any law or not.

Whether the parties are related parties or the expenditure are in the

nature of personal expenditure is not established in the absence of

the relevant information. The ld. DR also raised whether the

provisions of TDS as applicable is applicable or not is not verified as

the assessee has not given complete details. Based on these set of

arguments ld. DR submitted that let the assessee prove before the

AO, the claim made by the assessee as per provision of section

37(1) of the Act as the explanation 1 of section 37(1) restrict the

expenditure even otherwise it is allowable. The ld. DR further

submitted that there is no mention whether these payments were

made in cash or cheque and whether the relevant applicable rate of

TDS is made or not. Since, the assessee has not filed complete

details he submitted that for this aspect revenue also needs an

opportunity to consider the claim of the assessee.

the orders of lower authorities. It is not disputed by both the parties

30 ITA Nos. 293 & 295/JP/2022 Sh. Marvel Support Consultancy Services, Jaipur vs. ACIT/DCIT, Circle-01, Jaipur that the assessee is engaged in the business of Business Support

Services. Therefore, the expenditure is required to be incurred by

the assessee as per instructions of the client. We have also gone

through the orders of the lower authorities and details submitted by

the assessee. The contentions as raised by the Revenue are factual

and based on the inadequate details filed by the assessee and

revenue argued that why the missing details is required which the

assessee has not submitted to the satisfaction of the assessing

officer and therefore, we are of the considered view that the

Assessing Officer was not in a position to verify various aspect on

account of the on account of non-submission of the various details

by the assessee called for by the ld. AO. All these details will

facilitate the ld. AO to decided so as to allowability of the claim of the

assessee as per provision of section 37(1) of the Act. In the light of

these observations, we set aside this issue and the ld. AO is

directed to verify all these aspects as raised by the Revenue and at

the same time, the assessee is directed to submit all the details that

has been called for by the Revenue so as to decide on the expenses

claimed in accordance with the law. With these observations, the

solitary ground raised by the Revenue is allowed.

31 ITA Nos. 293 & 295/JP/2022 Sh. Marvel Support Consultancy Services, Jaipur vs. ACIT/DCIT, Circle-01, Jaipur In the result, appeal of the assessee is allowed per ground

raised and appeal of the Revenue is also allowed in terms of our

observation made here in above.

Order pronounced in the open court on 14/12/2022 Sd/- Sd/- ¼ Mk0 ,l- lhrky{eh ½ ¼ jkBksM deys'k t;UrHkkbZ½ (Rathod Kamlesh Jayantbhai) (Dr. S. Seethalakshmi) U;kf;d lnL;@Judicial Member ys[kk lnL;@Accountant Member Tk;iqj@Jaipur fnukad@Dated:- 14/12/2022 *Ganesh Kumar आदेश की प्रतिलिपि अग्रेf’ात@ब्वचल वf जीम वतकमत वितूंतकमक जवरू 1. The Appellant- Marvel Support Consultancy Services, Jaipur izR;FkhZ@ The Respondent- ACIT/DCIT, Circle-01, Jaipur 2. vk;dj vk;qDr@ The ld CIT 3. vk;dj vk;qDr¼vihy½@The ld CIT(A) 4. 5. विभागीय प्रतिनिधि] आयकर अपीलीय अधिकरण] जयपुर@क्त्ए प्ज्Aज्ए Jंपचनत 6. xkMZ QkbZy@ Guard File (ITA Nos. 293 & 295/JP/2022) vkns'kkuqlkj@ By order,

सहायक पंजीकार@Aेेज. त्महपेजतंत