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Income Tax Appellate Tribunal, DELHI BENCH ‘D ’, NEW DELHI
Before: SHRI J. S. REDDY & SHRI KULDIP SINGH
BEFORE SHRI J. S. REDDY, ACCOUNTANT MEMBER AND SHRI KULDIP SINGH, JUDICIAL MEMBER Assessment year : 2010-11 ACIT, Circle 3(1), Vs. BMG Enterprises Ltd., 1st Floor, DCM Building, New Delhi 16, Barakhamba Road, New Delhi GIR / PAN:AAACB4657R (Appellant) (Respondent) Appellant by : Shri R. S. Negi, Sr. DR Respondent by : Shri Praeep Dinodia and Shri R. K. Kapoor, CA Date of hearing : 04.11.2015 Date of pronouncement : 04.12.2015 ORDER PER KULDIP SINGH, JM:
The appellant, ACIT, Circle 3(1), New Delhi (hereinafter referred as ‘the Revenue’) by filing the present appeal sought to set aside the impugned order dated 24.09.2013 passed by Ld. CIT(A) VI, New Delhi qua the assessment year 2010-11 on the ground that: “Ld. CIT(A) has erred in deleting the addition of Rs.17,14,534/- on account of disallowance of gift expenses when the A.O. had given a specific finding that the gifts under consideration were purely of personal use and the benefit derived from these expenses to the business of the assessee could not be proved.”
Briefly stated, the facts of this case are: during the processing of return of income filed by the assessee qua the assessment year 2010-2011, the case was subjected to scrutiny and consequently, notices u/s 143(2) and 142(1) were issued to the assessee and in response thereto, Shri V K Gupta, Vice President (Finance) / AR appeared from time to time and filed necessary details. The assessee is a public limited company, engaged in the business of providing consultancy and technical services in the field of aviation and aeronautics to various manufacturers station in different countries. The assessee company shown to have incurred Rs.17,14,534/- towards distribution of gifts. In response to the query, as to why the addition of this amount should not be made, the assessee placed on record the statement of gift purchased including copies of vouchers and on the bills, the names of donee have also been recorded. Finding the details filed by the assessee not satisfactory, the A.O. made addition of Rs.17,14,534/-. The assessee carried the matter before Ld. CI(A) who has allowed the appeal. Feeling aggrieved, the Revenue has come up before the Tribunal by way of filing the present appeal.
Ld. D.R. assailing the impugned order, contended inter alia that since there is no element of business expenditure in the gifts, claimed to have been purchased by the assessee company, the Ld. CIT(A) has erred in deleting the addition; that the gifts claimed to have been given by the assessee company are apparently personal in nature and as such, the amount has been rightly added to the income of the assessee by the A.O. and relied upon the order passed by A.O. 4. However, on the other hand, Ld. A.R. relied upon the order passed by Ld. CIT(A) and contended that he has given complete list of gifts along with bills and vouches and the gifts given to the persons with whom assessee has business transactions and the assessee has earned Rs.7 crores.
We have heard Authorized Representatives of both the parties, gone through material placed on record in the light of facts and circumstances of the case and orders of tax authorities below.
The sole question arises for determination in this case is, “as to whether the gifts provided by the assessee during the year under assessment are to be kept in the category of personal expenses or in the category of business expenditure”.
Undisputedly, during the assessment proceedings, assessee company has brought on record the fact that during the year of assessment, the total amount spent on gifts worked out to Rs.17,14,534/- as against Rs.12,16,165/- in the previous year and also placed on record the statement of gifts purchased including copies of vouchers and bills on which the names of donees has been recorded.
A.O. declined the claim of assessee company and made addition of Rs.17,14,534/- spent for purchase and distribution of gifts by making following observations: “3.2 The reply and the details filed by the assessee company has been duly considered. A perusal of the list of gift items purchased revealed that items of gift for example Shawals, silver articles, carpets etc. are of personal in nature. Further the assessee failed to justify the nexus of such gifts of personal nature for business purposes. The occasion thereof and also to prove as to how the distribution of gifts has rendered any benefits for the business of the assessee. In view of the above Rs.17, 14,534/-spent towards purchase and distribution of gifts is disallowed and added to the income of the assessee. (Addition.- Rs. 17,14,534/-)”
However, Ld. CIT(A) by deleting the addition of Rs.176,14,534/- made by the A.O., set aside the assessment order on two grounds; one: that the necessity of amount of expenditure to be incurred for business purpose, are to be decided by the businessman which could not be seen with suspicion and relied upon the case cited as S. A. Builders Ltd. Vs CIT 288 ITR 01 (S.C.) and CIT Vs Dalmia Cement Pvt. Ltd. 254 ITR 377(Del.) and Sasson J. David & Co. Pvt. Ltd. Vs CIT 118 ITR 261 (S.C.); two: that the appellant “is a deemed public limited company u/s 43A of the Companies Act, 1956 and a juristic person under the general law and as such, there can be no expenses of personal nature”.
The ratio of judgement Sasson J. David & Co. Pvt. Ltd. Vs CIT (supra) is “ordinarily, it is for the assessee to decide whether any expenditure should be incurred in the course of his business. Such expenditure may be incurred voluntarily and without any necessity and if it is incurred for promotion of business and to earn profit, assessee can claim deduction u/s 10(xv) of the Act even though there was no compulsion/necessity to incur such expenditure”. 11. Applying the law laid down by Hon’ble Apex Court in the judgements cited as S. A. Builders Ltd. Vs CIT 288 ITR 01 (S.C.) and CIT Vs Dalmia Cement Pvt. Ltd. 254 ITR 377(Del.) and Sasson J. David & Co. Pvt. Ltd. Vs CIT 118 ITR 261 (S.C.) , we are of the considered view inter alia that the A.O. has made addition of Rs. 17,14,534/- by disallowing the expenditure made by the assessee company in respect of gifts on the basis of his conjectures an surmises and has lost sight of the objectivity required in this case; that the A.O. has also lost sight of the fact that when claim of assessee for deduction of expenses in respect of the gifts to the tune of Rs.12,16,165/- in the previous year has been accepted by the Revenue from whom assessee has earned business of Rs.7,00,00,000/- the rule of consistency is required to be followed; that when the assessee has brought on record the entire evidence as to the purchase of gifts, names of persons to whom such gifts have been given along with vouchers bearing name of the donee, the disallowance was not required to be made by the A.O.; that even otherwise, assessee company being a juristic person under the Income Tax Act, 1961, cannot incur any expenses of personal nature and all the expenses are to be incurred for the business purpose only; that CIT(A) has rightly observed that the amount of Rs.17,14,534/- has been incurred by the assessee company to maintain its personal contacts and goodwill with the clients necessarily to advance the business interest in the subsequent assessment year; that A.O. has merely disallowed the expenses on the ground of suspicion; that even otherwise the A.O. has not disputed the vouchers bearing name of done and list of persons to whom the gifts have been given and other records furnished by the assessee during assessment proceedings and in these circumstances, Ld. CIT(A) has rightly deleted the addition vide impugned order.
In view of what has been discussed above, finding no illegality or perversity in the impugned order, we hereby dismiss the present appeal filed by the Revenue. Order pronounced in the open court on 04th Dec., 2015. 13.