A.C.I.T CIR - 54,KOLKATA, KOLKATA vs. M/S GOLDEN TRUST FINANCIAL SERVICES, KOLKATA

Ground No.1 raised by the assessee in this appeal was not pressed and the same is dismissed as not pressed.

Ground No.2 raised by the assessee in their appeal and ground Nos 1 to 3 raised by the revenue in its appeal can be conveniently decided together. These grounds read as follows :- & 214/Kol/2013 – Golden Trust Financial Services A.Y.2007-08 1 Assessee’s Grounds of appeal “2. Under the facts and circumstances of the case the Ld. Commissioner of Income tax (Appeals)-XXXVI, Kolkata has erred in law as well as in fact in confirming the disallowance and addition of an expenditure of rs.1,38,32,946/- for Business/Sales promotion Expenses.” Revenue’s Grounds of appeal “(1) That on the facts and circumstances of the case the learned CIT(A) has erred in deleting addition of Rs.2,66,66,749/- out of total disallowance/addition of Rs.4,16,65,896 made by AO in respect of sales promotion expenses relying on the submission and bills for cost of the purchase submitted by the assessee .. (2) That on the facts and circumstances of the case the learned CIT(A) has erred in deleting the additions of Rs.2,66,66,749/- out of total disallowance of Rs.4,16,65,896 made in respect of sales promotion expenses without giving an opportunity of being heard to the A.O. when the assessee failed to substantiate such expenses by filing necessary evidence during assessment proceedings. (3) That on the facts and circumstances of the case the order of CIT(A) is perverse as out of total disallowances of Rs.4,04,99,695/- the sum of Rs.2,66,66,749/- was deleted without considering the nexus of expenditure to earn business by the assessee.”

The facts with regard to the above said grounds are as follows : The assessee is a firm. It is engaged in the business of acting as corporate agent of life insurance products. In the course of assessment proceedings the AO noticed that the assessee had claimed as deduction while computing business income a sum of Rs.4,04,99,695/- under the head “Business/sales promotion Expenses”. AO disallowed the claim of the assessee for deduction of the above said sum for the reason that the assessee had not filed evidence to show that the aforesaid expenses were for the purpose of business promotion/sales promotion. AO was also of the view that the assessee was earning commission from selling insurance policies and such expenses for business promotion and sales promotion were not required to be incurred by the assessee. He, therefore, held that the aforesaid expenses were unwarranted and unjustified.

Before CIT(A) the assessee filed all the required evidence which were also before the AO and submitted that the expense in question was wholly and exclusively incurred for the purpose of business of the assessee. & 214/Kol/2013 – Golden Trust Financial Services A.Y.2007-08 2

The CIT(A) after taking consideration of the photo copies of the bills and evidences of payment of the expenses through banking channels concluded as follows :- “Matter was examined in details. Appellant was asked to produce all bills relating to business promotion and sales with various schemes. Appellant produced all bills relating to sales promotion except of rs.1,38,32,946/-. These bills were not found to be available with them. Out of these many are cash vouchers and they were also not produced. In the absence of bills and vouchers expenses to the extent of Rs.1,38,32,946/- could not be verified and linked with various schemes. Hence out of total expenses under the head business/sales promotion of Rs.4,04,99,695/- disallowed by A.O. sum of Rs.1,38,32,946/- is confirmed as disallowance and balance of Rs.2,66,66,749/- is deleted. Appellant gets relief of Rs.2,66,66,749/.”

Aggrieved by the relief given by the CIT(A) revenue has raised ground nos. 1 to 3 . Aggrieved by order of CIT(A) sustaining a part of disallowance made by AO, assessee has raised ground no.2 before the Tribunal.

We have heard the rival submissions and perused the evidence on record. At pages 62 to 93 of the paper book filed by the assessee the photo copies of the bills and vouchers relating to the sales promotion expenses have been filed. At pages 94 to 110 the assessee has filed ledger copy of the sales promotion expenses. A summary of the names of the persons to whom the business/sales promotion expenses incurred by the assessee were paid and their correlation with supporting bills filed in the paper book at pages 60 and 61 are given in this summary. The same is given as annexure to this order for better appreciation of facts. From a perusal of the statement, it is clear that the assessee has filed complete details of the bills and vouchers in respect of the entire sales promotion expenses. The CIT(A)’observation that the appellant had produced all bills relating to sales promotion except to the extent of Rs.1,38,32,946/- is there fore incorrect. It is further noticed that in respect of payment made to P.A.Time Industries, no bills and vouchers have been filed. The payments to this party totalling Rs.8,70,000/- is negligible compared to the volume of expenditure incurred by the assessee under this head. Even in respect of this expenditure the payment in question & 214/Kol/2013 – Golden Trust Financial Services A.Y.2007-08 3 has been made by account payee cheques. A perusal of the bills and vouchers shows that the expenditure in question has been incurred on purchase of gift items. Thus it is clear that the assessee has established incurring of business promotion/sales promotion expenses. AO/CIT(A) have not given any valid basis as to why these expenses should not be regarded as permissible deduction. CIT(A) having accepted that the expenditure in question is wholly and exclusively for the purpose of business of the assessee ought to have allowed the entire deduction. He ought not to sustained part of the addition on a wrong assumption that bills in relation to a part of the expenditure were not filed by the Assessee and on this basis sustained part of the disallowance made by the AO.

For the reasons given above we allow ground no.2 raised by the assessee and dismiss ground nos. 1 to 3 raised by the revenue.

Ground No.4 raised by the revenue in its appeal reads as follows :-

“(4) On the facts and circumstances of the case and in law the CIT(A) erred in deleting disallowances of Rs.19,99,898/- made in respect of 17 non-operational branch offices ignoring the fact such nature of expenses cannot be considered for inoperative branches. “ 11. AO disallowed a sum of Rs.19,99,898/- which were expenses incurred in connection with 17 vacant branches of the assessee. Before CIT(A) the assessee explained that these branches are mostly rural and semi urban areas. Some times the staffs are deputed on temporary basis from one branch to another, though their salaries are paid from the branches in which they were originally posted. This is done because of the human resource deployment strategy of the firm. So, no branch was left without any staff at any point of time. However, if only salary register is considered, it may happen that it will portray that a branch is running without any staff at any particular point of time. But the actual situation is not so. The Assessee pointed out that the Ld. AO has considered the salary register for the month of March, 2007 only. For that reason the Ld. AO has arrived at a wrong conclusion that for 17 branches there was no & 214/Kol/2013 – Golden Trust Financial Services A.Y.2007-08 4 staff of the firm. The Assessee also pointed out that there are bound to be some expenses for the maintenance of the branches like Rent, Electricity, Stationery and Travelling etc. Also, through the 17 branches (as mentioned by the Ld. A.O. in his assement order) business was generated. The generation of business by itself justify the expenses. A list of Branches of the assessee and the names of the Employees along with their Posting Branches was also filed before CIT(A) by the Assessee to substantiate its claim. It was argued that the Ld. A.O has not considered the above mentioned facts and even without identifying the so called 17 branches disallowed expenses to the tune of rs.19,99,898/- relating to those branches. Without prejudice to the above submissions, it was contended that the Ld. A.O. has even also failed to identify the nature and heads of the items of expenditures to be disallowed on this account.

The CIT(A) after considering the above submissions was of the view that the expenses in question were incurred for upkeep and functioning of the branches and had to be allowed as deduction. We are of the view that in the light of the facts as brought before CIT(A) the addition was rightly deleted by CIT(A). We find no grounds to interfere with the order of CIT(A). Accordingly ground no.4 raised by the revenue is dismissed.

In the result the appeal filed by the assessee is partly allowed while the appeal filed by the revenue is dismissed.