The Ahmedabad bench of ITA ruled that expenses for gifts purchased for sales promotion should be deductible even if the assessee did not provide the list of recipients.
The business valued at the relevant time was in the business of installing computers and providing after-sales services; sale of computers and peripherals and collection from the administration on behalf of computer suppliers. He filed his tax return electronically and while going through the documents, the AO noted that the assessee had debited an amount of Rs.1,29,93,438/- for sales promotion expenses, and claimed the same in the profit and loss account. The ld.AO found that it had given expensive gifts to some parties.
The AO rejected this amount on the total claim made by the appraise on the basis that the appraise had not provided the list of persons to whom such valuable gifts were given for the promotion of business. On appeal, the ld.CIT(A) limited this denial to Rs.9.50 lakhs.
The person being assessed maintained that she was in the business of spare parts and computer peripherals. It was also providing maintenance services and in order to stay in the market, and also to maintain the appraise’s hold on the market, it is essential to incur sales promotion expenses.
While upholding the CIT(A) order, the bench of the tribunal consisting of Mr. Rajpal Yadav (Vice Chairman) and Mr. Waseem Ahmed (Member Accountant) observed that “the assessee is a well-organized business, who made a turnover of more than Rs.102 crores which means his affairs must have been handled in a professional manner where all the details could have been kept.The assessee did not give any details as to who these gifts were offered. It is the case of the person evaluated that, in order to maintain the secrecy of his sector of activity, it is not his responsibility to disclose the personal data of the recipients. He showed invoices and vouchers for purchases. All details have been maintained scientifically. A rejection estimate can only be made if there are gaps in the detail maintained by the assessee. The reasoning put forward by the AO is quite different and does not did not meet CIT(A) approval. Subsequently, the ld.CIT( A) should not have made an ad hoc disallowance. The ld.CIT(A) was not justified in partially confirming the refusal.
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