Delhi High Court
Commissioner Of Income Tax ??? Iv, ... vs M/S. Escorts Automotives ... on 12 October, 2011
Author: A.K.Sikri
* IN THE HIGH COURT OF DELHI AT NEW DELHI
+ ITA No.146 of 2011
% Decision delivered on: 12th October, 2011
COMMISSIONER OF INCOME TAX - IV,
NEW DELHI . . . APPELLANT
Through: Mr. N.P. Sahni, Sr. Standing
Counsel.
VERSUS
M/s. ESCORTS AUTOMOTIVES LTD.,
NEW DELHI . . .RESPONDENT
Through: Mr. R.M. Mehta, Advocate.
CORAM :-
HON'BLE THE ACTING CHIEF JUSTICE
HON'BLE MR. JUSTICE SIDDHARTHA MRIDUL
1. Whether Reporters of Local newspapers may be allowed
to see the Judgment?
2. To be referred to the Reporter or not?
3. Whether the Judgment should be reported in the Digest?
A.K. SIKRI, Acting Chief Justice (ORAL)
1. Admit.
2. The following substantial question of law which arises for
consideration:
"Whether the Income Tax Appellate Tribunal was
correct in law and on facts in deleting the
addition/disallowance made by the AO in respect of
business promotion expenses amounting to
`27,19,769?"
3. The issue, thus, relates to the business promotion expenses
purportedly incurred by the assessee in assessment year
2005-06. The assessee is a company and is engaged in the
business of leasing, financing, trading in shares and
debentures. The assessee company filed return of income
declaring loss of `2,76,44,115/-. The case of the assessee-
company was selected for scrutiny and notices under
Sections 143(2) and 142(1) of the Income Tax Act
(hereinafter referred to as „the Act‟) were issued and served
upon the assessee. In response to the said notices, the
assessee has filed reply to the same. During the course of
assessment proceedings, it was, inter alia, observed by the
Assessing Officer (AO) that the assessee has claimed
business promotion expenses of `27.19 lacs in respect of gift
items distributed by it. The AO had made the addition on
account of business promotion expenses as the assessee
was not able to substantiate the same. On being enquired
by the AO as to the genuineness of the huge amount which
is expended on the so-called business promotion, the
assessee stated that the expenses relate to the gift items for
presentation. No details or explanation were provided as to
what was the nature of gifts and how they related wholly
and exclusively to business purposes. Further, it was
observed by the AO that the bills relating to business
promotion expenses were not in the name of the assessee
company.
4. The assessee filed appeal against the aforesaid order before
the CIT(A) which partly allowed the appeal restricting the
disallowance only to 10% to the total expenditure.
5. Against the order of the CIT (A), both the Revenue as well
as the assessee filed the appeals. According to the Revenue,
no such expenditure was allowable to be deducted, whereas
the assessee wanted 100% deduction, as according to it, the
entire expense was the business expense.
6. The Income Tax Appellate Tribunal (hereinafter referred to
as „the Tribunal‟) has, however, maintained the order of the
CIT (A). Though the assessee has not come up in further
appeal, it is only the Revenue, who has filed the appeal
challenging the order of the Tribunal. The reason given by
the Tribunal is summarized in Para 3 of the impugned order,
which is as follows:
"We have considered the rival contentions and found
from the record that in view of the assessee‟s business
of leasing, financing and trading of shares, it used to
give presents to its existing and potential clients which
is customary in nature. Nothing specific was brought
on record by the lower authority to allege that the
expenditure was not incurred for the purpose of
business. During the year under consideration, the
assessee has achieved a turnover of Rs.16.13 crores
from its trading business and was having interest
income of Rs.5.35 crores. Thus, the expenditure so
incurred for promotion of business is to be allowed as
business expenditure. Genuineness so incurred were
not doubted. Keeping in view Assessing Officer‟s
allegation that bills have not been properly maintained,
we direct to restrict the disallowance to the extent of
10% of the expenditure. We direct accordingly."
7. After hearing the counsel for the parties, we are of the
opinion that the Tribunal has not addressed the issue in a
proper perspective. Only reason which has influenced the
Tribunal is the high turnover of `16.13 Crores achieved by
the assessee, who was also having interest income of `5.35
Crores, that, according to us, cannot be the ground to allow
whatever expenditure is claimed by the assessee as business
promotion expenses. It is the genuineness of the
expenditure, which was to be gone into. Though the
explanation of the assessee is that the expenditure was in
the nature of gifts, which were purchased and related wholly
and exclusive to business purpose, vital circumstance and
important piece of evidence which is totally ignored by the
Tribunal is that these purchases were not made in the name
of company. All bills are in the name of one or two Directors
of the company, therefore, what should have been examined
was as to whether these purchases made by a Director of
the company, for which the bills were raised in the name of
the said Director, were actually meant for the assessee and
the gifts were utilized for promoting the business of the
assessee alone. This aspect has not been dealt with by any
of the Authorities.
8. We, thus, set aside the impugned order and remit the case
back to the AO, who shall give an opportunity to the
assessee to prove that the gifts which were purchased by
the Director of the company in her name were, in fact,
purchased for the assessee‟s business and were utilized by
the assessee alone.
9. This appeal is disposed of in the aforesaid terms.
ACTING CHIEF JUSTICE
(SIDDHARTH MRIDUL)
JUDGE
OCTOBER 12, 2011
pmc
