INCOME TAX ACT, 1961

Section 37(1)

Business expenditure - Disallowance of business promotion expenditure - Assessee could not establish link between gefts given and sale order received -

Assessee was engaged in business of trading, testing and installation of scientific instruments with respect to measuring of energy, pollution control, measurement of energy flow etc. During the course of assessment proceedings, AO observed that assessee had debited an amount as business promotion expenses and assessee was required to furnish detailed ledger account of these expenses. Assessee submitted before AO that due to plenty of competition in his line of business, assessee had to promote his business to maintain the existing business as well as to get fresh business and new customers and that such expenditure had helped in increasing its turnover as well as increasing the net profit. However, AO was not satisfied with the submissions of the assessee and therefore disallowed the said amount and added the same to the income of the assessee Held: Authorities were of opinion that assessee could not establish a link between the gifts given and the sales orders received. It might not be practically possible for all businesses to maintain a complete list of the gifts given to their various customers and demonstrate that a particular sales order was received as a result of a particular gift. There was no denial by department that assessee was carrying on business regularly, the department also did not allege that there was any personal element involved in expenditure. It was also an accepted business practice in India that customary gifts are usually handed out during festive occasions. Accordingly, interest of justice would be served if the disallowance was restricted to 40% of the initial total disallowance.

REFERRED :

FAVOUR : Partly In assessee's favour

A.Y. :

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