Gifts distributed is deductible even if recipient list is undisclosed: ITAT

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  • Last Updated on 14 June, 2022

Income-tax Act 1961; Business disallowance; Allowability of (Bogus purchase); Deductions

Case Details: ACIT v. Armee Infotech - [2022] 136 taxmann.com 128 (Ahmedabad - Trib.)

Judiciary and Counsel Details

    • Raj Yadav, Vice-President and Waseem Ahmed, Accountant Member
    • Mukesh Kumar Sharma, Sr. DR for the Appellant. 
    • Hardik Vora, Adv. for the Respondent.

Facts of the Case

The assessee was engaged in the business of trading in computer spares & peripherals, and it was also providing installation and maintenance services. It debited a sum towards sales promotion expenses in the profit & loss account during the relevant year.

The Assessing Officer (AO) found that the assessee had given costly gifts to certain parties. The assessee failed to give the list of persons to whom such valuable gifts were made for business promotion. Thus, he disallowed the deduction of such gift out of claim made by assessee under sales promotion expenses.
On appeal, the CIT(A) reduced the amount of disallowance. Aggrieved-AO filed the instant appeal before the Tribunal.

ITAT Held

The Tribunal held that to remain in the market and maintain assessee’s hold in the market, it was essential to incur expenditure on sale promotion. There are many suppliers in the area of business in which the assessee was engaged.

The assessee was a well-organized business house, which had achieved a turnover of more than Rs. 102 crores. Its affairs must have been managed in a professional manner, where complete details might have been maintained.

The assessee had given no details to whom such gift items were given. It is the case of the assessee that to maintain secrecy of its line of business, it is not incumbent upon him to disclose the personal details of recipients. The assessee had shown bills and vouchers for the purchase of gifts.

An estimation of disallowance could only be made if there are some lapses in the detailed maintained by the assessee. In the given case, the assessee maintained all the details scientifically. Thus, the CIT(A) was not justified in partially confirming the disallowance and the entire disallowance made by AO was to be set aside.

List of Cases Referred to

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