ITAT Allows Partial Deduction for Promotion of Partnered Firm

  • Blog|News|Income Tax|
  • 2 Min Read
  • By Taxmann
  • |
  • Last Updated on 9 June, 2025

ITAT Section 37 disallowance

Case Details: Parshwanath Realty (P.) Ltd. vs. ADDL/JT/DY/ACIT/Income-tax Officer, National e-Assessment Centre, Delhi - [2025] 174 taxmann.com 1180 (Ahmedabad-Trib.)

Judiciary and Counsel Details

  • Dr. BRR Kumar, Vice President & Siddhartha Nautiyal, Judicial Member
  • Sanjay R. Shah, AR for the Appellant.
  • Ms Bhavnasingh Gupta, Sr. DR for the Respondent.

Facts of the Case

The assessee was in the business of building construction and civil contracting. During the year under consideration, the assessee incurred exhibition expenses amounting to Rs. 36,61,750/- on behalf of another firm in which the assessee was a partner. The said firm had hosted an event, and business promotion expenses had been incurred by the assessee in this event.

During the assessment proceedings, the assessee submitted that the expenses were incurred to boost the business of the other firm as a whole. The assessee placed reliance on the principle of business expediency and argued that expenses can be allowable even if a direct benefit does not accrue, provided the business interest is ultimately served.

The AO rejected the contention of the assessee and held that the exhibition and promotion expenses were not connected to any actual or foreseeable business activity and failed to meet the requirement of being incurred “wholly and exclusively” for business purposes under section 37.

Aggrieved by the order, the assessee preferred an appeal to the CIT(A) but could not succeed. The matter then reached the Ahmedabad Tribunal.

ITAT Held

The Tribunal held that in the case of business expenses covered under section 37 of the Act, the natural presumption would be that the expenses have been incurred by the assessee for its own business and not the business of a third party entity in which the assessee may be having a shareholding or partnership interest or any other commercial interest or commercial or business relationship, from which any indirect benefit may accrue to the assessee.

In the instant case, the expenses were incurred for a third-party firm, where the assessee had a 10 percent profit share. The assessee claimed that since “brand promotion” was involved, a substantial benefit accrued to the assessee as well, and the entire expenditure was claimed by the assessee in its books. Such a proposition cannot be accepted since this would disturb the concept of the separate entity structure itself, and different entities would start claiming expenditure incurred on third-party businesses on the grounds of commercial expediency and accrual of indirect benefit to the assessee’s business.

The assessee was only eligible for a 10% share in the profits of the third-party firm. CIT(A) has taken a reasonable approach in allowing 25% of expenses to the assessee’s hands. Accordingly, no interference is called for in the order of CIT(A).

List of Cases Referred to

  • Union Cold Storage Ltd. v. Jones [1924] 8 TC 725 (CA) (para 7).

Disclaimer: The content/information published on the website is only for general information of the user and shall not be construed as legal advice. While the Taxmann has exercised reasonable efforts to ensure the veracity of information/content published, Taxmann shall be under no liability in any manner whatsoever for incorrect information, if any.

Taxmann Publications has a dedicated in-house Research & Editorial Team. This team consists of a team of Chartered Accountants, Company Secretaries, and Lawyers. This team works under the guidance and supervision of editor-in-chief Mr Rakesh Bhargava.

The Research and Editorial Team is responsible for developing reliable and accurate content for the readers. The team follows the six-sigma approach to achieve the benchmark of zero error in its publications and research platforms. The team ensures that the following publication guidelines are thoroughly followed while developing the content:

  • The statutory material is obtained only from the authorized and reliable sources
  • All the latest developments in the judicial and legislative fields are covered
  • Prepare the analytical write-ups on current, controversial, and important issues to help the readers to understand the concept and its implications
  • Every content published by Taxmann is complete, accurate and lucid
  • All evidence-based statements are supported with proper reference to Section, Circular No., Notification No. or citations
  • The golden rules of grammar, style and consistency are thoroughly followed
  • Font and size that’s easy to read and remain consistent across all imprint and digital publications are applied

Leave a Reply

Your email address will not be published. Required fields are marked *

Everything on Tax and Corporate Laws of India

To subscribe to our weekly newsletter please log in/register on Taxmann.com

Author: Taxmann

Taxmann Publications has a dedicated in-house Research & Editorial Team. This team consists of a team of Chartered Accountants, Company Secretaries, and Lawyers. This team works under the guidance and supervision of editor-in-chief Mr Rakesh Bhargava.

The Research and Editorial Team is responsible for developing reliable and accurate content for the readers. The team follows the six-sigma approach to achieve the benchmark of zero error in its publications and research platforms. The team ensures that the following publication guidelines are thoroughly followed while developing the content:

  • The statutory material is obtained only from the authorized and reliable sources
  • All the latest developments in the judicial and legislative fields are covered
  • Prepare the analytical write-ups on current, controversial, and important issues to help the readers to understand the concept and its implications
  • Every content published by Taxmann is complete, accurate and lucid
  • All evidence-based statements are supported with proper reference to Section, Circular No., Notification No. or citations
  • The golden rules of grammar, style and consistency are thoroughly followed
  • Font and size that's easy to read and remain consistent across all imprint and digital publications are applied