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

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.

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

• • Mysore Lamps Works Ltd. v. CIT [1990] 52 Taxman 260/185 ITR 96 (Kar.) (para 5)
  • Indian Molasses Co. (P.) Ltd. v. CIT [1959] 37 ITR 66 (SC) (para 5)
  • Rotork Controls India (P.) Ltd. v. CIT [2009] 180 Taxman 422/314 ITR 62 (SC) (para 8)
  • Armee Infotech v. Asstt. CIT [IT Appeal No. 2484 (Ahd.) of 2013, dated 28-2-2014] (para 13)
  • Vijay Proteins Ltd. v. Asstt. CIT [1996] 58 ITD 428 (Ahd. – Trib.) (para 15)
  • CIT v. Gujarat Ambuja Export Ltd. [Tax Appeal No. 840 of 2013, dated 10-2-2014] (para 16)
  • Mayank Diamonds (P.) Ltd. v. IT Officer [Tax Appeal No. 200 of 2003, dated 7-11-2014] (para 16)
  • ACIT v. Kulubi Steel [IT Appeal No. 1568 (Ahd.) of 2008, dated 16-12-2010] (para 16).