2019 (12) TMI 1251 - AT - Income Tax

Appeal Success: Event Expenses Disallowed, Reduced to 25% - Emphasis on Justifying Business Necessity

S.N. Infraspace Pvt. Ltd. Versus D.C.I.T., Circle-4 (1) (2), Ahmedabad.

S.N. Infraspace Pvt. Ltd. Versus D.C.I.T., Circle-4 (1) (2), Ahmedabad. - TMI Issues Involved:1. Disallowance of Event Management Expenses under section 37 of the Income Tax Act, 1961.Detailed Analysis:Issue 1: Disallowance of Event Management Expenses1. The assessee challenged the addition of Rs. 4,25,000 on account of event management expenses.2. The assessee, a private limited company engaged in construction and sale of properties, claimed to have incurred Rs. 8,50,000 for an event organized to sell a property, resulting in a gross margin of Rs. 10,56,84,422.3. The Assessing Officer (AO) viewed the event as more of a celebration than a business activity, stating that prospective buyers would focus on the property rather than the event.4. The AO disallowed the expenses, considering them irrelevant and unreasonable for business purposes.5. The Commissioner of Income Tax (Appeals) deleted 50% of the disallowed expenses, citing conditions for allowance under section 37 and the necessity of expenses being wholly and exclusively for business purposes.6. The CIT(A) found the event relevant to the business but noted the lack of details on invitees and selection procedures, confirming a 50% disallowance.7. The Appellate Tribunal noted the genuineness of expenses but highlighted the absence of crucial details like invitee lists and evidence of no personal guests of directors at the event.8. The Tribunal limited the disallowance to 25% due to insufficient documentary evidence, emphasizing the necessity of justifying expenses for deductibility under section 37.9. The appeal was partly allowed, granting relief to the assessee in part.This detailed analysis covers the issues involved in the legal judgment regarding the disallowance of event management expenses under section 37 of the Income Tax Act, 1961.