2023 (2) TMI 108 - AT - Income Tax

Tribunal overturns disallowances, deems donation genuine, accepts sales promotion expenses

The Tribunal allowed the appeal, overturning disallowances of a donation to an approved institution and sales promotion expenses. The donation, made when ... Disallowance of donation given - M/s. Herbicure Healthcare Bio-Herbal Research Foundation, Kolkata - registration of the said Institutions were withdrawn - HELD THAT:- Factually, the assessee made donation of Rs.25 Lakhs to the Institute in the 2014 and claimed weighted deduction of Rs.43.75 Lakhs, but subsequently, the registration of the said Institutions were withdrawn on 26.09.2016 w.e.f. 01.04.2007. It appears that when the donation was made by the assessee to the Institute, at the material point of time, the donor was an approved Institution u/s 35(1)(iii) - There was no lacuna found by the authorities below against the said Institute and neither there was any embargo imposed during the relevant point of time against the said institution. On this identical issue, we have further considered the judgment relied upon by the assessee passed by the Co-ordinate Bench [2019 (9) TMI 1685 - ITAT AHMEDABAD] wherein relying upon the ratio laid down by the Hon’ble Gujarat High Court in the matter M/s. Thakkar Govindbhai Ganpatlal HUF [2020 (2) TMI 31 - GUJARAT HIGH COURT] relief has been granted to the assessee - Thus we allow this ground of appeal preferred by the assessee. Sales promotion expenses - Whether same are wholly and exclusively for business purposes and allowable under Section 37? - HELD THAT:- As relying on Armee Infotech [2022 (1) TMI 649 - ITAT AHMEDABAD] we find that the expenses are allowable u/s 37 of the Act, and thus, respectfully relying upon the same, we allow this ground of appeal preferred by the assessee. Issues Involved:1. Disallowance of donation given to M/s. Herbicure Healthcare Bio-Herbal Research Foundation.2. Disallowance of sales promotion expenses.Issue-Wise Detailed Analysis:1. Disallowance of Donation:The primary issue concerns the disallowance of a donation amounting to Rs. 25 Lakhs given by the assessee to M/s. Herbicure Healthcare Bio-Herbal Research Foundation, Kolkata, and the subsequent claim for a weighted deduction of Rs. 43.75 Lakhs. The registration of the donee institution was withdrawn retroactively from 01.04.2007, although at the time of donation, it was an approved institution under Section 35(1)(iii) of the Income Tax Act, 1961. The authorities below did not find any lacuna or impose any embargo against the said institution at the relevant time.The assessee argued that the issue was covered by a judgment in ITA No. 2888/Ahd/2017, where the Co-ordinate Bench granted relief based on the Gujarat High Court's decision in PCIT vs. M/s. Thakkar Govindbhai Ganpatlal HUF. The Tribunal observed that the donation was made when the institution was approved, and no specific evidence showed that the donation was repaid in cash after deducting a commission. Consequently, the Tribunal allowed the appeal, deleting the addition made by the authorities below, as the donation was genuine and there was no mechanism for the assessee to verify the donee's genuineness at the time of donation.2. Disallowance of Sales Promotion Expenses:The second issue involves the disallowance of sales promotion expenses amounting to Rs. 43,87,742/- out of the total claimed Rs. 47,04,385/-. The assessee contended that these expenses were for business purposes, including gifts to business associates and executives, and were allowable under Section 37 of the Act. The assessee provided detailed explanations and evidence, including ledger accounts and bills for the expenses, asserting that these were routine business expenses necessary for maintaining healthy business relationships and advancing business objectives.The Tribunal referenced a similar case, ACIT vs. Armee Infotech, where the Co-ordinate Bench allowed such expenses, emphasizing the principle of consistency. The Tribunal noted that the assessee had maintained detailed records and provided bills and vouchers for the purchases. The expenses were deemed necessary for business promotion and were not excessive or unreasonable, given the assessee's turnover. The Tribunal found no reason to deviate from the Co-ordinate Bench's stand and allowed the appeal, deleting the disallowance of sales promotion expenses.Conclusion:The Tribunal allowed the appeal on both grounds, deleting the disallowances made by the authorities below. The judgments emphasized the principles of consistency, the necessity of business expenses, and the genuineness of the donations made during the relevant period.