2024 (8) TMI 335 - AT - Income Tax

Business promotion expenses including party costs and liquor fully deductible under Section 37(1) for product launch

Rhine Energy LLP Versus Assessment Unit, Income Tax Delhi.

ITAT Delhi allowed the assessee's appeal regarding business and promotion expenses under Section 37(1). The assessee had claimed expenses for a party at ... Disallowance on account of business and promotion expenses claimed by assessee u/s 37(1) - assessee had arranged a party at Taj Mahal Hotel and paid hotel bill consisting of cot of Buffet dinner, liquor and Government taxes etc - HELD THAT:- The expenditure incurred is revenue in nature and hence the same is fully allowable. The reasoning is not just fair and reasonable. Since the matter was regarding launch of new medium food product and promote a new line of business. Therefore the assessee was entitled to get allowable expenses. Likewise the assessee had spent Rs. 1,04,318/- to Golf Club for food and liquor business meeting in DLF Club Gurgaon. The assessee was entitled to get deduction of Rs. 1,04,318/-. In view of abovesaid material facts and well settled principle of law the order of AO is liable to be set aside and order of the CIT(A) is modified by holding that the assessee is entitled to get allowable expenses - Appeal of the assessee is allowed Issues:1. Disallowance of business expenditure claimed by the assessee.2. Penalty under section 270A for underreporting of income.3. Claim of business promotion expenses under section 37(1) of the Income Tax Act, 1961.4. Appeal against the order of the Learned Commissioner of Income Tax (Appeals).Issue 1: Disallowance of Business Expenditure:The appeal was filed against the order of the Learned Commissioner of Income Tax (Appeals) partially allowing the disallowance of Rs. 18,73,722/- and Rs. 1,04,318/- by the Learned Assessing Officer. The assessee claimed certain business expenditures, but the AO added them back to the returned income. The contention that the expenditure was incurred in connection with the business was not accepted. The AO disallowed expenditure made towards the consumption of liquor under section 37 of the Income Tax Act, 1961, and initiated penalty proceedings under section 270A for underreporting of income. The assessee argued that the expenses were exclusively related to business meetings and were fully audited.Issue 2: Penalty under Section 270A:The penalty proceedings were initiated under section 270A due to the underreporting of income in consequence of misreporting thereof for the assessment year 2021-22. An amount paid to DLF Golf Resorts was found to be purely personal in nature, leading to the initiation of penalty proceedings. The assessee claimed that the expenses were for business promotion, including liquor and food for business meetings. The AO re-computed the total income of the assessee, leading to the disputed disallowance.Issue 3: Claim of Business Promotion Expenses:The assessee contended that the disallowance of Rs. 18,73,722/- and Rs. 1,04,318/- under section 37(1) of the Income Tax Act, 1961, was erroneous. The expenses were related to business promotion, including amounts spent on hotels and resorts for business meetings and promotions. The assessee argued that all expenditures were incurred for the purpose of business and were fully audited, disputing the disallowance upheld by both the Learned CIT(A) and the AO.Issue 4: Appeal Against the Order of the Learned CIT(A):The assessee appealed against the order of the Learned Commissioner of Income Tax (Appeals) regarding the disallowance of business promotion expenses under section 37(1) of the Act. The appeal challenged the confirmation of the disallowance of Rs. 18,73,722/- and Rs. 1,04,318/-, asserting that the expenses were solely for business purposes and should have been allowed as deductions.In the final judgment, the Tribunal allowed the appeal of the assessee, setting aside the assessment order and modifying the order of the Learned CIT(A) to hold that the assessee was entitled to the allowable expenses of Rs. 20,00,557/- and Rs. 1,04,318/- as claimed for business promotion. The Tribunal emphasized that the expenses were revenue in nature and fully allowable under section 37(1) of the Income Tax Act, 1961. The decision was based on the well-settled principles of law and the specific conditions for claiming deductions under section 37(1).