Expenses incurred for upkeep and functioning of the branches allowed

1 The assessee is a firm. It is engaged in the business of acting as corporate agent of life insurance products. In the course of assessment proceedings the AO noticed that the assessee had claimed as deduction while computing business income a sum of Rs.4,04,99,695/- under the head "Business/sales promotion Expenses". AO disallowed the claim of the assessee for deduction of the above said sum for the reason that the assessee had not filed evidence to show that the aforesaid expenses were for the purpose of business promotion/sales promotion. AO was also of the view that the assessee was earning commission from selling insurance policies and such expenses for business promotion and sales promotion were not required to be incurred by the assessee. He, therefore, held that the aforesaid expenses were unwarranted and unjustified.

AO disallowed a sum of Rs.19,99,898/- which were expenses incurred in connection with 17 vacant branches of the assessee.

2. Before CIT(A) the assessee filed all the required evidence which were also before the AO and submitted that the expense in question was wholly and exclusively incurred for the purpose of business of the assessee. The CIT(A) after taking consideration of the photo copies of the bills and evidences of payment of the expenses through banking channels concluded as follows :-

"Matter was examined in details. Appellant was asked to produce all bills relating to business promotion and sales with various schemes. Appellant produced all bills relating to sales promotion except of rs.1,38,32,946/-. These bills were not found to be available with them. Out of these many are cash vouchers and they were also not produced. In the absence of bills and vouchers expenses to the extent of Rs.1,38,32,946/- could not be verified and linked with various schemes. Hence out of total expenses under the head business/sales promotion of Rs.4,04,99,695/- disallowed by A.O. sum of Rs.1,38,32,946/- is confirmed as disallowance and balance of Rs.2,66,66,749/- is deleted. Appellant gets relief of Rs.2,66,66,749/."

3 On appeal the ITAT held as under:

"AO/CIT(A) have not given any valid basis as to why these expenses should not be regarded as permissible deduction. CIT(A) having accepted that the expenditure in question is wholly and exclusively for the purpose of business of the assessee ought to have allowed the entire deduction. He ought not to sustained part of the addition on a wrong assumption that bills in relation to a part of the expenditure were not filed by the Assessee and on this basis sustained part of the disallowance made by the AO.

The CIT(A) after considering the above submissions was of the view that the expenses in question were incurred for upkeep and functioning of the branches and had to be allowed as deduction. We are of the view that in the light of the facts as brought before CIT(A) the addition was rightly deleted by CIT(A)."

Case reference-  [Before Hon'ble Shri N.V.Vasudevan, JM & Shri Waseem Ahmed, AM ] Golden Trust Financial Services -versus- D.C.I.T., Circle-54, Kolkata

 IN THE INCOME TAX APPELLATE TRIBUNAL, BENCH 'C' KOLKATA