Business promotion expenses will be allowed even if no Increase in Sales
Fact and Issue of the case
The assessee company is engaged in the business of selling health based wellness products through multi-level marketing. The assessee is a group company of Unicity Group, USA. During the course of scrutiny proceedings, the A.O. noticed that the assessee has claimed business promotion expenses of Rs.4.04 crores. On questioned, the assessee explained that its business has started picking up in 2013-14 onwards and hence, in order to improve the business further, several incentive schemes like Dubai Reward Trip, Bongkok Reward Trip, Goa Reward Trip were organized in 2014.
The A.O. wanted to apply bright line test. He also observed that the assessee has not furnished any documentary evidence except a chart giving the breakup details of business promotion expenses and certain comments. The A.O. also observed that the assessee has failed to furnish copies of invoices or actual nature of expenses. Further, this expenditure has not helped the cause of business also by way of increase in sales. Accordingly, the A.O. expressed the view that it is not clear as to whether these expenses have helped the assessee to improve its business. Accordingly, the A.O. disallowed the entire claim of Rs.4.04 crores.
Observation by the Tribunal
The tribunal has heard the rival contentions and perused the record. The tribunal noticed that the assessee has furnished the details of expenses in its reply sent through e-mail on 21.12.2016. It has also furnished copies of sample invoices in its e-mail sent on 28.12.2016. As noticed earlier, the A.O. has completed the assessment on 30.12.2016. It is pertinent to note that the entire exercise of asking queries have started only on 19.12.2016. From the assessment order, it is not clear as to whether the A.O. has properly examined the replies furnished by the assessee.
Admittedly, the business promotion expenses have been incurred for the purpose of improving sales of the assessee. There is merit in the submission of Learned Authorised Representative that the question of applying bright line test does not arise in the facts of the present case. Every businessman would be incurring advertisement and business promotion expenses in anticipation of higher sales in accordance with his sales promotion strategy. To his bad luck, if the advertisement and business promotion expenses do not fructify, the same should not lead to disallowance of expenses, which have otherwise been genuinely incurred by the assessee, i.e. the said expenses would continue to be considered as expenses incurred wholly and exclusively for the purpose of business.
In any case, in the instant case, the A.O. has not examined the details furnished by the assessee. Accordingly, tribunal is of the view that this issue requires fresh examination at the end of the A.O. Accordingly, the tribunal set aside the order passed by the Learned CIT (A) and restore this issue to the file of the A.O. for examining it afresh by duly considering the information and explanations furnished/that may be furnished by the assessee. After affording adequate opportunity of being heard to the assessee, the A.O. may take appropriate decision in accordance with law.
The court made decision in favour of assessee and allowed the appeal filed by the assessee and treated it as allowed for statistical purposes.
Read the full order from belowBusiness-promotion-expenses-will-be-allowed-even-if-no-Increase-in-Sales