While hearing the case of M/s MKJ Tradex Ltd, Kolkata bench of Income Tax Appellate Tribunal (ITAT) recently held that advertisement expenses incurred for publishing the achievement of Managing Director (MD) of the company is deductible from business income.
Assessee in the instant case, is a private limited company engaged in the business of trading in stainless steel and allied products. During the financial year, the Assessee has claimed expense of Rs.6,09,402 on account of expenses incurred for celebrating French National Day.
While completing the assessment proceedings the Assessing Officer (AO) observed that the Assessee had no export business with France, therefor the expenses claimed by the Assessee for the celebration have not been incurred in connection with its business activity. Accordingly he disallowed the claim of the Assessee and added the same to the total income of the Assessee also.
On appeal CIT(A) upheld the action of the AO and confirmed the disallowance made by him without considering the submissions of the Assessee. Aggrieved by the order passed by the authority Assessee approached the Tribunal on further appeal.
Before the bench counsel for the Assessee advocate S.K. Tulsiyan submitted that it has incurred an expense of Rs. 5,91,402 only for publishing the award conferred on Mr. Mahendra Kumar Jalan, Chairman and Managing Director (MD) of the company by the French Embassy of India and he submitted the newspaper report as an evident to support his argument.
Further he submitted that since the award was of a great honour for the assessee-company also, it was decided to publish the same in the daily newspaper so as to disseminate the information about the award among the general public. The said advertisement is akin to sales promotion expenses of the assessee-company in as much the general public was made aware of the high influential position and achievements of the M.D of the company and as such is allowable under section 37(1) of the Income Tax Act 1961.
After considering the rival submissions of both the parties the Tribunal bench comprising of Judicial Member N.V.Vasudevan and Waseem Ahmed observed that “the role of the Managing Director is very crucial for the success of the assessee-company. Thus, the award conferred to the MD is going to increase the image of the assessee-company at national or international level in the area of the business connections and the expenditures incurred by the assessee exclusively for the purpose of business are allowed as deduction under section 37(1) of the Income Tax Act”.
The division bench further held that “the reason given by the AO that the no business activity was carried on by the assessee with France is not tenable in view of the fact that allowability of the expenditure does not depend upon the outcome of the expenditure. Rather, the expenditures are incurred by the business enterprise for the growth of the business and it is not necessary that all the expenditures would entail positive result to the company”.
The impugned expenditure has been incurred by assessee exclusively for its business activity and therefore the same is eligible for deduction under section 37(1) of the Act.
As such, in the given facts and circumstances no disallowance of impugned expenditure is warranted. The bench said while directing the AO to delete the addition made by him.