The Income Tax Appellate Tribunal (ITAT), the Mumbai Bench, in its recent ruling, has recently granted approval to Cleartrip’s claim regarding their expenses on advertising and sales promotion.
Cleartrip Private Limited, the assessee, had sustained costs related to advertisement and publicity. The Assessing Officer (AO) contended that since Cleartrip and its subsidiaries were engaged in global business, the benefits of these expenses had been received by the subsidiaries. Consequently, the AO disallowed 20% of the expenses, a decision that was upheld by the Commissioner of Income Tax (Appeals) as well. Both authorities relied on findings from the previous assessment year to review their move.
The case was taken to the coordinate bench, which rejected the 20% ad hoc disallowance but referred the case back to the AO to lift the corporate veil. The coordinate bench instructed the AO to delve into the details of the foreign subsidiaries and ascertain the issue by disallowing the expenses proportionally based on turnover.
Fereshte D. Sethna, representing the assessee, argued that a similar issue had previously come in the assessee’s case for the assessment year 2012-13, and the coordinate bench had already ruled on it in an order dated April 13, 2023.
The ad hoc disallowance made by the Assessing Officer (AO) was rejected by the coordinate bench and supported by the Commissioner of Income Tax (Appeals). However, the coordinate bench directed the AO to collect all relevant information regarding advertisement and sales promotion expenses, as well as expenses incurred by sister concerns, and allocate them based on turnover.
Manish Sareen, representing the revenue department, strongly supported the orders of the lower authorities, stating that although the coordinate bench in the assessee’s case had concluded that ad hoc disallowances were improper, it had returned the matter to the AO for appropriate disallowance based on turnover upon examination.
The two-member bench, consisting of Prashant Maharishi (Accountant Member) and Sandeep Singh Karhail (Judicial Member), observed that the assessee had completed the requirements for allowing expenditure under Section 37 of the Income Tax Act. The expenses had been incurred for the assessee’s own benefits and its business.
Moreover, even if a third party was receiving an incidental indirect benefit, it would not render the expenditure ineligible for being considered wholly and exclusively incurred for the assessee’s business. Therefore, no disallowance could be made in the hands of the assessee unless the assessing officer provided evidence that these expenditures had benefited a third party and were not incurred solely for the purpose of the assessee’s business.
The bench considered the lack of evidence presented by the assessing officer that these expenditures had resulted in benefits to third parties and were not wholly and exclusively incurred for the assessee’s business, the bench allowed the appeal filed by the assessee.
| Case Title | Cleartrip Private Limited Vs DCIT |
| Citation | ITA Nos. 2598, 2599, 2941 & 2601/Mum/22 |
| Date | 15.09.2023 |
| Counsel For Appellant | Ms. Fereshte D. Sethna & Mr. Mrunal Parekh , ARs |
| Counsel For Respondent | Mr. Manish Sareen, CIT DR |
| ITAT Mumbai | Read Order |
