AMP Expenses incurred for benefit of overseas AE becomes an international transaction and could not result into disallowance u/s 37(1)

In the absence of any evidence placed by the learned assessing officer, The Mumbai Bench of Income Tax Appellate Tribunal allowed all solitary grounds against the disallowance of expenditure of advertisement and sales promotion expenditure.

A Division Bench of Justice Sandeep Singh and Accountant Manager Prashant Maharishi observed that “the expenditure is incurred by the Assessee for the purposes of the benefit of the third party or its overseas sister concern, it becomes an international transaction which could not have been resulted into disallowance under section 37 (1) of the act, but determination of Arm/s length price of such transaction under Chapter X of The Act”.

Advocate Manish Sareen appeared for the Petitioner whereas Advocate Fereshte D. Sethna appeared for the Respondent.

The brief facts of the case were that Assessee is a company engaged in the business of travel agency and providing travel-related services through its Web portal to various customers. Assessee filed its return of income in November 2016 at a loss of ₹59,95,10,511/-. The case was picked by an Assessing Officer (AO) for scrutiny. During his assessment, AO found that the Assessee has received a share Premium of ₹33,33,15,000/- which further flowed from the private equity investors from the USA. The Assessee company is constantly incurring losses and therefore, ordinary business prudent suggests that one would invest in a company after paying a premium. Consequently, the Assessee furnished the necessary information showing the identity, creditworthiness, and genuineness of the investment. Also. the Assessee failed to discharge its onus to prove the genuineness of these transactions as Cleartrip Inc. (Mauritius) did not have its own fund to invest and the money trial revealed that the main source of these funds was routed through various accounts.

The AO also observed that the Assessee is aggrieved on disallowance of advertisement and sales promotion expenses of ₹22,77,70,391/- being 20 % of Total Advertisement and publicity expenses u/s 37 (1) of the Act. Hence, an assessment order under Section 143(3) of the Act was passed to determine the total income of the Assessee at a loss of ₹2,99,59,387/- against the returned loss of ₹59,95,10,511/-.Here, Assesse approached the Bench for relief under the above-mentioned charges.

After considering the submission, the Bench noted that the Assessee has discharged its initial onus cast upon the Assessee under the provisions of section 68 of the Income Tax Act.

The Bench stated that Assessee has fairly demonstrated the identity, creditworthiness, and genuineness of the transition by producing extensive material independently for this year.

The bench further stated in reference to charges applicable on Assessee u/s 143(3) that the ad hoc disallowance made by the learned assessing officer and confirmed by the learned CIT – A is not sustainable as Assessee has submitted the details of such expenditure to the assessing officer.

The Bench expressed that the learned Assessing Officer despite having the complete detail of such expenditure could not give any independent finding on examination of such detail that the expenditure incurred by the Assessee is not wholly and exclusively incurred for the purpose of the business of the Assessee.

Accordingly, The Bench allowed all solitary ground raised by the Assessee against the disallowance of expenditure of advertisement and sales promotion expenditure of ₹ 207,770,391/– being 20% of the total expenditure of advertisement and sales promotion expenses incurred by the Assessee.

Cause Title: DCIT Central Circle Vs. Cleartrip Private Limited. [ITA No. 2601/Mum/2022 / 2023-Enterslice-38-ITAT-Mum]

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Cleartrip-Private-Limited-Versus-DCIT