The Income Tax Appellate Tribunal ( ITAT ) confirmed the disallowance of Rs. 15 lakhs for sponsorship fees paid to a trust, as it was deemed to be a personal obligation of the director rather than a legitimate business expenditure.
The Assessing Officer disallowed Rs. 15,00,000/- paid by assessee to Mehrangarh Museum Trust for sponsoring cultural festival. During the assessment proceedings, the AO observed that the said payment was made for sponsorship of the Flamenco and Gypsy Festival at Jodhpur conducted by Mehrangarh Trust.
The AO held that this expenditure was more personal in nature which has nothing to do with the business of the company and the expenditure is more of personal obligation of the directors and disallowed the sponsorship fee expenditure.
The assessee argued that the revenue has to examine the commercial expediency for allowing the expenses but the purpose in reasonableness of the expenditure has to be examined from the point of view of the business perspective but not from the revenue side.
The CIT(A) affirmed the action of the Assessing Officer holding that the museum and festival has nothing to do or in no way connected with the business of assessee of micro surfacing of roads, highways and airports. Further held that it was solely personal in nature to fulfill the personal obligation of its Directors and the assessee has also failed to justify its claim with any relevant documents or details except the brochure of the festival wherein the assessee’s name nowhere appears.
The two member bench of the tribunal comprising Yogesh Kumar US ( Judicial member ) and Dr. B.R.R Kumar ( Accountant member) held that the assessee could not prove anything contrary to the adjudication of the CIT(A) and hence declined to interfere with the order of the CIT(A). Accordingly, the ground was dismissed.
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