Disallowance

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Abhijith Krrishna (Querist)
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19 March 2016 An assessee charged a sum of rupees in to his P&L as Business promotion expense but the AR disallowed the said expense with the explanation that the assessee has not doing any business now, and the plant and machinery of the said business was sold out and shown as income, but a portion of those expense was actually paid to the sister of the assessee and the assessee's office is functioning from the sisters premises, how could i charge those expense in p&l? pls help its really urgent, IT hearing is tomorrow.. Thank you

Abhijith Krrishna

Abhijith Krrishna (Querist)
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23 March 2016 anybody has any opinion on this pls help

Aashok Kumar Sharma

Aashok Kumar Sharma (Expert)
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21 July 2024 In this situation, where the Assessing Officer (AR) has disallowed the business promotion expenses because the business is no longer operational and the premises from where the office operates belongs to the sister of the assessee, you need to carefully consider how to justify these expenses to support your case during the income tax hearing. Here’s a structured approach you can consider:

### 1. Business Promotion Expense Justification

- **Nature of Expense**: Clearly explain the nature of the business promotion expense. Provide details of what these expenses entail, such as advertising, marketing, promotional events, etc.
- **Timing of Expense**: If these expenses were incurred during the period when the business was operational, emphasize that they were legitimate business expenditures aimed at promoting the business’s products or services.

### 2. Connection to Business Operations

- **Previous Business Activity**: Even though the business is no longer operational, argue that the expenses were incurred during the time when the business was active and legitimate deductions under the Income Tax Act.
- **Purpose of Expense**: Explain how these expenses were intended to promote the business and generate revenue during its active period.

### 3. Relationship with Sister’s Premises

- **Office Premises**: Clarify the arrangement regarding the office premises being owned by the sister of the assessee.
- **Business Necessity**: Argue that the use of the premises was necessary for business operations during the active period of the business. Provide evidence or documentation supporting the necessity of this arrangement.

### 4. Supporting Documentation

- **Invoices and Agreements**: Present invoices, receipts, and agreements related to the business promotion expenses. These should clearly indicate the nature of the expense and the parties involved.
- **Communication**: If possible, provide correspondence or communication that demonstrates the business purposes behind these expenses.

### 5. Legal and Regulatory Compliance

- **Income Tax Act Compliance**: Ensure that the expenses are compliant with the provisions of the Income Tax Act regarding deductibility. Highlight any specific provisions that support the deduction of such expenses.

### 6. Professional Guidance

- **Chartered Accountant**: Given the urgency and complexity of the situation, consult with a qualified chartered accountant or tax advisor. They can provide specific guidance tailored to your case and assist in preparing a robust defense for the hearing.

### 7. Presenting the Case

- **Hearing Preparation**: Organize all documentation and prepare a clear and concise explanation of each expense item. Address any concerns raised by the AR methodically and provide logical explanations.
- **Evidence**: Be prepared to present evidence and arguments supporting the deductibility of these expenses.

### Conclusion

To effectively argue for the deductibility of the business promotion expenses, focus on demonstrating that these expenses were incurred during the period when the business was active and for legitimate business purposes. Emphasize their connection to revenue generation and their compliance with relevant tax laws. By presenting a well-structured and supported case, you can enhance your chances of successfully defending these expenses during the income tax hearing.

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