Expenses in respect of gifts distributed among members and staff so as to augment and maintain the business are allowable as deduction u/s 37:

Assessee, a Co-operative Bank, on the occasion of its golden jubilee year, distributed gift articles to its members and staff members and debited the expenses in respect of the same to its profit and loss account. AO was of the view that such gift expenses were not directly related with the assessee’s business and hence he disallowed the said gift expenses. Hon’ble ITAT observed that such expenditure was incurred for keeping alive good image among the members, for generating goodwill, for ensuring continuity of the business with the members and also to maintain cordial relations with the staff members. The Hon’ble ITAT, following the decision of the Hon’ble Gujarat High Court rendered in the case of Karjan Co-Op. Cotton Sales reported at 199 ITR 17 (Guj), held that such in the course of augmenting the business and maintain it, if the assessee decided to give such gifts, it cannot be said that it was not doing something as a prudent businessman. Accordingly, the said expenses were held to be allowable as business expenditure u/s 37.

[ACIT Vs. THE GUJARAT STATE CO-OP. BANK LTD. – ITA No.1899/Ahd/2012]