2011 (6) TMI 457 - AT - Income Tax

Dis-allowance of selling/publicity expenses assessee engaged in manufacture and sale of Indian made Foreign Liquor similar selling expenses after ad-hoc dis-allowance were allowed in subsequent assessment years few parties from whom sales promotion material were purchased did not confirmed the same - Held that - As a general rule, principle of resi judicata or estoppel is not applicable to the income tax proceedings. Yet, rule of consistency does apply. By applying the same analogy, after considering the discrepancies found by the department on inquiries through Investigation Wing at Delhi and after considering the totality of facts and the circumstances of the case, an amount of Rs.25 lakhs out of total selling expenses of Rs.3,14,49,710/- claimed by the assessee requires to be disallowed. Partly allowed in favor of assessee.

Summary

Issues Involved:
1. Disallowance of Rs.2.79 crores towards selling/publicity expenses by the assessee company.
2. Examination of the genuineness of the claimed expenses.
3. Procedural fairness and the right to cross-examine witnesses.
4. Consistency in the application of tax laws across different assessment years.

Issue-wise Detailed Analysis:

1. Disallowance of Rs.2.79 Crores Towards Selling/Publicity Expenses:
The primary issue in this case revolves around the disallowance of Rs.2.79 crores claimed by the assessee towards selling and publicity expenses. The assessee, engaged in the manufacture and sale of Indian Made Foreign Liquor (IMFL), claimed these expenses for the assessment year 2006-07. The assessing officer scrutinized the return and found that the entire sales were made to AP Beverage Corporation Limited (APBCL). The claimed expenses included the purchase of cloth for banners, air bags, and other promotional materials. However, the assessing officer conducted inquiries through the Investigation Wing in Delhi and found inconsistencies in the claims, leading to the disallowance of the expenses.

2. Examination of the Genuineness of the Claimed Expenses:
The assessing officer conducted inquiries to verify the genuineness of the expenses. Summons were issued to various parties, and the investigation revealed that some parties did not carry out genuine business activities. For instance, M/s Makemashi Enterprises Limited admitted to issuing bills for accommodating clients and charging a commission without actual sales. Similarly, other parties like M/s Meenakshi Cloth Merchant and Kishori Textiles Agencies were found to be non-existent or not operating from the stated addresses. The assessee's request to cross-examine these parties was denied by the assessing officer, who deemed the claim of such huge expenditure towards sales promotion as not genuine.

3. Procedural Fairness and the Right to Cross-Examine Witnesses:
The assessee argued that the authorities used information gathered behind their back, denying them natural justice. They contended that the assessment order should be vacated and canceled. The assessee claimed that the publicity campaign was necessary to boost sales and counter competition from other liquor brands. They provided detailed documentation, including purchase orders, bills, confirmations, PAN numbers, and transport receipts, to support their claims. However, the assessing officer rejected these claims, stating that the request to cross-examine the parties was a diversionary tactic. The CIT (A) partially upheld the disallowance, leading to further appeal by the assessee.

4. Consistency in the Application of Tax Laws Across Different Assessment Years:
The assessee highlighted that similar expenses were allowed in the subsequent assessment year 2007-08 under scrutiny assessment. They argued that the rule of consistency should apply, and there should not be any deviation from the earlier year's decision unless the previous decision was wrong. The assessee pointed out that the sales increased significantly due to the effective publicity campaign, and the expenditure was incurred under commercial expediency. The appellate tribunal acknowledged the principle of consistency and found merit in the assessee's arguments. They noted that the assessee had an administrative office in Delhi and that the purchases were made through known sources to ensure quality and competitive rates.

Conclusion:
The tribunal concluded that the assessee had provided sufficient documentary evidence to establish the identity of the suppliers and the supply of advertisement material. They found that the assessee had transported and delivered the goods to Hyderabad and distributed them to retail outlets. The tribunal also noted that the revenue did not provide any cogent evidence to disprove the assessee's claims. Considering the totality of facts and circumstances, the tribunal directed the disallowance of Rs.25 lakhs out of the total selling expenses of Rs.3,14,49,710/-. The appeal filed by the assessee was allowed in part, and the order was pronounced on 03-06-2011.