2006 (2) TMI 729 - AT - Income Tax

Summary

Issues Involved:

1. Disallowance of sales promotion expenses by the Assessing Officer (AO).
2. Deduction under Section 80IA of the Income Tax Act.
3. Consistency in allowing similar expenses in previous and subsequent years.

Issue-wise Detailed Analysis:

1. Disallowance of Sales Promotion Expenses:

The primary issue in the Revenue's appeal was the disallowance of sales promotion expenses incurred by the assessee-firm. The AO disallowed expenses of Rs. 1,03,348 and Rs. 8,17,403, arguing that these should have been borne by the sole selling agent, M/s Herbs India (P) Ltd., as per the agency agreement. The CIT(A) deleted these disallowances, reasoning that the agreement did not bar the assessee from incurring such expenses for commercial expediency. The Tribunal upheld the CIT(A)'s decision, emphasizing that the expenses were incurred wholly and exclusively for the business and were consistent with past practices. The Tribunal also noted that the AO did not dispute the factum or quantum of expenses, and similar expenses were allowed in previous assessments under Section 143(3).

2. Deduction under Section 80IA:

The assessee's claim for deduction under Section 80IA was disallowed by the AO on the grounds that the machinery taken on lease from a partnership firm constituted a transfer, exceeding 20% of the total value of machinery, thus violating the conditions of Section 80IA(2). The CIT(A) reversed this decision, stating that the machinery was taken on lease, not transferred, and the provisions of Section 2(47)(vi) did not apply as they concern immovable property, not movable assets like machinery. The Tribunal agreed with the CIT(A), highlighting that the assessee-company was independently incorporated and the plant and machinery were leased, not transferred. The Tribunal also referenced the Madhya Pradesh High Court decision in Khemchand Motilal Jain, supporting the view that leasing does not constitute transfer under Section 80IA.

3. Consistency in Allowing Similar Expenses:

The Tribunal noted that similar sales promotion expenses were allowed in earlier and subsequent years under Section 143(3), reinforcing the rule of consistency. The Tribunal cited the Delhi High Court's ruling in CIT v. Rajiv Grinding Mills, which supports maintaining consistency in tax assessments unless there is a material change in facts or law.

Conclusion:

The Tribunal dismissed all appeals by both the Revenue and the assessee, upholding the CIT(A)'s orders. The Tribunal found no infirmity in the CIT(A)'s decisions to allow the sales promotion expenses and the deduction under Section 80IA, emphasizing the principles of commercial expediency and consistency in tax assessments.