2003 (6) TMI 174 - AT - Income Tax

Issues Involved:
1. Condonation of delay in filing the appeal.
2. Disallowance of sales promotion and advertisement expenses.
3. Verification of expenses related to specific parties.
4. Violation of natural justice.
5. Genuineness of transactions with specific parties.
6. Commercial expediency of expenses.

Detailed Analysis:

1. Condonation of Delay in Filing the Appeal:
The revenue filed a petition dated 16-7-1998 for condonation of delay in filing the appeal late by four days. The reasons given in the petition were found satisfactory, and after hearing both sides, the delay was condoned and the appeal was admitted.

2. Disallowance of Sales Promotion and Advertisement Expenses:
The main issue revolved around the disallowance of Rs. 58,12,463 related to sales promotion and advertisement expenses. The Assessing Officer (AO) found a significant rise in these expenses compared to previous years. The AO added back Rs. 58,12,463, which was later deleted by the CIT(A).

3. Verification of Expenses Related to Specific Parties:
The AO questioned the necessity of a wholesale dealer incurring such expenses, which are typically borne by the manufacturer. The AO conducted inquiries into transactions with several parties, including M/s. Graphic Circle, M/s. Universal Printers, M/s. Tara Enterprises, M/s. Fleet, and M/s. Market Links. The AO found discrepancies and suspected these transactions to be non-genuine.

4. Violation of Natural Justice:
The assessee argued that they were not given an opportunity to rebut the Inspector's report or cross-examine the parties examined by the Inspector. The Tribunal noted that the AO did not provide the assessee with a copy of the Inspector's report or the opportunity to cross-examine the parties.

5. Genuineness of Transactions with Specific Parties:
- M/s. Graphic Circle: The AO found no evidence of the existence of M/s. Graphic Circle at the given address. The bank account was opened without proper introduction, and cheques were withdrawn immediately after deposit. The CIT(A) deleted the disallowance, but the Tribunal remanded the matter back to the AO for further verification.
- M/s. Universal Printers: Similar issues were found with M/s. Universal Printers. The AO's inquiries revealed that the address was a vacant plot, and the bank account had similar discrepancies. The Tribunal directed the AO to verify the details and allow the expenses if found genuine.
- M/s. Tara Enterprises: The AO found that the accounts of M/s. Tara Enterprises were opened and closed around the same time as M/s. Graphic Circle. The Tribunal remanded the matter back to the AO for further verification.
- M/s. Fleet: The AO disallowed expenses based on the statement of the proprietor of M/s. Fleet, who indicated that the bills were initially raised on ITC Ltd. and later transferred to the assessee. The Tribunal sustained the CIT(A)'s order allowing the expenses.
- M/s. Market Links: The AO disallowed expenses due to discrepancies in the dates of debit notes. The Tribunal remanded the matter back to the AO for verification.

6. Commercial Expediency of Expenses:
The Tribunal noted that the consideration of commercial expediency would arise only when the expenditure is established to have been incurred. The assessee failed to provide sufficient evidence to substantiate the expenses, leading to the disallowance of Rs. 27,68,607 related to display and sampling expenses.

Separate Judgments:
- The Judicial Member proposed remanding several issues back to the AO for further verification.
- The Accountant Member disagreed, suggesting that the disallowances should be restored based on the lack of evidence.
- The Third Member concurred with the Accountant Member, leading to the restoration of disallowances totaling Rs. 52,21,367.

Conclusion:
By majority view, the Tribunal sustained the disallowances of Rs. 3,59,000, Rs. 14,99,860, Rs. 5,93,900, and Rs. 27,68,607, resulting in the appeal of the revenue being partly allowed.

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