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TMI Blog2012 (9) TMI 837X X X X Extracts X X X X X X X X Extracts X X X X ..... the same to the said party which did not have any objection upon such spending. In the account also no commission has been charged by the assessee. Therefore, the addition is made simply on the basis of presumption, which is not sustainable. Therefore, the addition in respect of assessment years 2000-01 to 2002-03 is deleted - in favour of assessee. Disallowance of 20% of expenses - "telephone, postage, courier, sales promotions and conveyance" - Held that:- There is no dispute to the fact that the assessee has not been able to produce all documentary evidences to establish that the entire expenditure has been incurred by the assessee under the above heads for its business purposes. It is a fact that the assessee has also undertaken promotional activities to promote brand products of M/s. Miraj PTE Ltd in India and the receipt as well as expenditure have not been routed through P&L account of the assessee. Substance in the observations of CIT(A) that a part of expenditure claimed by the assessee under the above heads could be for the purpose of promotional activities for the purposes of promotional activities. As decided in CIT v. Calcutta Agency Ltd.(1950 (12) TMI 4 - SUPREME C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business expenditure. 3. Rejection of Books of accounts u/s 145 on irrelevant and incorrect grounds 4. Making addition of Expenditure which is not charged to P L A/c nor claimed any deduction there of at any time. i. Addition of Expenses out of cash expenses 50,000/- ii. Disallowance of Donation Rs. 3,70,038/- 5. Addition of Expenses charged to Profit loss A/c Rs.75,000/- out of cash, conveyance telephone expenses. 6. Addition of Rs 20,94,671/- on estimation basis 5% of total expenditure of Rs. 4,81,93,425/- as a new ground of addition and without considering over all facts. 7. An applicant craves for leave to add, omit or alter grounds of appeal 8. Prayer: All additions may be removed" Grounds of Appeal for A.Y.2002-03: "The grounds of appeal are without prejudice to one another. Learned C.I.T (Appeals)/C/I and Learned ITO 9(3) (1) have erred in matter of fact as well as law as under: 1. Re-opening u/s 147/148 is without valid reasons. 2. Treating appellant as Permanent Establishment of a Foreign Company and treating receipts from them as business receipt and expenditure as business expenditure. 3. Rejection of Books of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3/- 2004-05 NIL Rs. 2,21,24,210/- Rs. 1,00,13,992/- 3. It can be mentioned here that in all these cases, no assessment was originally passed under section 143(3) of the Income Tax Act,1961(the Act) and the returns were only processed under section 143(1) of the Act. For assessment year 2005-06 the impugned assessment itself is framed under section 143(3) of the Act. 4. The Validity of reassessment was also challenged by the assessee before the Ld. CIT(A), who has recorded a finding that while issuing notice to the assessee the AO has taken care of procedural requirement of reopening of the assessment. The case was reopened with the prior approval of Additional CIT, Range 9(3). Notice under section 148 was issued and has been properly served on the assessee. A copy of reasons recorded were also supplied to the assessee. The reopening was on the basis of assessment framed for A.Y 2004-05, from where it was noticed by the AO from the bank statement obtained under section 133(6) that the assessee was receiving substantial amounts from M/s. Miraj Pte Ltd. which were not reflected in the bank statement pertaining to earlier assessment years. For the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by Ld. CIT(A) vide which validity of reassessment proceedings has been upheld. We decline to interfere. This ground of the assessee for all the three years is dismissed. 6. Another common issue raised in all these appeals is regarding estimation of 5% agency income in the hands of the assessee out of expenditure incurred by the assessee from the funds received by it from M/s.Miraj Pte. Ltd. The table in respect of expenditure has already been reproduced in the above part of this order. For example for A.Y 2000-01 the AO took an amount of Rs. 2,05,43,980/- being expenditure incurred by the assessee out of receipt of Rs. 2,86,04,581/-. A sum of Rs. 10,27,199/- was added to the income of the assessee with the following observation. "Since it has been held that the assessee is a permanent establishment and as per the directions of its principal has carried out various activities The assessee by not routing through the P L account, the income and expenditure has purposely not offered the element of profit to tax The profit motive is also missing in the assessee's case which is also not acceptable. For specialized services like direct marketing etc. a special fees is normally negotia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 995,478.00 Print Stationery 108,556.00 Postage courier 51,178.00 Newspaper Period 33,045.00 Travelling 886,370.00 Society Charges 198,219.00 Furniture for counters 1,502,698.00 Wainkuth dham Ashram Trust 284,446.00 Vishal Roopi Ashrafi Hira Trust 80,796.00 Rent 64,000.00 20,543,980.00 Balance C/o. 17,984,469.00 ADD: Outstanding Advertising Expn. 2,093,958.00 Balance C/o. to Balance Sheet 20,078,427.00 20,078,427.00" 8. It has been the case of the assessee that it has been receiving amount from the aforementioned party for promoting the business of that party. The AO required the assessee to explain and assessee filed detailed submissions according to which the aforementioned amounts received by the assessee have specific purpose a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T(A) and as against Ld. D.R relied upon the findings recorded by AO and Ld. CIT(A). It was vehemently pleaded by Ld. D.R that assessee did not disclose the motive to do such a large activity without any profit on behalf of its foreign client. As against this argument of Ld. D.R, Ld. A.R of the assessee drew our attention towards the following letter written to the AO dated 9/10/2006, a copy of which is filed at page 57 of the paper book: "G. L. PURSNANY INCOME TAX CONSULTANT 13/343, Jasmine Society, Near Rly Station, New MIG Colony, Bandra (East), Mumbai - 400 051 Tel. 26478656 09-10-2006 M.K.P. Distributors Pvt. Ltd. A.Y. 2004-05 Justification - Agency Promotion A. Nature of Expenses: Expenses are incurred on publicity through print and visual medias, Publicity materials, Launching of New products inviting the prospective dealers and other concerned persons in various Hotels, Full details along with nature of expenses, Names and Addresses to whom the monies are paid are given in our letter of 29.06.06. B. Indir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th it in "Trust" and assessee has been submitting the accounts of the same to the said party which did not have any objection upon such spending. In the account also no commission has been charged by the assessee. Therefore, the addition is made simply on the basis of presumption, which in our opinion is not sustainable. Therefore, we delete the addition and this ground of the assessee in respect of assessment years 2000-01 to 2002-03 is allowed. 12. So as it relates to disallowance pertaining to donation these have been stated to be out of the remittance received by the assessee in "Trust". Therefore, the addition with regard to donation is also deleted. One more addition related to the amount received by the assessee from above mentioned party i.e. disallowance of Rs. 50,000/- in respect of each of the year under appeal, which is disallowance on account of expenditure incurred in cash which are not claimed as deduction in P L Account. This addition also relates to amount received by the assessee from aforementioned party and as it is not charged to P L Account the addition with regard to same is deleted in respect of all the years. 13. It may be mentioned here that for assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n cash but to establish the purpose of such business which in my opinion the appellant has failed to do so. It is well settled that for the purpose of any expenses be allowed as deduction the same should be incurred for the purpose of the business which in this case is not established and therefore I do not find any infirmity in the AO's action in this regard and as such disallowance made by the AO is confirmed." 33. Hence, the assessee is in further appeal before the Tribunal. 34. Ld A.R. submitted that there is no justification to make disallowance on adhoc basis out of the expenses claimed by the assessee under the head "telephone, postage, courier, sales promotions and conveyance". He submitted that the assessee furnished supporting documentary evidences and cash book as required by Assessing Officer to establish that the expenses are genuine. He submitted that in telephone expenses, cash component was Rs. 6464.50 and from postage and courier the cash component was Rs. 9420. He further submitted that the cash component in sales promotion was only Rs. 324. He further submitted that the conveyance expenses were reimbursed in cash for bus and taxi fare incurred by the employee ..... X X X X Extracts X X X X X X X X Extracts X X X X
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