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TMI Blog2014 (5) TMI 817X X X X Extracts X X X X X X X X Extracts X X X X ..... llowance made on account of sales promotion expenses paid by the assessee to BAIL – Decided in favour of Assessee. - ITA No. 1782 /Hyd/2013 - - - Dated:- 7-5-2014 - Shri Chandra Poojari And Shri Saktijit Dey,JJ. For the Appellant : Shri K. C. Devdas For the Respondent : Shri Jeevan Lal Lavidiya ORDER Per Chandra Poojari, A. M. This appeal by the Assessee is directed against the order of CIT(A)-IV, Hyderabad dated 25/10/2013, for the assessment year 2010-11 wherein the assessee has raised the following grounds of appeal: 1. The order of the CIT is unsustainable both on facts and in law. 2. The learned CIT(A) erred in confirming the disallowance of sale promotion expenses at Rs. 3,32,77,529/- 3. The learned CIT(A) failed to note that the entire sales promotion expenses of Rs. 3,32,77,529/- was an expenditure incurred wholly, necessarily and exclusively in the course of carrying on the assessee s business and, therefore, was deductible u/s 37 of the IT Act. 4. The order of the CIT(A) in holding that there was no logic for the sales promotion expenses to be additionally borne by the assessee is contrary to the facts and evidence on record ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ft articles such as chairs, stools, DVDs, Micro Ovens, colour TVs, Mixers, stereo players, titan watches, TVS XLs which were issued for promotion of the secondary market are concerned, the articles were purchased directly by us and were issued through agents M/s Bambino Agro Industries Ltd. The details of the total cost incurred for operation of the above sales promotion schemes are as under: 1. Stocks issued on our behalf by M/s Bambino Agro Industries Ltd for operation of QPS/TLOs in the primary market i.e. at RDS points . Rs. 2,44,23,485 2. Gift articles purchased by us and Issued for promotional activity in the Secondary market i.e. at retailer points Rs. 88,54,045 Total scheme cost Rs. 3,32,77,530 2.1 In view of the above facts, the Assessee submitted before the AO that the said amount is totally allowable as business expenditure. 2.2 The AO held that BAIL was required to shoulder the responsibility of the marketing the products of the assessee and, therefore, no sales promotion was required for the direct sales to BAIL whereas for the con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which is the brand name of BAIL. The appellant does not have any production under any other brand name. The sales and promotion expenses incurred for the promotion of Bambino products are therefore not relatable directly to the appellant's products. Since the products of BAIL and of the appellant are under the same brand name, it would be impossible to specifically identify the products sought to be promoted as those of the appellant and not of the BAIL. 5.3. The CIT(A) observed that it would appear that BAIL has passed off part of its sales promotion expenses to the appellant. This view is further supported by the following analysis of the turnover and sales promotion expenses of the appellant and of BAIL: Turnover sales promn. Exp. Percentage BAIL 190,07,47,157 4,04,89,300 2.13% Appellant 33,23,05,126 3,32,77,529 10.01% 5.4 The CIT(A) noted that while BAIL itself has incurred a paltry 2.13 % of its turnover on sales promotion expenses, the appellant has incurred 10.01% of the turnover on promotion of products which are essentially branded products of BAIL and not of the appellant. The sharp difference of sales promotion expenses ratio between BAIL and the appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... than the BAIL. He pointed out that this is one of the reason for disallowance of expenditure incurred by the assessee. The learned AR submitted that as the BAIL is pioneer of vermicelli product in the market, there cannot be more expenditure towards sales promotion for them, therefore, BAIL cannot be compared to the assessee s case to determine sales promotion expenses in the hands of the assessee. The AR contended that the inference drawn by the CIT(A) in this regard is unilateral and contradictory to the facts of the case to hold that the sales promotion expenses incurred by the assessee are not at all related to the assessee as the assessee has sold its product to the BAIL at 10% less than the market price as they have to get profit on the sale of this product. The AR submitted that BAIL get profit on sale of product and for marketing the product and the marketing expenses are to be incurred by the assessee as per the agreement dated 01/11/2007. In this connection, he drew our attention to the contents of the agreement dated 01/11/2007. The AR relied on the following case laws in support of assessee s case: 1. CIT Vs. Walchand Co. Pvt. Ltd., 65 ITR 381 (SC) 2.KRISHAK BHA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IT Act, two conditions must be satisfied, viz., a) the expenditure should have been incurred wholly and exclusively for the purpose of business and b) such expenditure should not be in the nature of capital expenditure. In the present case, there is sufficient evidence of making payment to BAIL by the assessee towards sales promotion expenses incurred by the BAIL for marketing and selling the assessee s products and genuineness of the payment is not doubted by the lower authorities and the payment is duly reflected in the books of account. It was not the allegation of the lower authorities that the payment is not genuine and not incurred by the assessee. The AO recorded in the assessment order that while genuineness of the expenditure is not questioned, the said expenditure cannot be held to be wholly and exclusively expended for the business of the assessee company. The AO not mentioned that it has not incurred for the purpose of business and there is no restriction on the assessee to incur of this expenditure over and above the expenditure to be incurred as per the agreement assessee entered with the BAIL on 01/11/2007. If the BAIL undertaken the additional work of promotion of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... authorities have not brought any record to establish the falsity of the assessee's claim with regard to the services rendered by the marketing agents in question. As for the justification for such service agents, we are of the view that the matter has to be looked from businessman's point of view and in the absence of any material brought on record, it is not fair and proper to allege diversion of funds by the assessee or question the engagement. of marketing agents by the assessee on grounds of commercial expediency. The decision of jurisdictional High Court in the case of Transport Corporation of India (supra) relied upon by the learned Departmental Representative is totally distinguishable, inasmuch as in that case the issue involved relates to secret commission paid by the assessee, whereas in the present case, the Department tends to disbelieve the very existence of the marketing agency arrangement made by the assessee, though similar payments made to these very marketing agents rave been allowed in other years both earlier and subsequent years. For those years, as evident from the material brought on record, assessments have, been made under 5.143(3) and in pursuance ..... X X X X Extracts X X X X X X X X Extracts X X X X
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