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TMI Blog2018 (4) TMI 709X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 22,81,48,862/- whereas in this year, the assessee's turnover came down to only Rs. 20,92,31,782/- and it has claimed abnormal amount of Rs. 9,20,283/- which was not acceptable to him. So, he compared the increase in interest payment claimed in this relevant assessment year, with that of the interest on loan paid in the last year and was of the opinion that excess interest paid on loan this year has to be disallowed and he disallowed Rs. 6,50,610/- (Rs.9,20,283-Rs.2,69,673/-) since the assessee failed to show the utilization of the new loan for the purpose of business. Aggrieved, the assessee preferred an appeal before the Ld. CIT(A), who was pleased to allow the claim of the assessee. Aggrieved, revenue is before us. 3. We have heard rival submissions and gone through the facts and circumstances of the case. We note that the AO has made the addition on the sole reason that the interest outgo was more than what was in the immediate preceding year and he noted that the turnover was more than the last preceding year whereas the turnover in the relevant assessment year under consideration was low and that the assessee failed to prove the utilization of the new loan was for the pur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in their position since the assessee company could not find any experts in this field took a decision to retain the services of retired professionals who handled the assessee's professional work in these fields on retainer basis with a view that young recruits can be trained under their experience and expertise for future running of the assessee's company. We note that following professionals were engaged on retainer basis. i) Shri B. S. Joshi - Retainer on personnel matters ii) Shri S. Lobo Retainer on canteen matters iii) Shri G. R. Mehta - Retainer on accounts matters iv) Shri J. P. Mehta - Retainer on Factory regulatory matters 6. On appeal, the Ld. CIT(A) has taken note that these engagement of professionals on retainer basis was with the intent to increase the turnover and consolidate the market share, and took into consideration of their professional qualifications, experience and knowledge in different fields. The Ld. CIT(A) was of the opinion that where the payments were verifiable, and the assessee has submitted the necessary verifiable details such as the PAN, amounts paid and TDS thereon, (copies of TDS certificates), and explained the nature of payments, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nses claimed by the assessee. 8. Brief facts are that the assessee claimed foreign tour expenses for which the AO asked for details. The assessee replied that foreign tour expenses have been incurred by Mrs. Zhu Xintian, their Research Manager, in connection with her visit to China, Paris & Hong Kong/Bangkok for exploring new sources of Raw Materials & Packing Materials and to find out New evolving Technologies worldwide. The Foreign trip was undertaken with the objective of promoting the export sale of the company and claimed total expenditure on Foreign Tour as Rs. 9,90,545/-, which was incurred wholly & exclusively for business purpose. The AO did not accept the contention of assessee on the reasoning that the claim is not substantiated by the present or future business activities conducted by the assessee and that assessee failed to produce any documentary evidences like the places visited and to whom she met and what were the discussion (minutes of the meeting) so was considered by the AO as personal in nature and nowhere connected with the business of the assessee and so disallowed the claim of Rs. 9,90,545/-. On appeal, Ld. CIT(A) gave partial relief and sustained only 20% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Pharmaceuticals Pvt. Ltd, and debited the said expense in the Profit and Loss Account to derive the net Profit from the business. When the AO asked the assessee to furnish the details of such expenses with reason for claiming the same was answered by the assessee that it had purchased Physician Samples from M/s STP Pharmaceuticals Pvt. Ltd., amounting to Rs. 58,77,566/- to be supplied free to physicians as Samples. It was brought to the knowledge of AO that distribution and disbursal of Physician Samples is a Marketing Strategy to boost sales of major products and other promotional measures are undertaken for the growth of turnover of particular product. And since the assessee's own factory's capacity was not good enough, a contract was executed between assessee and M/s. STP Pharmaceuticals Ltd. on a principle to principle basis to produce tablet called "SORBILILE". And since M/s. STP Pharmaceuticals was situated at State of Sikkim, the cost of production was less and by disbursing the sample tablets to the physicians, according to assessee company, the turnover of this product increased manifold. So, assessee tried to justify its claim which was not acceptable to AO. The AO took n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hereas the expenditure incurred on physicians samples amount to Rs. 5,81,77,566/- which represents 4.3% only towards promotional measures and assessee has justified its claim for the expenditure incurred which was wholly and exclusively for business purposes and thus qualifies for business expenditure, which has been rightly allowed by the Ld. CIT(A). Coming to the other reason of AO to disallow the claim of expenditure for non-deduction of TDS u/s. 194C of the Act for the payment made by assessee to M/s. STP, we first of all reproduce sec. 194C of the Act "Sec. 194C(1)- Any person responsible for paying any sum to any resident (hereafter in this section referred to as the contractor) for carrying out any work (including supply of labour for carrying out any work) in pursuance of a contract between the contractor and a specified person shall, at the time of credit of such sum to the account of the contractor or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct an amount equal to- (i) one per cent. where the payment is being made or credit is being given to an individual or a Hindu undivided family; (ii ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ial from a person other than the customer, it would not be classified as work, resultantly section 194C would not be attracted in the later case. So to adjudicate this issue let us look into the relevant clauses of the agreement between assessee and M/s STP regard, the relevant extracts of the said agreement dated 22.02.2010 ( page nos. 80-88 of the paper-book )are reproduced as under: "And whereas on the faith and strength of the above representation and warranties made and given by STP, LG has agreed to enter into this Agreement for STP to manufacture and sell the same to LG on "Principal to Principal" basis, or to any other party who is authorized by LG from time to time upon and subject to the terms and conditions hereinafter contained. ............... 14) Nothing in this Agreement shall constitute or be deemed to constitute STP as the Agent of LG as it being agreed and understood that this Agreement is on a "Principal-to-Principal" basis." 16. From perusal of the above, it is evident that the agreement was entered into by the assessee on principal to principal basis and was not a contract for carrying out any work since M/s.STP Pharmaceuticals Pvt. Ltd has for the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at since almost the entire sales was made on consignment basis through the consignee, M/s. Franco-Indian Pharmaceuticals Pvt. Ltd. and since there was decrease in turnover in the current financial year, the claim of expenditure incurred on account of sales promotion is not justified. Moreover, the AO was also influenced by the information received by way of an internal communication to him from the investigation wing of the department that in consequence of survey/search conducted at the business premises of M/s. Subbhiksha Enterprises of Mumbai (from which party purchase of gift items were made) and the statement recorded in connection thereof wherein it was confirmed that the assessee company has not made any real purchase of gift materials of Rs. 20,97,900/- and that the assessee is only the beneficiary of bogus entries by them in their books. Therefore, AO disallowed the claim which was upheld by the Ld. CIT(A). Aggrieved the assessee is before us. 19. We have heard rival submissions and gone through the facts and circumstances of the case. We note that the assessee company claimed to have disbursed gift articles for an amount of Rs. 20,97,900/- to the distributors/dealers for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llity. It has also been brought to our notice that in the earlier years, the very same practice followed by the assessee company to disburse the gift material to the dealer/distributor has always been allowed and, therefore, on the ground of consistency, the claim has to be allowed and for that has relied on the decision of Hon'ble Supreme Court in the case of Radhasomy Satsang vs CIT 193 ITR 321 (SC) wherein it was held that when the facts and the law permeating in the earlier years are the same, then a divergent view should not be taken and consistency must be followed. We find considerable force in the aforesaid contention of the assessee on this issue. However, we take note of the fact that the assessees have failed to give the list of the recipients of the gift material or confirmation from them when called upon by the AO/Ld. CIT(A). When a claim of expenditure is claimed the assessee is duty bound to produce the vouchers/bills as well as material to show the genuineness of the claim. Here in this case, the assessee has purchased the material through banking channel from M/s. Subhalakshmi Enterprises. Though in another proceeding (survey/search) which happened in respect to th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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