9911796707
TMI Blog2019 (9) TMI 300X X X X Extracts X X X X X X X X Extracts X X X X ..... sement of depreciation and service tax - amount pertains to earlier years - Held that:- Since service tax was liability of service provider, as per provisions of Service Tax Act, and where the assessee had not provided any services, the said claim was also not accepted. Vide para 5.10.2, the Assessing Officer notes that during scrutiny proceedings, assessee was asked several times to produce details of services rendered. The assessee was specifically asked to produce evidence of services rendered but the assessee was only emphasizing on the service agreement for allowability of expenditure. Further, it was held by Assessing Officer that where the assessee was engaged only in the manufacturing of beverage base used by bottlers, services rendered to the bottlers was not allowable. - Expenses not allowed. Proof and genuineness of the expenses - Held that:- the onus was upon the assessee to justify expenditure, but same has not been fully discharged by assessee. Undoubtedly, the payments were made to a related concern and onus upon the assessee was greater in such circumstances to prove and establish that the price paid by assessee for services availed were at market rates. One of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... coolers and other plant and machinery were listed as others under the head plant and machinery and hence, the plea of assessee that the coolers have entered the block of assets and depreciation on such block of assets cannot be denied to the assessee. We find merit in the plea of assessee in this regard and hold that the assessee is entitled to claim depreciation on opening WDV as on 01.04.1999 of 3.02 crores from year to year. Merely because the assessee had purchased the assets and had shown the said purchases as addition in its block of assets, the assessee was not entitled to claim of depreciation on such assets. This is the basic non-discharge of onus cast upon it. Plea of assessee that placing the coolers also serves as an advertising tool does not carry any weight. The assessee again reiterated that the assessee was the manufacturer of concentrate and in the absence of any business agreement to that extent either with CCI Inc or bottlers, there is no merit in the aforesaid claim of assessee and accordingly we hold that the assessee had failed to establish that the said coolers have been used in the business of assessee. In the absence of assessee fulfilling the conditions la ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (A) in assessment year 1998-99 had enhanced it to 25% of disallowance resulting in disallowance of ₹ 17,60,18,500/-. The Assessing Officer in assessment year 1999-2000 disallowed 100% of expenses and CIT(A) restricted to 30%. First, we shall deal with the factual and legal aspects raised in assessment years 1998-99 and 1999-2000 in order to adjudicate the aforesaid issue raised of allowability of service charges. It may be pointed out that in assessment year 1998-99, there is no appeal filed by Revenue. However, in assessment years 1999-2000 to 2004-05, there are cross appeals filed by assessee and Revenue. 5. The assessee had filed concise grounds of appeal in assessment year 1998-99 and the Revenue has not filed any appeal for assessment year 1998-99. But in assessment year 1999-2000 onwards, cross appeals are filed. The concise grounds of appeal in assessment year 1998-99 are as under:- "Re: Service charges: (a) The CIT(A) erred in disallowing 25% of the service charges amounting to ₹ 17,60,18,500/- on the ground that the services were not wholly and exclusively for the purpose of its business. (b) The CIT(A) erred in upholding the disallowance on the ground t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pany was The Coca Cola INC, USA (hereinafter referred to as TCCC). The assessee was initially known as Britco Co. Ltd. The Coca Cola company was engaged in the manufacture of certain beverages, essence and beverage bases and related post mix syrups (hereinafter referred to as products) which were used in preparation of non alcoholic beverages (hereinafter referred to as beverages), which were distinct and sold under the trademark COCA COLA. The TCCC Inc., USA was also the registered owner in India of trademarks COCA COLA, COKE, FANTA and SPRITE and was also owner of and retains all proprietary rights in the distinctive bottle for Coca Cola. The TCCC, Inc. also owned the formula and other confidential information and trade secrets for manufacturing the products and beverages. The assessee and TCCC entered into an agreement on 01.06.1993. Under the License Agreement, TCCC granted the assessee an ordinary, gratuitous, non exclusive license to use in connection with the products, the trademarks, in India under certain terms and conditions. The Assessing Officer during the course of assessment proceedings noted that the said agreement only spoke about license given to the assessee by TC ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .08.1999. The assessee explained that Pet & Can Bottling Unit, Ahmedabad Unit, Goble Contract Packing Unit at Tarapur and units situated at different places were demerged. The assessee had claimed various expenses as allowable under section 37(1) of the Act i.e. marketing expenses, bottle breakage, service charges, travelling expenses and communication expenses. The Assessing Officer analyzed section 37(1) of the Act and was of the view that settled position by the Hon'ble Supreme Court in CIT Vs. Calcutta Agencies reported in 19 ITR 191 (SC) and also in number of other cases was that burden was upon the assessee to prove that the expenditure claimed by assessee satisfies that it was not of capital nature, was expended wholly and exclusively for the purpose of business and was business expenditure. In case, the assessee fails to establish the facts, then the claim of deduction under section 37(1) of the Act was not admissible. The Assessing Officer further relied on the decision of the Hon'ble High Court of Gauhwati in the case of Assam Pesticides & Agro Chemicals Vs. CIT reported in 227 ITR 846 (Gau) for the proposition that mere payment by itself would not entitle the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al issue. The Assessing Officer observed that payment under the name of service charges was squarely covered under the definition of 'royalty' as per Explanation to section 9 of the Act. However, on without prejudice basis, as the assessee had not filed further details and evidences, as to what kind of services and whether the services had actually been rendered or not, 10% of expenditure was disallowed under section 37(1) of the Act, since the assessee had not fully discharged onus cast upon him; disallowance of ₹ 7,04,07,398/- was made in the hands of assessee. 9. The CIT(A) deals with the issue under para 4 onwards at page 48 onwards. The CIT(A) in the first instance notes the observations of Assessing Officer that the assessee had given only sketched details of expenses and he had disallowed 10% of expenditure. He further goes through case records and observed that disallowance was made by Assessing Officer mainly because the assessee did not furnish requisite details regarding nature of services rendered, etc. The assessee did submit copies of debit notes on 30.03.2001 along with some details of service charges, filed on 06.02.2001. The debit notes numbering serial Nos. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dence. Further, reference was made to decision of Hon'ble Supreme Court in Laxminarayan Madanlal Vs. CIT reported in 86 ITR 439 (SC), wherein it was held that mere existence of agreement was insufficient to prove that expenditure was led out wholly and exclusively for the purpose of business. The Assessing Officer in the remand report proposed that entire service charges be disallowed. It may be pointed out that Assessing Officer in the assessment order had only disallowed 10% of service charges. The CIT(A) vide para 4.5.1 observed that it had carried out enquiry, wherein it had test checked the vouchers of CCI, Inc for the month of June, 1996, June, 1997 and March, 1998 with a view to understand the nature of expenses claimed as part of service charges. Further statement on oath of Mr. K.S. Nair, General Manager of assessee company was recorded on 22.05.2003 and he submitted copies of minutes of sales and operation meeting by the assessee. The assessee further made submissions before the CIT(A), who vide order sheet entry dated 06.03.2003 pointed out that from the perusal of details furnished, it was clear that CCI Inc., which was branch of a subsidiary of TCCC, was not exclus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es. As per clause 2 of service agreement, the assessee had no authority to negotiate or conclude contracts on behalf of TCCC or any of its suppliers. It was also specified that the assessee was not an agent of TCCC or CCI Inc. for any purpose. The assessee was required to pay service fees on the basis of actual cost incurred by CCI Inc in providing such services plus markup of 5% on such cost. This service agreement was later modified on 01.04.1997. The terms of amended service agreement dated Nil, but effective from 01.04.1997, was compared with the terms of earlier service agreement relevant to assessment year 1997-98 and it was noted that throws up features which reflected the true nature of activities undertaken. Clause 5 of amended agreement and the earlier agreement were compared and the finding of CIT(A) was that service agreement was only a sham document in so far as clause 5 was concerned. Vide para 7.3, the CIT(A) holds that in such background services rendered to assessee by TCCC required to be examined and which had to be decided as to what was the extent of service charges which have been incurred and whether the same were wholly and exclusively for the purpose of busi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e CIT(A) thus, held that service charges were being paid to CCI Inc. even for services which were not for the purpose of business of assessee. The fact that CCI Inc. was rendering services to other group companies as well was borne out from controversy of toxic residues in cold drinks. He referred to newspaper reports in this regard and pointed out that from the said illustrative example, the fact that the assessee was paying service charges to CCI Inc. which includes expenditure incurred by CCI Inc., for the services being rendered to others and for other purposes was strewn over the vouchers submitted by the assessee. He then under para 8 onwards referred to facts emerging from the examination of vouchers submitted by CCI Inc. with regard to the claim of service charges. First of all, he reiterated that vouchers were maintained by CCI Inc. at Delhi and the assessee or its employees had neither looked into nor examined the vouchers at any stage either before or after paying service charges, which were purely based on the debit notes issued by CCI Inc. to the assessee. The CIT(A) noted the submissions of assessee that expenditure was on account of following factors:- "a) Payment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Further the appellant could not furnish complete break-up of the legal expenses claimed at ₹ 1.39 crores. He then has referred to different vouchers produced for the month of June, 1996, which were called for to test check the nature of expenses and has pointed out under para 8.5 at pages 67 and 68 of appellate order that out of the said vouchers, one found to be of rent expenses of ₹ 5.1 crores, part of which was not wholly and exclusively for the purpose of assessee as other business entities of CCI Inc group were also being provided services and the brand image of CCI Inc. was separately being taken care of. The CIT(A) also notes that there were security deposits written off in several crores of rupees, for the premises taken on rent at Mumbai and allowability of said expenses was doubtful as per Income tax law. The CIT(A) vide para 8.6 states that Besides the photocopies of the above vouchers of June, 1996, the appellant submitted photocopies of vouchers of June 1997 only in May 2003 and that of March 1998 thereafter. He stated that since good quality of photocopies was not given, it could not be verified that all the vouchers were submitted for these two months or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ponsibility of bottlers and the type of services which were being provided by CCI Inc. to the licensed bottlers for quality maintenance was a service not wholly and exclusively for the purpose of business of assessee. However, Shri K.S. Nair, General Manager of assessee company failed to furnish requisite information. Further, he also could not give any evidence in support of the claim that price of beverage base and concentrate include the expenses required to promote the beverages in the market. The CIT(A) thus, held as under:- "10. A close examination of the information gathered as a result of appellant's enquiry during the appellate proceedings leads us to arrive at a series of decisions with regard to the nature of services rendered by CCI Inc. to the appellant, bottlers, other Coca-Cola entities in India and Coca-Cola Company, TCCC and the extent of allowability of the service charges claimed by the appellant intangible assets he return of income. The license agreement of the appellant with TCCC, the service agreement with CCI Inc., bottlers agreement with TCCC and licensed bottlers are documents which, notwithstanding the limitations discussed here in above, do provide the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he expenditure of assessee by any stretch of imagination. The CIT(A) acknowledged that there was no justification for the claim of Assessing Officer that the assessee had not been able to give any evidence in support of its claim that services actually had been rendered. He referred to the presence of employees of CCI Inc. making representations before the Assessing Officer and he thus, held that services were being rendered to assessee but it had to be seen that disallowance has to be made to what extent. He then referred to foreign travel expenses of spouses of employees, capital expenses and expenses incurred for other than business consideration and also security deposits written of amounting to ₹ 1.30 crores, which was part of service charges claimed during the year as expenses. The CIT(A) in the totality of the facts and issues and after considering breakup of expenses, was of the view that 25% of service charges were not of allowable nature as services were rendered to other than to assessee and mainly to the Coca Cola entities, as per service agreements with them and to the bottlers and their suppliers. Thus, the CIT(A) held that while making disallowance of 25% of se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... same. He then referred to assessment year 1998-99, wherein the Tribunal in first round allowed marketing expenses following earlier year. However, in respect of service charges, the Assessing Officer had disallowed 10%, the CIT(A) had disallowed 25% and the Tribunal had sent back the matter for verification of vouchers. Similarly, from assessment year 1999-2000 onwards service charges were disallowed by Assessing Officer at 100%. The CIT(A) followed different percentage of disallowance i.e. in assessment years 1999-2000 and 2000-01 at 35%; in assessment year 2001-02 at 1/3rd and in assessment years 2002-03 to 2004-05 @ 30% were disallowed. He then pointed out that reason for disallowance first was the benefit also to the bottlers, hence the assessee was not the only beneficiaries in assessment years 1999-2000 to 2004-05; whereas the Assessing Officer holds that the assessee was not beneficiary at all. The Ld. AR pointed out that the issue was whether in the facts of case where expenditure may also benefits someone else, is it to be disallowed fully or partly i.e. to the extent it benefits someone else. He referring to the order of the Hon'ble High Court in assessment year 1998-99, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1. It was pointed out to the Ld. AR that the said date was last date of passing of assessment order. He then referred to additional evidence which has been referred by CIT(A) at page 51 and remand report of Assessing Officer before the CIT(A) at page 52 and reliance placed upon two different decisions of Apex Court in Swadeshi Cotton Mills (supra) and Laxminarayan Madanlal Vs. CIT (supra). The CIT(A) refers to the additional evidence at page 53 of his order and Ld. AR pointed out that mere filing of agreement was not additional evidence. He further stated that undoubtedly, there was no dispute to the existence of agreement. He then referred to various agreements wherein on 01.06.1993, was license agreement between assessee and CCI Inc. He then referred to the agreement dated 01.04.1995 which was service agreement between assessee and CCI Inc.; and on 01.04.1997, there was amended service agreement. The Ld. AR then referred to observations of CIT(A) in para 7.2.1 at page 59 and paras 7.4 and 7.5 at page 61, which were relevant to decide the issue, where the Ld. AR was asked to explain the terms of agreement of CCI Inc. with bottlers. He further referred to pages 147 and 148 in Volum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 99-2000 onwards it was filed before Assessing Officer. This fact was noted by the Hon'ble High Court and accordingly, it was concluded and matter was set aside. The Ld. AR then placed reliance on series of decisions:- i) Coca-Cola India Pvt. Ltd. Vs. CCE (2009) 226 CTR 221 (Bom) ii) CIT Vs. Royal Calcutta Turf Club (1961) 41 ITR 414 (SC) iii) DCIT Vs. Kolhapur Zilla Sahakari Dudh Utpadak Sangh Ltd. (2008) 27 CCH 245 (Pune Trib.) iv) CIT Vs. Panipat Co-operative Sugar Mills Ltd. reported in 256 ITR 371 (P&H) v) CIT Vs. N.G.C. Network (India) P. Ltd. (2014) 368 ITR 738 (Bom) vi) CIT Vs. Adidas India Marketing (P) Ltd. (2010) 195 Taxman 256 (Del) 19. The Ld. AR reiterated that in assessee's case, no payment was made for grant of license to manufacture concentrate. However, the service agreement was first executed on 01.04.1995 and then later it was amended on 01.04.1997, wherein the assessee had to bear actual cost incurred by CCI Inc. plus markup of 5%. He then took us through the service agreement dated 01.04.1995 and compared the same to 1997 agreement and pointed out that clauses 2, 3 and 4 were new in 1997 agreement. He stressed that whatever was implied in agreement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... p was charged. 21. The Ld. CIT-DR referred to the directions of Tribunal in para 76 at pages 62 and 63 of Paper Book-II and pointed out that the plea of assessee was that all expenses as incurred by CCI Inc. would have to be reimbursed with markup by assessee. He then referred to the Hon'ble High Court's order placed at pages 223 to 241 of Paper Book-II and pointed out that at page 237, the Hon'ble High Court has observed that the Tribunal has not referred to the adequacy or sufficiency or otherwise of the material before CIT(A). He thus, stressed that the Tribunal has to see evidences filed and determine whether expenses were revenue or capital in nature. He then referred to para 19 of order of the Hon'ble High Court, where the apprehension of Ld. CIT-DR before the Hon'ble High Court was noted and the finding of the Hon'ble High Court was that drastic change had happened in this year as against assessment year 1997-98. He then referred to Tribunal's order at para 48, page 131 of Paper Book-II, where Tribunal referred to qualitative difference in factual position. The Ld. CIT-DR pointed out that after 01.12.1997, there was demerger wherein initially the assessee had Concentrate Di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... angalore for importing green tea. He then pointed out that following expenses were not to be allowed: a) debit of service fee to bottling division; b) service charges paid by assessee to TCCC for restructuring of group companies; c) assessee continued payments to CCI Inc, in respect of products, which it had stopped manufacturing from 01.12.1997, which were manufactured by other group concerns; d) payment to CCI Inc. on account of reimbursement for meeting export obligation of holding companies. e) debiting of service charges of kinley brand of mineral water which was owned by TCCC. 23. The Ld. CIT-DR stressed that the above expenses needed to be disallowed in the hands of assessee as not incurred for the purpose of business of assessee. Another point which was stressed by Ld. CIT-DR was that since CCI Inc. provided direct services to various group companies for which separate permission was received from RBI (letter dated 28.07.1997), then no such charges could be charged to the assessee. He placed reliance in CIT Vs. B.M. Kharwar (1969) 72 ITR 603 (SC), wherein it was held that legal relation had to be determined for allowing expenditure. He stressed that in view of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... monitor whether the expenses were for Coke or Kinley or for any other beverages. 28. The Ld. CIT-DR referred to para 62 of the order of CIT(A), wherein reference is made to letter dated 17.03.2003 filed by assessee, in which the assessee had admitted that major part of services were to the assessee and some to the bottlers. He then refers to para 9 at page 75 of the order of CIT(A) and statement on oath of K.S. Nair, wherein he had admitted that debit notes submitted by CCI Inc. have been produced but the same cannot be substantiated with vouchers. He stressed that burden of proof was upon the assessee and in this regard, he placed reliance on the decision of Hon'ble Bombay High Court in Ramanand Sagar Vs. DCIT in paras 11, 12, 13 reported in 256 ITR 134 (Bom). He then pointed out that under section 37(1) of the Act, role of Assessing Officer was to consider reasonableness of expenses, bonafide nature of any item of expenses and also the quantum to the extent is attributable to the business of assessee. Simply because the payment had been made in view of the contract, was not the conclusion of expenses being incurred for the purpose of business. In this regard, he pointed out that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT-DR furnished written submissions and the Ld. AR filed rejoinder to the submissions made by Ld. CIT-DR on earlier date of hearing. In rejoinder, the Ld. AR pointed out that the crucial fact is that the Tribunal in assessment year 1997-98 held that service charges were deductible as expenditure. So, in this year, we have to see what are the relevant facts and what case laws have not been seen in earlier year. He stressed that it was not disputed that burden was upon the assessee under section 37(1) of the Act to establish its case of business expediency. Various case laws have been cited by both the learned Counsels in this regard but in case the Tribunal has decided this issue, then no contrary view can be taken in the succeeding year. He further stated that Ld. CIT-DR had referred to various case laws but question was whether they were earlier seen or not. The question was whether activities of bottlers benefitted assessee and if there was benefit to assessee, then test under section 37(1) of the Act was met; the fact that it may benefit someone else would not disentitle the assessee to claim expenditure and its allowability in the hands of assessee. The benefit to someone els ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essing Officer. The Ld. AR then drew distinction and pointed out that reliance placed upon by Ld. CIT-DR on the decision in CIT Vs. B.M. Kharwar (supra) was not material and not relevant. Similar was reply against reliance placed upon in CIT Vs. CCC Holding (supra), Buland Sugar Co. Ltd. Vs. CIT (supra) and Ramanand Sagar Vs. DCIT (supra). The Ld. AR stressed that undoubtedly, onus was upon the assessee but once the same has been discharged and the assessee had derived benefit from the expenditure and someone else had also derived benefit, then general principle which has been laid down is that such expenditure was for the purpose of business. 33. Coming to assessment year 1999-2000, the Ld. CIT-DR stated that there was no difference in claim of expenditure. The Ld. CIT-DR wanted to point out the distinct features of assessment year 1999-2000, wherein 100% of expenses were disallowed by Assessing Officer and CIT(A) allowed 70% of said expenditure. Reference was made to grounds of appeal raised by Revenue. Referring to order of Assessing Officer at page 13, it was pointed out by Ld. CIT-DR the debit notes were of 14.12.1999. Under para 5.6 of assessment order, breakup of expenses i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tten off to WDV of assets and could not be claimed as expenditure separately. Coming to the claim of depreciation, the Ld. CIT-DR stressed that ownership of said assets was with CCI Inc and if it was allowing others to use the assets, then the same had to be established that it was exclusively used for providing services to assessee. Referring to other expenses i.e. Miscellaneous Expenses, no breakup was given i.e. what was the nature of expenditure booked under the head 'Miscellaneous Expenses'. Similarly, payment to Auditor, what was the scope of audit to assessee, where entire expenditure was allocated to assessee. Under the head 'Travelling Expenses, even expenditure incurred on travelling of spouses was debited. 35. He distinguished the reliance on CIT Vs. Alfa Laval (I) Ltd. (supra) placed upon by the learned Authorized Representative for the assessee and pointed out that wife of President of the company had travelled because of invitation extended; but it was not so in the present case and hence that case was distinguishable on facts. The Ld. CIT-DR concluded that reliance placed upon by Ld. AR on CIT Vs. Royal Calcutta Turf Club (supra) and CIT Vs. Panipat Co-operative Sug ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessment year 1998-99, there were drastic changes, so decision of assessment year 1997-98 was not applicable; v) The plea of Ld. AR that sale of beverages was linked to sale of concentrate can be linked to advertisement and marketing, which is allowed; but not service charges in view of various agreements discussed; vi) After considering various agreements i.e. between TCCC and assessee and TCCC and Bottlers, Service Charges agreement between assessee and CCI Inc and several correspondence with RBI dated 21.10.1992, 28.02.1997 and fact of hiving of Bottling Division from 01.12.1997; were material. vii) The Ld. CIT-DR further pointed out that there were certain expenses a) Service fees of Bottling business; b) Charges paid to TCCC for restructuring of group companies c) Service charges paid in respect of products not related to assessee d) Charges to meet export obligation of CCI Inc in respect of group companies e) Agreement between holding company and downstream companies In view of above, expenses incurred by assessee were not admissible under the doctrine of 'Commercial expediency' viii) License Agreement and Service Agreement have to be read conjointly; i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owing note:- "Evidence:- As you are aware that your assessee does the business of manufacturing beverage base. CCI Inc. takes care of all other activities required to run the business of your assessee, as per Service agreement entered into between your assessee and CCI Inc. The business of your assessee being carried on well during relevant assessment year is proof of evidence of services rendered by CCI Inc." 41. The Assessing Officer in view thereof, observed that the assessee's claim of service charges was based on the service agreement itself and only evidence it furnished in respect of huge claim of service charges paid was copy of agreement entered. Since the assessee had failed to furnish evidences, another show cause notice in this regard was issued by the Assessing Officer to assessee and the same is reproduced at pages 14 and 15 of assessment order. In detailed submissions again, the assessee pointed out that CCI Inc was the branch office of foreign company and the scope of services that could be rendered by CCI Inc were listed out in the written agreement and the assessee was receiving such services on day-to-day basis. Thereafter, the assessee on 20.03.2002 submitted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd was of the view that service agreement could only be treated as akin to sham document in so far as clause 5 / clause 2 was concerned. In this background, he was of the view that services rendered by CCI Inc to the assessee were required to be examined and it had to be decided as to what was the extent of service charges which have been incurred, were wholly and exclusively for the purpose of business of the assessee. He also reiterated the fact that during the relevant year, there were no bottling operations carried on by the assessee. The CIT(A) also noted that mere existence of service agreement could not make service charges as allowable expenditure in the light of various decisions of the Hon'ble Supreme Court and similarly, mere approval of RBI, the nature of services rendered was not sufficient to make expenses admissible under section 37 of the Act. The assessee was given an opportunity to give evidences in support of the nature of expenditure incurred under the head 'service charges'. Vide para 5.3.9, the CIT(A) states that the assessee produced vouchers for June, 1998 and March, 1999 which were test checked and the assessee's comments on the nature of expenses were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a of 88,000 sq.ft., 16,000 sq.ft. was being used for services to HCCBPL. However, the assessee failed to furnish any basis of allocation and in the absence of even basic details being provided, the CIT(A) held that it had to be found, whether reimbursement of service charges were wholly and exclusively for the service rendered by CCI Inc to the assessee only. Another point which was raised by the CIT(A) was that since there was no bottling unit with the assessee and hence, there was no question of providing any services in the nature of bottling to the assessee. The CIT(A) vide para 5.6.9 acknowledges that the addition made by the Assessing Officer regarding non-furnishing of evidence of provision of services rendered by CCI Inc to the assessee was not fully correct. He further acknowledges that the Assessing Officer should have held that the actual services were being rendered but the extent to which services were being rendered, wholly and exclusively for the purpose of business of assessee and the extent to which disallowance was to be made should have been examined. He further notes that the assessee had furnished vouchers in 19 box files before the Assessing Officer. Those vou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of litigation. Considering the facts and issues, wherein the Hon'ble High Court had remitted the matter back to the Tribunal to consider and decide the claim in relation to service charges by taking into account the contentions and case of both sides. The Hon'ble High Court also noted the submissions of Revenue that the position had undergone drastic change after assessment year 1997-98 in relation to the said claim. The Hon'ble High Court also noted the contention of petitioner assessee that position, factual and legal, remains the same and the Tribunal was bound by the finding and conclusion rendered by it in earlier assessment years. It was observed that …. when the Tribunal considers the matter again, it will also deal with Revenue's contention that finding and conclusion on this issue of service charges for prior assessment year will not bind the Tribunal for later years. Hence, the matter is restored to the file of Tribunal for decision afresh on merits and in accordance with law on the claim of service charges including travelling expenditure. The Tribunal was thus, directed to decide the claim without in any manner being influenced by any observations in original or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the IT Act, 1961] does not mean "necessarily", that ordinarily it was for the assessee to decide whether any expenditure should be incurred in the course of his or its business, that such expenditure may be incurred 'voluntarily' and without any 'necessity' and if it is incurred for promoting the business and to earn profits, the assessee can claim deduction under s. 10(2)(xv) of the Act even though there was no compelling 'necessity' to incur such expenditure, that the fact that somebody other than the assessee was also benefited by the expenditure should not come in the way of an expenditure being allowed by way of deduction under s. 10(2)(xv) of the Act, if it satisfied otherwise the tests laid down by law. 18.5 The legislative history of s. 37 of the IT Act, 1961 was mentioned by the Supreme Court in its order in the case of Sassoon J. David & Co. (P) Ltd. (supra) as under : "........... It is relevant to refer at this stage to the legislative history of s. 37 of the IT Act, 1961, which corresponds to s. 10(2)(xv) of the Act. An attempt was made in the IT Bill of 1961 to lay down the 'necessity' of the expenditure as a condition for claiming deduction und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the business (which need not necessarily be the business of the assessee itself), the Revenue cannot justifiably claim to put itself in the armchair of the businessman or in the position of the board of directors and assume the role to decide how much is reasonable expenditure having regard to the circumstances of the case. No businessman can be compelled to maximize his profit. The IT authorities must put themselves in the shoes of the assessee and see how a prudent businessman would act. The authorities must not look at the matter from their own viewpoint but that of a prudent businessman. As already stated above, we have to see the transfer of the borrowed funds to a sister-concern from the point of view of commercial expediency and not from the point of view whether the amount was advanced for earning profits." 47. The Tribunal then referred to position of law in relation to section 37(1) of the Act and vide para 18.8 observed as under:- "18.8 The position in law, in relation to s. 37(1) of the Act, as emerging from the decisions of the Supreme Court, discussed in the above paras, can be summarized as under : (i) the expenses incurred should be 'incidental' to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly worked out after taking into consideration various factors. The Courts have laid down clear guidelines for determining the allowability of expenses incurred and claimed under s. 37(1) of the Act, as summarized above. 25. Shri Kapila, the learned Departmental Representative urged that in the case of Chandulal Keshavlal & Co. (supra) the Court had made an exception in respect of those cases where the expenditure was incurred to foster the business of another party. He vehemently argued saying that in the present case the services rendered by the CCI Inc. to the bottlers were for fostering the business of TCCC in India, and therefore the reimbursement of these expenses by the assessee could not be allowed in view of the decision of the Supreme Court in the case of Chandulal Keshavlal & Co. (supra). He drew our attention to the following observations of the apex Court : "Another fact that emerges from these cases is that if the expense is incurred for fostering the business of another only or was made by way of distribution of profits or was wholly gratuitous or for some improper or oblique purpose outside the course of business then the expense is not deductible......... ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vices benefited TCCC-surely a group company, in enhancing its brand image in India. But it is equally true that these services benefited the assessee company. The services rendered by CCI Inc. helped the bottlers to increase the volume of their business which, in turn, resulted in increased purchases of 'concentrates' by the bottlers from the assessee. There is nothing on record to show that the decision on the part of the assessee company to incur these expenses was not based on 'commercial expediency'. 28.1 In para 8.3.1 of his order, the CIT(A), while justifying a disallowance of 25 per cent of the expenses claimed under the head 'Service charges', inter alia, made a general and vague observation as under : "(v) There are expenses embedded in the service charges claimed by the appellant and embedded in the reimbursed cost of appellant to CCI Inc. which are not allowable in nature as per IT law. These include foreign travel expenses of wives of employees for their pleasure trips, capital expenditure on purchase of software etc." 28.2 The CIT(A) has not given any detail. He merely says, "these include foreign travel expenses of wives of employees for their ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tured by assessee and consequently, service charges for such services should not be charged to the assessee. The assessee had objected to the pleadings of Revenue in this regard and has time and again stressed that reason for disallowance in the hands of assessee was the benefit to bottlers and it was an admitted position that where any benefit arises to the bottler, then service charges paid by assessee on account of such benefit to the bottlers was the expenditure of assessee and was to be remunerated by assessee to CCI Inc. Both the parties disputed the issue being decided by the Tribunal, have relied on later decisions on the issue in order to support their contentions, which we shall deal with in the paras hereinafter. 51. The first service agreement which was entered into between the parties was dated 01.04.1995 under which CCI Inc acknowledged that it had expertise, know-how in the field of manufacture, sale and marketing of beverages, syrups and foodstuffs and also in providing services in connections therewith and is authorized a) to develop and promote the export activities of assessee; b) to coordinate activities of licensed bottlers in India with assessee; c) to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Inc and fees to be paid shall be calculated on the basis of actual costs incurred by CCI Inc in providing such services plus mark up of 5%. 54. For entering into this agreement, approval was sought from RBI, copy of which is placed at page 4 of Paper Book-I, wherein reference was made to rendering of technical know-how and support services, which were mentioned in earlier letters of RBI. It was also clarified that the said permission does not cover rendering any type of manufacturing activity directly or indirectly. The assessee in support of its claim of service charges has filed statement mentioning one entry as service charges paid to CCI Inc amounting to ₹ 5.74 crores, no other supporting details were filed against the amount of ₹ 70.40 crores. On 30.03.2001, the assessee filed service agreement along with debit notes before the Assessing Officer. However, in the absence of further details and evidence as to what kind of services and whether services have actually been rendered or not, 10% of expenditure was disallowed in the hands of assessee under section 37(1) of the Act. It may herein be pointed out that the Assessing Officer also took note of the fact that as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ia. Hence, the Branch Office was meant to provide services to licensed bottlers to build up quality and goodwill of TCCC Branch besides rendering services to assessee company. Since these aspects were not before the Assessing Officer, the CIT(A) observed that Assessing Officer could not take right decision and there was need to enhance the disallowance out of service charges in assessment year 1998-99. In such background, the need was felt to determine extent of service charges which were incurred and whether the same were wholly and exclusively for the purpose of business of assessee. The CIT(A) vide para 7.5 at page 61 notes that the assessee was given full opportunity to give evidence in support of the nature of expenses incurred under the head 'service charges'. The assessee produced vouchers for one or two months which were test checked by him and the comments of assessee on the nature of these expenses were obtained. In such scenario, the CIT(A) concluded that expenses incurred by CCI Inc and debited to assessee included expenses on account of services rendered to bottlers as well as other companies. The assessee in response to enhancement notice submitted a letter dated 17.0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch scenario, the question which arises is whether there is any justification in the order of CIT(A) in making disallowance to the extent of 25% of service charges. This is the issue in assessment year 1998-99, since the Assessing Officer has also only made disallowance of 10% of expenses. However, when we look at the issues raised in assessment year 1999-2000 onwards, the Assessing Officer had made disallowance at 100% which was restricted to 30% by CIT(A) and both the assessee and Revenue are in appeal for the relevant assessment years. In one year disallowance is of 1/3rd of expenses. 60. Before proceeding further, we may refer to the disallowances made in the hands of assessee from year to year under the head 'service charges'. The claim of assessee is that no part of service charges merits to be disallowed, whereas the claim of Revenue is that disallowance at 30% of total expenditure is not correct. The assessee has time and again claimed that it had filed complete evidence before the authorities below and there is no merit in the stand of Revenue authorities that no evidences were filed. The Ld. AR fairly pointed out that in assessment year 1998-99, details were filed before ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee had on the other hand, debited expenditure of ₹ 70.40 crores. On reconciliation, the Ld. AR pointed out that sum of ₹ 5.04 crores was charged by CCI Inc during assessment year 1997-98. In other words, sum of ₹ 5.04 crores related to earlier year. In order to get clarification on this point, matter was fixed for hearing. It was brought to the knowledge of Ld. AR that while deciding the appeal for assessment year 1997-98, sum of ₹ 3.37 crores was disallowed as it related to assessment year 1996-97. It was also put to him that since he has time and again stressed that the decision of Tribunal for earlier year was to be applied for this year, then why the said part of decision, be not applied. In this regard, he stated that since the rates of taxes were the same it would not make difference in which year the said expenses are debited / allowed. He stressed that the said amount was considered in the current year and the same should be allowed. Further he also clarified that sum of ₹ 2,16,41,969/- was extra charged by CCI Inc and the same was debited in their accounts (CCI Inc) in assessment year 1998-99, but the assessee had accounted for the sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... admittedly is an amount overcharged by CCI Inc and the same has been debited by CCI Inc in its hands in assessment year 1998-99. Following the principle of accounting on mercantile basis, the said amount is also to be reduced from total claim of ₹ 70.40 crores as CCI Inc itself has debited the said amount to service charges account credit and due from the assessee. Accordingly, we disallow the excess expenditure claimed of ₹ 2,16,41,969/-. Consequently, we have to decide the issue for the balance service charges i.e. ₹ 70,40,73,988/- (-) ₹ 5,04,37,905/- (-) ₹ 2,16,41,969 = ₹ 63,19,94,114/-. 65. Before deciding the issue of allowability of said claim in the hands of assessee, we may also refer to the factual aspects of assessment year 1999-2000. The Assessing Officer, against the claim of expenditure of service charges, issued show cause notice vide para 5 at page 15 of assessment order. The Assessing Officer vide para 5.3 specifically asked the assessee vide order sheet dated 04.03.2002 to submit the details and nature of services rendered along with evidence of rendering of services by CCI Inc. In reply, the assessee submitted following Note:- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es, the said claim was also not accepted. Vide para 5.10.2, the Assessing Officer notes that during scrutiny proceedings, assessee was asked several times to produce details of services rendered. The assessee was specifically asked to produce evidence of services rendered but the assessee was only emphasizing on the service agreement for allowability of expenditure. Further, it was held by Assessing Officer that where the assessee was engaged only in the manufacturing of beverage base used by bottlers, services rendered to the bottlers was not allowable. Hence, the claim of service charges amounting (balance) to ₹ 35.12 crores was disallowed. The Assessing Officer also held that debit note dated 14.12.1999 amounting to ₹ 8.95 crores was not raised during the relevant assessment year and the same could not be considered as expenditure accrued during the relevant assessment year. 67. Coming to the order of CIT(A) relating to assessment year 1999-2000, the assessee was given opportunity to give evidence in support of nature of expenses incurred under the head 'service charges'. The assessee produced vouchers for June, 1998 and March, 1999 which were test checked and the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mination of vouchers, fortified decision taken in assessment year 1998-99 and it was held by CIT(A) that expenses claimed under the garb of service charges were not allowable as per law as business expenditure under different provisions of the Act. The CIT(A) stressed that expenses of the nature such as foreign travel of spouses of employees, capital expenses and expenses incurred for other than business consideration are not allowable (para 5.6.10). The CIT(A) was of the view that depreciation reimbursed by assessee to CCI Inc was not the claim made under section 32 of the Act, but the said item of expenditure was in view of service agreement as reimbursement of cost incurred and the amount should be taken into account while disallowing part of service charges. Similarly, the stand of Assessing Officer regarding disallowance of service tax was held to be not correct. The CIT(A) further held that loss on sale of assets of ₹ 36,14,397/- was to be separately disallowed. Then, he considered percentage of disallowance to be made in the hands of assessee and disallowed 30% of service charges. The CIT(A) worked out the disallowance of ₹ 16.22 crores including disallowance on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ischarged by assessee. 71. Coming to the next head of expenses, wherein expenditure of ₹ 2.81 crores has been debited on account of moving and re-location, travelling expenses to the tune of ₹ 11.12 crores and consultancy charges of ₹ 1.84 crores with rent of ₹ 5.10 crores, telephone expenses of ₹ 5.80 crores, repairs & maintenance of ₹ 1.41 crores, etc. No breakup of any of expenses was filed. Even vouchers were not produced. It is difficult from the head of expenditure to fanthom whether any personal or capital expenditure were debited. The assessee had also booked miscellaneous expenses of ₹ 4.89 crores, for which no breakup has been given. Then the next head was the security deposit written off to the tune of ₹ 1.30 crores. When questioned, the reply of assessee was that in respect of premises at Mumbai, the aforesaid security deposit was not received back and has been written off. The said expenditure of write off of security deposit without any support cannot be allowed in the hands of assessee as expenditure with markup. Reliance placed upon the case of Richardson Hindustan Ltd. Vs. CIT (supra) is misplaced as the facts are at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing of item-wise, date-wise details of payments and evidence / details of services rendered by CCI Inc to the assessee, which were not furnished. The Tribunal vide para 21 of its decision notes that the Assessing Officer on this reason / ground had not made any disallowance. However, entire disallowance was made by Assessing Officer for the reason that it did not relate to this year, hence not allowable. However, we have already referred to the investigation carried out during the course of assessment proceedings and also before the CIT(A) and even after giving enhancement notice in assessment year 1998-99, the case of Revenue authorities time and again was asking the assessee to furnish complete details of breakup of expenditure head-wise and thereafter, to provide vouchers in support of expenditure booked. We have already referred to the proceedings before the Assessing Officer in both the years, wherein time and again the assessee was asked to establish its case of reimbursement of cost with markup, but except for filing the agreement and copy of debit notes in assessment year 1998-99 and in the later year, providing the details at the fag-end of assessment proceedings, the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts of assessee, as increased sale of drink means the increase in sale of concentrate, then such expenditure is to be allowed in the hands of assessee. 77. In this regard, we may refer to the order of Hon'ble Bombay High Court in DCIT Vs. Coco Cola India Pvt. Ltd. in Income Tax Appeal No.1159/2011, order dated 04.09.2014. The said appeal has been filed by the Revenue against order of Tribunal in allowing the claim of marketing expenses in the hands of assessee. During the proceedings, the assessee in that case had filed an affidavit relying on several judgments of the Court including the case of assessee regarding Excise / CENVAT credit. The Hon'ble High Court in this regard held that Tribunal's order on claim of marketing expenses arises under the Income Tax Act. Hence, whether the judgment of this Court in a matter of CENVAT credit or Excise duty claimed can have any application will have to be considered at a length. The Hon'ble High Court also noted that on similar issue of marketing expenses, an appeal by Revenue was admitted and hence, the said appeal was also directed to be admitted. Taking support from the said proposition laid down by the Hon'ble High Court merely because ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... down and it was held that any expenditure to be held to be wholly and exclusively for the purpose of business must be for reasons of commercial expediency; it may be voluntary but incurred for assessee's business; and if the expenditure is incurred for the purpose of business of assessee, it does not matter that the payment also enures to the benefit of third party. 80. The next reliance by the Ld. AR was on the decision of Pune Bench of Tribunal DCIT Vs. Kolhapur Zilla Sahakari Dudh Utpadak Sangh Ltd. (supra) for the proposition that in order to decide the question whether expenditure was allowable under section 37(1) of the Act, then the argument that expenditure was necessary or not was not relevant. On the other hand, the expression 'wholly and exclusively' used in section 37(1) of the Act, does not mean necessarily and it was for the assessee to decide whether the expenditure should be incurred in the course of his business. Where the expenditure is incurred voluntarily and without any necessity and if it was incurred for promoting business and to earn profits, then the assessee was entitled to claim deduction under section 37(1) of the Act even though somebody other than the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s activities. The Hon'ble High Court further held that for deciding the said issue, the purpose of business is to be considered and looked into having regard to the realities of business from the point of view of a prudent businessman. 83. The Ld. AR further placed reliance on the decision of CIT Vs. Samsung India Electronics Ltd. (2014) 42 taxmann.com 498 (Del). He after taking us through the facts of case, wherein the issue was allowability of brand building and dealer royalty expenditure and it was held that even if part of expenditure incurred was for the benefit of brand, which benefited the parent company, then also such expenditure to promote brand is to be allowed as expenditure in the hands of assessee. The Ld. AR placed reliance on para 20 of said decision. 84. The Ld. CIT-DR pointed out that in the factual aspect of said case, the Hon'ble Delhi High Court have to be seen in entirety, wherein the finding of Tribunal was that part of advertisement expenditure, benefit of which enured to the parent company, was reimbursed by the parent company and was not under challenge. Hence, what was allowed by the Court was the expenditure which benefitted the assessee and part of ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... personal purposes. Be that as it may, the words used are "wholly and exclusively for the purposes of business or profession". In normal understanding the word "wholly" would mean entirely and the word "exclusively" would mean solely. Thus, any element of expenditure not laid out entirely and solely for the purpose of profession would not be covered by Section 37(1) of the Act. One has to examine this from the perspective/prism of the person who does makes the expenditure. The Hon'ble High Court was deciding the issue of allowability of foreign travel expenses claimed by the appellant therein for the purpose of operation of his eyes. The appellant was professional and claimed that eyes were required to be exclusively used for the purpose of profession by him. The Hon'ble High Court in such circumstances held that eyes were essential, not only for the purpose of business or profession, but for purposes other than these, which were many and expenditure claimed was not in the nature of expenditure wholly and exclusively incurred for the purpose of profession and thus could not be claimed as deduction. In coming to the aforesaid conclusion, reliance was placed on the ratio laid down by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... forth." 89. Vide para 14 the Hon'ble High Court observed that it was within the powers of Assessing Officer to consider all the relevant evidences and decide as to what expenditure was attributable to bonafide business purposes and in that event the Assessing Officer would be justified in disallowing the amount paid as not having been wholly and exclusively laid out for the purpose of business. At the same time, it is also obligatory on the part of the assessee to prove the reasonableness of the amount spent. The proof is required so as to establish that the claim is bonafide. Para 14 of the said decision reads as under:- "14. It is also open, to the AO to question the reality of the expenditure, i.e., the true nature of payment, the true consideration for it and so forth, once he considers the payment and the purpose to be bona fide, it is not open for him to substitute his own judgment of what is reasonable quantum of expenditure for the assessee. The AO can only decide whether the expenditure is real, whether it relates to the business and is wholly spent for that purpose. The AO would be well within his jurisdiction to disallow the expenditure in excess of reasonable limits. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the assessee to prove that expenditure incurred had fulfilled the conditions laid down in section 37(1) of the Act. 91. The Hon'ble Supreme Court in later decision in Premier Breweries Ltd. Vs. CIT (supra) has laid down similar proposition that mere existence of agreement between assessee and selling agent would not bind the Assessing Officer that the payment was made exclusively and wholly for the business and it was open to the Assessing Officer to consider the relevant facts while deciding the said issue. 92. The Hon'ble Supreme Court in Premier Breweries Ltd. Vs. CIT (supra) while deciding the appeal of assessee was abreast with the issue of deductibility of commission paid to commission agents and whether the said commission agents had rendered services. The Hon'ble High Court had reversed the findings in conclusion relied by the Tribunal and eventually had concluded by holding the Tribunal to have committed grave error and had eventually set aside the order of Tribunal and upheld the order of CIT(A) and answered the question in favour of Revenue by holding that assessee had not discharged the burden so as to entitle it to deduction under section 37 of the Act. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he facts. The Hon'ble High Court held that the person who claims the benefit under the provisions of the Act, has to prove before the authorities that it is entitled to the benefit of deduction by placing proper and sufficient material to that effect. In the absence of any such material, the authorities under the Act cannot grant any relief based on presumption. 95. The Hon'ble Supreme Court in CIT Vs. B.M. Kharwar (supra) (relied upon by Ld.CIT-DR) also had laid down the proposition that taxing authority is entitled and is indeed bound to determine true legal relation resulting from a transaction. It was further held that principle would also apply alike to cases in which legal relation is recorded in formal document and to cases where it has to be gathered from evidence - oral or documentary and conduct of the parties to the transaction. 96. We have in the paras above referred to the facts of present case elaborately making reference to the terms of agreement and also the arguments of both the Authorized Representatives in this regard. The fact which emerges is that vide agreement dated 01.04.1997 the terms between the assessee and service provider CCI Inc have undergone am ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... copies of debit notes, which in the first year were filed literally at the close of assessment proceedings and no vouchers at all were produced in assessment year 1998-99. Before the CIT(A), vouchers for two months of the accounting period were produced for test check. Similar was the case in assessment year 1999-2000, where 19 box files were filed relating to two months before the Assessing Officer and CIT(A). In other years, the assessee has filed tabulated details. In the submissions before us filed on 20.03.2019, the Ld. AR points out that for assessment year 2000-01, 25 box files were produced; for assessment year 2001-02, 11 box files; for assessment year 2002-03, 29 box files; for assessment year 2003-04, 31 box files and for assessment year 2004-05, 27 box files were produced. 98. Undoubtedly, the payments were made to a related concern and onus upon the assessee was greater in such circumstances to prove and establish that the price paid by assessee for services availed were at market rates. One of the issues which were raised by authorities below in denying the claim was the benefit of services to the bottlers and hence, expenditure not relatable to the business of asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the Hon'ble Supreme Court in Swadeshi Cotton Mills Vs. CIT (supra) while deciding the issue of whether an amount claimed as expenditure was laid out or expended wholly and exclusively for the purpose of business, pursuant to agreement, held that merely because of existence of an agreement, it cannot be held that the payment was made wholly and exclusively for the purpose of assessee's business. It is for the Assessing Officer to decide whether the amount paid was wholly and exclusively spent for the purpose of business. The Hon'ble Supreme Court held it to be an erroneous proposition to contend that as soon as the assessee had established two facts i.e. existence of an agreement between the parties and the fact of actual payment, no discretion was left to the Assessing Officer except to hold that payment was made wholly and exclusively for the purpose of business. 100. No doubt, an agreement as a document is cogent factor and cogent piece of evidence, but still it had to be established that the amount which were spent was wholly and exclusively for the purpose of business before such a claim for deduction can be allowed under section 37(1) of the Act. Throwing a docume ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be allowed as business expenditure of assessee, either under the head service charges or reimbursement of expenses. 101. The Hon'ble Supreme Court in Bengal Enamel Works Ltd. Vs. CIT (1970) 77 ITR 119 (SC) while deciding the issue of allowability of business expenditure in a case where the amount was paid to an employee pursuant to an agreement had held it to be excessive because of extra commercial considerations and it was held that the Taxing Authority might disallow an expenditure claimed on the ground that the payment was not real or was not incurred by the assessee in the course of his business or that it was not laid out wholly and exclusively for the purpose of business of the assessee. The Hon'ble Supreme Court held that in such circumstances the authority did not substitute its own view of how the assessee's business affairs should be managed but proceeded to disallow the expenditure because the conditions of its admissibility was absent. Such cases of disallowance of expenses where the assessee has failed to discharge the burden of proving that services were rendered for carrying on the business, which lies upon the assessee, cannot be held to be based on surmis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .04.1997 was filed on the last date of completion of assessment proceedings before the Assessing Officer. The assessee time and again had placed reliance on the terms of agreement and the debit notes raised by CCI Inc. The details of debit notes are provided in para 61 of our order and the perusal of the same would reflect that three of debit notes were dated 30.01.1998 and the last one was after the close of year i.e. on 09.09.1998 for sum of ₹ 20.91 crores, totaling ₹ 70.40 crores. We have already pointed out that breakup of expenses given is of ₹ 60.18 crores and not of ₹ 70.40 crores. No breakup of expenses totaling to the extent of debit notes are enclosed for ready reference. Except for the period, it is not known, how the expenditure is raised vide debit notes. The assessee claims it was audited by auditors but no such certificate of auditors was produced. The Balance Sheet and Profit and Loss Account are undoubtedly, audited. Another point which may also be pointed out herein itself that vide paras 62 and 63, we have already disallowed service charges of sum of ₹ 5.04 crores relating to earlier year and ₹ 2.16 crores being excess charged ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sment years 1998-99 and 1999-2000. Not only he has test checked the vouchers of two months in each of the years but has also recorded statements of key persons and has come to a finding that the assessee has never enquired into the nature of claims made under the head 'service charges' by CCI Inc. The said vouchers were maintained at Delhi and the assessee received debit notes nearly at the close of year or even after close of the accounting period and had paid the amounts on said account. In the absence of total breakup of expenses being filed, the expenses cannot be allowed. It is time and again being held by the Courts that burden of proof was first on the assessee to prove its case of expenses being wholly and exclusively for the purpose of business of assessee, but in the garb of 'wholly and exclusively' for the purpose of business, service charges which were charged to assessee in respect of items / events which were not relatable to the assessee cannot be allowed as deduction in the hands of assessee. First such event was expenditure was charged for meeting export obligation of CCI Inc in respect of group companies and / or charges paid for attending seminar on 'brand buildi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ding such services + markup of 5% on such actual cost. It may be pointed out that the Assessing Officer notes at page 32 that in support of its claim of expenditure, the assessee furnished copy of agreement and did not furnish any evidence of services actually rendered by CCI Inc. Thereafter, the assessee produced certain box files regarding service charges which were subjected to verification but the assessee was again asked to furnish the nature and evidence of actual rendering of services. In reply, details in Form No.24 of CCI Inc were filed. The Assessing Officer disallowed expenditure of ₹ 52.92 crores. 112. The Assessing Officer further noted that there was increase in travelling expenses from ₹ 40,21,169/- to ₹ 10,09,52,522/- and the assessee in this regard was asked to give justification for its allowability. The Assessing Officer noted that own travelling expenses of assessee were ₹ 50,03,148/- and remaining amount of ₹ 9,59,49,374/- was reimbursed to CCI Inc. The assessee was asked to justify allowability of said expenditure. In reply, the assessee filed certain information and perusal of the same reflects that persons who had travelled did ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d Authorized Representative was reminded to submit reasons for lowering of service charges. However, no explanation was submitted. Then as on 12.03.2004 vide order sheet entry, it was noted by the CIT(A) that no explanation on the issue of lower service charges debited during the year has been given, though reference was made to letter dated 27.02.2004 but there was no explanation on this issue. On perusing the Schedule 14, it was pointed out that items like rent, rates and taxes, travelling, salary and allowances have increased by 100% to 1000% over the amounts as on 31.03.1999. On this it was admitted by the appellant that for these items of expenditure, reimbursement had directly been debited to books of account of assessee and these expenditure were till last year shown under the head 'service charges'. The CIT(A) vide para 4.4 observed as under:- "4.4 The reason and purpose of not submitting even such basic details is not difficult to understand as the appellant had noticed that the department was disallowing 'service charges' paid to CCI Inc. in the earlier years and therefore, it deliberately did not include some such terms under the head 'service charges' and debited the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tely dealt with the disallowance of travelling expenses which were separately disallowed by the Assessing Officer. After considering reply of assessee, the CIT(A) held that travelling expenses were not considered as part of service agreement and since no other contractual obligation was on record to justify the reimbursement of travelling expenses of persons who had travelled to different places for the business of assessee, as well as for the business of HCCBPL and other matters of Coco Cola as a whole, then it could not be held that travelling expenses were done exclusively for the business of assessee and hence, issue was decided against assessee. The issue thus, which arises from assessment year 2000-01 is in respect of items which were booked as reimbursement of expenses, over and above the service charges. The Assessing Officer had disallowed the travelling expenses reimbursed to CCI Inc only but the CIT(A) had also considered the items of expenditure enlisted in Schedule 14 of Profit and Loss Account, which were reimbursement of expenditure of CCI Inc. 119. The assessee is aggrieved by inclusion of said expenses under the head 'service charges' and has pleaded that the said ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vice charges, wherein debit notes were issued nearly to the close of the year and even some, after close of the year and also after filing of return of income. In such scenario, keeping in mind all these facts and circumstances, we find no merit in the claim of assessee for the year under consideration and we uphold the action of CIT(A) in clubbing of reimbursement of expenses and service charges claimed under the head 'service charges' and thereafter making disallowance. In any case burden to prove 'reimbursement of expenses' is always higher, as you can only reimburse expenditure incurred on one's behalf, which had not been discharged. 120. Further, in respect of travelling expenses, where time and again the assessee was asked to furnish details and especially where it claims that the said expenditure was reimbursement of expenses, then the onus cast upon assessee was higher and it had to prove that expenses were actually incurred for the purposes of business of assessee. Merely making the claim would not entitle the assessee to the aforesaid deduction. Before the Assessing Officer, the assessee as against claim of ₹ 9.59 crores had only filed details of ₹ 1.71 crore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not bound to allow the claim. On the whole, we find that a liberal approach is taken by the officer and still more liberal were the first appellate authority and the Tribunal because the claim made is sustained at 50 per cent without proof for the service rendered justifying allowance of even so much of the claim. 123. The Hon'ble Bombay High Court in Chemaux (P.) Ltd. Vs. CIT (1977) 109 ITR 705 (Bom) noted the contention of authorized representative that Taxing Authorities as well as Tribunal were in error in not allowing the deduction on the ground that details of expenditure or purpose for which such expenditure had been incurred had not been furnished by assessee in the assessment. The next contention was that the assessee in that case was not really concerned and was not in a position to prove as to who were the parties to whom either entertainment was granted or presents were given or commission was paid by commission agent and all that the assessee could prove was the payment of commission. The contention was to allow the expenditure as business expenditure. The Hon'ble Bombay High Court held that it was not possible to accept any of the submissions of the Counsel for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deposit of ₹ 1.30 crores had been written off. The assessee explained that the said write off was in respect of premises taken on lease in Mumbai. But such expenditure claimed by assessee is capital in nature and cannot be allowed as deduction. Reliance placed upon the decision of Richardson Hindustan Ltd. Vs. CIT (supra) is misplaced. Another instance is the travelling expenses which we have referred in the paras above. In this regard we have held that reliance on CIT Vs. Alfa Laval (I) Ltd. (supra) is misplaced. One more aspect which needs to be seen is loss on sale of assets which came to the knowledge of CIT(A) while he was examining the facts for assessment year 1999-2000 and such an expenditure had been disallowed in the hands of assessee and there is no appeal against the same. As far as other expenses were concerned, CIT(A) had not made separate disallowance in assessment year 1998-99 and the same had subsumed in 25% disallowance out of service charges. 126. Before parting, we may also point out that beside other expenditure claimed, the assessee also has claimed deduction on account of depreciation on assets owned by CCI Inc, which was recovered from the assessee w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the business of assessee. Undoubtedly, the assessee had entered into an agreement with CCI Inc but CCI Inc also enters into separate agreements for providing services to the bottlers and other entities. The terms of agreement are no doubt, sacrosanct but onus was upon the assessee to establish that what was being reimbursed was the actual cost attributable to it though some part of it enured to the bottlers. The onus was also upon assessee is greater because of the change in terms of agreement w.e.f. 01.04.1997 and also as the assessee had stopped to carry on its business of bottling and preparation of beverages, which was being carried out by assessee at different units in India. The assessee for the years under appeal had no bottling division and no division for the manufacture of can & pet bottles and it solely engaged in preparation of concentrate. The assessee has failed to produce necessary evidence and has failed to establish its case of cost being attributable to carrying on of its business, which costs with markup had to be reimbursed by the assessee to CCI Inc. Further, under the garb of reimbursement of expenses, the assessee could not claim the amounts as deductible me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has been entered into between the parties after the close of year i.e. on 31.03.2000 could not bind the terms between the parties starting from 01.04.1999. Even in the debit notes issued by CCI Inc, there was no mention of any oral understanding between the parties but reference was made to service agreement only, which undoubtedly was the earlier agreement as the next agreement was entered only after the close of the year. We find no merit in the plea of assessee in this regard and we uphold the entire exercise carried out by CIT(A) in working out the amount of service charges to be considered in the hands of assessee i.e. after including the so-called reimbursement of expenses and out of the same, disallowance has to be made. In assessment year 2001-02 onwards, the terms of said agreement dated 09.05.2000 were pleaded as applicable and it was pointed out that as per understanding only some costs were reimbursed with markup and others which were pure expenditure, then the same were charged as reimbursement. The assessee has not established its case of alleged reimbursement of expenses. The assessee on account of salaries had booked the expenditure both under service charges and u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ses but where the assessee has failed to give breakup of expenditure itself under the head 'travelling expenses', then the entire expenses needs to be disallowed. With this, we decide the first issue of allowability of service charges in the hands of assessee, reimbursement of expenses and its allowability and travelling expenses and its allowability. 131. The next issue which arises in the present bunch of appeals starting from assessment year 2000-01 is depreciation on coolers. 132. Brief facts relating to the issue are that the assessee claims that in order to promote its business of sale of concentrate and beverage basis manufactured by it, had as business strategy placed coolers at different places. The said coolers were provided at retail outlets in the bottlers' territories which facilitate the sale of beverages in chilled conditions. The assessee further claims that availability of chilled beverages at an affordable price increases the consumption and sale of beverages and also benefitted the assessee company as it would result in proportionate increase in the sale of concentrate. The second plea of assessee was that the coolers also served as an advertising medium as muc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been made in the hands of assessee in assessment years 2000-01 to 2004-05. 134. The Tribunal in the first round had upheld the order of CIT(A) in this regard. However, this matter in one year was recalled by way of Miscellaneous Application and other years by the Hon'ble High Court. The issue has been sent back to the Tribunal. 135. Now, the issue stands before us. During the course of hearing, it was put to the Ld. AR that it must establish its case of fulfillment of conditions of section 32 of the Act. In this regard, the Ld. AR time and again stressed that the ownership of aforesaid coolers was undisputed and the only reason why the depreciation on coolers was denied to the assessee was on account of its user. However, he stressed that even if the coolers were used by bottlers or by the end sellers of the beverages, the said coolers were used in the business of assessee as total exercise resulted in increase of sale of concentrate manufactured by the assessee. When asked to furnish the details of coolers purchased by it and where installed, the assessee had furnished list of coolers installed at various places in Punjab on sample basis as in 2015. The Ld. AR again pointed out ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs the assessee was engaged both in the manufacture of concentrate and also had various bottling units and was also manufacturing beverages i.e. cold drinks. So, the assessee had two lines of business in earlier years. In accordance with the needs of its business, it had made investments in coolers which were then placed at the premises of retailer outlets, who were selling the beverages. When the assessee was carrying on the business both as manufacturer of concentrate and as a bottler in its line of business and where the finished products which were sold by it were beverages which if sold as such, as against, after cooling if sold would bring more profits to the assessee. In such business arrangement, the investment in coolers made by assessee was accepted by the Revenue authorities and depreciation on coolers was allowed in the hands of assessee. The opening WDV of said coolers and other plant and machinery as on 01.04.1999 was ₹ 3.02 crores. The coolers and other plant and machinery were listed as others under the head 'plant and machinery' and hence, the plea of assessee that the coolers have entered the block of assets and depreciation on such block of assets cannot be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncluding the land and building as on 01.04.1999 was ₹ 8.05 crores. As against which, the assessee in the year had made addition of ₹ 9.50 crores on account of coolers + ₹ 30 lakhs (approx.) (total ₹ 9.80 crores). So, it is incumbent upon the assessee to demonstrate the ownership of said assets by way of purchase invoices, etc. 140. Before proceeding further, we may also take into account the fact that not only in this year but in the subsequent years also, the assessee has made substantial investments in purchase of coolers, which is apparent from the fact that the depreciation which has been disallowed in the hands of assessee from year to year works as under:- Asst. Year Depreciation on coolers 2001-02 ₹ 4,32,37,967 2002-03 ₹ 6,65,88,746 2003-04 ₹ 9,90,81,175 2004-05 ₹ 11,49,24,250 141. It may be reiterated that the years under appeal are assessment years 2000-01 to 2004-05, wherein the assessee had made huge investment in coolers. The assessee has failed to furnish even the basic details of number of coolers purchased, value for which purchased and places where installed. The Ld. AR was specifically asked to p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decide this issue whether assets were used by retailer outlets or used by assessee in paras later. But the first condition which needs to be fulfilled is the discharge of onus by assessee to establish that it had purchased the coolers, date-wise and value-wise and placed the said coolers at different locations, which the assessee had not fulfilled. In the absence of the same, merely because the assessee had purchased the assets and had shown the said purchases as addition in its block of assets, the assessee was not entitled to claim of depreciation on such assets. This is the basic non-discharge of onus cast upon it. 145. Now, coming to the next stand in the year under consideration i.e. from assessment year 2000-01, the assessee is admittedly, not engaged in any bottling business; it is only engaged in the business of manufacture of concentrate. Admittedly, if more beverages were sold, more concentrate would be manufactured and sold by assessee; but in order to go in the arena of bottlers business which was now separately managed by another company, who had independent agreement with CCI Inc and also because there was no agreement between assessee and CCI Inc for placing of coo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be necessary, expedient and relevant by the learned Tribunal. 65. Truth being the cherished ideal and ethos of India, pursuit of Truth should be the guiding star of the entire justice system. For justice to be done, truth must prevail. It is truth that must protect the innocent Date of Judgment :23-07-2018 I.T.A.No.512/2017 M/s. Fidelity Business Services India Pvt. Ltd., Vs. Assistant Commissioner of Income-Tax, & Anr. and it is truth that must be the basis to punish the guilty. Truth is the very soul of justice. Therefore truth should become the ideal to inspire the courts to pursue. This can be achieved by statutorily mandating the courts to become active seekers of truth. It is of seminal importance to inject vitality into our system. Concern for and duty to seek the Truth should not become the limited concern of the Courts or Tribunals and adjudicating Authorities but should percolate down in other Executive wings of the State as well. 66. 'Truth' has a strange but a firm character of finding its way and coming out and revealing itself even though embedded at the bottoms of time periods and piles of papers bound through the chain of litigation in the Courts o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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