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TMI Blog2019 (7) TMI 1620X X X X Extracts X X X X X X X X Extracts X X X X ..... inal ground and thus may be examined by the Assessing Officer along with the verification of the ground restored by the Tribunal (supra). We note that assessee has claimed before us that the trade discount was given by the sale promoters to the retailers and the assessee has reimbursed the same to the sale promoters. In this regard, we direct the Assessing Officer to verify the trade schemes floated by the assessee for giving trade discounts to the retailers and agreement among the assessee, sale promoters and retailers if any in respect of trade discount. The Assessing Officer may also verify from the accounts of the sale promoters as well as the retailers to ascertain whether the reimbursement was for trade discounts. If on verification, it is found so, then no disallowance would be required in view of no liability of deducting tax at source on trade discounts. Transfer Pricing adjustment on account of Advertisement, Marketing and Sales Promotion Expenses [AMP] - HELD THAT:- It can be seen that the operating margin excluding AMP and selling and distribution expenses of the assessee for the year under consideration is 28.03% whereas that of the comparables is 10.60% which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m the premises of Samir Goyal and, therefore, any relevance to be deduced from the same has to be in the case of Samir Goyal and not the assessee keeping in mind that the assessment has been framed u/s 153A of the Act. We, accordingly, do not find any merit in the addition and direct the Assessing Officer to delete the same. Disallowance u/s 40A(3) - HELD THAT:- Such payments do not attract the provisions of section 40A(3) of the Act. Moreover, the assessee has also furnished the ledger account of M/s Sky View in the books of the assessee for the period 01.04.2007 to 31.03.2011. It appears that the Assessing Officer has not examined the details from correct perspective. In the interest of justice and fair play, we restore this issue to the file of the Assessing Officer. The Assessing Officer is directed to verify from the ledger account of Sky View and verify whether payments have been made by A/c payee cheques/RTGS and after satisfying himself, no addition need be made u/s 40A(3). Disallowance of payment made to certain parties under section 37(1) due to nonverification or nonproduction of the parties - HELD THAT:- As per details in the chart furnished by the ld. counsel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appeals have been filed by the assessee against the respective orders passed by the Assessing Officer under section 144C(13) of the Income-tax Act, 1961 (in short the Act ), in conformity with the direction of the learned Dispute Resolution Panel (DRP). Being connected with the one assessee and having identical issues involved, these appeals have been heard together and disposed off by way of this consolidated order for convenience and to avoid repetition of same facts. 2. Now we take up the appeal having ITA No. 910/Del/2015 for assessment year 2007-08. 3. The appeal was heard and disposed off by the Tribunal on 15/03/2019, however, on miscellaneous application filed by the assessee that additional ground raised by the assessee during the course of the hearing was not adjudicated, the appeal was recalled on 14/06/2019 by way of allowing miscellaneous application No. 440/Del/2019 for the limited purpose of admission and adjudication of the additional ground. 4. The additional ground raised by the assessee and noted in the miscellaneous application is reproduced as under: 11.3 That the Ld. DRP/AO has failed to appreciate that the reimbursement of trade scheme to promot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the decision of the Hon ble Supreme Court in the case of NTPC (supra). 5.3 The brief facts in respect of the assessee mentioned in the Tribunal order dated 15/03/2019 are reproduced as under: 5. The appellant company is engaged in the business of manufacture and sale of alcoholic beverages in India. Furthermore, the appellant also has a distribution agreement with PR Group and is engaged in the distribution activity of Bottled in Origin [BOI] products imported from PR Group into India. Brands that are imported by the appellant are Chivasa Regal, Marteli, Royal Salute, Absolult, Jacobs Creek etc., which the brands bottled in India Primarily included Blenders Price, Imperial Blue, Royal Stag, etc. Primarily the appellant is organized in two business segments in India viz. Manufacturing [Class I] and Distribution [Class II]. 5.4 The learned counsel of the assessee filed paperbook in 2 volumes containing pages 1 to 640 and submitted that certain products of the assessee company were sold to retailers through the agency appointed by the State governments and for enhancing sales of those products the assessee had appointed Sales Promoter . The assessee gives commission to tho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation of the character of the transaction is already before the Assessing Officer and thus this issue of whether the reimbursement is of the trade discount, may also be sent back to the Assessing Officer for deciding along with the matter restored in ground number 11 to 11.2 of the ITA No. 990/Dell/2015 for assessment year 2007-08. 5.6 We have heard rival submission of the parties and perused the relevant material on record including the order of the Tribunal (supra). The assessee in its regular grounds placed before the Tribunal submitted that the transaction in dispute was only of reimbursement and therefore not liable for deduction of tax at source. The matter has been accordingly restored by the Tribunal to the Assessing Officer for factual verification whether the transaction is only of reimbursement. Now the assessee in additional ground claiming that reimbursement is of trade discount and therefore not liable for deduction of tax at source. Now the assessee wants to decide this issue by the Tribunal, whereas the learned DR is of the view that this issue should also be restored back to the Assessing Officer for deciding along with the earlier direction of the Tribunal. We ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No. 911/Del/2015 for assessment year 2008-09, ground Nos. 5 to 6.8 of ITA No. 912/Del/2015 for assessment year 2009-10, Ground Nos. 5 to 6.8 of ITA No. 913/Del/2015 for assessment year 2010-11 and ground No. 5 to 6.8 of ITA No. 914/Del/2015 for assessment year 2011-12 are related to transfer pricing adjustment on account of advertisement, marketing and sales promotion (AMP) expenses. 9. For reference, the Grounds No. 5 to 6.8 for assessment year 2008-09 are reproduced as under: Transfer pricing Grounds 5. That on the facts and circumstances of the case, and in law, the Hon ble DRP/Ld. AO/Ld. Transfer Pricing Officer ( TPO') erred in enhancing the income of the Appellant by INR 1,03,69,60,592/- for FY 2007-08 (i.e. AY 2008-09) by making a Transfer Pricing (TP) adjustment on account of advertising, marketing and promotion ( AMP ) expenses incurred by the Appellant in the regular course of its business on the ground that it was excessive and should have been reimbursed by the Associated Enterprise AE . 5.1 That the Hon ble DRP/Ld. AO/Ld. TPO gravely erred in not appreciating that the Indian transfer pricing provisions are applicable only when there is shifting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Appellant for sale of Appellant s products. Bright Line Method does not have recognition/authorization of Chapter X 5.10 That the Hon ble DRP / Ld. AO / Ld. TPO gravely erred on facts and in law in not appreciating that in the absence of any legislation under section 92C of the Act or in the absence of any statutory guidelines on the application of Bright Line method, such method fails on the ground of being invented, unknown, and being arbitrary in nature. 5.11 That the Ld. TPO gravely erred in attempting to artificially determine a limit, i.e. bright line limit for AMP expenses based on the average AMP spend of independent companies without taking cognizance of the fact that such application of the BLT shall be prejudicial against the Indian subsidiaries licensed to use the brand owned by AEs outside India when compared with Indian entrepreneurs. 5.12 That the Hon ble DRP/Ld. TPO/Ld. AO erred on facts and in law in ignoring India s position before United Nations (UN) in which marketing intangible issue in the India chapter has been discussed by the Indian tax administration from the perspective of a distributor and not a manufacturer, thereby erred in m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was merely acting as limited risk distributor with assured and guaranteed returns by AE s and hence no AMP adjustment is warranted on this segment. 6.7 Without prejudice to above, since the Bright line of comparable companies has been computed by the Hon ble DRP/Ld. TPO by selecting/adopting comparables which were engaged only in manufacturing activities, the adjustment on account of AMP expenses, if any, should be restricted only to the manufacturing segment. 6.8 Without prejudice the Hon ble DRP/Ld. TPO/Ld. AO grossly erred in facts and in law in selecting comparables having dissimilar functional or product or brand profile when compared to Appellant for the purpose of benchmarking the AMP spend. 9.1 We find that identical issue has been decided by the Tribunal (supra) in order dated 15/03/2019 for assessment year 2007-08 is under: 4. Ground Nos. 7 to 8.8 relates to Transfer Pricing adjustment of ₹ 52.05 crores made on account of Advertisement, Marketing and Sales Promotion Expenses [AMP]. 5. The appellant company is engaged in the business of manufacture and sale of alcoholic beverages in India. Furthermore, the appellant also has a distribution agreemen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icer found that on the gross sales of ₹ 5,76,48,29,000/-, AMP expenditure of the assessee accounts for 22.83% of income as compared to AMP expenditure to sales ratio of 5% in the case of comparables finally selected by the TPO. The TPO/Assessing Officer formed a belief that the assessee had incurred huge non- routine expenditure to promote the brand of the AE and to promote the marketing intangible for the AE. According to the Assessing Officer, for incurring this non-routine AMP expenditure, the AE should have been reimbursed and since the same was not done, the assessee was show caused to explain as to why bench marking should not be done by applying Bright Line Test [BLT]. 10. After considering the assessee s submissions, the TPO/Assessing Officer proceeded by comparing the average AMP/sales ratio of the following comparables: Company Name Sales AMP AMP% Amber Distilleries Ltd 8.1 0.02 0.25 Amrut Distilleries Ltd. 162.6 11.48 7.06 Associated Alcohols ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tilaknagar Industries Ltd. 112.43 18.41 16.37 United Spihts Ltd. 4678.74 398.69 8.52 Vindhyachal Distilleries Pvt. Ltd. 25 0.11 0.44 Average 3.97 11. According to the Assessing Officer, the mean of the expenditure incurred on AMP/sales of such comparable companies is Brightline and any expenditure in excess of the Brightline is for the development of the marketing intangible that needs to be suitably compensated by the AE. 12. AMP/sales ratio in the case of the assessee is computed as under: Advertising, Sales Promotion and rebates : ₹ 1,142,282,000/- Commission on Sales : ₹ 56,983,000/- Expenditure incurred on behalf of AE : ₹ 117,097,697/- Total AMP Expenditure : ₹ 1,316,362.697 Net Sales ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rd party bottlers for the AY 2007-08 to 2011-12 before the IPO which shall be incorporated while calculating this ratio. 6.12 In objection 6.10, the assessee has pointed out that the AMP sales ratio was not calculated based on annual financial statement of the comparable companies. DR13 directs the TPO to re-compute the margin of the comparables based on the annual financial statement of the comparables. The assessee is directed to produce the annual financial statement as well as the calculation before the TPO who will verify the same and recompute the AMP/ Sales margin of the comparables. 3.3 In view of the same, Ld. TPO initially recalculated the AMP adjustment on the basis of the directions of the DRP which was intimated to this office vide letter dated 30.12.2014, which was subsequently revised on 06.01.2015 recalculating the transfer pricing adjustment to be made. The same is reproduced below:- SI. No Company Name Revised AMP/Sales % 1 Amber Distilleries Ltd. 0.24 2 Bhagat Industrial Corpn. Ltd. 3.61 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Total Revised adjustment post DRP directions (0)=(M)-N) 52,05,80,803 17. Aggrieved by this, the assessee is before us. 18. At the very outset, the ld. AR stated that the BLT has been discarded by the Hon'ble High Court of Delhi in the case of Sony Ericsson Mobile Limited 374 ITR 118. It is the say of the ld. AR that since the BLT has been negated, the subject addition deserves to be quashed. Reliance was also placed on the decision of the Tribunal in ITA No. 19.09.2018 in the case of M/s Sennheiser Electronics India Ltd. ITA No. 7574/DEL/2017. The ld. AR further placed reliance on the decision of the Hon'ble Jurisdictional High Court of Delhi in the case of Maruti Suzuki India Ltd 110/2014, Whirlpool of India Limited 228/2015, Honda Seil Power Products Ltd 346/2015. It is the say of the ld. AR that while making adjustment on this account, the Assessing Officer/TPO has only considered the assessee as a manufacturer. 19. Per contra, the ld. DR strongly supported the findings of the TPO. It is the say of the ld. DR that though the AMP expenditure has been treated as an independent international transaction, operating margin o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e issue of bench marking of AMP expenses, the Revenue needs to establish the existence of international transaction before undertaking bench marking of AMP expenses and such transaction cannot be inferred merely on the basis of BLT. For this proposition, we draw support from the judgment of the Hon'ble Delhi High Court in the case of Maruti Suzuki India Ltd 381 ITR 117. 13. In this case, the Hon'ble High Court held that existence of an international transaction needs to be established de hors the Bright Line Test. The relevant finding of the Hon ble High Court reads as under: 43. Secondly, the cases which were disposed of by the judgment, i.e. of the three Assessees Canon, Reebok and Sony Ericsson were all of distributors of products manufactured by foreign AEs. The said Assessees were themselves not manufacturers. In any event, none of them appeared to have questioned the existence of an international transaction involving the concerned foreign AE. It was also not disputed that the said international transaction of incurring of AMP expenses could be made subject matter of transfer pricing adjustment in terms of Section 92 of the Act. 44. However, in the present a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... angement' or 'understanding' between MSIL and SMC whereby MSIL is obliged to spend excessively on AMP in order to promote the brand of SMC. As far as the legislative intent is concerned, it is seen that certain transactions listed in the Explanation under clauses (i) (a) to (e) to Section 92B are described as 'international transaction'. This might be only an illustrative list, but significantly it does not list AMP spending as one such transaction. 61. The submission of the Revenue in this regard is: The mere fact that the service or benefit has been provided by one party to the other would by itself constitute a transaction irrespective of whether the consideration for the same has been paid or remains payable or there is a mutual agreement to not charge any compensation for the service or benefit. Even if the word 'transaction' is given its widest connotation, and need not involve any transfer of money or a written agreement as suggested by the Revenue, and even if resort is had to Section 92F (v) which defines 'transaction' to include 'arrangement', 'understanding' or 'action in concert', 'whether formal or in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... XXX 34. The TP adjustment is not expected to be made by deducing from the difference between the 'excessive' AMP expenditure incurred by the Assessee and the AMP expenditure of a comparable entity that an international transaction exists and then proceed to make the adjustment of the difference in order to determine the value of such AMP expenditure incurred for the AE. 35. It is for the above reason that the BLT has been rejected as a valid method for either determining the existence of international transaction or for the determination of ALP of such transaction. Although, under Section 92B read with Section 92F (v), an international transaction could include an arrangement, understanding or action in concert, this cannot be a matter of inference. There has to be some tangible evidence on record to show that two parties have acted in concert . XXX 37. The provisions under Chapter X do envisage a separate entity concept . In other words, there cannot be a presumption that in the present case since WOIL is a subsidiary of Whirlpool USA, all the activities of WOIL are in fact dictated by Whirlpool USA. Merely because Whirlpool USA has a financial interest, it c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reason given therein to treat advertisement and sales promotion expenses as a separate and independent international transaction and not to regard and treat the said activity as a function performed by the respondent-assessee, who was engaged in marketing and distribution. Further, while segregating / debundling and treating advertisement and sales promotion as an independent and separate international transaction, the assessing officer did not apportion the operating profit/ income as declared and accepted in respect of the international transactions. 21. In our understanding of the facts and law, mere agreement or arrangement for allowing use of their brand name by the AE on products does not lead to an inference that there is an action in concert or the parties were acting together to incur higher expenditure on AMP in order to render a service of brand building. Such inference would be in the realm of assumption/surmise. In our considered opinion, for assumption of jurisdiction u/s 92 of the Act, the condition precedent is an international transaction has to exist in the first place. The TPO is not permitted to embark upon the bench marking analysis of allocating AMP exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on for AMP expenses is warranted. The Hon ble Court held as under: 101. However, once the Assessing Officer/TPO accepts and adopts TNM Method, but then chooses to treat a particular expenditure like AMP as a separate international transaction without bifurcation/segregation, it would as noticed above, lead to unusual and incongruous results as AMP expenses is the cost or expense and is not diverse. It is factored in the net profit of the inter-linked transaction. This would be also in consonance with Rule 10B(1)(e), which mandates only arriving at the net profit margin by comparing the profits and loss account of the tested party with the comparable. The TNM Method proceeds on the assumption that functions, assets and risk being broadly similar and once suitable adjustments have been made, all things get taken into account and stand reconciled when computing the net profit margin. Once the comparables pass the functional analysis test and adjustments have been made, then the profit margin as declared when matches with the comparables would result in affirmation of the transfer price as the arm s length price. Then to make a comparison of a horizontal item without segregation wo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hereinabove, we are of the considered opinion that the impugned addition on account of AMP expenditure is uncalled for and deserves to be deleted. Ground Nos. 7 to 8.8, taken together, are allowed. 9.2 Thus, respectfully following the decision of the coordinate bench in the case of the assessee itself, we delete the impugned addition on account of AMP expenditure and allow the respective grounds of the appeal raised by the assessee. 10. The ground Nos. 7 to 7.2 of ITA No. 911/Del/2015 for assessment year 2008-09, ground Nos. 7 to 7.2 of ITA No. 912/Del/2015 for assessment year 2009-10, Ground Nos. 7 to 7.24 for assessment year 2010-11 and Ground Nos. 7 to 7.24 for assessment year 11-12 are related to disallowance of brand expenses under section 37(1) of the Act. All the grounds in question being identical, for convenience ground No. 7 to 7.2 of ITA No. 911/Del/2015 for assessment year 2008-09 are reproduced as under: Corporate Tax Grounds 7. That the Hon ble DRP/Ld. AO has erred on facts and in law in making the adhoc disallowance of INR 11,11,87,201/- under section 37(1) of the Act, being 20% of the brand expenses (excluding already considered for transfer pricing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10% 52,967,709 59,991,091 112,958,800 DRP (stands abated) 25. Taking a leaf out of the past history of the assessee, the Assessing Officer disallowed ₹ 8,21,29,536/- following the directions of the DRP. 26. Before us, the ld. counsel for the assessee, at the very outset, stated that this issue has been settled in favour of the assessee and against the revenue by the order of the Hon'ble jurisdictional High Court of Delhi and the Tribunal in earlier assessment years. 27. Per contra, the ld. DR could not bring any distinguishing decision in favour of the revenue. 28. We have heard the rival submissions and have given thoughtful consideration to the orders of the authorities below. We find force in the contention of the ld. counsel for the assessee. The Hon'ble High Court in ITA No. 885/2016 was, inter alia, seized with the following substantial question of law: Whether advertisement and promotion expenses incurred by the assessee have an enduring benefit to the assessee as it creates tangible asset being goodwill, reputation and credibility and if y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y preceding years, i.e., AY 2002-03 and 2003-04. It was further pointed out that the aforesaid issue had also been decided in favour of the assessee by Hon ble High Court of Delhi vide order dated 6.04.2016 passed in ITA No. 224/2016 and 225/2016 in the case of assessee s sister concern, viz., M/s Seagram Distilleries Pvt Ltd.. The Ld. AR also cited Hindustan Aluminium Corporation Limited v. CIT: 159 ITR 673, CIT v. Berger Paints (India) Ltd. (254 ITR 503), CIT v. Salora International (308 ITR 199) (Del.), CIT v. Casio India Ltd. (335 ITR 196) (Del) and CIT v. Adidas India Marketing Ltd. (195 Taxman 256) (Del.) to support his contentions. 8.3 The Ld. CIT (DR) supported the order of the Ld. TPO/AO. 8.4 We have heard the rival contentions and perused the orders of the jurisdictional High Court and that of the co-ordinate benches. We find force in the arguments of the Ld. Counsel that the issue is squarely covered in favour of the assessee as there is a clear finding that such expenditure does not result in any enduring benefit. Hence, these grounds of the revenue are dismissed and the order of the Ld. CIT (A) is confirmed. 31. Respectfully following the findings of the Hon& ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es. 33. During the course of scrutiny assessment proceedings, the A.O found that the assessee has claimed deduction on account of provision for transit breakages amounting to ₹ 1,12,16,288/-. 34. At the very outset, the ld. counsel for the assessee fairly stated that such disallowance has been upheld by the Hon'ble High Court of Delhi vide order dated 23.10.2015 in ITA No. 237/2015 Seagram Distilleries Pvt Ltd in assessee's own case for assessment year 2001-02. The ld. counsel for the assessee further stated that the order passed by the jurisdictional High Court of Delhi has been confirmed by the Hon'ble Supreme Court vide order dated 11.07.2016. However, it is the say of the ld. counsel for the assessee that in order to avoid double taxation, any reversals in the provision has to be considered. 35. The ld. DR fairly conceded to this submission of the ld. counsel for the assessee. 36. Having considered the decision of the Hon'ble High Court [supra], we are of the view that any reversals in the provision and the actual amount have to be allowed as a deduction. We, therefore, restore this issue to the file of the Assessing Officer/TPO with the direc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the Coordinate bench of the Tribunal (supra) while adjudicating the Grounds No. 11 to 11.2 of the appeal, remanded the matter back to the file of the Assessing Officer for verification of the documentary evidences filed by the assessee and verify whether the impugned disbursement were reimbursement and if found so, the same might be allowed at deduction. The relevant finding of the Tribunal is reproduced as under: 39. Ground Nos. 11 to 11.2 relate the disallowance of ₹ 6,35,40,939/- made u/s 40(a)(ia) of the Act. 40. During the course of scrutiny assessment proceedings, the A.O noticed that the assessee has disbursed an amount of ₹ 6,35,40,939/- on account of reimbursement of trade schemes through sales promoters to various retailers. 41. The Assessing Officer asked the assessee to explain the same and the assessee submitted that the trade incentives and schemes are provided by the assessee to its customers to boost the sale of the assessee s products and in certain cases, trade schemes are given through independent third parties [sales promoters] as per instructions of the assessee company with a view to promote its sales. 42. After considering the submi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d therefore the assessee was not required to deduct tax at source and thus no disallowance was required. Since we have already adjudicated the additional ground raised by the assessee in assessment year 2007-08, to have consistency in our decision on the issue in dispute, the additional ground raised in all the respective appeals are restored back to the file of the Assessing Officer with directions identical to the directions issued in assessment year 2007-08. Thus, the additional grounds raised by the assessee are accordingly allowed for statistical purposes. 13.1 The Grounds Nos. 10 to 10.2 of ITA No. 911/Del/2015 for assessment year 2008-09 and Ground Nos. 10 to 10.2 of ITA No. 912/Del/2015 for assessment year 2009-10 are related to disallowance under section 14A of the Act. The grounds raised being identical, the ground Nos. 10 to 10.2 of ITA No. 911/Del/2015 are reproduced as under for brevity: 10. That the Hon ble DRP/Ld. AO erred on facts and in law in making a disallowance under section 14A of the Act amounting to INR 12,18,082/-in the absence of exempt income earned by the Appellant during the captioned assessment year. 10.1 That the Hon'ble DRP erred in dire ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Ground Nos. 11 to 11.3 of ITA No. 911/Del/2015 for assessment year 2008-09 are reproduced as under for brevity: 11. That the Hon ble DRP/Ld. AO erred on facts and in law in making the disallowance under Section 37(1) of the Act amounting to INR 1,080,000/- treating the same as unexplained expenses on complete conjectures and surmises by completely ignoring the submissions filed by the Appellant. 11.1 That the Hon ble DRP/Ld. AO grossly erred on facts and in law in not appreciating that the seized document pertained to the period of 2001-02 and hence could not have been the subject matter of the present proceedings. 11.2 That the Hon ble DRP/Ld. AO grossly erred in not appreciating that the documents otherwise were fully explainable and were not in respect of any unaccounted payments or unexplained expenses. 11.3 That without prejudice, the Hon ble DRP/Ld. AO erred on facts and in law in disallowing again in case of the Appellant, wherein the same disallowance has already been made in the case of its subsidiary company Seagram Distilleries Private Limited (now merged with the Appellant) on the same set of seized documents. 14.1 The issue in dispute has been decid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gs for the impugned assessment years. It is also his submission that the observations made by the Assessing Officer were based on isolated reading of all the pages instead of reading of altogether. We find merit in the above argument of the ld. counsel for the assessee. The submission of the ld. counsel for the assessee that the paper relates to assessment year 2002-03 could not be controvert by the ld. DR. We find the Assessing Officer on the basis of the seized paper relating to assessment year 2002-03 presumed that similar expenditure must have been incurred by the assessee for which he made additions in both the years under appeal. We find the issue is now settled in favour of the assessee by the decision of the Hon'ble Supreme Court in the case of CIT vs. Sinhagad Technical Education Society in Civil Appeal No.11081/2017 order dated 29.08.2017, wherein the Hon'ble Supreme Court has observed that the seized material must have a co-relation with the assessment year to which they pertain to and therefore invoking jurisdiction u/s 153C for an assessment year that had no relation to the seized material is bad in law. 54. In light of the above, we direct the Assessing Of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... search conducted on the premises of the N.V. Distilleries, Ambala and its proprietor Shri Samir Goyal, some document was found and seized. On reading the said document, the Assessing Officer formed a belief that the assessee has paid cash payment of ₹ 45,000/- to Excise Official. The Assessing Officer was of the firm belief that the provision of section 40A(3) of the Act squarely applied and accordingly made the addition of ₹ 45,000/-. 57. Before us, the ld. counsel for the assessee drew our attention to the said seized document which was seized from the premises of Shri Samir Goyal and pointed out that the said document does not contain any date nor any year. Therefore, it is unlawful to consider the same for the year under consideration. On perusal of the said document, the ld. DR also could not point out any date or year. 58. We have considered the seized document which is reproduced as under: COMPARISON - DEPOT EXPENSES SEAGRAM VS. NV SEAGRAM NV S.No Particulars AMOUNT in Rs. : AMOUNT IN RS. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onjectures and surmises. 13.1 That the Hon ble DRP/Ld. AO grossly erred on facts and in law in not appreciating that the payments have been made through normal banking channels on which taxes have also been deducted at the applicable rates and hence section 40(A)(3) does not get attracted. 16.1 The identical issue has been decided by the Coordinate bench of the Tribunal(supra) in assessment year 2007-08 observing as under: 60. Ground No. 15 relates to the disallowance of ₹ 40,61,565/- made u/s 40A(3) of the Act. 61. From a perusal of the seized material, the Assessing Officer found that the assessee has made cash payments of ₹ 91.98 lakhs from June/July 2006 to April 2008, most of which exceeded ₹ 20,000/-. The assessee was asked to explain as to why the same should not be disallowed u/s 40A(3) of the Act. 61. The assessee filed a detailed reply with necessary documentary evidences claiming that the payments have not been made in cash. The detailed reply of the assessee did not find any favour with the Assessing Officer and the Assessing Officer proceeded by making addition of ₹ 40.61 lakhs u/s 40A(3) of the Act. 62. Objection was raised b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to 14.4 of ITA No. 912/Del/2015 for assessment year 2009-10, grounds Nos. 12 to 12.4 of ITA No. 913/Del/2015 for assessment year 2010-11, and ground Nos. 13 to 13.4 of ITA No. 914/Del/2015 for assessment year 2011-12 are related to disallowance of payment made to certain parties under section 37(1) of the Act due to nonverification or nonproduction of the parties. For brevity, the ground No. 15 to 15.4 of ITA No. 911/Del/2015 for assessment year 2008-09 are reproduced as under: 15. That the Hon ble DRP/Ld. AO erred on facts and in law in making the disallowance under section 37(1) of the Act amounting to INR 12,32,16,392/- for want of verification/non production in respect of certain parties with whom company had undertaken transactions in its ordinary course of its business. 15.1 That the Hon ble DRP/Ld. AO grossly erred in law in violating the principles of natural justice by completing the impugned assessment on mere surmises and conjectures without appreciating that the identities of said parties were undisputed as all the evidences and documents have been placed on record by the Appellant. 15.3 That the Hon ble DRP/Ld. AO erred in proceeding to complete the assessmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the same read as under: M/s Classic Alcobev Pvt. Ltd NIL M/s Classic Distributor Company. a) Commission - ₹ 54,475 b) Non-Trade Scheme reimbursements , Other Reimbursements - M/s Jaiswal Traders a) Commission - ₹ 9,30,117 b) Non-Trade Scheme reimbursements / Other Reimbursements - ₹ 11,12,167 M/s Monarch enterprises Marketing and Sales promotion expenses - ₹ 41,00,827 M/s Ramp Edge Marketing and Sales promotion expenses - ₹ 3,09,883 M/s Nucleus Advertising Communications a) Marketing and Sales promotion expenses -₹ 1,20,34,023 b) Purchase of marketing material - Rs M/s Mission Xcellence a) Marketing and Sales promotion expenses -₹ 14,33,692 b) Purchase of marketing material - Rs M/s Ghaio Mai Sons a) Commission -₹ 2,99,77,531 b) Non-Trade Scheme reimbursements / Other M/s Paras Ente ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ces. In our considered opinion, assessment has been framed without proper verification. We, therefore, restore this issue to the file of the Assessing Officer with the direction to examine the documentary evidences furnished by the assessee and if necessary, can verify the transaction from the recipient parties. Needless to mention, the Assessing Officer shall afford reasonable opportunity of being heard to the assessee. Ground No. 16 is allowed for statistical purposes. 17.2 Thus, respectfully, following the finding of the Tribunal we restore the issue in dispute involved in respective grounds in present appeals to the file of the Assessing Officer for deciding in view of the direction given by the Tribunal on the issue in assessment year 2007-08. The respective grounds of the appeals are accordingly allowed for statistical purposes. 18. The ground Nos. 16 of ITA No. 911/Del/2015 for assessment year 2008-09, ground Nos. 15 of ITA No. 912/Del/2015 for assessment year 2009-10, ground Nos. 13 of ITA No. 913/Del/2015 for assessment year 2010-11 and ground Nos. 14 of ITA No. 914/Del/2015 for assessment year 2011-12 relates to initiation of penalty proceedings under section 271(1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e made addition on account of entire sales value of short stock. 20.1 Before us, the Ld. counsel of the assessee submitted that during the course of search at Okhla Office of the NV Group, physical stock of certain items was found less as compared to stock recorded in books of accounts. According to the learned counsel, the assessee has explained reason of shortage as not recording of bottled cases broken in transit. The Ld. counsel submitted that relevant excise records were shown to the Assessing Officer, however, completely ignored. The Ld. counsel submitted that identical issue has been decided by the Hon ble Delhi High Court in decision dated 3rd of August 2012 in the case of CIT versus DD Gears Ltd in ITA No. 896 of 2008. Accordingly, he submitted that issue in dispute may be restored back to the file of the Assessing Officer for verification and deciding in view of the decision of the Hon ble Delhi High Court (supra). 20.2 The Ld. DR, on the other hand, relied on the order of the lower authorities. 20.3 We have heard the rival submission and perused the relevant material on record. We find that the assessee made detailed representation before the learned Dispute Res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2.32 - 2.32 100 Pipers Quart 10.74 0.26 11.00 Total 100 Pipers 0.26 13.32 Something Special Quart 0.17 - 0.17 Total Something Special 0.17 0.17 That in addition to above, during the course of physical check, it was submitted that the personnel from department did not count the following: 4 cases of Blenders Pride Pint; 9 cases of Blenders Pride NIP; 1 case of 100 Pipers Quart. b) The shortage of stock was due to non-reduction of bottled cases (which have either broken in transit or in the bond} from the stock register as any reduction in stock register on account of transit breakage or bond breakage would require a pre-approval from the excise authorities and even reports of the excise authorities were shown which was completely ignored by the Ld. AO. c) Further, the process ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orities. They had not reported any discrepancy in the production or sale of the products for the period under consideration or any of the earlier years. h) Reliance was placed on judgment of Hon'ble Delhi High Court (HC) in case of CIT vs D.D Gears Ltd. 25 Taxmann.com 562 wherein HC accepted the submissions of assessee that its products are excisable and the excise authorities were present in the premises to monitor the production and dispatches from the bonded section. They had not reported any discrepancy in the production or sale of the products for the period under consideration or any of the earlier years. This fact was missed by the Assessing Officer who, contrary to the excise records, erroneously concluded that there were discrepancies, in the finished goods produced by the assessee and that it had indulged in selling the materials/goods outside the books of account. The HC also accepted the findings of the tribunal that due weightage should be given to the fact that for the finished goods the assessee was maintaining were complete records as required by the excise laws. i) The assessee also requested that if any disallowance is to be sustained, it should be restr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from excise authorities authorizing the breakages. The assessee submitted that order is from breakages from October 2009 to June 2010. However, the assessee could not furnish proof for the breakages/order of the subsequent period, in the absence of any evidence, the difference in the stock is being considered as the unaccounted sales and added back. Since the assessee could not explain to the satisfaction of the panel with evidence regarding its submission of sales out of books, the panel is of the considered view that the addition as proposed by the AO of ₹ 54,27,600/- for the A.Y. 2011-12, deserves to be ratified. The assessee gets no relief on this ground of objection. 20.5 In our opinion, the contention of the assessee regarding breakage of bottled cases during transit and reconciliation of the same with records of the Excise Authorities have not been verified by the lower authorities. Accordingly, we restore the issue in dispute to the file of the learned Assessing Officer for verification of the claim of the assessee and decide the issue in dispute in accordance with law. Though, the issue should have been restored to the Ld. Dispute Resolution Panel, however, to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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