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TMI Blog2021 (3) TMI 475X X X X Extracts X X X X X X X X Extracts X X X X ..... to arrange their affairs and not for tax authorities to decide the manner in which businesses are run, unless malice is at writ large on the part of the tax-payer to defraud revenue with an intent to evade taxes . Thus, the expenses which are genuine and bonafide expenses incurred wholly and exclusively in connection with the business of the tax-payer are to be allowed as business deduction while computing income chargeable to tax, keeping in view mandate of provision of Section 37(1) - The authorities below have not verified the claim of the assessee as to the genuineness and bonafide of the claim of sale promotion expenses as the AO disallowed the same on the grounds that these are bogus expenses while ld. CIT(A) held the same to be contingent and also that the provision is not properly made in terms of scheme of sales promotion of the assessee. The assessee has not brought on record working of sales promotion expenses payable to various buyers, meeting of targets by buyers and liability crystalized as per scheme run by assessee. The assessee has also not brought on record sales promotion scheme conducted by it before the AO, nor ld. CIT(A) remanded the matter to the file of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve also observed that the assessee is registered with Central Excise Department and is also covered under VAT. In our considered view keeping in view totality of facts and circumstances of the case and in the interest of justice and fair play, the matter needs to be restored back to the file of the Assessing Officer for fresh/denovo consideration of the issue on merit in accordance with law. The assessee has claimed these expenses towards raw material, consumables, packing material etc. in its book of accounts as business expenses, and deduction of these expenses from the income is claimed and hence primary onus is on the assessee to prove that they are genuine and bonafide expenses which are incurred wholly and exclusively for the purpose of business of the assessee, thus satisfying the mandate of Section 37(1) of the 1961 Act, and the closing stock truly reflected the stock actually held by assessee at the year end. The assessee is directed to submit all relevant details/documents including unit wise accounts and also consolidated accounts to reconcile the differentials, stock records, excise records, VAT records etc. before the AO during the course of denovo assessment proceedin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The grounds of appeals raised by assessee in memo of appeals filed with Income-Tax Appellate Tribunal, Allahabad (hereinafter called the tribunal ) for both the assessment year(s), reads as under:- ITA No. 66/Alld/2013-Assessment Year 2005-06 1. That in any view of the matter order passed under Section 153A(b) of the Income Tax Act is without jurisdiction and by such order the income determined by the assessing officer is highly objectionable and incorrect and her action as partly confirmed by the Commissioner of Income Tax (Appeal) is unjustified and illegal. 2. That in any view of the matter the action under Section 132(1) of the Income Tax Act in consequence to which the notice issued under Section 153A of the act is without any incriminating material or any undisclosed income found during the course of the search the block assessments made determining the income at ₹ 1,13,46,700/- as against the returned income of ₹ 12,44,150/- is illegal, arbitrary and against the provisions of the Income Tax Act hence such order passed is nullify. 3. That in any view of the matter disallowances of the expenses of ₹ 14,77,400/- made by the assessing o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er undue / unnecessary weightage has been given to the seized annexure A-5 based on which a profit of ₹ 3,15,17,675.00 as made by the assessing officer and a part of the same i.e. ₹ 1,79,15,749.00 as maintained by the Commissioner of Income Tax (Appeals) is highly unjustified and the reasons recorded for maintaining the part of the addition are incorrect and contrary to the actual facts of the case hence the same is liable to be deleted. 4. That in any view of the matter allegation of the Commissioner of Income Tax (Appeals) that the appellant understated the closing stock to the extent of ₹ 1,79,15,749.00 is highly unjustified and incorrect because the appellant is maintaining complete books of accounts and proviso to section 145(3) of the income tax act was not invoked hence the maintenance of a part of the addition by-the learned Commissioner of Income Tax (Appeals) is unjustified and illegal. 5. That in any view of the matter the addition of ₹ 3,15,17,675.00 has been made by the assessing officer based on her own wishes and presumptions and this fact has been accepted by the Commissioner of Income Tax (Appeals) also in his order but in his obse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e us no contention were raised by ld. Counsel for the assessee challenging the validity and illegality of the assessment framed pursuant to search on the ground that no incriminating material or undisclosed income was found during the course of search operations. We have observed from assessment order passed by AO that several additions were made based on material /documents seized by Revenue during the course of search and seizure operations conducted by Revenue, u/s 132(1) of the 1961 Act on 27.08.2009. Thus, we dismiss Grounds No. 1 and 2 raised by assessee in memo of appeal filed with the tribunal. We order accordingly. 4. The assessee has vide ground number 3, 4 and 5 raised the contention on the merits of the issue which is a solitary issue raised before us, in which claim is made that the assessee has made a provision for ₹ 14,77,400/- which was debited to the Profit Loss account for the year consideration towards the provision for expenses towards scheme for sale promotion carried on by the assessee. The ld. Counsel for the assessee contended before the Bench that both the authorities below have rejected the contentions of the assessee although the liability for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of the AO for verification and fresh adjudication . 6. We have considered rival contentions and perused the material available on record. We have observed that the assessee is engaged in manufacturing, producing and processing of Masalas (spices) and other food products. There was a search and seizure operations carried on by Revenue u/s. 132(1) of the 1961 Act on 27.08.2009 in the business and residential premises of the group cases of Kesarwani Zarda Bhandar, Sahson, Allahabad and its partners and Directors. The assessee company is a sister concern of M/s Kesarwani Zarda Bhandar. During the course of search and seizure operations conducted by Revenue against the assessee on 27.08.2009 u/s 132(1) of the 1961 Act, the Revenue, inter-alia, seized Annexure LP-2, in which at page number 12 is a trial balance ending on 31.03.2005, and there was no entry of Scheme Promotion Expenses of ₹ 14,77,400/- in the said trial balance, while as per audited financial statements for the year ended 31.03.2005, the assessee has claimed Scheme Expenses to the tune of ₹ 14,77,400/- under the head Indirect Expenses in the audited P L account prepared by it. The assessee had termed the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s per provisions of Section 37(1) of the 1961 Act. The ld. CIT(A) held that the assessee has failed to substantiate that the liability created was payable during the year in terms of principles of mercantile system of accounting. Thus, the ld. CIT(A) rejected the claim of the assessee and confirmed the additions as were made by the AO. The copy of scheme stated to have been filed before the ld. CIT(A), has not been filed by assessee before the Tribunal. The assessee has made provisions towards sales promotion expenses to the tune of ₹ 14,77,400/- in its audited books of account for the financial year 2004-05 based on the contentions that these are crystalized liability towards sales promotion expenses based on sales promotion scheme conducted by assessee. The said expenses did not found mentioned in the seized trial balance of the assessee for the financial year ended 31.03.2005, which was found and seized by Revenue during the course of search operations conducted by Revenue u/s 132(1) of the 1961 Act on 27.08.2009. The amount was paid/spent in the subsequent year and the details are provided by way of ledger account of the subsequent year. We have observed from the audit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ime before ld. CIT(A) as additional evidences. In our considered view keeping in view totality of facts and circumstances of the case and in the interest of justice and fair play, the matter needs to be restored back to the file of the Assessing Officer for fresh/denovo consideration of the issue on merit in accordance with law. The assessee has claimed these expenses in its book of accounts as business expenses, and deduction of these sales promotion expenses from the income is claimed and hence primary onus is on the assessee to prove that they are genuine and bonafide expenses which are incurred wholly and exclusively for the purpose of business of the assessee, thus satisfying the mandate of Section 37(1) of the 1961 Act. The assessee is directed to submit all relevant details/documents before the AO during the course of denovo assessment proceedings before the AO for determination of this issue. Needless to say that the AO shall provide proper and adequate opportunity of being heard to the assessee in accordance with principles of natural justice in accordance with law. The AO shall admit evidences filed by the assessee in its defense in set aside proceedings and the same shal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uncommon that while finalizing the audited financial statements, year end adjustment entries are processed to reflect the true and fair view of the accounts in accordance with provisions of the Companies Act, Income-tax Act and other applicable satutes, such as making year end entries for depreciation, income tax, or to adjust for reconciliation of bank accounts, consolidation of various units/branches and eliminating of inter-unit/offices contra entries . It is also observed that assessee has claimed that the consumption entries were not posted in the tally accounts at the time when search operations took place which led to the differences in the balances of the stock. It is also claimed that the assessee has units/offices/branches at Kanpur and/or Allahabad and this trial balance which is extracted is only of Kanpur unit and later on compilation were made and consumption entries were posted. Thus, once the assessee has Head office, branches and units at different locations, the assessee s audited financial statements shall be prepared in consolidated form after taking into financials of all the units and offices, and it is not permissible for AO to solely depend upon Kanpur Bran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cer with a direction to assessee to produce all the relevant records including unit wise accounts reconciling with consolidated accounts, stock records, excise records, VAT records etc. before the Assessing Officer to prove that the expenses were incurred wholly and exclusively for the purpose of business of the assessee and they are bona fide and genuine expenses incurred for the business of the assessee and the stock truly reflected the stock held by assessee at a given point of time . The assessee is required to prove consumption of raw material, packing material, consumables etc. viz.-a-viz. production/manufacturing and also keeping in view its past track record in the earlier year of consumption of material viz.-a-viz. production/ manufacturing carried on by it in the earlier years. Needless to say that the AO shall provide proper and adequate opportunity of being heard to the assessee in accordance with principles of natural justice in accordance with law. The AO shall admit evidences filed by the assessee in its defense in set aside proceedings and the same shall be adjudicated by AO on merits in accordance with law. Accordingly, the appeal of the assessee on this issue is a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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