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TMI Blog2022 (9) TMI 760X X X X Extracts X X X X X X X X Extracts X X X X ..... the extent challenged herein. 2. The CIT (Appeals) erred in confirming the disallowance of Rs.1,15,84,285/- being sales promotion expenses incurred and claimed in the computation of taxable total income without assigning proper reasons and justification. 3. The CIT (Appeals) failed to appreciate that the details furnished in support of the claim were not considered in proper perspective and non consideration of relevant facts would vitiate his action in making the disallowance in the computation of taxable total income. 4. The CIT (Appeals) failed to appreciate that the provisions in explanation to Section 37(1) of the Act had no application to the facts of the case inasmuch as the evidence placed on record would clearly disprove such finding recorded in the impugned order. 5. The CIT (Appeals) failed to appreciate that the provisions of Section 40A(3) of the Act as well as the provisions in section 40(a)(ia) of the Act had no application to the facts of the present case in so far as the said addition/disallowance made in the computation of taxable total income. 6. The CIT (Appeals) failed to appreciate the proviso below sub section (3A) to section 40A of the Act in prop ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessing Officer also extracted the order of the ld. CIT(A) who has confirmed a similar disallowance by invoking the provisions of explanation to section 37 of the Act. In that order, the CIT(A) has mentioned that TASMAC is a State Government undertaking engaged in the exclusive sale of liquor in Tamil Nadu. These amounts were paid directly to the employees of TASMAC and therefore the claim of the assessee that these were paid to middlemen or brokers cannot be accepted. Nothing prevented the assessee to furnish the name and designation of the persons to whom the sums were paid. The assessee could have produced the parties before the AO to prove the genuineness of payments and could also have proved that those persons have offered such income in their hands. Therefore, the CIT(A) upheld the additions made by invoking the explanation to Section 37 of the Act. 2.1 In the assessment order, the Assessing Officer also mentioned that the payments include various expenses incurred by cash and therefore provisions of section 40A(3) of the Act are applicable. The Assessing Officer also stated in the assessment order that the provisions of section 40(a)(ia) of the Act are also applicable si ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act are also applicable since there are instances where no TDS was made. On appeal, by considering the submissions of the assessee, the ld. CIT(A) has observed as under: "7.3.1 I have considered the AO's observation in para 7.1 and the appellant's submission in para. 7.2. The appellant is selling its liquor products to TASMAC, a public sector undertaking of the Government of Tamil Nadu and also to Kerala State Beverages Corporation (KSBC). The products are sold at the fixed rates as agreed between the appellant and the Government of Tamil Nadu and KSBC. The appellant is not required to incur any expense for the purpose of sales promotion. Marketing and sales expenses are incurred by TASMAC and KSBC. If appellant has incurred any such expenses, the onus for explaining the genuineness of such expense squarely vests with the appellant. In this case, the appellant has not even furnished the names and address of the parties to whom such payments have been made. This precluded the AO from verifying the veracity of the claim of the appellant. In similar situations where payment of commission is involved, the Supreme Court in the case of M/s. Lachminarayan Madan Lal, 86 ITR 439 h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and also to KSBC. No details of persons to whom such payments were made are provided. 7.4 In the written submissions, the AR of the appellant also submitted that expenses are incurred for various purposes as mentioned vide items listed in "a to j" in para 7.2. In this regard, it is clarified that the items mentioned in "a to j" are claimed under the head selling expenses, out of which only those expenses falling under item "(i) i.e. sales scheme expenses have been identified for disallowance. The other selling expenses have been accepted. To this extent, the submission of the AR of the appellant is misleading. It is also to be further mentioned that most of these expenses are incurred by cash and even provisions of Section 40A(3) are attracted. The AR mentioned in the written submissions that the proviso under Section 40A(3A) is applicable. The submission is not acceptable because, the first proviso to. section 40A(3A) allows payments in cash in excess of the limits provided therein only if it falls under Rule 6DD of IT Rules. The AR of the appellant did not even cite the relevant clause falling under Rule 6DD. No case is made out to show that it falls under Rule 6DD. In these ci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut the expenditure attributable to earning the exempt at Rs..50,81,323/-, Rs..5,70,595/- and Rs..5,31,095/- for the assessment years 2008-09, 2009-10 and 2010-11 and disallowed the same. On appeal, the ld. CIT(A) confirmed the disallowance made by Assessing Officer. 6.1 On being aggrieved, the assessee is in appeal before the Tribunal. With regard to the disallowance of expenses under section 14A r.w. Rule 8D, the ld. Counsel for the assessee has submitted that the Assessing Officer has not recorded satisfaction with regard to the claim of expenses to earn the tax free income for the assessment year 2008-09 & 2009-10. Moreover, for the assessment year 2010-11, the ld. Counsel has submitted that the disallowance under section 14A of the Act cannot be made while computing book profit under section 115JB of the Act. 6.2 On the other hand, the ld. DR supported the orders of authorities below. 6.3 We have heard both the sides, perused the materials available on record and gone through the orders of authorities below. So far as satisfaction recorded by the Assessing Officer while invoking the provisions of section 14A r.w. Rule 8D is concerned, the Assessing Officer has clearly record ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5JB(2) of the Act is in conformity to matching principles of accounting. As per the provisions of section 115JB(1) of the Act, a comparison of the total income computed under the normal provisions of the Act is to be made with the book profits as computed u/s 115JB of the Act. This makes it clear that total income as contemplated under normal provisions is inextricably linked with book profits under MAT provisions and it is wrong to suggest that both operate in entirely different fields. The Tribunal further held that if different modes of computation are followed u/s 14A and in clause (f) of Explanation 1 to section 115JB(2) of the Act, then the comparison will not be on same footing and will produce absurd results. The phrase "in relation to" used in section 14A of the Act and the phrase "expenditure relatable to earning of exempt income", under clause (f) of Explanation 1 to section 115JB(2) of the Act, the word "relatable to" has wider connotation than the words "in relation to", where the proximate relationship is required. The computation under clause (f) of Explanation 1 to section 115JB(2) of the Act, is to be made without resorting to the computation as contemplated u/s 14 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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