9911796707
TMI Blog2015 (3) TMI 1418X X X X Extracts X X X X X X X X Extracts X X X X ..... epreciation claim of the assessee for the assessment years 2003-04 and 2010-11. CIT(A), while deciding the issue has considered the entire issue of depreciation and also extracted the order of the ld. CIT(A) for the assessment year 2008-09 [ 2013 (2) TMI 716 - ITAT CHENNAI] Allowability of sales promotion expenses - HELD THAT:- CIT(A) after considering the entire facts of the case, came to the conclusion that there is possibility of unreasonableness and excessive claim and disallowed 7.5% of total sales promotional expenses of Rs. 14,03,35,927/- and allowed only Rs. 12,39,29,825/- [ Rs. 13,44,55,019 Rs. 1,05,25,194]. We find that the order passed by the CIT(A) is just fair and reasonable by considering all relevant materials and we find no infirmity in the order passed by the ld. CIT(A). Accordingly, the ground raised by the Revenue is dismissed. Possibility of excess claim to the extent of 7.5% in sales promotion expenses claimed by the assessee - HELD THAT:- During the hearing of the appeal assessee has not able to controvert the findings of the ld. CIT(A) towards the disallowance except stating that the entire claim of the assessee ought to have been allowed by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3) of the Act was made on 30.11.2006 by determining the losses at Rs. 1,53,20,009/- (as against the returned loss of Rs. 5,71,67,785/-). Subsequently the ld. Commissioner of Income Tax-I, Chennai held that the assessment order was erroneous and prejudicial to the interests of the revenue and accordingly set-aside the assessment under section 263 of the Act on 31.03.2009 and directed the Assessing Officer to redo the assessment. The Assessing Officer, in pursuance to the directions given by the ld. CIT, the assessment was completed for the assessment year A.Y.2004-05 under section 143(3) r.w.s.263 of the Act and assessed the income at Rs. 2,65,47,780/-, by disallowing service charges. 6. Aggrieved, the assessee carried the matter in appeal before the ld. CIT(A). 7. So far as assessment year 2010-11, the assessee had filed return of income and the return filed by the assessee was processed under section 143(1) of the Act. Subsequently, the assessment was completed under section 143(3) of the Act and assessed the income at Rs. 39,51,93,427/-, by disallowing management fees/service charges, depreciation on trademarks, sales promotion expenses, expenses under section 40(a)(ia) of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee under Service charges/Technical advisory management fee' of Rs.3,43,88,090/-, Rs.5,58,23,719/- and Rs.16,00,00,000/-, respectively, in the financial years relevant to the A.Ys.2003-04, 2004-05 2010-11, are allowable revenue expenses. The Assessing Officer is directed to allow the same. At the same time the Assessing Officer is required to withdraw the depreciation allowed to the assessee by treating the expenses as capital expenses in his assessment orders. The assessee succeeds in its appeals in this regard. 11. On being aggrieved, the Revenue carried the matter in appeal before the Tribunal. 12. The ld. Counsel for the assessee has submitted that the issue involved in this appeal is squarely covered by the decision of the Tribunal in I.T.A. No. 888/Mds/2009 dated 11.07.2011 for the assessment year 2004-05 and also in I.T.A. No. 1295/Mds/2012 dated 14.02.2013 for the assessment year 2008-09 and also covered by the decision of the Tribunal in I.T.A. No. 1479, 1480 1481/Mds/2013 dated 31.01.2014 for the assessment years 2005-06, 2006-07 and 2009-10. 13. On the other hand, the ld. DR fairly accepted that the issue is covered in favour of the assessee. Ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d acknowledged that Rs. 4 Crores was received by it for services rendered. Nevertheless,, it had furnished a work-out of its savings due to the help of M/s UBL, which was also disbelieved by the Assessing Officer. There might have been lingering doubt in the mind of the Assessing Officer as to why such amounts were paid to M/s UBL, but in our opinion, a mere suspicion without further evidence would not be a ground for disallowing a claim where actual payments were indeed effected. Further, ld. CIT(Appeals) has given a clear finding that the transaction was revenue neutral. M/s UBL had a returned interest income of Rs.80,19,22,970/- on which it had paid tax at maximum marginal rate, as noted by the CIT(Appeals). If the sum of Rs. 4 Crores was not received by it, tax payable by the said company would have only gone down. As against this, assessee had returned loss of Rs. 1.08 Crores and therefore, there is much strength in the argument of learned A.R. that if the transaction had not gone through, revenue would only have been at a disadvantage. We cannot say that the reply given by the assessee to the queries made by the Assessing Officer which has been produced at para 11 above, were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 03, on which the assessee claimed a depreciation of Rs. 4,15,13,720/- in its return of income for the assessment year 2004-05. The Assessing Officer in his assessment order for the assessment year 2004-05 under section 143(3) of the Act dated 30.11.2006, disallowed the claim of depreciation by observing that the assessee failed to substantiate the value of the trademarks, licenses and permissions etc claimed to have been purchased from M/s. Empee Distilleries Ltd. The assessee has not preferred any appeals against this order. Based on the said order, the Assessing Officer also disallowed the assessee's claim of depreciation of trademarks, licenses and permissions etc claimed to have been purchased from M/s. Empee Distilleries Ltd, in the assessment year 2003-04 under section 143(3) r.w.s.147 dated 27.12.2010. For the same reasons, the assessee's claim of deprecation on intangibles was also disallowed in the assessment year 2010-11. 17. The assessee carried the matter in appeal before the ld. CIT(A) and it was submitted before the ld. CIT(A) that the issue is covered by the decision of the ITAT. The ld. CIT(A), after considering the submissions of the assessee, allowed th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld. CIT(A) for the assessment year 2008-09 [CIT(A) s order in ITA No. 362/10-11/A-III dated 27.03.2012]. The relevant portion of the order of the ld. CIT(A) is extracted as under: 4.4.3 I have considered the assessee's submissions carefully. The present issue of disallowance of depreciation on intangible assets is a recurring issue and continuation from other assessment years. The Assessing Officer made similar disallowances in other assessment years like A.Ys.2005-06 to 2008-09 etc. The CIT(A) deleted the disallowances made by the Assessing Officer and allowed the appeals in favour of the assessee. The Hon'ble ITAT also, vide its orders in ITA No.1208 1209/Mds/2012 dated 14.02.2013 (in A.Y.2007-08) and ITA No.1295/Mds/2012 dated 14.02.2013 (in A.Y.2008- 09), also confirmed the decision of the CIT(A). Since the facts are identical and the issue is a recurring one, the above decision of the ITAT in A.Ys.2007-08 and 2008-09, is equally applicable for other assessment years of A.Ys.2003-04 2010-11 under consideration. In the assessment order u/s.143(3) r.w.s. 147 of A.Y. 2003-04, the Assessing Officer observed that the depreciation claim of on the WDV of these intan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tribunal in the case of ITO v. Medicorp Technologies India Lt [002 ITR (T'rib) 0367] wherein it has been held that intangible assets are entitled to depreciation. 8.2 I have carefully considered the facts of the case and the submission of the Id. AR. I have also gone through the decisions relied on by the AO and AR.I have also carefully perused the Asset Purchase Agreement dated 28.2.2002 and Trade Mark Licence Agreement dated 28.2.2002. The Asset Purchase Agreement clearly indicates payment of Rs.22 crores towards cost of trademarks, licence, permissions etc. The relevant part is reproduced hereunder for ready reference and clarity: Whereas pursuant to negotiations between the parties the Vendor agrees to sell and transfer the Operating Assets free from all charges and liabilities whatsoever and the Purchaser has agreed to acquire the same for the consideration and upon the terms and conditions hereinafter contained. Operating Assets shall mean the assets and includes a) Plant and machinery Rs 1566.24 lacs b) Vehicles Rs. 15.631acs c) Furniture fittings ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Act is a self-contained assessment period and a decision in one assessment year does not ordinarily operate as res judicata in respect of the matter decided in any subsequent year. Reliance is placed on the decisions of the Hon'ble Supreme Court in the cases of Joint Family of Udayan Chinubhai v. CIT, 63 ITR 416, Dwarkadas Kesardeo Morarka v. CIT, 44 ITR 529. Further, the Hon'ble Supreme Court has clearly held that intangible assets are entitled to depreciation in the cases cited by the Id. AR. The Hon'ble Kerala High Court in the case of B. Raveendran Pillai v. CIT, 332 1TR 531 has held that depreciation is allowable on goodwill also. In view of the above factual position and precedents, it is held that the appellant is entitled to depreciation in respect of trademarks and licence. Accordingly, the ground is allowed. In view of the above the assessee is eligible for depreciation in the present AYs.2003-04 and 2010-11 also. Therefore respectfully following the decision of the CIT(A) and ITAT in the assessee's own case in A.Ys.2007-08 and 2008-09, I hold that the Assessing Officer is not justified in disallowing the claim of depreciation of Rs.5,53,51,627/- and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 1.18 lakhs (d) Computers : Rs. 0.90 lakhs (e) Office equipments : Rs. 1.31 lakhs (f) Trade Marks, licence permissions, etc.: Rs. 2200.00 lakhs TOTAL : Rs. 3785.26 lakhs Thus, assessee had acquired all the operating assets of the said company and the agreement came into effect on 28th February, 2002. 16. Second agreement, copy of which is placed at paper-book pages 55 to 69, gave the licencee a non-exclusive right to use the trademark marco polo . The relevant para of the said agreement, which is also dated 28.2.2002 is reproduced hereunder:- 1. The Licensor grants unto the Licensee a non-exclusive, nontransferable and indivisible right to use the trade mark MARCOPOLO in respect of the non-beer products as set out in Schedule I hereto (hereinafter referred to as the said Trade Mark and the Products ) to be manufactured by the Licensee for the limited period of 9 (nine) months from the date hereof. The Licensee has provided to the Licensor its estimated production of various non-beer produ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 143(3) of the Act and such claim was allowed also. In para 3 of the assessment order for assessment year 2003-04, Assessing Officer had mentioned as under:- In response to the hearing notice, assessee s representative Shri N. Ranganathan, Company Secretary, appeared and furnished the details. The assessee s representative also produced the bills for addition to fixed assets, copy of agreement between M/s Empee Distilleries and M/s Mc Dowell. After verifying the details filed the assessment is completed as under Thus, assessee had produced all bills for addition to its fixed assets and copies of agreement it had entered with M/s Empee Distilleries Ltd. before the Assessing Officer. Assessment for an assessment year as early as 2003-04 was itself completed after verifying such details. It is not a case where such depreciation was granted by the Assessing Officer first time for the impugned Assessment Year. For the relevant assessment year, assessee was claiming depreciation only on Written Down Value of the intangible assets. From assessment year 2003-04 onwards, obviously, assessee has been granted depreciation on such intangible assets. Therefore, we cannot say that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ten Down Value, could not have been disallowed. CIT(Appeals) was justified in deleting the addition. 23. In the years under consideration 2003-04 and 2010-11, the ld. CIT(A), by following the decision of the CIT(A) [in ITA No.362/10-11/A-III dt. 27.03.2012], which was upheld by the Tribunal in I.T.A. No. 1295/Mds/2012 dated 14.02.2013, allowed the claim of the assessee. Accordingly, we find no infirmity in the order passed by the ld. CIT(A). Accordingly, the claim of depreciation for the assessment year 2003-04 and 2010-11 are allowed. 24. The next ground raised in the appeal of the Revenue relates to sales promotion expenses [only for the assessment year 2010-11]. During the course of assessment proceedings, the Assessing officer has found that the assessee had incurred sales promotion expenses amounting to Rs. 14,03,35,927/-. The beer/liquor market in Tamil Nadu is a monopoly of the Tamil Nadu State Marketing Corporation Ltd. (TASMAC), a State Government undertaking. They are the monopoly buyers and sellers of liquor in the State. Therefore, the Assessing Officer has called details of the expenses incurred by the assessee. In response to the query raised by the Assessing O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Assessing Officer has asked the Manager of PPPL, to explain the exact nature of marketing and sales promotion done by PPPL and in his reply, he has stated that they visited the Hotels and market the products of M/s. EBL. When the Assessing Officer asked about the payments received by PPPL approximately in the last three years from EBL, Shri Anil Dubey has replied that for the FY 2009-10, it is between 40 to 45 lakhs, for the FY 2010-11, it is around 50 lakhs and for 2011-12, it is around 53 lakhs and for the current year so far, it is around 35 lakhs. Thereafter, the Assessing Officer came to a conclusion that the answer is vague and does not clearly specify what the activities are. However, he has stated a payment of Rs. 40-45 lakhs had been received during the FY 2009-10. 26. A letter was issued on 13.03.2013 to the assessee pointing out that - The agreements were vague regarding the nature of services rendered and were unregistered. As per the agreements, only a payment of Rs. 0.75 per crate as del credre commission was envisaged apart from a payment of Rs. 5000 per month. PPPL had confirmed only the del credre commission part. There was also a discrepancy in the figures o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nished, against which the Assessing Officer made enquires through Inspector and found that no such concerns are doing such business and in one case, the person who signed the bill did not know anything about it. Apart from this, discreet enquires were also made to verify the veracity of the assessee's claims. Some people running TASMAC bars were asked about the alleged promotional schemes of the assessee and they expressed ignorance about such gifts being doled out to patrons of the bars. 27. Further, the Assessing Officer has noted that all the payments to PPPL were through banking channels only has no relevant as that alone does confer legitimacy to the transactions and make them acceptable. PPPL has so far failed to furnish any details of the payment said to have been received by them from the assessee. They could not explain the nature of services rendered by them and Sri Anil Dubey, who looks after the Chennai operations of PPPL confirmed receipt of only the del credre commission. The Assessing Officer has further observed that there is no evidence to back up the claim that if at all these expenses were incurred and they were instrumental in increasing the volume of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ellant is furnishing a copy of the audited Balance Sheet and Profit and Loss Account of PPPL which clearly provides two types of income - one is a del credre commission and an excess of reimbursement of expenses which is disclosed as an item of income in the enclosed Profit and Loss Account. 33. Your Appellant Company submits that PPPL received payments which can be broken into two - a component of commission for carrying out sales and marketing expenses and secondly a reimbursement of expenditure - PPPL has declared the excess of reimbursement received in its profit and loss account. 34. The aforementioned fact corroborated with the account copy clearly indicate that PPPL has received a sum of Rs.58,80,549/- towards del credre commission and Rs.13,44,55,019/- reimbursement of expenses. 35. The Assessing Officer has selectively taken only one portion of the answer to the summons issued to Mr. Anil Dubey and arrived at the conclusion that PPPL has received only del credre commission completely ignoring the account copies and transactions entered in the books of Accounts. 36. The Assessing Officer has nowhere neither held that the sums were not paid nor were they bogus in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Return of Income electronically for AY 2010/ 11 is enclosed. (ii) A copy of the statement of account between Ganco'ss India Private Limited and Presidency Projects Private Limited is enclosed. (iii) A perusal of the Account Copy clearly indicate that gift articles were supplied on account of Empee Breweries Ltd and all payments effected by Presidency Projects Private Limited (PPPL) are only through banks. (c) Millennium Innovations Private Limited (i) A Copy of the acknowledgement evidencing the filing of the Return of Income electronically for AY 2010/11 is enclosed. (ii) A Copy of the statement of Account between Millennium Innovations Private Limited and Presidency Projects Private Limited is enclosed. (iii) A perusal of the Account Copy clearly indicate that gift articles were supplied on account of Empee Breweries Ltd all payments effected by Presidency Projects Private Limited (PPPL) are only through banks (d) PDJ Exports Limited (i) A Copy of the acknowledgement evidencing the filing of the Return of Income electronically for AY 2010/11 is enclosed. (ii) A Copy of the statement of Account between PDJ Exports Private Limited and Presidency Proje ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o be flawed and is without any substance. 53. Your Appellant therefore submits that having regard to the factual submission, on a perusal of the documents attached which clearly indicate the existence of all the parties pointed out by the assessing officer as not existent, the entire disallowance of Rs.13,44,55,019/- made towards Sales Promotion Expenses be deleted and the claim of the Appellant be allowed in full. 30. After considering the submissions of the assessee, the ld. CIT(A) has observed that while using the report of the Inspector/DDIT(Inv), Kolkata against the assessee, the same was not made available to the assessee during the course of assessment proceedings. While using the above report, the assessee was not given an opportunity of being heard, violating the principles of nature justice, due to paucity of time from the Assessing Officer s side. The ld. CIT(A) has obtained remand report on the submissions filed by the assessee, copies of acknowledgements of returns, annual statements of accounts, etc. of the supplies, ledger extracts of the PPPL, sample pieces of gift articles/promotional materials, etc. Against the remand report of the Assessing Officer, the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r from TASMAC are mostly common and poor people. Hence, sales promotional activities at individual consumer level will be more effective as they attract the immediate attention of the consumers resulting in the consumers selecting a particular brand. Some of the common promotional activities are distribution of gift items like - key chains, bottle openers, pen stands, TV covers, etc - in bars, near the TASMAC shops, etc. Some of sample pieces of assessee's promotional items like key chains, bottle openers, TV covers, containing the assessee's brand name Zingaro , produced before me, indicate that there were sales promotional activities undertaken by the assessee or though its agent PPPL. 4.5.5.2 In the present day market there is a stiff competition. In order to survive in the business, everyone keeps the selling price as low as possible, but aims at high turnover. Further, apart from the manufacturer and the final consumer, there will be several intermediary persons in the business - like distributors, sales agents, etc. In some cases, only the manufacturer bears all the expenses relating to sales and the distributors/agents will only get a fixed commission on the sale ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Distilleries Ltd had undertaken (incurred) the sales promotion (advertisement) expenses on its own, whereas M/s. Empee Breweries Ltd had outsourced this task to PPPL. It is also equally important to mention here that even M/s. Empee Distilleries Ltd is also assessed to tax with the present Assessing Officer (i.e. ACIT, Company Circle II(1)) only. In fact the Assessing Officer, while completing the assessment of M/s. Empee Distilleries Ltd in A.Y. 2010- 11, u/s.143(3), had an occasion to examine the issue of sales promotion expenses claimed by M/s. Empee Distilleries Ltd. The Assessing Officer in his assessment orders of M/s. Empee Distilleries Ltd has accepted the claim of sales promotion expenses in principle, but disallowed only a small portion of the expenses claimed for want of details and being excess and unreasonable. In other words, the Assessing Officer has not doubted the incurrence of the sales promotion expenses per se. This fact also goes to prove that the manufacturers of beer/liquor in Tamil Nadu are required to undertake 'sales promotion activities' like any other industry. 4.5.5.5 It is also equally important to note that the Assessing Officer himself ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he del credre only. The P L account of PPPL has not reflected the receipt of 'reimbursements' of Rs.13,44,55,019/- on the credit side. Nor the corresponding expenses - like purchases of gifts articles/promotional materials - were debited, on the ground that these were reimbursed on cost-to-cost basis. 4.5.6.1 The above reimbursement of expenses are not in one go or at the fag end of the financial year. These expenses were being paid (reimbursed) to PPPL regularly and periodically through banking channels, along with the del credre commission payments. The ledger extract of PPPL in the books of the assessee clearly contained the full details of claims of reimbursement and the payments. Even the ledger account of the M/s. Empee Breweries Ltd, in the books of PPPL, has also clearly contained the receipt of 'reimbursement of expenses' of Rs.13,44,55,019/- from the assessee. These facts have also been verified by the Assessing Officer during the course of submitting the remand report. 4.5.6.2 Thus, from the above facts and details, it is very clear that the reimbursement of expenses of Rs.13,44,55,019/- included in the assessee's sales promotion expenses of Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... more easy for the business people to carry out their transactions without actually interacting with the customers/clients. Most of the business transactions are taking place through phone calls and e-mails. As a result, the existence of physical markets, place of business and the location of the business persons are increasingly becoming irrelevant. The addresses of the business concerns, for all practical purposes, are totally shifting to the internet. The physical address, therefore, remains as a legal requirement - for the purpose of registrations, etc. and to some extent, for the purpose of receiving dak (postal deliveries). Further, in bigger cities like Kolkata, Delhi, Mumbai, etc., where the rental values are too high, it is practically impossible to have a physical establishment of its own for any business person, who are engaged in the wholesale trading activities. Therefore, many people operate from a small common and at times, a single office room for several concerns. These people share the same room, same phone, and with skeleton staff of one or two boys. Since a single room is shared by several business concerns, even the names of the concerns are not displayed at the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2010 Rs.3.37 crores Rs.13,04,250 4 Millinium Innovations P Ltd, Kolkata AADCM6229P 22.09.2010 Rs.4,95,000 5 PGJ Exports P Ltd, Kolkata AABCP9492M 24.09.2010 Rs.10,01,250 6 Maheswarai Trading, Chennai (Prop: Ganpatlal Sons - HUF) AAAHG9877R 12.10.2010 Rs.2.06 crores Rs.4,96,080 7 Mamta Creations, Chennai (Prop: Mamta Kankaria) ATNPK4373N 14.10.2010 Rs.2.36 crores Rs.4,13,400 8 Sourav Enterprises, Chennai (Prop: Chandra Prakash Kankaria - HUF) AAJHP0412N 30.09.2010 Rs. 2.81 crores Rs.3,99,090 4.5.7.3 Thus, the above suppliers, who are regularly assessed to tax and filed the returns of income of A.Y. 2010-11 in the regular course within the limits ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the hands of the PPPL cannot be the sole ground for disallowing the expenses claimed by the present assessee. If there are any other evidences to show that the expenses claimed by the assessee in the name of sales promotion expenses paid to PPPL are not genuine, then the non-genuineness of the expenses, if any, in the hands of PPPL can be cited as corroborative evidence. In any case, as mentioned above, the suppliers who have supplied the material to PPPL cannot be considered as non-existing. 4.5.8 Another main contention of the Assessing Officer is that the del credre commission and the reimbursement of expenses shown by PPPL in its P L account of the FY 2009-10 are not tallying with the payments claimed to have been paid by the assessee. The PPPL's P L account of the financial year 2009-10 reflected the revenue receipts at Rs.2,57,73,981/-, which includes commission receipts of Rs.1,24,31,787/- and reimbursement receipts of Rs.1,33,42,194/-. On the other hand, the total payments claimed to have been paid by the assessee to PPPL during the financial year 2009-10 are Rs.14,03,35,568/-. Thus the Assessing Officer concluded that there were vast variations in the incomes admit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther two concerns are excluded the figures shown by PPPL in its P L account, under the head 'commission receipts' tallies with the commission payments of Rs.58,80,549/- claimed by the assessee. Regarding the 'reimbursement of expenses' of Rs.13,44,55,019/-, paid by M/s. Empee Breweries Ltd to PPPL, the latter (PPPL) has neither included the said receipts in its P L account nor debited the corresponding expenses, on the ground that the 'reimbursement' was on 'cost-to-cost' basis, where the net revenue effect is zero. The amount of Rs.1,33,42,194/- reflected by PPPL in its P L account under the head reimbursement of expenses was the amount received from M/s. United Breweries Ltd and M/s. Balaji Distilleries Ltd. Further, the ledger copies of the assessee in the books of PPPL clearly showed the receipts of reimbursement of expenses of Rs.13,44,55,019/-. Therefore, no adverse inference can be drawn from the above presentation of the receipts by the PPPL in its books of accounts and/ or P L account. 4.5.9 Another observation of the Assessing Officer is that the purchase invoices of gift articles and promotional material and ledger account of M/s. Emp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... By Indus Bank Receipt 6 10299201.00 4.21.2009 By Indus Bank Receipt 8 2448084.00 4.27.2009 To Promotional A/c (Emp) Debit Note DN/EMP/001/SPU/09-10 27908.00 4.27.2009 To Promotional A/c (Emp) Debit Note DN/EMP/002/SPU/09-10 12168.00 5.02.2009 To Gift Articles on A/c (EMP) Debit Note DN/EMP/003/SPU/09-10 10322977.50 5.02.2009 To Gift Articles on A/c (EMP) Debit Note DN/EMP/004/SPU/09-10 297000.00 5.09.2009 To Promotional A/c (Emp) Debit Note DN/EMP/005/SPU/09-10 56448.00 5.09.2009 To Pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3rd Sept 2009 Gift Articles on A/c (EMP) 5,26,000.00 7th Sept 2009 Gift Articles on A/c(UBL) 4,95,000.00 4.5.9.1 Thus, from the above details, it is clear that the narrations of .A/c EMP or A/c UBL or .A/c BDL , etc, existed only in the books of PPPL. Since PPPL has been purchasing similar type of materials from the same suppliers, meant for the assessee as well as the other two concerns of the UB group, PPPL is required to keep a clear track of these purchase transactions in its books. Hence PPPL has used the above narrations of suffixing .....A/c EMP or .....A/c UBL or .....A/c BDL , etc. This was for the sake of convenience and easy identification of the transactions at the end of PPPL. Therefore, no adverse inference can be drawn from these narrations while entering the transactions in the books of PPPL. 4.5.10 The next observation of the Assessing Officer is that the sales promotion agreement with PPPL was very vague. As explained by the assessee, PPPL, based on the requirements, purchase ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Selling Promotion expenses AY 08-09 AY 09-10 AY 10-11 Paper advertisement 8,597 - 80,156 Sales Promotions expenses 9,24,10,099 17,87,82,345 14,03,35,568 Cash Discounts 1,42,73,134 2,10,01,862 2,49,83,292 Freight Outward/Halting/Brkgs Exps 4,46,09,197 6,62,09,768 7,67,54,330 Brand Fees Paid 1,24,62,410 1,64,28,025 2,07,21,735 Total 16,37,63,637 28,24,22,020 26,28,75,081 Thus the assessee's claim of reimbursement of expenses of Rs.13,44,55,019/-, included in the total sales promotion expenses of Rs.14,03,35,927/-, which were also confirmed by PPPL and accounted in its books, cannot be considered as 'non-genuine'. Accordingly, the reimbursement of expenses of Rs.13,44,55,019/- paid to PPPL during the financi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Officer has rightly doubted the genuineness of the transactions and disallowed the same. Moreover, the Manager of PPPL has not given any clear explanation over the services rendered by PPPL. Therefore, the ld. DR strongly supported the order passed by the Assessing Officer. 32. On the other hand, the ld. Counsel for the assessee has submitted that the assessee had entered into an agreement with M/s. PPPL for the purpose of transportation of goods, loading and unloading and also act as an agent to communicate the scheme to the traders and the assessee has reimbursed the expenses towards sales and promotional activities carried out by PPPL. As per the agreement, PPPL has purchased various gift items and the assessee has made payments through banking channels. Though the Assessing Officer made enquiry with regard to purchase of gift items by issuing a commission under section 131(1)(d) to the DDIT(Inv), Kolkata, the report of the Inspector/DDIT (Inv.), Kolkata was not given to the assessee to file its objection, if any, and moreover, he has not given sufficient time to get the details from the Head Office of PPPL at Kolkata since the Assessing Officer was in hurry to complete th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nts, a summon under section 131 of the Act was issued to Sri Anil Dubey, Manager of PPPL at its Chennai Office to furnish the following documents/details: 1. Documents relating to the relationship with the assessee. 2. Details regarding the amounts received from the assessee during the Financial Year 2009-10. 3. Mode of payment of such payments and if through bank, the bank statements evidencing such payments. 4. Evidence for services rendered to the assessee during the FY2009-10. Sri Anil Dubey did not furnish any of the details and stated that since the head office of his company was in Kolkata, all the details were available there and though he appeared in response to the summons on 26.2.13, no details have been furnished till the assessment is completed. The Assessing Officer further observed that during the course of statement recorded under section 131 of the Act, Shri Anil Dubey was asked about the relationship of PPPL with the assessee and the exact nature of services rendered by PPPL to the assessee. All he could confirm was that they have received payment per crate as commission. There was no mention about the kind of marketing and promotional activities or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AY 2010-11 and ledger copies thereof and (iii) Whether these concerns were doing business with PPPL for earlier years too and if so, the ledger copies of those years starting from AY 2006-07. The DDIT(Inv), Kolkata in his letter has stated that as per enquiries conducted by the Inspectors attached to his office, no such companies, as enumerated in the above letter, were found at their respective addresses and concluded that the said companies are non-existent. So far as purchases in Chennai is concerned, a total of seven bills were furnished, against which the Assessing Officer made discreet enquires through Inspector and found that no such concerns are doing such business. Further, the Assessing Officer has noted that all the payments to PPPL were through banking channels only has not relevant as that alone does not confer legitimacy to the transactions and make them acceptable. The Assessing Officer has not satisfied with the details furnished by PPPL and therefore, the Assessing Officer has disallowed the sales promotion expenses claimed by the assessee. 34. Before the ld. CIT(A) the assessee has filed copies of accounts and reconciled the balances in respect of the ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he financial year 2009-10 are Rs. 58,80,549/- and Rs. 13,44,55,019/- respectively. The assessee has debited the expenses of Rs. 14,03,35,927/- [ Rs. 58,80,549/- + Rs. 13,44,55,019/-] in its profit and loss account for the financial year 2009-10. However, M/s. PPPL, in its annual statement for the financial year 2009-10, has credited the first portion of Rs. 58,80,549/- i.e. del credre commission only. The profit and loss account of PPP has not reflected the receipts of reimbursement of Rs. 13,44,55,019/- on the credit side nor the corresponding expenses like purchases of gift articles and promotional materials were debited on the ground that these expenses were reimbursed on cost to cost basis. The ld. CIT(A) has observed that the above reimbursement of expenses are not in one go or at the fag end of the financial year. These expenses were being paid (reimbursed) to PPPL regularly and periodically through banking channels, along with the del credre commission payments. The ledger extract of PPPL in the books of the assessee clearly contained the receipt of reimbursement of expenses of Rs. 13,44,55,019/- from the assessee. These facts have also been verified by the Assessing Officer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng to a conclusion that the transactions are not genuine is not correct and justified. Subsequently, when the assessee has submitted all details of Kolkata parties and Chennai parties and, when the ld. CIT(A) called the remand report, the Assessing Officer failed to issue notice under section 131 of the Act to the parties to find out whether these parties are in existence or not. The ld. CIT(A), after examining the details, gave the findings that the parties who supplied materials to PPPL from Kolkata and Chennai are assessed to tax and have been filing returns of income regularly. Even the returns of income for the assessment year 2010- 11 have been filed by the above mentioned suppliers well within the due dates prescribed under section139(1) of the Act and therefore, cannot be considered as non-existing. The details of parties as extracted by the ld. CIT(A) at page 30. The ld. CIT(A) has further observed that the assessee has produced sample pieces of key chains, bottle openers, T.V. covers displaying the logo Zingaro shows that these were promotional materials purchased and distributed to popularize Zingaro brand. Zingaro is the brand name of the beer manufactured by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are not required to be incurred by the assessee for the purpose of business and the objection of the ld. DR has already been considered and we find that the ld. CIT(A) has rightly decided the issue and we find no flaw in the order passed by the ld. CIT(A). 40. Further, the ld. CIT(A) gave a findings that similar expenses are also incurred by the assessee for the assessment year 2008-09 of Rs. 9,24,10,099/-, for the assessment year 2009-10 of Rs. 17,87,82,345/- under section 143(3) of the Act. The Assessing Officer has examined and allowed the claim of the assessee. Therefore, when the assessee has produced all the details before the Assessing Officer with regard to payments made to PPPL towards sales promotional expenses, the Assessing Officer was not justified in denying similar claim in the assessment year 2010-11. 41. The ld. CIT(A), after considering the entire facts of the case, came to the conclusion that there is possibility of unreasonableness and excessive claim and disallowed 7.5% of total sales promotional expenses of Rs. 14,03,35,927/- and allowed only Rs. 12,39,29,825/- [ Rs. 13,44,55,019 Rs. 1,05,25,194]. We find that the order passed by the ld. CIT(A) is jus ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
