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TMI Blog2025 (3) TMI 588X X X X Extracts X X X X X X X X Extracts X X X X ..... ntained the debit notes month wise from the sales promoters and relevant disbursements to the sales promoters. With regard to disbursements to the retailers, they have demonstrated few payments from the sales promoters to the retailers by bringing on record the bank statements. In our view, no doubt the assessee has documented the trade scheme payments at the same time, the AO has not fulfilled the mandate given to him by the coordinate bench to verify whether this transaction falls within the ambit of reimbursement. He has not passed a speaking order and was of the view that certain documents are suffice to demonstrate the scheme is reimbursement like, agreement, debit notes and disbursement by the assessee and further payments by the sales promoters to the retailers. He merely accepted the documents as submitted by the assessee and he has not made a case how the above documents are sufficient to grant the relief. No doubt he has allowed to the extent the assessee submitted the debit notes which are relevant to the respective assessment years. He has not made up a case how it is sufficient to give relief. There are certain unanswered issues which are: a. It is not demonstrated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n filed by the assessee against the order of ld.Pr. Commissioner of Income-tax (Central), Delhi-3 (hereinafter referred to as 'ld. PCIT') dated 08.03.2024 for the Assessment Years 2012-13 to 2014-15. 2. Since the issues are common and the appeals are connected, therefore, the same are heard together and being disposed off by this common order. First we take up ITA No.1971/Del/2024 for AY 2012-13 as the lead case. 3. Brief facts of the case are, assessee filed its original return of income on 29.11.2012 declaring total income of Rs. 8,72,20,37,142/-. The return was revised declaring income of Rs. 8,57,14,19,260/- on 12.02.2014. The assessment was completed u/s 143(3) r.w.s. 144C of the Income-tax Act, 1961 (for short 'the Act') vide order dated 24.06.2016 after making disallowance/additions as under:- (i) Transfer Pricing addition : Rs.62,86,33,013/- (ii) Addition on account of provision for transit breakages : Rs. 6,32,58,960/- (iii) Disallowance on account of Brand Expenses : Rs.50,38,72,290/- (iv) Trade Scheme to sales promoters u/s 40(a)(ia) : Rs.63,24,54,323/- 4. The assessee preferred an appeal before the ld. CIT (A)-42, New Delhi and ld. CIT (A) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct to Ark Marketing Services aggregate to Rs. 26,59,82,276/-. Further he observed that debit notes of Rs. 4,51,00,383/- from Ark Marketing Services have been received after 31.03.2012 i.e. expenses have not accrued for the relevant year. Therefore, he allowed only Rs. 22,08,81,893/-. Accordingly, he allowed the debit notes submitted by the assessee relating to Ark Marketing Services to the extent of Rs. 22,08,81,893/- and disallowed the balance of Rs. 4,51,00,383/-. 8. Ld. PCIT (Central), Delhi-3 examined the assessment records and perused all the details along with assessment order passed in this case including the relevant questionnaires issued and the compliance made by the assessee. Ld. PCIT observed the facts in this case before completing the assessment order u/s 254/250/143(3) of the Act and observed that the assessee did not file the reply against the notice issued on 10.03.2022. The assessee filed the reply against final opportunity given to the assessee vide notice dated 22.03.2022 and assessee has filed reply vide letters dated 25.03.2022, 26.03.2022 and 29.03.2022. Ld. PCIT observed that vide letter dated 25.03.2022, the assessee has filed paper book of trade scheme di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he overall sales, it makes business sense for them to provide on some incentives to retailers form gross commission received by them to enhance the sales. However, he observed that it cannot partake the character of reimbursements. Further he observed that the terms of appointment of these sales promoters make it clear that there was agency contract and remuneration was linked to the volume of sales. The relationship between the assessee and sales promoters is that of principal - agent, therefore, all the payment made to them is of the nature of commission within the purview of section 194H unless it is proved otherwise. Further he observed that the AO passed the order as per the above debit notes submitted by the assessee and he did not call for further explanation which could establish that the payments were in the nature of reimbursements to retailers/distributors which were warranted by the ITAT in its order while remanding the issue to the AO. Further he observed that the assessee sent most of the data in Pen Drive containing data of 413 files vide letter dated 29.03.2022. He observed that the AO passed the order u/s 254/250/143(3) of the Act on 31.03.2022 almost within next d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e debit note raised by the sales promoters. In the subsequent proceedings before the ld.CIT(A), ld. CIT (A) considered the submissions of the assessee and in the appellate proceedings, ld. AR of the assessee submitted steps and process of distributors to sales promoters under the trade scheme as under :- (i) Step 1 : Sales promoters estimate the amount of disbursement that has to be made to retailers in accordance with the prevailing scheme. (ii) Step 2 : Basis the estimate prepared by Sales Promoter, it raises a debit note on the Assessee Company along with the statement of disbursal that has to be made to retailers. (iii) Step 3 : Simultaneously the Sales Promoter issues cheque(s) to retailers. The Sales Promoters may inform retailers as regards late encashment of cheques. (iv) Step4 :The assessee company makes payment to Sales Promoter for trade scheme reimbursement. 13. Further he observed that in the appellate proceedings, it was further asked to submit documentary evidences to prove that disbursements were pure reimbursements as per the directions of the ITAT. Ld. AR expressed its inability to submit necessary documents. Ld. PCIT has reproduced order sheets dated 28. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lant could not establish any relation of debit notes with incentives to retailers or any published trade scheme. v) Therefore, it is held that the disbursements made under the head of trade scheme have no correlation with trade scheme and are not reimbursements in nature. The sale promoters are making payments to retailers / distributors which are different from the amount mentioned in the debit notes. The sales promoters claim money from the appellant in substantial amount and part of it is paid to retailers. As the appellant failed to submit any agreement between sales promoters and retailers therefore it cannot be said in certainty what arrangements sales promoters and retailers had among them to promote sales and what portion of gross payments received by sales promoters were eventually passed on. Whatsoever be the proportion of subsequent payments but one thing is very clear that it is not reimbursements of incentive from any angle. vi) Further on perusal of appointment letter issued to sales promoter it is noted that there is no explicit mention of operation of trade scheme by the sales promoter and the reimbursement of incentives passed on by them to retailers. As sales ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e present impugned assessment order on 31.03.2022 wherein part of the trade scheme to sales promoters was held by the AO as reimbursement which is contrary to the findings by the ld. CIT (A) in AY 2009-10 and 2010-11. He rejected findings of the AO for partly allowing the payment made to sales promoters under the trade scheme to Ark Marketing Services and balance amounts were disallowed having no relevance. He wondered if the assessee had maintained the complete documents why the assessee could not produce complete chain of documents before the AO for the entire amount of Rs. 63 crores. It clearly shows that AO has not conducted proper enquiry on the issue and given part relief for the amount of Rs. 22.08 crores in hurried manner simply accepting the submissions of the assessee which was provided by the assessee as per its own choice. The AO has not sought mapping of transactions which could establish that the payment made to retailers/distributors from the sales promoters were in the nature of reimbursement and he also wondered if the assessee could produce all the relevant documents in AY 2012-13 why it failed to submit in AYs 2009-10 & 2010-11. With the above observation, ld. PC ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t made by the assessee to sales promoters with subsequent payment by the sales promoter to retailers/distributors. If that be the case, how it is possible for the AO to verify the payments made to retailers/distributors in one day during the set aside proceedings from the identical data filed during 263 proceedings. Therefore, it is evident that AO failed to conduct a comprehensive examination of the issue and given partial relief to the assessee without application of mind and incomplete verification. He observed that AO has allowed the claim of reimbursement of expenses amounting to Rs. 22.09 crores in respect of Ark Marketing Services, however AO failed to verify the nature and characteristics of expenses incurred by the retailers in the promotion of the expenses of the assessee which were reimbursed by the sales promoters and claimed as reimbursement from the assessee. Therefore, AO failed to verify the nature of expenses before trading the same as reimbursement. Further ld. PCIT observed that treatment of service agreements with the sales promoters and passing of explicit trade scheme are reimbursement proceedings shows a principal and agent relationship rather than pure reimb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rejudice, the PCIT erred in invoking Explanation 2 to section 263 of the Act, given that the necessary ingredients for the attraction of said Explanation did not arise in the present case. 8. That the impugned order is also bad in law given that the entire genesis of holding the order of the AO to be erroneous and prejudicial is the hastiness with which such order was passed, which is not a parameter for deciding whether the order could be held to be erroneous. 9. The impugned order is also bad in law since it basis its entire conclusion on the hasty decision of the AO, which sin has been committed by the PCIT himself by passing of the impugned order within two days of filing of the reply by the Appellant. 10. That the order is also bad in law because the term "erroneous" has been judicially explained to mean something which is contrary to facts and contrary to law, which is not the case of PCIT in the present case under section 263 of the Act. 11. That the impugned order under section 263 is also bad in law since it is perverse and contrary to the facts on record. 12. That the impugned order is also bad in law since it is an overreach as far as the findings of this Tribu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in ignoring the confirmation letters issued by sales promoters acknowledging the nature of payments in question as reimbursements, which was enough evidence before the AO to substantiate such nature in terms of the remand directions of this Hon'ble Tribunal. 21. That the PCIT grossly erred in imposing a higher standard of proof on the Appellant such as one on one mapping of transactions as contained in third party documentation, which was not the mandate of this Hon'ble Tribunal while remanding the issue back to the file of the AO for verification." 16. At the time of hearing, even though assessee has raised several grounds of appeal, ld. AR of the assessee argued only on ground no.1 insisting that the order passed u/s 263 is bad in law and liable to be quashed. The ld. AR of the assessee submitted that the issue under consideration is exactly similar in AYs 2013-14 & 2014-15 and submitted that during assessment proceedings for AY 2012-13, the assessee has submitted the evidences in connection with Ark Marketing Services only, during AY 2013-14 the assessee has submitted the evidences in connection with Ark Marketing Services, Classic Alcobev, BG Enterprises and AOC M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the orders passed by the AO were in line with the mandate of this Hon'ble Tribunal and therefore, not erroneous. Following are the examples: 1. Ark Marketing ("Ark") was appointed as a sales promoter in the state of Andhra Pradesh by the Appellant (please refer page 1369 & 1372 of Paper Book Volume 3). Ark raised debit note of INR 1,36,95,6401- dated 15.06.2011 on PRIPL for trade schemes floated by it during the month of April 2011 (please refer page 3149 of Paper Book Volume 7). Pursuant to this debit note, PRIPL issued cheque no. 1160 in favour of Ark on 06.07.2011 for INR 1,36,95,6401- (please refer page 1467 of Paper Book Volume 3). This cheque was credited in the bank account of Ark on 18.07.2011 (please refer page 1516 of Paper Book Volume 4). After receiving the said amount, Ark disbursed trade scheme payments to various retailers in the state of Andhra Pradesh (please refer page 3329 of Paper Book Volume 7). For example, on page 3329, at S.No. 23 it is stated by Ark that a cheque of INR 8,1601- dated 06.08.2011 was issued by it in favour of "Sri Durga Wines" as trade scheme payout for April 2011. This cheque was credited in the account of "Sri Durga Wines" on 20.09.20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3497, at S.No. 1 it is stated by Ark that a cheque of INR 13,200/- dated 01.12.2011 was issued by it in favour of "Bhagya Lakshmi Wines" as trade scheme payout for August 2011. This cheque was credited in the account of "Bhagya Lakshmi Wines" on 23.02.2012 (please refer page 2176 of Paper Book Volume 5). 5. Ark raised a debit note of INR 2,07,40,1531- for the month of September 2011 (please refer page 3182 of Paper Book Volume 7). Pursuant to this debit note, PRIPL issued cheque no. 7 in favour of Ark on 28.11.2011 for INR 2,07,40,153/- (please refer page 1470 of Paper Book Volume 3). This cheque was credited in the bank account of Ark on 09.12.2011 (please refer page 1544 of Paper Book Volume 4). After receiving the said amount, Ark disbursed trade scheme payments to various retailers in the state of Andhra Pradesh (please refer page 3547 of Paper Book Volume 8). For example, on page 3557, at S.No. 2 it is stated by Ark that a cheque ofINR 17,8501- dated 22.12.2011 was issued by it in favour of "Vaishnavi Wines" as trade scheme payout for September 2011. This cheque was credited in the account of "Vaishnavi Wines" on 09.03.2012 (please refer page 2217 of Paper Book Volume 5). ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that a cheque of INR 13,080/- dated 22.02.2012 was issued by it in favour of "Kama Wines" as trade I scheme payout for December 2011. This cheque was credited in the account of "Karna Wines" on 11.04.2012 (please refer page 2284 of Paper Book Volume 5). 9. Ark raised a debit note of INR 2,56,45,6911- for the month of January 2012 (please refer page 1412 of Paper Book Volume 3). Pursuant to this debit note, PRIPL issued cheque no. 59 in favour of Ark on 20.03.2012 for INR 2,56,45,691/- (please refer page 1474 of Paper Book Volume 3). This cheque was credited in the bank account of Ark on 21.03.2012 (please refer page 1573 of Paper Book Volume 4). After receiving the said amount, Ark disbursed trade scheme payments to various retailers in the state of Andhra Pradesh (please refer page 3728 of Paper Book Volume 8). For example, on page 3740, at S.No. 22 it is stated by Ark that a cheque of INR 1,32,000/- dated 31.03.2012 was issued by it in favour of "D. Narender Reddy" as trade scheme payout for January 2012. This cheque was credited in the account of "D. Narender Reddy" on 14.03.2012 (please refer page 2226 of Paper Book Volume 5). 10. Ark raised a debit note of INR 2,56,45,691 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed the submissions made by the assessee during the assessment relating to the actual evidence and supporting documents in the form of soft copy by filing in the mode of pen drive on 29.03.2022 and other relevant details vide submissions on 25.03.2022 and 26.03.2022. The AO passed simple assessment order accepting the submission of the assessee and he was of the view that it is enough to prove the reimbursement in case the assessee submits the minimum documentary evidence like sales promoter agreement, debit note raised by the promoter specifying the trade scheme discount, details of retailers and bank account of the assessee showing the transfer of trade scheme discount to retailers bank account. We observed that based on the above bench mark devised by the AO, he proceeded to verify the information submitted by the assessee and allowed to the extent the assessee provided the disbursement to sales promoters and with regard to disbursement made by the sales promoters to the respective retailers. By verifying the above facts on record, Ld PCIT observed that the AO has merely passed the order without making proper verification on the one-to-one mapping of the disbursement made by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed by the sales promoters particularly the ARK Marketing and relevant disbursement to them by the assessee, he also brought to our notice few onward disbursements to the retailers from the sales promoters. He made the similar submissions in the form of written submission which is reproduced in this order elsewhere. Even in the submissions, he has brought to our notice the disbursement from the assessee to the sales promoters but he submitted only few onward remittances from the sales promoters. 21. After careful consideration of various issues raised by the Ld PCIT and submissions made before us by Ld AR, we observed that no doubt the assessee has brought to our notice the agreement signed with the sales promoters, which are exactly similar to the agreements made with the different sales promoters in the different states. The terms of agreement are more or less same. From the agreement, it is clear that they are appointed to carry on the assignment of sales promotions and no wherein the agreement, the details of promotion scheme is discussed nor it is formally documented. It is submitted before us that the scheme is lucid and decided by the marketing team with the assistance of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y be delay in distribution, but the assessee has to demonstrate the month wise disbursement by the sales promoters. Without the above reconciliation, it cannot be claimed as the reimbursement. Even before us, Ld AR has demonstrated only few disbursement from the sales promoters and not matched the one-to-one mapping. This is possible only by submitting the above stated reconciliation, if it is difficult to submit month wise, it can be submitted quarterly. 24. Mere verification on the basis of the documents before the AO, which he has, no doubt, allowed only 33% to 50% in the respective years, cannot it be called verification, he has only verified whether the relevant discount are relevant for the respective assessment year and accordingly he allowed the same. This is not the mandate given to him. He was directed to verify the payments to sales promoters are falling under the category of reimbursement or not. In case he is satisfied with the documentation he has to demonstrate by passing a speaking order. He has miserably failed in that aspect. He has given relief without proper verification and application of mind. 25. Since Ld. PCIT has rightly quashed the assessment order and d ..... X X X X Extracts X X X X X X X X Extracts X X X X
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