2012 (5) TMI 75 - HC - Income Tax

High Court rules against assessee in payments case to M/s Blue Chip & Co.

Commissioner of Income Tax(Central) Ludhiana Versus M/s Punjab Breweries Ltd. Ludhiana (now amalgamated with M/s United Breweries)

The High Court ruled in favor of the revenue and against the assessee in a case involving payments to M/s Blue Chip & Co. and the Corporate Management ... ITAT allowed payment made to company and C & F Handling Charges – Held that:- Supported by details of expenditure that expenditure is neither wholly of exclusively for the business of the assessee company nor it is allowable u/s. 37 - the assessee or CMD has not given any information how many total man-hours were available and at what level and how much Man hours were spent on this company - it has not given the man-hours spent on this particular company - whether the services are rendered and the expenditure incurred is wholly and exclusively for business purpose has not been proved- no evidence placed on record by the assessee to show that its sales were promoted by the appointment of the handling agent - against assessee. Payment made to the Corporate Management Division allowed by ITAT - Held that:- Whatever the evidence the assessee furnished in the nature of correspondence with the CMD it is covered by the Technical Assistance Agreement made for which separately amount has been paid and no other services have been rendered which is over and above this Technical Assistance Agreement - also held that the expenditure is not wholly and exclusively for business purposes –the disallowable expenditure which is not allowable under the I.T. Act the particular company cannot be indirectly allowed to CMD like entertainment or perks disallowable u/s. 37, 40A and 40(c) – against assessee. Issues Involved:1. Allowability of payment of Rs. 12,29,769/- to M/s Blue Chip & Co. as C & F Handling Charges.2. Allowability of payment of Rs. 38,02,950/- to the Corporate Management Division of M/s United Breweries Ltd.Detailed Analysis:Issue 1: Allowability of Payment to M/s Blue Chip & Co.The primary issue revolves around whether the payment of Rs. 12,29,769/- made by the assessee to M/s Blue Chip & Co. for C & F handling charges was justified. The Assessing Officer disallowed this payment, citing a lack of evidence that M/s Blue Chip & Co. rendered any services to the assessee. The Assessing Officer noted that the assessee had previously managed sales without the help of M/s Blue Chip & Co. and that the appointment of M/s Blue Chip & Co. as a handling agent did not lead to any increase in sales. Instead, sales declined, suggesting the transaction was a sham designed to reduce taxable income and create liquidity for the United Breweries group and its directors.The CIT(A) upheld the Assessing Officer's decision, emphasizing that the transaction was forced upon the assessee by the Chairman of United Breweries, and it did not result in any reduction in the assessee's staff or expenses. The CIT(A) also highlighted that the payments were indirectly benefiting the Chairman's family, making the transaction appear non-genuine.The Tribunal, however, deleted the additions based on the principle of consistency, as similar payments were allowed in previous assessment years. The High Court rejected this reasoning, emphasizing that the principle of consistency is not absolute, especially when there is no evidence of services rendered. The High Court found the Tribunal's decision to be erroneous, cryptic, perverse, laconic, and perfunctory, and restored the CIT(A)'s order.Issue 2: Allowability of Payment to Corporate Management Division of M/s United Breweries Ltd.The second issue concerns the payment of Rs. 38,02,950/- made by the assessee to the Corporate Management Division of M/s United Breweries Ltd. The Assessing Officer disallowed this payment, arguing that the assessee failed to provide evidence of services rendered by the Corporate Management Division. The expenditure was deemed not wholly and exclusively for business purposes and included disallowable expenses under Sections 37, 40A, and 40(c) of the Income Tax Act.The CIT(A) upheld the disallowance, noting that the expenses were not directly related to the assessee's business and included non-allowable items like entertainment and personal perks. The CIT(A) also pointed out that the services claimed to be rendered were already covered under a separate Technical Assistance Agreement with United Breweries Ltd., for which the assessee had paid Rs. 53,78,688/-.The Tribunal again deleted the additions based on the principle of consistency, citing previous assessment years where similar payments were allowed. The High Court found this reasoning flawed, noting that the Tribunal failed to consider the lack of evidence and the nature of the expenses. The High Court deemed the Tribunal's decision erroneous and restored the CIT(A)'s order.Conclusion:Both issues were decided in favor of the revenue and against the assessee. The High Court set aside the Tribunal's order and restored the CIT(A)'s decisions, emphasizing the lack of evidence for services rendered and the non-genuine nature of the transactions.