2017 (3) TMI 1030 - AT - Income Tax

Tribunal overturns revenue's disallowances, allows deductions for sales promotion, packing, transportation, and retainer ship expenses.

The Tribunal allowed the appeal filed by the assessee, overturning the disallowances made by the revenue authorities on all three grounds. The ... Disallowance of amount of provision made for sales promotion expenses incurred during the previous year - Held that:- These expenses are incurred wholly to promote the sales of the products of the assessee by way of prizes and incentive to those dealers who achieved certain sales. But on the other hand the revenue authorities had disallowed the expenses by holding that these expenses are incurred in the next year and not pertains to the year under consideration. We noticed that while following the mercantile system of accounting according to which one has to account for income and expenses on accrual basis and since in the present case the liability to pay this amount had already crystalized as on 31st March 2004 as the assessee has distributed the prizes and the gift of gas mantles to the dealers in FY 2004-05 relevant to AY 2005-06 on the performance achieved on the sales achieved in the FY 2003-04 relevant to AY 2004-05. Therefore, this basis of disallowance made by the department is not sustainable and hence the additions as made are liable to be deleted - Decided in favour of assessee Disallowance of claim of deduction being the amount of expenses incurred on packing materials and transportation expenses - Held that:- In the present case the assessee company has discharged its onus by placing on record/supply to the revenue authorities of the requisite details in order to establish the genuineness of the claim made by the assessee, therefore in these circumstances, we found that it is undisputed fact that the revenue authorities have not placed on record any material to show that the parties to whom payments were made were in any way related to the assesse and moreover no attempt has been made by the revenue to carry out any independent inquiry. Therefore, the basis of disallowance made by the department is not sustainable and hence the additions as made are liable to be deleted and hence the same are deleted. - Decided in favour of assessee Disallowance of retainer ship expenses - revenue authorities have disallowed this amount on the ground that the nature of services being rendered by the person have not been proved by the assessee - Held that:- We have noticed that the assesse has already furnished all the details called for by the Ld. AO like confirmation, copy of the return of income, Xerox copy of bank statement showing the debit/credit entries in the books of accounts in order to show that the retainership fee has been paid to the retainers and the same has already been shown in their return of income and paid tax due thereon, therefore now again taxing it in the hands of the assessee company would amount to taxing the same income twice. On the other hand, the revenue authorities have not placed on record any material in order to show that the parties to whom payments were made were in any way related to the assessee and moreover no attempt has been made by the revenue to carry out any independent inquiry. Therefore, this basis of disallowance made by the department that it appears to be non-genuine is not sustainable and hence the additions as made are liable to be deleted and hence the same are deleted. - Decided in favour of assessee Issues:1. Disallowance of deduction for provision made for sales promotion expenses.2. Disallowance of deduction for expenses incurred on packing materials and transportation expenses.3. Disallowance of deduction for retainer ship expenses.Issue 1: Disallowance of deduction for provision made for sales promotion expenses:The assessee appealed against the disallowance of a deduction of Rs. 10,58,168 for sales promotion expenses. The revenue authorities contended that these expenses were incurred in the next year and not relevant to the year under consideration. However, the assesse argued that the expenses were already accounted for under the mercantile system of accounting and the liability had crystallized. The Tribunal found that the expenses were genuinely incurred to promote sales and that the disallowance basis was not sustainable. Therefore, the disallowance was deleted, and the appeal on this ground was allowed.Issue 2: Disallowance of deduction for expenses incurred on packing materials and transportation expenses:The assessee contested the disallowance of a deduction amounting to Rs. 9,60,175 for expenses on packing materials and transportation. The revenue authorities disallowed the claim based on unserved summons, despite the assesse providing details to establish the genuineness of the claim. The Tribunal observed that the revenue authorities failed to prove any relationship between the parties and did not conduct an independent inquiry. Consequently, the disallowance basis was deemed unsustainable, and the additions were deleted. The appeal on this ground was allowed.Issue 3: Disallowance of deduction for retainer ship expenses:The assessee challenged the disallowance of a deduction of Rs. 9,00,000 for retainer ship expenses. The revenue authorities questioned the nature of services rendered, but the assesse had provided all necessary details to prove the genuineness of the payments made. The Tribunal noted that the retainership fees were already reflected in the return of income of the recipients, and taxing it in the hands of the assesse would result in double taxation. As the revenue authorities failed to establish any relationship between the parties or conduct an independent inquiry, the disallowance basis was considered unsustainable. Consequently, the additions were deleted, and the appeal on this ground was allowed.In conclusion, the Tribunal allowed the appeal filed by the assessee, overturning the disallowances made by the revenue authorities on all three grounds.---