TaxTMI 
TaxTMI 
TaxTMI 
2014 (5) TMI 817
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.... and evidence on record and is therefore wholly unsustainable. 5. The order of the CIT(A) in holding that the appellant cannot be said to be liable for promotion of sales of BAIL by any stretch of imagination or logic is wholly unsustainable both on facts and in law." 2. Briefly the facts are that the assessee is a manufacturer of Vermicelli and other food products. It filed its return of income on 14/10/2010 admitting a total loss of Rs. 42,46,282/-. It had recorded a turnover of Rs. 33.23 crores during the year of which a sum of Rs. 21.69 crores was through direct sales to Bambino Agro Industries Ltd. (BAIL) and a sum of Rs. 11.53 crores was through CSA sales (consignment sales) through stock transfer to various dealers/consignment agencies of BAIL at the behest of BAIL. It had debited a sum of Rs. 3,51,96,763/- towards sales expenses of which a sum of Rs. 3,32,77,530/- had been incurred towards sales promotion expenses. The assessee furnished the following explanation for these expenses before the AO: "Note on schemes for sales promotion: As the products dealt by the company are consumable products which do have vast competition in the market, they demand intensive sales pro....
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....e expenditure of Rs. 3,32,77,530/- debited towards sales promotion did not relate to the assessee. The AO referred to the fact that no such claim had been made in the previous AY 2009-10. While accepting the genuineness of the expenditure, the AO held that the expenditure had not been incurred wholly and exclusively for the purpose of the assessee's business and, therefore, disallowed the said amount of Rs. 3,32,77,530/-. 3. Aggrieved the assessee carried the matter in appeal before the CIT(A). 4. Before the CIT(A), the AR of the assessee submitted that the assessee reduced the price @10% on the normal sale price of BAIL to redistribution stockists with regard to the direct sales to BAIL in order to bring price parity for direct sales as well as CSA sales and therefore the AO was not correct in stating that no sales promotion was required for direct sales. The AR also submitted that the AO's observation that no claim had been made for the AY 2009-10 was not correct since the commercial activity of the plant at Bandra near Nagpur had commenced in November 2007 only. The AR submitted that the assessee had taken the services of BAIL and utilized their marketing and distribution netw....
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....les to BAIL and therefore the Assessing Officer was not correct in stating that no sales promotion expenditure was required for direct sales. The CIT(A) was of the view that this plea of the AR to be self contradictory. Since the appellant sold the product to BAIL at a reduced price, the CIT(A) held that there is no reason for the appellant to further incur expenses for their sale promotion and in any event, the sale having taken place to BAIL, the product becomes the product of BAIL and its further promotion in the market would only go to promote the sale of BAIL and not of the appellant. Therefore, the appellant cannot be said to be liable for promotion of sales of BAIL by any stretch of imagination or logic. Accordingly, the disallowance of sales promotion expenses of Rs.3,32,77,529 is upheld and dismissed the appeal by the CIT(A). 6. Aggrieved the assessee is in appeal before us. 7. The learned AR, before us, submitted that both the AO and the CIT(A) have accepted the genuineness of the expenditure, however, they held that the expenditure had not been incurred wholly and exclusively for the purpose of the assessee's business. The AR contended that disallowing the expenses inc....
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....Ltd. Vs. ACIT, in 478/Hyd/2007 and others vide order dated 30th September, 2009. 8. On the other hand, the learned DR submitted that the expenditure is not related to the assessee as it has incurred by the BAIL to promote their product and not assessee's product. He relied on the order of the CIT(A). 9. We have heard the arguments of both the parties, perused the record and have gone through the orders of the authorities below as well as the decisions cited. The revenue authorities were disallowed the sales promotion expenses of Rs. 3,32,77,529/- paid by the assessee to BAIL, who marketed and sold the product of the assessee under its Brand, on the ground that the agreement specifically enjoined BAIL with the task of promotion of assessee's products and such sales promotion was part of BAIL's stated mandate under the agreement for which it was being paid commission, therefore, there is no logic for the sales promotion expenses to be additionally borne by the assessee. The submissions of the assessee's AR is that the assessee had taken the services of BAIL and utilized their marketing and distribution network since it did not have such a network of its own to achieve a turnover of....
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.... has not been doubted by the AO. Further, it is the business decision of the assessee to incur the expenditure and incurring of expenditure to be seen from the point of view of businessman and not from the point of view of tax authorities. For this proposition, reliance is placed on the following case laws: 1. CIT Vs. Walchand & Co. Pvt. Ltd., 65 ITR 381 (SC) 2. SA Builders Vs. CIT, 288 ITR 1 (SC) 9.1 Further it is also brought to our notice that the assessee has not paid any royalty for availing services of BAIL for promotion of its products and the BAIL being pioneers in Pasta, Macroni and other instant food products` in India and they have rendered services to assessee in marketing assessee's product. More so, BAIL is in the business since 25 years and comparison of assessee to BAIL is not at all feasible. Further, the CIT(A) drew an inference that the assessee sold products to BAIL at 10% lesser than the market rate, hence, there is no necessity to incurring any sales promotion expenses in selling the assessee's product by the BAIL and reimbursing the same by the assessee to BAIL. Reduction of sales price to BAIL is for the purpose of incurring further expenses towards admin....