TaxTMI 
TaxTMI 
2010 (7) TMI 1042
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....puted the CIT(A)'s order in deleting the disallowance of Rs. 14,05,175/- out of the service charges paid to CDSS. 3. In the Assessment Year 2003-04, during the course of assessment proceedings, it was noticed by the Assessing Officer that the assessee has paid service charges of Rs. 90,67,708/- to CDSS, in respect of which, the assessee submitted a copy of service agreement to the AO. From the service agreement it was noted by the AO that in consideration of services rendered, CDSS was entitled to receive service charges @ 0.7% of its net sales. The AO was of the view that net sale would mean gross sales as reduced by sales returned during the relevant period. The assessee was then asked to furnish working of amount of Rs. 90,67,708/- paid to CDSS which working as submitted by the assessee is as under:- "Gross Sales 1557840256 Less: Car Care 5599689 Base Oil 2695038 Empty Barrels 799392 Other Traded Items 2064424 Export Sales 11377678 FOC provision (net of last year) (1320221) 21216001 Sale of Lubricants 1536624256 Less: Discount 241237387 N....
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....CIT(A)'s order in Assessment Year 2003-04 has been followed in Assessment Year 2004-05 and the addition of Rs. 14,05,175/- made by the Assessing Officer was thus deleted. 5. Hence, in both the years, the revenue has challenged the CIT(A)'s order in deleting the aforesaid addition of disallowance of service charges. 6. We have heard both the parties and have carefully perused the orders of the authorities below. We have perused the various Papers placed in the Paper Book filed by the assessee. The AO has not disputed the fact that the payment of service charges by the assessee to CDSS was as per the service agreement. The AO has also not disputed the services rendered by CDSS to the assessee. The disallowance has been made by the AO only by reducing the sales figure by taking the amount of discount at the amount more than the amount shown by the assessee, because of the fact that according to the AO, the amount of discount shown by the assessee was more while computing the amount of royalty payable to M/s. Valvoline Inc. The AO has not gone into to verify the reason as to why the difference in the amount of discount had occurred. It has been explained by the assessee that for ....
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....n the immediate preceding year were claimed at Rs. 1,25,80,104/-. The AO has taken a view that increase in travelling and conveyance expenses to the extent of 40% of the total expenses incurred in earlier year would only be justified as the assessee's turnover has only increased by 40%. He, therefore, allowed the travelling expenses only to the extent of Rs. 1,75,00,000/- as against Rs. 1,92,80,312/- claimed by the assessee and disallowed the balance sum of Rs. 17,80,312/-. 8. On an appeal, the learned CIT(A) deleted the addition after observing that the working made by the AO though looks attractive but is without any legal basis, and such an approach of the AO cannot be approved. The CIT(A) further observed that no discrepancies or mistakes were pointed out in the details furnished by the assessee. The CIT(A)'s order in this regards reads as under:- "24. The increase in sales over last year was 40%. The AO worked out the traveling & conveyance expenditure in the same proportion and found that excess amount works out to Rs. 17,80,312/- as detailed below which was disallowed. Expenditure in A.Y. 2002-03 - 1,25,80,104 40% increase - 56,00,000 Probable expe....
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....and Rs. 2,00,000/- has been disallowed by the AO by observing that the assessee has not furnished complete details to show that these expenses were incurred wholly and exclusively for the purpose of business. 12. On an appeal, the CIT(A) deleted the addition by observing as under:- "7.5 The Appellant had incurred the above mentioned expenditure for the purpose of its business and the same is evident from a perusal of the ledgers that were submitted in case of staff welfare expenditure and advertisement publicity and sales promotion expenditure. 7.6 It is respectfully submitted that these ad-hoc disallowances be deleted. Reliance in this regard is placed on the judicial precedents referred in ground no 4 above which have held that ad-hoc disallowance should be deleted. The same are mentioned below for ease of reference: * Good Year India Ltd. v ITO 73 ITD 189 (Del) * Express Movers (P) Ltd. v DCIT 61 ITD 528 (Del) * Raman and Raman v CIT 46 ITR 400 (Mad) * Sanjeevi and Co. vs. CIT 62 ITR 156 (Mad) * Amarjothi Pictures vs. CIT 69 ITR 755 (Mad) 33. Since the AO has not pointed out any mistake/discrepancies in the details furnished and in absence of detailed ....
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....al sales made by the assessee by using the dealers network of CASL. The assessee vide letter dated 23.01.2006, submitted that on perusal of the various Annexures attached to the letter, it was evident that CASL and CDSS had a wide network across the country which had assisted the assessee in promoting its marketing activities. The AO again asked the assessee to give details of the sales made through dealers appointed by CASL. In reply thereto, the assessee submitted that the assessee made the payment to CASL under contractual obligation for availing their facilities and it was very difficult to calculate the amount of total sales made by each dealer appointed by CASL or the amount of sales made by using the dealers network of CASL as no such dealer-wise report was ever prepared or maintained by the assessee. The Assessing Officer then examined the copy of agreement dated 01.01.1001 entered into between the assessee and CASL and stated his findings in that regard as under:- "From the above it is clear that the assessee will pay service charges/sales commission (the agreement is termed as Sales Commission Agreement) as per the agreed terms of the agreement i.e. if quantum of sales....
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....reement was entered into with a view to reduce the tax burden of the assessee. Various decisions were also cited by the assessee in support of the claim. 17. After going through the assessment order and the written submissions of the assessee, the learned CIT(A) confirmed the addition made by the AO. The learned CIT(A) observed that except agreement no other evidence was produced by the assessee. The learned CIT(A) further observed that in the light of the provisions contained in sec. 37(1) of the Act, the assessee had an onus to prove that a particular expenditure was laid out or expended wholly and exclusively for the purpose of business. The CIT(A) further observed that mere filing certain details and making payment by itself would not entitle the assessee to claim deduction of expenditure unless the same was proved to be paid for commercial consideration and commercial expediency. The learned CIT(A) has therefore, taken a view that the assessee has not successfully demonstrated that services were received from CASL warranting any payment and to be claimed as business expenditure. Still aggrieved, the assessee is in appeal before us. 18. The learned counsel for the assesse....
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....arges were paid by the assessee, and in view thereof, no further documents were filed by the assessee either before the AO or before the CIT(A). He, therefore, submitted that the assessee has now placed before the Tribunal further evidences to establish that CASL had rendered certain services to the assessee in lieu of which, the service charges were paid by the assessee to them. Further evidences produced by the assessee before us are as under and copies of which have been given to the learned DR:- * The copy of miscellaneous correspondences between the applicant and CASL placed as additional evidence at pages 22 to 69 establishes that - (i) applicant had negotiated sales price, quantity of sales, mode of transport, etc. of its products, sold through dealer/distribution network of CASL, with CASL only; (ii) complaints with respect to products sent by applicant to dealers of CASL, were negotiated and settled between CASL and applicant only. * Further, the applicant had initiated training programs for its customers, viz., mechanics, etc. using the automotive products in order to increase the awareness of its products and company's brand image. Pursuant to the aforesaid initiat....
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....and other related infrastructural services set up by CASL, in consideration of which, a fixed commission of Rs. 13,00,000/- for each calendar quarter was payable subject to a further commission provided the sales exceeds the specified limit. Before the authorities below, the assessee has also submitted the details of the dealers network of CASL including names and addresses of the dealers. Copy of ledger account of dealers of CASL on sample basis was also filed before the AO. It is not in dispute that the payment was actually made to CASL against the debit note issued by CASL to the assessee. The assessee also produced copy of sample invoices of sales made through the dealers of CASL. The specific requirement of the AO was only to submit the details of sales dealer-wise. The Assessing Officer has not made any enquiry either from CASL or its appointed dealers or its overall network to find out as to whether the assessee had used the marketing network and other related infrastructural services of CASL as so agreed by the parties vide agreement dated 01.01.2001. The AO has also not made any enquiry in this regard to disprove the assessee's claim that the assessee used the marketing ne....
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....sec. 143(3) for the Assessment Year 2001-02, the payment of Rs. 13,00,000/- claimed by the assessee as deduction was not disallowed by the AO. It is further noticed that in the Assessment Year 2002-03, the assessee also made a claim of Rs. 52,00,000/- in the return of income and the return of income for that year was merely processed under sec. 143(1), and was not selected for scrutiny with a view to disallow the assessee's claim on account of service charges paid to CASL and not to reopen the assessment under sec. 263 or sec. 147 of the Act. We find that the identical payment of Rs. 52,00,000/- was also paid in the Assessment Year 2005-06, and the amount of Rs. 26,00,000/- has been claimed in the Assessment Year 2006- 07, during which year a service agreement stood terminated on and from 30.9.2005. Therefore, from this point of view that the department has accepted the assessee's claim in earlier Assessment Years i.e. 2001-02, 2002-03, and there being no fresh material rebutting the assessee's claim, the claim of the assessee in Assessment Years 2003-04 and 2004-05 is not liable to be rejected. We, therefore, allow this ground raised by the assessee with a direction to the Assessi....
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....from total expenses of Rs. 8,03,490/-. 27. On appeal, the learned CIT(A) confirmed the AO's order. With regard to the addition of Rs. 1,56,000/- the learned CIT(A) has stated that the assessee has not been able to explain as to why some expenditures were claimed as capital expenditure and others are as revenue expenditure. With regard to the balance amount of Rs. 6,47,490/-, the CIT(A) observed that these expenditures were incurred for purchase of new computers, furniture and fixtures. The assessee's explanation that these expenditures incurred for only to maintain the existing assets, was rejected. 28. Still aggrieved, the assessee is in appeal before us. 29. We have heard both the parties and have carefully gone through the orders of the authorities below. We have perused the material on record. In so far as the expenses of Rs. 1,56,000/- towards purchase of wooden pallets (Two way double deck reversal type size 48" x 48" running into 100 numbers), we find that there is no finding that these wooden pallets were utilized in creating any new assets. These were used for the purpose of transportation of barrels of oil from factory to the company owned depot and storing the s....
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.... of Rs. 2,00,000/- out of telephone expenses on the ground that the same were personal in nature. 32. On an appeal, the learned CIT(A) reduced the disallowance to Rs. 1,00,000/- under each head. With regard to the vehicle expenditure, the CIT(A) has observed that the assessee already taken car allowance as perquisite in the hands of some of its employees. Still, the CIT(A) considered it fit to restrict the disallowance to Rs. 1,00,000/-, which in our considered opinion, is totally based on surmises and presumptions. The CIT(A) has not given any justifiable basis to upheld the disallowance to the extent of Rs. 1,00,000/- under the head "Vehicle expenses". Similarly under the head "Telephone expenses", the CIT(A) has reduced the disallowance to Rs. 1,00,000/- without there being any material to support the disallowance. 33. After considering the totality of the facts and circumstances of the case and having regard to the admitted position that the disallowance has been made purely on ad hoc basis, without there being any material to support the same, we delete the disallowance of Rs. 1,00,000/- each under the head "Transport Expenses" and "Telephone Expenses" respectively as up....