TaxTMI 
TaxTMI 
2019 (9) TMI 300
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....is bunch of appeals relating to the assessee and in other year, cross appeals filed by assessee and Revenue were decided by the Tribunal in the first round vide order dated 31.03.2010. The assessee carried the matter before Hon'ble High Court and the Hon'ble High Court in Writ Petition No.3650/2014 vide judgment dated 14.08.2014 has remitted the issue of allowability of service charges, back to the file of Tribunal. The relevant findings of the Hon'ble High Court are vide para 19, wherein the Tribunal was directed to decide and consider the claim in relation to service charges by taking into account the contentions and case of both the sides. The Hon'ble High Court vide para 20(C) has recalled the order of Tribunal dated 31.03.2010 to the extent of claim of service charges including travelling expenses and the appeal was restored back to the file of Tribunal for decision afresh on merits and in accordance with law. The Hon'ble High Court thus, directed the Tribunal to decide the claim in accordance with factual and legal aspects of case. Hence, these appeals were consequently fixed for hearing and were heard from date to date. 4. The issue which needs to be adjudicated in the pr....
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....the reasons:- i) That the expenses were claimed only on the basis of an agreement between the assessee and Coca Cola India Inc. ii) That the assessee did not furnish any evidence of services actually rendered by the Coca Cola India Inc. even when specifically asked for by the A.O. vide order sheet entry dated 04.03.2002 and letter dated 07.03.2002. 2. On the facts and in the circumstances and in Law, the CIT(A) erred in not appreciating the decisions of the Apex court in the case of Swadeshi Cotton Mills (63 ITR 57) and Lachminarayan Mandanlal v/s CIT (86 ITR 439) wherein it was held that mere existence of an agreement is not sufficient to prove that the expenditure was incurred wholly and exclusively for the purpose of business. 3. On the facts and in the circumstances and in Law, the CIT(A) erred in allowing the relief to the assessee @ 70% of total service charges, while he himself has given adverse comments in this regard in para numbers 5.4.3, 5.4.5, 5.5, 5.6.5, 5.6.6 of his order. 4. The order of the CIT(A) be vacated and that of the A.O. be restored. 7. Briefly, in the facts of the case, the assessee was a public limited compan....
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.... for the period 01.04.1997 to 31.12.1997. Another debit note dated 09.09.1998 was for expenses incurred from 01.04.1997 to 31.03.1998. The assessee explained that the said expenses were claimed by Coca Cola India Inc (in short 'CCI Inc') towards cost of services rendered and another 5% was charged as markup. The Assessing Officer took note of the business activities carried on by assessee and observed that initially during the year the assessee was having three divisions for the period from 01.04.1997 to 30.10.1997 i.e. Concentrate Division, Pet & Can Division and Glass & Bottles. The manufacturing process carried on by assessee under different divisions was detailed in Annexures 4 and 5 annexed to the assessment order. The finished products for three divisions were non alcoholic beverage base, can & pet and glass & bottles. For the period from 01.12.1997 to 31.03.1998, the Assessing Officer took note of business activities of assessee. The assessee had filed a petition in February, 1999 with the Hon'ble High Court of Bombay for scheme of arrangement under section 391 and 394 of the Companies Act, 1956 and the effective date for the scheme was 30.11.1997. The Hon'ble High Court vid....
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.... regard vide questionnaire dated 10.10.2000. The Assessing Officer in this connection noted that the assessee only filed statements mentioning one entry as service charges paid to CCIL amounting to Rs. 5,74,18,785/- and no other supporting details were filed. On further enquiries, the assessee only submitted copy of service agreement along with debit notes on 30.03.2001 which were annexed by the Assessing Officer as Annexure 3. The Assessing Officer also perused service agreement which was annexed as Annexure 2 to the assessment order, which revealed that services stated to be rendered under the agreement were in the nature of supply of technical knowhow. The Assessing Officer thus, in this connection observed that ultimate holding company, which was the owner of brand, had given license to the assessee company for the use of its trademarks and trade secrets for manufacturing of concentrate base and there was no apparent consideration, which had been paid to ultimate holding company for allowing use of its trademarks and trade secrets. The Assessing Officer had held that combined reading of both the agreements i.e. license agreement and service agreement revealed that the amount pa....
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.... basis of said debit notes and in terms of service agreement dated 01.04.1997, copy of which agreement was made available to the Assessing Officer only on 30.03.2001. During appellate proceedings, the assessee furnished additional evidence in the form of letter dated 23.07.2002, which was forwarded to Assessing Officer to submit remand report. The remand report is reproduced at page 52 of appellate order, under which it is reiterated by Assessing Officer that the total basis for claiming service charges as allowable expenditure was the service agreement. However, during scrutiny proceedings, the assessee could not produce any iota of evidence regarding actual rendering of services by TCCC to the assessee company. Thus, in view of failure on the part of assessee to substantiate its claim of actually rendering of services, service charges claimed need to be disallowed. It was further reported that burden of proof of substantiating the claim by way of positive evidence was upon the assessee which has not been discharged. Mere book entries in third party account or mere execution of service agreement would not automatically entitle the assessee company for reimbursement of service char....
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.... and exclusively for the purpose of business of assessee company as CCI Inc, (branch office) by its very genesis was required to take care of interests of parent company as well as the bottling units / entities including Hindustan Coca Cola Beverage Pvt. Ltd. From the information submitted by assessee which is referred in paras 7 and 7.1 at pages 56 to 58 of appellate order, the CIT(A) concluded that branch office was meant to provide services to licensed bottlers, to build up quality and goodwill of TCCC brand, besides rendering services to assessee company. He was of the view that these were basic facts, which need to be kept in mind for taking a decision on the issue. He also noted that these aspects were not before the Assessing Officer to take right decision regarding service charges and hence, there was need to enhance disallowance out of service charges. Another agreement i.e. license agreement dated 01.06.1993 between assessee and Coca Cola was perused. As per clause 6 of the license agreement, TCCC was to provide technical and managerial services to the assessee in the area of manufacturing, distribution, marketing, advertising, accounting and other skills required by asse....
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....s as well as other group companies. This fact could be culled out from assessment order and Balance Sheet of CCI Inc. Branch office. The enhancement notice issued by CIT(A) talked about admission that major part of services rendered by CCI Inc. were directly to the assessee but some part of it related to bottlers could not be overlooked. The CIT(A) then referred to submissions of assessee dated 03.03.2003, copy of which is enclosed as Annexure 6 to the appellate order and pointed out that the same would make it clear that the assessee was not stating true facts in its earlier submissions with regard to the exclusive nature of CCI Inc operating only for the assessee and held it to be not correct. 11. He further referred to separate agreement between bottlers and TCCC and observed that there was no contractual obligation on the assessee to incur any expenses or provide services to bottlers. The bottlers were required to purchase concentrate from the assessee as per bottler's agreement with TCCC. The services were rendered by CCI Inc. for quality control of bottlers, plants & products, servicing of bottlers' supply, etc. and they were directly rendered to them without any direct bu....
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....served that part of expenses booked by assessee on infrastructure and manpower requirement of bottlers were to be considered attributable to the bottlers or bottling entities and he also noted that they had separate service agreement. The whole argument of assessee that the Indian branch of CCI Inc. was incurring all expenses exclusively for the benefit of assessee was found to be not correct. The CIT(A) took note of para 1.2.1 of the submission dated 03.03.2003 of assessee, wherein he admitted that some part of services rendered by CCI Inc. related to bottlers but the argument of assessee was that the said services were also for the benefit of assessee as bottlers problems adversely affect the assessee's sale/profit. The CIT(A) in this regard held that there is no direct nexus of these services rendered by CCI Inc., with the business of appellant as the bottlers are licensed by TCCC, who was the main beneficiary. He further observed that services rendered by CCI Inc. to the bottlers for quality improvement, for purchase of new machinery, etc. were services rendered to bottlers for their business needs in terms of bottlers agreement of TCCC with the bottlers. He further noted the n....
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.... assessee. He also identified voucher Nos.7741 to 7744, 7750, 7790, etc. which were basically for marketing campaigns and legal issues of bottlers. Further part of expenses incurred by Mr. G. Kumar, Production Service Manager were not allowable and the assessee did not furnish documents and evidences mentioned in submissions. The CIT(A) acknowledged the vouchers which depict services rendered for the business needs of assessee company under para 8.7. He pointed out that expenses were either to be allowed in full or partly as they were internal HR functions of CCI Inc. for selection of candidates. Statement on oath of Mr. K.S. Nair, who was the key person of assessee company since 1994, was recorded on 22.05.2003. In the discussion, he admitted that vouchers submitted by CCI Inc. were not checked voucher-wise but quarterly audit of the same was done. He however, could not produce any such audit report stated to be prepared by M/s. Ernst & Young, C.As. He pointed out that CCI Inc. provided technical, legal, marketing, finance, information system and HR related support to the assessee company. The quality of concentrate manufactured by assessee was mainly checked and maintained by the....
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....ted the fact that CCI Inc. was not set up exclusively to manage assessee's business. Reference was made to letter to RBI by TCCC dated 26.09.1994 that it was undertaking activities not only to assessee but licensed bottlers, various suppliers to licensed bottlers and towards building equity and goodwill of TCCC's brand. Reference was made to letter dated 23.05.1994 in this regard. It was further observed by CIT(A) that after demerger of bottling operations of two units from the assessee company, no services were required from CCI Inc., which was being rendered as bottler to the assessee. Further, there were specific services rendered by CCI Inc. to bottler with no direct relevance to the assessee. The CIT(A) held that the cost related to coordination between assessee and bottler was though allowable business expenditure of assessee but this line of arguments could not be stretched to include cost of services directly rendered to the bottlers by CCI Inc. Further, reference was made to marketing strategy designed by S&OP meeting and it was held that these marketing strategies were required to be developed, not only for and on behalf of assessee, but also for brand image and enhanced ....
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....eration, the bottlers were sixty in number; who in turn, from the concentrate purchased by them manufactured / made drinks and sold the same in the market. The assessee claims that sale proceeds of selling the concentrate to bottlers were its income, wherein CCI Inc. had licensed the assessee the brand name at no cost base. The Ld. AR pointed out that there were four-fold transactions with CCI Inc.; at the top, the assessee manufactures concentrate and then bottlers who makes the drinks from concentrate and the ultimate was various persons including retailers, who in turn, sold it to the consumers. He then referred to history of the case and pointed out that assessment year 1996-97 was the first year in which the assessee was assessed to tax. In assessment year 1997-98, there was disallowance of service charges paid by assessee to CCI Inc., wherein the Assessing Officer had disallowed 10% of service charges. The CIT(A) enhanced the disallowance to 25% and the Tribunal in the second round had allowed expenses fully. In the first round, the Tribunal had sent back the matter but then the Hon'ble High Court had remitted the matter back to the Tribunal to look into it and he further poi....
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....al services, which were provided by CCI Inc. He then stressed that there were three facets which need to be kept in mind; firstly increase in business of bottlers also resulted in increased sale of concentrate and hence, assessee's profits increased; secondly, the assessee was sole supplier of concentrate to bottlers and thirdly bottlers were sole purchasers of concentrate. 17. He then pointed out to the provisions of section 37(1) of the Act which only talks of wholly and exclusively for the purpose of business, whereas the test applied by Revenue was 'solely' for the purpose of business. Reliance was placed on the decision of Hon'ble Supreme Court in Sassoon J. David & Co. (P) Ltd. vs. CIT (1979) 118 ITR 261 (SC). The Ld. AR makes special reference to pages 3 and 4 of assessment order, wherein the Assessing Officer had noted that for use of trademarks, no royalty was being paid by assessee and at page 14, total expenditure was Rs. 70.40 crores on account of service charges. He then referred to the order of CIT(A) which at page 50 has referred to four debit notes. It was pointed out to the Ld. AR that the last debit note was dated 09.09.2008, which was after the close of ye....
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....RBI dated 28.07.1993; it was initially exclusively for manufacturing process affairs but later services were provided to bottlers for which, permission was sought. 18. He then referred to the order of Tribunal in the first round and submissions of assessee and reply of Revenue and assessee's rejoinder to the same and pointed out that it was the plea of assessee that advertisement expenses also benefitted the bottlers. Similarly, service charges also included the benefit to the bottlers. He further referred to the order of the Hon'ble High Court in assessee's own case in Coca Cola India P. Ltd. Vs. ITO and others (2007) 290 ITR 464 (Bom), wherein the Hon'ble High Court has accepted that apart from incurring service charges, the petitioner incurred huge marketing expenses to boost the sales of non-alcoholic beverages which ultimately boosts the sales of concentrate. He pointed out that same simile applied to even service charges. The Ld. AR pointed out that the Tribunal acknowledges that the assessee had not furnished full details before the Assessing Officer, but details were filed before CIT(A) and hence the matter was restored back to substantiate the claim of expenditure with ....
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....e pointed out that Tribunal in assessment year 1997-98 had allowed the claim but in assessment year 1998-99 it was not allowed. In this regard, he placed reliance on the decision of Hon'ble Bombay High Court in CIT Vs. Alfa Laval (I) Ltd. (2006) ITR 0445 (Bom), wherein expenses incurred on wife of Managing Director was allowed. He pointed out that expenses were for conference at Phuket and also referred to the assessment order of CCI Inc, placed at pages 85 to 97 of Paper Book Volume-2. He also pointed out that the year of admissibility of expenses was not relevant where the rate of tax was same. He placed reliance on the following decisions: i) CIT Vs. Excel Industries Ltd. reported in 358 ITR 295 (SC) ii) CIT Vs. Nagri Mills reported in 33 ITR 681 (Bom) 20. He then referred to credit note received and unaccounted for in assessment year 1999-2000 and it was pointed out that if in assessment year 1998-99 it was denied, then in assessment year 1999-2000, the same was to be allowed. He however, pointed out that this entire exercise was futile as per order of Hon'ble Supreme Court and the Hon'ble High Court. He stressed that credit note was to be charged when ....
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....connection to the assessee, such expenses could not be charged to assessee. 22. The Ld. CIT-DR referred to expense-wise breakup of CCI service charges filed before the CIT(A) for the first time, which is available at pages 138 and 139 of Volume-I and pointed out that total service charges charged were Rs. 63.19 crores. Our attention was drawn to item No.1, 2, 3 and 5 of said list and stressed that CCI Inc. had not provided complete details and even the breakup of expenses was not available with assessee. Where the services had overlapped and the assessee was not able to substantiate services, then allocation key had to be applied. He stressed that onus was upon the assessee to give details where it specifically states that expenses were incurred wholly and exclusively for its business purpose. The Ld. CIT-DR questioned that what precluded / prevented the assessee from filing complete details. He then referred to four debit notes filed by assessee, wherein three were for this year and last one was dated next year. He said that from the perusal of debit notes, the nature of services and for what purpose had not been established. Further evidences by way of vouchers were not filed ....
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....f verification. 25. The Ld. CIT-DR then referred to various clauses of license agreement dated 01.06.1993 (page 17, Vol.I) and pointed out that in case we go through these clauses, then the assessee was under tight control of parent company and had to follow the norms. There was no discretion as far as sale of concentrate was concerned, as the same had to be sold to bottlers as prescribed by TCCC. Further, the assessee had no role to take any business decisions. 26. The Ld. CIT-DR then referred to agreement between bottlers and TCCC (page 39, Vol.III) and pointed out that under clause 6, obligations of bottlers are provided and under clause 7 it is provided that amounts could be spent for advertising and marketing and then he referred to other clauses of said agreement. He then summarized the same and stated that bottlers were under obligation to carry out advertising and marketing and also to maintain hygiene. He thus, emphasized that in view of various terms / clauses agreed upon between TCCC and bottlers, it was not necessarily incumbent upon the assessee to incur expenditure relating to Bottlers. 27. The Ld. CIT-DR then referred to para 55 of order of CIT(A) for assess....
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....(A) had relied on the said decision. d) CIT Vs. Panipat Woolen & General Mills Co. Ltd. (1976) 103 ITR 66 (SC) for the proposition that commercial expediency needs to be established. e) Kedarnath Jute Mfg. Co. Ltd. Vs. CIT (1971) 82 ITR 363 (SC) for the proposition that whether the assessee was entitled to deduction or not - dependent on facts of each case. f) Swadeshi Cotton Mills Co. Ltd. Vs. CIT (1967) 63 ITR 57 (SC) for the proposition that question of expenditure made wholly and exclusively for business, to be decided on facts of the case. g) CIT Vs. Amalgamation Pvt. Ltd. (1997) 226 ITR 188 (SC) for the proposition that there must be nexus between nature of expenses and business of assessee. h) Lachminarayan Madanlal Vs. CIT (1972) 86 ITR 439 (SC) for the proposition that mere existence of agreement was not sufficient to prove that expenses were wholly and exclusively incurred for the purpose of business. i) Chemaux (P) Ltd. Vs CIT (1977) 109 ITR 705 (Bom) for the proposition that for deduction under section 37 of the Act, burden of proof always lies on assessee. j) Premier Breweries Ltd. Vs. CIT (2015) 372 ITR 18....
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....ers. 32. The Ld. AR then referred to agreement of CCI with Bottlers placed at page 39 of Volume-3, dated 25.05.1994, where under clause 2 reference is made to company or authorized suppliers i.e. assessee. Coming to agreement with the assessee i.e. License Agreement placed at page 17 of Volume-1, wherein the agreement was to manufacture and sell and this makes assessee the authorized supplier. Further, reference was made to para 3(d) of agreement, wherein the assessee could sell concentrate only to authorized bottlers. Then the assessee pointed out that in Service Agreement between CCI Inc and assessee, under clause 5, reference is to any of the subsidiary companies including authorized suppliers. Under clause 6, it talks of 'actual cost'. In this regard, he pointed out that where the Auditor had certified that expenses were incurred, then the same had to be allowed. Referring to arguments of Ld. CIT-DR on services to group companies other than assessee, pointed out that same was raised in the first round before Tribunal and there was no adverse finding. Referring to order of Tribunal in the first round dated 31.03.2010 placed in Paper Book-2 at pages 101 to 194 with special ref....
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.... filed by assessee. It was also pointed out that similarly loss on sale of assets which were not used by assessee, was not to be allowed as deduction. 34. The Ld. CIT-DR coming to next plea of Ld. AR that debit notes were certified by the Auditor and supported by audit report, pointed out that audit report was not sacrosanct. He stressed that where the basis of expenditure was available, then why the same was not made available to the Assessing Officer. He then referred to para 5.3.4 at page 26 of CIT(A)'s order and reiterated that for this year, it was case of 100% disallowance by Assessing Officer. Where the assessee did not furnish evidences, so after holding that no supports were filed, CIT(A) held that some expenses related to assessee though assessee produced vouchers of June, 1998 and March, 1999 only. Referring to letter of approval from RBI, which allowed CCI Inc to open branch office in order to give services to group companies, the Ld. CIT-DR pointed out that basic details of services to group companies have not been given. He then took us through various paras of the order of CIT(A) starting from para 5.4.2 to 6.1.1 and placed strong reliance on the said findings of ....
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....er of actual cost has to be kept in mind, so reliance by assessee on advertisement cost case law would not support the payment of service charges. With regard to reliance on CIT Vs. Excel Industries Ltd. (supra) by the Ld. AR, it was pointed out by Ld. CIT-DR that the concept of rate of tax was in the context of duty free imports and the DEPP benefits which were notional benefits but the said decision was not in case of real income. He stressed that DEPP was notional and would arise when exports happen. So, the Hon'ble Apex Court had decided the year of taxability. However, income in the hands of assessee had to be determined vis-à-vis year to which it is related. He stressed that this was the second round of appeal and the issue which is to be addressed is whether the vouchers were adequate enough and also whether vouchers asked for by Assessing Officer and CIT(A) have been filed. He also pointed out that this issue had been left open by the Hon'ble High Court for the Tribunal to decide. 36. The Ld. CIT-DR concluded by pointing out that the assessee was not entitled to the claim of expenditure because of following propositions:- i) Where the assessee has not bee....
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.... allocated and were accordingly, charged. The plea of assessee was that invoices were also raised on the basis of split up of expenses. 38. After close of hearing, another written submissions were filed by the Ld. AR in respect of grounds of appeal for assessment years 2000-01 and 2004-05 and also filed reply to the written submissions filed by the Ld. DR, wherein it has reiterated earlier submissions made which were in reply to oral submissions made by the Ld. DR. 39. Before adjudicating the issue, we would refer to the facts and decisions of lower authorities in assessment year 1999-2000. 40. The Assessing Officer during the course of scrutiny proceedings noted that the assessee had debited service charges amounting to Rs. 45,27,29,472/-. During the course of scrutiny proceedings, the assessee stated that total debit on account of service charges at Rs. 54,22,93,800/-. The details of debit / credit notes raised by CCI Inc are available at page 12 of the assessment order. The Assessing Officer noted that details of Rs. 54.23 crores included debit note dated 14.12.1999 amounting to Rs. 8,95,64,328/- which was not raised during the relevant assessment year and hence, the sa....
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....ciation is to be allowed only if it fulfills the conditions laid down in section 32 of the IT Act and where the assessee was not the owner of assets, it could not claim the aforesaid expenditure and the same was disallowed. Further, the assessee had reimbursed the expenditure of Rs. 1,47,61,231/- on account of payment of service tax which was charged by CCI Inc to the assessee. The Assessing Officer noted that service tax was paid by CCI Inc to the Excise Department as the liability of payment of service tax was of the service provider. Since it was not the liability of assessee, then the contention of assessee in this regard was not accepted as the assessee had not provided any services and hence, there was no liability for payment of service tax and it was disallowed. Regarding remaining service charges of Rs. 35,12,09,987/-, the assessee during scrutiny proceedings was asked several times to produce the details of services rendered. However, the assessee emphasized on service agreement for allowability of expenditure. Since the details filed by assessee company in this regard were only general in nature, the Assessing Officer rejected the claim of assessee and disallowed expendi....
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.... for assessment year 1998-99. Furthermore, in the light of service agreement between CCI Inc and HCCBPL, it became necessary to examine the extent of service charges allocated by CCI Inc between assessee and HCCBPL. He referred to the communication between CCI Inc and RBI with special reference to letter dated 28.08.1997 referred in para 5.4.2 at page 33 of appellate order and from reading of the said letter observed that it was clear that CCI Inc had been, even prior to July, 1997 rendering services to the holding company and other downstream companies in India. Vide para 5.4.3, the CIT(A) observed that even during appellate proceedings, the assessee in spite of repeated opportunities having been provided, did not submit even basic details of the nature of services, along with verifiable evidence, rendered by CCI Inc to the other business entities covered by new service agreement. Even the basis for allocating service charges to entities of the group other than assessee by CCI Inc were not made available. Only in the submissions dated 27.11.2003, the assessee submitted names of 13 employees who were providing services to HCCBPL but from the discussion it further transpired that HC....
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....ployees, capital expenses and expenses incurred for other than business consideration. The CIT(A) further observed that the disallowance of depreciation of Rs. 8.67 crores reimbursed by the assessee to CCI Inc was not correct. However, the amount had to be taken into account while disallowing part of service charges. Further, against the disallowance of service tax of Rs. 1.47 crores, which was reimbursed by the assessee to CCI Inc, the CIT(A) held that the said stand is also not correct but the same has to be considered for working out the percentage of disallowance out of service charges. Another item of expenditure was loss on sale of assets. The CIT(A) held that the said amount is not allowable as it would be required to be set off against block of assets and depreciation re-worked and hence, disallowance of Rs. 36,14,397/- was warranted. He thereafter, estimated reasonable disallowance out of total expenditure i.e. 30% of service charges claimed as against 25% in assessment year 1998-99. He thus, worked out the expenditure to be disallowed in the hands of assessee at Rs. 16,22,50,083/- as per calculation at page 49 of appellate order. 44. Both the assessee and Revenue are i....
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....mine and discuss the legal position as laid down in the various decisions relied upon by both the parties. 18. It is seen that the CIT(A) in para 8.3.1.(v) of his order had placed reliance on the decisions of the Supreme Court in the cases of Travancore Titanium Product Ltd. vs. CIT (1966) 60 ITR 277 (SC) and Indian Aluminium Co. Ltd. vs. CIT (supra). 18.1 It was pointed out by Shri Dastur, the learned Authorised Representative, that the ratio laid down by the Supreme Court in the case of Travancore Titanium Product Ltd. (supra) was modified by a Larger Bench of five Judges of the Supreme Court in the case of Indian Aluminium Co. Ltd. (supra). 18.2 In the case of Travancore Titanium Product Ltd. (supra), the test adopted by the Supreme Court was that 'to be a permissible deduction, there must be a direct and intimate connection between the expenditure and the business'. 18.3 In the case of Indian Aluminium Co. Ltd. (supra), the above test was qualified by stating that if the expenditure laid out by the assessee was 'incidental' to the carrying on of his business, it should be allowed. In other words, the requirement of a 'direct and intimate conn....
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.... Representative pointed out in this regard that the crucial expression used in s. 37(1) was 'purpose of business', and in this connection, he drew our attention to the discussion at p. 624 of The Law and Practice of Income-tax (Eighth Edn.) by N.A. Palkhivala, which reads as under : "Purpose of business.-Before the corresponding section in the 1922 Act was amended in 1939, allowance was given in respect of any non-capital expenditure 'incurred solely for the purpose of earning such profits or gains'. Under the present law the expenditure should be laid out 'wholly and exclusively for the purposes of the business'. The two expressions are not synonymous; the latter is wider than the former. Expenditure may be for the purpose of the business although it may not be incurred for the purpose of earning the profits of the business. This is established by the decision of the Supreme Court. Subba Rao, J., speaking for the Supreme Court, observed in CIT vs. Malayalam Plantations Ltd., "The expression 'for the purpose of the business' is wider in scope than the expression 'for the purpose of earning profits........" The law directs attention to the purpose for whic....
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....r an expenditure and how much to incur. (vi) the requirement of 'commercial expediency' has to be determined from the point of view of a prudent businessman and not from the point of view of the AO. (vii) the test is : existence of a 'nexus' between the expenditure and the 'purpose of business'. 48. Then, referring to the facts of case vide para 20 it was noted that expenses pertaining to earlier years of Rs. 3.37 crores related to earlier years and not related to this year. The other reason given by Assessing Officer was that item-wise details of payment and evidence / details of services rendered by CCI Inc to assessee were not furnished. But the Assessing Officer had not gone into that reasoning but had made disallowance for the reason that it did not relate to that year. Vide para 23, the Tribunal notes that in earlier order dated 05.10.2005 the Tribunal had given clear finding that Rs. 3.37 crores related to earlier years and had to be excluded. This finding of Tribunal was noted by the Hon'ble Bombay High Court in para 25 of its order and was not reversed; therefore, they confined themselves to disallowance of balance Rs. 7.42 crores (para 23). The Tribun....
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....ers manufacture beverages from 'concentrates' purchased from the assessee company. An increase in the volume of business of the bottlers has a direct effect of increasing the volume of the business of the assessee. It can be nobody's case that the volume of the business of the assessee company and of the bottlers was not intricately linked with each other, and that the services rendered by CCI Inc. to the bottlers did benefit the assessee by helping the bottlers to increase the volume of their business. Therefore, in respect of the expenses relating to the services rendered by CCI Inc. to the bottlers, it can be said that the necessary 'nexus' did exist between such expenses and the 'purpose of the business' of the assessee. 27. Shri Kapila the learned Departmental Representative, reiterated that it was the TCCC which was doing business in India, and that the assessee was merely a captive contract manufacturer and supplier of concentrate. 27.1 Shri Dastur, the learned Authorised Representative, responded by saying that the learned Departmental Representative had made an altogether new case, that if what was contended by the learned Departmental Representative was ....
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....ices is immaterial. The mandate of the Supreme Court, as noted in the above paras, is very clear. Therefore, on the facts of the case, we see no justification for the addition of Rs. 7,42,98,465 (Rs. 10,80,04,482 -3,37,06,017)." 49. The case of assessee before us is that the issue stands covered by earlier order of Tribunal in assessment year 1997-98 and there is no need to revisit the issue in subsequent years and entire expenditure of service charges needs to be allowed in the hands of assessee. However, the case of Revenue is that facts in the present case were at variance i.e. first of all, service agreement had undergone revision and new terms had been entered into between CCI Inc and assessee w.e.f. 01.04.1997. The second point of distinction was that, earlier, assessee was carrying on three divisions, but from 01.01.1998, the assessee has stopped its Bottling Division and was only engaged in the manufacture of concentrate. Hence, the services which were rendered by CCI Inc to bottlers have no nexus to the services provided by assessee and there was no basis for CCI Inc to charge total cost of its operations to assessee. Further, proceedings for assessment year 1997-98 wer....
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....as not an agent of company for any purpose. As per clause 4, in consideration of services provided by CCI Inc, the assessee was to pay fees on the basis of invoices issued by CCI Inc. Fees to be paid shall be calculated on the basis of 'actual cost' incurred by CCI Inc in providing such services plus mark up of 5% on such costs. 53. The assessee entered into a fresh service agreement on 01.04.1997 with CCI Inc under which clauses 2, 3 and 4 were inserted. As per clause 1, CCI Inc had to provide services for development and promoting export activities of assessee and also to advice, monitor and coordinate the activities of bottlers in the country with assessee and consequently, provide several services enumerated in clause (b). As per clause 2, it was agreed that the company would provide technical know-how, services and assistance to assessee in all its manufacturing operations including its manufacture of products in Cans and Pet bottles, which included not only technical advice and guidance in the manufacturing operations, but also assistance and monitoring quality of finished goods and package in particular, Cans and Pet packages. Clause 3 talked of marketing support to asses....
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....on, the statement of General Manager of assessee company was also recorded and the submissions of assessee on different dates were considered including copies of minutes of sales and operation meeting. The CIT(A) from the perusal of accounts of CCI Inc noted that the said company was providing specified services to other group companies as well, which were clear from the Notes on Accounts to Balance Sheet of CCI Inc Branch office for the period ending 31.03.1999, which was enclosed as Annexure 4 to appellate order. Reference was made to item No.4 of Notes and it was observed by him that submissions of assessee that Branch Office was set up exclusively to carry out assessee's business operations and had been doing so, was not apparently correct. 55. Another fact which was noted was that cost incurred by CCI Inc was not monitored at any level by the assessee company. The vouchers were maintained by said concern at Delhi only and the payments were made without verifying anything but on the basis of debit notes. The Finance Manager of assessee company also stated that only debit notes for 9 months were with the assessee company and nothing further was taken by assessee company. On t....
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.... in cold drinks. The CIT(A) also noted the arguments of assessee that services rendered to bottlers, were also for the benefit of assessee as bottlers problems adversely affected the profits of assessee. Then, looking at the details furnished by assessee in the form of debit notes without any support, the CIT(A) further observed that out of rent expenses reimbursed, part of were not wholly and exclusively for the purpose of assessee's business as other business entities were also operating from the said business. Further, similar was the position with regard to telephone charges. With regard to Miscellaneous Expenses, no breakup was given. 57. Another point noted was the write off of security deposit for the premises taken on rent at Mumbai and it was observed that allowability of expenses was doubtful. Vis-à-vis reimbursement of expenses incurred for training of CCI Inc employees for International Laws relating to 'Brand' and 'trade marks', it was observed that they were not business expenses of assessee. 58. Expenditure on foreign travel of spouses of Rs. 21,50,348/- was also noted by CIT(A) including expenses of various employees for giving technical support to the ....
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.... also filed vide letter dated 21.02.2003 and the same reads as under:- Break up of expenses incurred by CCI Amount (Rs.) Salaries & allowances 174,259,875 Contribution to provident & other funds 17,087,626 Staff welfare 4,000,596 Moving & Relocation 28,158,579 Travelling and Conveyance 111,281,575 Payment to auditors 743,433 Consultancy Charges 18,388,413 Rent 51,003,711 Telephone expenses 58,070,148 Repairs & maintenance 14,123,023 Insurance 2,885,119 Miscellaneous expenses 48,945,624 Leasehold improvements w/off 3,584,044 Security deposit w/off 13,000,000 Sports sponsorships 7,591,646 Depreciation 48,775,744 __________ Total expenses 601,899,156 5% Markup 30,094,958 __________ Service charges 631,994,114 61. As against breakup of Rs. 63.19 crores, assessee had booked expenditure of Rs. 70.40 crores. The basis for booking expenditure are four debit notes, details of which are as under:- Date Amount 30.01.1998 48,25,08,612 30.01.1998 26,14,908 30.01.1998 98,10,668 09.09.1998 20,91,39,800 Total 70,40,....
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....atable to the year is to be allowed as deduction in the hands of assessee and in such scenario, had disallowed sum of Rs. 3.37 crores, which related to assessment year 1996-97. It is another matter that since the appellate proceedings for assessment year 1996-97 were pending, the said amount was considered in the said year. The Tribunal thus, has categorically held that only expenditure relating to the year under consideration merits to be considered for allowance and not expenditure which relates to the earlier year. The same principle is to be followed while allowing the claim of assessee for the year under appeal i.e. assessment year 1998-99. In such circumstances, the expenditure of Rs. 5.04 crores which admittedly, relates to assessment year 1997-98 is not allowable as expenditure in the hands of assessee, as it relates to the preceding year. However, in the present scenario, proceedings for assessment year 1997-98 have attained finality and the order of Tribunal has been passed, hence expenditure relating to assessment year 1997-98 to the extent of Rs. 5.04 crores is not allowable in the hands of assessee. We follow the principle laid down by Tribunal in assessment year 1997-....
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....as given to the assessee to give breakup of expenditure spent on the activities relating to manufacturing of beverages and the activities relating to bottlers. The expenditure debited during the year was Rs. 54,22,93,800/-. During the course of assessment proceedings, the assessee made further claim of Rs. 8,95,64,328/- which was as per debit note dated 14.12.1999. In reply to the show cause notice, the assessee filed submissions dated 13.03.2002 justifying incurring of expenditure which is reproduced under para 5.5 of assessment order. Vide letter dated 20.03.2002 (where assessment proceedings would get time barred by end of March, 2002), the assessee submits the breakup of service charges, which are reproduced under para 5.6 of assessment order. The Assessing Officer thus, deals with head-wise expenses claimed i.e. first, depreciation of Rs. 8.67 crores; the Assessing Officer notes from the return of income filed by CCI Inc with the Income Tax Authorities that in the computation sheet as against depreciation debited of Rs. 8.67 crores, depreciation claimed as per IT Act was Rs. 10.07 crores. The Assessing Officer observed that CCI Inc had claimed depreciation as per IT Act at Rs.....
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....d from engaging itself in manufacturing and quality control activities directly. The assessee failed to furnish basic details of nature of services rendered to other business entities except names of 13 employees who were providing services to HCCBPL. The CIT(A) further noted that initially it was 13 employees, thereafter, 140 employees from CCI Inc were recruited, who were transferred from CCI Inc to HCCBPL. Another point noted was from the list of employees as on March, 1999 working in three Departments dedicated to HCCBPL and CCI Inc, that out of 91 such employees, 78 were for bottling support. With regard to space occupied on rented premises, the assessee furnished details that out of total area of 88,000 sq.ft., space of 16,000 sq.ft. was occupied by Department rendering services to HCCBPL. The assessee claimed that it had identified and charged the relevant expenditure in providing support services to assessee company and HCCBPL but specific details were not filed and in the absence of basic details, the CIT(A) held that claim of assessee was not verifiable. The CIT(A) in final analysis held that all the expenditure incurred by CCI Inc with markup of 5% could not be the busin....
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....arises is whether the assessee had discharged the onus cast upon it to justify the nature of expenditure reimbursed under the garb of service charges. The debit notes have been raised by CCI Inc upon the assessee and as we have pointed out in the paras above, some of the said debit notes were issued during accounting period and one debit note, in each of the year, issued much after the close of assessment year, for which the claim of expenditure has been made during the course of assessment proceedings. The assessee had provided breakup of expenses and got vouchers test checked. First of all there is mismatch between the breakup of expenditure and final claim of expenditure from year to year. 70. Let us look at the breakup of expenses which is reproduced under para 60 relating to assessment year 1998-99. The expenditure on salaries and allowance was Rs. 17.42 crores and contribution to Provident Fund and other funds was Rs. 1.70 crores. The Assessing Officer and CIT(A) have time and again referred to services rendered by CCI Inc to assessee and to other concerns including providing services to HCCBPL with which it had entered into separate agreement w.e.f. 01.08.1997. In view of....
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....d no invitation details filed. Hence, reliance is misplaced. 72. Another item of expenditure is depreciation to the tune of Rs. 4.87 crores in assessment year 1998-99 and in assessment year 1999-2000, it is Rs. 8.67 crores. The Assessing Officer had made verification from the claims made by CCI Inc in its return of income and in the computation of income, depreciation to the tune of Rs. 10.07 crores as per Income Tax Act was claimed as expenditure. First of all, the depreciation is to be allowed to the owner of asset, who has utilized the said asset for carrying on its business. The assessee in this regard has pointed out that assets were used for the purpose of business of the assessee and hence reimbursement cost. But we find no merit in the plea of assessee in this regard and especially where the said depreciation has been allowed in the hands of CCI Inc at figure higher than what was claimed in the books of account. In such scenario, the issue which arises is whether the disallowance of entire expenses is to be made in the hands of assessee or part of expenses as made by CIT(A). The Revenue is in appeal from assessment year 1999-2000 onwards and has opposed the order of CIT(....
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....dated 04.10.2006 in this regard. 75. Now, coming to next issue raised in the present appeal which is whether in facts and circumstances of assessment year 1998-99 onwards, wherein the agreement for payment of service charges has been amended and fresh agreement has been entered into between the parties on 01.04.1997, the factual aspects were at variance. In the earlier year, terms of agreement were as per agreement dated 01.04.1995. The revised agreement dated 01.04.1997 as referred by us in the paras above had terms which are different from the terms of original agreement. This fact has been accepted by the Hon'ble High Court while deciding the appeal for instant assessment year and was the reason for setting aside the issue back to the Tribunal to decide the same after hearing both the parties. 76. Another aspect which needs to be kept in mind is that initially the assessee, in addition to manufacturing of concentrate, was also engaged in bottling activity which has been discontinued by assessee w.e.f. 01.01.1998. The assessee had Pet & Can unit, Ahmedabad unit, Goble Contract Packing Unit at Tarapore and units situated at various places. In such scenario, the question whic....
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....tible expenditure, then the question of commercial expediency is to be seen and if the payment or expenditure is incurred for the purpose of trade or business, it does not matter that the payment may enure to the benefit of third party. The Ld. CIT-DR on the other hand, read the said para further and said that the Hon'ble Supreme Court had further held that another test is whether the transaction is properly entered into as a part of assessee's legitimate commercial undertaking in order to facilitate carrying on of its business....; and it is immaterial that a third party also benefits thereby. The Hon'ble Supreme Court further held that but in every case it is question of fact whether the expenditure was expended wholly and exclusively for the purpose of trade or business of assessee. The Ld. CIT-DR stressed that the Hon'ble Supreme Court had laid down the proposition that it was question of fact in each case whether the amount claimed as deductible was laid out wholly and exclusively for the purpose of such business and if the fact finding Tribunal comes to the conclusion on evidence, to give finding, then it will become admissible deduction. He further referred to th....
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....xpenses were held to be directly connected with the assessee's business and were directed to be allowed. 81. The next reliance placed upon by the Ld. AR is on the decision of Hon'ble Bombay High Court in CIT Vs. N.G.C. Network (India) P. Ltd. (supra). In the facts of said case, the issue which arose was disallowance made out of advertisement and publicity expenses incurred by the assessee. The question was whether the amount paid was to be allowed as expenditure under section 37(1) of the Act. In the facts of the case, the said expenditure was disallowed in the hands of assessee on the ground that foreign principals had also benefitted from the said advertisement and whether expenditure was to be allowed in the hands of assessee. We find no merit in the reliance placed upon by the Ld. AR on the aforesaid decision as in the assessee's own case marketing expenses have already been allowed in its hands and the advertisement and publicity expenses are akin to marketing expenses and hence, this proposition cannot be extended for deciding the issue of allowability of service charges paid by assessee, which admittedly are paid as per terms of agreement entered into between the parties ....
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....awn to paras 15 and 16 of the said decision. In para 15, first aspect which was dealt in was whether the expression 'wholly and exclusively' as used in section 37(1) of the Act means 'necessarily' or 'solely'. The Hon'ble High Court referred to the decision of Hon'ble Supreme Court in Sassoon J. David & Co. (P) Ltd. vs. CIT (supra), Eastern Investments Ltd. Vs. CIT (1951) 20 ITR 1 (SC) and also the decision of Hon'ble Bombay High Court in CIT Vs. N.G.C. Network (I) (P.) Ltd. (supra), where the case of assessee was that the words 'wholly and exclusively' used in the Act does not mean necessarily or solely for its benefit. The Hon'ble High Court in this regard observed that in all the said cases expenditure was undisputedly incurred for the purpose of carrying on its business or profession and where such expenditure is incurred for the purpose of business and some third party gets incidental benefit, the expenditure under section 37(1) of the Act cannot be disallowed. The Hon'ble High Court categorically observed that there can be no dispute with the above proposition but in the facts of said case it was observed that expenditure incurred was personal in nature and benefit of suc....
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....tion:- (a) The item of expenditure not being of the nature described under Sections 30 to 36 of the Act; (b) The item of expenditure must not be in the nature of capital or personal expenses of the assessee; (c) The expenditure must be laid out wholly and exclusively for the purposes of business or profession. 87. Vide para 12 it was observed as under:- "12. If the assessee fails to satisfy any of these tests, the expenditure claimed is not allowable. The AO is duty bound to consider reasonableness of the expenditure including the bona fide nature of any item of expenditure and/or its quantum to the extent it may throw light on the bona fide nature." 88. In para 13, it was categorically held that mere fact that the accounts of the assessee contain debit of expenditure would not make the expenses deductible from the taxable profits. It was further held that the Assessing Officer was entitled to find out that the sums so paid are not wholly and exclusively laid out for the business, especially where the payment was made in utter disregard to the value of corresponding goods or services and without any satisfactory explanation for such disrega....
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....what extent it is to be attributed to bona fide business purposes. Where a person to whom the remuneration is paid is not a genuine entity or the recipient has not rendered any service, then in that event, the AO shall be justified in disallowing the amount paid as not having been wholly or exclusively laid out for the purposes of business. At the same time, it is also obligatory on the part of the assessee to prove the reasonableness of the amount spent. The proof is required so as to establish that the claim is bona fide. In a nutshell, each case has to be decided on its own merits taking into account the various factors, some of which, are enumerated hereinabove." 90. If we apply the principle laid down by the jurisdictional High Court while deciding the issue of what is the expenditure which is an allowable expenditure incurred for the purpose of business claimed under section 37(1) of the Act, then it is obligatory upon the assessee to prove reasonableness of the amount spent and also the claim is bonafide. But once the same is held to be a bonafide expenditure, then it is not in the realm of Assessing Officer to decide what is reasonable quantum of expenditure for the asse....
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....amounts as commission, does not bind the Income Tax Officer to hold that payment was made exclusively and wholly for the purpose of assessee's business. The Hon'ble Supreme Court in this regard had observed that it was still open to the Income Tax Officer to consider relevant facts and determine for himself whether the said commission was properly deductible under section 37 of the Act. The Hon'ble Supreme Court in such scenario upheld the order of Hon'ble High Court in holding that commission paid for obtaining supply orders from Government agencies was not allowable in the given circumstances. 93. The Ld. CIT-DR has also relied on the decision of Hon'ble High Court of Delhi in Buland Sugar Co. Ltd. Vs. CIT (supra) for the proposition that the assessee would be entitled to deduction only in respect of expenditure incurred by it for the purpose of its business and no expenditure incurred by it for the purpose of business of another assessee. It was observed by the Hon'ble High Court that in some cases where section of activities undertaken result in income which were not taxable, would not justify the disallowance of expenditure incurred by assessee for the purpose of it....
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.... manufacture of concentrate and also had bottling unit and was receiving services from CCI Inc for both the said units of business carried on by it, is not the case for the year under consideration and even for the later assessment years, hence the proposition laid down by Tribunal in assessment year 1997-98 was on different set of facts and cannot apply in entirety to the issue raised before us. Even the Hon'ble High Court had noted the arguments of standing Counsel before it and had observed accordingly. 97. Now, coming to the proposition whether assessee has proper and sufficient material to prove its case. The plea of assessee before us is that it is not case of authorities below that relevant material has not been produced. We find no merit in the said plea of assessee, which has been raised time and again before us. The case of Assessing Officer and CIT(A) has time and again being that the assessee has failed to cooperate and file the details, except for filing the breakup of expenses head-wise, the assessee had failed to even file what was disclosed under the so-called head-wise expenditure. Further even the breakup of expenses was at variance to total claim of expenditur....
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....have no issue to such proposition in case where the services which were availed by assessee for advancement of its business in turn, enures the benefit to some extent to the bottlers, then such expenditure can be allowed in the hands of assessee. But in case, any part of expenditure was solely for the benefit of bottlers, with whom CCI Inc had entered into specific agreement/s for providing such services to the bottlers; and where the assessee in the present set of years was not carrying any business of bottling and selling the beverages, then such expenditure which relates to the bottlers' exclusive business needs, cannot be allowed as deduction in the hands of assessee. There is no merit in plea of Ld. AR for the assessee. In any case, the Tribunal being last fact finding authority has power to go into factual aspects of the issue and decide the issue as per law. The question whether a particular sum has been expended wholly and exclusively for the purpose of business is essentially the question of fact to be determined by the Assessing Officer. The Tribunal as final fact finding body has thus authority to go into such questions and thus, decide the issue on the facts available o....
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....000-01, the Assessing Officer asked time and again the assessee to file details of travelling expenses, which totaled to about Rs. 9 crores. The perusal of assessment order clearly reflects the assessee having not complied with the directions of Assessing Officer in filing the said details in proforma which was intimated to it. In any case, the assessee has only furnished details to the extent of Rs. 1.23 crores and no details of balance expenditure was filed before the Assessing Officer. In such circumstances, where the assessee fails to comply with the directions of authorities, then what is the course of action which has to be followed by such an authority. Can the expenditure be allowed in the hands of assessee in entirety because the said expenditure was being incurred in line with terms of agreement entered into between two parties? The answer to the same is 'No'. The terms of agreement clearly stipulate the 'actual cost' borne for the purpose of business of assessee and it was incumbent upon the assessee to establish that such costs were for the benefit of assessee only. Several opportunities were given to the assessee, but the assessee failed to produce any material that th....
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....g to provisions of section 37(1) of the Act held that the onus of proof was upon the assessee to prove that each of the ingredients of said section have been satisfied before the expenditure could be allowed as deduction. The conditions are that the item of expenditure is not in the nature described under sections 30 to 36 of the Act; the item of expenditure is not in the nature of capital or personal expenses and the expenditure must be laid out wholly and exclusively for the purpose of business or profession. Thus, all these conditions of section 37(1) of the Act are to be fulfilled. In the absence of assessee having failed to furnish information and merely filing head-wise breakup of expenses, we cannot give complete blanket to the assessee and accept its plea that all expenditure which were charged by CCI Inc to it, were expenditure laid out wholly and exclusively for the purpose of its business. 104. Now, coming to the next argument of assessee that accounts of assessee are audited and as per the same, cost has been allocated to the assessee and the same have been paid with markup, we are unable to accept the aforesaid contention of assessee that all claims however, untenab....
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....creased by another sum of Rs. 2.16 crores. Thus, in total the assessee claims expenditure of Rs. 56.39 crores relatable to the year. The plea of assessee before us is that expenditure may be allowed in any of the years as the rate of taxes in each of the year is the same. As pointed out above, the last debit note for assessment year 1998-99 was for Rs. 20.91 crores was raised on 09.09.1998 out of total debit notes of Rs. 70.40 crores i.e. much after the close of assessment year. Similarly, in assessment year 1999-2000, debit note of Rs. 8.95 crores was issued on 14.12.1999 i.e. much after the close of accounting period and even the closure of the books of account. This claim was made by way of additional claim during assessment proceedings. In such scenario, it is very difficult to accept the pleadings made by the Ld. AR that it had provided all the details during assessment proceedings and the Assessing Officer/CIT(A) have failed to consider the same in entirety. The assessee has time and again changed its claim, but as that may be, we are considering even debit notes which were issued much after close of accounting period or close of books of account in the year to which it relat....
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....00-01 onwards, wherein also similar issue of claim of deduction on account of service charges was made. In assessment year 2000-01, the assessee had debited sum of Rs. 52.92 crores as service charges. The details of service charges for the year ended 31.03.2000 were submitted before the Assessing Officer were as under:- Total service charges paid to CCI Inc - Rs. 52.92 crores Less: Details relating to A.Y. 1999-2000 - Rs. 8.95 crores Details being submitted - Rs. 43.97 crores 110. Expenditure-wise details of Rs. 43.97 crores read as under:- S.No. Nature of services Amount (Rs.) 1 Salaries and allowance 26,63,48,960.03 2 Contribution to provident and other funds 2,04,59,438.95 3 Moving and relocation expenses 1,70,71,652.67 4 Depreciation 9,04,70,575.31 5 Staff welfare 44,83,944.14 Total 39,88,34,571.10 5% mark up 1,99,41,728.56 Service tax 2,09,38,814.98 Total 43,97,15,114.64 111. The assessee was asked to justify its claim of service charges. In reply, the assessee again referred to the letter dated 23.05.1994 to RBI, under which CCI Inc was....
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.... (iv) it was also brought to Ld. AR that box files submitted did not include information / vouchers relating to travelling expenses; (v) if the travelling expenditure is on employees of CCI Inc, then it is part and parcel of service charges; (vi) on the next date of hearing 29.03.2003 the assessee submitted details of travelling expenditure of Rs. 1.71 crores out of total reimbursement of travelling expenditure of Rs. 9.59 crores 113. The assessee was again asked to produce all the vouchers of travelling expenses and also to submit the details in the proforma. The travelling expenses were not paid with markup. Some vouchers submitted were sample checked and the Assessing Officer asked the assessee to explain the following:- a) Vr. No.76661 of Rs. 30,640/- Shri K V Nair - Jayashree Nair, why his wife travelled? What business purpose of assessee company served? b) Vr. No.96406 - Rs. 40,208/- Shri Ian Paul Pinto and family scouting trip for school and BLR office visit. How it is allowable expenditure? c) Vr. No.94856 - T V S Krishan - environmental management - Rs. 26,309/- - what business exigencies have been served. 114. How....
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....llowance by Assessing Officer. The items of expenditure are as under:- S.No. Items of Expenditure Difference 1 Rent 6,91,75,447 - 5,16,000 6,66,59,447 2 Repairs & Maintenance 1,46,45,430 - 18,29,908 1,28,15,522 3 Insurance 64,97,855 - 14,89,928 50,07,927 4 Rates and taxes 5,99,05,011 - 56,37,898 5,42,67,113 5 Communication expenses 4,04,82,154 - 52,37,181 3,52,44,973 6 Printing and stationary 1,16,60,360 - 5,68,461 1,10,91,899 7 Salaries and allowances 3,14,03,495 - 1,45,10,953 1,68,92,542 8 Contribution to PF 30,53,614 - 17,45,848 13,07,766 TOTAL 20,52,87,189 9 Travelling 10,09,52,522 - 40,21,169 9,69,31,353 117. The CIT(A) further observed that above computation was done on rough pages on the basis of data available on record and without any cooperation from the assessee and after considering the fact that neither employees nor fixed assets of assessee company had shown to have increased from last year. Admittedly, it was reimbursement to CCI Inc and the CIT(A) vide para 4.6 observed that it had not been explained by assessee ....
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....ial year 1999-2000. The so-called service agreement dated 09.05.2000 is to take effect retrospectively from 01.04.1999 but the same was executed after close of the accounting period. It is not understandable how the said terms of agreement were implemented during financial year in the absence of any agreement between the parties. The assessee was booking all these expenditure under the head 'service charges' upto assessment year 1999-2000 but in assessment year 2000-01 it claims to have undertaken this exercise of bifurcating certain expenses under the head 'service charges' and certain items of expenditure to be reimbursed. We may point out that under the head 'service charges' it had booked salary and allowance and even contribution to PF and other funds to the extent of Rs. 26.63 crores and Rs. 2.04 crores, respectively. Under the items of expenditure reimbursed also, there is booking of salary and allowances of Rs. 3.14 crores and contribution to PF of about Rs. 30 lakhs. Once the assessee has failed to explain how the said bifurcation has been made to two accounts i.e. items booked under service charges or items of expenditure reimbursed, we find in the absence of any agreemen....
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....dyear India Ltd. Vs. CIT (2000) 246 ITR 116 (Del) had laid down the proposition that where the assessee was unable to furnish details and / or to justify the claims with reference to vouchers, then the authorities would be left with no option except to disallow the portion of claim. Considering the magnitude of turnover and expenditure of expenses claimed, it was held that disallowance made in the said case could not be said to be unreasonable. The Hon'ble High Court also held that merely because the audit report is available, there is no fetter on the power of ITO to require the assessee to justify its claim with reference to records, materials and evidences. Such a power is inherent in the Assessing Officer in the scheme of the Act. 122. Another aspect of the issue is the standard of proof required for allowing the claim. In the instant case, where the assessee has received services from related concern, then the standard of proof required for allowing said claim in the hands of assessee was higher in the case of assessee than what is required to be established in other cases where the payment is made to stranger. We find support from the ratio laid down by the Hon'ble High Co....
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.... to the commission agent and that the expenditure could not be disallowed merely on the ground that detailed information as to how it was expended could not be proved. This was the contention before the appellate authority and it observed that when such large expenditure is incurred, complete proof should be given particularly when the appellant is a limited company. My finding is that expenditure has not been proved and therefore, cannot be allowed. The Hon'ble Bombay High Court on this ground given by appellate authority held it to be sufficient to disallow the claim of assessee company. Irrespective of the question as to whether the details of expenditure claimed to have been made by the commission agent had been furnished or not furnished, the Tribunal had recorded finding of fact that there is not even indirect evidence of any expenditure incurred on behalf of the company. The Hon'ble High Court held that the assessee company having failed to discharge the burden of expenditure being expended for business purpose cannot be allowed as deduction. 124. Applying the said dictate of the Hon'ble Bombay High Court, we decide the present appeal where we have in the paras above alre....
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....ting from assessment year 1999-2000 onwards and in assessment year 1998-99, disallowance has been made at 25% of total expenses. 127. We may again refer to the dictate of Hon'ble jurisdictional High Court in Ramanand Sagar Vs. DCIT (supra), wherein it has been held that the accounts of assessee contained debit and that debit had been duly authorized on behalf of assessee would not make expenses deductible from the taxable profits. The Assessing Officer is entitled to find out whether the sums so paid are wholly and exclusively laid out for the business of the assessee. In fact, it is his duty to apply his mind to this question. He is entitled to disallow any sum which may be held not for the purposes of business i.e. payment in utter disregard of the value of the corresponding goods or services and without any satisfactory explanation for such disregard. The Hon'ble High Court had also held that the Assessing Officer while exercising his discretion however, should exercise it judicially and according to law and not according to humour or fancy. It is the dictate of law that mere fact that the assessee had made payments itself would not be sufficient to entitle the assessee to cl....
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....ty of the present facts and circumstances, we hold that disallowance of expenses merits to be upheld in the hands of assessee, as the assessee has failed to discharge the onus cast upon it to furnish the details with support to establish that entire claim of expenditure had been laid out wholly and exclusively for the purpose of business. Accordingly, we uphold the disallowance @ 40% of service charges debited by assessee and also out of reimbursement expenses claimed from assessment year 2000-01. We have in the paras above already held that in assessment year 1998-99 the expenditure of Rs. 5,04,37,906/- relating to assessment year 1997-98 is not to be allowed as deduction in the hands of assessee. Similarly, extra claim of Rs. 2,16,41,969/- in assessment year 1998-99 is to be disallowed in the hands of assessee. The disallowance is to be made out of the balance amount @ 25%, as the Revenue is not in appeal against order of CIT(A) in assessment year 1998-99 and thereafter, disallowance is to be worked out by Assessing Officer. Another credit note which is to be given effect of Rs. 33,33,806/- which is the amount to be reduced from expenses in assessment year 2000-01 and added to th....
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....ish any evidence before the authorities below. The said expenditure had been considered as part and parcel of service charges on which disallowance had been made and we uphold the exercise carried out in this regard and the disallowance out of service charges had to be accordingly, made. 130. The last item of expenditure is travelling expenses from year to year, which has been disallowed in the hands of assessee as the assessee has failed to give specific details of expenditure. In the absence of requisite details, the expenditure incurred being relatable to assessee's business does not stand and the disallowance merits to be upheld, especially in assessment year 2000-01, where the Assessing Officer repeatedly asked the assessee to give details. The standard reply was it is reimbursement of expenses. And only breakup of expenses of Rs. 1.23 crores was given and not of total expenses of Rs. 9.69 crores. The assessee is silent on the same. Merely on the ground the expense was 'reimbursement', can the assessee shy away from the onus cast upon him. The answer is 'No', where the payment was made to related party especially. The assessee could not shy away from filing the details on t....
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.... outlets for the purpose of verifying its assets. Further, it was also provided that the said coolers could be moved from one retail outlet to another or the size of coolers could be changed. As per agreement, outlet owners could not store anything in the cooler other than finished product manufactured by using the concentrate supplied by assessee company. In such scenario, the assessee claims that ownership of coolers vested with it and it had used the said coolers for the advancement of its business, hence was entitled to claim the depreciation on the aforesaid coolers. 133. The Assessing Officer and CIT(A) in the first round of proceedings have denied the same on the ground that though the assessee was owner of coolers but the coolers were provided either to the bottlers or the retailers who were engaged in the business of sale of beverages i.e. soft drinks. In other words, coolers were used by the parties and not by the assessee. In such background, it was held that the assessee had failed to fulfill the conditions laid down in section 32 of the Act, where the assessee's business activity was limited to manufacture and sale of beverage basis and not the manufacture and sale ....
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....filed till date. The Ld. AR placed reliance on the ratio laid down by the Hon'ble High Court of Gujarat in CIT Vs. Pure Beverages Ltd. (1994) 209 ITR 131 (Guj), Hon'ble Bombay High Court in CIT Vs. G.R. Shipping in Income Tax Appeal No.598 of 2009, judgment dated 28.07.2009 and Delhi Bench of Tribunal in DCIT Vs. M/s. Tropicana Beverages Co. in ITA Nos.482/Del/2009 and 810/Del/2009, relating to assessment year 2004-05, order dated 18.02.2010. 136. The Ld. CIT-DR placing reliance on the orders of authorities below pointed out that where the business of assessee had undergone changes i.e. it was not engaged in the bottling business, then there was no reason for making investment in the coolers. Our attention was again drawn to the depreciation chart filed by assessee and it was pointed out that addition was to the extent of about Rs. 9 crores in assessment year 2000-01, but the bifurcation of the same has not been provided by assessee at any time. The Ld. CIT-DR placed reliance on the ratio laid down by Hon'ble High Court of Madras in CIT Vs. S & S Power Switchgear Ltd. (2012) 247 CTR 604 (Mad). 137. The Ld. AR in rejoinder pointed out that depreciation on WDV is to be allowed ....
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....coolers was made. The issue which arises is whether such an asset had entered the block and depreciation on the said addition could not be denied to the assessee. The answer to the said proposition is 'No'. In the year of addition, the onus is upon the assessee first to prove that it was the owner of such an asset and such an asset had been put to use for the business needs. So, there is no question of holding that the additions to aforesaid block would automatically be entitled to the claim of depreciation, since WDV of such assets had already been computed. There is no merit in the plea of assessee. The onus is upon the assessee to establish that it fulfils the conditions of section 32 of the Act in the year of acquisition and till such onus has been discharged, the assessee cannot claim the depreciation on the ground of it being part of any block of assets. Once the assessee fulfils all the conditions being the owner of asset and being used for the purpose of business and thereafter the closing value of WDV cannot be disturbed thereafter. So, the issue before us is whether the assessee is entitled to claim depreciation on the additions made to coolers during the year. In this re....
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....her territories which are not annexed as they are voluminous. Assessment years 2001-02 to 2004-05: The position is the same as for the assessment year 2000-01." 142. The Ld. AR for the assessee was specifically asked to clarify whether there was any policy for placement of coolers and it was stated as under:- (i) Policy with regard to the placement of coolers with the retailers: A formal written policy has not been documented. Generally, the business purpose policy is that the assessee will buy and place specified number of coolers so as to attain the objective of increasing the sales of the beverages which in turn leads to an automatic sale of the concentrate. The existence of the practice of the assessee placing coolers with the retailers has not been disputed and is not is issue." 143. In respect of agreements with retailers, the assessee has placed copy of one agreement dated 18.05.1998 and it was stated as under:- "(ii) Copy of the bailment agreement entered into by the assessee with the retailers: A sample copy of an agreement dated 18.05.1998 entered into with M/s. Om Cool Corner for placement of coolers is already a part of....
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.... to which CCI Inc enters into separate agreement in 1998/1999 with bottlers. In such circumstances, how can there be intermixing/mingling of burden of carrying on the business activities. The assessee admittedly, was engaged in the manufacture of concentrate and its business was dependent on the bottlers as the sale of concentrate was linked to the cool drinks; but it cannot enter into arena of business obligation of bottlers. It may also be kept in mind that the assessee had already incurred heavy marketing expenses from year to year in order to promote the sale of finished products, cool drinks, which has been allowed in the hands of assessee. Hence, the plea of assessee that placing the coolers also serves as an advertising tool does not carry any weight. The assessee again reiterated that the assessee was the manufacturer of concentrate and in the absence of any business agreement to that extent either with CCI Inc or bottlers, there is no merit in the aforesaid claim of assessee and accordingly we hold that the assessee had failed to establish that the said coolers have been used in the business of assessee. In the absence of assessee fulfilling the conditions laid down in sec....