TaxTMI 
TaxTMI 
2015 (3) TMI 1418
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....ny is engaged in the business of manufacture and sale of liquor, filed its returns of income for the assessment years 2003-04, 2004-05 and 2010-11 on 28.11.2003, 30.10.2004 and 11.10.2010 by declaring income of Rs. .15,93,31,700/-, Rs. .5,71,67,785/- and Rs. 12,79,34,101/- respectively. 3. The return of income filed by the assessee for the assessment year 2003-04 was selected for scrutiny and assessment order under section 143(3) of the Income Tax Act was passed on 09.03.2006 by determining the losses at Rs. 14,75,01,475/- [against the loss of Rs. 15,93,31,700/-). Subsequently the Assessing Officer noticed that there was an escapement of income and hence reopened the assessment u/s.147 of the Act by issuing a notice u/s.148 on 26.03.2010. The assessment was completed for the assessment year 2003-04 under section 143(3) r.w.s.147 of the Act and assessed the loss at Rs. 5,86,43,255/-, by disallowing preliminary expenses, service charges and depreciation on intangible assets. 4. Aggrieved, the assessee carried the matter in appeal before the ld. CIT(A). 5. In so far as assessment year 2004-05, the assessee had filed return of income and the return filed by the assessee was....
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....made by the Assessing Officer in earlier assessment years have been deleted by the ITAT of Chennai. The ld. CIT(A), after considering the explanation of the assessee, directed the Assessing Officer to allow expenditure claimed by the assessee as revenue expenses and the relevant portion of the order of the ld. CIT(A) is extracted as under: "4.3.2 I have considered the assessee's submissions carefully. The present issue of disallowance of Service charges / Technical advisory & management fee is a recurring issue and continuation from other assessment years. The Assessing Officer made similar disallowances in other assessment years like A.Y.2008-09. The CIT(A) deleted the disallowances made by the Assessing Officer and allowed the appeals in favour of the assessee. The Hon'ble ITAT also, vide its order in ITA No.1295/Mds/2012 dated 14.02.2013, confirmed the decision of the CIT(A). Since the facts are identical and the payments are in continuation (recurring), the above decision of the ITAT in A.Y. 2008-09, is equally applicable for other assessment years of A.Ys.2003-04, 2004-05 & 2010-11. Therefore, respectfully following the decision of the ITAT in the assessee'....
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....e business of the assessee. Admittedly, assessee was in the business of manufacturing and trading of liquor. There can be no doubt that M/s UBL, to whom the payment was made, was also a major player in this business. In fact, holding company of the , namely, M/s Millennium Alcobev Pvt. Ltd. (MAPL) was itself co-owned by M/s UBL along with certain other persons. Therefore, claim of the assessee that it had tremendous benefits on account of its association with M/s UBL cannot be brushed aside. No doubt, assessee had produced some e-mail communication and an agreement entered with M/s IOC for purchase of furnace oil for justifying the benefits it had received through its association with M/s UBL, before the CIT(Appeals). However, in our opinion, these were at best corroborative evidence and were not stand alone evidence. Assessee had during the course of assessment proceeding, produced before Assessing Officer details of the services rendered by M/s UBL. In our opinion, even dehors the records produced by the assessee before the ld. CIT(Appeals), it could reasonably demonstrate the business purpose behind its association with M/s UBL. Assessee might not have been able to produce befor....
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.... of the opinion that ld. CIT(Appeals) was justified in deleting the disallowance. No interference is called for." 15. By respectfully following the decision of the Coordinate Bench of the Tribunal in assessee's own case for the assessment year 2008-09, this ground of appeal raised by the Revenue is dismissed for all the three assessment years i.e. 2003-04, 2004-05 and 2010-11. 16. The next ground is relating to depreciation on intangible assets. Facts of the case in brief are that the assessee has claimed depreciation on intangible assets of Rs. 5,53,51,621/- for the assessment year 2003-04, Rs. 4,15,13,720/- for the assessment year 2004-05 and Rs. 73,88,550/- for the assessment year 2010-11. In the assessment order, the Assessing Officer has observed that the assessee purchased trademarks, licenses and permissions etc. from M/s. Empee Distilleries Ltd, vide agreement dated 28.02.2002 for a sum of Rs. 2200 lakhs. The assessee, as on 31.03.2003, capitalized the said amount, together with the interest portion of Rs. 14,06,508/- on the loan taken for acquiring the trademarks, licenses and permissions etc, and claimed depreciation @ 25%, amounting to Rs. 5,53,51,627/-, in the A.Y....
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....appeal is covered by the above cited decisions of the Tribunal. However, he has submitted that since the Department is in further appeal, he supported the order passed by the Assessing Officer. 21. We have heard both sides, perused the materials on record and gone through the orders of authorities below. The issued involved is with regard to depreciation on intangible assets. Similar issue has came up before the Tribunal for the assessment years 2005-06 to 2008-09 and the ld. CIT(A) deleted the disallowance made by the Assessing Officer and allowed the appeals in favour of the assessee. The Tribunal in its order in I.T.A. Nos. 1208 & 1209/Mds/2012 dated 14.02.2013 for the assessment year 2007-08 and in I.T.A. No. 1295/Mds/2012 dated 14.02.2013 for the assessment year 2008-09 confirmed the orders of the ld. CIT(A). The present assessment years under consideration i.e. assessment years 2003-04 and 2010-11 also, since the facts are identical and the issue is recurring one, the ld. CIT(A), by following the above decisions of the Tribunal allowed the depreciation claim of the assessee for the assessment years 2003-04 and 2010-11. The ld. CIT(A), while deciding the issue has considere....
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....the disallowance of depreciation. He stated that for allowing claim of depreciation, the conditions laid down in the provisions of section 32 ought to be fulfilled and nothing more. He stated that the appellant had acquired all assets relating to Empee Breweries Ltd vide an agreement dated 28.2.2002 and a Trade Mark Licence agreement dated 28.2.2002. As part of the assets, a sum of Rs.242 crores was paid in respect of trademarks and licences. He argued that Income- tax proceedings are not res judicata in nature and proceedings relating to each assessment year is separate. He relied on various decisions for the above proposition. The asset purchase agreement and the trade mark usage agreements have been produced to prove that the consideration paid for trademarks, licence, permissions etc was Rs.2200.00 lakh from out of total consideration of Rs.3785.2 lakhs. Further, the ld. AR has relied on several case laws which clearly hold that intangible assets are eligible for allowance of depreciation. The schedule for allowance of depreciation has clearly provided the rate of depreciation allowable in the case of intangibles. He also relied on the decision of the Hon'ble Supre....
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....refore, the cost of acquisition by the appellant of trademarks and licence has to be taken at Rs.22 crores which is as per the agreement entered into by the appellant and M/s. Empee Distilleries Ltd, the vendor. As per clause (ii) of section 32(1), trademarks, licence etc or any other business or commercial rights of similar nature being intangible assets acquired on or after 1.4.98 are eligible for depreciation. Once the conditions laid down for making a claim for depreciation are satisfied, the AO has to grant depreciation. The fact that an asset may appreciate and therefore is not eligible for depreciation allowance has not been prescribed anywhere in the Income-tax Act. A restriction which is not there in the Act cannot be inserted to deny the relief envisaged in the statute. When the Act allows depreciation on intangibles including trade mark and licence and when the words of the section are clear and unambiguous, the AO is obliged to allow such depreciation at the applicable rate. I also agree that decision in one year will not operate as res judicata in the subsequent year. An assessment year under the Act is a self-contained assessment period and a decision in one assessmen....
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....lowed by the A.O. was allowed by the CIT(Appeals). Depreciation claim was on trademarks and licences acquired by the assessee from M/s Empee Distilleries Limited vide agreement dated 28.2.2002. The issue how far depreciation was allowable on these intangible assets, had come up before this Tribunal in assessee's appeal against a 263 revision attempted by CIT for assessment year 2007-08 in I.T.A. No. 1209/Mds/2012. This Tribunal had at para 15 to 19 held that the claim of depreciation was justified. Paras 15 to 19 of the said order is reproduced hereunder:- "15. We have perused the orders and heard the rival submissions. Without doubt, assessee had entered into two agreements with M/s Empee Distilleries Ltd. By virtue of first agreement, copy of which is placed at paper-book pages 1 to 53, assessee had acquired following assets from the said company:- " "Operating Assets" shall mean the assets and includes (a) Plant and machinery : Rs. 1566.24 lakhs (b) Vehicles : Rs. 15.63 lakhs (c) Furniture & fittings : Rs. 1.18 lakhs (d) Computers : Rs. 0.90 lakhs (e) Office equipments : Rs. 1.31 lakhs (f) Trade Marks, lice....
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....such licence was granted for a limited period of nine months. Two things that come out is that assessee had not given all the licences and trademarks it had acquired from M/s Empee Distilleries Ltd., but had only given right to us one trade mark called 'morco polo', that too for a limited period. 17. Therefore, in our opinion, ld. CIT fell in error when he came to a conclusion that assessee had obtained right to use trademark 'morco polo', through the second agreement whereas, assessee had, in fact given a right to use such trade mark to M/s Empee Distilleries Ltd. Ld. CIT misunderstood the second agreement completely. Further, both these agreements were entered in February, 2002. February, 2002 fell in previous year relevant to assessment year 2003-04. Assessee had in its return for assessment year 2003-04 claimed depreciation on the value ofRs. 22 crores for trademarks and licences. Assessment for assessment year 2003-04 was completed under Section 143(3) of the Act and such claim was allowed also. In para 3 of the assessment order for assessment year 2003-04, Assessing Officer had mentioned as under:- "In response to the hearing notice, assessee's representativ....
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....opriate if we do not deal with the case, strongly relied on by the learned D.R. First is that of Hon'ble Apex Court in the case of Rampyari Devi Saraogi(supra), where the CIT while invoking his revisionary power under Section 33B of Income-tax Act, 1922, had relied on certain facts, which were not indicated or communicated to the assessee. Hon'ble Apex Court held that this was not a reason to quash the order of CIT since assessee would have opportunity before Assessing Officer to put forth her case, when it was taken up pursuant to revisionary proceedings. In our opinion, the facts of this case are entirely different. Assessee here has not argued that any facts mentioned by the CIT in his revisionary order were not communicated to it. On the other hand, what the assessee here says is that the order of CIT itself was erroneous and not that of Assessing Officer." Accordingly, we are of the opinion that depreciation for impugned assessment year, being claim on Written Down Value, could not have been disallowed. CIT(Appeals) was justified in deleting the addition." 23. In the years under consideration 2003-04 and 2010-11, the ld. CIT(A), by following the decision of....
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....nd if through bank, the bank statements evidencing such payments. 4. Evidence for services rendered to the assessee during the FY2009-10. 25. Sri Anil Dubey did not furnish any of the details and stated that since the head office of his company was in Kolkata, all the details were available there and though he appeared in response to the summons on 26.2.13, no details have been furnished till the date of passing this order. The Assessing Officer further observed that during the course of statement recorded under section 131, Shri Anil Dubey was asked about the relationship of PPPL with the assessee and the exact nature of services rendered by PPPL to the assessee. All he could confirm was that they received payment per crate as commission. There was no mention about the kind of marketing and promotional activities or buying and distributing the gift articles. In response to a specific question about the exact nature of marketing and sales promotion, his answer was vague. The Assessing Officer has asked the Manager of PPPL, to explain the exact nature of marketing and sales promotion done by PPPL and in his reply, he has stated that they visited the Hotels and market the produ....
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....3 to verify and report on the following information: (i) Whether these concerns are actually functioning from the above premises; (ii) If so, business done by the above concerns with PPPL during the Financial Year 2009-10, relevant to the AY 2010-11 and ledger copies thereof and (iii) Whether these concerns were doing business with PPPL for earlier years too and if so, the ledger copies of those years starting from AY 2006-07. The DDIT(Inv), Kolkata in his letter has stated that as per enquiries conducted by the Inspectors attached to his office, it is found that no such companies, as enumerated in the above letter, were found at their respective addresses. They were also asked to carry out discreet enquiries and report on the present locations of the said companies but this did not yield any positive result. In view of the above, it may be concluded that the said companies are non-existent. So far as purchases in Chennai is concerned, a total of seven bills were furnished, against which the Assessing Officer made enquires through Inspector and found that no such concerns are doing such business and in one case, the person who signed the bill did not know anything about....
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....ter were found In view of the above, it may be concluded that the said companies are non-existent... ". (c) In respect of services provided by certain Chennai based concerns, the Inspector deputed to make enquiries has stated that the concerns did not carry on any business for five years or so. (d) PPPL had confirmed receipt of del credre commission and thereafter no evidence was forthcoming for the alleged expenses incurred by your Appellant Company. (e) The Assessing Officer cited two High Court decisions to substantiate the reasons for disallowance. Factual Submissions 31. The Appellant Company filed Copies of Account and reconciled the balance in respect of the account with Presidency Projects Private Limited (PPPL) which were duly countersigned by the service provider. All the transactions were only through bank account and there is no instance of any cash payment made. (Account Copies between the Appellant Company and PPPL and also the reconciliation are enclosed). 32. Your Appellant is furnishing a copy of the audited Balance Sheet and Profit and Loss Account of PPPL which clearly provides two types of income - one ....
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....s not correct and is wholly arbitrary. Your Appellant is submitting copies of the following documents which clearly substantiate that the entities were in existence during the relevant year (a) Tie Up Trading Limited, Kolkata (i) Copy of Company Profile downloaded from the Website of the Registrar of Companies, Kolkatta indicating the existence of the company as of date; (ii) Annual Audited Accounts of the Company. (iii) Account Copy of the Company's Account with that of the PPPL duly signed. Confirmation of Account of PPPL with Tieup Trading Private Limited duly signed by both the parties is enclosed. (iv) The sales of the Company is Rs.31.85 Crores for the year ending 31st March, 2010 and the transactions between the PPPL and Tie Up Trading Limited is Rs. 0.83 Crores. (v) A perusal of the Account Copy clearly indicate that gift articles were supplied on account of Empee Breweries Ltd and all payments effected by Presidency Projects Private Limited (PPPL) are only through banks. (b) Ganco'ss India Private Limited (i) A copy of acknowledgement evidencing the filing of the Return of Income electronically for AY 2....
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....le case the transactions between PPPL and the respective parties have been made through banks. 47. Your Appellant submits that the Inspectors of the Income tax had arrived at an erroneous conclusion that these parties do not exist. 48. Your Appellant further submits that the Assessing Officer on the erroneous assumption and surmise that parties mentioned in his assessment order do not exist is not correct in making the disallowance of Rs.13,44,55,019/- relating to Sales Promotion Expenses. 49. Your Appellant further submits that the Assessing Officer's observation that enquiries at some TASMAC shops made by his Inspector do not indicate the usage of such articles in the bars is without any basis. 50. Your Appellant submits that the Assessing Officer has not stated in his Assessment Order, the shops visited and the names of any of the employees who were interviewed by the Inspector. 51. Your Appellant Company submits that there are over 6000 TASMAC shops in the state of Tamil Nadu; the Assessment relates to AY 2010/11 and the enquiries were made sometime in 2013 after a gap of three years. 52. Your Appellant Company further s....
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....ice is in Kolkata, is exclusively catering to the needs of the assessee company and two other concerns of UB group. 4.5.5 The first and foremost contention main contention of the Assessing Officer, before disallowing the sales promotion expenses, was that since all the sales of beer /liquor in Tamil Nadu are effected by TASMAC, there was no need for the manufacturers to undertake any sales promotion and related activities. It is true that the entire sales and distribution of beer/liquor in Tamil Nadu is done by TASMAC. The manufacturers have to supply their manufactured beer/liquor to TASMAC. As explained by the assessee, TASMAC is a governmental body and will not favour any brand/product. Nor it indulges in any canvassing or promotional activities. It is the pure wish and will of the customers/consumers in selecting the brands while buying beer/liquor from the TASMAC shops or outlets. The sales-staff of TASMAC have no role in this regard. 4.5.5.1 Like any other consumable product, beer/liquor brands require great deal of advertisement and publicity. In fact, more than advertisement in traditional ways, the sale of beer/liquor highly depends on the sales promotion....
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.... Of course, the degree of these responsibilities keeps on changing from model to model. 4.5.5.3 Coming to the present case of sale of beer/liquor through TASMAC in Tamil Nadu, TASMAC is a governmental body and is a fixed commission agent. Being governmental body, TASMAC treats all the brands and manufacturers at par. The manufacturers have no option but to supply their entire manufactured products to TASMAC only. Therefore; with TASMAC being neutral to all the manufacturers, it is only the consumer who directly decides the fate of the manufacturer. Therefore, it is the duty of the manufacturer only to woo the consumers, by adopting various strategies. 4.5.5.4 It is also important to mention here that the assessee is not the only manufacturer of beer/liquor in Tamil Nadu and supplier to TASMAC. There are several other manufacturers too. For example, M/s. Empee Distilleries Ltd, is another manufacturer of beer/liquor and selling to TASMAC. M/s. Empee Distilleries Ltd and M/s. Empee Breweries Ltd were the sister concerns under the same management till March, 2002, i.e., before the latter was acquired by UB group. Even M/s. Empee Distilleries Ltd had also inc....
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....s genuine. Therefore, having accepted the payment of del credre commission as genuine and allowed in the order, the Assessing Officer is not justified in coming to the conclusion that the assessee was not required to undertake any sales promotion activities while deciding the issue of reimbursement of expenses of Rs.13,44,55,019/- to PPPL. 4.5.6. The next and important contentions of the Assessing Officer are that the sales promotion expenses to the extent of Rs.13,44,55,019/- were neither shown by PPPL, in its P&L account, nor confirmed by PPPL. As per the terms and conditions, PPPL has to look after the entire sales promotional activities for the assessee company. The consideration, in the form of commission, payable to PPPL by the assessee company will be in two components, i.e. (i) commission proper (del credre) and (ii) reimbursement of various expenses in relation to sales promotional activities. The total amount of commission (del credre) and the reimbursement of expenses paid to PPPL during the F.Y. 2009-10 are Rs.58,80,549/- and Rs.13,44,55,019/-, respectively. The assessee has debited the entire expenses of Rs.14,03,35,927/- (i.e. Rs.58,80,549 + Rs.13,44,55,019) ....
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.... that the purchases claimed to have been made by PPPL are not genuine. The Assessing Officer came to this conclusion basically for two reasons, i.e. (i) that the so called supplies of material to PPPL are non-existing, as per the reports of the DDIT(Inv.), Kolkata and Inspector of Income-tax, Chennai; and (ii) that when all the promotion activities are to be carried out in the State of Tamil Nadu and all such material can easily be procured in Tamil Nadu, there is no justification for PPPL for procuring these materials from Kolkata. As mentioned in the foregoing paragraphs, PPPL is a Kolkata based company with most of its business relations in and around Kolkata. The Chennai branch is exclusively to cater to the needs of UB group, to which the present assessee belongs. Therefore, having its establishments, network and business contacts in West Bengal, it will be more easy, convenient and economical to procure the materials in West Bengal and transport the same to Tamil Nadu. Therefore, procurement of promotional material from Kolkata parties cannot be viewed as abnormal or non-prudential. 4.5.7.1 In the present marketing conditions, any concerns carry out their business tr....
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....f the Act, i.e. well before the on-set of the assessment proceedings in the present case. Further, the annual turnovers of the above suppliers, as could be seen from their audited annual statements furnished by the assessee, are in several crores. All of them have got their accounts audited u/s. 44AB of the Act. The amount of sales of promotional material made by the said suppliers to PPPL during the F.Y. 2009-10, is quite insignificant compared to their total turnovers. Their supplies (sales) to PPPL are hardly 5 to 10% of their turnovers. The details of turnover, PANs, date of-filing of returns, etc. of the above suppliers are as under - SI. No Nature of person who supplied material to Presidency Projects P Ltd (PPPL) PAN Date of filing R/I AY.2010-11 Turnover shown by them Sales to PPPL 1 Gancoss India P Ltd, Kolkata AABCG7681D 24.09.2010 Rs.3.69 crores Rs.9,36,250 2 Tie-up Trading P Ltd, Kolkata AABCT0927H Rs.31.85 crores Rs.5,05,500 3 Calcutta Comproscent Infotech Ltd, Kolkata AABCC7506M 24.09.2010 Rs.3.37 crores Rs.13,04,250 4 Millinium Innovations P Ltd, Kolkata AADCM6229P 22.09.....
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....ed from PPPL, evidences for payments (paid through bank channels), furnished ledger extracts showing the payments and also furnished confirmation from PPPL for rendering the services and receiving the payments from the assessee. PPPL is totally an independent person and no way connected or related to the assessee or its management/group concerns. Further, there were no allegations that the amounts paid by the assessee to the PPPL under the sales promotion expenses, have come back to the assessee. Under these circumstances, the expenses incurred by PPPL while rendering services to the assessee cannot be questioned. Also, the genuineness or otherwise, of the expenses in the hands of the PPPL cannot be the sole ground for disallowing the expenses claimed by the present assessee. If there are any other evidences to show that the expenses claimed by the assessee in the name of sales promotion expenses paid to PPPL are not genuine, then the non-genuineness of the expenses, if any, in the hands of PPPL can be cited as corroborative evidence. In any case, as mentioned above, the suppliers who have supplied the material to PPPL cannot be considered as non-existing. 4.5.8 Another ma....
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....revenue effect is zero. 4.5.8.2 Thus, from the above details and reconciliation, it is clear that the receipts (income) shown by PPPL in its P&L account for the financial year 2009-10, not only include the receipts from the present assessee but also from the other two group companies of UB group. If the commission receipts from the other two concerns are excluded the figures shown by PPPL in its P&L account, under the head 'commission receipts' tallies with the commission payments of Rs.58,80,549/- claimed by the assessee. Regarding the 'reimbursement of expenses' of Rs.13,44,55,019/-, paid by M/s. Empee Breweries Ltd to PPPL, the latter (PPPL) has neither included the said receipts in its P&L account nor debited the corresponding expenses, on the ground that the 'reimbursement' was on 'cost-to-cost' basis, where the net revenue effect is zero. The amount of Rs.1,33,42,194/- reflected by PPPL in its P&L account under the head "reimbursement of expenses" was the amount received from M/s. United Breweries Ltd and M/s. Balaji Distilleries Ltd. Further, the ledger copies of the assessee in the books of PPPL clearly showed the receipts of reimbur....
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....d, Ledger Account 1st April, 2009 to 31st March, 2010 Date Particulars V.ch Type Vch No. Debit Credit 4.01.2009 To Opening Balance 16154902.75 4.15.2009 By Indus Bank Receipt 6 10299201.00 4.21.2009 By Indus Bank Receipt 8 2448084.00 4.27.2009 To Promotional A/c (Emp) Debit Note DN/EMP/001/SPU/09-10 27908.00 4.27.2009 To Promotional A/c (Emp) Debit Note DN/EMP/002/SPU/09-10 12168.00 5.02.2009 To Gift Articles on A/c (EMP) Debit Note DN/EMP/003/SPU/09-10 10322977.50 5.02.2009 To Gift Articles on A/c (EMP) Debit Note DN/EMP/004/SPU/09-10 297000.00 5.09.2009 To Promotional A/c (Emp) Debit Note DN/EMP/005/SPU/09-10 56448.00 5.09.2009 To Promotional A/c (Emp) Debit Note DN/EMP/006/SPU/09-10 800.00 5.12.2009 By Indus Bank Receipt 14 10322977.50 5.16.2009 To Promotional A/c (Emp) Debit Note DN/EMP/007/SPU/09-10 5200.00 5.22.2009 By Indus Bank Receipt ....
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....eer/liquor at various places. Based on the said purchases, PPPL periodically submits debit notes to the assessee along with the details of purchases made and the expenses incurred. The assessee, after scrutinizing the said expenses accepts the debit notes raised by PPPL and makes the payment by way of "reimbursement of expenses". Further, as explained by the assessee, there cannot be any fixed strategy for the sales promotion of liquor/beer at the consumer level. The strategies should be based on the local situations and to suit the local requirement. Hence, the people of PPPL periodically interact with the management of the assessee company and chalk out the strategies for sales promotion. Since the nature and strategies for sales promotion activities needs to be decided from time to time, the agreement with PPPL was prepared on broader principles, rather than giving micro level details. In any case, the nature of the sale promotional activities proposed to be undertaken by PPPL are discussed with the assessee well in advance and the "reimbursement of expenses" are only after proper verification of the purchases and expenses, by the management of the assessee. Thus, there are prop....
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....nce purchased, are to be considered as expenditure, as these items are of no use to the assessee or PPPL except for distribution to the consumers / public. 4.5.13 Considering the above facts and circumstances, it can reasonable concluded that the element of "excessiveness" and "unreasonableness" in the sales promotion expenses cannot be ruled out. Therefore, such sales promotional expenses which are "excessive and unreasonable" are to be identified and excluded while allowing the sales promotion expenses. 4.5.14 Considering the various facts and circumstances and the nature of the expenses involved, I am of the considered opinion that 7.5% (seven and half percent) of the total sales promotion expenses of Rs.14,03,35,927/- could be considered as "unreasonable and excessive". Therefore, the Assessing Officer is directed to consider 7.5% of total sales promotion expenses of Rs.14,03,35,927/- claimed by the assessee, amounting to Rs.1,05,25,194/-, as 'excessive and unreasonable' and disallow the same. In other words, out of the total sales promotion expenses of Rs.13,44,55,019/- disallowed by the Assessing Officer in his order, disallowance to the extent of Rs....
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....d in the case of Empee Distilleries Ltd., which is a sister concern of the assessee, who is also supplying their products to the TASMAC. Therefore, the Assessing Officer was not justified in denying the claim of the assessee. 33. We have heard both sides, perused the materials on record and gone through the orders of authorities below. In the appeal for the assessment year 2010-11, the Assessing officer has found that the assessee had incurred sales promotion expenses amounting to Rs. 14,03,35,927/-. So far as beer/liquor market is concerned, the Tamil Nadu State Marketing Corporation Ltd. (TASMAC), a State Government undertaking, is the monopoly buyers and sellers in the State. Therefore, the Assessing Officer has called details of the expenses incurred by the assessee. In response to the query raised by the Assessing Officer, the assessee has filed detailed written submissions before the Assessing Officer and submitted that the services of M/s. Presidency Projects Private Limited [PPPL] was availed to do the marketing and that they have good amount of market dynamics in Tamil Nadu and who can bring in increased demand to the retail shops of TASMAC. The expenses are reimbursed ....
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....bey has replied that for the FY 2009-10, it is between 40 to 45 lakhs, for the FY 2010-11, it is around 50 lakhs and for 2011-12, it is around 53 lakhs and for the current year so far, it is around 35 lakhs. Thereafter, the Assessing Officer came to a conclusion that the answer is vague and does not clearly specify the activities carried out by PPPL. The Assessing Officer has further noted that as per the agreements, only a payment of Rs. 0.75 per crate as del credre commission was envisaged apart from a payment of Rs. 5000 per month. PPPL had confirmed only the del credre commission part. There was also a discrepancy in the figures of sales promotion expenses, for which the AR of the assessee has stated that in general though the agreements with PPPL are not registered, but since both these agreements were signed and accepted by both the parties, it was valid. He also stated that some of the gift articles were purchased at Kolkata and some at Chennai. He furnished copies of bills of purchases said to have been made in Chennai. Earlier, he had, along with the letter dated 05.03.2013 produced a few bill copies in support of the claim that gift articles are bought and distributed to ....
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....ntents of the report. The ld. CIT(A) has considered each and every objections raised by the Assessing Officer in detailed manner in his order at page No. 25 to 37. 36. The Assessing Officer has raised a preliminary objection that the expenditure incurred by the assessee is not required because he assessee is supplying its products to TASMAC. We find that the Assessing Officer has failed to understand that the assessee is not alone supplying its products to TASMAC, there are several producers also supplying the very same goods to TASMAC. Therefore, it is the business necessity of the assessee to take care of the sales promotion of its products. It appears that the very same Assessing Officer has allowed similar kind of expenditure in the case of Empee Distilleries Ltd., a sister concern of the assessee. Therefore, denying the sales promotion claim of the assessee on the ground that it is not for the purpose of business is no correct and justified. The Assessing Officer has accepted the agreement in so far as del credre commission is concerned, but in the very same agreement, not accepting for the purpose of sales promotion expenses is not justified having the assessee submitted a....
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....ncorrect. What was confirmed by Shri Anil Dubey (Manager of Chennai branch of PPPL) before the Assessing Officer, during the course of assessment proceedings, was regarding the receipt of commission. Neither the Assessing Officer has examined Shri Dubey regarding the reimbursement of expenses, nor there was any categorical statement in that regard. In any case, the reimbursements of expenses were through the banking channels that too during the financial year 2009-10 itself. Hence, no adverse inference can be drawn from the statement of Shri Anil Dubey or from the profit and loss account of PPPL. So far as the above findings of the ld. CIT(A), the ld. DR has not able to point out any error in the order of the ld. CIT(A). The assessee has also filed all the details of books of accounts of the assessee as well as PPPL. The ld. CIT(A), after considering all the details, has passed a detailed order and we find no error in the order passed by the ld. CIT(A). 38. So far as genuineness of expenditure is concerned, initially, the assessee has filed some of the details received from PPPL and filed before the Assessing Officer in respect of Kolkata parties and Chennai parties. The Assessi....
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....es and the purpose for which it was incurred. The purchase invoices, evidence for payments, identifying the person rendering the services and confirmation from the said persons for rendering the services/supplying the material, etc. are the evidences required in this regard. Once these things are established, the expenses claimed to have been incurred by the assessee are to be allowed. The assessee has furnished the details of services availed from PPPL, evidences for payments (paid through bank channels), furnished ledger extracts showing the payments and also furnished confirmation from PPPL for rendering the services and receiving the payments from the assessee. PPPL is totally an independent person and no way connected or related to the assessee or its management/group concerns. Therefore, from the above, the ld. CIT(A) came to the conclusion that the expenditure incurred by the assessee cannot be said to be not a genuine expenditure. We find that the ld. CIT(A), after examining all the details, books of accounts of both parties (assessee as well as PPPL), came to the conclusion that the expenditures are genuine expenditure. In so far as payments made by the assessee to PPPL....