AI Drafter - (New and Powerful) 
Generate professional replies, appeals, opinions to Show Cause Notices, assessment orders, audit objections, and other legal communications using TaxTMI's AI Drafter. 
TaxTMI 
TaxTMI 
2022 (4) TMI 1571
X X X X Extracts X X X X
X X X X Extracts X X X X
....002-03 256/Pun/2007 356/Pun/2007 Assessee Revenue CIT(A)-1, Pune order dated 12.12.2006 Case No. PN/CIT(A)-1/DC.Cir. 1(1), Pn/70/05-06/No. PN/CIT(A)- 1/DC.Cir. 1(1), Pn/108/05-06 143(3) 4 2003-04 144/Pun/2007 357/Pun/2007 Assessee Revenue CIT(A)-1, Pune order dated 12.12.2006 Case No. PN/CIT(A)-1/DC.Cir. 1(1), Pn/70/05-06/No. PN/CIT(A)- 1/DC.Cir. 1(1), Pn/108/05-06 143(3) 5 2004-05 896/Pun/2008 825/Pun/2008 Assessee Revenue CIT(A)-1, Pune order dated 15.03.2004 Case No. PN/CIT(A)-1/DC.Cir. 1(1), Pn/318/06-07 143(3) Heard both the parties and case files perused. 2. It emerges during the course of hearing at the outset that we do not need to adjudicate upon all the issues raised herein as the learned coordinate bench's earlier order(s) have already disposed the same. Both the parties are ad idem that we need to decide only three identical issues in all these cases i.e. disallowance of service charges, travelling expenditure and depreciation claims; as the case may be, involving varying sums. We thus treat the first and foremost assessment year herein AY 2000-01 involving assessee's and the Revenue's c....
X X X X Extracts X X X X
X X X X Extracts X X X X
....a. The assessee is a separate and distinct entity from TCCC or HCCB or CCI Inc. Deductibility of expenses in the hands of each company is required to be judged with reference to the business activity carried on by it and not of all the group companies taken as a single unit. Only such expenses as have been incurred by the assessee in the business of Concentrates can be allowed as deduction and not the obligations of other group companies suo motu discharged by it or the expenses which are not incurred wholly and exclusively for its business purpose. This argument does not hold water and is accordingly jettisoned. 11.1. The next argument of both the sides - for and against - is about this issue being a covered matter. At this juncture, it is relevant to note that similar disallowance of Service charges was made by the AO in his order for the immediately preceding assessment year. As against the total expenditure of Rs. 46.75 crore incurred by the assessee towards service fee to CCI Inc., the AO made disallowance of Rs. 10.80 crore (nearly 25%) on similar grounds of the services rendered by CCI Inc. to the bottlers not for the business purpose of the assessee. The ld. CIT(A)....
X X X X Extracts X X X X
X X X X Extracts X X X X
....action.' 11.5. It can be seen on a comparative study of the first Agreement dated 01.04.1995 and the second Agreement effective from 01.04.1997 that certain specific services (as per clause 1 of the agreement) were mentioned in the agreement dated 01.04.1995 which were to be rendered by CCI Inc. In the latter agreement dated 01.04.1997, such services continued to exist but certain additional services were added through clauses 2 to 4, which are exclusively meant for the assessee and not the Bottlers. This divulges that the extent of services rendered by CCI Inc. to the assessee in the later Agreement dated 01.04.1997 increased vis-à-vis the services provided for in the Agreement dated 01.04.1995. Insofar as the rendition of services to the Bottlers is concerned, there is no change in their scope in the two Agreements. This establishes that the services rendered by CCI Inc. to Bottlers in the A.Y. 1997-98 were of similar nature as given in the assessment year under consideration. The point for determination is only the deductibility of service charges paid by the assessee to CCI Inc. for rendering services to the bottlers. Thus, even though there is some change i....
X X X X Extracts X X X X
X X X X Extracts X X X X
....there is no distinction in the facts and circumstances of the case qua the Service charges paid by the assessee to CCI Inc., following the view taken by the Tribunal for the preceding years, we direct to allow the deduction for service charges in full. At the cost of repetition, it is once again made clear that the deduction is being allowed so as to maintain consistency in the view of the Tribunal as the matter is sub judice before the Hon'ble High Court notwithstanding the fact that the Department has a good arguable case." 5. Mr. Meena vehemently sought to pin-point the change in factual position since the assessee had stopped its bottling activity in the impugned assessment year(s). And also that the corresponding service agreement had undergone a sea change and therefore, we need to independently examine its claim than following the preceding detailed discussion by the learned coordinate bench, We find no merit in the Revenue's instant argument as it is clear from a perusal of the assessment findings in par 6.1, page 27 dated 31st March, 2003 that the assessing authority had itself admitted the relevant factual position herein to be similar as in AY 1999-2000 wherei....
X X X X Extracts X X X X
X X X X Extracts X X X X
....avelling expenditure is on account of person not on the payroll of the Appellants. * There is no resolution or agreement for reimbursement of travelling expenditure. Payment on account of travelling is thus non contractual payment. * Appellant did not file evidence that the travelling expenditure was incurred for the purposes of its business. * Sample vouchers as mentioned in the assessment order do not explain how the Appellant's business interests were served. Our Submissions: 20.2. The Assessing Officer's contention that the Appellants did not file details of travelling expenses is factually incorrect. 20.3. The appellants filed details of travelling expenditure on 511-February 2003. Supporting vouchers giving complete details of person travelling, place visited, purpose for which he travelled and signature of person authorizing such travel were also filed. The Assessing Officer had then required the appellants to file the said details in the following format: Name Educational qualification Salary Purpose of travel Date of travel Amount spent: It was submi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ntion was to tap new sources of distribution and marketing and to undertake specific negotiations with large customers (key accounts). As explained earlier, the growth of large customers that transcend bottler territories has increased the need for negotiations between the assessee and these customers to arrange chain wide promotions. Because bottler territories are usually smaller than the areas served by large customers, CCI, on behalf of the assessee negotiates with multiple bottlers to obtain their mutual participation in a chain wide promotion. During the retail marketing convention, plans and strategies for expanding business are discussed. Bottlers are informed of the various promotions planned along with these retail customers, and the buy-in of the bottlers is secured. This is a very important convention as it smoothens business relationship and ensures that the retail customers do not switch loyalty to competitor's products. The convention is also an important platform to booster goodwill among the customers of your assessee and strengthen business relationship. It is for this reason that the spouses of the bottlers and key customers were also invite....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t is CCI who has incurred expenses which your appellants would have otherwise incurred for running such a vast business. * If CCI would not have been there, similar expenses would have been incurred by the appellants. * The entire arrangement between CCI and your appellants, formalized in a service agreement has been approved by the RBI. 20.8. The appellants respectfully submits that the travel expenses have been incurred by Coca Cola India Inc for running the business of the appellants, and reimbursed to Coca Cola India in terms of the service agreement." 6.2 I have considered the facts of the case. It is an admitted fact that the appellant has not considered the traveling expenses reimbursed to CCI Inc. employees as a part of the service agreement. There is no other contractual obligation on record which justifies the reimbursement of the traveling expenses of CCI Inc. employees who visit different places for the business of the appellant as well as for the business of HCCBPL and other matter of the Coca Cola group as a whole. In such a situation, it could not be stated that the reimbursement of the traveling expenses has been done only and exc....
X X X X Extracts X X X X
X X X X Extracts X X X X
....roup company employees' travel to sufficiently discharge its onus of having incurring this expenditure wholly and exclusively for the purpose of the business. Faced with this situation, we find that a lump sum travel expenditure disallowance of 10% on estimation basis would be just and proper. Ordered accordingly. The assessee succeeds in the remaining 90% travelling expenditure component. Necessary computation shall follow as per law. 9. Lastly come the assessee's fourth substantial ground challenging depreciation disallowance on coolers amounting to Rs. 2,01,90,507/- made in both lower proceedings. The CIT(A)'s detailed discussion confirming the impugned disallowance reads as under:- "5. Grounds no. 13 to 17 taken by the appellant is with respect to disallowance of depreciation on coolers amounting to Rs. 2,01,90,507/-. The assessing officer has discussed this issue in Para 7 of the assessment order. The appellant had claimed 25% depreciation on coolers. The assessing officer did not allow the claim of depreciation holding that the appellant's business is manufacture and sale of beverage base and not manufacture and sale of beverages (soft drinks). Tho....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ssets are not utilized within the premises of the Appellant, but placed at various shops and retail outlets. Our submissions 19.6. The Appellants respectfully submit that there is no requirement u/s. 32 of the Income Tax Act that assets must be within the business premises. These assets are meant to generate sales, by creating a demand for the products and have necessarily to be placed at the premises visited by the consumer. If these assets are kept in the business premises on the appellant they would not serve any business purpose and would in fact defeat the requirements of Section 32. 19.7. The A O has claimed that since the Appellants are no longer engaged in the business of manufacture and sale of beverage, deprecation cannot be claimed on these assets. 19.8. The AO has failed to appreciate that the business of the appellants is inextricably linked to the demand for bottled beverage. The appellants participate in the activity of placing coolers purely for the furtherance of its own business interests and for earning more income. As explained above, market research has shown that the sale of cool drinks increase by almost 43% if sol....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... enter into an agreement with all retail outlets where these coolers are placed. A copy of the agreement is annexed at page 1 to page 5 of the paper book III. 19.14. Some of the key terms and conditions on which the cooler are placed are as follows: Ownership of the cooler vests with the Appellants at all times The appellant has access to the outlets for the purpose of verifying its assets. The appellants have the authority to move the cooler form one retail outlet to another, or change the cooler provided to an outlet for a bigger/smaller cooler. The outlets cannot store anything in the cooler, other than finished products manufactured using the beverage base supplied by the appellants. 19.15. As can be seen, the ownership of the cooler vests at all times with the Appellants and the appellant has the right to move the cooler from one outlet to another as per its business needs. The coolers are thus an important asset used by the Appellant to achieve its business plans. 19. 16. The appellants further submit that contractual obligation may be one reason for incurring expenditure but need not be the only reason. It is the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....es made by the Assessing Officer in entirety which stands to 30% only in CIT(A)'s order. That being the case, we accept assessee's 10th to 15th substantive grounds seeking to delete the entire service charge disallowance of Rs. 68,40,22,222/- in appeal ITA No. 1103/Pun/2005. The Revenue's first to fourth substantial grounds as well as its cross appeal ITA No. 1162/Pun/2005 fail accordingly. 12. The assessee's 16th, 19th and 20th to 26th substantive grounds challenging the twin issues of disallowance of travelling expenses of Rs. 7,12,27,270/- and depreciation of coolers of Rs. 4,32,37,967/- are accepted to the extent of 90% and in entirety; respectively, in light of our detailed discussion in the foregoing lead cases. This appeal ITA No. 1103/Pun/2005 partly succeeds to this limited extent. 13. Third assessment year herein 2002-03 involves the assessee's and the Revenue's cross appeals ITA No. 256 & 356/Pun/2007. The assessee's 13th to 18th substantive grounds and the Revenue's second to fourth substantive grounds raise the common issue of disallowance of service charges made by the Assessing Officer to the extent of Rs. 5,45,88,227/- as restri....