TaxTMI 
TaxTMI 
2006 (2) TMI 729
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....anufacturing and sale of ayurvedic veterinary medicines during the year under consideration, i.e., asst. yr. 1990-91. In its return of income filed for the said year, expenditure of Rs. 1,03,348 was claimed to have been incurred by it on presenting steel glasses and morning sets to distributors and stockists for keeping stocks of its products during the off-season. During the course of assessment proceedings, it was noticed by the AO that the assessee had appointed M/s Herbs India (P) Ltd. as its sole selling agent and as per the sole selling agency agreement, commission at the rate of 15 per cent was to be paid by the assessee to the said agent. It was also noted by the AO that as per Clause 6 and 8 of the said agreement dt. 16th April, 1985, the selling agent was to appoint sub-agents, stockists, distributors, etc. and also to incur all the expenses in connection with such appointments. According to the AO, the expenditure of Rs. 1,03,348 incurred by the assessee on presenting steel glasses and morning sets to distributors and stockists thus was to be borne by M/s Herbs India (P) Ltd. and not by the assessee as per the selling agency agreement. He, therefore, held that the same c....
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....on with such appointments shall be borne by the first party. 8. That the first party shall be responsible for all round progress in sale of products manufactured by the second party and shall incur expenses which are deemed necessary for sale promotion and for effective control over the function of the selling agency.' A simple perusal of these two paras reveals that with reference to the issue under consideration, contents of the said para 6 are not applicable. As regards contents of the aforementioned para 8, I am of the view that the words "that the first party shall be responsible for all round progress in sale of products manufactured by the second party and shall incur expenses which are deemed necessary for sale promotion and for effective control over the function of the selling agency" do not in any way be a bar on the first party, i.e., the appellant to incur any expenditure which it considers necessary for commercial expediency and in the interest of its business to boost up its sales. The AO has no quarrel with the appellant with regard to such an expense being fully vouched. His only objection is that these should have been incurred by its sole se....
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....ouched or beyond the prescribed limit or in any other manner disallow/able and as in the past also, where also appellant's case every year has been scrutinized and completed under Section 143(3) of the Act, no such disallowance out of these expenses stood made, and as part of these expenses have documentarily been proved to have been incurred on trade discount which is a normal practice, therefore, keeping in view such facts of the appellant's case and legal position in this regard, I hereby hold that the AO was not justified to disallow such expenses and hence the disallowance of Rs. 8,17,403 so made in the impugned assessment order on account of such expenses is hereby deleted. 5. The learned Departmental Representative, at the outset, pointed out that even though a revised ground has been filed by the Revenue modifying the quantum of relief allowed by the learned CIT(A) on the issue in dispute, such quantum as mentioned in the original ground is found to be correct. He submitted that the revised ground filed by the Revenue, therefore, may be ignored and the ground originally raised may be considered and decided on merits. He submitted that sole selling agency was give....
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....n was that the impugned disallowance made by the AO in the year under consideration was thus not sustainable being contrary to the rule of consistency as held by the Hon'ble Delhi High Court in the case of CIT v. Rajiv Grinding Mills (2004) 192 CTR (Del) 84 : (2005) 142 Taxman 567 (Del). 7. We have considered the rival submissions and also perused the relevant material on record. It is observed that the factum as well as quantum of expenses in question incurred by the assessee on sales promotion have not been disputed either by the AO in his assessment order or even by the learned Departmental Representative before us. Even the fact that the said expenses were incurred wholly and exclusively for the purpose of the assessee's business is not in dispute. The disallowance of the same, however, was made by the AO mainly for the reason that the selling and marketing expenses were agreed to be incurred by the sole selling agent as per the relevant agency agreement and not by the assessee-firm. A perusal of the said agreement especially the relevant clauses, however, clearly shows that the assessee was not debarred from incurring such expenses in addition to what the agent was ....
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....ut of gift scheme and lucky draw expenses, respectively, as the disallowances were made after due verification of facts and for the reasons detailed in the assessment order itself. 2. Learned CIT(A) has not been justified in deleting the disallowance of Rs. 81,298 made out of travel expenses incurred on travel of the managing director of M/s Herbs India (P) Ltd. which was working as selling agent of the assessee, as it was the responsibility of agents to promote business of the assessee as per para 8 of agreement entered into by the assessee with the agent. 11. At the time of hearing before us, the learned representatives of both the sides agreed that the issues relating to the various disallowances involved in this appeal out of sales promotion expenses, gift scheme and lucky draw expenses and travelling expenses are similar to the one involved in the Revenue's appeal for asst. yr. 1990-91 inasmuch as these disallowances were made by the AO mainly on the ground that the relevant expenses were to be borne by the sole selling agent in terms of the agreement entered into with the assessee without disputing the factum as well as quantum of these expenses incurred for t....
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....g and sale of ayurvedic veterinary medicines alongwith all current assets such as stock, etc. from M/s Indian Herbs Research & Supply Co., a partnership firm, w.e.f. 1st April, 1991 as per the agreement. By a separate license and lease agreement, the assessee-company also took over all the assets of the said firm including machinery w.e.f. 1st April, 1991 and agreed to pay a lease rent as per the said agreement. In addition, it also purchased some new machinery on its own. In its return of income filed for the year under consideration, a deduction under Section 80IA was claimed by the assessee-company in respect of profit derived from the manufacturing and sale of ayurvedic veterinary medicines. The AO, however, disallowed the said claim of the assessee for the reason that the machinery taken on lease by the assessee from M/s Indian Herbs Research & Supply Co., a partnership firm, according to him, constituted a transfer within the meaning of Section 2(47)(vi) and the value of the machinery so transferred being 31.3 per cent of the total value of machinery or plant used in the assessee's business, the condition stipulated in Clause (ii) of Sub-section (2) of Section 80IA for cl....
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....ot be said that but for transfer the new undertaking could not have come into being. In view of above, I hereby hold that the appellant-company has not been formed by reconstruction or splitting up of a business already in existence, one of the conditions to be fulfilled to get such a deduction under Section 80IA of the Act. In this regard reliance placed by the appellant on aforementioned decisions is fully justified and 1 also find that the decision of the Hon'ble Supreme Court in the case of Bajaj Tempo Ltd v. CIT is fully applicable to its case. I also agree with the appellant that since the plant and machinery has not been taken on transfer by the appellant-company but only on lease, therefore, it cannot be held that the appellant had infringed the provisions of Clause (ii) of Sub-section (2) of Section 80IA of the Act. The provisions of Section 2(47)(vi) of the Act, in my opinion, are not applicable to its case as plant and machinery so taken on lease is not an immovable property and further, the same stood not transferred together with land and building, furniture fittings, etc. to the appellant by the old firm. I hold so and thus when taking such plant and machinery on ....
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....empo Ltd. v. CIT ignoring that the facts involved in the said case were different from the facts of the assessee's case. He contended that in the case of Bajaj Tempo Ltd. (supra) before the Hon'ble Supreme Court, the main asset transferred to the new undertaking was a land and not plant, and machinery whereas in the present case, it was a transfer of business of the erstwhile firm to the assessee-company including the transfer of plant and machinery to the extent of more than 20 per cent. He, therefore, urged that the impugned order of the learned CIT(A) on this issue may be set aside and that of the AO be restored. 18. The learned Counsel for the assessee, on the other hand, strongly supported the impugned order of the learned CIT(A) on this issue. He invited our attention to the provisions of Sub-section (2) of Section 80IA as applicable to the year under consideration and pointed out that the conditions stipulated therein were duly fulfilled in the case of the undertaking of the assessee-company. He submitted that the assessee-company was neither formed by splitting up or the reconstruction of the business already in existence nor the same was formed by the transfer t....