BIDDLE SAWYER LTD, MUMBAI V. ADDL CIT 6(1), MUMBAI

CO 23/MUM/2012

• Counselvise Citation: [2012] 122 COUNSELVISE.COM (IT) 7504 (ITAT-MUMBAI)
• Duration Of Justice: 4 month(s) 24 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 11-07-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: Not Allotted
• Next Hearing Date: 15-10-2013
• Assessment Year: 2007-2008
• Appeal Filed On: 17-02-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: PRAVIN VARMA
• Keywords: Earning of tax free income; Fair market value
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES B MUMBAI BEFORE SHRI B.R. MITTAL, JUDICIAL MEMBER AND SHRI RAJENDRA, ACCOUNTANT MEMBER ITA NO.3891/MUM/2011 ASSESSMENT YEAR 2007-08 THE ADDITIONAL COMMISSIONER OF INCOME TAX - CIRCLE 6(1), R.NO. 506, 5 TH FLOOR, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI 400 020 VS. BIDDLE SAWYER LTD., 252, GSK HOUSE, DR. A.B. ROAD, WORLI, MUMBAI-400 030. PAN: AAACB 2028 C (APPELLANT ) (RESPONDE NT) CO 23/M/12 (ARISING OUT OF ITA NO.3891/MUM/2011) BIDDLE SAWYER LTD., 252, GSK HOUSE, DR. A.B. ROAD, WORLI, MUMBAI-400 030. PAN: AAACB 2028 C VS. THE ADDITIONAL COMMISSIONER OF INCOME TAX - CIRCLE 6(1), R.NO. 506, 5 TH FLOOR, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI 400 020 (CROSS-OBJECTOR) (RESPO NDENT) REVENUE BY : SHRI PRAVIN VARMA, ASSESSEE BY : MS. AARTI SATHE DATE OF HEARING : 21-06-2012 DATE OF PRONOUNCEMENT : 11-07-2012 ORDER PER RAJENDRA, A.M. FOLLOWING GROUNDS OF APPEAL WERE FILED BY THE APPELLANT AGAINST THE ORDER DATED 01-02-2011 OF THE CIT(A)-14, MUMBAI : ITA NO.3891/MUM/2011 BIDDLE SAWYER LTD., 2 I.ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE ADDITION MADE BY THE ASSESSING OFFICER U/S 40A(2)(A) OF THE ACT ON ACCOU NT OF EXCESS PAYMENT OF RS. 47.28 LACS PAID BY THE ASSESSEE TO T HE PARENT COMPANY GLAXO SMITHKLINE WITHOUT ANY BASIS FOR ALLO CATION OF EXPENSES. II.ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(A) ERRED IN DIRECTING THE ASSESSING OFF ICER TO RE-COMPUTE THE DISALLOWANCE U/S 14A ON A REASONABLE BASIS RELYING ON THE JUDGMENT OF BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. LTD. WITHOUT APPRECIATING THE F ACT THAT THE JUDGMENT OF BOMBAY HIGH COURT HAS NOT BEEN ACCEPTED BY THE REVENUE AND SLP HAS BEEN PROPOSED. III.ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE ADDITION OF RS . 16,99,000/- MADE ON ACCOUNT OF ADVERTISEMENT GIVE AWAY WITHOUT APPRECIATING THE FACTS THAT THE ASSESSEE COULD NOT SUBSTANTIATE NECESSITY OF THE EXPENSES WHEN THE ASSESSEE IS PAYI NG CONSIGNMENT COMMISSION TO THE GSK FOR MARKETING OF ITS PRODUCTS. IV.ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE DISALLOWANCE O F MARKETING COMMISSION PAID TO GSK MADE U/S 40A(2)(A) OF THE AC T AMOUNTING TO RS. 3,67,67,000/- WITHOUT APPRECIATING THE FACT THAT THESE MARKETING COMMISSION IS EXCESSIVE AND UNJUSTIFIED I N VIEW OF SECTION 40A(2)(A) OF THE INCOME TAX ACT, 1961. 2. FOLLOWING GROUND OF CROSS OBJECTIONS WERE FILED BY THE ASSESSEE (A)THE (COMMISSIONER OF INCOME TAX -14) CIT(A) ERRE D IN NOT ACCEPTING THE CONTENTION OF THE RESPONDENT THAT NO EXPENSES H AVE BEEN INCURRED FOR EARNING THE EXEMPT DIVIDEND INCOME. (B) WITHOUT PREJUDICE TO THE ABOVE, IT IS SUBMITTED THAT SECTION 14A WOULD BE APPLICABLE ONLY IF THE AO IS NOT SATISFIED WITH THE EXPLANATION /DETAIL SUBMITTED BY THE ASSESSEE. (C) WITHOUT PREJUDICE TO THE RESPONDENTS CONTENTIO N THAT NO EXPENSES HAVE BEEN INCURRED FOR EARNING THE EXEMPT DIVIDEND INCOME, THE RESPONDENTS SUBMIT THE FOLLOWING: (I) THE DISALLOWANCE OF RS. 12,70,183/- MADE UNDER SECT ION 14A READ WITH RULE 8D FOR EARNING THE TAX EXEMPT IN COME OF RS. 54,09,826/- IS HIGHLY EXCESSIVE. ITA NO.3891/MUM/2011 BIDDLE SAWYER LTD., 3 (II) THE DISALLOWANCE UNDER SECTION 14A SHOULD BE RESTRI CTED TO RS.11,886/- BEING THE EXPENDITURE ATTRIBUTABLE TO T HE EARNING OF TAX- EXEMPT INCOME. 3. BRIEF FACTS OF THE CASE : I). ASSESSEE COMPANY, ENGAGED IN THE BUSINESS OF MA NUFACTURING OF PHARMACEUTICAL PRODUCTS, FILED ITS RETURN OF INCOME ON 29.10.2007 DECLARING TOTAL INCOME OF RS. 16.17 CRORES. II). APPELLANT COMPANY DOES NOT HAVE EMPLOYEES. TH E PERSONNEL OF GLAXO SMITHKLINE PHARMACEUTICALS LTD. (GSK) MANAGE THE COMMON ACTIVITIES FOR BOTH GSK AND THE APPELLANT COMPANY. COMMON ACTIVITIES INCLUDE FUNCTIONS SUCH AS LEGAL, INFORMA TION TECHNOLOGY, ACCOUNTS, TAXATION AUDIT AND ADMINISTRATION ETC. III). COSTS OF VARIOUS DEPARTMENTS ARE ACCOUNTED IN GSK UNDER VARIOUS COST CENTRE CODES-FOR EXAMPLE COST CENTRE CODE 2103 07023 REPRESENTS CORPORATE ACCOUNTS DEPARTMENT OF GSK WHI CH PREPARES THE BALANCE SHEET, PROFIT AND LOSS ACCOUNT, TRIAL BALAN CE ETC. FOR BOTH THE COMPANIES AND ENSURES THAT THESE ARE AUDITED. SIMIL ARLY, THE COST CENTRE CODE 210307034 REPRESENTS TAXATION DEPARTMEN T WHICH IS RESPONSIBLE FOR PREPARING AND FILING THE TAX RETURN S OF BOTH COMPANIES, REPRESENTING FOR ASSESSMENTS, FLING APPEALS ETC. IV). COPIES OF COST ALLOCATION AND COMMON COSTS WER E SUBMITTED DURING THE ASSESSMENT PROCEEDINGS. V). AS PER THE AGREEMENT DATED 29.12.2000, ENTERED INTO BETWEEN GSK AND THE APPELLANTS, GSK HAD AGREED TO CARRY OUT SOM E FUNCTIONS NECESSARY FOR COORDINATING THE ACTIVITIES RELATING TO MANUFACTURE, PLANNING ETC OF THE APPELLANTS. VIDE THE SAID AGREE MENT, IT WAS AGREED THAT GSK WILL CROSS CHARGE THE APPELLANT COMPANY, T HE ACTUAL COST OF CARRY OUT THE FUNCTIONS ON AN AGREED PERCENTAGE. VI). ACCOUNTS DEPARTMENT OF GSK EXTRACTS THE TOTAL COST OF EACH DEPARTMENT BASED ON THE ABOVE COST CENTRES AND USES THE ESTIMATE TIME PROVIDED BY THE DEPARTMENTAL HEAD TO CALCULATE THE APPORTIONED COST FOR THE APPELLANT COMPANY. THE AMOUNT CROSS C HARGED FOR THE TAXATION DEPARTMENT IS 10% AND FOR THE REST OF THE DEPARTMENT IS 5% FOR THE WORK RELATING THE APPELLANTS. 4. DURING THE ASSESSMENT PROCEEDINGS AO HELD THAT THE APPELLANT COULD NOT PROVIDE THE ACTUAL BASIS OF TAKING 5% OR 10% OF THE TOTAL EXPENSES TO BE ALLOCATED TO THEM, THAT THE ESTIMATE D RATE OF PERCENTAGE WAS ONLY ARBITRARY AND WITHOUT ANY BASIS.AO APPORTI ONED THE COMMON COSTS ON THE BASIS OF TURNOVER OF THE TWO COMPANIES I.E. GSK AND THE ASSESSEE COMPANY. HE DETERMINED THE PERCENTAGE OF EXPENDITURE @ 2. 01%.ASSESSEE FILED AN APPEAL BEFORE THE FIRST APPEL LATE AUTHORITY (FAA). ITA NO.3891/MUM/2011 BIDDLE SAWYER LTD., 4 4.1. AFTER CONSIDERING THE SUBMISSION OF THE APPELLANT C OMPANY AND OBSERVATIONS OF THE AO HE HELD THAT THE ACTION OF THE AO IN DETERMINING THE PERCENTAGE OF EXPENDITURE @ 2.01% O N THE BASIS OF TURNOVER OF THE COMPANIES- GSK AND THE ASSESSEE COM PANY - WAS NOT CORRECT, THAT THE PERCENTAGE OF APPELLANTS TURN OV ER TO THAT OF GSK WAS NOT A BENCHMARK FOR APPORTIONING THE EXPENDITUR E IN PROPORTION TO THE TURNOVER OF THE COMPANIES, THAT THE TURNOVER OF GSK AND THAT OF THE APPELLANT AROSE FROM SALE OF DIFFERENT PRODUCTS , WHICH WERE DISTINCT IN TERMS OF NATURE, PRICE ETC. AND HENCE, NOT COMPA RABLE IN ANY WAY, THAT BOTH THE APPELLANT AS WELL AS GSK WERE ASSESSABLE TO TAX AT THE SAME RATE OF TAX, THAT THE A.O.S VIEW THAT THE APP ELLANT COMPANY HAD MADE EXCESS PAYMENT ON COMMON CHARGES, WOULD NOT PR OVE THAT THERE WAS ANY LOSS TO THE REVENUE. FOLLOWING THE DECISIO N OF THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. GLAXO SMITHKL INE ASIA (P) LTD.[SLP (CIVIL NO(S).18121/2007] HE HELD THAT IN THE INSTANT CASE THERE WAS NO TAX EVASION I.E., LOSS OF REVENUE AND ENTIRE EXERCISE WAS REVENUE NEUTRAL. ACCORDINGLY, HE HELD THAT THE STAN D TAKEN BY THE AO IN TREATING THE PAYMENT MADE BY THE ASSESSEE AS UNR EASONABLE WAS INCORRECT AND THAT THE SAME WAS NOT SUSTAINABLE. DI SALLOWANCE OF EXPENDITURE AMOUNTING TO RS.47.28 LACS MADE U/S. 40A(2)(A) BY THE AO WAS DELETED. 4.2. BEFORE US, DR SUBMITTED THAT THERE WAS NO BASIS FOR FAA TO ACCEPT THE CONTENTION OF THE ASSESSEE, THAT NO CORR ESPONDENCE WAS PRODUCED BEFORE THE AO FOR ALLOWABILITY OF EXPENDIT URE @ 5 TO 10%, THAT NO EXERCISE WAS CARRIED OUT BY THE FAA AS WHET HER THE EXERCISE WAS TAX NEUTRAL.AR REFERRED TO VARIOUS CLAUSES OF A GREEMENT ENTERED INTO BETWEEN GSK AND THE ASSESSEE. PAGE NOS. 5,6,7 ,13 & 14 OF THE PAPER BOOK WERE ALSO REFERRED TO. IN THIS REGARD A R ALSO RELIED UPON THE CASES OF V.S.DEMPO & CO. DELIVERED BY THE GOA B ENCH OF HONBLE HIGH COURT OF BOMBAY AND INDO SAUDI SERVICES(310ITR 306).AR REFERRED TO THE CIRCULAR NO. 6P OF 6 TH JULY,1968 OF THE CBDT. IN THE CASE OF CIT VS. GLAXO SMITHKLINE ASIA (P) LTD. HON BLE 4.3. BEFORE DECIDING THE ISSUE BEFORE US, WE WOULD LIKE TO CONSIDER THE FOLLOWING BASIC PRINCIPLES ENUMERATED BY THE JU DICIARY WITH REGARD TO SECTION 40A(2) OF THE ACT - I). FOR INVOKING THE PROVISIONS OF SECTION 40A(2)(A) OF THE ACT, THE INGREDIENTS TO BE SATISFIED ARE : (I) THE ASSESSEE SHOULD INCUR AN EXPENDITURE IN RESPECT OF WHICH PAYMENT HAS BEEN OR IS TO BE PAID TO ANY PERSON ; (II) IN THE AOS OPINION, SUCH EXPENDI TURE SHOULD BE EXCESSIVE OR UNREASONABLE HAVING REGARD TO THE FAIR MARKET VALUE OF THE GOODS, SERVICES OR FACILITIES FOR WHICH THE PAY MENT IS MADE OR THE LEGITIMATE NEEDS OF THE BUSINESS OR PROFESSION OF T HE ASSESSEE OR THE BENEFIT DERIVED BY OR ACCRUING TO HIM THEREFROM ; A ND (III) THE EXPENDITURE, WHICH IS CONSIDERED BY THE AO TO BE EX CESSIVE OR UNREASONABLE, SHALL NOT BE ALLOWED AS A DEDUCTION. ITA NO.3891/MUM/2011 BIDDLE SAWYER LTD., 5 II). THE WORDS THE AO IS OF THE OPINION INDICATE THAT THE OPINION MUST BE FORMED BY THE AO AND IT IS OF COURSE, IMPLI CIT THAT THE OPINION MUST BE AN HONEST OPINION, HAVING BEEN FORMED BASED ON THE CIRCUMSTANCES AVAILABLE BEFORE HIM. THERE SHOULD B E SOME MATERIAL AVAILABLE WITH HIM FOR INVOKING THE SAID SECTION, S O AS TO DISALLOW OR REFUSE TO DEDUCT THE EXCESSIVE OR UNREASONABLE EXPE NDITURE MENTIONED THEREUNDER. III). BEFORE INVOKING THE POWERS CONFERRED BY THE SECTION AO SHOULD AFFORD AN OPPORTUNITY TO THE ASSESSEE TO DISCHARGE HIS BURDEN AND SATISFY THE REVENUE THAT THE EXPENDITURE INCURRED B Y HIM IN CONNECTION WITH PURCHASES OR SERVICES WAS NOT EXCES SIVE OR UNREASONABLE HAVING REGARD TO THE FAIR MARKET VALUE OF THE GOODS, SERVICES OR FACILITIES. IV). CONCLUSION ABOUT INCURRING HIGHER OR EXCESSIVE PRIC E SHOULD BE ARRIVED AT AFTER COMPARING THE MARKET VALUE OF THE RELEVANT GOODS/SERVICES AS AT THE DATE OF THEIR RESPECTIVE P URCHASES/AVAILING- AND NOT AT THE BASIS OF RANDOM PERIODS OF THE AY CO NCERNED. V) . IF THE AO FAILS TO RECORD A CLEAR FINDING THAT TH E EXPENDITURE INCURRED WAS EITHER EXCESSIVE OR UNREASONABLE, HAVI NG REGARD TO THE FAIR MARKET VALUE OF THE GOODS OR SERVICES RENDERED WHICH WERE OF A SPECIFIC NATURE, HIS ORDER IS LIABLE TO BE QUASHED. 4.4. TAKING IN TO CONSIDERATION OF THE ABOVE BROAD PRINC IPLES WITH REGARD TO SEC.40A(2) OF THE ACT WE ARE OF THE OPINI ON THAT THE FAA HAS DECIDED THE ISSUE IN RIGHT PERSPECTIVE. AO HAS NOT BROUGHT ON RECORD ANY MATERIAL TO PROVE THAT PAYMENTS MADE TO GSK WER E NOT GENUINE OR THAT GSK HAD NOT RENDERED SERVICES TO THE ASSESSEE. COMPARABLE FACTS AND FOGURES, BASED ON PREVALENT MARKET RATES, HAVE NOT BEEN BROUGHT ON RECORD TO ESTABLISH THE BASIC REQUIREMENT OF INV OKING THE PROVISIONS OF THE SECTION THAT PAYMENTS MADE BY THE ASSESSEE F OR THE SERVICES AVAILED WERE EXCESSIVE OR UNREASONABLE. AS A RESULT, WE UPHOLD THE ORDER OF THE FAA. FIRST GROUND OF APPEAL FILED BY THE AO STANDS DISMI SSED. 5. NEXT GROUND OF APPEAL AND EFFECTIVE CROSS-OBJE CTION IS ABOUT DISALLOWANCE MADE BY THE AO U/S. 14A OF THE ACT AND FAAS DIRECTIONS ISSUED IN THIS REGARD. AO HAD DISALLOWED RS. 12.70 LACS U/S.14A OF THE ACT R.W.RULE8-D.AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE, FAA DIRECTED THE AO TO DETERMINE THE REASONABLE AMOUNT OF DISALLOWANCE. BEFORE US, DR RELIED UPON THE ORDER OF THE AO.AR SU BMITTED THAT DISALLOWANCE WAS HIGHLY EXCESSIVE THAT NO EXPENDITU RE WAS INCURRED FOR EARNING EXEMPT (DIVIDEND) INCOME, THAT DISALLOW ANCE U/S. 14A SHOULD BE RESTRICTED TO RS. 11,886/-. ITA NO.3891/MUM/2011 BIDDLE SAWYER LTD., 6 5.1 . AFTER CONSIDERING THE RIVAL SUBMISSION, WE ARE OF THE OPINION THAT ORDER OF THE FAA DOES NOT REQUIRE ANY INTERFER ENCE. ENDORSING THE ORDER OF THE FAA, WE DISMISS GROUND NO.2 FILED BY T HE AO. IN THE YEAR UNDER CONSIDERATION RULE 8D WAS NOT APPLICABLE. FA A HAS DIRECTED THE AO TO ACT REASONABLY. IN OUR OPINION THERE WAS NO REASON FOR AGITATING THE ISSUE BEFORE US. WITH REFERENCE TO THE CROSS OBJECTION, WE DIRECT TH E AO THAT DISALLOWANCE SHOULD BE MADE ON A REASONABLE BASIS. MATTER IS RESTORED BACK TO THE AO FOR FAIR ESTIMATION OF EXPENDITURE I NCURRED IN RELATION TO INCOME THAT DOES NOT FORM PART OF THE TOTAL INCO ME. GROUND NO.2 FILED BY THE AO STANDS DISMISSED. CROS S OBJECTION OF THE ASSESSEE IS ALLOWED PARTLY. 6. GROUND OF APPEAL NO.3 IS ABOUT RELIEF GRANTED BY TH E FAA TO THE ASSESSEE WITH REGARD TO DISALLOWANCE MADE BY THE AO FOR EXPENDITURE INCURRED ON ACCOUNT OF ADVERTISEMENT AMOUNTING TO R S. 16.99 LACS. 6.1. DURING THE ASSESSMENT PROCEEDINGS AO FOUND THAT THE ASSESSES HAD MADE A CLAIM OF RS. 16,99,000/- AS ADVERTISEME NT GIVE AWAY. HE DISCUSSED THE MATTER WITH THE AR OF THE ASSESSEE WH O STATED THAT SUCH EXPENSES WERE NECESSARY FOR SMOOTH RUNNING OF THE B USINESS. AS PER AO THE AR COULD NOT SUBSTANTIATE IT WHY SUCH EXPENS ES WERE NECESSARY PARTICULARLY WHEN THE ASSESSEE WAS PAYING CONSIGNMENT COMMISSION TO THE GSK FOR MARKETING OF ITS PRODUCTS . HE DISALLOWED THE CLAIM MADE BY THE ASSESSEE. AN APPEAL WAS PREFERRED BEFORE THE FAA. AFTER CONSI DERING THE ORDER OF THE AO AND THE SUBMISSIONS OF THE ASSESSEE FAA HELD THAT THAT THE EXPENDITURE WAS FULLY SUPPORTED BY SUFFICIENT DETAI LS, THAT THE ASESSEE HAD SUBMITTED COMPLETE DETAILS OF THE ADVERTISEMENT GIVEAWAYS, THAT GENUINENESS OF INCURRING THIS EXPENDITURE WAS WELL PROVED. HE DELETED THE ADDITION MADE BY THE AO. 6.2. BEFORE US, DR RELIED UPON THE ORDERS OF THE AO. AR REFERRED TO PG. NO. 67-98, 106, 111 OF THE PAPER BOOK IN THIS R EGARD.AR SUBMITTED THAT IN SUBSEQUENT ASSESSMENT YEARS, AO HAD MADE NO ADDITION ON ACCOUNT OF FREE GIVE AWAYS, THAT AO HAD NOT CALLED FOR DETAILS OF GIVE AWAYS, THAT EXPENSES WERE INCURRED FOR THE PURPOSES OR NORMAL BUSINESS AND SAME WERE ALLOWABLE U/S.37(1) OF THE A CT WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WE ARE O F THE OPINION THAT ORDER OF THE FAA DOES NOT SUFFER FROM ANY INFIRMITY AND HENCE HAS TO BE UPHELD. THE DISALLOWANCE WAS MADE BY THE AO BEC AUSE ASSESSEE COULD NOT SUBSTANTIATE NECESSITY OF EXPENDITURE. I N OUR HUMBLE OPINION TO DECIDE THE NECESSITY OF AN EXPENDITURE I S NOT THE JOB OF THE ASSESSEE AND NOT THAT OF AN AO. IT IS ALSO A FACT THAT IN THE SUBSEQUENT YEARS AO HAS ALLOWED THE CLAIM OF THE AS SESSEE FOR GIVE ITA NO.3891/MUM/2011 BIDDLE SAWYER LTD., 7 AWAY. BESIDES GENUINESS OF THE EXPENDITURE, AS HEL D BY THE FAA IS NOT IN DOUBT. IN THESE CIRCUMSTANCES, WE HOLD THAT EXP ENDITURE HAS RIGHTLY BEEN ALLOWED BY THE FAA. GROUND NO.3 FILED BY THE AO IS DISMISSED. 7. LAST GROUND OF APPEAL IS ABOUT DISALLOWANCE OF RS. 3.67 CRORES BEING EXPENDITURE UNDER THE HEAD MARKETING COMMISSI ON INCURRED FOR THE PURPOSE OF BUSINESS AND PAID TO THE PARENT COMP ANY OF THE ASSESSEE. DURING THE ASSESSMENT PROCEEDINGS, AO FO UND THAT ASSESSEE HAD PAID MARKETING COMMISSION TO GSK. AFT ER OBTAINING EXPLANATION OF THE ASSESSEE IN THIS REGARD, AO HELD THAT ASSESSEE THE ASSESSEE WAS PAYING CONSIGNMENT SALES AGENTS COMMIS SION FOR THE REASON THAT GSK WAS HAVING WIDE NETWORK OF CONSIGNM ENT AGENT WHICH BENEFITED TO THE ASSESSEE ALSO, THAT THE ASSE SSEE WAS ALSO BEARING COMMON COST TO GSK FOR DIFFERENT MANPOWER E XPENSES, THAT THE ALLOWABILITY OF MARKETING COMMISSION HAD TO BE SEEN IN VIEW OF SECTION 40(A)(2), THAT ALL PRODUCTS OF THE ASSESSEE WERE SOLD THROUGH GSK TO VARIOUS CONSIGNMENT AGENCIES. INVOKING THE P ROVISIONS OF THE SECTION 40A(2) OF THE ACT HE HELD THAT ASSESSEE CLA IM MADE BY THE ASSESSEE WAS NOT JUSTIFIED BECAUSE THE ASSESSEE WAS BEARING ITS SHARE ON COMMON COST ALSO WHICH INCLUDED EXPENSES ON ACCO UNT OF ADMINISTRATION & GMS (GOODS MARKETING SERVICES). DECIDING THE APPEAL FILED BY THE ASSESSE FAA HELD T HAT THE ASSESSING OFFICER HAD WRONGLY INTERPRETED THE GMS A S GOODS, MARKETING AND SERVICES AS A PART OF COMMON COST AND THEREBY HELD THAT COMMON COST CHARGES WERE INCLUSIVE OF MARKETIN G COMMISSION, THAT THE AO HAD COMPLETELY IGNORED THE FACT THAT H E HAD CONSIDERED THE ITEMS OF EXPENDITURE INCLUDED IN THE COMMON COS T WHILE MAKING DISALLOWANCE, THAT AO DID NOT CONSIDER THE FACT THA T THE APPELLANT COMPANY HAD ENTERED INTO A SEPARATE AGREEMENT WITH GSK FOR THE PURPOSE OF MARKETING COMMISSION, THAT THE ENTIRE E XERCISE WAS REVENUE NEUTRAL, THAT THE MARKETING COMMISSION EXPE NSES WERE INCURRED BY THE APPELLANT AS PER AGREEMENT. 7.1 BEFORE US DR RELIED UPON ORDER OF THE AO AND SUBMIT TED THAT COMMISSION PAYMENT WAS HIT BY THE PROVISIONS OF SEC TION 40A(2) OF THE ACT. AR SUBMITTED THAT THE APPELLANT COMPANY DID NO T HAVE ANY EXPERTISE OF ITS OWN TO MARKET ITS PRODUCTS, THAT I T HAD ENTERED INTO AGREEMENT WITH GSK, THAT GSK ALSO PROVIDED THE COMP ANY WITH ALL MARKETING AND PROMOTIONAL SUPPORT THROUGH VISITS BY THEIR FIELD STAFF, THAT DETAILS OF THE MARKETING COMMISSION PAID HAVE BEEN FURNISHED DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THAT A DDITION WAS MADE IN THE CASE OF GSK FOR SHORT CHARGE FORM THE ASSESS EE. AR REFERRED TO PG.NO. 171 TO 174 OF THE PAPER BOOK. 7.2 AFTER HEARING THE RIVAL SUBMISSION, WE ARE OF THE O PINION THAT NO INTERFERENCE IS CALLED FOR TO DISTURB THE ORDER OF THE FAA. FAA HAS ITA NO.3891/MUM/2011 BIDDLE SAWYER LTD., 8 GIVEN A CATEGORICAL FINDING THAT A SEPARATE AGREEME NT WAS ENTERED INTO BY THE ASSESSEE WITH GSK FOR THE PURPOSE OF MARKETI NG COMMISSION. ASSESSEE HAD INCURRED THE EXPENDITURE AS PER THE SA ID AGREEMENT. AO HAD NOT DOUBT THE GENUINENESS OF THE AGREEMENT. TH OUGH AO HAS HELD THAT MARKETING COMMISSION WAS EXCESSIVE AND JU STIFIED AS PER THE PROVISIONS OF SEC. 40 A(2) OF THE ACT, YET HE HAS N OT FURNISHED ANY DATA FOR SUPPORTING HIS STAND. MERE OBSERVING THAT PAYM ENT IS EXCESSIVE IS NOT SUFFICIENT TO DISALLOW THE EXPENDITURE. PRINCIP LES FOR INVOKING PROVISIONS OF SECTION 40A(2) OF THE ACT, MENTIONED AT PARAGRAPH 4.3 ARE APPLICABLE HERE ALSO. WE FIND THAT IT IS NOT A FIT CASE FOR APPLYING SECTION 40A(2). IT IS ALSO NOTEWORTHY THAT THAT AO OF GSK HAS HELD THAT THERE WAS SHORT CHARGE AMOUNTING TO RS.3.44 CRORES BY GSK FROM THE ASSESSEE FOR THE ASSESSMENT YEAR UNDER CONSIDERATIO N. AS STATED EARLIER, PAYMENT WAS MADE IN PURSUANCE OF THE AGREE MENT, SO TO REJECT IT SOME POSITIVE EVIDENCE WAS REQUIRED. WE DO NOT F IND ANY SUCH EVIDENCE IN THE ORDER OF THE AO. GROUND NO.4 STANDS DISMISSED. APPEAL FILED BY THE AO IS DISMISSED AND CROSS OBJECTIONS FILED BY THE ASSESSEE ARE ALLOWED PARTLY. ORDER PRONOUNCED IN THE OPEN COURT ON 11 TH JULY, 2012. SD/- SD/- (B.R. MITTAL) (RAJENDRA) JUDICIAL MEMBER AC COUNTANT MEMBER MUMBAI, DATE : 11 TH JULY, 2012 TNMM ITA NO.3891/MUM/2011 BIDDLE SAWYER LTD., 9 COPY TO: 1. ASSESSEE 2. RESPONDENT 3. THE CONCERNED CIT (A) 4. THE CONCERNED CIT 5. DR B BENCH, ITAT, MUMBAI 6. GUARD FILE (TRUE COPY) BY ORDER ASST. REGISTRAR, INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCHES, MUMBAI