The ACIT, Circle-10, Ahmedabad V. Khambhatta Family Trust, Ahmedabad

ITA 1032/AHD/2009

• Counselvise Citation: 103220514 RSA 2009
• Duration Of Justice: 2 year(s) 9 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-01-2012
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 31-01-2012
• Assessment Year: 2004-2005
• Appeal Filed On: 06-04-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: PF JAIN
• Assessee Lawyers: J P JANGID
• Keywords: Gross profit estimation; Business expenditure
• Section: 37; 92

Judgement Text

-1- IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH 'A' BEFORE SHRI D K TYAGI - JM AND SHRI A L GEHLOT - AM ITA NO.1032/AHD/2009 (ASST. YEAR:-2004-05) THE DEPUTY COMMISSIONER OF INCOME- TAX, CIRCLE-10, AHMEDABAD V/S M/S KHAMBHATTA FAMILY TRUST, B/4, ELLIS-BRIDGE, GYMKHANA, ELLIS-BRIDGE, AHMEDABAD PAN: AAAK 0428 P [APPELLANT] [RESPONDENT] REVENUE BY :- SHRI J P JANGID, SR. DR REVENUE BY:- SHRI P F JAIN, AR DATE OF HEARING:- 31-01-2012 DATE OF PRONOUNCEMENT:- 31-01-2012 O R D E R PER D K TYAGI (JM) :- THIS IS REVENUES APPEAL FILED AGAINST THE ORDER OF THE LEARNED CIT(A)-XVI, AHMEDABAD FOR ASSESSMENT YEAR 2004-05. 2 GROUND NO.1 RAISED BY THE REVENUE READS AS UNDER: (1) THE LD. CIT(A) HAS ERRED IN LAW IN DELETION O F ADDITION MADE BY THE ASSESSING OFFICER ON ACCOUNT OF LOW GROSS PROFI T MARGIN OF RS.1,36,64,513/- WITHOUT APPRECIATING THE RELEVANT FACTS. 3 THE FACTS OF THE CASE AS NOTED BY THE AO ARE THAT THE RETURN OF INCOME DECLARING INCOME OF RS.1,35,88,166/- HAS BEEN FILED ON 31-10-2004. THE AO FURTHER NOTED THAT - 2 SINCE THE GROSS PROFIT OF THE ASSESSEE SHOWN IN AN NEXURE B TO LETTER DTD.09-12-2006 IS 33.9% WHICH IS VERY LOW IS COMPEL LED WITH A.Y 2001-02 AND LOWER BY 5.08% EVEN IN COMPARISON TO LA ST YEAR. IN A.Y 2003-04 ADDITION ON ACCOUNT OF LOW G.P WAS MADE TO THE EXTENT OF 2.8% OF SALES, THE RELEVANT PARA IS QUOTED BELOW. 'AS MENTIONED EARLIER THE G.P FOR A. Y 2001-02, 200 2-03 AND 2003-04 ARE 49.01%, 45.79% AND 38.98% RESPECTIVELY. THERE I S A FALL IN GROSS PROFIT TO THE EXTENT OF 3.2% IN A. Y 2002-03 AND5.8 % IN A. Y 2003- 04. SUBSTANTIAL FALL IN G.P HAS RESULTED IN NOMINAL INCOME SHOWN BY THE .ASSESSEE. AS DISCUSSED IN THE PRECEDING PARA, BOOK RESULTS OF THE ASSESSEE HAVE BEEN REJECTED IN VIEW OF THE VARIOUS FACTS AND JUDICIAL PRONOUNCEMENT. NOW THE ISSUE OF ESTIMATING THE GROS S PROFIT FOR THE YEAR IS DISCUSSED. ASSESSEE HAS GIVEN FOLLOWING REA SONS FOR FALL IN G.P- 1 THE PRICE OF RAW MATERIAL HAS INCREASED IN LAST 2 YEARS. 2 PRODUCT MIX HAS CHANGED AND REQUIRED DIFFERENT RA W MATERIALS. 3 BUYING OF IMPORTED RAW MATERIAL AT HIGHER COST 4 INCREASE IN COST DUE TO MNC COMPETITION , 14.1 THE ABOVE SUBMISSIONS OF THE ASSESSEE HAVE BEE N CONSIDERED WITH THE FACTS OF THE CASE. THERE IS DEFINITELY SOM E INCREASE IN RAW MATERIAL PRICE. SIMILARLY, PRODUCT MIX HAS A/SO CHA NGED CONSIDERING THE CHANGE IN QUANTITY, CONSUMPTION OF VARIOUS RAW MATERIAL. HOWEVER, CONSIDERING THE FOLLOWING FACTS, THE GROSS PROFIT DISCLOSED BY THE ASSESSEE -DOES NOT GET EXPLAINED FULLY BY THE R EASONS GIVEN BY THE ASSESSEE: 1. SUBSTANTIAL COST IS OF PACKING MATERIAL IN WHICH THERE IS NO INCREASE. IN FACT THERE IS REDUCTION IN THE RATE OF SOME ITEMS OF PACKING MATERIALS SUCH AS POUCH, OUTER ETC. 2. THE QUANTITY TALLY GIVEN BY THE ASSESSEE DOES NO T EXPLAIN ON WHAT ACCOUNT AND HOW MUCH SHOULD BE GAIN IN THEIR P RODUCTS RSDC OR THE BASIS OF LOSS IN THEIR PRODUCT ARE RID AND FGDM. IN THE ABSENCE OF COMPLETE EXPLANATION, THE GAIN OR LOSS IN WEIGHT FORM RAW MATERIAL TO FINISHED PRODUCT DOES N OT GET EXPLAINED. FURTHER IN RSDC YIELD CAME DOWN BY 3% AN D SUCH DROP IN YIELD MAY HAVE SUBSTANTIAL EFFECT IN PRODUC TION OR 3 CONSUMPTION OF RAW MATERIAL. SIMILARLY OTHER PRODUC TS ALSO HAVE MAJOR VARIANCE IN YIELD. IN THE ABSENCE OF DAY-TO-D AY RECORDS OF THE MATERIAL RECEIVED, ISSUE, CONSUMPTION AND OUTPU T, SUCH VARIANCE CANNOT BE EXPLAINED. 3. ASSESSEE'S CLAIM OF COMPETITION WITH MNC IS NOT VERY RELEVANT SINCE PRODUCT MARKET PRICES HAVE NO REDUCED DUE TO COMPETITION. THE INCREASE IN ADVERTISEMENT COST HAS NO EFFECT ON GROSS PROFIT SINCE THE SAME IS AN ITEM OF P&LA/C. 4. BY GIVING MONTHLY RAW MATERIAL DETAILS ASSESSEE CANNOT BE ABSOLVED FROM THE RESPONSIBILITY OF MAINTAINING DAY -TO-DAY STOCK RECORDS. 5. ASSESSEE HAS GIVEN RAW MATERIAL CONSUMPTION FIGU RES MONTH WISE BUT THERE IS NO BASIS OR RECORD OF SUCH CONSUM PTION FIGURES. IN THE ABSENCE OF ISSUE AND CONSUMPTION RECORDS, TH E MONTHLY FIGURES ARE NOTHING BUT ESTIMATES ONLY AND THE SAME CAN NOT BE AUTHENTICALLY RELIED UPON. 6. IN OTHER ASSOCIATED CONCERNS NAMELY JAFFEE MFG. CO. THE GROSS PROFIT IS BETWEEN 60-70% ON A SMALL TURNOVER OF RS. 5-6 CRORES. SHRI AREEZ KHAMBATTA IS PROP, OF THIS CONCERN. CONSIDERING THE ABOVE, IT IS HELD THAT OUT OF 6.8% FALL IN G.P, 3% IS ESTIMATED TO BE ON ACCOUNT OF REASONS EXPLAINED BY THE ASSESSEE AND BALANCE 2.8% FALL IN G.P DOES NOT GET EXPLAINED AND THE SAME IS CONSIDERED FOR ADDITION. GROSS SALES FOR THIS YEAR IS RS.36,78S83,72O/- CRORES. 2.8% OF THE SAME WORKS OUT TO RS.1,03,00,74 4/-. THE SAME IS CONSIDERED FOR ADDITION TO THE GROSS PROFIT OF THE ASSESSEE FOR THE YEAR. HOWEVER, IN PARA 10 EXPENSES TO EXTENT OF RS.33,66, 946/- ON ACCOUNT OF 2 UNITS HAVE BEEN DISALLOWED WHICH HAS EFFECT ON INCREASE IN GP, AND THIS THE NET ADDITION (RS.10300744/- - RS.33669 46/-) IS RS.6933898/-. CONSIDERING THIS A NET ADDITION OF RS .69,33,898/- IS MADE ON ACCOUNT OF REJECTION OF BOOKS OF ACCOUNT AN D LOW GROSS PROFIT DISCLOSED BY THE ASSESSEE. PENALTY U/S. 271(1)(C) I S INITIATED FOR THE SAME. 6.1. DURING THIS YEAR ASSESSEE GAVE FOLLOWING ADDIT IONAL REASONS FOR FALL IN G.P. 4 1. WRITE OFF OF OBSOLETE-NON SALABLE FINISHED GOODS TO THE EXTENT OF 1.44%. 2. DUE TO APPRECIATION OF RUPEE AGAINST U.S. DOLLAR AND LESS REALIZATION OF EXPORT PROCEEDS -1.6%. 3. HIGHER PACKING MATERIAL COST 0.98% 4. BALANCE DUE TO INFLATION AND OTHER REASONS -1.07 % 6.2 THE SUBMISSIONS OF THE ASSESSEE HAS BEEN CONSID ERED. THE DIFFERENCE IN GROSS PROFIT ADDED LAST YEAR REMAINS FOR THIS YEAR ALSO AND THEREFORE ADDITION OF 2.8% REMAIN VALID FOR THIS YE AR ALSO IN VIEW OF THE REASONS GIVEN IN LAST YEAR'S ORDER AS MENTIONED ABOVE. APART FROM THE SPECIFIC REASONS FOR FALL IN G.P THE GENERAL RE ASON FOR 1.07% FALL IS NOT SUBSTANTIATED BY ANY EVIDENCE AND THEREFORE THE FALL IN G.P TO THE EXTENT OF 1.07% IN COMPARISON TO PREVIOUS YEAR IS C ONSIDERED UNEXPLAINED. TOTAL ADDITION ON ACCOUNT OF LOW G.P I S 2.8 + 1.07 = 3.87%. THE ASSESSEE'S SALE OF MANUFACTURED GOODS AS PER ANNEXURE-B IS RS.35,95,92,441/- BY APPLYING 3.87% RATE THE ADD ITION TO GROSS PROFIT WORKS OUT TO RS.1,36,64,513/-. AN ADDITION O F RS.1,36,64,513/- IS MADE ON ACCOUNT OF REJECTION OF BOOKS OF ACCOUNT S AND LOW GROSS PROFIT DISCLOSED BY THE ASSESSEE. PENALTY U/S. 271( 1)(C) IS INITIATED. (DISALLOWANCE OF RS.1,36,64,513/) 4 AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE FI LED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY. THE LE ARNED CIT(A) DELETED THE ADDITION. 5 AGGRIEVED BY THE ORDER OF THE LEARNED CIT(A), THE REVENUE IS IN APPEAL BEFORE US. THE LEARNED DR SUPPORTED TH E ORDER OF THE AO. THE LEARNED COUNSEL OF THE ASSESSEE, ON THE OTH ER HAND, SUPPORTED THE ORDER OF THE LEARNED CIT(A). 6 WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE RE CORDS. WE FIND THAT THE AO HAS MADE THE ADDITION FOLLOWING TH E EARLIER 5 ORDER FOR ASSESSMENT YEAR 2003-04. THE LEARNED CIT( A) DELETED THE ADDITION HOLDING AS UNDER:- SINCE IN THIS YEAR THE GP HAS BEEN ESTIMATED SOLEL Y ON THE BASIS OF THE FINDING OF THE AO BASED ON AY 2002-03 AND 2003-04 A ND THE BASIS THEREOF WAS NOT FOUND TO BE CORRECT BY MY PREDECESS OR, FOLLOWING THE ORDER OF AY 2002-03 & 2003-04, THE GP ADDITION OF R S.1,36,64,513/- IS DELETED. SINCE WE HAVE RESTORED THE ISSUES INVOLVED IN ASSES SMENT YEAR 2003-04 IN ITA NO.2141/AHD/2007 [ASSESSEES APPEAL] AND ITA NO.2287/AHD/2007 [REVENUES APPEAL], WE RESTORE THI S ISSUE TO THE FILE OF THE AO FOR FRESH ADJUDICATION. THIS GRO UND RAISED BY THE REVENUE IS ALLOWED FOR STATISTICAL PURPOSE. 7 THE NEXT GROUND RAISED BY THE REVENUE RELATES TO DELETION OF THE ADDITION MADE BY THE AO ON ACCOUNT OF ADVERT ISEMENT EXPENSES. THE FACTS OF THE CASE ARE THAT THE ASSES SEE CLAIMED ADVERTISEMENT EXPENSES OF RS.5,90,85,614/-. DURING THE COURSE OF SURVEY ON 21-2-2006, SURVEY PARTY CAME TO KNOW THAT THESE ADVERTISEMENT EXPENSES ARE INCURRED BY THE ASSESSEE TO PROMOTE ITS PRODUCTS UNDER RASNA BRAND NAME. DURING THE ASSESSMENT PROCEEDINGS, THE AO SHOW CAUSED THE ASSESSEE AS TO WHY THESE ADVERTISEMENT EXPENSES SHOULD NOT BE DISALLOWED, AS THEY ARE NOT INCURRED BY THE ASSESSEE FOR ITS BUSINESS PURPOSE. THE REPLY GIVEN BY THE ASSESSEE WAS NOT ACCEPTABLE TO THE AO. HE, T HEREFORE, MADE AN ADDITION OF 30% OF TOTAL EXPENSES BY OBSERV ING AS UNDER:- 6 CONSIDERING THE ABOVE, THE ASSESSEE'S CLAIM OF ADV ERTISEMENT EXPENSES CANNOT BE CONSIDERED WHOLLY AND EXCLUSIVEL Y FOR THE PURPOSE OF ASSESSEE'S BUSINESS IN VIEW OF THE 2 COUNTS - I) THE PART OF THE ADVERTISEMENT ALSO CREATES RASNA BRAND VALUE WHICH IS CAPITAL IN NATURE II) THE OTHER MANUFACTUR ING CONCERNS OF RASNA PRODUCTS ARE NOT INCURRING ANY ADVER TISEMENT EXPENSES. EVEN IF THEIR PRODUCTS ARE DIFFERENT THEY FALL IN T HE SAME 'RASNA PRODUCTS' CATEGORY AND THEREFORE PART OF THE EXPENS ES ARE ATTRIBUTABLE FOR THEM IN VIEWS OF THE FACTS NARRATED EARLIER. CONSIDERING THE ABOVE, I DISALLOW 30% OF THE ADVERT ISEMENT EXPENSE (10% RELATING TO BRAND BUILDING AND 20% FOR THE BEN EFIT TO OTHER MANUFACTURER) CLAIMED BY THE ASSESSED WHICH IS RS.5 ,90,85,614/- 30% OF THE SAME COMES TO RS.1,77,25,684 WHICH IS PENALT Y PROCEEDINGS U/S 271(1)(C) WILL BE INITIATED FOR THE SAME. THE AO WAS OF THE VIEW THAT THE HUGE ADVERTISEMENT EXPENSES CANNOT BE SAID TO BE WHOLLY AND EXCLUSIVELY INCURRE D FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE. HE ACCORDINGLY MADE THE IMPUGNED ADDITION. THE LEARNED CIT(A) DELETED THE A DDITION HOLDING THAT THE ISSUE IS COVERED BY THE DECISIONS OF MUMBAI BENCH AND DELHI BENCH OF ITAT AS DISCUSSED IN HIS O RDER. 8 AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE US. TH E DR SUPPORTED THE ORDER OF THE AO. ON THE OTHER HAND, T HE LEARNED COUNSEL OF THE ASSESSEE SUPPORTED THE ORDER OF THE LEARNED CIT(A). 9 WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE RE CORDS. WE FIND THAT THE LEARNED CIT(A) HAS DISCUSSED THE ISSU E IN GREAT DETAILS. 7 3.2 I HAVE CONSIDERED THE SUBMISSION OF THE APPELL ANT. I HAVE ALSO PERUSED THE ASSESSMENT ORDER. THE ASSESSING OFFICER IS OF THE VIEW THAT THE ADVERTISEMENT EXPENSES INCURRED CANNOT BE STATED TO HAVE BEEN INCURRED 'WHOLLY AND EXCLUSIVELY FOR THE APPELLANT' S OWN BUSINESS BECAUSE - I) PART OF THE ADVERTISEMENT ALSO RELATES TO RASNA BRAND VALUE WHICH IS CAPITAL IN NATURE. II) THE OTHER MANUFACTURING CONCERN OF RASNA PRODUC TS ARE NOT INCURRING ANY ADVERTISEMENT EXPENSES. HE THEREFORE DISALLOWED 30% OF THE ADVERTISEMENT EX PENSES (10% RELATING TO BRAND BUILDING & 20% FOR THE BENEFIT OF OTHER MANUFACTURER). 3.3 SECTION 37 OF THE I T ACT SAYS THAT ANY EXPENSE S NOT BEING CAPITAL IN NATURE ................INCURRED WHOLLY & EXCLUSIVELY FOR THE PURPOSE OF BUSINESS OF THE APPELLANT, WOULD BE ALLO WABLE. THE LANGUAGE OF THIS SECTION IS DIFFERENT FROM SEC 10(1 4) WHICH SAYS THAT 'ANY SUCH SPECIAL ALLOWANCE OR BENEFIT, NOT BEING I N THE NATURE OF A .PERQUISITE WITHIN THE MEANING OF SECTION 17(2), S PECIFICALLY GRANTED TO MEET EXPENSES, WHOLLY, NECESSARILY AND EXCLUSIVELY INCURRED IN THE PERFORMANCE ....................... 3.4 SECTION 37(1} DOES NOT -SAY THAT THE EXPENDITUR E MUST NECESSARILY BE INCURRED FOR THE PURPOSE OF THE BUSI NESS. THE ASSES-SING OFFICER HAS GIVEN THE MEANING OF THE WORDS WHOLLY & EXCLUSIVELY AS WHOLLY, EXCLUSIVELY AND NECESSARILY AND THEREFORE, HE HELD THAT IF OTHER PARTY .IS BENEFITED BY THE ADVERTISEMENT EXPENSES I NCURRED BY THE APPELLANT THEN SUCH EXPENSES WOULD BE DISALLOWABLE. THIS INTERPRETATION WOULD HAVE BEEN CORRECT HAD SECTION 37 INCLUDED THE WORDINGS NECESSARILY. THE A.O. HAS NOT DISPUTED THA T THE PAYMENT IS MADE TOWARDS ADVERTISEMENT. FURTHER THE ADVERTISEME NT PAYMENT IS BEING MADE TO STAR INDIA, MUDRA COMMUNICATION ETC F OR T V ADVERTISEMENT! NONE OF THESE PERSONS ARE RELATED TO APPELLANT WITHIN THE MEANING OF SEC 40A(2)(B), THEREFORE, THE PAYMEN TS OF 8 ADVERTISEMENT CANNOT BE STATED TO BE EXCESSIVE. THE ONLY GROUND TAKEN BY THE ASSESSING OFFICER IS THAT OTHER ASSOCIATE CO NCERNS OF THE APPELLANT ARE ALSO BENEFITED BY THE ADVERTISEMENT E XPENSES INCURRED BY THE APPELLANT. IN MY VIEW, THIS IS NOT A BAR TO CLA IM THE ADVERTISEMENT EXPENSES U/S. 37 BECAUSE OF THE ABSENCE OF THE WORD INGS NECESSARILY. THE MUMBAI ITAT IN THE CASE OF STAR INDIA (P) LTD V /S. ADDL. C/T 703ITD 73 (MUB) TM HELD AS UNDER:- ' 43. AS FAR AS SECOND QUESTION RELATING TO DISALLO WANCE OF EXPENSES IS CLAIMED, I FIND THAT THERE IS NO DISPUT E ABOUT THE GENUINENESS OF THE EXPENDITURE INCURRED BY THE ASSE SSEE. THERE CAN FURTHER BE NO DISPUTE THAT EXPENDITURE INCURRED BY THE ASSESSEE ON ADVERTISEMENT MADE HAD DIRECT NEXUS WIT H EARNING OF INCOME BY THE ASSESSEE. IT IS POSSIBLE THAT EXPE NDITURE ON ADVERTISEMENT MIGHT HAVE ALSO BENEFITED THE PRINCIP AL OF THE ASSESSEE BUT ON ABOVE GROUND, THE EXPENDITURE INCUR RED BY THE ASSESSEE COULD NOT BE DISALLOWED. THE ASSESSEE CLEA RLY INCURRED EXPENSES WHOLLY AND EXCLUSIVELY FOR PURPOSES OF ITS BUSINESS AND, THEREFORE WAS ENTITLED TO DEDUCTION OF EXPENDI TURE CLAIMED IN COMPUTING ITS INCOME. THE LEARNED JM HAS GIV EN SOUND REASONS, FOR ALLOWING EXPENDITURE IN QUESTION. ON F ACTS OF CASE, IT IS NOT POSSIBLE FOR ME TO AGREE WITH LEARNED AM ON ANY OF THE REASONS GIVEN BY HIM TO DISALLOW-THE EXPENDITURE IN QUESTION.' 3.5 SIMILARLY, THE DELHI ITAT IN THE CASE OF NESTLE INDIA LTD. V/S. DY. CIT 111 TTJ (DEL) 498 HELD AS UNDER:- '22. WE HOVE HEARD THE PARTIES AND PERUSED THE RECO RD OF THE CASE. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MA NUFACTURING OF VARIOUS FOOD PRODUCE AND BEVERAGES. THE-ASSESSEE IS MANUFACTURING VARIOUS PRODUCTS UNDER VARIOUS BRANDS OWNED BY NESTLE, SWITZERLAND. DURING THE YEAR UNDER CONSIDER ATION, THE ASSESSEE HAS INCURRED ADVERTISEMENT AND SALES PROMO TION EXPENSES OF RS.104,86,36,000, ACCORDING TO THE AO, THE BENEFIT OF ADVERTISEMENTS/SALES PROMOTION EXPENSES TO THE A SSESSEE'S BUSINESS CANNOT BE RULED OUT BUT SIMULTANEOUSLY IT IS RESULTING IN ESTABLISHING OF BRANDS AND PRODUCTS OF NESTLE SA A NON-RESIDENT, SUBSTANTIALLY INTERESTED COMPANY IN ASSESSEE'S BUSI NESS. HOWEVER, IT MAY BE MENTIONED THAT THE FACT THAT ASS ESSEE COMPANY HAD INCURRED EXPENDITURE ON ACCOUNT OF ADVE RTISEMENT AND SALES PROMOTION IN RESPECT OF ONLY THOSE PRODUC TS IN WHICH 9 INDIAN COMPANY IS DEALING IN, HAS NOT BEEN CONTROVE RTED BY THE REVENUE. THUS, THE EXPENDITURE HAS BEEN INCURRED TO PROMOTE SALES IN INDIA. THEREFORE, THESE EXPENSES WERE INCU RRED WHOLLY AND EXCLUSIVELY FOR .THE PURPOSE OF BUSINESS OF THE ASSESSEE. FURTHER, PAYMENT FOR THESE EXPENSES HAVE BEEN MADE TO THIRD PARTIES IN INDIA WHO ARE NOT IN ANYWAY RELATED THE NESTLE SA. THEREFORE, THERE IS NO JUSTIFICATION ON THE PART OF AO TO INVOKE THE PROVISIONS OF S. 92 OF THE ACT IN THE MATTER. T HEREFORE, WE FIND OURSELVES IN AGREEMENT WITH THE VIEW OF CIT(A) THAT PROVISIONS OF S. 92 ARE NOT APPLICABLE FOR THE ALLO WABILITY OF THIS EXPENDITURE. THE EXPENDITURE INCURRED BY THE ASSESS EE-COMPANY ON ADVERTISEMENT/SALES PROMOTION OF SOME NESTLE PRO DUCTS IN INDIA MAY GIVE RISE TO CERTAIN BENEFIT TO NESTLE SA , BUT THIS CANNOT BE A GROUND TO DISALLOW THE CLAIM OF THE ASS ESSEE, ONCE IF IS ESTABLISHED THAT THE EXPENDITURE IN QUESTION HAS BEEN INCURRED BY THE ASSESSEE FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE INASMUCH AS THE EXPENDITURE BY THE ASSESSEE ON ADVERTISEMENT/SALES PROMOTION HAS DIRECT NEXUS WITH THE EARNING OF INCOME BY THE ASSESSEE. IT MAY BE MENTIONED THAT AN IDENTICAL ISSUE HAD COME UP FOR CONSIDERATION BEFORE TRIBUNAL , MUMBAI IN THE CASE OF STAR INDIA (P) LTD. VS. ADDL. CIT (S UPRA) WHEREIN IT HAS BEEN HELD THAT ADVERTISEMENT EXPENSES INCURR ED ON PROMOTING VIEWERSHIP OF TV CHANNEL BY THE ASSESSEE ENGAGED IN PROCURING PROGRAMMES FOR THOSE CHANNEL WAS EXPENDIT URE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF ITS BUSINESS AND IT COULD NOT BE DISALLOWED ON THE GROUND THAT I T MIGHT HAVE ALSO BENEFITED THE ASSESSEE'S PRINCIPAL. IN VIEW OF WHAT HAS .BEEN DISCUSSED ABOVE, WE DO NOT FIND ANY REASON TO IN TERFERE WITH THE ORDER OF THE CIT(A) PASSED IN THIS REGARD. HENC E, THE SAME IS UPHELD. 3.6 SIMILAR VIEW HAS BEEN EXPRESSED BY DELHI. ITAT IN THE CASE OF SONY INDIA P. LTD. V/S. DCIT JI8 TTJ (DELHI) 865. T HE RELEVANT DISCUSSION IS ICED AS UNDER:- WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND ALSO PERUSED THE RELEVANT MATERIAL ON RECORD. IT IS OBSERVED THAT TH E EXPENDITURE INCURRED BY THE TAXPAYER DURING THE YEAR UNDER CONS IDERATION ON ADVERTISEMENT AND SALES PROMOTION WAS DISALLOWED BY THE AO TO THE EXTENT OF. 10 PER CENT ON ESTIMATED BASIS ON TH E GROUND THAT THE SAME TO THAT EXTENT WAS GOING TO STRENGTHEN THE BRAND IMAGE OF SONY WORLDWIDE AND THE BENEFIT THEREOF THUS WAS GOING TO 10 FLOW TO THE PARENT COMPANY VIZ., SONY CORPORATION, JAPAN. AT THE TIME OF HEARING BEFORE US, THE LEARNED DEPARTME NTAL REPRESENTATIVE HAS SOUGHT TO SUPPORT THIS ACTION OF THE AO BY POINTING PUT THAT THE SUBSTANTIAL PORTION OF ADVERT ISEMENT AND SALES PROMOTION EXPENSES INCURRED BY THE TAXPAYER C OMPANY WAS REIMBURSED BY SONY CORPORATION IN OTHER YEARS A ND THIS FACT WAS SUFFICIENT TO SHOW THAT THE BENEFIT OF THE SAID EXPENDITURE HAD ACTUALLY FLOWN TO THE SAID COMPANY. IN OUR OPIN ION, THIS FACTUAL POSITION, HOWEVER, GOES AGAINST THE REVENUE IN THE SENSE THAT IF AT ALL ANY BENEFIT OF THE ADVERTISEMENT AND SALES PROMOTION EXPENDITURE INCURRED BY THE TAXPAYER COMP ANY HAD FLOWN TO THE PARENT COMPANY AS ALLEGED BY THE AO, T HE SAME WAS SUITABLY COMPENSATED BY THE PARENT COMPANY BY A CTUALLY REIMBURSING THE SUBSTANTIAL PORTION OF THE SA ID EXPENDITURE. MOREOVER, THE SAID EXPENDITURE WAS INCURRED BY THE TAXPAYER COMPANY TO PROMOTE THE SALES OF THE PRODUCTS DEALT WITH BY IT IN INDIA AND THE SAME, THUS HAVING BEEN INCURRED WHOLL Y AND EXCLUSIVELY FOR THE PURPOSE OF ITS BUSINESS, IT WAS FULLY DEDUCTIBLE AS AN ALLOWABLE BUSINESS EXPENDITURE IRR ESPECTIVE OF ANY DIRECT OR INDIRECT BENEFIT WHICH MIGHT HAVE ACC RUED TO ITS PARENT COMPANY. FOR THIS CONCLUSION, WE DERIVE SUPP ORT FROM THE DECISION OF MUMBAI BENCH, OF TRIBUNAL IN THE CA SE OF STAR INDIA (P) LTD. VS. ADDL. CIT (SUPRA) WHEREIN IT WAS HELD THAT ADVERTISEMENT EXPENSES INCURRED ON PROMOTING VIEWER SHIP ON TV CHANNEL BY THE TAXPAYER ENGAGED IN PROCURING PRO GRAMS FOR THOSE CHANNEL WERE EXPENDITURES INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF ITS BUSINESS AND IT COULD NOT BE DISALLOWED ON THE GROUND THAT IT MIGHT HAVE ALSO BE NEFITED 'THE TAXPAYER'S PRINCIPAL. TO THE SIMILAR EFFECT IS THE DECISION OF DELHI BENCH OF TRIBUNAL IN THE CASE OF NESTLE INDIA LTD. VS. DY. CIT (SUPRA) CITED BY THE LEARNED COUNSEL FOR T HE TAXPAYER WHEREIN IT WAS HELD THAT ADVERTISEMENT AND SALES PR OMOTION EXPENSES INCURRED BY THE TAXPAYER FOR PROMOTING SAL ES IN INDIA IN RESPECT OF PRODUCTS MANUFACTURED BY IT UNDER VARIOUS BRANDS OF A FOREIGN COMPANY WERE ALLOWABLE IN EN TIRETY EVEN THOUGH IT MIGHT HAVE BENEFITED THE NON-RESIDENT COM PANY WHO OWNED THE SAID BRANDS. KEEPING IN VIEW BOTH THESE D ECISIONS OF THE TRIBUNAL AND TAKING INTO CONSIDERATION THE FACT S OF THE CASE AS DISCUSSED ABOVE, WE HOLD THAT THE DISALLOWANCE O F 10 PER CENT MADE BY THE AO OUT OF ADVERTISEMENT AND SALES PRO MOTION EXPENSES ON THE GROUND THAT THE SAME RESULTED IN TH E BENEFIT TO 11 THE PARENT COMPANY WAS NOT SUSTAINABLE AND 'THE LEA RNED CIT(A) WAS FULLY JUSTIFIED IN DELETING THE SAME.' 3.7 THE CASE OF THE APPELLANT IS SQUARELY COVERED BY THE DECISION OF MUMBAI ITAT & DELHI ITAT AS DISCUSSED ABOVE. IN VIE W OF THE ABOVE MENTIONED JUDGMENTS, I HOLD THAT THE AO IS NO T JUSTIFIED IN DISALLOWING 30% OF THE ADVERTISEMENT EXPENSES. THIS GROUND IS ALLOWED FOR BOTH THE AY 2004-05 & 2005-06. 10 SINCE THE LEARNED CIT(A) HAS GIVEN RELIEF TO THE ASSESSEE BY FOLLOWING THE DECISIONS OF THE ITAT CITED SUPRA AND REVENUE HAS NOT CITED ANY DECISION TO THE CONTRARY, WE FIND NO INFIRMITY IN THE ORDER OF THE LEARNED CIT(A) AND THE SAME IS HEREBY UPHELD ON THIS ISSUE. THE GROUND RAISED BY THE REVENUE IS DIS MISSED. 11 IN THE RESULT, THE REVENUES APPEAL IS PARTLY AL LOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE COURT TODAY ON 31-01-2012 SD/- SD/- (A L GEHLOT) ACCOUNTANT MEMBER (D K TYAGI) JUDICIAL MEMBER DATE : 31-01-2012 COPY OF THE ORDER FORWARDED TO: 1. M/S KHAMBHATTA FAMILY TRUST, B/4, ELLIS-BRIDGE, GYMKHANA, ELLIS-BRIDGE, AHMEDABAD 2. THE ASST. COMMISSIONER OF INCOME-TAX, CIRCLE-10, AHMEDABAD 3. CIT CONCERNED 4. CIT(A)-XVI, AHMEDABAD 12 5. DR, ITAT, AHMEDABAD BENCH-A, AHMEDABAD 6. GUARD FILE BY ORDER DEPUTY REGISTRAR ASSISTANT REGISTRAR ITAT, AHMEDABAD