M/s Hyderabad Distilleries and Wineries Private Limited, Hyderabad V. DCIT, Hyderabad

ITA 1356/HYD/2010

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 3287 (ITAT-HYDERABAD)
• Duration Of Justice: 7 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-06-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 28-03-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 27-10-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: ILLEGAL OTHER GROUNDS RAISED
• Keywords: Depreciation; Business expenditure; Principle of natural justice; Rule of consistency; Commercial expediency; Unabsorbed depreciation
• Section: 143(3); 133(6); 131; 68; 144

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A, HYDERABAD BEFORE SHRI G.C.GUPTA, VICE PRESIDENT AND SHRI AKBER BASHA, ACCOUNTANT MEMBER ITA NO.1356/HYD/2010 : ASSESSMENT YEAR 20 06-07 M/S. HYDERABAD DISTILLERIES AND WINERIES PVT. LTD., HYDERABAD. (PAN:AAACH 2679H) VS DCIT, CIR-2(2), HYDERABAD. (APPELLANT) (RESPONDENT) APPELLANT: SHRI G. KALYAN DAS RESPONDENT: SHRI V. SRINIVAS O R D E R PER AKBER BASHA, AM:- THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER OF THE CIT (A)-III, HYDERABAD DATED 31-08-2010 AN D IT PERTAINS TO THE ASSESSMENT YEAR 2006-07. WE ARE CONSI DERING FOR ADJUDICATION ONLY GROUND NO.3 OF THE GROUNDS OF APPEA L WHEREIN THE ASSESSEE COMPANY CONTENDS THAT DISALLOWANCE OF RS.2.79 CRORES TOWARDS SELLING/PUBLICITY EXPENSES IS ARBITRARY, J UST AND ILLEGAL. THE OTHER GROUNDS RAISED BY THE ASSESSEE ARE F OUND TO BE ARGUMENTATIVE IN NATURE AND THEY MERELY SUPPORT GROUND NO.3. HENCE THESE ARE NOT CONSIDERED FOR ADJUDICATION FOR W HICH THE ITA NO.1356 OF 2010 HYDERABAD DISTILLERIES & WINERIES P. LTD. ====================== 2 LEARNED COUNSEL FOR THE ASSESSEE DID NOT RAISE ANY OBJ ECTION AT THE TIME OF HEARING. 2. BRIEFLY STATED FACTS OF THE CASE ARE THAT THE AS SESSEE IS A COMPANY ENGAGED IN BUSINESS OF MANUFACTURE AND SAL E OF INDIAN MADE FOREIGN LIQUOR, UNDER AN AGREEMENT WITH M/S JAGJI T INDUSTRIES LTD., (JIL IN SHORT). FOR THE ASSESSMENT YEAR UNDER CONSIDERATION, IT HAS FILED THE RETURN OF INCOME ON 18 -11-2006 SHOWING INCOME OF RS.43,85,595/-. DURING SCRUTINY OF THE RETURN THE ASSESSING OFFICER NOTICED THAT DURING THE PREVIOU S YEAR, THE ASSESSEE HAS MADE SALES OF RS.87.35 CRORES AND THE EN TIRE SALES WERE MADE TO AP BEVERAGE CORPORATION LIMITED (APBCL), WHI CH IN TURN SOLD THE SAME TO RETAIL SHOPS IN THE STATE OF A NDHRA PRADESH. HE FOUND THAT IN THE PROFIT AND LOSS ACCOUNT, THE ASSE SSEE HAS CLAIMED AN AMOUNT OF RS.3,14,49,710/- TOWARDS SELLI NG EXPENSES. HE HAS ASKED THE ASSESSEE TO FURNISH THE DETAILS OF SUCH EXPENSES. FROM SUCH DETAILS FURNISHED BY THE ASSESSEE, HE NOTIC ED THAT THE ENTIRE EXPENDITURE WAS INCURRED AT DELHI AND SUCH CLA IM PERTAINS TO PURCHASE OF CLOTH FOR BANNERS AND PURCHASE OF AIR BAGS ETC. IN RESPECT OF SUCH CLAIM OF EXPENDITURE, THE ASSESSEE H AS FILED COPIES OF INVOICES FROM DIFFERENT PARTIES. THE DETAILS OF EX PENSES CLAIMED BY THE ASSESSEE IN RESPECT OF 20 PARTIES OF DELHI, IN CLUDING THE AMOUNT CLAIMED TOWARDS PROVISION FOR SUCH EXPENSES, ARE GIVEN BY THE ASSESSING OFFICER AT PAGES 2 AND 3 OF THE ASSESS MENT ORDER. IT WAS SUBMITTED BEFORE THE ASSESSING OFFICER THAT THE CLOTH PURCHASED DURING THE PREVIOUS YEAR WAS STITCHED AT DE LHI AND THEN THE BANNERS WERE DISTRIBUTED TO VARIOUS SHOPS IN ANDHRA PRADESH. ITA NO.1356 OF 2010 HYDERABAD DISTILLERIES & WINERIES P. LTD. ====================== 3 FOR VERIFYING THE GENUINENESS OF CLAIM OF SUCH EXPENS ES, DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER HAS CONDUCTED NECESSARY ENQUIRIES THROUGH THE INVESTIGATION WING OF THE DEPARTMENT AT DELHI. THE CONCERNED ASSESSING OFFICE R AT DELHI HAS CONDUCTED ENQUIRIES IN CASE OF SEVEN PARTIES AT D ELHI. HIS REPORT OF SUCH ENQUIRY FURNISHED BY HIM, WHICH WAS FORW ARDED BY THE ADDL. DIT (INV.) (NEW DELHI), WAS EXTRACTED BY T HE ASSESSING OFFICER AT PAGE-4 OF HIS ORDER. IN THE CASE OF THE PART Y M/S MAKEMASHI ENTERPRISES LIMITED, DELHI, AS PER THE ABOVE REPORT, THE SUMMONS ISSUED BY THE ASSESSING OFFICER, INVESTIGATI ON WAS SERVED ON ONE SRI DEEPAK JAIN, AUDITOR OF THE COMPANY. IT IS STATED THAT AS PER THE INSPECTORS REPORT, NO BUSINESS ACTIVITY WAS CARRIED OUT FROM THAT PREMISES. THE SAID AUDITOR IN HIS REPLY FILE D BEFORE THE ASSESSING OFFICER, INVESTIGATION HAS SUBMITTED THAT DURING SURVEY CONDUCTED IN THE CASE OF THAT COMPANY ON 26-2-2008, THE DIRECTOR OF THE COMPANY HAS ADMITTED THAT THEY WERE NOT MAKI NG GENUINE/ACTUAL SALE AND PURCHASES DURING THE ASSESSMEN T YEAR 2006-07. THE COMPANY WAS MERELY ISSUING BILLS FOR ACCOMMODATING CLIENTS CHARGING 2% COMMISSION. THE SAID AUDITOR FURTHER STATED THAT HE WAS PRESENT AS WITNESS O F SUCH SURVEY PROCEEDINGS. 3. IN THE CASE OF THE CONCERN M/S. MEENAKSHI CLO TH MERCHANT, 1176, CHHATTA MADAN GOPAL, MALIWARA, DELH I, THE ASSESSING OFFICER HAS ISSUED SUMMONS UNDER SECTION 1 31, BUT THE SAME COULD NOT BE SERVED AS MRS. SUNHERI DEVI AGARWAL , THE LADY OCCUPANT OF THAT PREMISES STATED THAT SHE IS NOT AWA RE OF ANY SUCH ITA NO.1356 OF 2010 HYDERABAD DISTILLERIES & WINERIES P. LTD. ====================== 4 BUSINESS ENTITY. THE INSPECTOR OF INCOME-TAX WHO WA S ENTRUSTED WITH THE ENQUIRIES, AFTER CONDUCTING LOCAL ENQUIRIES, REPORTED THAT NO SUCH FIRM EXISTS OR WAS CARRYING ON BUSINESS IN THA T NAME FROM THAT PREMISES. IN THE CASE OF KISHORI TEXTILES AGEN CIES, 1/114E, NAVEEN SHAHDRA, DELHI AND MANY OTHER PARTIES IN THIS L INE, THE ASSESSING OFFICER ASKED THE ASSESSEE TO FURNISH PROOF OF RECEIPTS OF SUCH QUANTITY OF CLOTH BANNERS ALONG WITH LORRY RECEIPT S ETC. LATER, THE ASSESSING OFFICER HAS FURNISHED A COPY OF THE SA ID ENQUIRY REPORT TO THE ASSESSEE. IN RESPONSE TO SUCH QUERY FROM THE ASSESSING OFFICER, THE ASSESSEE HAS SUBMITTED THAT THE TRANSACTIONS SHOWN IN THOSE INVOICES ARE GENUINE AND IT WAS SUBM ITTED THAT THAT THE STATEMENT GIVEN BY THE SAID AUDITOR OF M/S MAKEM ASHI ENTERPRISES LTD., IS NOT RELIABLE AND THE REPORTS FURNIS HED BY THE ITI IN RESPECT OF 5 PARTIES INCLUDING MEENAKSHI CLOTH ME RCHANT ARE NOT RELIABLE. IT HAS FURNISHED LEDGER ACCOUNTS, CONFIRMATI ONS IN RESPECT OF 13 PARTIES INCLUDING M/S HARI OM FABRICS AND M/S BHARA T TEXTILES. AFTER STATING THAT THE ITI HAS MADE ENQUIRI ES FROM PERSONS WHO HAVE NO CONNECTION WITH THE PERSONS, WHO SUPPLIED GOODS, THE ASSESSEE HAS ASKED THE ASSESSING OFFICER TO ALLOW AN OPPORTUNITY TO CROSS EXAMINE THOSE PERSONS, REFERRED TO IN THE ITIS REPORT. HOWEVER, THE ASSESSING OFFICER REJECTED SUCH CONTENTION OF THE ASSESSEE AND HE NOTED THAT WHEN T HE ENTIRE MARKETING IN THE CASE OF THE ASSESSEE WAS LOOKED AF TER BY OTHER CONCERNS AND THE ASSESSEE HAS SEPARATELY INCURRED MARK ETING EXPENSES OF RS.7.81 CRORES, THE CLAIM OF SUCH HUGE EX PENDITURE TOWARDS SALES PROMOTION IS NOT GENUINE AND BY STATING THAT THE REQUEST OF THE ASSESSEE TO CROSS EXAMINE THOSE PERSONS REFERRED TO ITA NO.1356 OF 2010 HYDERABAD DISTILLERIES & WINERIES P. LTD. ====================== 5 IN THE ITIS REPORT, IS A DEVICE TO DIVERT THE MAIN I SSUE, THE ASSESSING OFFICER REJECTED SUCH REQUEST. 4. AFTER ACCEPTING THE EXPENDITURE SHOWN AGAINST M /S. GANGA RAM NATH AND THE AMOUNT SHOWN AGAINST M/S BRADB URY SPINNING AND WEAVING MILLS, IN RESPECT OF WHICH, THE ASSESSEE HAS FURNISHED THE COPIES OF INCOME-TAX RETURNS FILED BY TH E SAID CONCERN AT MUMBAI, THE ASSESSING OFFICER REJECTED TH E CLAIM OF SUCH SELLING EXPENSES SHOWN AGAINST THE OTHER 18 PARTIES A ND ALSO THE AMOUNT CLAIMED TOWARDS PROVISION FOR SUCH EXPENSES. T HUS, AFTER EXCLUDING A SUM OF RS.30,79,696/- TOWARDS EXPENSES C LAIMED IN RESPECT OF BOTH THE ABOVE PARTIES, THE ASSESSING OFF ICER HELD THAT THE BALANCE AMOUNT OF RS.2,83,70,014/- HAS TO BE DI SALLOWED. IT IS SEEN THAT FOR AN AMOUNT OF RS.75,75,883/- CLAIMED I N RESPECT OF 7 PARTIES, MENTIONED AT PAGE-12 OF THE ASSESSMENT ORDER, THE MATERIAL ALLEGEDLY PURCHASED FROM THEM, ASSUMING THAT SUCH CLAIM IS CORRECT, THEN THE EXPENDITURE ON THAT ACCOUNT PART AKES THE NATURE OF PRE-PAID EXPENSES. THE ASSESSING OFFICER M ENTIONED THAT THE SAID MATERIAL COULD NOT HAVE BEEN UTILIZED BEFOR E THE END OF THE ACCOUNTING YEAR, THE SAME CONSTITUTES CLOSING ST OCK IN THE HANDS OF THE ASSESSEE AND THEREFORE NO DEDUCTION COU LD BE ALLOWED FOR THE SAME. IN SUCH AMOUNT, THE ASSESSING OFFICER HAS ALSO CONSIDERED THE SUM OF RS.10,50,000/- TOWARDS PROVISIO N FOR SELLING EXPENSES, AND IT WAS FURTHER MENTIONED THOUGH IN THE LEDGER ACCOUNT OF SELLING EXPENSES, THE ASSESSEE HAS SHOWN PURCHASE OF MATERIAL FROM M/S PREMIUM INTERNATIONAL AT RS.9,49,848/- AS PER LEDGER ACCOUNT OF THAT PARTY FURNISHED BY THE ASSESSE E, AND THEY ITA NO.1356 OF 2010 HYDERABAD DISTILLERIES & WINERIES P. LTD. ====================== 6 HAVE SOLD GOODS FOR RS.4,99,848/- ONLY DURING FINANCI AL YEAR 2005- 06. UNDER THESE FACTS AND FURTHER STATING THAT AS PE R BOOKS OF THAT CONCERN, THERE WAS NO SALE TO THE EXTENT OF RS. 4,50,000/- THE ASSESSING OFFICER OBSERVED THAT, IT SHOWS THE ASSESS EE OBTAINED A PAPER INVOICE FROM THAT CONCERN IN MARCH, 2006, TO CLA IM SUCH EXPENDITURE. HOWEVER, IT WAS STATED THAT THE SAID E NTIRE AMOUNT OF RS.75,75,883/- HAS TO BE DISALLOWED. IT WAS FU RTHER MENTIONED WITHOUT PREJUDICE TO THE ABOVE OBSERVATIONS, THE LAST ITEM OF RS.10,50,000/- BEING A MERE CLAIM TOWARDS PROVISION FO R SELLING EXPENSES, THE SAME IS NOT ALLOWABLE. THE ASSESSIN G OFFICER FURTHER DISALLOWED AN AMOUNT OF RS.3,80,388/- CLAIMED TOWARD S UNABSORBED DEPRECIATION FOR ASSESSMENT YEAR 2005-06. WITH THE BOTH THE ABOVE DISALLOWANCES OF RS.2,83,70,014/- AN D RS.3,80,388/- MADE TO THE RETURNED INCOME, THE ASSES SING OFFICER COMPLETED THE ASSESSMENT ON A TOTAL INCOME OF RS.3, 31,36,000/- VIDE ORDER DATED 31-12-2008 PASSED UNDER SECTION 143 (3) OF THE ACT. AGGRIEVED BY THE ORDER OF THE ASSESSING OFFICER, THE ASSESSEE WENT IN APPEAL BEFORE THE CIT (A). ON APPEAL, THE CIT (A) BY ELABORATELY DISCUSSING THE POINTS AT ISSUE, DELETED THE DISALLOWANCE TO THE TUNE OF RS.4,99,848 AND CONFIRMED THE BALANCE DISALLOWANCE OF RS.2,78,70,166/-. FURTHER AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US. 5. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED BE FORE US BY WAY OF WRITTEN SUBMISSIONS THAT HAVING REGARD TO THE FACTS AND CIRCUMSTANCES OF THE CASE IT WAS SUBMITTED THAT AUTHORITIES BELOW HAVE USED THE INFORMATION GATHERED BEHIND, IN DENIAL OF ITA NO.1356 OF 2010 HYDERABAD DISTILLERIES & WINERIES P. LTD. ====================== 7 NATURAL JUSTICE AND THEREFORE THE ASSESSMENT ORDER REQUI RES TO BE VACATED AND CANCELLED. THE ASSESSEE MANUFACTURES I NDIAN MADE FOREIGN LIQUOR (IMFL) UNDER THE BRANDS OWNED BY M/S JAGATJI T INDUSTRIES LTD NEW DELHI. WITH A VIEW TO BOOST SALE O F LIQUOR AND SUSTAIN SEVERE COMPETITION FROM OTHER POPULAR BRANDS MA NUFACTURED BY OTHER BIG LIQUOR COMPANIES NAMELY MC DOWELL & CO., UNITED BEVERAGES, SEAGRAMS, SHAWALLACE & CO, TILAKNAGAR DIST ILLERIES, GEMINI DISTILLERIES ETC, THE ASSESSEE COMPANY HAD LA UNCHED CERTAIN SCHEMES AND UNDER TOOK PUBLICITY CAMPAIGN IN A BIG W AY IN SEPTEMBER 2005 BECAUSE IN THE IMMEDIATE EARLIER ASSESS MENT YEAR I.E., 2005-2006 THE AGGREGATE GROSS LIQUOR SALES REGIST ERED A FALL OF RS.7 CRORES AND REPORTED AT RS.63.23 CRORES COMPARED TO SALES IN THE EARLIER ASSESSMENT YEAR 2004-2005 AT RS.70.11 CRORES . ON ACCOUNT OF EFFECTIVE PUBLICITY CAMPAIGN CARRIED OUT WITH THE HELP OF SALES PROMOTERS FOR WHICH SELLING EXPENSES WERE INCURRED , LIQUOR SALES OF THE ASSESSEE DURING THE YEAR UNDER APPEAL REGI STERED AT RS.93.33 CRORES. IT IS SUBMITTED THAT THE ASSESSING OFFICER MISCONCEIVED THE DECISION/POLICY OF THE ASSESSEE COM PANY AND ITS EFFORTS FOR LAUNCHING PUBLICITY CAMPAIGN FROM SEPTEMB ER 2005 AND NEGATIVELY VIEWED AND DISALLOWED EXPENDITURE INCURRE D ON PUBLICITY MATERIAL. THE AGGREGATE SELLING EXPENSES AMOUNTING TO RS.3.14 CRORES WERE INCURRED BY THE COMPANY WHICH INCLUDED PUR CHASE OF CLOTH, BANNERS, DANGLERS AND THEIR STITCHING AND PRINT ING CHARGES, FREIGHT ETC AND OTHER DISPLAY MATERIAL FOR PUBLICITY O F LIQUOR PRODUCTS MANUFACTURED BY THE ASSESSEE COMPANY. PURCHASES WE RE MADE FROM THE CONCERNS IN WHICH NEITHER THE ASSESSEE NOR T HE DIRECTORS HAVE ANY BUSINESS INTEREST WHAT SO EVER. CLOTH PURCH ASED FOR THE ITA NO.1356 OF 2010 HYDERABAD DISTILLERIES & WINERIES P. LTD. ====================== 8 ABOVE PURPOSES AT DELHI WAS USED FOR STITCHING BANNE RS, DANGLERS, AIR BAGS ETC., AT DELHI ITSELF ON WHICH VARIOUS PRODU CTS OF THE ASSESSEE COMPANY WERE PRINTED AND PAINTED WITH BRANDS AND LOGO OF ALCOHOLIC PRODUCTS MANUFACTURED BY THE ASSESSEE COMP ANY AND THE AGGREGATE SELLING EXPENSES RS.3.14 CRORES INCLUDES TH E FOLLOWING AS SUBMITTED BY THE ASSESSEE- PARTICULARS AMOUNT (RS.) I.BANNERS CLOTH PURCHASES 2,57,80, 493 II.BANNERS STITCHING & PRINTING 23,08, 090 III.DANGLER BOARDS & PRINTING 12,76, 132 IV.AIR BAGS & SS STEEL UTENSILS 19,7 8,712 V.NATIONAL WINES FREIGHT CHARGES 5 1,286 VI.MARKETING CONFERENCE EXPENSES 83,70 8 3,14,78,421 LESS: DEDUCTIONS 28,712 TOTAL: 3,14,49,709 6. IT IS SUBMITTED THAT THERE ARE 7,463 RETAIL OUT LETS IN ANDHRA PRADESH WHO ALSO SELL OTHER POPULAR BRANDS MANUFACTURED BY OTHER LEADING COMPANIES AND THEREFORE T HESE RETAIL SHOPS PLAY IMPORTANT ROLE IN SALE OF OUR LIQUOR P RODUCTS. THE ASSESSEE COMPANY HAD TO MAKE STRENUOUS EFFORTS IN ADVERTISING THE BRANDS MANUFACTURED BY IT WITH VARIOUS RETAIL OUTLETS/SHOPS, BESIDES DISPLAYING BANNERS AT VARIOUS RETAIL OUTLETS, BARS AND RESTAURANTS AT PROMINENT AND OTHER P LACES IN THE STATE TO ATTRACT CONSUMERS AND PHOTOGRAPHS OF RET AIL SHOPS WHERE ABOVE PUBLICITY MATERIAL DISPLAYING PRODUCTS/LOG O OF THE LIQUOR BRANDS MANUFACTURED BY THE ASSESSEE COMPANY WER E FILED ITA NO.1356 OF 2010 HYDERABAD DISTILLERIES & WINERIES P. LTD. ====================== 9 BEFORE THE ASSESSING OFFICER. WHILE VOLUMINOUS DETA ILS WERE CALLED FROM THE COMPANY FROM TIME TO TIME, WITHOUT LO SING TIME, THE ASSESSEE COMPANY FURNISHED THE DETAILS AND FIL ED VARIOUS DOCUMENTS AND RENDERED AT MOST CO-OPERATION IN THE ASSESSMENT PROCEEDINGS AND RECORDS BARE THE TESTIMON Y AND IN SUPPORT OF PURCHASE OF CLOTH AND OTHER MATERIAL, PURCHA SE ORDERS, BILLS RENDERED BY VARIOUS PARTIES/CREDITORS ALON G WITH THEIR ADDRESSES, IDENTITY, PAN NOS, CONFIRMATIONS, TRA NSPORT RECEIPTS/CHALLANS, STOCK REGISTERS CONTAINING RECEIPTS AND ISSUES OF MATERIAL TO VARIOUS RETAIL OUTLETS THROUGH MARKETING STAFF WAS FURNISHED. IT IS FURTHER SUBMITTED THAT THE PAYMENTS WERE MADE AGAINST PURCHASE OF MATERIAL THROUGH ACCOUNT PAYEE CHE QUES, AND AS REQUIRED BY THE ASSESSING OFFICER, BANK CERTIF ICATES FOR CLEARANCE OF SUCH CHEQUES, IN FAVOR OF ALL THE PARTIE S WHO HAVE SUPPLIED THE MATERIAL WERE FILED. COMPANY DEDUCTED T AX AT SOURCE ON STITCHING PRINTING/PAINTING CHARGES IN RESPEC T OF WORKS RENDERED BY VARIOUS PARTIES. THE LEARNED ASSESSING OFFI CER CAUSED ENQUIRIES THROUGH THE INCOME TAX INSPECTOR OF N EW DELHI OFFICE IN RESPECT OF THE FOLLOWING SEVEN PARTIE S FROM WHOM MATERIAL WAS PURCHASED BY THE COMPANY. I) MAKAMASHI ENTERPRISES II) MEENAKASHI CLOTH MERCHANT III) KISHORI TEXTILES AGENCIES IV) HARIOM FABRICS V) BHARAT TEXTILES VI) GANGARAM RANATH VII) BRADBURY SPINNING & WEAVING MILLS. ITA NO.1356 OF 2010 HYDERABAD DISTILLERIES & WINERIES P. LTD. ====================== 10 7. THE ASSESSING OFFICER SERVED A COPY OF THE ABOVE ENQUIRY REPORT OF THE INSPECTOR ON 22 ND DECEMBER AND FURTHER DIRECTED THAT THE ASSESSEE COMPANY SHOULD PRODUCE THE PARTIES FROM WHOM MATERIAL WAS PURCHASED, BEFORE THE INCOME T AX OFFICER, NEW DELHI ON 26-12-2008. THOUGH ONLY 3 WORK ING DAYS WERE ALLOWED THE ASSESSEE COMPANY PRODUCED THE PARTI ES AND THE INCOME TAX OFFICER, NEW DELHI DECLINED TO CONCE DE THE REQUEST FOR RECORDING STATEMENTS OF THE SUPPLIERS ON T HE GROUND THAT HE HAD NOT RECEIVED ANY INSTRUCTIONS FROM THE A SSESSING OFFICER, HYDERABAD. THIS INFORMATION WAS SPECIFICALLY BROUGHT TO THE NOTICE OF THE ASSESSING OFFICER THROUGH OUR LETTER FILED ON THE SAME DATE ON 26-12-2008. IN THE ABOVE CIRCUMSTAN CES PARTIES/SUPPLIERS FILED THEIR AFFIDAVITS CONFIRMING TRAN SACTIONS WITH THE ASSESSEE, CONFIRMATIONS OF THEIR STATEMENT O F ACCOUNTS, IDENTITY PROOF ALONG WITH INCOME TAX PAN NOS BEFORE T HE LEARNED ASSESSING OFFICER. IT MAY BE MENTIONED HERE T HAT THE ASSESSING OFFICER BEFORE ASSESSMENT CAUSED ENQUIRES THROUGH INCOME TAX INSPECTOR AT NEW DELHI IN RESPECT OF 7 PART IES ONLY OUT OF 20 PARTIES WHO HAD SUPPLIED PUBLICITY MATERIAL TO THE COMPANY. THE INSPECTOR SERVED SUMMONS UNDER SECTION 13 1 OF THE ACT ON ABOVE PARTIES. IN ONE CASE SERVED ON THE C ONCERNED PERSON PARTNER OF THE FIRM WHO CONFIRMED THE SUPPLY OF MATERIAL TO THE COMPANY AND THE ASSESSING OFFICER ACCEPTED TH E SAME. IN ANOTHER CASE, INSPECTOR REPORTED THAT THE PARTY SHIFT ED TO BOMBAY AND THE SAID PARTY SUBSEQUENTLY, SENT CONFIRM ATION OF SUPPLY OF MATERIAL AND THE ASSESSING OFFICER ACCEPTED THE SAME. ITA NO.1356 OF 2010 HYDERABAD DISTILLERIES & WINERIES P. LTD. ====================== 11 IN THE CASE OF REMAINING 5 PARTIES, ADDITION WAS MAD E. IT IS FURTHER SUBMITTED THAT IN THE CASE OF M/S. GANGARAM RAM NATH THE INSPECTOR HAD CONTACTED ONE OF THE PARTNER OF TH E FIRM AND UPON ENQUIRY THEY HAVE CONFIRMED THE SUPPLY OF MATERI AL AND THE ASSESSING OFFICER ACCEPTED THE CORRECTNESS OF TH E TRANSACTIONS OF THE ABOVE FIRM AND ALLOWED THE EXPEND ITURE RS.20,65,496/-. IN THE CASE OF SUPPLY OF MATERIALS BY AN ANOTHER PARTY M/S. BRADBURRY SPINNING MILLS, THE ASSES SING OFFICER PARTLY ACCEPTED THE CORRECTNESS OF THE TRANSAC TIONS BASED UPON FILING OF THEIR CONFIRMATION WITH PAN NO. AND TH E REMAINING PART WAS ALLOWED BY THE CIT(A) IN APPEAL PROCEEDINGS. IN THE CASE OF OTHER REMAINING 5 PARTIES THOUGH THE SUPPLIERS HAD SIMILARLY FILED CONFIRMATIONS WITH THEIR PAN NUMBERS AND OTHER DOCUMENTS MORE FULLY MENTIONED IN PARA 6 SUPRA, THE AS SESSING OFFICER DID NOT CONSIDER THEM AND DISALLOWED THE EXPE NDITURE. THE INSPECTOR SINCE MADE SOME LOCAL ENQUIRIES WITH TH IRD PARTIES NOTHING TO DO WITH PERSONS WHO HAD SUPPLIED THE MATE RIAL. A SPECIFIC REQUEST WAS MADE TO THE ASSESSING OFFICER TO ARRANGE THE SAID PARTIES FOR OUR CROSS-EXAMINATION. USING THE A BOVE, ONE SIDED ENQUIRY REPORT AGAINST THE ASSESSEE COMPANY, WI THOUT PROVIDING AN OPPORTUNITY TO CROSS-EXAMINE THEM IS HIG HLY ILLEGAL, UNREASONABLE AND UNJUSTIFIED. LOWER AUTHORITIES DISLOD GED THE EVIDENCE FILED ON RECORD, ARBITRARILY AND DISALLOWED T HE EXPENDITURE, IN TOTAL DENIAL OF NATURAL JUSTICE. 8. IT IS FURTHER SUBMITTED THAT THE ASSESSING OFFI CER IS ALSO NOT CORRECT TO STATE THAT EXPENDITURE ON PUBLIC ITY EITHER IN ITA NO.1356 OF 2010 HYDERABAD DISTILLERIES & WINERIES P. LTD. ====================== 12 PAPERS OR IN TV WILL NOT BE DOUBTED AND THAT EXPENDIT URE INCURRED IN OTHER MODES OF PUBLICITY WOULD NOT BE GEN UINE. OBSERVATION OF THE ASSESSING OFFICER IS HIGHLY PRESUMP TUOUS AND SUSPICIOUS AND THE ASSESSING OFFICER APPEARS TO HAVE LOST SIGHT OF THE FACT THAT ADVERTISEMENT OF LIQUORS EITHER IN NE WSPAPERS OR TV CHANNELS OR IN ANY OTHER MEDIA UNDER THE CONTROL OF THE GOVERNMENT IS PROHIBITED. IT IS SUBMITTED THAT AS REG ARDS TO THE OTHER 13 REMAINING PARTIES WHO HAVE SUPPLIED MATERIAL A ND UNDER TOOK PRINTING AND STITCHING CONTRACTS, THERE IS NO ADVERSE ENQUIRY REPORT OF WHATSOEVER NATURE FROM THE INSPECTOR A ND ALL THE PARTIES FILED THEIR AFFIDAVITS, CONFIRMATIONS, BIL LS AND FURNISHED THEIR IDENTITY ALONG WITH THEIR INCOME TAX PAN NOS AND ADMITTED THE CORRECTNESS OF SUPPLY OF MATERIAL AND FOR PAYMENTS RECEIVED THROUGH CHEQUES. THE LOWER AUTHORITIE S HOWEVER DISALLOWED THE ENTIRE EXPENDITURE IN RESPECT OF OTHER 13 PARTIES ALSO ON SURMISES AND PRESUMPTION AND ON PREPONDERANCE OF PROBABILITY AND HELD THAT ALL THE PART IES NEITHER HAVE SUPPLIED MATERIAL NOR RENDERED STITCHING CONTRACTS, IGNORING CLINCHING EVIDENCE FILED ON RECORD. THE AGGR EGATE EXPENDITURE THUS DISALLOWED WORKED OUT TO RS.2.79 CRO RES AND CREDIBLE EVIDENCE WAS PLACED ON RECORD IN RESPECT OF I NCURRENCE OF EXPENDITURE. WHEREAS THE LEARNED ASSESSING OFFICE R DID NOT PLACE ANY EVIDENCE TO DISPROVE THE EXPENDITURE INCUR RED BY THE ASSESSEE COMPANY EXCEPT RELAYING UPON THE INSPECTORS REPORT IN THE CASE OF ONLY 5 PARTIES ON THE BASIS OF ENQUIRI ES MADE WITH OUTSIDERS/THIRD PARTIES. FURTHER BASED ON THE LETTER OF DEEPAK JAIN EXCEPT MAKING A BALD STATEMENT BY ASSESSING OFF ICER THAT ITA NO.1356 OF 2010 HYDERABAD DISTILLERIES & WINERIES P. LTD. ====================== 13 MATERIAL WAS NOT SUPPLIED BY THE PARTIES AND THEY HA VE RECEIVED ONLY COMMISSION, NO EVIDENCE WAS PLACED BY THE ASSE SSING OFFICER THAT THE PAYMENTS RECEIVED BY THE PARTIES WAS WITHDRAWN BY THEM AND WAS PAID BACK TO THE ASSESSEE COMPANY. FURTHER TENTATIVE SUSPICION IN THE MIND OF T HE ASSESSING OFFICER CANNOT WARRANT ADDITION. IN THE CIR CUMSTANCES DISALLOWANCE OF BUSINESS EXPENDITURE AGGREGATING TO R S.2.79 CRORES ON PREPONDERANCE OF PROBABILITY AND ON GUESSWORK IS HIGHLY UNWARRANTED, ARBITRARY AND REQUIRES TO BE ALLOWED AND THE ASSESSING OFFICER SEEMS TO HAVE JUSTIFIED THE A BOVE ADDITION BY RELYING UPON THE DECISIONS CITED BY HIM WHICH HAV E NO RELEVANCE TO THE FACTS OF THE CASE. FURTHER THE ASSESS ING OFFICER HIMSELF ADMITTED THAT THE DECISIONS RELIED UPON BY HIM ARE RENDERED IN THE CONTEST OF CASH CREDIT ADDITIONS UNDE R SECTION 68 OF THE INCOME TAX ACT. 9. IN THE CASE OF THE ASSESSEE, THE ISSUE IS ALLO WANCE OF BUSINESS EXPENDITURE EXPENDED, WHOLLY AND EXCLUS IVELY FOR THE PURPOSE OF BUSINESS AND INCURRED UNDER COMMERCIAL EXPEDIENCY. FURTHER HAVING COLLECTED THE INFORMATION BEHIND AND USED THE SAME AGAINST THE ASSESSEE, THE LOWER AUTHORI TIES ARE NOT CORRECT IN HOLDING THAT RIGHT TO CROSS-EXAMINATION IS NOT AVAILABLE TO THE ASSESSEE AND SUCH RIGHT IS AVAILABL E TO THE ASSESSEE IN PENALTY AND IN CRIMINAL PROCEEDINGS. IT IS STATED THAT UNDER LAW THE ASSESSEE HAS A VESTED RIGHT TO CROS S- EXAMINE PERSONS WHOSE STATEMENTS ARE RELIED UPON AND USED AGAINST THE ASSESSEE AND DENIAL OF RIGHT OF THE ASSE SSEE FOR ITA NO.1356 OF 2010 HYDERABAD DISTILLERIES & WINERIES P. LTD. ====================== 14 CROSS-EXAMINATION WOULD AMOUNT TO IMPAIRMENT OF NATURA L JUSTICE RENDERING THE ASSESSMENT ORDER NULLITY AND TH E LOWER AUTHORITIES ARE UNDER MISCONCEPTION THAT THE AGGREGATE VALUE OF PUBLICITY MATERIAL RS.75,75,883/- WAS PURCHASED IN TH E MONTH OF MARCH 2006 REMAINED IN STOCK AND THAT THE ABOVE EXPENDITURE PARTAKES THE CHARACTER OF CLOSING STOCK/PRE PAID EXPENSES. THE LOWER AUTHORITIES DID NOT CONSIDER THE F ACT THAT THE PUBLICITY MATERIAL WAS DELIVERED EARLIER ALONG WITH TRANSPORT BILLS AND THAT PUBLICITY MATERIAL WAS USED IN THE AC COUNTING YEAR ITSELF. IN SUPPORT OF THE FACT THAT PUBLICITY MATERIA L DELIVERED TO RETAIL OUTLETS MUCH BEFORE THE END OF MARCH 2006, THE ASSESSEE COMPANY PRODUCED THE STOCK REGISTERS WHERE IN MATERIAL RECEIVED AND ISSUED FOR DISPLAY WERE RECORDED AND COPIES OF STOCK REGISTERS WAS FILED ON RECORD BEFORE THE ASSESSIN G OFFICER. THE ASSESSEE COMPANY ALSO PLACED ON RECORD EVIDENCE OF TRANSPORT OF GOODS FROM DELHI TO HYDERABAD. IN THE CIRCUMSTANCES, THE LOWER AUTHORITIES ARE NOT CORRECT IN HOLDING THAT THE ABOVE PURCHASES OF ADVERTISEMENT MATERIAL REM AINED WITH THE COMPANY AND CONSTITUTE CLOSING STOCK OF TH E YEAR AND THOSE STOCKS IS SALEABLE MATERIAL TO THE COMPANY. IT MAY ALSO BE STATED HERE, THAT THE ASSESSEE COMPANY HAS MANUFACT URED SEVERAL NEW BRANDS OF IMFL LIKE ARISTOCRAT BLACK WHISKY WHICH WAS LAUNCHED DURING THE YEAR UNDER APPEAL. SIMILAR FEW BRANDS LIKE ARISTOCRAT PREMIUM WHISKY, ARISTOCRAT WHISKY MANUFACTURED BY THE ASSESSEE WERE RE-LAUNCHED. IT MAY ALSO BE NOTED THAT THE ASSESSEE COMPANY HAS FURNISHED SPECIM EN PHOTOGRAPHS OF DIFFERENT RETAIL SHOPS, BARS AND RESTAURA NTS ITA NO.1356 OF 2010 HYDERABAD DISTILLERIES & WINERIES P. LTD. ====================== 15 WHERE THE PUBLICITY MATERIAL WAS DISPLAYED. IT MAY A LSO BE STATED THAT RETAIL SHOP PHOTOGRAPHS PLACED BEFORE THE ASSESSING OFFICER DISCLOSE THE PUBLICITY MATERIAL OF OTHER MAN UFACTURERS BRANDS DISPLAYED IN THE RETAIL SHOPS IN BIGGER WAY. IN THE ABOVE FACTS AND CIRCUMSTANCES THE LOWER AUTHORITIES WERE NOT CORRECT TO HOLD PUBLICITY MATERIAL WAS NOT USED BY THE ASSES SEE. IT IS FURTHER SUBMITTED THAT ASSESSING OFFICER COMPLETELY IG NORED THE EVIDENCE FURNISHED IN SUPPORT OF PURCHASE OF PUBLICITY MATERIAL AND THEIR TRANSACTIONS IN THE FORM OF PURCHASE ORDER INVO ICES OF MATERIAL PURCHASED, PAYMENT THROUGH ACCOUNT PAYEE CHE QUES, DEDUCTION OF TAX AT SOURCE WHEREVER APPLICABLE, TRANSP ORT RECEIPTS, COPIES OF ENTRIES IN THE STOCK REGISTER, AFFI DAVITS AND CONFIRMATION BY THE SUPPLIERS, INCOME TAX RETURNS, PAN. IT IS ALSO PERTINENT TO NOTE THAT IN THE IMMEDIATE SUBSEQU ENT ASSESSMENT YEAR 2007-08, THE ASSESSEE COMPANY HAD IN CURRED SIMILAR EXPENDITURE ON PUBLICITY, ADVERTISEMENT AND SE LLING EXPENDITURE AGGREGATING TO RS.4.63 CRORES, AS AGAINST RS.3.14 CRORES IN THE ASSESSMENT YEAR UNDER CONSIDERATION, WAS ALLOWED UPON SCRUTINY ASSESSMENT UNDER SECTION 143(3) READ W ITH SECTION 144 A OF THE ACT DATED 31.12.2008 AND IT M AY BE NOTED THAT THE BRAND OWNERS M/S JAGATJIT INDUSTRIES LIMITED HA D SENT GLASS TUMBLERS AT THEIR COST FOR FREE DISTRIBUTION, IN RESPECT OF WHICH THE ASSESSEE PAID TRANSPORT CHARGES RS.51,286. HO WEVER TRANSPORT BILLS HAVE BEEN RENDERED IN THE NAME OF JAGAT JIT INDUSTRIES LIMITED AND PAYMENTS WERE MADE BY THE ASSES SEE COMPANY THROUGH CHEQUES. FURTHER JAGATJIT INDUSTRIES LIM ITED HAS CONDUCTED SALES TRAINING WORKSHOP AT HYDERABAD IN ITA NO.1356 OF 2010 HYDERABAD DISTILLERIES & WINERIES P. LTD. ====================== 16 KAKATIYA SHERATON AND VICEROY HOTELS, IN RESPECT OF WH ICH RS.82,708/- WAS PAID BY THE ASSESSEE COMPANY THROUGH ACCOUNT PAYEE CHEQUES, WHERE THE BILLS WERE RENDERED IN THE NAME OF JAGATJIT INDUSTRIES LIMITED. THE ASSESSEE SUBM ITTED BOTH THE EXPENSES SINCE RELATED TO THE ASSESSEE COM PANY FOR PROMOTION OF SALES PAYMENTS MADE BY THE ASSESSEE COM PANY ARE ALLOWABLE UNDER LAW. IN THE ABOVE FACTS AND CIRCUM STANCES, IT IS SUBMITTED BY THE LEARNED COUNSEL FOR THE ASSESS EE THAT IN THE MATTER OF ALLOWANCE OF EXPENDITURE, FAILURE OF SERV ICE OR SERVICE OF SUMMONS, IMPAIRMENT OF NATURAL JUSTICE AND THE LEARNED COUNSEL FOR THE ASSESSEE DREW OUR ATTENTION TO THE FEW FOLLOWING DECISIONS RENDERED BY HONBLE HIGH COURTS AND SUPREME COURT. A] CIT VS. ORISSA CORPORATION (P) LIMITED ( 159 ITR 78) B] COLONIZERS VS. ACIT [41 ITD 57] HYD SB C] B. RAMAKRISHNAIAH VS ITO [134 TTJ 600] ( HYD) D] ANIS AHMED AND SONS VS CIT [297 ITR 441] E] CIT VS BEDI AND CO. (P) LIMITED [230 ITR 5 80] F] RAJKUMAR JAIN VS ACIT [50 ITD 1] (ALL) G] LIFE INSURANCE CORPORATION OF INDIA VS CIT 219 ITR 410 [SC] 11. ON THE OTHER HAND, THE LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT THE ASSESSEE HAS AN AGRE EMENT TO MANUFACTURE AND SELL PRODUCTS OF M/S JAGATJIT INDUST RIES LTD, DELHI, (HENCEFORTH, JIL) IN ANDHRA PRADESH. OUT OF THE VARIOUS ITA NO.1356 OF 2010 HYDERABAD DISTILLERIES & WINERIES P. LTD. ====================== 17 EXPENSES CLAIMED, A SUM OF RS.3.14 CRORES BY WAY OF SELLING EXPENSES AND THE SAME WAS SELECTED FOR INVESTIGATION , IN VIEW OF THE EVIDENT IMPROBABILITIES OF THE CLAIM. THE ASS ESSEES BUSINESS ACTIVITIES ARE CONFINED TO THE STATE OF AND HRA PRADESH. THE EXPENDITURE IS INCURRED ENTIRELY AT DELHI, IN RESP ECT OF PUBLICITY ACTIVITY IN ANDHRA PRADESH. THE ENTIRE EXPEND ITURE IS INCURRED ONLY IN THE LAST SIX MONTHS OF THE ACCOUNTIN G YEAR. NEARLY 100% OF THIS EXPENDITURE PERTAINED TO PURCHASE OF CLOTH, CUTTING IT INTO BANNERS AND DANGLERS, AND PRINTING/PAIN TING OF THESE BANNERS. COMMON PRUDENCE SUGGESTS THAT THIS IS A LOW END WORK, BEST OUTSOURCED TO RESPECTIVE LOCATIONS. INS TEAD, THE ASSESSEE CHOSE TO INCUR THE EXPENDITURE AT A FAR OFF P LACE LIKE DELHI, WHICH HAD NO SPECIAL ADVANTAGE EITHER IN THE PURCHASE OF CLOTH OR IN PRINTING TECHNOLOGY, NOT TO MENTION ADDIT IONAL TRANSPORTATION COSTS TO BE INCURRED. THE ASSESSEE HAD 7640 SHOPS/ESTABLISHMENTS WHERE PRESUMABLY THE PUBLICITY EX PENSES WERE INTENDED. FOR THIS, THE ASSESSEE PURCHASED A STA GGERING 6,47,377 METERS OF CLOTH. IT IS FURTHER CONTENDED THAT THE FOLLOWING CONCLUSIONS ARE TO BE ADOPTED: (I) IT DOES NOT GET ESTABLISHED THAT THE EXPENDITUR E REALLY PERTAINS TO THE ASSESSEE; (II) THE ASSESSEE HAS NOT BEEN ABLE TO SATISFACTORIL Y DISCHARGE THE ONUS OF ESTABLISHING THAT THE EXPENDITURE CLAIMED WA S WHOLLY AND EXCLUSIVELY INCURRED FOR THE BUSINESS OF THE ASSE SSEE RELATING TO THE YEAR OF ACCOUNT. ITA NO.1356 OF 2010 HYDERABAD DISTILLERIES & WINERIES P. LTD. ====================== 18 (III) THIS RESPONSIBILITY IN THE ULTIMATE ANALYSIS I S ALWAYS ON THE ASSESSEE AS HELD BY THE HONBLE AP HIGH COURT IN THE C ASE OF TRANSPORT CORPORATION OF INDIA REPORTED IN 256 ITR 701 . 12. THE ASSESSING OFFICER DID NOT MAKE A SWEEPING ADDITION. IN TWO CASES, VIZ. (1) M/S GANGARAM RAMNA TH, AND (2) BRADBERRY SPINNING & WEAVING MILLS, INVOLVING AN EXPE NDITURE CLAIM OF RS.20.65 LAKHS AND RS.26.8 LAKHS RESPECTIVE LY, ADDITION WAS NOT MADE HAVING REGARD TO DETAILS AVAILABLE. S IMILARLY, CIT (APPEALS), IN THE CASE OF M/S PREMIUM INTERNATIONAL, DELETED ADDITION TO THE TUNE OF RS.4.99 LAKHS WHICH REPRESE NTED THE AMOUNT CONFIRMED BY THE OTHER PARTY OUT OF THE TOTAL CLAIM OF RS.9.49 LAKHS MADE BY THE ASSESSEE. 13. ON THE SUBJECT OF PROVIDING OPPORTUNITY FOR CROSS EXAMINATION BY THE ASSESSEE, IT IS SEEN THAT THE EN QUIRIES ARE CONDUCTED BY ITO (INV) AT DELHI AND NOT THE ASSESSI NG OFFICER AT HYDERABAD. THE ASSESSING OFFICER HAD ASKED THE ITO WH O CONDUCTED THE ENQUIRY TO EXAMINE SUCH PERSONS AS THE ASSESSEE MAY PRODUCE. IT IS SEEN FROM PARA 8.4 ON PAGE 19-21 O F THE ORDER OF CIT (APPEALS) THAT IN JUNE 2009 THE ITO AT DELHI ASKED FOR PRODUCTION OF 15 PARTIES. THE ASSESSEE COULD PRODUCE ONLY 3 PARTIES. THE ITO ALSO ISSUED SUMMONS UNDER SECTION 1 31 OF THE ACT. IN 5 CASES, NOTICES WERE RETURNED UNSERVED AND IN 3 CASES, THERE WAS NO RESPONSE WHATSOEVER. THE SUMMONS WAS PRESUMABLY SERVED BECAUSE THEY WERE NEVER RETURNED BY T HE ITA NO.1356 OF 2010 HYDERABAD DISTILLERIES & WINERIES P. LTD. ====================== 19 POSTAL AUTHORITIES. ONLY IN 3 CASES, THERE WAS RESPO NSE. THE ITO ALSO REPORTED THAT NO REQUEST FOR CROSS EXAMINATION WAS MADE. 14. IN ADDITION TO THE ABOVE, THE CIT (APPEALS) N OTICES THAT ASSESSEE WOULD BE RIGHT IN INSISTING ON CROSS EXAMINA TION ONLY IN CASES WHERE A WITNESS IS EXAMINED AND SUCH WITNESS D EPOSES AGAINST THE ASSESSEE. 15. IN THE CASE OF MEENAKSHI CLOTH MERCHANT, NO STATEMENT IS RECORDED FROM SMT. SUNEHRI DEVI AGARWAL W HO IS THE OCCUPANT OF THE PROPERTY. SHE MERELY DISCLAIMS KNOWLE DGE OF ANY SUCH FIRM OPERATING OUT OF THE SAID ADDRESS. IN THE CASE OF KISHORI TEXTILES, SHRI L.N. AGARWAL HAD NOTHING TO SA Y AGAINST THE ASSESSEE. HE MERELY STATED THAT HE WAS IN POSSESSION OF THE PROPERTY AND HAD NOT GIVEN IT ON RENT TO ANYONE. IN T HE CASE OF M/S BHARAT TEXTILES, SHRI GOPINATH MERELY STATED THAT S UMMONS WERE RECEIVED BY HIM MERELY BECAUSE THE ADDRESSEE PREM ISES WERE OWNED BY HIM AND THAT SUCH PREMISES HAVE NOT BE EN LET OUT TO M/S BHARAT TEXTILES. IN THE CASE OF HARI OM FABRICS, SMT. VINITHA AGARWAL, RESIDENT OF THE STATED PREMISES, FURN ISHED AN AFFIDAVIT, COPY OF WHICH WAS GIVEN TO THE ASSESSEE. SHE MERELY STATED, AS A RESIDENT OF THE PREMISES THAT NO SUCH FIRM OPERATES OUT OF THE SAID ADDRESS. IN THE CASE OF MAKEMASHI E NTERPRISES, THERE IS NO STATEMENT OF SHRI DEEPAK JAIN AGAINST THE ASSESSEE BEFORE THE ITO. THE STATEMENT RELATES TO A SURVEY C ONDUCTED BY THE DEPARTMENT IN RESPECT OF THIS ADDRESS WHICH ACTUAL LY PREDATES THE PRESENT ENQUIRY. MR. DEEPAK JAIN, AS AUDITOR OF TH E ITA NO.1356 OF 2010 HYDERABAD DISTILLERIES & WINERIES P. LTD. ====================== 20 COMPANY, RECEIVED THE SUMMONS AND REPLIED THAT THE P ERSONS CONCERNED, VIZ. SHRI VISHAL JAIN AND SMT. URMILA JAIN ARE OUT OF STATION. THE ITO TAKES THE FINDINGS OF THE SURVEY D ATED 26-2- 2008 AS FACTS MATERIAL TO THE PROFILE OF THE ADDRESSEE FIRM, TO REINFORCE THE FACT THAT NO GENUINE BUSINESS ACTIVITY WAS BEING CARRIED OUT AT SUCH PREMISES. UNDER THE CIRCUMSTANCES, NOTHING TURNS ON THE ASSESSING OFFICERS ALLEGED REFUSAL TO AF FORD CROSS EXAMINATION OF THE ABOVE PERSONS. IN FACT, THE ONUS SHIFTS TO THE ASSESSEE ON THESE FACTS. AGAINST THESE GROUND REALI TIES AND BUSINESS PROBABILITIES, THE ASSESSEES CLAIM DOES NO T GET ESTABLISHED BY THE MERE PRODUCTION OF INVOICE COPIES, PAN, LEDGER ACCOUNT COPIES PRODUCED, FACT OF CHEQUE PAYMENTS, E TC. THE ADDITION UPHELD BY THE CIT (APPEALS) THEREFORE DESE RVES TO BE SUSTAINED. 16. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITT ED THAT, IN REJOINDER, THE ASSESSEE HAS PROCURED ADVERTIS EMENT MATERIAL FROM DELHI AND WAS ENTIRELY USED IN ANDHRA PRAD ESH EVIDENCING THAT THE MATERIAL WAS USED BY THE ASSESSE E IN ANDHRA PRADESH. THE ASSESSEE HAS ADMINISTRATIVE OFFICE AT DE LHI AS EVIDENT FROM THE LETTER HEAD OF THE ASSESSEE AND THERE FORE PUBLICITY MATERIAL WAS PURCHASED AT DELHI THROUGH KNO WN SOURCES AND GOT THE BANNERS, DANGLERS, AIR BAGS, T-BOARDS STI TCHED AT DELHI, TO ENSURE MATERIAL QUALITY AND COMPETITIVE RA TES. PURCHASES MADE FROM PARTIES, IN WHOM NEITHER THE ASSESS EE COMPANY IS INTERESTED NOR DIRECTORS OF THE ASSESSEE C OMPANY RELATED TO THEM. ENTIRE EXPENDITURE WAS INCURRED UNDER B USINESS/ ITA NO.1356 OF 2010 HYDERABAD DISTILLERIES & WINERIES P. LTD. ====================== 21 COMMERCIAL EXPEDIENCY. IN REPLY TO PARA 4 OF THE REVEN UES CONTENTION, THE LEARNED COUNSEL FOR THE ASSESSEE STAT ES, EXTENT OF QUANTITY OF CLOTH REQUIRED WAS PURCHASED FOR STITCHIN G BANNERS, ALONG WITH DANGLERS, AIR BAGS AND OTHER MATERIALS FOR D ELIVERY TO 7460 RETAIL OUTLETS SHOPS LOCATED IN ENTIRE ANDHRA PRA DESH FOR DISPLAY PURPOSES. STOCK REGISTERS AND OTHER RECORDS M AINTAINED ESTABLISHED THE FACT THAT THE PUBLICITY MATERIAL WAS DELIVERED TO THE RETAIL OUTLETS. DELIVERY DETAILS WITH REFERENCE TO EACH RETAIL OUT LET CONTAINING 129 PAGES WERE FURNISHED TO THE ASSESSING OFFICER. IT IS SUBMITTED THAT CLOTH BANNERS AND POST ERS HAD A VERY SHORT LIFE DUE TO ADVERSE WEATHER CONDITIONS AND USE OF SAME SPACE BY COMPETITORS WHO USED TO PUT THEIR OWN MATERIA L FOR PUBLICITY AFTER DESTROYING MATERIAL PLACED BY OTHERS. HENCE THE ASSESSEE HAS TO PUT TIME AND AGAIN ITS OWN PUBLICIT Y MATERIAL AT REGULAR INTERVALS AND FESTIVE OCCASIONS AT ALL 7640 RET AIL OUTLETS. WE FURTHER STATE THAT IN ALL THE CASES MENTIONED IN T HE TABLE, THE ASSESSEE HAD FURNISHED NUMBER OF DOCUMENTARY EVIDENCE TO ESTABLISH THE IDENTITY OF THE SUPPLIERS AND SUPPLY OF ADVERTISEMENT MATERIAL AS MENTIONED IN OUR STATEMENT W HICH WERE PLACED AT PAGES 67 TO 70 OF THE PAPER BOOK FIL ED. 17. IT IS SUBMITTED THAT M/S. JAGATJIT INDUSTRIES LTD UNDER AGREEMENT, NOT ONLY PROVIDE TECHNICAL KNOW HOW TO THE ASSESSEE FOR MANUFACTURE OF THEIR LIQUOR BRANDS BUT ALSO PROMOTE S ALES WITH MARKETING SUPPORT M/S. JAGATJIT INDUSTRIES LTD., USED TO MAKE PAYMENTS ON BEHALF OF ASSESSEE AS AND WHEN REQUIRED AND DEBITED THE RELEVANT EXPENSES TO THE ASSESSEES ACCOUNT AS W AS CLARIFIED BY ITA NO.1356 OF 2010 HYDERABAD DISTILLERIES & WINERIES P. LTD. ====================== 22 IT IN ITS CERTIFICATE FILED BEFORE THE CIT (A). ACCO UNTS OF BOTH THE ASSESSEE AND JIL WERE AUDITED AND ACCEPTED BY REVENUE . IN THE ABOVE PURSUIT ADVERTISEMENT MATERIAL WAS REQUISITIONED BY JAGATJIT INDUSTRIES LTD FROM ONE PARTY FOR SUPPLY TO THE ASSESSEE AND IN THE CASE OF ANOTHER PARTY BASED ON PURCHASE ORDER OF THE ASS ESSEE INVOICE, WAS CORRECTED WHICH DO NOT VITIATE THE PURCH ASE, TRANSACTIONS OF THE ASSESSEE. IT IS NOT CORRECT TO ST ATE THAT GOODS WERE NOT DELIVERED TO ASSESSEE COMPANY, AS THE MATE RIALS WERE RECEIVED BY THE ASSESSEE COMPANY AT DELHI WAS TRANSFE RRED TO HYDERABAD. TRANSPORTATION OF MATERIAL, TO HYDERABAD, DELIV ERY CHALLANS AND ENTRIES IN THE STOCK REGISTERS BEAR TEST IMONY TO THE PURCHASE TRANSACTIONS OF THE ASSESSEE. IT IS FURTH ER SUBMITTED THAT M/S.NK MEHRA & SONS, M/S. THE CREATIONS , M/S VIJAY KUMAR & CO., M/S. SS ENTERPRISES AND M/S. SPAN ADVERTISING APP EARED BEFORE THE ITO(INV) AND CONFIRMED SUPPLY OF MATERIAL TO THE ASSESSEE. WE STATE THAT EVIDENCE OF TRANSPORT OF THEI R GOODS, WITH DELIVERY CHALLANS, STOCK REGISTERS WERE PRODUCED AND TH EIR COPIES WERE FILED ON RECORD. IT IS SUBMITTED THAT M/S. SHIVA ENTERPRISES AND M/S. TECHNET INFO SYSTEMS (P) LTD., HAVE CONFIRMED THE TRANSACTION AND SUPPLY OF GOODS IN RESPONSE TO NOTICE ISSUED U/S 133(6) OF THE INCOME TAX ACT. M/S. S.M. ADVERTISING HAS CLOSED ITS BUSINESS DUE TO SEALING BY MUNICIPAL CORPORATION OF D ELHI WHICH IS CONFIRMED BY THE REPORT OF THE INCOME TAX INSPECTOR. PA RTIES NOT PRODUCED, SUMMONS NOT REPLIED OR SUMMONS RETURNED ARE N OT CONCLUSIVE FACTORS FOR DRAWING ADVERSE INFERENCE. THE D EPARTMENT, APART FROM ISSUING NOTICES UNDER SECTION 131 OF THE AC T, DID NOT PURSUE THE MATTER FURTHER. IT IS SUBMITTED THAT THE AS SESSEE ITA NO.1356 OF 2010 HYDERABAD DISTILLERIES & WINERIES P. LTD. ====================== 23 COMPANY HAD RECEIVED AND USED MATERIAL WELL BEFORE TH E CLOSURE OF THE YEAR. FURTHER THE DEPARTMENT ACCEPTED, IN THE SCRUT INY ASSESSMENT, SIMILAR EXPENDITURE RS.4.63 CRORES PERTAI NED TO 28 PARTIES IN THE ASSESSMENT YEAR 2007-08 WHEREIN MANY M ATERIAL SUPPLIERS ARE COMMON. 18. WE HAVE CONSIDERED THE RIVAL SU BMISSION AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FIND THAT, AS A G ENERAL RULE, PRINCIPLE OF RESI JUDICATA OR ESTOPPEL IS NOT APPLICAB LE TO THE INCOME TAX PROCEEDINGS. AN ASSESSMENT OF THE PARTICULAR YEAR I S FINAL AND BINDING IN RELATION TO THE ASSESSMENT YEAR IN WHICH THE DECISION IS GIVEN. YET, RULE OF CONSISTENCY DOES APPLY. IN OUR VIEW, THERE SHOULD NOT BE ANY DEVIATION OR VARIATION FROM THE EARLIER YEARS DECISION UNLESS OTHERWISE IT EMERGES THAT PREVIOUS DECISION IS WRONG ON SIMILAR ISSUE. IN THE CASE UNDER CONSIDERATION, THE A SSESSING OFFICER COMPLETED THE ASSESSMENT FOR THE IMMEDIATE SUBSEQUEN T ASSESSMENT YEAR 2007-08, UNDER SECTION 143 [3] OF THE ACT, DISCU SSING THE SIMILAR ISSUES AT LENGTH AND BY FOLLOWING THE OBSERVATIONS A ND IN ACCORDANCE WITH THE DIRECTIONS OF THE ADDL. CIT ISSUED UNDER SEC TION 144A OF THE ACT, DISALLOWED ONLY AN AMOUNT OF RS.15,00,000/- OU T OF THE TOTAL SELLING EXPENSES ON AD-HOC BASIS. WHILE PASSING THE ORDER FOR THE ASSESSMENT YEAR 2007-08, THE ASSESSING OFFICER OBSERV ED IN HIS ORDER THAT ONLY SOME OF THE VENDORS ARE DIFFERENT ONE WHEN COMPARED TO THE LAST YEAR ALLEGED PURCHASES. THESE OBSERVATIONS M ADE BY THE ASSESSING OFFICER SHOWS THAT THE ASSESSEE COMPANY AP PEARS TO HAVE INCURRED THE MAJOR PORTION OF THE EXPENDITURE WITH THE SAME PARTIES ITA NO.1356 OF 2010 HYDERABAD DISTILLERIES & WINERIES P. LTD. ====================== 24 THAT OF LAST YEAR. IN THE CASE UNDER CONSIDERATION, T HE DEPARTMENT ITSELF DEVIATED FROM ITS OWN DECISION OF THE LAST YE AR, WHILE TAKING THE DECISION FOR THE SUBSEQUENT YEAR THAT SHOWS THAT THE PREVIOUS DECISION TAKEN BY THE DEPARTMENT ON THE SIMILAR AND I DENTICAL ISSUE IS INCORRECT. MOREOVER, WE SEE MERIT IN THE ARGUMENTS OF THE LEARNED COUNSEL FOR THE ASSESSEE THAT CONSEQUENT TO THE EFFE CTIVE PUBLICITY CAMPAIGN, SALES IN THE YEAR UNDER CONSIDERATION WAS I NCREASED TO MORE THAN 50% WHEN COMPARED TO THE IMMEDIATE SUCCEED ING ASSESSMENT YEAR. WE DO NOT SEE ANY MERIT IN THE CONTE NTIONS OF THE LEARNED DEPARTMENTAL REPRESENTATIVE THAT WHY THE ASSESS EE COMPANY INCURRED SUCH HUGE EXPENDITURE AT DELHI RATHER THAN AT HYDERABAD, AS WE FIND THAT THE ASSESSEE COMPANY HAS THE ADMINISTRA TIVE OFFICE AT DELHI WHICH IS EVIDENT FROM THE LETTER HEAD OF THE AS SESSEE. THEREFORE, THE COMMERCIAL EXPEDIENCY IN PURCHASING THE PUBLICITY MATERIAL AT DELHI THROUGH KNOWN SOURCES TO ENSURE THE QUALITY AND COMPETITIVE RATES SEEMS TO BE CORRECT. IT IS AN ADMIT TED FACT THAT THE PARTIES FROM WHOM THE PURCHASES WERE MADE ARE NEITHER IN TERESTED IN THE ASSESSEE COMPANY NOR DIRECTORS OF THE ASSESSEE COMPANY NOR RELATED TO THEM. IT APPEARS THAT THE ASSESSEE COMPANY HAD FURNISHED NUMBER OF DOCUMENTARY EVIDENCES TO ESTABLISH THE IDEN TITY OF THE SUPPLIES AND SUPPLY OF ADVERTISEMENT MATERIAL. 19. WE ALSO FIND THAT THE ASSESSEE COMPANY APPEARS TO HAVE ESTABLISHED THE FACT BEFORE THE ASSESSING OFFICER THA T THE ASSESSEE COMPANY TRANSPORTED AND DELIVERED THE GOODS AT HYDERAB AD BY WAY OF DELIVERY CHALLANS, STOCK REGISTER WHICH WERE PRODUC ED BEFORE HIM. WE ALSO FIND MERIT IN THE ARGUMENTS OF THE LEARNED CO UNSEL FOR THE ITA NO.1356 OF 2010 HYDERABAD DISTILLERIES & WINERIES P. LTD. ====================== 25 ASSESSEE THAT PARTIES NOT PRODUCED, SUMMON NOT REPLIED OR SUMMONS RETURNED ARE NOT CONCLUSIVE FACTORS FOR DRAWING ADVERSE INFERENCE. IT APPEARS THAT THE DEPARTMENT APART FROM ISSUING NOTICE U NDER SECTION 131 OF THE ACT DID NOT PURSUE THE MATTER FURTHER. THE ASSESSEE COMPANY ALSO APPEARS TO HAVE FILED COPIES OF THE CON FIRMATION LETTERS, PAN DETAILS AND IDENTITY OF THE PARTIES ETC., WITH DE TAILS OF PAYMENT TO PARTIES THROUGH BANK ACCOUNT PAYEE CHEQUES BEFORE THE LOWER AUTHORITIES. THE REVENUE DID NOT PLACE ANY COGENT E VIDENCE THAT THE PARTIES HAVE NOT SUPPLIED THE MATERIAL AND THE ASSESS EE COMPANY DID NOT RECEIVE THE MATERIAL AT HYDERABAD AND NOT DISTRIBUT ED TO 7460 RETAIL OUTLETS. FURTHER, THE REVENUE ACCEPTED THE SI MILAR EXPENDITURE OF RS.4.63 CRORES PERTAINED TO 28 PARTIES IN THE IMMEDI ATE SUBSEQUENT ASSESSMENT YEAR WHEREIN MANY MATERIAL SUPP LIERS ARE APPEARED TO BE COMMON. HOWEVER, WE FIND THAT THE ASSE SSEE COMPANY FILED A LETTER DATED 30-12-2009 DURING THE AS SESSMENT PROCEEDINGS FOR THE ASSESSMENT YEAR 2007-08 STATING T HAT AN AMOUNT OF RS.15 LAKHS BE DISALLOWED OUT OF THE TOTAL SELLI NG EXPENSES AND THE ASSESSING OFFICER DISALLOWED THE SIMILAR AMOUNT WHILE COMPLETING THE ASSESSMENT FOR THAT YEAR BY FOLLOWING THE DIRECTIONS OF THE ADDL. CIT UNDER SECTION 144A OF THE ACT. BY APPLYING THE S AME ANALOGY, IN OUR CONSIDERED OPINION, AFTER CONSIDERING THE DISCREPAN CIES FOUND BY THE DEPARTMENT ON ENQUIRIES THROUGH INVESTIGATION WING AT DELHI AND AFTER CONSIDERING THE TOTALITY OF FACTS AND THE CIRCU MSTANCES OF THE CASE, AN AMOUNT OF RS.25 LAKHS OUT OF TOTAL SELLI NG EXPENSES OF RS.3,14,49,710/- CLAIMED BY THE ASSESSEE REQUIRES T O BE DISALLOWED. WE DIRECT ACCORDINGLY. ITA NO.1356 OF 2010 HYDERABAD DISTILLERIES & WINERIES P. LTD. ====================== 26 20. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED IN PART. ORDER WAS PRONOUNCED IN THE COURT ON 03- 06- 2011. SD/- SD/- (G.C. GUPTA) (AKBER BASHA) VICE PRESIDENT ACCOUNTANT MEMBER DT. 03-06-2011. COPY FORWARDED TO: 1. 2. 3. 4. 5. M/S. KALYANDAS & CO., CAS, 15, VENKATESHWARA COLONY, HYDERABAD. DCIT, CIR-2(2), HYDERABAD. CIT (A)-III, HYDERABAD. CIT, AP, HYDERABAD. THE DR, ITAT, HYDERABAD.