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

ITA 1706/AHD/2010

• Counselvise Citation: 170620514 RSA 2010
• Duration Of Justice: 2 year(s) 4 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-09-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 09-08-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 20-05-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAHUL KUMAR
• Assessee Lawyers: PF JAIN
• Keywords: Business expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AT AHMEDABAD A BENCH BEFORE: SHRI D.K. TYAGI, JUDICIAL MEMBER AND SHRI T.R. MEENA, ACCOUNTANT MEMBER I.T.A. NO.1706/AHD/2010 A.Y. 2007-08 WITH I.T.A. NO.1587/AHD/2011 A.Y. 2008-09 DY. COMMISSIONER OF INCOME TAX, CIRCLE-10, AHMEDABAD APPELLANTS VS. KHAMBHATTA FAMILY TRUST, B/H. ELLISBRIDGE GYMKHANA, ELLISBRIDGE, AHMEDABAD PAN-AAAAK0428P RESPONDENTS DEPARTMENT BY : SHRI RAHUL KUMAR, SR. D.R. ASSESSEE BY : SHRI P.F. JAIN, A.R. DATE OF HEARING : 09.08.2012 DATE OF PRONOUNCEMENT : 21.09.2012 / ORDER PER : D.K. TYAGI, JUDICIAL MEMBER THESE ARE REVENUES APPEAL AGAINST THE SEPARATE ORD ERS OF LD. CIT(A)-XV I, AHMEDABAD DATED 25.03.2010 AND 28.04.2 011. AS BOTH THE APPEALS BELONG TO THE SAME ASSESSEE AND FACTS OF BO TH THE APPEALS ARE SIMILAR AND THEY WERE HEARD TOGETHER, FOR THE SAKE OF CONVE NIENCE THEY ARE BEING DISPOSED OF BY PASSING A CONSOLIDATED ORDER. I.T.A. NO.1706/AHD/2010, A.Y. 2007-08 WITH I.T.A. NO.1587/AHD/2011, A.Y. 2008-09 2 2. THE COMMON GROUND TAKEN BY REVENUE IN BOTH THE A PPEALS READS AS UNDER:- THE LD. CIT(A) HAS ERRED IN LAW IN DELETING THE AD DITION MADE BY THE ASSESSING OFFICER ON ACCOUNT OF ADVERTISEMENT E XPENSES AS THE ASSESSEE HAS CLAIMED ADVERTISEMENT OF RASNA P RODUCTS AND THE SAME BRAND IS BEING USED BY OTHER CONCERNS OF THE ASSESSEE GROUP. HENCE THE ASSESSING OFFICER HAS RI GHTLY DISALLOWED ADVERTISEMENT EXPENSES. THE ACTION OF A .O. SHOULD HAVE BEEN UPHELD. 3. WE ARE DECIDING THIS ISSUE BY TAKING THE FACTS O F ITA NO.1706/AHD/2010, A.Y. 2007-08. THE A.O. HAS DEALT THE ISSUE AS UNDER:- DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IT WA S NOTICED THAT THE ASSESSEE HAS CLAIMED THE ADVERTISEMENT EXP ENSES OF RS.1,18,80,923/-. ON PERUSAL OF THE EARLIER ASSESS MENT YEARS ORDER, IT IS NOTICED THAT DISALLOWANCE HAS BEEN MAD E OUT OF ADVERTISEMENT EXPENSES TO THE TUNE OF 30% OF THE SAID EXPENDITURE. KEEPING IN VIEW OF THE EARLIER YEARS ORDERS, THE AUTHORISED REPRESENTATIVE WAS ASKED AS TO WHY O WHY 30% OF THE SAID ADVERTISEMENT EXPENSES WHICH COMES TO RS.35,64,277/- SHOULD NOT BE DISALLOWED & ADDED TO THE TOTAL INCOME. IN RESPONSE THERETO, THE ASSESSEE HAS SUBM ITTED ITS REPLY ON 15/12/2009. THE EFFECTIVE PART OF THE SAI D REPLY IS REPRODUCED AS UNDER:- ADVERTISEMENT EXPENSES:- THE VITAL POINT AND FACT THAT THE ASSESSEE IS GIVIN G USAGE CHARGES FOR USING RASNA BRAND EVEN THOUGH IT IS NOT OWNED BY IT AND THEREBY ASSESSEE HAS ACQUIRED AND HAS INTEREST OVER RASNA BRAND AND THIS VERY VITAL FACT HAS SIMPLY BEEN BRUS HED ASIDE AND IGNORED. THE FACTS OF WAVES FOODS PVT. LTD. CANNOT BE COMPAR ED WITH THE FACTS OF ASSESSEE WITHOUT PREJUDICE TO THIS IF ADVE RTISEMENT EXPENSES HAD BEEN INCURRED BY THE WAVES FOODS PVT. LTD. THEN THERE WOULD HAVE BEEN NO NEED TO DISALLOW ADVERTISE MENT EXPENDITURE OF THE ASSESSEE. THE ADVERTISEMENT EXP ENDITURE INCURRED BY THE ASSESSEE IS FULLY ALLOWABLE IRRESPE CTIVE OF THE FACT THAT WHETHER ANY OTHER MANUFACTURER INCURS SUC H EXPENDITURE OR NOT AND THAT CANNOT BE A BASIS TO DI SALLOW THE BUSINESS EXPENDITURE OF THE ASSESSEE. IT IS FURTHE R BROUGHT TO YOUR KIND NOTICE THAT FOR FINANCIAL YEAR 2004-05 RE LEVANT TO A.Y. I.T.A. NO.1706/AHD/2010, A.Y. 2007-08 WITH I.T.A. NO.1587/AHD/2011, A.Y. 2008-09 3 2005-06 UNDER CONSIDERATION THE WAVES FOODS PVT. LT D. HAS INCURRED ADVERTISEMENT AND SALES PROMOTION EXPENSES AMOUNTING TO RS.36364340/- , AND FOR F.Y. 05-06 RELEVANT TO A.Y. 06-07 UNDER CONSIDERATION IT HAS INCURRED ADVE RTISEMENT AND SALES PROMOTION EXPENSES AMOUNTING TO RS.30077136/- , FOR F.YM. 2006-07 RELEVANT TO A.Y. 2007-08 IT HAS I NCURRED ADVERTISEMENT OF RS.8334373/- THEREFORE, THE ERRONE OUS AND SO- CALLED BASIS OF DISALLOWANCE BY THE DEPT. DISAPPEAR S AND BY THE REASONING OF THE DEPT. ITSELF THE ADVERTISEMENT EXP ENDITURE FOR THE YEAR BECOMES FULLY ALLOWABLE. DURING THE ASSESSMENT YEAR 2006-07 YEAR RASNA PVT. LTD. HAS INCURRED ADVERTISEMENT AND SALES PROMOTION EXPENDIT URE OF RS.12.49 CRORES WHICH WAS RS.19.17 CRORES IN A.Y. 0 5-06, FOR A.Y.2007-08 THE RASNA PVT. LTD., INCURRED ADVERTISE MENT EXPENSES OF RS.671.43 LAKHS THIS WILL SHOW THAT THE ASSESSEE HAS INCURRED ADVERTISEMENT EXPENDITURE FOR THE SAKE OF ITS OWN BUSINESS NEEDS AND IT CANNOT BE DOUBTED AND ADJUDIC ATED BY THE DEPT. BECAUSE IT DOES NOT FALL IN THEIR JURISDICTIO N. IN VIEW OF THESE FACTS THE REASONS GIVEN BY THE DEP ARTMENT FOR DISALLOWANCE OF ADVERTISEMENT EXPENDITURE ARE WITHO UT BASIS AND AS PER THE PRINCIPLES LAID DOWN BY THE SUPREME COURT AS QUOTED ABOVE THE EXPENDITURE BECAME FULLY ALLOWABLE FACTUALLY AS WELL AS LEGALLY AND THEREFORE, NO PART OF ADVERT ISEMENT EXPENDITURE OF RS.11880923/- CAN BE DISALLOWED AND THEREFORE THE QUESTION OF DISALLOWANCE OF 30% OF EXPENDITURE AS PER SHOW CAUSE VIDE NOTICE DATED 19-11-2008 AS PER LAST YEAR SHOULD NOT ARISE. THE ASSESSEE FURTHER RELIED UPON THE DECISION OF DE LHI TRIBUNAL IN THE CASE OF NESTLE INDIA LTD. V/S. DEPUTY CIT 11 1 TTJ (DEL) 498 (2007). THE ISSUE AS ABOVE IS DISCUSSED IN DETAIL AND AT LE NGTH IN THE ASSESSMENT ORDERS PASSED FOR THE ASSESSMENT YEARS I .E. A.Y. 2004-05, A.Y. 2005-06, A.Y. 2006-07. THE APPEAL OF THE ASSESSEE HAVE BEEN ALLOWED BY THE LD. CIT(A) FOR AL L THE THREE ASSESSMENT YEARS. HOWEVER, THE APPELLATE ORDERS OF THE LD. CIT(A) HAVE NOT BEEN ACCEPTED ON THIS ISSUE AND THE SAME IS FURTHER CONTESTED BEFORE THE HONBLE ITAT. CONSIDERING THE ABOVE AND IN ORDER TO KEEP ALIVE TH E STAND OF THE DEPARTMENT, 30% OF THE ADVERTISEMENT EXPENSES C LAIMED BY THE ASSESSEE IS DISALLOWED FOR THIS ASSESSMENT YEAR ALSO, BASED ON THE FINDINGS GIVEN IN THE EARLIER ASSESSMENT ORD ERS (10% RELATING TO BRAND BUILDING AND 20% FOR THE BENEFIT TO OTHER I.T.A. NO.1706/AHD/2010, A.Y. 2007-08 WITH I.T.A. NO.1587/AHD/2011, A.Y. 2008-09 4 MANUFACTURER). THE DISALLOWANCE COMES TO RS.35,64, 277/-. PENALTY PROCEEDINGS U/S 271(1)(C) ARE INITIATED SEP ARATELY FOR FURNISHING INACCURATE PARTICULARS OF INCOME. 4. LD. CIT(A) HAS DELETED THIS ADDITION BY OBSERVIN G AS UNDER:- SHRI P F JAIN, CA ATTENDED AND SUBMITTED BEFORE ME ON 25- 3-2010 THAT BOTH THE GROUNDS ARE COVERED BY MY APPE LLATE ORDER DT 31-3-2009 FOR A Y 2006-07. IN EARLIER ASS ESSMENT YEAR I.E. A.Y. 2004-05 TO A.Y. 2005-06, THIS ISSUE HAS B EEN DECIDED BY ME IN FAVOUR OF THE APPELLANT VIDE APPELLATE ORD ER NO.CIT(A)- XVI/DCIT.10/059/07-08 AND NO.CIT(A)-XVI/DCIT.10/022 0/06- 07 DT. 28-01-2009 AND 31-3-2009 RESPECTIVELY. SINC E THE FACTS ARE IDENTICAL, THIS GROUND IS DECIDED IN FAVOUR OF THE APPELLANT. 5. AT THE TIME OF HEARING BOTH THE PARTIES AGREED T HAT THE ISSUE IS NOW COVERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE R EVENUE BY THE DECISION OF HONBLE ITAT, AHMEDABAD BENCH IN ASSESSEES OWN CA SE FOR THE ASST. YEAR 2004-05 VIDE ITA NO.1032/AHD/2009 AND ITA NOS.1930 & 1824/AHD/2009 FOR ASST. YEARS 2005-06 & 2006-07. FOLLOWING THE SAME, WE DISMISS THE APPEALS OF REVENUE FOR BOTH THE YEARS. 7. IN THE RESULT, REVENUES APPEALS ARE DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON 21.09.2012 SD/- SD/- (T.R. MEENA) (D.K. TYAGI) ACCOUNTANT MEMBER JUDICIAL MEMBER N.K. CHAUDHARY, SR. P.S. COPY OF THE ORDER FORWARDED TO: 1. THE APPLICANT 2. THE RESPONDENT I.T.A. NO.1706/AHD/2010, A.Y. 2007-08 WITH I.T.A. NO.1587/AHD/2011, A.Y. 2008-09 5 3. THE CIT CONCERNED 4. THE LD. CIT (APPEALS) 5. THE DR, AHMEDABAD 6. THE GUARD FILE BY ORDER AR, ITAT, AHMEDABAD