The ITO Co Ward 7(1), Ahmedabad V. M/S The Ahmedabad Advertiging &Marketing Consulants Ltd, Ahmedabad

ITA 1870/AHD/2000

• Counselvise Citation: 187020514 RSA 2000
• Duration Of Justice: 10 year(s) 11 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-08-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 04-08-2011
• Assessment Year: 1993-1994
• Appeal Filed On: 28-08-2000
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S K MEENA SRDR
• Assessee Lawyers: ANIL N SHAH; J P SHAH SRAR
• Keywords: Business income; Business expenditure; Reasonable cause; Commercial expediency
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH A AHMEDABAD BEFORE SHRI D.K. TYAGI, JUDICIAL MEMBER AND SHRI R.C. SHARMA, ACCOUNTANT MEMBER ITA NO.1870-1871/AHD/2000 ASSESSMENT YEARS:1993-94 & 1994-05 DATE OF HEARING:4.8.11 DRAFTED:4.8.11 INCOME TAX OFFICER, WARD-7(1), AHMEDABAD V/S. AHMEDABAD ADVERTISING & MARKETING CONSULTANTS LTD. C/O PEPSICO INDIA HOLDING P. LTD. BLOCK NO.71/74, GIDC ESTATE, NARODA, AHMEDABAD 382 330 PAN NO.AAACA2864B (APPELLANT) .. (RESPONDENT) ITA NO.3584/AHD/2002 & C.O NO.264/AHD/2009 (ARISING OUT ITA NO.3584/AHD/2002) ASSESSMENT YEAR: 1995-96 INCOME TAX OFFICER, WARD- 1(1), 6 TH FLOOR INSURANCE BUILDING, ASHRAM ROAD, AHMEDABAD AHMEDABAD ADVERTISING & MARKETING CONSULTANTS COMPANY PVT. LTD. C/O PEPSICO INDIA HOLDING P. LTD. BLOCK NO.71/79, GIDC ESTATE, NARODA, AHMEDABAD 382 330 V/S. V/S. AHMEDABAD ADVERTISING & MARKETING CONSULTANTS COMPANY PVT. LTD. C/O. PEPSICO INDIA HOLDING P. LTD. BLOCK NO.71/79, GIDC ESTATE, NARODA, AHMEDABAD 382 330 DCIT, (ASST.) SPL. RANGE-1, AHMEDABAD (APPELLANT) .. (RESPONDENT) ITA NO.1870-71/AHD/00, 3584/AHD/02 & CO 264/AHD/09 A.YS.93-94 T O 94-95 & 95-96 ITO WD-7(1),ABD V. AA&MC LTD. PAGE 2 ASSESSEE BY :- SHRI J.P. SHAH, SR-AR & SHRI ANIL N SHAH, AR REVENUE BY:- SHRI S.K. MEENA, SR-DR DATE OF HEARING : 9-8-2011 DATE OF PRONOUNCEMENT : 26-8-2011 O R D E R PER R.C. SHARMA, ACCOUNTANT MEMBER:- THESE ARE THREE APPEALS FILED BY REVENUE AND CROSS OBJECTION (CO) BY THE ASSESSEE AGAINST THE ORDER OF COMMISSIONER OF I NCOME-TAX(APPEALS)-V, AHMEDABAD FOR THE ASSESSMENT YEARS, 1993-94, 1994-9 5 & 1995-96, IN THE MATTER OF ORDER PASSED U/S.143(3) OF THE INCOME-TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT). 2. THE COMMON GROUND TAKEN BY THE REVENUE IN ALL TH E YEARS RELATE TO DELETION OF ADDITION MADE ON ACCOUNT OF ADVERTISEME NT EXPENSES. 3. RIVAL CONTENTIONS HAVING HEARD AND PERUSED ON RE CORD. FACTS IN BRIEF ARE THAT THE ASSESSEE-COMPANY IS CARRYING OF ADVERT ISING AND MARKETING CONSULTANCY FOR BOTTLER OF THUMS UP GROUP M/S. GBC LTD., AHMEDABAD, A SUBSIDIARY OF THE ASSESSEE AND ITS WHOLE-SELLER IN STATE OF GUJARAT. THE ASSESSEE-COMPANY WAS RENDERING SERVICES IN THE FIEL D OF ADVERTISING OF PRODUCTS OF M/S. GBC LTD. AND ITS WHOLE-SELLERS AND IN TURN RAISES PROFESSIONAL BILLS AGAINST THE SAME. DURING THE COURSE OF SCRUTI NY ASSESSMENT THE ASSESSING OFFICER OBSERVED IN THE A.Y 1993-94 THAT THE ASSESSEE-COMPANY HAD INCURRED FOLLOWING EXPENDITURES UNDER PUBLICITY AND ADVERTISING:- PUBLICITY MATERIALS : RS.1.05,69,785 OTHER ADVERTISEMENT & MARKETING EXPENSES RS. 9 5,08,929 4.1(I) THE ASSESSING OFFICER FURTHER OBSERVED AS U NDER:- (A) THE ASSESSEE-COMPANY IS HOLDING COMPANY OF M/S . GBC LTD. (B) THE TOTAL EXPENDITURES OF RS.1,05,69,785 WHICH WERE INCURRED ON PUBLICITY MATERIAL AND HOARDING ETC. WERE LAID FOR PROMOTION OF BRAND ITA NO.1870-71/AHD/00, 3584/AHD/02 & CO 264/AHD/09 A.YS.93-94 T O 94-95 & 95-96 ITO WD-7(1),ABD V. AA&MC LTD. PAGE 3 NAME OF SOFT DRINK AS PRODUCED BY M/S. GBC LIMITED. THESE PUBLICITY MATERIAL IS UTILIZED BY THE WHOLE-SELLER THROUGH TH EIR RETAILERS. THE ASSESSEE-COMPANY HAD INCURRED EXPENDITURE OF RS.27,05,597 OUT OF AMOUNT OF RS.95,08,929, ON GIVING CASH AWARD S, SALE COMPETITION AND BONANZA TROPHY AWARDS TO WHOLE-SELLERS. EXPENDITURE OF RS.1,05,69,784 AND RS.27,05,597 ARE LAID FOR WHOLE-SELLER (D) THE ASSESSEE-COMPANY HAD INCURRED AN AMOUNT OF RS.19,12,332 IN SPONSORING SPORT EVENTS, CULTURAL PROGRAMME, FUNFAI R AND MUSICAL NIGHTS, NAVRATRI GARBA AND EVENING PROGRAMME. ALL T HE BILLS AMOUNTING TO RS.19,12,332 ARE RAISED TO THE M/S. GBC LIMITED AND ALL THE CORRESPONDENCE IN THIS REGARD WAS MADE WITH EXECUTI VE DIRECTOR AND OTHER EMPLOYEE OF M/S. GBC LIMITED. THE ASSESSEE-CO MPANY COMES IN TO THE PICTURE ONLY AT THE TIME OF MAKING PAYMENTS FOR THESE EXPENDITURES. (E) THE ASSESSEE-COMPANY HAD MADE PAYMENT OF RS.48, 24,550 TO M/S. SOFT DRINK ADVERTISING & MARKETING SERVICES (P) LTD . (HEREINAFTER REFERRED TO AS SAMS), BOMBAY ON BEHALF OF M/S/ GBC LTD. IN PURSUANCE OF AN AGREEMENT BETWEEN M/S. GBC LTD. AND SAMA AS C ONTRIBUTION TOWARDS NATIONAL COMPAIGN TO ADVERTISE VARIOUS SOFT DRINK BRAND. (F) THE ASSESSEE HAD MADE PAYMENTS TOTALING TO RS.6 7,36,882 ( RS.4824550 + 19123332) ON BEHALF OF M/S. GBC LTD. B UT HAS RECOVERED ONLY AN AMOUNT OF RS.38,69,873 AND BALANCE AMOUNT O F RS.28,69,009 WHICH WAS MADE ON BEHALF OF M/S. GBC LTD. IS NOT RE COVERED FROM IT. IN THE TRANSACTION, THE ASSESSEE-COMPANY HAD INCURRED A LOSS OF RS.28,67,009 CONTRARY TO THIS TOTAL EXPENDITURE OF RS.1,32,75,381 WAS MADE ON BEHALF OF WHOLE-SELLER AND AN AMOUNT OF RS. 2,15,12,734 IS RECOVERED FROM THEM. THE ASSESSEE-COMPANY HAD EARNE D PROFIT OF RS.82,37,353 ON THE SERVICES RENDERED IN CASE OF WH OLE-SELLERS. IN VIEW OF THE ABOVE OBSERVATIONS, THE ASSESSING OF FICER WAS OF THE VIEW THAT THE PAYMENT OF RS.28,67,009 SHOULD BE DIS ALLOWED U/S.40A(2)(B) 4.1(II) IN THIS REGARD, THE ASSESSEE-COMPANY HAD SU BMITTED, BEFORE THE ASSESSING OFFICER THAT THE BENEFITS ARISEN FROM PAY MENT TO SAMS AND OTHER ON BEHALF OF M/S. GBC LTD. WAS ALSO AVAILABLE TO WHOLE-SELLERS. IT WAS ALSO SUBMITTED THAT A SUBSTANTIAL PROFIT WAS MA DE IN THE TRANSACTION WITH WHOLE-SELLERS AND OVERALL THE ASSESSEE HAD EAR NED NET PROFIT. IT WAS FURTHER SUBMITTED THAT THE LOSS OF RS.28,67,009 CAN NOT BE DISALLOWED. ITA NO.1870-71/AHD/00, 3584/AHD/02 & CO 264/AHD/09 A.YS.93-94 T O 94-95 & 95-96 ITO WD-7(1),ABD V. AA&MC LTD. PAGE 4 4.1(III) AFTER CONSIDERING THE SUBMISSIONS MADE BY THE ASSESSEE- COMPANY, THE ASSESSING OFFICER CONCLUDED AS UNDER:- (A) QUANTIFICATION OF PROFIT AND LOSS CAN BE SEPARA TELY SHOWN FOR WHOLE-SELLER AND M/S. GBC LTD. AS UNDER: TRANSACTION WITH M/S. GBC LTD. TOTAL EXPENDITURE ON ADVERTISING AND SALE PROMOTION INCURRED IN FORM OF REIMBURSEMENT OF EXPENDITURE OF M/S. GBC LTD. (RS.4824550 PAID TO SAMS IN RESPECT OF BILLS RAISED BY SAMS TO M/S. GBC LTD. ON BEHALF OF M/S. GBC LTD. FOR ORGANIZING SPECIAL EVENTS) RS. 67,36,882 TOTAL ADVERTISING AND MARKETING EXPENSES AS REIMBURSED BY M/S GBC LTD. DURING YEAR RS. 38,69,873 EXPENDITURE INCURRED ON BEHALF OF M/S.GBC LTD. BUT NOT RECOVERED FROM THEM ( -) RS. 28,67,009 TRANSACTION WITH WHOLE-SELLER TOTAL RECEIPT FROM DEALERS RS.2,15,12,734 TOTAL ADVERTISEMENT AND SALE PROMOTION EXPENSES FOR WHOLE-SELLERS (RS.10569784 + 2705597) RS.1,32,75,351 RS. 82,37,383 THUS, THE ASSESSING OFFICER FOUND THAT THE NON-REIM BURSEMENT OF THE PAYMENT BY THE ASSESSEE-COMPANY ON BEHALF OF M/S. G BC LTD. A SUBSIDIARY COMPANY OF THE ASSESSEE, HAS RESULTED IN LOSS OF RS.28,67,009 IN THIS PARTICULAR TRANSACTION. (B) THE EXPENDITURE WAS INCURRED AND DETERMINED BY M/S. GBC LTD. (C) THE EXPENDITURE OF RS.19,12,332 AND RS.48,24,55 8 FOR ORGANIZING SPECIAL EVENT AND CONTRIBUTION TOWARDS N ATIONAL ADVERTISEMENT WAS NEGOTIATED, QUANTIFIED AND INCURR ED BY M/S. GBC LTD. (D) THE ASSESSEE-COMPANY HAD PAID RS.67,36,882 ON B EHALF OF M/S.GBC LTD. A COMPANY COVERED U/S.40A(2)(B) OF THE ACT AND HAS NOT RECOVERED AN AMOUNT OF RS.28,67,009. 4.1(IV) IN VIEW OF THE ABOVE FINDINGS/OBSERVATIONS THE ASSESSING OFFICER HELD THAT THE PAYMENT OF RS.28,67,009 IS COVERED U/ S.40A(2)(B) AND THEREFORE, THE SAME IS DISALLOWED AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE-COMPANY. ITA NO.1870-71/AHD/00, 3584/AHD/02 & CO 264/AHD/09 A.YS.93-94 T O 94-95 & 95-96 ITO WD-7(1),ABD V. AA&MC LTD. PAGE 5 4. BY IMPUGNED ORDER LD. CIT(APPEALS) DELETED THE D ISALLOWANCE AFTER HAVING THE FOLLOWING OBSERVATIONS:- 4.3 I HAVE CONSIDERED THE FACTS OF THE CASE AND TH E SUBMISSIONS MADE ON BEHALF OF THE APPELLANT AND THE DECISIONS RELIED UPON BY THE APPELLANT. IT IS SEEN THAT THE APPELLANT HAD FILED A DETAILED SUBMISSION DURING THE ASSESSMENT STAGE. FROM THE SUBMISSION FI LED BY THE APPELLANT, IT IS SEEN THAT THE ASSESSING OFFICER DI D NOT LOOK INTO ALL THESE SUBMISSIONS WHICH WERE FILED BEFORE HIM ALSO AND OV ERLOOKED ALL THE ARGUMENTS RAISED BY THE APPELLANT AT THE ASSESSMENT STAGE. THEREFORE, IT WAS FOUND NECESSARY TO CALL FOR A REMAND REPORT ON THE SUBMISSIONS MADE BY THE APPELLANT. THE PRESENT ASSESSING OFFICE R WAS REQUESTED TO SUBMIT HIS REMAND REPORT, IN THIS CASE. THE APPELLA NT WAS ALSO REQUESTED TO CONTACT THE PRESENT ASSESSING OFFICER FOR ANY CLARIFICATION. ACCORDINGLY, THE AUTHORIZED REPRESENTATIVE OF THE A PPELLANT FILED A LETTER DATED 19.04.2000 BEFORE THE PRESENT ASSESSING OFFIC ER, UNDER WHICH THE FOLLOWING DOCUMENTS WERE FILED BEFORE HIM: (I) BASIC DOCUMENTS BETWEEN SOFT DRINKS ADVERTISING & MARKETING PVT. LTD. (SAMS), GUJARAT BOTTLING CO. LTD. AND AHMEDABA D ADVERTISING MARKETING CONSULTANCY CO. PVT. LTD. (A.A.M.C.) GOVE RNING NATIONAL ADVERTISEMENT. (1) XEROX COPY OF ORIGINAL LETTER OF AGREEMENT BETW EEN SAMS AND GBC FOR CONTRIBUTING NATIONAL ADVERTISEMENT EXPENSE OF NATIONAL LEVEL FOR THE SHARE GUJARAT REGION BOTTLER. THE LETTER OF SAMS NATIONAL LEVEL ADVERTISEMENT AGENT DATED 7.3.1989 AND CONFIRMATI ON OF GBC THERETO ANNEXURE-I (2) INSTRUCTION BY GBC TO SAMS TO BILL AND SUCH NAT IONAL LEVEL ADVERTISEMENT, CHARGES FOR GUJARAT REGION TO THE AC COUNT OF AAMAC (IN PURSUANCE OF AGREEMENT BETWEEN GBC, AAMAC AND WHOLE -SELLERS IN GUJARAT DATED 1 ST APRIL, 1989, VIDE LETTER DATED 10.3.1989 ANNEXUR E-II. (II) DETERMINATION IN ADVANCE OF YEARLY CONTRIBUTIO N OF BASED ON PAST SALES IN GUJARAT REGION PAYABLE BY AAMAC TO SAMS TO SAMS FOR 1992-93 (1) LETTER FROM SAMS TO AAMC FIXING CONTRIBUTION OF AHMEDABAD PLANT DATED 6.1.1992 ANNEXURE-III. (2) LETTER FROM SAMS TO AAMAC FIXING CONTRIBUTION O F BAMANBORE (RAJKOT) PLANT ANNEXURE-IV (3) LETTERS FROM GBC TO SAMS REMINDING ALL THESE BI LLS TO BE CHARGED TO AAMAC AS PER AGREEMENT DATED 1.4.1989 (LETTER DATED 9.3.1992) ANNEXUE-V ITA NO.1870-71/AHD/00, 3584/AHD/02 & CO 264/AHD/09 A.YS.93-94 T O 94-95 & 95-96 ITO WD-7(1),ABD V. AA&MC LTD. PAGE 6 (4) DETAILED STATEMENT OF EXPENSES BILLED TO AAMAC FOR THE YEAR 1992- 93 DULY CERTIFIED BY SAMS SHOWING THE AMOUNT CHAR GED TOWARDS THE NATIONAL ADVERTISEMENT DURING THE YEAR FROM ALL REGIONAL BOTTLING PLANTS/ITS NOMINEES FOR THE WHOLE COUNTRY ANNEXUR E-VI. (5) COPIES OF ALL BILLS OF SAMS AND STATEMENT OF AC COUNTS OF SAMS IN THE BOOKS OF AAMAC ALREADY FILED WITH YOU, CONFIRMS THE CORRESPONDING ANNUAL AMOUNT IN THE STATEMENT OF ANN UAL CHARGE BY SAMS TO AAMAC. (III) BILLS CHARGED BY AAMAC TO GBC & WHOLE-SELLERS IN PURSUANCE TO THE ORIGINAL AGREEMENT EFFECTIVE FROM 1.4.1984 AND SUPPLEMENTARY AGREEMENT EFFECTIVE FROM 1.4.1989 (1) REFER FILE OF BILLS RAISED AND BASIS THEREOF FO R FORTNIGHTLY CHARGES LEVIED BY AAMAC TO GBC IN THE FIRST 6 MONTHS, I.E. FROM 1 ST APRIL, 1992 TO 30 TH SEPTEMBER, 1992 FILE PRODUCED FOR VERIFICATION. (2) SPECIMEN COPY OF BILLS SHOWING THE BASIS OF THE CHARGE TAKEN OUT FROM THE ABOVE FILE FILED FOR REFERENCE ANNEXURE-V II. (IV) ACCOUNTING OF THE ABOVE REFERRED FORTNIGHTLY B ILLS CHARGED BY AAMAC @ 18% OF THE TOTAL INVOICES CHARGED BY AAMA T O THE WHOLE- SELLERS AS PER CLAUSE I OF THE AGREEMENT DATED 1 ST APRIL, 1989, VIDE XEROX COPY OF THE LEDGER ACCOUNT OF THE BILL RECORD ED IN THE BOOKS OF GBC FOR THE FORTNIGHTLY CHARGES LEVIED BY AAMAC C OPY OF ACCOUNT FILED VIDE ANNEXURE-VIII. THEREFORE, THE PRESENT ASSESSING OFFICER WAS REQUIR ED TO GO THROUGH ALL THESE DOCUMENTS AND SUBMIT HIS COMMENTS. IN THIS RE GARD, A REPORT DATED 17.4.2000 WAS RECEIVED FROM THE PRESENT ASSES SING OFFICER. FROM THE REPORT SUBMITTED BY THE PRESENT ASSESSING OFFIC ER, IT APPEARS THAT HE HAS NOT GONE THROUGH VARIOUS DOCUMENTS & AGREEMENTS , FILED BY THE APPELLANT BEFORE HIM AND HE HAS NOT TAKEN IT VERY S ERIOUSLY WHILE PREPARING THE REMAND REPORT. THE REMAND REPORT, SUB MITTED BY HIM, IS VERY CASUAL, AS RE-PRODUCED ABOVE AND NO COMMENT S HAVE BEEN MADE BY HIM ON THE SUBMISSION/DOCUMENTS. SINCE THE REMAND REPORT DOES NOT SPECIFY ANYTHING, THEREFORE, THE PRESENT A SSESSING OFFICER WAS AGAIN REQUESTED TO SEND A SECOND REMAND REPORT AFTE R GOING THROUGH THE VARIOUS DOCUMENTS/AGREEMENTS FILED BY THE APPEL LANT BEFORE HIM. IN THIS REGARD, THE APPELLANT AGAIN FILED VARIOUS DOCU MENTS, VIDE ITS LETTER DATED 27.4.2000 WHICH ARE AS UNDER:- (1) THE STATEMENT OF ADVERTISING AND MARKETING CHAR GES CHARGED TO VARIOUS WHOLE-SELLERS AND M/S. GUJARAT BOTTLING COM . PVT. LTD. ON ITA NO.1870-71/AHD/00, 3584/AHD/02 & CO 264/AHD/09 A.YS.93-94 T O 94-95 & 95-96 ITO WD-7(1),ABD V. AA&MC LTD. PAGE 7 PREDETERMINED BASIS ALONG WITH MONTH-WISE SUMMARY F OR THE SAME VIDE ANNEXURE-I. (2) COPY OF ACCOUNT OF SOFT DRINKS AND ADVERTISING AND MARKETING SERVICES LTD. FOR THE ACCOUNTING YEARS 1990-91, 199 1-92 AND 1992- 93 IN THE BOOKS OF ASSESSEE COMPANY VIDE ANNEXURE-2 . (3) COPY OF ACCOUNT OF M/S. GUJARAT BOTTLING COMPAN Y LTD. FOR THE ACCOUNTING YEAR 1985-86, 1991-92 AND 1992-93 IN THE BOOKS OF APPELLANT COMPANY VIDE ANNEXURE-3 THE SECOND REMAND REPORT OF THE PRESENT ASSESSING O FFICER IS ALSO RE- PRODUCED ABOVE. IT APPEARS THAT INSPITE OF THE REPE ATED REQUEST THE PRESENT ASSESSING OFFICER HAS NOT TAKEN THE REMAND REPORT VERY SERIOUSLY. IT IS SEEN THAT HE HAS NOT COMMENTED UPO N VARIOUS DOCUMENTS/AGREEMENTS FILED BY THE APPELLANT, BEFORE HIM AS STATED ABOVE. HE HAS NOT COMMENTED WHETHER THE ADDITION WA S REQUIRED OR NOT IN VIEW OF VARIOUS DOCUMENTS/AGREEMENTS FILED BY TH E APPELLANT. THE PRESENT ASSESSING OFFICER HAS MERELY STATED THAT TH E FACTS SUBMITTED BY THE APPELLANT ARE FACTUALLY CORRECT AND THE SAME WA S NOT PRESSED BEFORE THE ASSESSING OFFICER DURING THE COURSE OF ASSESSME NT PROCEEDINGS. I HAVE NOT UNDERSTOOD FROM THE LANGUAGE OF THE REMAND REPORT THAT WHAT WAS NOT PRESSED AT THE ASSESSMENT STAGE. WHETHER THE ADDITION WAS NOT OBJECTED TO OR THE AGREEMENT WAS NOT PRESSED IS NOT CLEAR FROM THE REPORT OF THE PRESENT ASSESSING OFFICER. IT IS VERY STRANGE THAT WHEN SUCH A HUGE ADDITION HAS BEEN MADE NO APPELLANT WIL L TAKE IT VERY LIGHTLY. IN FACT, THE PRESENT ASSESSING OFFICER HAS NOT DENIED THAT ALL THE DOCUMENTS, FILED BEFORE HIM, WERE NOT FILED AT THE ASSESSMENT STAGE. THEREFORE, I AM UNABLE TO UNDERSTAND WHAT WAS NOT P RESSED AT THE STAGE OF ASSESSMENT. IT IS SEEN THAT THE REPORT OF THE PRESENT ASSESSING OFFICER WAS FORWARDED BY THE JT. COMMISSIONER OF IN COME-TAX WITH A REQUEST THAT IF DEEMED FIT THE ASSESSING OFFICER WH O HAD COMPLETED THE ASSESSMENT MAY BE ASKED TO PUT FORTH HIS VIEWS. THI S AMOUNTS TO SHIFTING OF THE RESPONSIBILITY. THE ASSESSMENT WAS COMPLETED, IN THIS CASE, IN THE YEAR 1996. THEREFORE, IT WILL NOT BE P OSSIBLE FOR THE ASSESSING OFFICER, WHO HAD COMPETED THE ASSESSMENT, TO PUT FORTH HIS VIEWS, AFTER 4 YEARS WHEN THE RECORDS ARE NOT AVAIL ABLE WITH HIM. IT IS THE DUTY OF THE PRESENT ASSESSING OFFICER TO SUBMIT THE REMAND REPORT AND TO OFFER HIS COMMENTS ON THE SUBMISSIONS MADE BY TH E APPELLANT. INSTEAD OF SENDING A FACTUAL REMAND REPORT, HE HAS MERELY STATED THAT THE CASE MAY BE DECIDED ON MERITS, WHICH IS A VERY CASUAL APPROACH. THE PURPOSE OF REMAND REPORT IS TO MAKE FURTHER INQ UIRIES, IF THE ASSESSING OFFICER HAD NOT GONE AND LOOKED INTO THE SUBMISSIONS MADE BY THE APPELLANT AT THE ASSESSMENT STAGE. IF THE PR ESENT ASSESSING OFFICER ALSO HAS NOT GONE AND LOOKED INTO THE SUBMI SSIONS MADE BY THE APPELLANT AND THE DOCUMENTS/EVIDENCES FILED BY THE APPELLANT BEFORE HIM, THEN THE PURPOSE OF THE REMAND REPORT IN DEFEA TED. IT IS SEEN THAT THE PRESENT ASSESSING OFFICER HIMSELF HAS STATED TH AT THE FACTS ITA NO.1870-71/AHD/00, 3584/AHD/02 & CO 264/AHD/09 A.YS.93-94 T O 94-95 & 95-96 ITO WD-7(1),ABD V. AA&MC LTD. PAGE 8 SUBMITTED BY THE APPELLANT ARE FACTUALLY CORRECT. T HEN IN SUCH A CASE WHEN THE FACTS SUBMITTED BY THE APPELLANT ARE CORRE CT, THEN IT IS INCORRECT TO SAY THAT THE APPELLANT HAS NOT PRESSED . 4.3(I) I HAVE CONSIDERED THE FACTS OF THE CASE AND THE SUBMISSIONS MADE ON BEHALF OF THE APPELLANT. ALL THE SUBMISSIONS SUB MITTED BEFORE ME WERE FORWARDED TO THE CONCERNED ASSESSING OFFICER T O MAKE HIS COMMENT. HOWEVER, HE HAS NOT GIVEN ANY COMMENTS ON THE VARIOUS AGREEMENTS AND SUBMISSIONS MADE BY THE APPELLANT AS DISCUSSED ABOVE, HE HAS MERELY STATED THE FACTS NARRATED BY T HE APPELLANT ARE FOUND TO BE CORRECT. I AM CONSTRAINED TO DECIDE THI S ISSUE WITHOUT REFERENCE OF THE REMAND REPORT SUBMITTED BY THE CON CERNED ASSESSING OFFICER. THERE WAS AN AGREEMENT BETWEEN AHMEDABAD A DVERTISING & MARKETING CONSULTANTS LTD. AND M/S. GUJARAT BOTTLIN G CO. LTD. AND AROUND 50 WHOLE-SELLERS GUJARAT CHARGE. THIS AGREEM ENT IS DATED 1 ST APRIL, 1989. THE RELEVANT PORTION OF THE AGREEMENT IS REPRODUCED AS UNDER:- AND WHEREAS THE COMPETITORS IN THE MARKET OF SOFT D RINKS HAVE BEEN INCREASING AND CONSIDERABLE CONCERN AS EX PRESSED AT THE POSSIBLE ENTRY OF MULTINATIONALS LIKE PEPSI SC OLA, COCA COLA ETC. WHICH MAY ADVERSELY AFFECT THE EXISTING VOLUME AND STRUCTURE OF THE BUSINESS OF THE COMPANY VOLUME AND STRUCTURE OF THE BUSINESS OF THE COMPANY . AND WHEREAS AT THE INSTANCE OF SEVERAL BOTTLERS A SPECIALIZED UNIT FOR ADVERTISEMENT AND PUBLICITY UN DER THE NAME AND STYLE OF SOFT DRINK ADVERTISING & MARKETING SER VICES PVT. LTD. HAS BEEN SET-UP WHEREIN CENTRALIZED AND CREATIVE PU BLICITY IS SOUGHT TO BE CARRIED OUT THROUGH THE MEDIA T.V. RAD IO, SPECIAL EVENTS, PRESS ETC. AND WHEREAS THE BOTTLER AND WHOLESALERS FELL DE EPLY CONCERNED AS REGARDS THEIR SURVIVAL UNLESS PROTECTI VE MEASURES ARE TAKEN. AND WHEREAS THE COST OF ADVERTISEMENT AND PUBLICITY HAVE ALSO CONSIDERABLY INCREASED AND THE UNIT PRICE OF P RODUCT HAVING REACHED AT OPTIMUM POINT, IT WAS NOT POSSIBLE TO RE QUEST WHOLE- SELLERS TO SHARE ADDITIONAL BURDEN IN RESPECT OF I NCREASE COST IN ADVER4TISING AND MARKETING. AND WHERAS THE PARTIES HERETO HAVE DECIDED TO MODIF Y EXISTING ARRANGEMENTS AS REGARDS RATES TO BE CHARGED FOR THE SERVICES RENDERED BY THE CONSULTANT TO THE BOTTLER. ITA NO.1870-71/AHD/00, 3584/AHD/02 & CO 264/AHD/09 A.YS.93-94 T O 94-95 & 95-96 ITO WD-7(1),ABD V. AA&MC LTD. PAGE 9 NOW, THEREFORE, THIS SUPPLEMENTARY AGREEMENT EFFECT IVE FROM 1.4.89, WITNESSETH AS UNDER:- (1) THAT THE RATE OF SERVICE CHARGES CHARGED TO TH E BOTTLER IN TERMS OF CLAUSE NO. (8) OF THE ORIGINA L AGREEMENT DATED 1.3.84 BEING THE EFFECTIVE RATE AS ON 31.3.89 MODIFIED BY INCREASING THE SAME FROM EXISTI NG RATE OF 11% OF THE TOTAL INVOICES RAISED BY THE CONSULT ANTS TO WHOLESALERS TO 18% OF THE SAID TOTAL INVOICES SO RAISED. (2) THE RATE OF SERVICE CHARGES SOUGHT TO BE CHARGE D BY THE CONSULTANT TO THE WHOLESALERS HAS BEEN AGREED T O BE SUITABLY REVISED AT A LATER DATE AFTER FURTHER DISC USSION WITH WHOLESALERS. THE OTHER TERMS AND CONDITIONS OF TH E AGREEMENT REFERRED TO HEREINABOVE SHALL REMAIN UNCHANGED. FOR ABAD ADVT. & MKG. CONST. LTD. SD/- (PRADIP K JAVERI) DIRECTOR IN VIEW OF THIS AGREEMENT THE APPELLANT WAS REQUIRE D TO PAY AN AMOUNT OF ALL INDIA CAMPAIGN TO M/S. SOFT DRINK ADVERTISIN G & MARKETING SERVICES PVT. LTD. AND IN VIEW OF THIS THE APPELLAN T HAS REVISED ITS RATE FROM 11% TO 18%. THEREFORE, IT CANNOT BE SAID THAT THE APPELLANT HAS PAID THE MONEY ON BEHALF OF THE GUJARAT BOTTLING CO . LTD. A LIST OF THE REVISED RATE FOR SERVICE CHARGES IS REPRODUCED AS U NDER:- CIRCULAR REVISION IN SERVICE CHARGE REFERENCE IS MADE TO THE RELEVANT AND APPLICABLE CL AUSES IN RESPECT OF REVISION IN SERVICE CHARGES AS CONTAINED IN THE ORI GINAL AGREEMENT DATED 1 ST MARCH, 84 AND SUPPLEMENTARY AGREEMENTS DATED 29 TH DEC. 84 AND 11 TH MARCH, 85. ADVERTISING AND MARKETING CONSULTANTS PROPOSE TO RE VISE THE RATE OF SERVICE CHARGES PAYABLE BY THE WHOLESALERS IN RESPE CT OF THUMS UP, CITRA, GOLD SPOT, LIMCA, MAAZA MANGO, RIMZI & I.C. SODA THE PRODUCTS INTRODUCED BY THE BOTTLERS, SUCH REVISION BE EFFECT IVE FROM 1.8.92 AS MENTIONED HEREUNDER:- OLD RATE PER CRATE IN RS REVISED RATE PER CRATE IN RS ITA NO.1870-71/AHD/00, 3584/AHD/02 & CO 264/AHD/09 A.YS.93-94 T O 94-95 & 95-96 ITO WD-7(1),ABD V. AA&MC LTD. PAGE 10 CITY WHOLESALERS T.UP G.S.LIM, CITRA 7.45 9.00 M.MANGO 9.05 10.60 RIMZIM 4.25 5.80 ON HOME DELIVERY BASES M/S. TEJAS ENTERPRISES, ABAD T.UP. G.S. LIM, CITRA 12.95 9.50 M.MANGO 14.55 11.10 RIMZIM 7.55 4.30 M/S PEEPEE DISTRIBUTORS, BARODA T.UP G.S. LIM, CITRA 6.00 7.10 M. MANGO 7.60 8.70 RIMZIM 3.25 4.30 ABU ROAD: T.UP.G.S. LIM, CITRA 5.96 7.00 M.MANGO 9.52 7.00 RIMZIM 1.35 1.25 IT IS SEEN THAT THIS AGREEMENT IS DATED 1.4.89 AND THE ASSESSMENTS HAVE BEEN COMPLETED THEREAFTER ON A.YS 1989-90, 90-91 AN D 91-92 ETC. AND NO ADDITION HAS BEEN MADE ON ACCOUNT OF PAYMENT TO M/S. SAMS. I DO NOT FIND ANY JUSTIFICATION FOR ANY ADDITION OF SAMS IN VIEW OF THE FACT THAT THE APPELLANT HAS BEEN PAYING THE MONEY TO SAMS IN THE PAST AND THIS AMOUNT HAS BEEN PAID AS PER TERMS OF AGREEMENT AND RECOVERED FROM THE WHOLESALERS. THE ASSESSING OFFICER HAS ALSO DISALLOWED THE EXPE NSES INCURRED FOR VARIOUS SPORTS EVENTS, CULTURAL PROGRAMMES, FUNFAIR AND MUSICAL NIGHTS,NAVRATRI GARBA AND EVENING PROGRAMME ON THE PRETEXT THAT THE BILLS WERE RAISED IN THE NAME OF GUJARAT BOTTLING PVT. LT D. ALL THE BILLS RAISED WERE SENT FOR VERIFICATION TO THE A.O. TO VERIFY AS TO W HETHER THE BILLS WERE RAISED IN THE NAME OF GUJARAT BOTTLING PVT. LTD., OR IN THE N AME OF THE ASSESSEE. THE AO HAS FOUND THAT BILLS WERE RAISED IN THE NAME OF AHM EDABAD ADVERTISING & MARKETING CONSULTANTS CO LTD.,(ASSESSEE).IT IS RELE VANT TO REPRODUCE THE RELEVANT CLAUSE OF THE AGREEMENT BETWEEN GUJARAT BO TTLING PVT.LTD., (THE ASSESSEE) AND 50 WHOLE-SELLERS WHICH IS REPRODUCED AS UNDER:- THE AGREEMENT ENJOINS A SPECIFIC DUTY ON YOUR ASSE SSEE TO CARRY OUT THE EXPENDITURE FOR THE ABOVE REFERRED PURPOSE AS M ENTIONED IN PARA( 2) (B)(IV) I.E., FOR PLANNING AND EXECUTION OF VARIOUS SPECIAL EVEN TS SUCH AS SPORTS EVENTS, SOCIAL EVENTS, SPONSORSHIP EVENT, MUSICAL P ROGRAMMES ETC. THESE ARE THE FUNCTIONS TO BE LOOKED AFTER BY ASSES SEE ONLY AND NON ELSE MUCH LESS BY G.B.C. ITA NO.1870-71/AHD/00, 3584/AHD/02 & CO 264/AHD/09 A.YS.93-94 T O 94-95 & 95-96 ITO WD-7(1),ABD V. AA&MC LTD. PAGE 11 IN VIEW OF THE VARIOUS SUBMISSIONS MADE BY THE ASSE SSEE AND VARIOUS VERIFICATION OF THE AGREEMENTS AND BILLS IT IS SEEN THAT IT WAS THE DUTY OF THE ASSESSEE TO INCUR THE EXPENDITURE FOR GARBA EVE NTS, MUSICAL EVENTS ETC., AND BECAUSE OF THIS ONLY THEY HAVE INCURRED A ND INCREASE THEIR SERVICE CHARGES FROM THE WHOLESELLERS AND ALL THE S ERVICE CHARGES WERE RECOVERED BY THE ASSESSEE FROM GUJARAT BOTTLING PVT . LTD. AND FROM THE WHOLESELLERS AND IN FACT NO SUCH DISALLOWANCES HAVE BEEN MADE IN PAST FOR MANY YEARS AND SUCH EVENTS ARE OCCURRING IN PAS T SINCE LAST SO MANY YEARS. IN VIEW OF THIS, I DO NOT FIND ANY JUST IFICATION FOR THE DISALLOWANCE MADE BY THE A.O. ON ACCOUNT OF ADVERTI SEMENT EXPENSES. THEREFORE, THE ADDITION MADE BY THE A.O. IS DIRECTE D TO BE DELETED. 5. AGGRIEVED BY ABOVE ORDER OF CIT(A) THE RE VENUE CAME IN SECOND APPEAL BEFORE US. 6. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND CAR EFULLY GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. WE HAD ALSO CA REFULLY PERUSED THE TERMS AND CONDITIONS OF TRIPARTITE AGREEMENT EXECUTED BET WEEN THE ASSESSEE, GUJARAT BOTTLING COMPANY LTD., (HEREINAFTER REFERRE D TO AS GBC/BOTTLER AND WHOLESALERS. WE HAD ALSO GONE THROUGH THE CASE-LAWS CITED BY THE LD. A.R. AND ALSO CASE-LAWS REFERRED BY THE LOWER AUTHORITIE S IN THEIR RESPECTIVE ORDERS, IN THE CONTEXT OF FACTUAL MATRIX OF THE CASE. AS PE R THE TRIPARTITE AGREEMENT DATED 1-3-1984, THE ASSESSEE WAS TO PERFORM ALL FUN CTIONS OF ADVERTISING, PUBLICITY AND MARKETING WHICH INCLUDED SERVICES ME NTIONED IN PARAGRAPH 2(2)(A)(B)(C) AND (D) OF THE SAID TRIPARTITE AGREEM ENT. WE HAD ALSO GONE THROUGH THE SUPPLEMENTARY TRIPARTITE AGREEMENT DATE D 1-4-1989. IT IS CLEAR FROM THE TRIPARTITE AGREEMENT EXECUTED BETWEEN ALL THESE PARTIES AND THE WRITTEN SUBMISSION PLACED BY THE ASSESSEE BEFORE TH E LOWER AUTHORITIES THAT ASSESSEE-COMPANY IS DOING BUSINESS OF ADVERTISING A ND MARKETING CONSULTANCY FOR GBC AND ITS WHOLESALERS, AGAINST WH ICH ASSESSEE WAS GETTING PROFESSIONAL FEE. THE TRIPARTITE AGREEMENT WAS IN F ORCE SINCE 1 ST MARCH, 1984.IN TERMS OF THE TRIPARTITE AGREEMENT GBC AND W HOLESALERS USED TO PAY SERVICE CHARGES FOR THE EXPENSES INCURRED BY THE AS SESSEE FOR ADVERTISING AND MARKETING CARRIED OUT BY THE ASSESSEE IN ACCORDANCE WITH THE SAID AGREEMENT ITA NO.1870-71/AHD/00, 3584/AHD/02 & CO 264/AHD/09 A.YS.93-94 T O 94-95 & 95-96 ITO WD-7(1),ABD V. AA&MC LTD. PAGE 12 AND ALSO SUPPLEMENTARY AGREEMENT DATED 1-4-89.THIS AGREEMENT HAS BEEN CONSIDERED BY THE DEPARTMENT AND THE ASSESSMENT ORD ERS HAS BEEN FRAMED U/S. 143(3) IN MOST OF THE EARLIER YEARS. THE RATE/ PERCENTAGE OF THE PARTIES WERE UNIFORM FOR GBC AND FOR ALL THE 50 WHOLESALERS . THE TRIPARTITE AGREEMENT CLEARLY SPELLS OUT THE ARRANGEMENT OF ADVERTISING, PUBLICITY AND MARKETING FOR SOFT DRINKS MANUFACTURED BY GBC/BOTTLER. HOWEVER, T HE A.O. HAS DISALLOWED ADVERTISING EXPENSES BONAFIDELY AND LEGITIMATELY IN CURRED UNDER A VALID AGREEMENT WHICH WAS IN EXISTENCE THROUGH OUT IMPLEM ENTED CONSISTENTLY SINCE 1984.FROM THE RECORD WE ALSO FIND THAT THE BOTTLER IS A FRANCHISEE OF PARLE EXPORTS LTD., AND MANUFACTURES SOFT DRINKS IN THE S TATE OF GUJARAT UNDER A FRANCHISE AGREEMENT. THAT ACCORDING TO THE STRICT N ORMS OF TRADE, THUMS UP, GOLD SPOT, LIMCA ETC., IS TO BE MANUFACTURED UNDER THE VIGILANT, TECHNICAL AND QUALITATIVE SUPERVISION AND CONTROL OF THE PRINCIPA L. THE DRINKS MANUFACTURED AND MARKETED ARE SUPPOSED TO BE IDENTICAL IN TASTE, FLAVOUR AND COLOUR THROUGHOUT THE YEAR AND ALL OVER THE COUNTRY. THE N ATURE OF ADVERTISEMENT AND MARKETING STRATEGY HAS TO BE UNIFORM AND CONSISTENT CONFIRMING CERTAIN SOUND POLICIES LAID DOWN BY THE PRINCIPAL. THE BOTTLER IS SUPPORTED TO ADHERE AND IMPLEMENT NORMS LAID DOWN BY THE PRINCIPALS. CONSID ERABLE ADVERSE MARKET FORCES AND COMPETITORS STRATEGY HAS TO BE EXAMINED AND PROFESSIONAL TOUCH OF PERFORMANCE IN TERMS OF SALE HAS TO BE ACHIEVED. THE NEED AND NECESSITY OF THE ASSESSEE-COMPANY EMANATES FROM THIS DEED OF PRE SERVATION OF IMAGE AND MAINTENANCE OF MARKET SHARE. NATIONAL ADVERTISING I S CARRIED ON BY AN ANOTHER EXPERT IN THE FIELD KNOWN AS SOFT DRINKS ADVERTIS ING AND MARKETING SERVICES LTD., REFERRED TO AS SAAMS . THESE ADVERTISING AR E THROUGH NATIONAL NETWORK AND MEDIAS LIKE TV, RADIO, TRADE EXHIBITIONS, NEWSP APER, CAMPAIGNS ETC. SIMILARLY, TERRITORIAL ADVERTISEMENTS, MARKETING AN D PUBLICITY IS CARRIED OUT IN AN UNIFORM MANNER BY THE ASSESSEE. THE BENEFIT OF BOTH NATIONAL AND TERRITORIAL ADVERTISEMENTS ACCRUE IN THE FORM OF CONSISTENT INC REASE IN TURNOVER, BRAND, IMAGE, PRODUCT IMAGE AND PROFITABILITY IN THE HANDS OF ALL THE WHOLESALERS WHO MARKET THE PRODUCTS AND ALSO THE BOTTLER WHO MANUFA CTURES THESE DRINKS. THE ITA NO.1870-71/AHD/00, 3584/AHD/02 & CO 264/AHD/09 A.YS.93-94 T O 94-95 & 95-96 ITO WD-7(1),ABD V. AA&MC LTD. PAGE 13 BENEFICIARIES OF THIS EXPENSES ARE CHARGED BY ASSES SEE IN A PREDETERMINED SCIENTIFIC MANNER. 8. THE BREAK UP OF THE ADVERTISEMENT EXPENSES INCUR RED AND CHARGED IN THE BOOKS OF GBC, THE BOTTLER, DURING THE RELEVANT ASST. YEAR 1993-94 ARE AS UNDER:- DETAILS OF BROAD OF EXPENSES CHARGED IN BOOKS OF GB C. (A) PRORATE CONTRIBUTION CHARGED BY YOUR APPELLANT TO THE BOTTLER, AS PER TERMS OF THE AGREEMENT. RS. 38,69,873 (B) EXPENDITURE ON DISCOUNT & SALES PROMOTIONAL ACTIVITIES INCLUDING WHOLESALERS CONVENTIONS RS. 16,84,465 & CONFERENCES & NEWSPAPER ADVT. OF SPECIAL NATURE. ------------ -------- TOTAL OF ADVT. EXPENSES IN THE RS. 55, 54,338 BOOKS OF THE BOTTLERS(GBC) = ============ 9. THE TOTAL OF THE ADVERTISEMENT EXPENDITURE INCUR RED IN GUJARAT TERRITORY IS MORE THAN RS.2 CRORES. OF WHICH, AROUND RS. 38 L AC AS REFERRED TO IN PARA (A) ABOVE ARE ALLOCATED AND CHARGED TO THE ASSESSEE BY WAY OF ITS SHARE AS PER TRIPARTITE AGREEMENT. THE REST OF THE EXPENDITU RE IS BORNE BY THE WHOLESALERS WHO ARE ALSO BENEFICIARIES OF THE COST OF ADVERTISING. HOWEVER, THE A.O. DID NOT ACCEPT THE FACTUAL POSITION WITH R EGARD TO EXPENDITURE OF RS.19,12,332/- INCURRED ON SPECIAL EVENTS AND RS. 4 8,24,550/- BEING COST OF NATIONAL ADVERTISEMENT. THE A.O. HELD THAT ASSESSEE HAD CARRIED OUT ACTIVITIES OF ADVERTISING AND MARKETING ONLY FOR WHOLESALERS, BY DISREGARDING THE TRIPARTITE AGREEMENT AND SUPPLEMENTARY AGREEMENT WHICH WERE AL READY BEFORE HIM. THE A.O. HAS ALSO WRONGLY OBSERVED THAT SAAMS WAS A UTHORIZED TO COLLECT RS. 48,24,550/- AS ANNUAL ADVERTISEMENT COLLECTION FROM THE GUJARAT BOTTLING GBC AND HAS RAISED INVOICE IN THE NAME OF GBC, BUT THE PAYMENT WAS SUBSEQUENTLY ROTATED FROM THE ASSESSEE-COMPANY. WE FIND THAT THE CONCLUSION ITA NO.1870-71/AHD/00, 3584/AHD/02 & CO 264/AHD/09 A.YS.93-94 T O 94-95 & 95-96 ITO WD-7(1),ABD V. AA&MC LTD. PAGE 14 ARRIVED BY THE A.O. WAS NOT FACTUALLY CORRECT IN SO FAR AS NATIONAL ADVERTISEMENT WAS ANNOUNCED AS PER THE TRIPARTITE AGREEMENT AND SAAMS WAS TO CHARGE ONLY FROM THE ASSESSEE. IN TERMS OF T HE AGREEMENT THE ASSESSEE WAS TO CHARGE THE TOTAL ADVERTISEMENT EXPE NSES BEING NATIONAL AND TERRITORIAL BOTH FROM BOTTLERS AS WELL AS WHOLESALE RS, AS PER THE TERMS AND PREDETERMINED RATE CONTAINED IN THE SAID AGREEMENT. A LETTER OF GBC DATED 9- 3-92 ADDRESSED TO SAAMS ALSO MADE IT CLEAR THAT ASS ESSEE WAS TO BE BILLED FOR THE CENTRAL ADVERTISEMENT. THE BILLS OF SAAMS H AVE BEEN RECEIVED WITHOUT EXCEPTIONS IN THE NAME OF ASSESSEE-COMPANY AND NOT GBC. THEREFORE, THERE IS NO MERIT IN THE OBSERVATION OF THE A.O. TO THAT EFFECT THAT BILLS WERE IN THE NAME OF GBC AND SIMPLY PAYMENTS WERE MADE BY WAY OF REIMBURSEMENT BY THE ASSESSEE COMPANY. FURTHER MORE, THE OBSERVATION OF THE A.O. TO THE EFFECT THAT AMOUNT OF RS.48 LAC CHARGED BY SAAMS ARE THE EXPENSES ONLY OF BOTTLER IS TOTALLY INCORRECT IN THE LIGHT OF DOCUMENTARY EV IDENCE PLACED ON RECORD NOT ONLY FOR THE CURRENT YEAR BUT ALSO CONSISTENTLY FOR THE PRECEDING YEARS,. SIMILARLY, A.O. WAS NOT JUSTIFIED IN HOLDING THAT E XPENDITURE OF RS.19,12,332 BEING AN EXPENDITURE ON SPECIAL EVENTS HAVE BEEN AC TUALLY INCURRED BY GBC AND SIMPLY REIMBURSED BY THE ASSESSEE COMPANY. WE F IND THAT THE AGREEMENT ENTERED BY THE ASSESSEE WITH GBC AND WHOLESALERS CL EARLY ENJOYS SPECIFIC DUTY ON THE ASSESSEE-COMPANY TO CARRY OUT THE EXPEN DITURE FOR THE PURPOSES MENTIONED IN PARAGRAPH (2)(B) (IV) OF THE AGREEMENT WHICH READS AS UNDER:- FOR PLANNING AND EXECUTION OF VARIOUS SPECIAL EVEN TS SUCH AS SPORTS EVENTS, SOCIAL EVENTS, SPONSORSHIP EVENT, MUSICAL P ROGRAMMES ETC. THESE ARE THE FUNCTIONS TO BE LOOKED AFTER BY YOUR ASSESSEE ONLY AND NONE ELSE MUCH LESS BY GBC. 10. THE A.O. WAS ALSO WRONG IN OBSERVING THAT SPECI AL EVENTS HAVE BEEN NEGOTIATED BY THE BOTTLER (GBC) AND THE BILLS WERE ALSO RECEIVED IN THE NAME OF GBC AND ONLY THE PAYMENTS WERE MADE BY THE ASSESSEE -COMPANY. FROM THE RECORD WE FIND THAT IT WAS THE OBLIGATION OF THE AS SESSEE-COMPANY TO LOOK AFTER ITA NO.1870-71/AHD/00, 3584/AHD/02 & CO 264/AHD/09 A.YS.93-94 T O 94-95 & 95-96 ITO WD-7(1),ABD V. AA&MC LTD. PAGE 15 ALL THE ACTIVITIES OF THE ADVERTISING. WE ALSO FOUN D THAT SUCH ACTIVITIES ARE BEING UNDERTAKEN AS PER THE DETAILS ACCOUNT SHEET KNOWN AS SPECIAL EVENTS MEMO WHICH IS BEING MAINTAINED CONTAINING FULL DET AILS OF THE - (I) TITLE OF THE EVENT (II) THE PLACE WHERE THE EVENT IS PERFORMED (III) PERSONS TO BE CONTACTED (IV) DATE OF THE EVENT (V) TYPE OF THE EVENT (VI) AMOUNT TO BE PAID FOR SUCH SPONSORSHIP, OR (VII) THE COST ON ACCOUNT OF BANNERS, BOARDS, STIC KERS, DRUMS ETC. 11. IT IS CLEAR AS PER THE EVENT MEMO THAT ACTUALLY JOB OF THE SUPPLY OF ADVERTISING MATERIALS, PUBLICITY MATERIALS ETC. WAS BEING EFFECTED BY THE ASSESSEE-COMPANY. THESE MATERIALS WERE PURCHASED BY THE ASSESSEE- COMPANY WAS FIRST BROUGHT IN ITS STOCK AND THEN SUP PLY TO THE PERSONS SPONSORING EVENT AND THE GBC DID NOT CARRY OUT ANY OF THE FUNCTIONS NARRATED UNDER ITEMS (I) TO (VII) ABOVE. FROM THE RECORD WE ALSO FOUND THAT IN MOST OF THE CASES THE CORRESPONDENCE HAVE BEEN CARRIED OUT THROUGH LETTERS ADDRESSED TO THE ASSESSEE OR ITS CHIEF EXECUTIVE MR . SANYAL. AS THE GENERAL PUBLIC WAS KNOWING GBC AS IT MAY BE OWNER, THEREFOR E, SOME OF THE PROPOSALS HAD COME IN THE NAME OF GBC, WHICH WERE DIVERTED BY GBC FOR DECISION AND ACTION OF THE ASSESSEE-COMPANY. BY WRONGLY PRESUMI NG THAT EXPENDITURE WERE INCURRED BY GBC, THE A.O DISALLOWED THE EXPEND ITURE OF RS. 48 LACS AND RS.19 LAC WHICH WERE ACTUALLY INCURRED BY ASSESSEE- COMPANY. THIS PRACTICE OF INCURRING EXPENDITURE ON ALL THESE FACTS WERE CONSI STENTLY FOLLOWED IN EARLIER YEARS AS PER THE PAST ESTABLISHED PRECEDENTS AND TH E CONSISTENT PRACTICE FOLLOWED BY THE ASSESSEE-COMPANY AND THE SAME WERE ALSO ALLOWED IN ALL THESE YEARS BY THE DEPARTMENT. THUS, THE DISALLOWAN CE WAS BAD IN LAW AND THE CIT (A) WAS PERFECTLY JUSTIFIED IN DELETING THE DISALLOWANCE AFTER ITA NO.1870-71/AHD/00, 3584/AHD/02 & CO 264/AHD/09 A.YS.93-94 T O 94-95 & 95-96 ITO WD-7(1),ABD V. AA&MC LTD. PAGE 16 CONSIDERING THE REMAND REPORT SENT BY THE A.O. ON T WO OCCASIONS WHICH HAVE BEEN REPRODUCED BY CIT (A) IN HIS IMPUGNED ORDER. 12. THE AO WAS ALSO NOT CORRECT IN APPLYING THE PRO VISIONS OF SECTION 40A (2) IN SO FAR AS THE EXPENDITURE WAS INCURRED AND P AYMENT WAS MADE DIRECTLY BY ASSESSEE-COMPANY TO THE SAAM FOR RS.48 LACS AND TO SPONSORS OF EVENTS DIRECTLY. NO PAYMENT HAS BEEN MADE BY WAY O F EXPENSES TO GBC. OUR CONCLUSION IS FORTIFIED BY THE FACT THAT PAYMENTS W ERE MADE BY THE ASSESSEE- COMPANY AS PER THE PRE-EXISTING AGREEMENT WHICH WER E HELD TO BE BONAFIDE AND GENUINE IN ALL THE PAST YEARS. THUS, WE FIND TH AT EXPENDITURE WERE INCURRED BY THE ASSESSEE-COMPANY FOR CARRYING OUT ITS BUSINE SS OF ADVERTISEMENT. THERE IS NO DISPUTE TO THE WELL SETTLED LEGAL PROPO SITION THAT WHILE CONSIDERING THE ALLOWABILITY OF EXPENDITURE ONE HAVE TO SEE WHE THER THAT EXPENDITURE IS INCURRED IN COURSE OF CARRYING ON OF BUSINESS, SECO ND WHETHER EXPENDITURE IS BONAFIDELY INCURRED, THIRD WHETHER EXPENDITURE IS I NCURRED BY ASSESSEE IN HIS CHARACTER AS A TRADER AND FOR THE PURPOSE OF ITS BU SINESS. WHEN THE GENUINENESS OF THE EXPENDITURE IS NOT IN DISPUTE AN D THE SAME IS FOUND TO HAVE BEEN INCURRED IN COURSE OF CARRYING ON OF BUSI NESS BY AN ASSESSEE IN ITS CAPACITY AS A TRADER, NO DISALLOWANCE CAN BE MADE U NLESS SUCH EXPENDITURE IS EITHER OF CAPITAL OR OF PERSONAL NATURE AND NOTWITH STANDING THE FACT THAT BENEFIT OF SUCH EXPENDITURE MAY ALSO ACCRUE TO THE THIRD PA RTY. THE FACT THAT ALL THESE EXPENDITURE WERE CONSISTENTLY ALLOWED BY THE DEPART MENT IN EARLIER YEAR, THE SAME CANNOT BE DISTURBED UNLESS THERE IS CHANGE IN FACTS AND CIRCUMSTANCES AS PER THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF RADHASOAMI SATSANG VS. CIT (193 ITR 321). THE HONBLE SUPREME COURT HAVE OBSERVED THAT STRICTLY SPEAKING, RES JUDICATA DOES NOT APPLY TO INCOME TAX PROCEEDINGS. THOUGH EACH ASSESSMENT YEAR BEING A UNIT, WHAT WAS DECIDED IN ONE YEAR MIGHT NOT APPLY IN THE FOLLOWING YEAR; WHERE A FUND AMENTAL ASPECT PERMEATING THROUGH THE DIFFERENT ASSESSMENT YEARS HAS BEEN FOU ND AS A FACT ONE WAY OR THE OTHER AND PARTIES HAVE ALLOWED THAT POSITION TO BE SUSTAINED BY NOT ITA NO.1870-71/AHD/00, 3584/AHD/02 & CO 264/AHD/09 A.YS.93-94 T O 94-95 & 95-96 ITO WD-7(1),ABD V. AA&MC LTD. PAGE 17 CHANGING THE ORDER, IT WOULD NOT BE AT ALL APPROPRI ATE TO ALLOW THE POSITION TO BE CHANGED IN A SUBSEQUENT YEAR. 13. IN VIEW OF THE ABOVE DISCUSSION AND AFTER CONSI DERING THE FINDINGS RECORDED BY THE CIT (A) WHICH HAS NOT BEEN CONTROVE RTED BY THE DEPARTMENT AND AFTER CONSIDERING THE REMAND REPORT SENT BY TH E AO, WE CAN SAFELY CONCLUDE THAT EXPENDITURE WERE INCURRED BY THE ASSE SSEE-COMPANY IN ITS CHARACTER AS A TRADER.. THERE IS ALSO NO DISPUTE TO THE WELL SETTLED PROPOSITION THAT IN APPLYING THE TASTE OF COMMERCIAL EXPEDIENCY , THE REASONABLENESS OF THE EXPENDITURE HAS TO BE JUDGED FROM THE VIEW POIN T OF BUSINESSMAN AND NOT OF THE DEPARTMENT. IN THE INSTANT CASE, BEFORE US W E FIND THAT PAYMENTS ON ACCOUNT OF ADVERTISEMENTS AND SPECIAL EVENTS HAVE B EEN INCURRED UNDER AN AGREEMENT AND THE SAME WAS PAID BY ACCOUNT PAYEE CH EQUES AND ALSO DULY CONFIRMED BY THE PARTY RECEIVING THE PAYMENT. SERVI CES RENDERED BY THE ASSESSEE ARE ALSO BROUGHT ON RECORD. IT IS NOT THE CASE OF THE DEPARTMENT THAT THE EXPENDITURE SO DISALLOWED WERE NOT CHARGED AS P ER THE AGREEMENT AS IN PAST. THE BENEFICIARIES OF THE EXPENDITURE INCURRED ARE BOTH GBC/BOTTLER AND THE WHOLESALERS TO WHOM THE BILLS HAVE BEEN CHARGED FOR ADVERTISING, PUBLICITY AND MARKETING EXPENSES INCURRED BY THE ASSESSEE-CO MPANY, BOTH NATIONAL, TERRITORIAL ADVERTISEMENT AND THE TOTAL OF SUCH EXP ENSES HAVE BEEN CHARGED TO ALL THE WHOLESALERS AND THE BOTTLERS AS PER THE TER MS OF THE TRIPARTITE AGREEMENT WHICH WAS ALREADY ON RECORD BEFORE THE A.O. WHICH C LEARLY COVERS THE JOBS TO BE PERFORMED BY THE ASSESSEE-COMPANY. THIS AGREEMEN T ALSO INCORPORATES THE TERMS THAT ASSESSEE WILL ALSO UNDERTAKE JOB OF CENTRAL ADVERTISING AND ON SPECIAL EVENTS. WE ALSO FIND THAT EVEN IN THE PAST GBC/BOTTLER HAS NEVER INCURRED SUCH EXPENSES. THE BILLS, INVOICES ETC., P REPARED BY THE SAAMS ARE STRICTLY IN THE NAME OF ASSESSEE AND NOT IN THE NAM E OF A GBC/BOTTLER AS ALLEGED BY THE A.O. PRACTICALLY IN ALL THE CASES EX CEPT A FEW BILLS FOR SPECIAL EVENTS WERE IN THE NAME OF THE ASSESSEE OR IN THE N AME OF ITS CHIEF EXECUTIVE SHRI SANYAL. EVEN WHERE BILLS HAVE BEEN ADDRESSED TO GBC, THE FUNCTIONS EVENTUALLY FOR ALL THE EVENTS WERE OF SERVICES REND ERED ONLY BY THE ASSESSEE- ITA NO.1870-71/AHD/00, 3584/AHD/02 & CO 264/AHD/09 A.YS.93-94 T O 94-95 & 95-96 ITO WD-7(1),ABD V. AA&MC LTD. PAGE 18 COMPANY. AS PER THE FINDINGS RECORDED BY THE CIT ( A) THE EXPENDITURE WERE INCURRED BY THE ASSESSEE-COMPANY FOR THE PURPOSE OF BUSINESS OF RENDERING PROFESSIONAL SERVICE FOR CARRYING OUT ADVERTISEMENT , PUBLICITY AND MARKETING ACTIVITIES AND FOR THIS BENEFIT WAS DERIVED BY THE PERSONS TO WHOM THE BILLS WERE CHARGED. THE FINDINGS OF CIT (A) ARE AS PER TH E MATERIAL ON RECORD WHICH DOES NOT REQUIRE ANY INTERFERENCE. ACCORDINGLY WE D O NOT FIND ANY INFIRMITY IN THE ORDER OF THE CIT (A) FOR DELETING DISALLOWANCE OF EXPENDITURE INCURRED ON ADVERTISEMENT. THE FACTS AND CIRCUMSTANCES DURING A LL THE ASSESSMENT YEARS 1993-94, 1994-95 AND 1995-96 ARE IN PARA-MATERIA, T HEREFORE, WE FOLLOW THE REASONING GIVEN BY US WHILE DECIDING THIS ISSUE IN THE ASSESSMENT YEAR 1993- 94 AND DELETE THE DISALLOWANCE MADE BY THE CIT (A) IN ALL THE THREE YEARS UNDER CONSIDERATION. 14. IN THE RESULT, APPEALS OF THE REVENUE FOR ALL T HE THREE YEARS ARE DISMISSED. 15. THE ASSESSEE HAS ALSO FILED CROSS OBJECTION IN THE ASSESSMENT YEAR 1995-96. FOLLOWING GROUNDS HAVE BEEN TAKEN BY THE A SSESSEE IN HIS C.O. 1. THE LD. DCIT HAVE ERRED IN LAW AND ON FACTS IN MAKING THE DISALLOWANCE OF RS.22,37,432 IN RESPECT OF GRATUITY , EX-GRATIA AND LEAVE ENCASHMENT AND THE HONBLE COMMISSIONER OF INCOME T AX (APPEALS) HAVE ERRED IN LAW AND ON FACTS IN CONFIRMING THE SA ID ADDITION OF RS.22,37,432. 2. THE LD. DICT HAVE ERRED IN LAW AND ON FACTS IN D ISALLOWING THE BUSINESS EXPENDITURE OF RS. 10,09,601 IN RESPECT OF WRITE OFF OF CLOSING STOCK OF PUBLICITY MATERIAL AND THE HONBLE CIT (A) HAVE ERRED IN LAW AND ON FACTS IN CONFIRMING THE SAID ADDITION OF RS. 10, 09,601. 16. THERE WAS DELAY IN FILING OF CROSS OBJECTION. A FTER HEARING BOTH THE PARTIES, WE FIND THAT THERE WAS REASONABLE CAUSE FO R THE DELAY. IN THE INTEREST OF JUSTICE WE CONDONE THE DELAY IN FILING C.O. AND DECIDE THE GROUNDS TAKEN BY THE ASSESSEE, ON MERITS, AS UNDER. ITA NO.1870-71/AHD/00, 3584/AHD/02 & CO 264/AHD/09 A.YS.93-94 T O 94-95 & 95-96 ITO WD-7(1),ABD V. AA&MC LTD. PAGE 19 17. FIRST GRIEVANCE OF THE ASSESSEE RELATES TO THE DISALLOWANCE OF RS.22.37 LACS, GRATUITY, EX-GRATIA AND LEAVE ENCASHMENT. THE SECOND GROUND RELATES TO DISALLOWING THE BUSINESS EXPENDITURE OF RS.10.09 LA CS WHICH WERE IN RESPECT OF WRITE OFF OF CLOSING STOCK OF PUBLICITY MATERIAL . 18. RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORDS P ERUSED. THE LOWER AUTHORITIES HAVE DISALLOWED THESE EXPENDITURE ON TH E PLEA THAT DURING THE YEAR UNDER CONSIDERATION THE COMMERCIAL OPERATION OF THE COMPANY HAVING RE- COMMENCED EVEN AFTER REMOVAL OF THE COURT INJUNCTIO N AND THAT THESE LIABILITIES REMAINED UNPAID AT THE END OF THE YEAR. 19. IT WAS ARGUED BY LD. A.R. THAT LOWER AUTHORITIE S WERE NOT JUSTIFIED IN DISALLOWING THE VALID CLAIM OF THE EXPENDITURE ON A CCOUNT OF GRATUITY, EX-GRATIA PAYMENT AND LEAVE SALARY WHEN THE BUSINESS OF THE A SSESSEE WAS NOT CLOSED. 20. WE HAVE CONSIDERED RIVAL CONTENTIONS WHILE DISA LLOWING EXPENDITURE ON ACCOUNT OF GRATUITY, EX-GRATIA PAYMENT AND LEAVE SA LARY, THE A.O. HAS MADE THE FOLLOWING OBSERVATION:- DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAD MADE A PAYMENT OF GRATUITY AT RS.6,83,638/- AND EX-GRATIA PAYMENTS TO THE TUNE OF RS.6,22,201/- AND LEAVE SALARY AMOUNTING TO RS.9 ,31,593/- TO DIFFERENT PERSONS DUE TO THEIR RETRENCHMENT ON ACCO UNT OF SUSPENSION OF BUSINESS. THE ASSESSEE-COMPANY WAS ENGAGED IN THE B USINESS OF ADVERTISING CONSULTANTS FOR M/S. GUJARAT BOTTLING C O. LTD. AND ITS WHOLESALERS IN GUJARAT. HOWEVER, DURING THE CURRENT YEAR, M/S. GUJARAT BOTTLING CO. LTD., WAS TAKEN OVER BY PEPSI AND S INJUNCTION, THE COMMERCIAL OPERATION OF THE COMPANY WAS TEMPORARILY SUSPENDED WITH EFFECT FROM JANUARY 1995. AS A RESULT, THE BUSINESS ACTIVITY OF THE ASSESSEE COMPANY ALSO CAME TO A HALT AFTER THAT. IN FACT THE BUSINESS ACTIVITIES HAS NOT RE-COMMENCED EVEN AFTER THE REMO VAL OF THE COURT INJUNCTION. AS A RESULT OF THIS SUSPENSION/CLOSURE OF BUSINESS ACTIVITIES, A LARGE NUMBER OF EMPLOYEES HAD TO BE RETRENCHED AND THEREFORE, THE ABOVE PAYMENT WAS TO BE MADE TO THEM. ITA NO.1870-71/AHD/00, 3584/AHD/02 & CO 264/AHD/09 A.YS.93-94 T O 94-95 & 95-96 ITO WD-7(1),ABD V. AA&MC LTD. PAGE 20 21. BY THE IMPUGNED ORDER, THE CIT (A) CONFIRMED TH E ACTION OF THE A.O. AND ASSESSEE IS IN FURTHER APPEAL BEFORE US. 22. IT WAS VEHEMENTLY ARGUED BY THE LD A.R. THAT BU SINESS OF THE ASSESSEE HAS NOT BEEN CLOSED AND FOR THIS PURPOSE HE INVITED OUR ATTENTION TO THE AUDITORS REPORT FOR THE SUBSEQUENT YEAR, WHEREIN T HE AUDITOR HAS OBSERVED THAT THE ACCOUNTS HAVE BEEN PREPARED ON THE BASIS O F GOING CONCERN BASED ON MANAGEMENT EXPECTATION OF OPERATIONS. OUR ATTENTION WAS ALSO DRAWN TO THE NOTES APPENDED BELOW THE STATEMENT OF TOTAL INCOME WHEREIN IT WAS STATED THAT THE COMPANY HAS MAINTAINED THESE INFRASTRUCTUR E WITH A HOPE IT WOULD REVIVE ITS ACTIVITY. OUR ATTENTION WAS ALSO DRAWN TO THE OPERATING INCOME AND EXPENDITURE ACCOUNTED FOR IN NEXT YEAR INDICATING T HAT BUSINESS WAS GOING ON AND IT WAS NOT CLOSED. 23. ON THE OTHER HAND THE LD. D.R. RELIED ON THE OR DER OF THE LOWER AUTHORITIES. 24. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS, PERUS ED THE MATERIAL ON RECORD AND HAVE GONE THROUGH THE ORDERS OF THE AUTH ORITIES BELOW. THERE IS NO DISPUTE OF WELL SETTLED LEGAL PROPOSITION THAT THE RETRENCHMENT COMPENSATION PAID ON ACCOUNT OF CLOSURE OF BUSINESS CANNOT BE CO NSIDERED TO BE EXPENDITURE INCURRED FOR THE PURPOSE OF BUSINESS. L IABILITY ARISES ON ACCOUNT OF RETRENCHMENT WHEN THE BUSINESS IS CLOSED DOWN. THE SAME CANNOT BE ALLOWED AS DEDUCTION U/S. 37(1). HOWEVER, FACTS IN THE INST ANT CASE CONFLICT IN SO FAR AS AUDITED STATEMENT OF ACCOUNT AND AUDITORS REPORT F OR THE SUBSEQUENT YEAR PLACED BEFORE US INDICATE THAT COMPANY WAS STILL HA VING OPERATING INCOME AND EXPENDITURE. HOWEVER, THE OBSERVATION MADE BY THE L OWER AUTHORITIES ARE TO THE CONTRARY. IN THE INTEREST OF JUSTICE AND FAIRP LAY THE MATTER IS RESTORED BACK TO THE FILE OF THE A.O. FOR DECIDING AFRESH IN THE LIGHT OF BUSINESS ACTUALLY BEING ITA NO.1870-71/AHD/00, 3584/AHD/02 & CO 264/AHD/09 A.YS.93-94 T O 94-95 & 95-96 ITO WD-7(1),ABD V. AA&MC LTD. PAGE 21 CARRIED ON BY THE ASSESSEE IN THE SUBSEQUENT YEAR A FTER VERIFYING THE AUDITED STATEMENT OF ACCOUNTS OF THE ASSESSEE. WE DIRECT A CCORDINGLY. 25. THE NEXT GRIEVANCE OF THE ASSESSEE RELATES TO D ISALLOWING THE BUSINESS EXPENDITURE OF RS.10,09,601/- IN RESPECT OF WRITE O FF OF CLOSING STOCK OF PUBLICITY MATERIAL. DURING THE YEAR, THE ASSESSEE H AS WRITE OFF PUBLICITY MATERIAL OF RS.10.09 LACS. THE A.O. HELD THE SAME AS NOT ALL OWABLE BUSINESS EXPENDITURE. BY THE IMPUGNED ORDER, THE CIT (A) CON FIRMED THE DISALLOWANCE. 26. THE LD. A.R. PLACED ON RECORD ORDER OF THE TRIB UNAL IN THE CASE OF GUJARAT BOTTLING CO. LTD., IN ITA NO. 3655/AHD./200 2, ORDER DATED 13-4-2009, WHEREIN WRITE OFF OF STOCK IN TRADE AND PUBLICITY MATERIAL ON ACCOUNT OF DETERIORATION WAS HELD TO BE JUSTIFIED . FOLLOWING WAS THE OBSERVATION AND FINDING OF THE TRIBUNAL: 10. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUG H THE FACTS OF THE CASE. THE FACTS ON RECORD REVEAL THAT THE COMPANY WAS AN AUTHORIZED BOTTLER FOR PARLE BRAND OF PRODUCTS FOR THE PAST 25 YEARS. ON 12 TH NOVEMBER,1993, PARLE GROUP BY A DEED OF ASSIGNMEN T, TRANSFERRED ALL THEIR TRADE MARKS IN THE SAID PRODUCTS TO COCA-COL A GROUP. ON 6-1- 1994, THE NAME OF COCA-COLA WAS REGISTERED AS OWNER SAID TRADE MARK BEVERAGES. BY VIRTUE OF AN AGREEMENT EXECUTED ON 30 -4-1994, THE COMPANY BECAME FRANCHISEE OF COCA-COLA PRODUCTS. LA TER ON 20-1- 1995, THE SHAREHOLDING OF THE COMPANY WAS ACQUIRED BY PEPSI GROUP. ON 30-1-1995, COCA-COLA FILED A SUIT IN HONBLE BOM BAY HIGH COURT SEEKING AN INJUNCTION, RESTRAINING THE ASSESSEE FRO M MANUFACTURING, BOTTLING, SELLING OR DEALING IN THE BEVERAGES OF AN Y MARK OR TRADE MARK OWNER BY THE ASSESSEE. THE INJUNCTION GRANTED BY HO NBLE BOMBAY HIGH COURT WAS LATER CONFIRMED BY HONBLE SUPREME COURT, VIDE THEIR ORDER DATED 4-8-1995, RESTRAINING USE OF THE ASSESS EES PLANT FOR MANUFACTURING, BOTTLING, SELLING OR DEALING IN ANY MANNER WITH BEVERAGES OF ANY PERSON. THIS INJUNCTION IS STATED TO HAVE CO NTINUED UNTIL 21-1- 1996. AS A RESULT OF INJUNCTIONS, FOLLOWING STOCK B ECAME STALE AND OBSOLETE PARE - RS. 15,81,606/- FINISHED PRODUCTS - RS. 16,27,377/- PUBLICITY MATERIAL - RS. 6,65,883/- CROWN COCKS - RS. 26,50,079/- ITA NO.1870-71/AHD/00, 3584/AHD/02 & CO 264/AHD/09 A.YS.93-94 T O 94-95 & 95-96 ITO WD-7(1),ABD V. AA&MC LTD. PAGE 22 THEREFORE THE MANAGEMENT WITH THE PERMISSION OF EXC ISE AUTHORITIES DESTROYED THE AFORESAID STOCK OF THE VALUE OF RS.65 ,14,945/-. WE FIND THAT THERE IS NO DISPUTE EITHER OF QUANTUM, OF WRIT E OFF OR NEED OF WRITE OFF AND PERISHABLE NATURE OF STOCK, THE COMPANY HAVING BEEN TAKEN OVER BY PEPSI GROUP AND DUE TO CONSEQUENT INJUNCTIONS BY THE COURT. ONLY DISPUTE IS THAT AS TO WHETHER OR NOT THE CLAIM FOR WRITE OFF OF OBSOLETE AND STALE STOCK WAS ADMISSIBLE, ESPECIALLY WHEN THE BUS INESS OF THE ASSESSEE IN BOTTLING AND DEALING IN PARLE PRODUCT S HAD BEEN TAKEN OVER BY THE PEPSI GROUP DURING THE YEAR AND SUBSEQUENT INJUNCTIONS GRANTED BY THE COURTS, RESTRAINED THE ASSESSEE FROM CARRYIN G ON OF THE BUSINESS. IN FACT, SAID BUSINESS WAS CARRIED ON BY THE ASSESS EE DURING THE YEAR UNTIL THE END OF JANUARY, 1995 AND THEREAFTER, IT W AS SUSPENDED DUE TO INJUNCTIONS GRANTED BY THE COURTS, AS IS EVIDENT FR OM DIRECTORS REPORT ON THE ACCOUNTS (PAGE 457 OF THE PAPER BOOK). IT WAS O NLY ON 20-1-1995 THAT SHAREHOLDING IN THE COMPANY WAS TRANSFERRED TO PEPSI GROUP AND CONSEQUENTLY MATTER WENT TO COURTS. THERE IS NOTHIN G TO SUGGEST THAT BUSINESS CARRIED ON HITHERTO HAD CLOSED DOWN. RATHE R IT WAS IN SUSPENDED ANIMATION DUE TO INJUNCTIONS OF THE COURT S. AS POINTED OUT BY THE LD. AR, THE BUSINESS HAD TO BE SUSPENDED DUE TO INJUNCTIONS BY THE COURTS AND THE ASSESSEE NEVER INTENDED TO CLOSE DOW N THE BUSINESS. NO MATERIAL HAS BEEN PLACED BEFORE US BY THE REVENU E TO SHOW THAT THE ASSESSEE COMPANY INTENDED TO CLOSE DOWN THE BUSINES S OR THAT THE METHOD OF VALUING THE OBSOLETE STOCKS AND WRITING T HEM OFF IN ITS ACCOUNTS, FOLLOWED BY THE ASSESSEE WAS NOT BONA FID E. IN THESE CIRCUMSTANCES, THERE WAS NOTHING WRONG TO CLAIMING DEDUCTION FOR THE AMOUNT OF OBSOLETE STOCKS WRITTEN OFF. 10.1. LOOKING FROM ANOTHER ANGLE, THE ASSESSEE IS FOLLOWING METHOD OF VALUATION OF STOCK AT COST OR MARKET VALUE, WHICHEV ER IS LOWER. IF CERTAIN STOCKS HAD BECOME OBSOLETE, DUE TO TAKEOVER OF THE COMPANY BY PEPSI GROUP, APPARENTLY, MARKET VALUE OF SUCH STOCKS HAD BECOME ZERO IN THE OPINION OF THE MANAGEMENT AND THE AUDITORS. THEREFO RE, THE MANAGEMENT, IN CONSULTATION WITH THEIR AUDITORS AND WITH THE PERMISSION OF EXCISE AUTHORITIES, DESTROYED THE STOCK AND CLAI MED DEDUCTION FOR SUCH STOCKS. THERE IS NOTHING IN THE RELEVANT PROVI SIONS OF THE ACT THAT THE ASSESSEE CANNOT VALUE SUCH OBSOLETE STOCK AT MA RKET VALUE OR AT COST WHICHEVER IS LOWER. IN THIS CONNECTION, IN ALF ALAVAL INDIA LTD. VS. DCIT 266 ITR 418 (BOM.) LATER AFFIRMED BY HONBLE S UPREME COURT IN CIT VS. ALFALAVAL INDIA LTD., 295 ITR 451 (SC), HON BLE BOMBAY HIGH COURT HELD: IN THE PRESENT CASE, THERE IS NO DISPUTE THAT THE DULY CERTIFIED AUDITORS REPORT PLACED BEFORE THE ASSESSING OFFICE R CLEARLY JUSTIFIED VALUATION OF OBSOLETE ITEMS AT 1P PER CEN T OF COST. THERE IS NO DISPUTE THAT THE ASSESSEE IS ENTITLED TO VALU E THE CLOSING ITA NO.1870-71/AHD/00, 3584/AHD/02 & CO 264/AHD/09 A.YS.93-94 T O 94-95 & 95-96 ITO WD-7(1),ABD V. AA&MC LTD. PAGE 23 STOCK AT MARKET VALUE OR AT COST WHICHEVER IS LOWER . IT IS ALSO NOT IN DISPUTE THAT THE VALUE OF THE CLOSING STOCK HAS BEEN TAKEN AS THE VALUE OF THE OPENING STOCK IN THE SUBSEQUENT YE AR. MOREOVER, IT IS ALSO NOT DISPUTED THAT THE OBSOLETE ITEMS WER E IN FACT SOLD IN THE SUBSEQUENT YEAR AT A PRICE LESS THAN 10 PER CEN T OF THE COST. UNDER THE CIRCUMSTANCES, IT COULD NOT BE SAID THAT THE VALUATION OF THE OBSOLETE ITEMS DONE BY THE ASSESSEE AND CERTIFI ED BY THE AUDITORS WAS NOT PROPER OR ARBITRARY. THE ASSESSING OFFICER IN FACT HAS ARBITRARILY VALUED THE ITEMS IN QUESTION AT 60 PER CENT OF THE COST WITHOUT DISCLOSING THE BASIS OF SUCH VALUATION . THE ASSESSING OFFICER HAD NOT DOUBTED THE CORRECTNESS OF THE CERT IFICATE OF THE AUDITORS REGARDING THE VALUATION OF OBSOLETE ITEMS. THE SUMMARY OF THE OBSOLETE ITEMS WAS BEFORE THE A.O. THERE IS NOTHING ON RECORD TO SHOW THAT THE ASSESSEE WAS CALLED UPON TO FURNISH THE LIST OF OBSOLETE ITEMS OR THAT THE ASSESSEE WAS CAL LED UPON TO ESTABLISH THAT THE ITEMS WERE NOT MOVING FOR THREE YEARS,. UNDER THESE CIRCUMSTANCES, IT COULD NOT BE SAID THAT THE ASSESSEE HAS FAILED TO FURNISH LIST OF OBSOLETE ITEMS AND FAILED TO ESTABLISH THAT THE SAID ITEMS WERE NOT MOVING. IN THE ABSENCE OF A NY BASIS FOR VALUING THE OBSOLETE ITEMS AT 50 PER CENT OF THE CO ST, THE TRIBUNAL COULD NOT HAVE UPHELD THE FINDINGS OF THE AO ON THE GROUND THAT THE LIST OF OBSOLETE ITEMS WAS NOT PRODUCED BY THE ASSESSEE. ACCORDINGLY, WE ANSWER QUESTION NO.1 IN THE NEGATIV E, THAT IS, IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. 10.2. IN THE CASE UNDER CONSIDERATION ALSO CERTAIN STOCKS HAD BECOME OBSOLETE, DUE TO TAKEOVER BY THE COMPANY BY PEPSI G ROUP. IN THE OPINION OF THE MANAGEMENT AND THE AUDITORS, MARKET VALUE OF SUCH STOCKS HAD BECOME ZERO. THEREFORE, THE MANAGEMENT, IN CONSULTATION WITH THEIR AUDITORS AND WITH THE PERMISSION OF EXCI SE AUTHORITIES, DESTROYED THE STOCK AND CLAIMED DEDUCTION FOR SUCH STOCKS. IN THESE CIRCUMSTANCES, WE DO NOT FIND ANY MISTAKE IN THIS A PPROACH OF THE LD. CIT (A) IN DELETING THE DISALLOWANCE MADE BY THE AO . 10.3 AS REGARDS, RELIANCE ON THE DECISION ON THE DE CISION OF THE HONBLE SUPREME COURT IN THE CASE OF L.M. CHHABRA A ND SONS (SUPRA), IN THE SAID CASE, THE APPELLANTS WERE LESSEES OF A CINEMA THEATRE CALLED P AT AHMEDABAD AND CARRIED ON THE BUSINESS OF EXH IBITING CINEMATOGRAPH FILMS IN THAT THEATRE. AFTER THE EXPI RY OF THE LEASE, THE LANDLORD FILED AN ACTION IN THE CIVIL COURT FOR EJE CTMENT AGAINST THE APPELLANTS AND OBTAINED A DECREE FOR POSSESSION OF THE THEATRE AND AN ORDER FOR PAYMENT OF MESNE PROFITS. IN APPEAL THE C LAIM OF THE LAND LORD FOR MESNE PROFITS WAS SETTLED BY CONSENT AND THE AM OUNT WAS REDUCED TO RS.1,90,220.IN PROCEEDINGS FOR ASSESSMENT OF INC OME FOR THE ASSESSMENT YEAR 1955-56 THE APPELLANTS CLAIMED RS.9 2,240 OUT OF THE AMOUNT OF MESNE PROFITS AS A PERMISSIBLE ALLOWANCE IN THE COMPUTATION ITA NO.1870-71/AHD/00, 3584/AHD/02 & CO 264/AHD/09 A.YS.93-94 T O 94-95 & 95-96 ITO WD-7(1),ABD V. AA&MC LTD. PAGE 24 OF THEIR BUSINESS INCOME. THE ITO DISALLOWED THE CL AIM HOLDING THAT THE BUSINESS OF P WAS NOT CARRIED ON BY THE APPELLANTS DURING THE PREVIOUS YEAR RELEVANT TO THE YEAR OF ASSESSMENT 1955-56. TH E AAC CONFIRMED THE ORDER OF THE ITO. IN THE APPEAL TO THE ITAT IT WAS HELD THAT SINCE IT WAS NOT PROVED THAT THE APPELLANTS CARRIED ON AN I NTEGRATED CINEMATOGRAPH BUSINESS IN THE MANNER CLAIMED BY TH EM, THE OUTGOING IN RESPECT OF A CLOSED BUSINESS WAS NOT AN ADMISSIB LE ALLOWANCE. THE HONBLE APEX COURT HELD THAT ON THE FACTS FOUND BY THE TRIBUNAL IT IS DIFFICULT TO HOL THAT THE APPELLANTS HAVE MADE OUT THEIR CASE THAT THE VENTURE OF P WAS A PART OF A GENERAL BUSINESS OF EX HIBITING FILMS IN CINEMA THEATRES CARRIED ON BY THE APPELLANTS. 10.4. HOW THIS DECISION HELPS THE REVENUE, HAS NOT BEEN DEMONSTRATED BEFORE US IN THE CASE UNDER CONSIDERATION, THERE WA S NO INTENTION OF CLOSURE OF BUSINESS. RATHER SINCE THE SHAREHOLDING OF THE COMPANY WAS TAKEN OVER BY PEPSI GROUP, THE MATTER WAS TAKEN TO THE COURT. AS A RESULT OF INJUNCTIONS GRANTED BY THE COURTS PRODUCT S BEING DEALT WITH HITHERTO BECAME STALE AND THEIR REALIZABLE VALUE BE CAME NIL. ACCORDINGLY, THE MANAGEMENT IN CONSULTATION WITH TH EIR AUDITORS AND WITH THE PRIOR PERMISSION OF EXCISE AUTHORITIES DES TROYED THE SAID STOCK AND CLAIMED DEDUCTION. AS A MATTER OF FACT, THERE I S NOTHING TO SUGGEST THAT THE ASSESSEE COULD CARRY ON NEW BUSINESS OF BO TTLING IN PEPSI PRODUCTS DURING THE YEAR UNDER CONSIDERATION NOR EV EN COULD DO THE BUSINESS IN ANY PRODUCTS IN VIEW OF INJUNCTIONS GRA NTED BY THE COURTS. THE FACTS AND ISSUE IN THE CITED BEING ALTOGETHER D IFFERENT FROM THE FACTS IN THE CASE UNDER CONSIDERATION, RELIANCE ON THE SA ID DECISION IS MISPLACED. 10.5. IN VIEW OF THE FOREGOING ESPECIALLY WHEN THE AO ALLOWED ALL THE EXPENDITURE INCURRED BY THE COMPANY IN THE COURSE O F BUSINESS EVEN FOR THE PERIOD AFTER THE INJUNCTION ORDERS OF COURT WHI LE THE OBSOLETE STOCK HAVING BEEN DESTROYED WITH THE PERMISSION OF THE EX CISE AUTHORITIES, AND ITS WRITE OFF IN ACCOUNTS IS IN ACCORDANCE WITH THE METHOD OF ACCOUNTING REGULARLY FOLLOWED BY THE ASSESSEE COMPA NY, WE ARE NOT INCLINED TO INTERFERE WITH THE FINDINGS OF THE LD. CIT (A).THEREFORE, GROUND NO.3 IN THE APPEAL IS DISMISSED. 27. WE HAD CAREFULLY GONE THROUGH THE ORDER OF THE TRIBUNAL AND FIND THAT EXACTLY ON THE SIMILAR FACTS AND CIRCUMSTANCES WRIT E OFF OF OBSOLETE STOCK OF RS.65.14 LAC WAS HELD TO BE JUSTIFIED IN CASE OF SU BSIDIARY OF ASSESSEE- COMPANY. RESPECTFULLY FOLLOWING THE DECISION OF THE TRIBUNAL, WE DIRECT THE A.O. TO ALLOW THE WRITE OFF OF RS.10,09,.601/- IN R ESPECT OF CLOSING STOCK OF PUBLICITY MATERIAL. WE DIRECT ACCORDINGLY. ITA NO.1870-71/AHD/00, 3584/AHD/02 & CO 264/AHD/09 A.YS.93-94 T O 94-95 & 95-96 ITO WD-7(1),ABD V. AA&MC LTD. PAGE 25 28. IN THE RESULT APPEALS OF THE REVENUE IN ALL THE THREE YEARS ARE DISMISSED, WHEREAS C.O. OF THE ASSESSEE IS ALLOWED IN PART, IN TERMS INDICATED HEREINABOVE. ORDER PRONOUNCED IN OPEN COURT ON 26 /08/2011 SD/- SD/- (D.K.TYAGI) (R.C. SHARMA) (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) AHMEDABAD, DATED : 26 /08/2011 *DKP COPY OF THE ORDER FORWARDED TO :- 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT(APPEALS)-V, AHMEDABAD 4. THE CIT CONCERNS. 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER, DEPUTY / ASSTT.REGISTRAR ITAT, AHMEDABAD