M/s. Empee Distilleries Ltd., CHENNAI V. ACIT, CHENNAI

ITA 1876/CHNY/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 52195 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 1 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-12-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 01-12-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 09-11-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: S SRIDHAR
• Keywords: Bogus purchase; Cost of acquisition; TDS
• Section: 40A(3); 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BENCH A CHENNAI BEFORE SHRI N. S. SAINI, ACCOUNTANT MEMBER AND SHRI GEORGE MATHAN, JUDICIAL MEMBER .. I.T.A. NO. 1876/MDS/2010 ASSESSMENT YEAR : 2005-06 M/S. EMPEE DISTILLERIES LTD., 59, HARRIS ROAD, PUDUPET, CHENNAI-600 002. V. THE ASSISTANT COMMISSIONER OF INCOME-TAX, COMPANY CIRCLE-II(1), CHENNAI. [PAN: AAACE1687N] A N D I.T.A. NO. 61/MDS/2011 ASSESSMENT YEAR : 2005-06 THE DEPUTY COMMISSIONER V. M/S. EMPEE DISTILLERIES LTD., COMPANY CIRCLE-II(1) 59, HARRIS ROAD, CHENNAI. PUDUPET, CHENNAI-600 002. (APPELLANTS) (RESPONDENTS) ASSESSEE BY : SHRI S. SRIDHAR, ADVOCATE DEPARTMENT BY : SHRI SHAJI P. JACOB, SR. DR DATE OF HEARING : 01-12-2011 DATE OF PRONOUNCEMENT : 16-12-2011 O R D E R PER GEORGE MATHAN, JUDICIAL MEMBER : ITA NO. 1876/MDS/2011 IS AN APPEAL FILED BY THE ASSESSEE AND ITA NO. 61/MDS/201 1 IS AN APPEAL FILED BY THE I.T.A. NOS. 1876/MDS/2010 & 61/MDS/2011 2 REVENUE AGAINST THE ORDER OF THE LEARNED CIT(APPEAL S)-III, CHENNAI IN ITA NO. 491/07-08/A.III DATED 11-10-2010 FOR THE ASSESSMENT YEAR 2005-06. 2. SHRI S. SRIDHAR, ADVOCATE REPRESENTED ON BEHALF OF THE ASSESSEE AND SHRI SHAJI P. JACOB, LEARNED SR. DR REPRESENTED ON BEHAL F OF THE REVENUE. 3. IT WAS SUBMITTED BY THE LEARNED DR THAT THE ASSE SSEE IS A PUBLIC LIMITED COMPANY WHICH IS DOING THE BUSINESS OF MANUFACTURE AND SALE OF INDIAN MADE FOREIGN LIQUOR (IMFL FOR SHORT). THERE WAS A SEA RCH ON THE BUSINESS PREMISES OF THE ASSESSEE DURING THE EARLIER ASSESSMENT YEARS AN D THE ASSESSMENTS HAD BEEN COMPLETED ALSO. IT WAS THE SUBMISSION THAT THE PRE SENT APPEAL IS FOR THE SUBSEQUENT ASSESSMENT YEAR. IT WAS THE SUBMISSION THAT IN THE RETURN FILED BY THE ASSESSEE FOR THE RELEVANT ASSESSMENT YEAR IT WAS NO TICED THAT THE ASSESSEE HAD CLAIMED A SUM OF NEARLY ` 13 CRORES TOWARDS THE PURCHASE OF OLD BOTTLES FROM LOCAL AND CST SUPPLIERS. IT WAS THE SUBMISSION THAT THE ASSESSING OFFICER HAD QUESTIONED THE PURCHASE OF THE OLD BOTTLES. IT WAS THE SUBMIS SION THAT THE ASSESSEE HAD SUBMITTED A LIST OF THE SUPPLIERS AND THEIR LEDGER ACCOUNTS FROM ITS BOOKS OF ACCOUNTS AS ALSO THE POSTAL ADDRESSES OF 14 LOCAL S UPPLIERS AND 5 CST SUPPLIERS. IT WAS THE SUBMISSION THAT LETTERS UNDER SECTION 133(6 ) HAD BEEN SENT TO ALL THE 19 SUPPLIERS CALLING FOR DETAILS AS MENTIONED IN PAGE 2 OF THE ASSESSMENT ORDER. IT WAS THE SUBMISSION THAT OUT OF THE 19 SUPPLIERS, ONLY 4 RESPONDED TO THE LETTERS. IT WAS FURTHER SUBMITTED THAT OUT OF THE REMAINING 15 SUPP LIERS, THREE LETTERS WERE RETURNED UNSERVED AND THE OTHER 12 PARTIES DID NOT RESPOND TO THE LETTERS. THE I.T.A. NOS. 1876/MDS/2010 & 61/MDS/2011 3 ASSESSEE WAS ASKED TO EXPLAIN AND FURNISH CONFIRMAT ION. THE ASSESSEE EXPLAINED THAT THE PURCHASES WERE FROM HAWKERS WHO WOULD NOT BE PERMANENTLY IN ONE PLACE NOR WILL THEY RESPOND TO COMMUNICATION LIKE ORGANIZ ED INSTITUTIONS. AS THE EXISTENCE OF THE PARTIES BEING 15 PARTIES WERE UNPROVED, THE ASSESSING OFFICER HAD DISALLOWED THE PURCHASES MADE TO THE EXTENT OF ` 12,52,19,585/-. 4. IT WAS THE SUBMISSION THAT THE ASSESSEE HAD ALSO CLAIMED SALES INCENTIVES EXPENDITURE WHICH WAS ALSO DISALLOWED TO AN EXTENT OF ` 1,00,02,150/-. 5. IT WAS THE SUBMISSION THAT ON APPEAL BEFORE THE LEARNED CIT(A) THE ASSESSEE HAD PRODUCED CERTAIN DETAILS WHICH WERE AL SO GIVEN TO THE ASSESSING OFFICER FOR HIS REMAND REPORT. MULTIPLE REMAND REP ORTS HAD BEEN OBTAINED IN WHICH THE ASSESSING OFFICER HAD CONTINUED TO HOLD THAT TH E ASSESSEE WAS UNABLE TO PRODUCE CONFIRMATION FROM THE VARIOUS PERSONS. IT WAS THE FURTHER SUBMISSION THAT AFTER OBTAINING THE REMAND REPORT, THE LEARNED CIT( A) HAD REDUCED THE DISALLOWANCE IN REGARD TO THE TRANSACTION WITH 15 PARTIES TO 9 P ARTIES AND HAD RESTRICTED THE DISALLOWANCE TO ` 3,09,58,287./- BY INVOKING THE PROVISIONS OF SECTI ON 40A(3) OF THE INCOME TAX ACT, 1961. IT WAS THE FURTHER SUBMISSIO N THAT THE VALUE OF THE TRANSACTIONS WITH 9 PARTIES ITSELF CAME TO ` 11,05,65,514/-. IT WAS THE SUBMISSION THAT THE PROVISIONS OF SEC. 40A(3) COULD NOT BE INV OKED AS THE TRANSACTIONS WITH THE 9 PARTIES WHICH WERE BEING DISCUSSED ABOVE, WERE NO T PROVED INSOFAR AS THEIR IDENTITY WAS IN DISPUTE, THEIR CREDITWORTHINESS WAS IN DISPUTE AND THERE WAS NO EVIDENCE OF THE PARTIES HAVING TRANSACTIONS WITH TH E ASSESSEE. IT WAS THE I.T.A. NOS. 1876/MDS/2010 & 61/MDS/2011 4 SUBMISSION THAT THE LEARNED CIT(A) HAD ALSO CONFIRM ED THE DISALLOWANCE MADE ON ACCOUNT OF THE SALES PROMOTION EXPENSES AGAINST WHI CH THE ASSESSEE HAS FILED THE APPEAL. 6. THE LEARNED DR DREW OUR ATTENTION TO THE PAPER B OOK FILED BY THE ASSESSEE AT PAGE 1 WHICH WAS THE STATEMENT SHOWING PRODUCTIO N FOR THE PERIOD FROM APRIL, 2004 TO MARCH, 2005. IT WAS THE SUBMISSION THAT AS PER THE SAID CHART THE PRODUCTION DURING THE YEAR WAS TO AN EXTENT OF 14,9 3,211 BOTTLES. THE OPENING BALANCE WAS 35,392 BOTTLES AND THE CLOSING BALANCE WAS 44,892 BOTTLES. IT WAS THE FURTHER SUBMISSION THAT THE PREDOMINANT PRODUCTION WAS IN REGARD TO 180 ML BOTTLES WHICH TOTALED TO NEARLY 12,51,554 BOTTLES. IT WAS THE SUBMISSION THAT THUS THE PURCHASES OF BOTTLES, EVEN ASSUMING TO BE ONLY IN REGARD TO THE PRODUCTION, WOULD BE NEARLY 14,90,000 BOTTLES OF VARIOUS CATEGO RIES BEING 1 LTR., 750 ML, 375 ML AND 180 ML. HE FURTHER DREW OUR ATTENTION TO THE P ROFIT & LOSS ACCOUNT OF THE ASSESSEE IN SCHEDULE 14 WHICH QUANTIFIED THE COST O F THE BOTTLES UNDER THE HEAD OLD BOTTLES LOCAL, OLD BOTTLES- IS AND NEW BOT TLES. IT WAS THE SUBMISSION THAT THE TOTAL OF ALL THESE PURCHASES OF THE BOTTLES CAM E TO NEARLY ` 15 CRORES. IT WAS THE SUBMISSION THAT THE AVERAGE COST PER BOTTLE THU S CAME TO NEARLY 90 + RUPEES WHICH WAS A PRACTICALLY IMPOSSIBLE SITUATION. IT W AS THE FURTHER SUBMISSION THAT EVEN AFTER REPEATED OPPORTUNITIES HAVING BEEN GRANT ED TO THE ASSESSEE, THE ASSESSEE HAD BEEN UNABLE TO SUBSTANTIATE ITS CLAIM OF PURCHASES OF THE OLD BOTTLES. IT WAS ALSO THE SUBMISSION THAT THE COST OF THE NEW BOTTLES WAS ONLY ` I.T.A. NOS. 1876/MDS/2010 & 61/MDS/2011 5 1,15,00,000/- AS AGAINST NEARLY ` 13,50,00,000/- ON ACCOUNT OF THE OLD BOTTLES. IT WAS THE FURTHER SUBMISSION THAT IN REGARD TO THE PU RCHASES MADE FROM PONDICHERY THE ASSESSING OFFICER HAD ALSO OBTAINED A REPORT FR OM THE OFFICER AT PONDICHERY WHO HAD RECORDED THE STATEMENTS OF THE OWNERS OF TH E PREMISES WHERE THREE OF THE SUPPLIERS FROM PONDICHERY WERE SHOWN TO BE TENANTS AND THE HOUSE OWNERS HAVE ALL CONFIRMED THAT THE SAID PERSONS HAD LEFT IN THE YEA R 2004 AND THE SHOPS WHICH WERE TAKEN ON RENT WERE VERY SMALL AND THERE WAS NO STOC KING OF ANYTHING IN THE PREMISES. IT WAS ALSO CONFIRMED BY THE OWNERS THAT THE PERSONS HAD USED THE PREMISES ONLY FOR THREE TO FOUR MONTHS. IT WAS THU S THE SUBMISSION THAT AS THE ASSESSEE HAD NOT PROVED THE EXISTENCE OF THE SELLER S OF THE OLD BOTTLES AND AS IT WAS QUITE EVIDENT THAT THE PURCHASE PRICE RECORDED WAS HIGHLY INFLATED, THE DISALLOWANCE ON ACCOUNT OF THE PURCHASE OF THE OLD BOTTLES IN RE GARD TO THE 9 PARTIES WHICH HAD NOT BEEN PROVED WOULD BE LIABLE TO BE CONFIRMED AND THE ORDER OF THE LEARNED CIT(A) ON THE ISSUE REVERSED. IT WAS THE SUBMISSIO N THAT THE ACTION OF THE LEARNED CIT(A) IN INVOKING THE PROVISIONS OF SECTION 40A(3) OF THE ACT WAS ERRONEOUS INSOFAR AS SECTION 40A(3) WOULD APPLY WHEN THE PURCHASES AR E FROM KNOWN PERSONS OR EXISTING PERSONS OR IDENTIFIABLE PERSONS. HERE T HE IDENTITY OF THE SELLERS ITSELF IS NOT PROVED AND CONSEQUENTLY THE ORDER OF THE LEARNE D CIT(A) ON THIS ISSUE WAS LIABLE TO BE REVERSED. 7. IN REPLY, THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE SUBMITTED THAT FOR THE EARLIER ASSESSMENT YEARS BEING 1999-20 00 TO 2004-05 WHICH WERE THE I.T.A. NOS. 1876/MDS/2010 & 61/MDS/2011 6 YEARS RELATING TO THE PERIOD WHEN THE SEARCH TOOK P LACE ON THE PREMISES OF THE ASSESSEE, SIMILAR DISALLOWANCE HAD BEEN MADE BY THE ASSESSING OFFICER AND THE TRIBUNAL IN ITS ORDER HELD THAT 10% OF THE PURCHASE S COULD BE DISALLOWED. IT WAS THE SUBMISSION THAT ALL THE SELLERS DID EXIST. IT WAS THE FURTHER SUBMISSION THAT WITHOUT THE PURCHASES THE ASSESSEE COULD NOT HAVE S OLD THE IMFL MANUFACTURED BY IT. IT WAS ALSO THE SUBMISSION THAT NO DISALLOWANC E U/S 40A(3) WAS CALLED FOR AS ALL THE PAYMENTS HAD BEEN MADE BY CROSSED ACCOUNT-PAYEE CHEQUES. IT WAS THE SUBMISSION THAT THE SELLERS OF THE OLD BOTTLES ARE BASICALLY HAWKERS AND IT WOULD NOT BE POSSIBLE FOR THE ASSESSEE TO PRODUCE ALL THESE P ERSONS AS TRACKING THEM DOWN WOULD BE A DIFFICULT PROPOSITION. IT WAS THE FURTH ER SUBMISSION THAT THE ASSESSEE HAD GIVEN THE NAMES AND ADDRESSES WHICH WERE AVAILA BLE WITH THE ASSESSEE. IT WAS ALSO THE SUBMISSION THAT PURCHASES FROM THESE PERSO NS HAD BEEN DONE EVEN DURING THE EARLIER YEARS. IT WAS THE SUBMISSION THAT IF A T ALL ANY DISALLOWANCE WAS CALLED FOR, AN ESTIMATED DISALLOWANCE MAY BE MADE IN THE S AME LINES AS DONE FOR THE ASSESSMENT YEARS 1999-2000 TO 2004-05 BY THE TRIBUN AL. IT WAS THE SUBMISSION THAT NO FURTHER DISALLOWANCE MAY BE MADE. 8. IN REGARD TO THE EXPENDITURE WHICH WAS DISALLOWE D BY THE ASSESSING OFFICER ON ACCOUNT OF THE SALES PROMOTION EXPENSES AND WHIC H WAS CONFIRMED BY THE LEARNED CIT(A), IT WAS SUBMITTED BY THE LEARNED AUT HORISED REPRESENTATIVE THAT THE PAYMENTS HAD BEEN MADE BY THE ASSESSEES EMPLOYEES TO THE WORKERS OF TASMAC OUTLETS. IT WAS THE SUBMISSION THAT TASMAC EMPLOYE ES WERE NOT GOVERNMENT I.T.A. NOS. 1876/MDS/2010 & 61/MDS/2011 7 EMPLOYEES AND CONSEQUENTLY THE SAME WOULD NOT FALL WITHIN THE PURVIEW OF SECTION 37(1) OF THE ACT. IT WAS THE SUBMISSION THAT THE E MPLOYEES OF THE ASSESSEE USED TO DISBURSE THE SALES PROMOTION EXPENDITURE AND USED T O CLAIM THE SAME FROM THE ASSESSEE. IT WAS THE SUBMISSION THAT AS THE PAYMEN T TO THE CONTRACT EMPLOYEES OF TASMAC DID NOT FALL WITHIN THE PURVIEW OF SECTION 3 7(1), THE DISALLOWANCE OF THE SAME MAY BE DELETED. 9. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. A PER USAL OF THE ASSESSMENT ORDER CLEARLY SHOWS THAT THE ASSESSING OFFICER HAD GRANTED THE ASSESSEE SUBSTANTIAL OPPORTUNITIES TO PROVE ITS PURCHASES. IT IS ALSO EV IDENT THAT THE ASSESSEE HAS FAILED TO CATEGORICALLY PROVE THE EXPENDITURE CLAIMED IN R EGARD TO THE PURCHASE OF BOTTLES. IN THE COURSE OF ASSESSMENT THE DISALLOWANCE HAS BE EN MADE IN REGARD TO 15 SUPPLIERS OF THE OLD BOTTLES. IT IS NOTICED THAT I N THE APPEAL BEFORE THE LEARNED CIT(A) AND IN THE REMAND PROCEEDINGS THE ASSESSEE H AS BEEN ABLE TO SUBSTANTIATE ITS CLAIM IN REGARD TO 6 ADDITIONAL PERSONS. THUS WHEN THE LEARNED CIT(A) DECIDED THE ISSUE THE TRANSACTIONS RELATING TO 9 PARTIES RE MAINED UNPROVED. IT IS FURTHER NOTICED THAT THE ASSESSING OFFICER HAS ALLEGED THAT THE TRANSACTIONS WERE CASH TRANSACTIONS AND THE ASSESSEE HAS REPEATEDLY SAID T HAT THE TRANSACTIONS WERE THROUGH THE BANK BY CROSSED ACCOUNT-PAYEE CHEQUES. BUT IT IS NOTICED THAT THE LEARNED CIT(A) HAS INVOKED THE PROVISIONS OF SECTIO N 40A(3) THEREBY PRACTICALLY DISLODGING THE CLAIM OF THE ASSESSEE THAT THE TRANS ACTIONS WERE THROUGH CROSSED ACCOUNT PAYEE CHEQUES. THUS IT BECOMES EVIDENT THA T THE FACTS IN REGARD TO THIS I.T.A. NOS. 1876/MDS/2010 & 61/MDS/2011 8 ISSUE ARE NOT CLEAR. IT HAS ALSO BEEN REPEATED PLE A BY THE ASSESSEE THE CASH TRANSACTIONS WERE IN REGARD TO THE TRANSACTIONS WHI CH WERE FOUND IN THE COURSE OF SEARCH AND THE FACTS AS WERE AVAILABLE IN THE COURS E OF THE SEARCH WERE COMPLETELY DIFFERENT TO THE FACTS DURING THE RELEVANT ASSESSME NT YEAR. THE FACTS BEING CLEAR IN REGARD TO THE NATURE OF THE TRANSACTIONS BEING IN C ASH OR BY ACCOUNT-PAYEE CHEQUES THIS WOULD REQUIRE VERIFICATION. ADMITTEDLY, THE P ROVISIONS OF SEC. 40A(3) CAN BE INVOKED ONLY WHEN THE TRANSACTIONS ARE ADMITTED AS GENUINE. WHEN THE EXPENDITURE ITSELF IS NOT GENUINE, THE WHOLE OF THE EXPENDITURE WOULD HAVE TO BE DISALLOWED. IF THE EXPENDITURE IS GENUINE BUT THE EXPENDITURE HAS BEEN INCURRED IN VIOLATION OF THE PROVISIONS OF SECTION 40A(3), ONLY THEN CAN THE DISALLOWANCE BE MADE BY APPLYING THE PROVISIONS OF SECTION 40A(3) O F THE ACT. HERE, THE LEARNED CIT(A) HAS CLEARLY ACCEPTED THAT THE TRANSACTIONS W ITH THE 9 PARTIES WERE NOT GENUINE. ONCE IT IS ACCEPTED THAT IT IS NOT GENUI NE, THERE IS NO OPTION OF APPLYING THE PROVISIONS OF SECTION 40A(3) OF THE ACT. IN TH E CIRCUMSTANCES, THE FINDINGS OF THE LEARNED CIT(A) ON THE ISSUE STANDS CANCELLED. AS THE FACTS ON THE PRESENT ISSUE ARE ALSO NOT VERY CLEAR, WE FEEL THAT THE ISSUE IN THIS APPEAL WOULD HAVE TO BE RESTORED TO THE FILE OF THE ASSESSING OFFICER WITH SPECIFIC DIRECTIONS AND WE DO SO. THE DIRECTIONS ARE THAT OUT OF THE 19 PARTIES 10 OF THE PARTIES HAVE BEEN ACCEPTED AS GENUINE BY THE ASSESSING OFFICER. CONSEQUENTLY, IN REGARD TO THE TRANSACTIONS WITH THESE 10 PARTIES, THE ASSESSING OFFICER SHALL SPECIFICALLY EXAMINE AS TO WHETHER THE PURCHASE TRANSACTION IS BY ACCOUNT-PAYEE CHEQUE S OR BY CASH. IF THE PURCHASE I.T.A. NOS. 1876/MDS/2010 & 61/MDS/2011 9 FROM THE 10 PERSONS IS BY ACCOUNT-PAYEE CHEQUES, TH E EXPENDITURE SO CLAIMED SHALL BE ALLOWED IN FULL. IF THE TRANSACTIONS WITH THE S AID 10 PERSONS OR ANY OF THEM PARTLY OR FULLY ARE BY CASH, THE PROVISIONS OF SECT ION 40A(3) OF THE ACT SHALL BE INVOKED TO MAKE THE NECESSARY DISALLOWANCE IN ACCOR DANCE WITH LAW. IN REGARD TO THE BALANCE 9 PERSONS WHOSE TRANSACTIONS HAVE NOT B EEN PROVED, THE ASSESSING OFFICER SHALL GRANT THE ASSESSEE ANOTHER OPPORTUNIT Y TO PRODUCE SUCH PERSONS ALONG WITH ALL SUCH EVIDENCES AS REQUIRED BY THE ASSESSIN G OFFICER TO SUBSTANTIATE ITS CLAIM OF EXPENDITURE. IN THE EVENT THAT THE ASSESSEE IS UNABLE TO PRODUCE THE PERSONS FOR EXAMINATION BY THE ASSESSING OFFICER, THE TRANSACTI ONS WITH THE SAID 9 PARTIES SHALL BE COMPLETELY DISALLOWED. HERE WE MAY SPECIFICALLY MENTION THAT THE RESPONSIBILITY OF PRODUCING THE PARTIES FOR EXAMINATION IS ON THE ASSESSEE TO PROVE THE CLAIM OF EXPENDITURE AS MADE BY THE ASSESSEE. ADEQUATE OPPO RTUNITY SHALL BE GRANTED BY THE ASSESSING OFFICER TO THE ASSESSEE. WE MAY MENT ION HERE, WHY WE ARE GIVING THESE DIRECTIONS. THIS IS BECAUSE THE TRANSACTION WITH THE 9 PARTIES IS TO AN EXTENT OF NEARLY ` 11 CRORES. ADMITTEDLY, UNDER THE SALES TAX ACT WH EN THE TURNOVER IS OF ` 2 LAKHS, THE PERSON HAS TO BE REGISTERED AS A DEAL ER. IF THE PERSON IS REGISTERED AS A DEALER, HIS NAME AND ADDRESS DETAILS WOULD BE AVAILABLE. HE WOULD ALSO BE FILING HIS SALES TAX RETURNS. AFTER THE SAID ACTIO N, THE ASSESSING OFFICER SHALL QUANTIFY THE NUMBER OF BOTTLES PURCHASED AND REQUIR ED BY THE ASSESSEE TAKING INTO CONSIDERATION THE OPENING BALANCE, PRODUCTION, DISP ATCHES AND CLOSING BALANCE FOR THE RELEVANT ASSESSMENT YEAR. THE PURCHASE COST OF THE NEW BOTTLES WOULD BE VERY I.T.A. NOS. 1876/MDS/2010 & 61/MDS/2011 10 MUCH AVAILABLE IN THE INVOICES PRODUCED. CONSEQUEN TLY, OUT OF THE TOTAL BOTTLES PURCHASED DURING THE YEAR THE NUMBER OF NEW BOTTLES PURCHASED SHALL BE REDUCED THUS ARRIVING AT THE OLD BOTTLES PURCHASED. WHEN D ETERMINING THE COST OF THE OLD BOTTLES, THE ASSESSING OFFICER MAY CONSIDER COMPARA TIVE CASES TO DETERMINE THE VALUE OF THE BOTTLES. BY DOING SO, THE ASSESSING O FFICER WOULD BE ABLE TO DETERMINE THE COST OF THE BOTTLES PURCHASED AND CONSUMED DURI NG THE YEAR AS ALSO THE VALUE OF THE CLOSING STOCK. THE ASSESSING OFFICER SHALL GIVE THE ASSESSEE THE DEDUCTION ON ACCOUNT OF THIS EXPENDITURE SPECIFICALLY QUANTIFYIN G AS WITHOUT THE PURCHASES OF THE BOTTLES THE ASSESSEE COULD NOT HAVE SOLD THE IMFL. THE DEDUCTION CAN BE GIVEN EITHER BY WAY OF A DEDUCTION TO PROFIT & LOSS ACCOU NT OR BY REDUCING BY THE PROCESS OF TELESCOPING THE ADDITIONS, IF ANY, THAT IS TO BE MADE ON ACCOUNT OF THE BOGUS PURCHASE/INFLATION OF THE PURCHASE COST. IN THE EV ENT THAT THE ASSESSING OFFICER IS UNABLE TO GET A PROPER COMPARATIVE CASE FOR DETERMI NING THE COST OF THE OLD BOTTLES, LIBERTY IS GIVEN TO THE ASSESSING OFFICER TO DETERM INE THE COST OF THE OLD BOTTLES BY GIVING A REASONABLE DISCOUNT BY TAKING INTO CONSIDE RATION THE COST OF THE NEW BOTTLES AS OBVIOUSLY THE COST OF THE OLD BOTTLES WI LL NEVER BE EQUAL TO THE COST OF A NEW BOTTLE. THIS IS BECAUSE THE ASSESSEE ITSELF IN ITS LETTER DATED 10-12-2007 ADDRESSED TO THE ASSESSING OFFICER HAS ADMITTED THA T THE SECONDHAND BOTTLES HAVE BEEN PURCHASED WHICH HAVE A LOWER COST, WHICH IS A REASONABLE CLAIM. 10. IN REGARD TO THE NEXT ISSUE BEING THE SALES PRO MOTION EXPENDITURE WHICH HAS BEEN DISALLOWED BY THE ASSESSING OFFICER AND THE DI SALLOWANCE WHICH HAS BEEN I.T.A. NOS. 1876/MDS/2010 & 61/MDS/2011 11 CONFIRMED BY THE LEARNED CIT(A), IT IS NOTICED THAT BEFORE THE ASSESSING OFFICER THE ASSESSEE HAS SUBMITTED THAT THE PAYMENTS HAVE BEEN MADE BY THE ASSESSEES EMPLOYEES THROUGH WHOM THE ENTIRE SUM IS DISBURSED. THE ASSESSEE HAS ALSO MADE A CLAIM THAT THE AMOUNT HAS BEEN MADE TO TASMAC EMP LOYEES. IT IS VERY MUCH A CLAIM OF THE ASSESSEE THAT THE TASMAC EMPLOYEES ARE NOT GOVERNMENT EMPLOYEES. HOWEVER, THE ASSESSEE HAS NOT GIVEN THE NAMES AND A DDRESSES OF THE PERSONS TO WHOM THE PAYMENT HAS BEEN MADE. JUST BECAUSE THE A SSESSEE CLAIMS THAT THE PAYMENT HAS BEEN MADE THROUGH THE ASSESSEES EMPLOY EES TO TASMAC EMPLOYEES WOULD NOT MAKE THE EXPENDITURE AN ALLOWABLE EXPENDI TURE. THE ASSESSEE IS DUTY- BOUND TO IDENTIFY THE PERSONS TO WHOM PAYMENTS HAVE BEEN MADE. THIS IS BECAUSE IF THE PAYMENT IS TO THE EMPLOYEES OF THE ASSESSEE, THEN TDS HAVING NOT BEEN DEDUCTED ON ACCOUNT OF THE SALARY AS THIS AMOUNT WO ULD FALL WITHIN THE PROVISIONS OF SECTIONS 16, 17 ETC., BY WAY OF APPLICABILITY OF SE CTION 40(A)(I) OF THE ACT, THE AMOUNT BECOMES DISALLOWABLE. IF THE AMOUNT HAS BEE N PAID TO THIRD PARTIES, THEN AGAIN TDS IS LIABLE TO BE MADE U/S 194 OF THE ACT, WHICH AGAIN HAS NOT BEEN DONE AND CONSEQUENTLY IN VIEW OF THE PROVISIONS OF SECTI ON 40(A)(I), THE AMOUNT BECOMES LIABLE FOR DISALLOWANCE. THE ASSESSEE CLAIMS THAT THE PAYMENTS HAVE BEEN MADE TO TSMAC EMPLOYEES. TASMAC HAS BOTH GOVERNMENT EMPLOY EES AS WELL AS CONTRACT EMPLOYEES. WHAT ARE THE TERMS OF THE EMPLOYMENT OF THE CONTRACT EMPLOYEES, IF ANY, WITH TASMAC ARE NOT BEFORE US. IN ANY CASE, I N TODAYS WORLD WHERE THE CONSUMERS ARE HIGHLY BRAND SPECIFIC AND BRAND CONSC IOUS, IT WOULD BE DIFFICULT EVEN I.T.A. NOS. 1876/MDS/2010 & 61/MDS/2011 12 FOR A TASMAC EMPLOYEE TO PUSH THE ASSESSEES PRODUC T WHEN THE CONSUMER IS ASKING FOR ANOTHER PRODUCT. IN ANY CASE, AS THE AS SESSEE HAS BEEN UNABLE TO SUBSTANTIATE WITH ANY FORM OF EVIDENCE, THE CLAIM O F EXPENDITURE ON ACCOUNT OF THE ALLEGED SALES PROMOTION EXPENDITURE HAS RIGHTLY BEE N DISALLOWED BY THE ASSESSING OFFICER AND THE DISALLOWANCE HAS RIGHTLY BEEN CONFI RMED BY THE LEARNED CIT(A). IN THE CIRCUMSTANCES, THE FINDINGS OF THE LEARNED CIT( A) ON THIS ISSUES STANDS CONFIRMED IN REGARD TO THE DISALLOWANCE. 11. IN THE CIRCUMSTANCES, THE APPEAL OF THE ASSESSE E IN ITA NO. 1876/MDS/2010 AND THE APPEAL OF THE REVENUE IN ITA NO. 61/MDS/201 1 ARE PARTLY ALLOWED FOR STATISTICAL PURPOSES. 12. THE ORDER WAS PRONOUNCED IN THE COURT ON 16/12/ 2011. SD/- SD/- (N. S. SAINI) (GEORGE MATHAN) ACCOUNTANT MEMBER JUDICIAL MEMBER CHENNAI, DATED THE 16 TH DECEMBER, 2011. H. COPY TO: ASSESSEE/AO/CIT (A)/CIT/D.R./GUARD FILE