DCIT, CHENNAI V. M/s. E.I.D.Parry (India) Ltd., CHENNAI

ITA 1923/CHNY/2010

• Counselvise Citation: 192321714 RSA 2010
• Duration Of Justice: 1 year(s) 1 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-12-2011
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 12-12-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 12-11-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: R B NAIK
• Keywords: Gift; Opportunity of being heard

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B' BENCH, CHENNAI [BEFORE SHRI HARI OM MARATHA, JUDICIAL MEMBER AND SHRI ABRAHAM P GEORGE, ACCOUNTANT MEMBER] I.T.A.NO.1923/MDS/2010 ASSESSMENT YEAR : 2006-07 THE DY. CIT LARGE TAXPAYER UNIT CHENNAI VS M/S EID PARRY(INDIA) LTD DARE HOUSE, 234 NSC BOSE ROAD CHENNAI 600 001 [PAN - AAACE0702C ] (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI R.B.NAIK, CIT/DR RESPONDENT BY : SHRI PHILIP GEORGE, ADVOCATE DATE OF HEARING : 12-12-2011 DATE OF PRONOUNCEMENT : 16-12-2011 O R D E R PER HARI OM MARATHA, JUDICIAL MEMBER: THIS APPEAL OF THE ASSESSEE, FOR ASSE SSMENT YEAR 2006-07, IS DIRECTED AGAINST THE ORDER OF THE LD. CIT LARGE TAX PAYER UNIT(A), DATED 20.08.2010. 2. BRIEFLY STATED, THE FACTS OF THE CASE ARE T HAT FROM THE FRINGE BENEFIT STATEMENT IT WAS NOTICED BY THE ASSESSING O FFICER THAT THE EXPENDITURE DEBITED IN THE PROFIT & LOSS ACCOUNT, T HE ASSESSEE HAS ITA 1923/10 :- 2 -: INCURRED AN EXPENDITURE OF ` 1,86,56,547/- TOWARDS DISTRIBUTION OF FREE SAMPLES. THEREFORE, THE ASSESSEE WAS SHOW CAU SED WHY THIS AMOUNT SHOULD NOT BE ADDED FOR THE PURPOSE OF COMPU TATION OF VALUE OF THE FRINGE BENEFIT AS PER FAQ NO.64, CIRCULAR NO .8/2005 OF THE CBDT. THE ASSESSEE-COMPANY REPLIED THAT IT HAD PAI D THIS AMOUNT UNDER A SCHEME FOR GIVING INCENTIVE TO ACHIEVE A PA RTICULAR TARGET, SO THIS EXPENDITURE IS COVERED UNDER FAQ NO.61 OF THIS CIRCULAR AND NOT QUESTION NO.64. BEING NOT CONVINCED THE ASSESSING OFFICER, HAS HELD THAT FREE SAMPLES WERE NOT DISTRIBUTED ON THE BASIS OF TARGET TO THE DISTRIBUTORS AND THUS, QUESTION NO.61 IS NOT APPLIC ABLE. BASED ON THE ABOVE FACTS, THE ABOVE EXPENDITURE ON DISTRIBUT ION OF FREE PRODUCTS CAN BE EITHER CONSIDERED FOR THE FBT AS PE R FAQ NO: 64 OF CIRCULAR NO.8/2005 AS SALES PROMOTION AS PER THE PR OVISIONS OF SECTION 115WB (2) (D) OF THE ACT (OR) AS GIFTS AS P ER THE PROVISIONS OF SECTION 115WB (2) (O) OF THE ACT BASED ON THE FACTS & CIRCUMSTANCES OF THE CASE. FIRSTLY, THE RELEVANT PART OF THE FAQ NO.64 OF CIRCULAR 8/2005 IS REPRODUCED AS UNDER: ' 64 . WHETHER EXPENDITURE ON DISTRIBUTION OF FREE MEDICAL OR OTHER PRODUCT SAMPLES IS LIABLE TO FBT? ANS. THE TERM 'SALES PROMOTION AND PUBLICITY' HAS N OT BEEN DEFINED IN THE INCOME-TAX ACT AND HENCE, IT SHOULD BE GIVEN ITS NATURAL MEANING. THE TERM IS OF WIDE IMPO RT. FOLLOWING HON'BLE SUPREME COURT'S DECISION IN THE C ASE OF ITA 1923/10 :- 3 -: ESKAYEF LTD ETC . VS. CIT (2000) 162 CTR (SC) 89 : (2000) 2451TR 116 (SC), ANY EXPENDITURE ON FREE MEDICAL SAMPLES DISTRIBUTED TO DOCTORS IS IN THE NATURE OF SALES PROMOTION . THEREFORE, IT WOULD BE LIABLE TO FBT. SIMILARLY, ANY EXPENDITURE ON FREE SALES OF OTHER PRODUCTS DIS TRIBUTED TO TRADE OR CONSUMERS SHOULD ALSO BE LIABLE TO FBT. FURTHER, IT IS ESSENTIAL TO NOTE THAT, THE ASSESSEE HAS DISTRIBUTED ITEMS (FREE PRODUCTS) WHICH WERE DIFFERENT FROM THE ITEM S (PRODUCTS) WHICH HAS BEEN SOLD TO THE CUSTOMERS. HENCE, THE COST OF THE ABOVE FREE SAMPLES CAN NOT BE CONSIDERED AS AN EXPENDITURE ON SALES PROMOTION, WHEREAS, IT WILL BE CONSIDERED AS A GIFT AS PER THE PROVISIONS OF SECTION 115WB(2)(O) OF THE ACT. IN SUPPORT OF THE ABOVE VI EW, THE RELEVANT PART OF THE FAQ NO.97 & 98 OF CIRCULAR 8/2005 IS REPRODUCED AS UNDER: ' 97 . WHETHER EXPENDITURE ON GIFTS UNDER TRADE SCHEMES OR FOR PROMOTION OF COMPANY ' S PRODUCTS TO DISTRIBUTORS/RETAILERS IS LIABLE TO FBT? ANS . ORDINARILY, A GIFT IS DEFINED AS ANYTHING GIVEN OR PRESENTED WITHOUT CONSIDERATION . THEREFORE, EXPENDITURE ON GIFTS UNDER TRADE SCHEMES OR FOR PROMOTION OF COMPANY'S PRODUCTS T O DISTRIBUTORS/RETAILERS , FALLS WITHIN THE SCOPE OF THE PROVISIONS OF CLAUSE (O) OF SUB-SECTIO N (2) OF SECTION 115WB AND, ACCORDINGLY , IS LIABLE TO FBT. 98. DOES A GIFT TO CUSTOMER FALL UNDER SALES PROMOTION OR GIFT? ANS . IN TERMS OF THE RULES OF INTERPRETATION OF A STATUT E , A SPECIFIC PROVISION IN LAW OVERRIDES A GENERAL PROVI SION. THEREFORE, A GIFT TO A CUSTOMER, EVEN THOUGH FOR TH E PURPOSES OF SALES PROMOTION , WOULD FALL WITHIN THE SCOPE OF THE SPECIFIC PROVISION OF CLAUSE(O) OF SUB-SECTION (2) OF SECTION 115WB RELATING TO GIFT. ITA 1923/10 :- 4 -: ACCORDINGLY, THE ASSESSING OFFICER HAS ADDED 50% OF ` 1,86,56,547/- FOR THE PURPOSE OF FRINGE BENEFIT TAX U/S 115WB(2)( O) OF THE ACT. THE ASSESSEE BEING AGGRIEVED RAKED THIS ISSUE BEFOR E THE LD. CIT(A), WHO HAS OBSERVED THAT UNDER THE NAME MONSOON OFFE R SCHEME, THE ASSESSEE HAD DECLARED THAT THE BUYER WOULD GET AN I TEM FREE IF HE BOUGHT A PARTICULAR PRODUCT ABOVE A CERTAIN VALUE. IN DOING SO, THE CONSUMER WOULD GET ADDITIONAL ITEM OF SAME PRODUCT FOR FREE. THIS SCHEME HAS BEEN TREATED BY THE ASSESSEE AS AN INCEN TIVE AIMED AT AUGMENTING ITS SALES. THE LD. CIT(A) HAS TREATED T HE VALUE OF THESE GOODS GIVEN UNDER THIS SCHEME TO BE NOT A FREE GIFT , BUT HAS TREATED THE SAME AS WORTH CERTAIN VALUE WHICH CAN BE GIVEN ONLY AND ONLY IF CERTAIN LEVEL OF PURCHASES ARE MADE BY THE CUSTOMER S. ON THAT PREMISE, THE LD. CIT(A) HAS FOUND FAQ NO.61 IS APPL ICABLE TO THE CASE OF THE ASSESSEE AND THE EXPENDITURE DO NOT FALL WIT HIN THE SCOPE OF CLAUSE (D) OF SECTION 115WB(2), AND HAS THEREFORE, DELETED THE ENTIRE ADDITION SO MADE BY THE ASSESSING OFFICER. NOW THE REVENUE IS AGGRIEVED AND HAS RAISED THE FOLLOWING GROUNDS: 1. THE ORDER OF THE LEARNED CIT(A) IS CONTRARY TO LAW AND FACTS AND CIRCUMSTANCES OF THE CA SE. 2 . THE CIT(A) HAS ERRED IN DELETING THE ADDITIONS MADE BY THE ASSESSING OFFICER ON A SUM OF RS.93,28,273/- TOWARDS FREE SAMPLES TO THE VALUE OF FRINGE BENEFIT RETURNED BY THE ASSESSEE. ITA 1923/10 :- 5 -: 2.1 THE CIT(A) HAS ERRED IN HOLDING THAT FAQ NO. 61 OF CIRCULAR NO.8/2005 APPLIES IN THIS CASE IN AS MUCH AS THE SAID CLARIFICATION APPLIES ONLY TO A DISTRIBUTOR TO WHOM INCENTIVE IS PAID FOR COMPLETING THE SALE TARGETS, WHEREAS, THE ULTIMATE BENEFICIARY OF INCENTIVE IN THIS CASE IS THE BUYER AND NOT THE DISTRIBUTOR. 2 . 2 HAVING REGARD TO THE UNDISPUTED FACT THAT THE ASSESSEE HAD GIVEN GIFT TO ITS CUSTOMERS AND A CLARIFICATION IN FAQ NO.64 OF CIRCULAR NO . 8/2005, THE ID . CIT(A) OUGHT TO HAVE UPHELD THE ACTION OF THE ASSESSING OFFICER . 3 . FOR THESE AND OTHER GROUNDS THAT MAY BE ADDUCED AT THE TIME OF HEARING, IT IS PRAYED THAT THE ORDER OF THE LEARNED CIT(A) MAY BE SET ASIDE AND THAT OF THE ASSESSING OFFICER RESTORED. 3. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND H AVE PERUSED THE ENTIRE MATERIAL AVAILABLE ON RECORD. IN ESSEN CE, THE ARGUMENT OF THE LD.CIT/DR IS THAT THE FACTS HAVE BEEN INCORRECT LY PERCEIVED BY THE LD. CIT(A) BECAUSE THE INCENTIVE HAS NOT BEEN GIVEN TO THE DISTRIBUTORS WERE GIVEN DIRECTLY TO CUSTOMERS, SO QUESTION NO.61 WOULD NOT APPLY. PER CONTRA, THE LD.AR HAS PLACED HEAVY RELIANCE ON LETTER DATED 17.7.2010 WHICH WAS PRODUCED BEFORE THE LD. CIT(A) FOR THE FIRST TIME AND WAS NOT PLACED BEFORE THE ASSESSING OFFICER. AFTER CONSIDERING THE RIVAL STANDS, WE HAVE NOTICED THAT THE LD. CIT( A) HAS RELIED ON THE REASONING CONTAINED IN THE LETTER DATED 17.7.2010 A ND IT WAS NEVER TAKEN BEFORE THE ASSESSING OFFICER. WE ARE AWARE THAT WITHOUT GIVING OPPORTUNITY OF BEING HEARD TO THE ASSESSING OFFICER , NO FRESH VERSION/EXPLANATION CAN BE CONSIDERED IN THE FAVOUR OF THE ASSESSEE, ITA 1923/10 :- 6 -: IN THE WAY IT HAS BEEN DONE IN THIS CASE. IN FACT, WE ARE ALSO UNABLE TO COLLATE THE FULL FACTS RELATING TO THE IMPUGNED ISS UE FROM THE AVAILABLE RECORDS. THEREFORE, IT BECOMES IMPERATIVE THAT THI S ISSUE SHOULD BE REMITTED BACK TO THE FILE OF THE ASSESSING OFFICER FOR EXAMINING AND FOR BRINGING CLEARLY ALL THE FACTS OF THIS ISSUE ON REC ORD FROM THE POINT OF VIEW ON WHICH THE LD. CIT(A) HAS BASED HIS VIEW. A CCORDINGLY, WE REMIT THIS ISSUE BACK TO THE FILE OF THE ASSESSING OFFICER WITH A DIRECTION THAT HE SHALL EXAMINE THE ISSUE AFRESH AFTER GIVING OPPORTUNITY OF BEING HEARD TO THE ASSESSEE, AS PER LAW. 4. IN THE RESULT, THE APPEAL OF THE REVENUE S TANDS ALLOWED FOR STATISTICAL PURPOSES. THE ORDER PRONOUNCED IN THE OPEN COURT ON 16-12-2011. SD/- SD/- (ABRAHAM P GEORGE) ACCOUNTANT MEMBER ( HARI OM MARATHA ) JUDICIAL MEMBER DATED: 16 TH DECEMBER, 2011 RD COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR