ACIT, New Delhi V. M/s. Uppal Motor Pvt. Ltd., New Delhi

ITA 2007/DEL/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 65732 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 5 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-10-2012
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: H
• Next Hearing Date: 21-03-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 21-04-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: DR B R R KUMAR
• Assessee Lawyers: P N MONGA
• Keywords: Depreciation
• Section: 43B; 142(1); 68

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH H NEW DELHI BEFORE SHRI A.N. PAHUJA, ACCOUNTANT MEMBER AND SHRI CHANDRA MOHAN GARG, JUDICIAL MEMBER I.T.A.NO.2007/DEL/2011 ASSESSMENT YEAR : 2007-08 ACIT, VS UPPAL MOTOR PVT. LTD., CIRCLE-18(1), B-11/8106, ROOM NO. 211A, VAS ANT KUNJ, C.R. BUILDING, NEW DELHI. NEW DELHI. (PAN: AAACU5520E) (APPELLANT) (RESPONDENT) APPELLANT BY: DR. B.R.R. KUMAR, SR. DR RESPONDENT BY : S /SHRI P.N. MONGA & MANU MONGA O R D E R PER CHANDRA MOHAN GARG, JUDICIAL MEMBER THIS APPEAL HAS BEEN PREFERRED BY THE REVENUE AGAI NST THE ORDER OF COMMISSIONER OF INCOME TAX(A)-XXI, NEW DELHI DATED 8.2.2011 FOR AY 2007-08. 2. THE GROUNDS OF APPEAL READ AS UNDER:- (I) THE LD. COMMISSIONER OF INCOME TAX(A) HAS ERR ED ON FACTS AND IN LAW IN DELETING DISALLOWANCE OF RS.2,36,547/- BY HOLDING THAT THE AMOUNT WAS THE ASSESSEES LIABILITY TOWARDS SERVICE TAX, IGNORING THAT, IN THE FACTS AND CIRCUMSTANCES OF THE CASE, THE SAID P AYMENT ITA NO.2007/DEL/2011 ASSTT.YEAR: 2007-08 2 WAS IN THE NATURE OF PENALTY AND THEREFORE IS NOT A N ALLOWABLE EXPENDITURE. (II) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND CONTRARY TO THE PROVISION OF LAW, THE LD. CIT(A) HA S ERRED IN HOLDING THAT UPS IS A PART OF THE COMPUTER AND DEPRECIATION IS ALLOWABLE THEREON @60%. (III) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IN DELETING DISALLOWANCE OF RS.1,23,654/- MADE U/S 40A(9) BY THE ASSESSING OFFI CER BY WRONGLY HOLDING THAT THE PAYMENT WAS AN ALLOWABL E STATUTORY LIABILITY OF THE ASSESSEE. (IV) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND CONTRARY TO THE PROVISIONS OF LAW, THE LD. COMMISSI ONER OF INCOME TAX(A) HAS ERRED IN DELETING THE DISALLOWANC E OF RS.9,82,037/- MADE BY THE ASSESSING OFFICER OUT OF CLAIMS OF ADVERTISEMENT AND SERVICES PROMOTION EXPENSES BY INVOKING THE PROVISIONS OF SECTION 40(A)(IA) OF THE I.T.ACT. 3. BRIEF FACTS GIVING RISE TO THIS APPEAL ARE THAT THE ASSESSING OFFICER PICKED UP THE CASE OF THE ASSESSEE FOR SCRUTINY BY NOTICE U/S 143(2) AND 142(1) OF THE INCOME TAX ACT, 1961 (FOR BRIEF THE A CT). AFTER PROVIDING DUE OPPORTUNITY OF HEARING, THE ASSESSING OFFICER MADE ADDITIONS FOR PAYMENT OF INTEREST ON LOAN LIABILITY, ON REDUCTION OF CLAIM, DEPRECIATION, ON ACCOUNT OF PENSION FUND, ON ACCOUNT OF HHM SCHEME PAYMENT AND ON ACCOUNT OF DIVIDEND TAX AND THE ASSESSING OFFICER ALSO DISALLO WED THE PAYMENT OF ITA NO.2007/DEL/2011 ASSTT.YEAR: 2007-08 3 SERVICE TAX CONTRIBUTION AND FINALIZED ASSESSMENT A T TOTAL TAXABLE INCOME OF RS.30,87,082/-. 4. AGGRIEVED, THE ASSESSEE FILED AN APPEAL BEFORE T HE COMMISSIONER OF INCOME TAX(A)-XXI WHICH WAS PARTLY ALLOWED BY DELET ING THE ADDITIONS MADE BY THE ASSESSING OFFICER. NOW, REVENUE IS IN APPEAL BEFORE THIS TRIBUNAL WITH THE GROUNDS MENTIONED HEREINABOVE. GROUND NO.1 5. APROPOS GROUND NO. 1 RELATED TO PAYMENT OF SERVI CE TAX, LD. DR SUBMITTED THAT THIS ADDITION WAS DELETED IGNORING T HE FACT THAT THE SAID PAYMENT WAS IN NATURE OF PENALTY AND, THEREFORE, IT WAS NOT AN ALLOWABLE EXPENDITURE. THE ASSESSEES REPRESENTATIVE REPLIED THAT THE LIABILITY OF SERVICE TAX INCURRED BY THE ASSESSEE ON THE PAYMENT RECEIVED BY IT FROM THE BANKS AND FINANCIAL COMPANIES TO WHOM SERVICES ARE STATED TO BE RENDERED BY THE ASSESSEE FOR WHICH THE ASSESSEE RECEIVED THE PA YMENT AFTER DEDUCTION OF TAX AT SOURCE. THEREFORE, THE COMMISSIONER OF INCO ME TAX(A) RIGHTLY DELETED THE ADDITION. HE SUPPORTED THE IMPUGNED OR DER AND VEHEMENTLY SUBMITTED THAT THE PAYMENT WAS NOT PENAL IN NATURE. 6. THE COMMISSIONER OF INCOME TAX(A) CONSIDERED THE ASSESSMENT ORDER WITH ASSESSEES SUBMISSIONS BEFORE HIM AND WHILE DE LETING THE ADDITION HELD AS UNDER:- ITA NO.2007/DEL/2011 ASSTT.YEAR: 2007-08 4 5. GROUND NO.3 IS AGAINST THE DISALLOWANCE OF RS.2,36,547/- WHICH IS THE PAYMENT OF SERVICE TAX. IN THIS REGARD THE AO HAS DISCUSSED THE ISSUE IN PARA 2 OF THE ASSESSMENT ORDER AS UNDER:- THE ASSESSEE COMPANY HAS CLAIMED DEDUCTION ON ACCOUNT OF SERVICE TAX CONTRIBUTION OF RS.2,57,644. 56. THE SERVICE TAX BEING OF THE NATURE OF INDIRECT TAX IS CHARGED ON THE BILLS RED FROM THE CUSTOMER TO WHOM SERVICES ARE PROVIDED. AS SUCH RECOVERY AND PAYMENT OF INDIRECT TAX STANDS OFFSET AGAINST EACH OTHER. IN O THER WORDS IT IS REVENUE NEUTRAL. MOREOVER THE ASSESSEE IS A SERVICE PROVIDER FOR SERVICING AND REPAIR OF MOTOR CYCLES, WHICH ARE WITHIN THE OF SERVICE TAX ACT AND SET OFF OF INPUT CREDIT IS ALLOWED. SINCE THE ASSESSEE COULD NOT PRO VIDE SATISFACTORY EXPLANATION OF SERVICE TAX CONTRIBUTIO NS, THE SAME IS DISALLOWED. ' 5.1 DURING THE COURSE OF THE APPELLATE PROCEEDINGS VIDE LETTER SUBMITTED ON 20.9.2010, THE LD.AR OF TH E ASSESSEE HAS SUBMITTED AS UNDER:- 'IT IS CONTENDED THAT WHILE MAKING THE DISALLOWANCE OF RS. 2, 36, 547/- OUT OF THE TOTAL AMOUNT OF RS. 2,5 7, 044/-, THE LD. AO DID NOT APPRECIATE THE CORRECT FACTUAL P OSITION. THE PERUSAL OF DOCUMENTS IN PARAGRAPH 6 ABOVE INTER ALIA SHOW THE PAYMENT TO THE ASSESSEE OF INCENTIVES BY DIFFERENT BANKS AND THE .FINANCE COMPANIES ON WHICH TAX WAS DEDUCTED AT SOURCE. IT IS THESE AMOUNTS RECEIVE D BY THE ASSESSEE THAT THE EXCISE DEPARTMENT RAISED DEMA ND ON THE ASSESSEE FOR THE YEAR 2004-05 & 2005-06 AS A RE SULT OF WHICH THE PAYMENT WAS MADE. THE DEMAND WAS RAISE D BY THE COMMISSIONER OF CENTRAL EXCISE WHO JSSUED SUMMONS TO THE ASSESSEE ON 26.5.2006 OF RS.1, 75,06 4/- AND RS.61,483/- WHICH WAS DULY PAID VIDE PHOTOCOPIE S OF CHALLANS. THE DEMAND MADE ON THE ASSESSEE AND THE PAYMENT IN RESPECT THEREOF BOTH FALL IN THE ACCOUNT ING PERIOD TO QUESTION AND THEREFORE, THE DEDUCTION WAS CLAIMED DURING THE ACCOUNTING PERIOD. THE PAYMENT I S ALLOWABLE UNDER SECTION 43B OF THE INCOME TAX ACT. THE ITA NO.2007/DEL/2011 ASSTT.YEAR: 2007-08 5 LD. AO WHILE SHE MADE THE DISALLOWANCE BY OBSERVING THAT THE EFFECT OF PAYMENT IS REVENUE NEUTRAL ACTED ON MISCONCEPTION OF FACTS WHICH ARE NOT EVEN CLEAR TO HER AND THE DISALLOWANCE WAS MADE ON WRONG APPRECIATION OF THE FACTUAL POSITION. THE PERUSAL OF THE DOCUMEN TS ACCOMPANYING THIS NOTE MAKE THE POSITION CLEAR AS T O THE LIABILITY OF SERVICE TAX INCURRED BY THE ASSESSEE O N THE PAYMENTS RECEIVED BY IT FROM THE BANKS AND FINANCE COMPANIES TO WHOM THE SERVICES ARE STATED TO BE RENDERED BY THE ASSESSEE FOR WHICH IT RECEIVED THE PAYMENT AFTER THE DEDUCTION OF TAX AT SOURCE. THE A MOUNT RECEIVED BY THE ASSESSEE ACCORDING TO THE REVENUE AUTHORITIES WAS EXIGIBLE TO TAX AS PER THE CUSTOM A ND EXCISE ACT ON WHICH DEMAND WAS RAISED BY THE REVENU E AUTHORITIES AS PER PROVISIONS CONTAINED IN SECTION 68 OF THE FINANCE ACT, 1964. THE DEDUCTION OF RS. 2, 36, 547/- WAS THEREFORE, PERMISSIBLE BEING THE APPELLANT'S LI ABILITY WHICH WAS DULY DISCHARGED DURING THE ACCOUNTING PER IOD IN QUESTION. THERE WAS ABSOLUTELY NO JUSTIFICATION ON THE PART OF THE AD TO MAKE DISALLOWANCE RS.2,36,547/- W HICH DESERVES TO BE ALLOWED. ' 5.2 I HAVE GONE THROUGH THE FINDINGS OF THE AO AND SUBMISSION OF THE ID. AR AND I AM INCLINED TO ACCEPT THE EXPLANATION OF THE LD AR THA T LIABILITY OF SERVICE TAX INCURRED BY THE ASSESSEE O N THE PAYMENT RECEIVED BY IT FROM THE BANKS AND FINANCE COMPANIES TO WHOM THE SERVICES ARE STATED TO BE RENDERED BY THE ASSESSEE FOR WHICH IT RECEIVED THE PAYMENT AFTER DEDUCTION OF TAX AT SOURCE. THEREFORE , AMOUNT OF RS.2,36,547/- WAS ASSESSEE'S LIABILITY WH ICH WAS DISCHARGED DURING THE ACCOUNTING PERIOD. IN VIE W OF THE ABOVE DISCUSSION THE ADDITION OF RS.2,36,547/- IS DELETED. 7. LD. DR DID NOT DISPUTE THE FACT THAT THE DISPUTE D PAYMENT OF SERVICE TAX WAS MADE BY THE ASSESSEE AND THE PAYMENTS RECEI VED BY IT FROM THE BANKS AND FINANCIAL COMPANIES TO WHOM THE SERVICES WERE RENDERED BY THE ITA NO.2007/DEL/2011 ASSTT.YEAR: 2007-08 6 ASSESSEE FOR WHICH THE ASSESSEE RECEIVED THE DEMAND AFTER THE DEDUCTION OF TAX AT SOURCE. THE AMOUNT SO RECEIVED BY THE ASSES SEE WAS ELIGIBLE TO TAX AND THE REVENUE AUTHORITIES UNDER CUSTOM & EXCISE A CT RAISED DEMAND OF TAX AS PER PROVISIONS CONTAINED IN SECTION 68 OF TH E FINANCE ACT, 1964. WE ALSO OBSERVE THAT THE ASSESSING OFFICER HAS NOT BRO UGHT ANY FACT OR EVIDENCE TO SUBSTANTIATE THE FACT THAT THE SERVICE TAX PAYME NT MADE BY THE ASSESSEE WAS IN NATURE OF PENALTY. 8. ON THE OTHER HAND, THE COMMISSIONER OF INCOME TA X(A) RIGHTLY HELD THAT THE ASSESSEE RECEIVED THE PAYMENT FROM THE BAN KS AND FINANCIAL COMPANIES TO WHOM THE SERVICES WERE RENDERED. IN V IEW OF ABOVE, WE HAVE NO REASON TO INTERFERE WITH THE IMPUGNED ORDER IN T HIS REGARD. ACCORDINGLY, GROUND NO. 1 IS DISMISSED. GROUND NO.2 9. APROPOS GROUND NO.2, THE DR SUBMITTED THAT THE A SSESSING OFFICER ALLOWED ONLY 15% DEPRECIATION ON UPS AS THE UPS WAS NOT COMPUTER PERIPHERAL. THEREFORE, THE ASSESSING OFFICER RIGHT LY ADDED THE AMOUNT OF RS.12,123 TO THE INCOME OF THE ASSESSEE. REPLYING TO THE ABOVE SUBMISSIONS, THE ASSESSEES REPRESENTATIVE SUBMITTED THAT AS PER SCHEDULE A OF FIXED ASSETS THAT THE ASSESSEE CLAIMED DEPRECIATION @60% ON COMP UTER AND COMPUTER PRINTER. HE ALSO SUBMITTED THAT THE ASSESSING OFFI CER DID NOT OBJECT OTHER ITA NO.2007/DEL/2011 ASSTT.YEAR: 2007-08 7 TWO ITEMS EXCEPT COMPUTER UPS ON WHICH THE ASSESSIN G OFFICER ALLOWED DEPRECIATION @15%. 10. AFTER CAREFUL CONSIDERATION OF SUBMISSIONS OF B OTH THE PARTIES AND PERUSAL OF THE RECORD BEFORE US, WE ARE OF THE VIEW THAT THE ASSESSING OFFICER HAS NO REASON TO TAKE A DIFFERENT STAND FOR GRANTIN G DEPRECIATION ON COMPUTER UPS BECAUSE THE COMPUTER UPS IS ALSO AN INSEPARABLE PERIPHERAL TO THE COMPUTER WHICH IS ELIGIBLE FOR 60% DEPRECATION. TH EREFORE, WE HOLD THAT THE LD. COMMISSIONER OF INCOME TAX(A) RIGHTLY ALLOWED D EPRECIATION @60% AND WE HAVE NO REASON TO INTERFERE WITH THESE FINDI NGS OF COMMISSIONER OF INCOME TAX(A). HENCE, GROUND NO.2 IS ALSO DISMISSE D. GROUND NO.3 11. APROPOS GROUND NO.3, LD. DR SUBMITTED THAT THE ASSESSING OFFICER HAS DISALLOWED THE CLAIM OF RS.1,23,654 BY INVOKING THE PROVISIONS OF SECTION 40A(9) OF THE ACT. THE ASSESSEES REPRESENTATIVE B EFORE US SUBMITTED THAT THE PAYMENT WAS MADE BY THE ASSESSEE ON ACCOUNT OF STATUTORY LIABILITY AND IT HAD BEEN ALLOWED IN EARLIER YEARS FOR THE ASSESSEE. THEREFORE, THERE WAS NO SUBSTANTIAL CAUSE FOR TAKING A NEW VIEW IN THE YEAR UNDER CONSIDERATION. HE FINALLY SUBMITTED THAT THE VIEW TAKEN BY THE ASSESS ING OFFICER WAS MISCONCEIVED AND IT WAS CORRECTED BY THE LD. COMMIS SIONER OF INCOME TAX(A). ITA NO.2007/DEL/2011 ASSTT.YEAR: 2007-08 8 12. DURING THE COURSE OF APPELLATE PROCEEDINGS BEFO RE THE COMMISSIONER OF INCOME TAX(A), THE ASSESSEES SUBMISSIONS THROUG H LETTER DATED 20.9.2010 WAS AS UNDER:- THIS AMOUNT IS SHOWN IN SCHEDULE .J UNDER THE HEAD REMUNERATION AND OTHER BENEFIT WHICH INTER ALI A CONTAINED PENSION FUND AMOUNT OF RS.1,23,654/-. A P ERUSAL OF THIS SCHEDULE SHOWS ALONG WITH OTHER AMOUNTS AS PF, ADMINISTRATION CHARGES, INSURANCE FEES. IN THE EARL IER YEARS ALSO PENSION FUND HAVE BEEN CLAIMED AND ALLOW ED AS EXPENDITURE ALONG WITH OTHER ITEM OF P F, ADMINISTR ATION CHARGES, INSURANCE FUND. THERE IS ONE COMMON CHALLA N ISSUED BY THE GOVT. DEPARTMENT FOR THE DEPOSIT OF A LL THE AFORESAID AMOUNTS IN THE TREASURY. THIS AMOUNT APPE ARS TO BE DEPOSITED IN ACCOUNT NO. 10 OF THE CHALLAN TITLE D AS EMPLOYEES' PROVIDENT FUND ORGANIZATION AND IS FORMI NG PART OF THIS WRITTEN NOTE. THE LD. AO HAS INVOKED S ECTION 40A(9) OF THE INCOME TAX ACT, 1961 TO MAKE DISALLOW ANCE. SECTION 40A(9) DOES NOT DEAL WITH THIS CONTRIBUTION BECAUSE THE PAYMENT IS REQUIRED TO BE MADE UNDER TH E LAW OPERATING WHICH WAS IN FORCE DURING THE YEAR. THE P AYMENT BY THE ASSESSEE WAS ON ACCOUNT OF ITS STATUTORY LIA BILITY & COULD NOT DISALLOWED AS THE SAME REPRESENTED EXPEND ITURE INCURRED BY THE ASSESSEE WHICH WAS WHOLLY AND EXCLU SIVELY FOR ITS BUSINESS. AS POINTED OUT EARLIER, SIMILAR D EDUCTION WAS CLAIMED IN THE EARLIER YEAR AND ALLOWED AND NO DISALLOWANCE WAS THEREFORE CALLED FOR EVEN IN THE A .Y. IN QUESTION. 13. ON BARE READING OF THE ASSESSMENT ORDER, WE OBS ERVE THAT THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAS NOT F ILED ANY PROOF FOR THE CREATION OF SEPARATE FUND FOR PENSION. THEREFORE, THE EXPENDITURE IS HIT BY THE PROVISIONS OF SECTION 44(A9) OF THE ACT WHICH I S NOT ALLOWED. WE ALSO ITA NO.2007/DEL/2011 ASSTT.YEAR: 2007-08 9 OBSERVE THAT IN THE IMPUGNED ORDER, THE LD. COMMISS IONER OF INCOME TAX(A) ONLY CONSIDERED THE FINDINGS OF THE ASSESSING OFFIC ER WITH ASESSEES SUBMISSIONS BEFORE HIM. 14. ON CAREFUL PERUSAL OF THE DOCUMENTS AVAILABLE F ROM PAGES 32 TO 44 IN THE PAPER BOOK FILED BY THE ASSESSEE, WE OBSERVE TH AT THE ASSESSEE COMPANY IS CONTINUOUSLY DEPOSITING EMPLOYEES SHARE TO PROV IDENT FUND (ACCOUNT 10, PENSION) FROM FINANCIAL YEAR 2004-05, 2005-06, 2006 -07 AND 2007-08 (PAGE 32 OF PAPER BOOK). THE DR DID NOT DISPUTE THE FACT THAT THIS PAYMENT HAS BEEN COMPLYING THE STATUTORY REQUIREMENTS OF THE AS SESSEE AND THIS KIND OF PAYMENT HAS NOT BEEN DISPUTED IN THE EARLIER YEARS BY THE AUTHORITIES BELOW. THEREFORE, THE FINDINGS OF THE ASSESSING OFFICER CA NNOT BE SUSTAINED. ON THE OTHER HAND, LD. COMMISSIONER OF INCOME TAX(A) RIGHT LY HELD THAT THE DEMAND WAS MADE ON ACCOUNT OF STATUTORY LIABILITY O F THE ASSESSEE, THEREFORE, THE ACTION OF THE ASSESSING OFFICER WAS MISCONCEIVE D. IN VIEW OF ABOVE, GROUND NO. 3 IS ALSO DISMISSED. GROUND NO.4 15. APROPOS GROUND NO.4, THE DR SUBMITTED THAT THE ASSESSING OFFICER RIGHTLY HELD THAT THE ASSESSEE MADE PAYMENT OF ADVE RTISEMENT AND BUSINESS PROMOTION EXPENSES ON VARIOUS SCHEMES INITIATED BY THE MANUFACTURER. HE FURTHER SUBMITTED THAT THE ASSESSING OFFICER RIGHTL Y NOTED THAT THE EXPENSES ITA NO.2007/DEL/2011 ASSTT.YEAR: 2007-08 10 WERE INCURRED BY PRINCIPAL MANUFACTURER AND SUBSEQU ENTLY CHARGED FROM THE ASSESSEE DEALER BY WAY OF DEBIT NOTES. THE DR FINAL LY SUBMITTED THAT THE EXPENSES WERE NEITHER INCURRED BY THE ASSESSEE DEAL ER NOR THERE WAS ANY BILL IN THE NAME OF THE DEALER AND SINCE THE ASSESSEE CO MPANY HAD NOT DEDUCTED TAX AT SOURCE ON HHM PENSION, THEREFORE, THE ASSESS ING OFFICER RIGHTLY DISALLOWED THE DEMAND BY INVOKING THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT. 16. THE ASSESSEES REPRESENTATIVE SUBMITTED THAT PR INCIPAL MANUFACTURER HERO HONDA COMPANY INTRODUCED DIFFERENT SCHEMES TO INCREASE TURNOVER OF THE BUSINESS FROM TIME TO TIME FOR PROMOTION OF THE SAME AND EXPENDITURE INCURRED IN DIFFERENT WAYS FOR AND ON BEHALF OF THE AUTHORIZED DEALERS. THE AR FURTHER SUBMITTED THAT IN THIS BACKDROP, THE EXP ENDITURE OF RS.9,82,037 WAS INCURRED ON ACCOUNT OF HHM SCHEME BY PRINCIPAL MANUFACTURERS FOR THE BENEFIT OF BOTH THE PRINCIPAL AND ITS DEALERS AND F OR THIS PURPOSE, THE AMOUNT INCURRED ON THE SCHEMES WAS COLLECTED FROM THE AUTH ORIZED DEALERS RAISING DEBIT NOTES AND FURTHER IT WAS REIMBURSED IN THE FO RM OF DISCOUNT ON THE PURCHASE PRICE OF MOTORCYCLE. THE AR VEHEMENTLY SU BMITTED THAT THE ASSESSEE FURNISHED DETAILS BEFORE THE AUTHORITIES B ELOW WHICH IS AVAILABLE ON PAPER BOOK PAGES 64 TO 68 WHEREIN IT IS CLEAR THAT THE ASSESSEE GOT DISCOUNT AGAINST THE VARIOUS PROMOTIONAL SCHEMES FROM THE MA NUFACTURER AND FULL ITA NO.2007/DEL/2011 ASSTT.YEAR: 2007-08 11 BREAK-UP OF THE DISPUTES CLAIM IS GIVEN ON PAGE NO. 68. THE AR SUPPORTING THE IMPUGNED ORDER IN THIS REGARD CONTENDED THAT TH ERE WAS NO JUSTIFICATION FOR THE ASSESSING OFFICER IN INVOKING THE PROVISION S OF SECTION 40(A)(IA) OF THE ACT. 17. AT THE OUTSET, WE FIND IT APPROPRIATE THE REPRO DUCE THE FINDINGS OF THE ASSESSING OFFICER GIVEN BELOW: 5. THE COMPANY HAS CLAIMED EXPENDITURE OF RS. 9,82,037/- ON ACCOUNT OF HHM SCHEME. AS PER THE EXPLANATION GIVEN BY THE ASSESSEE THE EXPENSE REPRE SENTS THE PAYMENT OF ADVERTISEMENT AND BUSINESS PROMOTION ON VARIOUS SCHEMES INITIATED BY THE MANUFACTURER(PRINC IPAL). THE EXPENSE IS INCURRED BY THE PRINCIPAL AND SUBSEQ UENTLY CHARGED FROM THE DEALER BY WAY OF A DEBIT NOTE. THE EXPENSE IS NEITHER INCURRED BY THE DEALER NOR IS TH E BILL IN THE NAME OF THE DEALER. AS SUCH THE EXPENDITURE REP RESENTS THE SERVICES RENDERED BY THE PRINCIPALS. SINCE THE ASSESSEE COMPANY HAS NOT DEDUCTED TAX AT SOURCE ON HHM PAYME NT THE EXPENSE STANDS DISALLOWED UNDER THE PROVISION O F SEC 40(A)(IA) OF THE INCOME TAX ACT. 18. LD. COMMISSIONER OF INCOME TAX(A) DECIDED THE I SSUE WITH THE OBSERVATIONS AS REPRODUCED BELOW:- 8. GROUND NO.6 IS AGAINST THE ADDITION OF RS.9,82,037/-. IN THIS REGARD AO HAS DISCUSSED THE ISSUE IN THE BODY OF ASSESSMENT ORDER AS UNDER:- 'THE COMPANY HAS CLAIMED EXPENDITURE OF RS.9,82,037 /- ON ACCOUNT OF HHM SCHEME. AS PER THE EXPLANATION GI VEN BY THE ASSESSEE THE EXPENSE REPRESENTS THE PAYMENT OF ADVERTISEMENT AND BUSINESS PROMOTION ON VARIOUS SCHEMES INITIATED BY THE MANUFACTURER (PRINCIPAL). THE EXPENSE IS INCURRED BY THE PRINCIPAL AND SUBSEQUENT LY ITA NO.2007/DEL/2011 ASSTT.YEAR: 2007-08 12 CHARGED FROM THE DEALER BY WAY OF A DEBIT NOTE. THE EXPENSE IS NEITHER INCURRED BY THE DEALER NOR IS TH E BILL IN THE NAME OF THE DEALER. AS SUCH THE EXPENDITURE REPRESENTS THE SERVICES RENDERED BY THE PRINCIPALS. SINCE THE ASSESSEE COMPANY HAS NOT DEDUCTED TAX AT SOURCE ON HHM PAYMENT THE EXPENSE STANDS DISALLOWED UNDER THE PROVISIONS OF SEC. 40(A) (IA) OF THE INCOME TAX ACT . ' 8.1 DURING THE COURSE OF APPELLATE PROCEEDINGS ID. AR OF THE ASSESSEE HAS SUBMITTED AS UNDER:- 'IT IS COMMON GROUND THAT THE APPELLANT IS AN AUTHO RIZED DEALER OF HERO HONDA AND ITS ACCESSORIES AND ALSO R UNS SERVICE STATIONS. THERE IS CUT THROAT COMPETITION I N THE BUSINESS IN WHICH THE APPELLANT HAS ENGAGED ITSELF. THE PRINCIPAL, HERO HONDA OF WHICH THE APPELLANT IS THE (AUTHORIZED DEALER IS ALWAYS IN THE LOOK OUT TO INC REASE THE TURN OVER OF THE BUSINESS. WITH THIS NEED IN VI EW, DIFFERENT SCHEMES ARE INTRODUCED FROM TIME TO TIME FOR THE PROMOTION OF SALE OF THEIR PRODUCTS AND EXPENDITURE IS INCURRED IN DIFFERENT WAYS FOR AND ON BEHALF OF THE AUTHORIZED DEALERS. THE SCHEME INTRODUCED IS APPLIC ATION TO ALL THE VARIOUS DEALERS ALL OVER INDIA AND IS FO R THE PROMOTION OF THE BUSINESS. IT IS IN THIS BACKGROUND THAT AN EXPENDITURE OF RS.9,82,037/- WAS INCURRED ON ACCOUN T OF HHM SCHEME AND DEBITED TO THE P & L A/C. THE BURDEN OF THIS SCHEME IS ULTIMATELY NOT TO BE ON THE AUTHO RIZED DEALER BECAUSE IT IS TO INURE TO THE BENEFITS BOTH OF THE PRINCIPAL AND ITS DEALERS AND FOR THIS PURPOSE THE AMOUNT SPENT ON THE SCHEME IS IN A WAY REIMBURSED TO THE AUTHORIZED DEALERS IN THE FORM OF DISCOUNT ON THE PURCHASE PRICE OF THE MOTORCYCLES. FOR EXAMPLE OF T HE BILL TOWARDS THE PURCHASE OF MOTORCYCLES WORTH TO S AY RS.10,00,000/-, WILL SHOW DISCOUNT OF RS.1,00,000/- RESULTING IN THE COST TO THE ASSESSEE OF PURCHASE O F MOTORCYCLES AT RS.9 LACS INSTEAD OF RS.1 0 LACS. TH IS IS EXACTLY WHAT HAS HAPPENED IN THE PRESENT CASE. THE PERUSAL O/SCHEDULE K OF THE BALANCE SHEET WILL SHO W THAT UNDER THE HEAD SELLING AND DISTRIBUTION EXPENSES TH ERE IS TOTAL DEBIT OF RS.28,28,951.34 WHICH INTER ALIA INC LUDES ITA NO.2007/DEL/2011 ASSTT.YEAR: 2007-08 13 RS.9,82,037.91 AS HHM SCHEME. THIS AMOUNT APPEARS I N THE TRADING AND PROFIT AND LOSS ACCOUNT FOR THE YEA R ENDING 31.3.2007 UNDER THE HEAD EXPENDITURE WITH TH E CAPTION SELLING AND DISTRIBUTION EXPENSES RS.28,28,951.34. UNDER THE SAME HEAD I.E. EXPENDITU RE SHOWS PURCHASES OF RS.15,68,52,259.656. SCHEDULE-H REFERS TO PURCHASE ACCOUNTS OF MOTOR CYCLE RS.14,52,63,900.69. SCHEDULE-H AGGREGATES TO RS.15,68,52,259.66 WHICH IS TAKEN OVER AS EXPENDITU RE RELATING TO THE PURCHASE APPEARING IN THE TRADING A ND PROFIT AND LOSS ACCOUNT. A COMBINE READING OF DOCUM ENTS SHOW THAT WHILE THE PURCHASE ARE DEBITED BY RS.15,68,59,259.00 PURCHASE OF MOTOR CYCLES IS RS.14,52,63,900.00 AND THE APPELLANT IS THE BENEFIT 0/ RS.I0,18,485.25 AS AGAINST WHICH ITS EXPENDITURE ON HHM SCHEME AS RS. 9, 82, 037.91. THE APPELLANT, THEREFORE, IS THE GAINER. THEREFORE, NO DISALLOWANC E IS CALLED/OR. ATTENTION IS ALSO INVITED TO THE CERTIFI CATE ISSUED BY HERO HONDA TO THE EFFECT THAT THEY HAVE GIVEN TO THE ASSESSEE DISCOUNT OF RS.10,18,485/- TOWARDS THE PURCHASES BY THE ASSESSEE OF MOTORCYCLES. 8.2. I HAVE GONE THROUGH THE FINDINGS OF THE AO AN D SUBMISSION OF THE ID. AR AND FURTHER DETAILS [CHART AVAILABLE AT PAGE NO.64 AND PAGE NO.65 TO 67 OF THE PAPER BOOK], WHEREIN, IT HAS BEEN FOUND THAT THESE ARE THE DISCOUNTS AGAINST THE VARIOUS PROMOTIONAL SCHEM ES. ON PAGE NO.68 THERE IS FULL BREAK UP OF THE AMOUNT OF RS.9,82,0371-. SO, THERE IS NO RATIONAL IN INVOKING THE PROVISIONS OF SECTION 40(A)(IA) OF THE IT ACT. IN M Y CONSIDERED OPINION ASSESSEE DESERVES RELIEF ON THIS ACCOUNT. THIS GROUND IS ALLOWED IN FAVOUR OF THE ASSESSEE. 19. AT THE OUTSET, WE OBSERVE THAT THE DR DID NOT D ISPUTE THE FACT THAT THE ASSESSEE COMPANY HAD GIVEN DISCOUNT OF RS.10,18,585 .25 BY ITS PRINCIPAL MANUFACTURER DURING THE FINANCIAL YEAR UNDER CONSID ERATION AGAINST THE ITA NO.2007/DEL/2011 ASSTT.YEAR: 2007-08 14 VARIOUS PROMOTIONAL SCHEMES AND AS PER TRADING ACCO UNT SUBMITTED BY THE ASSESSEE BEFORE THE AUTHORITIES BELOW WHICH IS AVAI LABLE FROM PAGE NO. 46 TO 50 AND 68, IT IS APPARENT THAT THE ASSESSEE HAS SHO WN PURCHASES OF VEHICLES AMOUNTING TO RS.14,52,63,900.69 AFTER DEDUCTING THE DISCOUNT FROM THE BILLING AMOUNT. BUT WE OBSERVE THAT THE LD. COMMIS SIONER OF INCOME TAX(A) HAS NOT DISCUSSED AND GIVEN A FINDING IN THI S REGARD THAT HOW THE DISCOUNT GIVEN BY THE PRINCIPAL MANUFACTURER BY WAY OF DEDUCTING THE SAME IN THE SALES BILLS RAISED AGAINST THE ASSESSEE AND THE DEBIT NOTES RAISED ON ASSESSEE BY THE PRINCIPAL (MANUFACTURER) TO COLLECT THE PAYMENT MADE BY PRINCIPAL MANUFACTURER ON ACCOUNT OF ADVERTISEMENT AND SALES PROMOTION EXPENSES IS CO-RELATED AND DESERVES TO BE ALLOWED A S THE EXPENDITURE INCURRED BY THE ASSESSEE FOR ADVERTISEMENT AND SALE S PROMOTION. LD. COMMISSIONER OF INCOME TAX(A) HAS NOT GIVEN ANY FIN DINGS ON THE ASSESSING OFFICERS OBSERVATIONS IN THIS REGARD. W E HAVE NO HESITATION TO HOLD THAT THE IMPUGNED ORDER IN THIS REGARD IS SLIP SHOD AND CRYPTIC, THEREFORE WE FIND IT APPROPRIATE TO RESTORE THIS ISSUED TO TH E FILE OF COMMISSIONER OF INCOME TAX(A) FOR ADJUDICATION. GROUND NO. 4 IS DI SPOSED OF IN THE TERMS AS INDICATED ABOVE. ITA NO.2007/DEL/2011 ASSTT.YEAR: 2007-08 15 20. IN THE RESULT, THE APPEAL OF THE REVENUE IS DIS MISSED FOR GROUND NOS. 1, 2, 3 AND IS PARTLY ALLOWED ONLY IN RESPECT OF GROUN D NO.4 AND, THEREFORE, THE APPEAL MAY BE TREATED AS PARTLY ALLOWED FOR STATIST ICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 19.10.2012. SD/- SD/- ( A.N. PAHUJA ) (CHANDRA MOHAN GARG) ACCOUNTANT MEMBER JUDICIAL MEMBER DT. 19TH OCTOBER 2012 GS COPY FORWARDED TO:- 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR BY ORDER DEPUTY REGISTRAR