GILLETTE INDIA LTD., Jaipur V. ACIT, Alwar

ITA 221/JPR/2014

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 99578 (ITAT-JAIPUR)
• Duration Of Justice: 1 year(s) 8 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-12-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2005-2006
• Appeal Filed On: 24-03-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Gift; Business expenditure

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES, JAIPUR JH VKJ-IH-RKSYKUH] U;KF;D LNL; ,OA JH VH-VKJ-EHUK] YS[KK LNL; DS LE{K BEFORE: SHRI R.P. TOLANI, JM & SHRI T.R. MEENA, AM VK;DJ VIHY LA- @ ITA NO. 221/JP/2014 FU/KZKJ.K O'K Z @ ASSESSMENT YEAR : 2005-06 M/S GILLETTE INDIA LIMITED, 65-A, INDUSTRIAL AREA, BHIWADI CUKE VS. ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-2, ALWAR. LFKK;H YS[KK LA-@THVKBZVKJ L A-@ PAN/GIR NO.: AAACI 3924 J VIHYKFKHZ @ APPELLANT IZR;FKHZ @ RESPONDENT FU/KZKFJRH DH VKSJ LS @ ASSESSEE BY : SHRI P.C. PARWAL (CA) JKTLO DH VKSJ LS @ REVENUE BY : SHRI KAILASH MANGAL (JCIT) LQUOKBZ DH RKJH[ K@ DATE OF HEARING : 16/10/2015 MN ?KKS'K .KK DH RKJH[ K @ DATE OF PRONOUNCEMENT : 14/12/2015 VKNS'K @ ORDER PER: T.R. MEENA, A.M. THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER DATED 12/02/2014 PASSED BY THE LEARNED CIT(A), ALWAR FOR A .Y. 2005-06. THE SOLE GROUND OF APPEAL IS AS UNDER:- 1 THE LD CIT(A) HAS ERRED ON FACTS AND IN LAW IN CONFIRMING THE ACTION OF THE A.O. IN MAKING AD HOC DISALLOWANCE OF RS. 50 LACS OUT OF ADVERTISEMENT AND SALES PROMOTION EXPENSES. ITA 221/JP/2014_ M/S GILLETTE INDIA LIMITED VS. ACIT 2 2. IN THIS CASE, THIS ISSUE HAS BEEN SET ASIDE BY T HE ITAT VIDE ORDER DATED 11/2/2011 IN ITA NO. 1234/JP/2010 A.Y. 2005- 06. THE OPERATIVE PORTION OF THE ORDER IS REPRODUCED AS UNDER:- 6. AFTER CONSIDERING THE SUBMISSIONS AND PERUSING T HE MATERIAL ON RECORD, WE FIND THAT THIS ISSUE NEEDS RE-VERIFICATIO N AT THE END OF THE AO. THE EXPENSES ON ADVERTISEMENT AND SALES PR OMOTION HAVE INCREASED SUBSTANTIALLY WHEREAS TURNOVER OF THE ASS ESSEE HAS INCREASED MARGINALLY. NO PLAUSIBLE EXPLANATION HAS BEEN GIVEN EITHER BEFORE AO OR BEFORE LD. CIT (A) THAT HOW SUC H INCREASE HAS BEEN OCCURRED ON ACCOUNT OF THESE EXPENSES. AS PER ORDERS OF AO AND LD. CIT (A), FULL DETAILS WERE NOT FILED. ON T HE OTHER HAND, LD. COUNSEL OF THE ASSESSEE STATED THAT IN THE SHAPE OF CD, THE FULL DETAILS WERE FILED. THERE ARE MORE THAN 30,000 ENT RIES ON ACCOUNT OF THESE EXPENSES. WHATEVER QUERY WAS MADE BY THE A O THEY WERE ANSWERED ACCORDINGLY. KEEPING IN VIEW ALL THESE FAC TS AND CIRCUMSTANCES, WE SET ASIDE THIS ISSUE TO THE FILE OF AO TO EXAMINE THE ISSUE AFRESH AFTER AFFORDING OPPORTUNITY OF BEI NG HEARD TO THE ASSESSEE. WE ORDER ACCORDINGLY. THEREAFTER, THE LD ASSESSING OFFICER DECIDED THIS IS SUE VIDE ORDER DATED 05/12/2011 BY PROVIDING A FRESH OPPORTUNITY TO THE ASSESSEE. THE ASSESSEE REPLIED VIDE ORDER DATED 29/11/2011, WHICH HAS BEEN REPRODUCED BY THE ASSESSING OFFICER ON PAGE NO. 4-5 OF THE ASS ESSMENT ORDER. AFTER ITA 221/JP/2014_ M/S GILLETTE INDIA LIMITED VS. ACIT 3 CONSIDERING THE ASSESSEES REPLY, THE LD ASSESSING OFFICER HAS HELD AS UNDER:- THE ASSESSEE HAS CLAIMED ADVERTISEMENT AND SALES PR OMOTION EXPENSES OF RS. 63,98,61,831/-. DURING THE COURSE O F ASSESSMENT PROCEEDINGS ALSO, THE ASSESSEE WAS ASKED JUSTIFY THE CLAIM OF EXPENSES AND TO ESTABLISH THAT THE SAM E WERE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. IN THIS REGARD, THE REPLY FILED BY THE ASSESSEE DURING THE SET ASIDE ASSESSMENT PROCEEDINGS HAS BEEN CONSIDERED AND NEIT HER FOUND CONVINCING NOR SATISFACTORY. IT IS NOTICED THAT ASS ESSEE HAS CLAIMED TRADE GIFTS AT RS. 1,21,84,872/-, TRADE GIFTS PROMO NE- RS. 2,51,97,162/-, CON. PROMO CAMPAIGN RS. 34,37,37 54/-, TRADE GIFTS PROMO- RS. 19,88,825/-, SAMPLING/INVENT ORIES RS. 8,81,19,911/-, MERCHANDISING- RS. 7,77,061/-, SALE S PROM- OTHERS- RS. 5,44,11,963/-, OTHERS RS. 67,89,275/-. IT IS FURTHER NOTICED THAT THE GROSS SALES OF THE ASSESSEE HAVE I NCREASED TO RS. 453,56,81,999/- AS COMPARED TO GROSS SALES OF R S. 424,33,09,514/- DURING THE IMMEDIATELY PRECEDING YE AR, BUT THE EXPENDITURE ON ADVERTISEMENT AND SALES PROMOTION HA S INCREASED DRASTICALLY TO RS. 63,98,61,831/- FROM RS . 46,50,26,077/- DURING THE LAST YEAR. THE COMPLETE BI LLS AND VOUCHERS TO JUSTIFY THESE EXPENSES HAVE NOT BEEN PR OVIDED. THERE IS NO JUSTIFICATION FOR SUCH INCREASE IN ADVER TISEMENT AND SALES PROMOTION EXPENSES. IN THE ABSENCE OF COMPLET E BILLS AND VOUCHERS OF THESE EXPENSES IT CANNOT BE ESTABLISHED THAT ALL THE EXPENDITURE WAS WHOLLY AND EXCLUSIVELY FOR BUSINESS . NON ITA 221/JP/2014_ M/S GILLETTE INDIA LIMITED VS. ACIT 4 BUSINESS EXPENDITURE UNDER THIS HEAD CANNOT BE RULE D OUT AND THEREFORE T4HIS EXPENDITURE IS NOT ALLOWABLE. IN VIE W OF THE ABOVE FACTS THE DISALLOWANCE ON ACCOUNT OF ADVERTISE MENT EXPENSES OF RS. 50,00,00/- MADE BY THE A.O. AND SUB SEQUENTLY CONFIRMED BY THE LD CIT(A) IS IN ORDER AND AS SUCH N O INTERFERENCE IN THE SAID ADDITION/DISALLOWANCES IS WA RRANTED 3. BEING AGGRIEVED BY THE ORDER OF THE LD ASSESSING OFFICER, THE ASSESSEE CARRIED THE MATTER BEFORE THE LD CIT(A), WHO HAD ALSO CONFIRMED THE ORDER OF THE ASSESSING OFFICER AS UNDER:- 5.3 I HAVE CONSIDERED THE ASSESSMENT ORDER AND SUB MISSIONS MADE BY THE APPELLANT AND FIND THAT A.O. HAS GONE T HROUGH THE DETAILS OF ADVERTISEMENT AND SALES PROMOTION EX PENSES FILED BY THE APPELLANT AND AFTER CONSIDERING THE MA TERIAL PLACED ON RECORD HAS DISALLOWED RS. 50 LACS ON ESTIM ATE BASIS OUT OF THE TOTAL EXPENDITURE OF RS. 63.98 CRO RES CLAIMED UNDER THIS HEAD. A.O. HAS FURTHER STATED THAT COMPL ETE BILLS AND VOUCHERS TO JUSTIFY THE CLAIM OF EXPENSES UNDER THIS HEAD WERE NOT FILED. 5.4 DURING THE COURSE OF APPELLATE PROCEEDINGS, IT IS SUBMITTED THAT THE SALES PROMOTION EXPENSES AND ADVERTISEMEN T HAVE INCREASED FROM RS. 46.50 CRORES IN THE PRECEDING YE AR TO RS. 63.98 CRORES DURING THE CURRENT YEAR. THE INCREASE I N THE EXPENSES IS NECESSARY TO HAVE THE MARKET PENETRATIO N AND TO MAINTAIN THE SALE. THE APPELLANT HAS SUBMITTED A CHA RT ITA 221/JP/2014_ M/S GILLETTE INDIA LIMITED VS. ACIT 5 SHOWING THE INCREASE IN THE EXPENSES UNDER THIS HEAD AS A PROPORTION TO THE SALES IN THE LAST THREE YEARS. 5.5 CONSIDERING THE SUBMISSION MADE, I FIND THAT TH E APPELLANT HAS NOT BEEN ABLE TO CONTROVERT THE FINDINGS GIVEN BY THE A.O. AND HAS MADE BALD STATEMENTS TO JUSTIFY THE CL AIM OF EXPENSES UNDER THIS HEAD. THE PERCENTAGE OF EXPENSES TO SALES CLAIMED UNDER THIS HEAD HAS INCREASED FROM 10 .96% IN THE PRECEDING YEAR TO 14.11% IN THE CURRENT YEAR. T HE TURNOVER HAS INCREASED MARGINALLY FROM RS. 424.33 C RORES IN THE PRECEDING YEAR TO RS. 453.56 CRORES IN THE CURR ENT YEAR. THUS, I AGREE WITH THE ACTION TAKEN BY THE A.O. AND ACCORDINGLY CONFIRM THE AD HOC DISALLOWANCE OF RS. 50 LACS MADE BY THE A.O. 4. NOW THE ASSESSEE IS IN APPEAL BEFORE US. THE LD AR OF THE ASSESSEE HAS SUBMITTED THAT IN THE SET ASIDE PROCEEDINGS, AS SESSEE HAS SPECIFICALLY DRAWN THE ATTENTION OF THE AO TO THE CD CONTAINING T HE COMPLETE DETAILS OF EXPENSES IN THE SOFT FORMAT AND THE OTHER DETAILS D URING THE COURSE OF ORIGINAL PROCEEDINGS. AO HAS NOT DENIED THE SUBMISS ION OF THESE DETAILS. THEREFORE, IT IS INCORRECT ON HIS PART TO HELD THAT COMPLETE BILLS AND VOUCHERS TO JUSTIFY THESE EXPENSES HAVE NOT BEEN PR OVIDED. HE HAS ALSO NOT SPECIFIED ANY PARTICULAR BILL OR VOUCHER WHICH I S NOT PROVIDED OR ANY EXPENDITURE WHICH IS NON BUSINESS EXPENDITURE. THERE FORE, THE DISALLOWANCE MADE BY HIM AND CONFIRMED BY CIT(A) IS U NCALLED FOR. ITA 221/JP/2014_ M/S GILLETTE INDIA LIMITED VS. ACIT 6 HE FURTHER SUBMITTED THAT THE EXPENDITURE HAS INCRE ASED AS COMPARED TO THE LAST YEAR TO HAVE THE MARKET PENETRATION AND TO INCREASE THE SALES. THE POSITION OF SALES AND THE EXPENDITURE INCURRED I N VARIOUS YEARS IS AS UNDER:- A.Y. SALES EXPENSES ON ADVERTISEMENT AND SALES PROMOTION EXPENSES AS % OF SALES ADHOC DISALLOWANCE MADE BY THE AO 2002 - 03 4,70,08,16,930/ - 38,69,51,744/ - 8.23% NIL 2003 - 04 4,32,81,84,063/ - 30,39,49,788/ - 7.02% NIL 2004 - 05 4,24,33,09,514/ - 46,50,26,077/ - 10.96% 46,50,000/ - [APPEAL PENDING BEFORE ITAT] 2005 - 06 4,53,56,81,999/ - 63,98,61,831/ - 14.11% 50,00,000/ - (PRESENT APPEAL) 2006 - 07 4,12,14,38,500/ - 66,16,25,564/ - 16.05% NIL 2007 - 08 5,25,45,24,097/ - 57,43,78,947/ - 10.93% NIL 2008 - 09 5,98,49,04,298/ - 68,45,77,760/ - 11.44% 50,00,000/ - [CIT(A) REDUCED TO RS.35 LACS. APPEAL PENDING BEFORE ITAT] 2009 - 10 6,50,28,18,154/ - 81,09,00,508/ - 12.47% NIL FROM THE ABOVE TABLE, IT CAN BE NOTED THAT IN THE Y EAR UNDER CONSIDERATION, THE EXPENDITURE HAS INCREASED TO BOO ST THE SALE. THE ASSESSEE HAS THEREFORE, TO INCUR HIGHER ADVERTISEME NT EXPENDITURE TO INCREASE THE SALES. IT MAY ALSO BE NOTED THAT IN A. Y. 06-07, 07-08 AND 09- 10, WHERE THE EXPENDITURE IS MORE/COMPARABLE AS COMP ARED TO THE YEAR UNDER CONSIDERATION, THE AO HAS NOT MADE ANY DISALL OWANCE IN ASSESSMENT ITA 221/JP/2014_ M/S GILLETTE INDIA LIMITED VS. ACIT 7 FRAMED U/S 143(3). SO FAR AS DETAILS OF ADVERTISEM ENT AND SALES PROMOTION EXPENDITURE ARE CONCERNED, THE ASSESSEE H AS FURNISHED THE COMPLETE DETAILS. SUCH DETAILS WERE FURNISHED IN A C D DUE TO ITS VOLUMINOUS NATURE (THE HARD COPY CONTAINING MORE TH AN 30,000 INDIVIDUAL ENTRIES RUNNING INTO AROUND 600 PAGES). THE SUMMARY OF THE EXPENDITURE WAS PROVIDED IN THE HARD COPY. FROM THE SAME, IT CAN BE NOTED THAT OUT OF THE TOTAL EXPENSES, EXPENDITURE OF RS. 37.66 CRORES IS IN RESPECT OF ADVERTISEMENT FOR WHICH PARTY-WISE DETAIL COVERING AN AMOUNT OF RS. 36.87 CRORES WAS FURNISHED. THE REMAINING EXPENDITURE WAS IN RESPECT OF SALES PROMOTION AND FREE DISTRIBUTION OF SAMPLE PRODUCTS WHICH IS FULLY VERIFIABLE FROM THE INDIVIDUAL DETAILS SUBMITTED IN THE SOFT F ORMAT. THE ENTIRE EXPENDITURE INCURRED BY THE ASSESSEE IS NECESSARILY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS AND DULY SUPPORTED WITH PROPER S UPPORTING AND BILLS. THE AO/CIT(A) HAS NOT POINTED ANY PARTICULAR EXPENSES FOR WHICH BILLS/VOUCHERS WERE NOT SUBMITTED OR THAT THE SAME I S NOT WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. THE STATUTO RY AUDITOR HAS VERIFIED ALL THESE EXPENSES AND THERE IS NO QUALIFICATION BY THEM. THE SYSTEM OF INTERNAL CONTROL IS SUCH THAT NO EXPENSES ARE BOOKE D WITHOUT APPROPRIATE APPROVAL AND EVIDENCE OF EXPENSES. IN THESE CIRCUMS TANCES, ONLY BECAUSE EXPENDITURE CLAIMED HAS INCREASED AS COMPARED TO TH E EARLIER YEARS, ITA 221/JP/2014_ M/S GILLETTE INDIA LIMITED VS. ACIT 8 CANNOT BE A GROUND FOR MAKING/CONFIRMING ADHOC DISA LLOWANCE. HE PLACED RELIANCE ON THE FOLLOWING CASES:- 1. WIDEX INDIA (P) LTD. VS. DCIT (2012) 66 DTR 57 (D EL.) (TRIB.). 2. PNC CONSTRUCTION CO. LTD VS. DCIT (2013) 144 IT D 577 (AGRA) (TRIB.). 3. ACIT VS. GANPATI ENTERPRISES LTD. (2013) 142 ITD 118 (DELHI) (TRIB.). 4. CIT VS. SYMPHONY COMFORT SYSTEM LTD. (2013) 216 TAXMAN 225 (GUJ.) (HC) (MAG.). 5. SEASONS CATERING SERVICES (P) LTD. VS. DCIT 43 D TR 397 (DEL) (TRIB). 6. CIT VS. ORACLE INDIA (P) LTD. 199 TAXMAN 181 (DEL ) (HC) (MAG.). 7. ARTHUR & ANDERSON & CO. VS. ACIT (2010- TIOL-416- ITAT). IN VIEW OF ABOVE, THE DISALLOWANCE CONFIRMED BY THE CIT(A) BE DIRECTED TO BE DELETED. 5. AT THE OUTSET, THE LD DR HAS VEHEMENTLY SUPPORTE D THE ORDER OF THE LD CIT(A) AND ARGUED THAT THE ASSESSEES EXPENSES UN DER THIS HEAD IS DISPROPORTIONATE WITH REFERENCE TO SALE AND ALSO HAS NOT BEEN ABLE TO GIVE THE PART VOUCHERS OF THE EXPENSES BEFORE THE ASSESS ING OFFICER. THEREFORE, HE PRAYED TO CONFIRM THE ORDER OF THE LD CIT(A). ITA 221/JP/2014_ M/S GILLETTE INDIA LIMITED VS. ACIT 9 6. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON THE RECORD. IT IS UNDISPU TED FACT THAT PERCENTAGE OF EXPENSES ON ADVERTISEMENT AND SALES PROMOTION WIT H REFERENCE TO SALE OF SUBSTANTIAL INCREASE COMPARED TO PRECEDING YEAR. IN IMMEDIATE PRECEDING YEAR, THESE EXPENSES WERE AT 10.96% ON SAL E AND IN CURRENT YEAR IT INCREASES AT 14.11% ON SALE. THE REPLY SUBMI TTED BY THE ASSESSEE FURTHER SHOWS THAT IN A.Y. 2006-07 AND THIS RATIO HA S INCREASED AT 16.05% BUT NO DISALLOWANCE HAS BEEN MADE BY THE ASSESSING O FFICER. EVEN THE ASSESSEES SALE HAS GONE DOWN FROM RS. 454 CRORES IN PRECEDING YEAR I.E. 2005-06 TO RS. 412 CRORES IN A.Y. 2006-07. THEREFO RE, THERE IS NO CORRELATION BETWEEN THE EXPENSES INCURRED AND SALE I NCREASED OR DECREASED. THE ASSESSEE INCURRED THESE EXPENSES FOR PENETRATION OF THE MARKET AND TO INCREASE THE SALE WITH THE HELP OF EXP ERTS IN THE LINE OF MARKETING. IT IS NOT NECESSARY THAT THE EXPERT OPIN ION ALWAYS WORKED IN POSITIVE LINE. THE ASSESSEE IS A MULTINATIONAL COMPA NY AND THEIR SHARE HOLDERS ARE NOT DIRECTLY INVOLVED IN THE ORDINARILY ACTIVITY OF THE BUSINESS OF THE COMPANY. THE ASSESSEE HAS SUBMITTED ALL THE DETA ILS OF ADVERTISEMENT AND SALES PROMOTION EXPENSES IN CD FORM AND IN FORM OF HARD COPY IT WAS RENDERING INTO AROUND 600 PAGES ON FOR DETAILS. EA CH AND EVERY VOUCHER HAS BEEN MAINTAINED BY THE ASSESSED AS THERE IS AN AUDIT HAS BEEN MADE ITA 221/JP/2014_ M/S GILLETTE INDIA LIMITED VS. ACIT 10 BY THE AUDITOR AND NOT QUALIFYING COMMENT HAD BEEN MADE BY HIM UNDER THIS HEAD. THE LD ASSESSING OFFICER ALSO EVEN NOT MA DE ANY ADDITION IN A.Y. 2006-07 UNDER THIS HEAD WHERE THE RATIO OF EXPE NSES INCREASED UP TO 16.05%. IN OTHER YEAR ALSO I.E. A.Y. 2007-08 AND 20 09-10, THE LD ASSESSING OFFICER HAS NOT DISALLOWED ANY AMOUNT FROM THIS HEAD ON THE GROUND THAT THE ASSESSEE HAD NOT INCURRED THESE EXP ENSES WHOLLY AND EXCLUSIVELY FOR THE BUSINESS PURPOSES. THE ASSESSEE S SUBMISSION HAS NOT CONTROVERTED BY HIM, THEREFORE, WE ALLOW THE ASSESSEE S APPEAL ON THIS GROUND. 7. IN THE RESULT, THE ASSESSEES APPEAL IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 14/12/2015. SD/- SD/- VKJ-IH-RKSYKUH VH-VKJ-EHUK (R.P.TOLANI) (T.R. MEENA) U;KF;D LNL;@ JUDICIAL MEMBER YS[KK LNL;@ ACCOUNTANT MEMBER TK;IQJ @ JAIPUR FNUKAD @ DATED:- 14 TH DECEMBER, 2015 *RANJAN VKNS'K DH IZFRFYFI VXZSFKR @ COPY OF THE ORDER FORWARDED TO: 1. VIHYKFKHZ @ THE APPELLANT- M/S GILLETTE INDIA LIMITED, BHIWADI. 2. IZR;FKHZ @ THE RESPONDENT- THE ACIT, CIRCLE-2, ALWAR. 3. VK;DJ VK;QDR @ CIT 4. VK;DJ VK;QDRVIHY @ THE CIT(A) ITA 221/JP/2014_ M/S GILLETTE INDIA LIMITED VS. ACIT 11 5. FOHKKXH; IZFRFUF/K] VK;DJ VIHYH; VF/KDJ.K] T;IQJ @ DR, ITAT, JAIPUR 6. XKMZ QKBZY @ GUARD FILE (ITA NO. 221/JP/2014) VKNS'KKUQLKJ @ BY ORDER, LGK;D IATHDKJ @ ASST. REGISTRAR