M/s H.K. Commercial Pvt. Ltd., Kolkata V. ITO, Ward-8(4), Kolkata, Kolkata

ITA 2212/KOL/2016

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 7576 (ITAT-KOLKATA)
• Duration Of Justice: 2 year(s) 1 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-01-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2011-2012
• Appeal Filed On: 21-11-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ROBIN CHOWDHURY
• Assessee Lawyers: RAVI TULSIYAN F
• Keywords: Gift; Earning of tax free income; Tangible material; Corroborative evidences
• Section: 14A; 133(6)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B, BENC H KOLKATA BEFORE SHRI S. S. GODARA, JM &DR. A.L.SAINI, AM ./ITA NO.2212/KOL/2016 ( / ASSESSMENT YEAR: 2011-12) M/S H.K. COMMERCIAL PVT. LTD. 11, ESPLANADE EAST, KOLKATA 700 069. VS. ITO, WARD-8(4), KOLKATA AAYAKAR BHAWAN, P-7, CHOWRINGHEE SQUARE, KOLKATA 700 069. ./ ./PAN/GIR NO.: AAACH 6884 Q (ASSESSEE) .. (RESPONDENT) ASSESSEE BY :SHRI RAVI TULSIYAN, F CA RESPONDENT BY : SHRI ROBIN CHOWDHURY , ADDL. CIT, SR. DR / DATE OF HEARING : 19/11/2018 /DATE OF PRONOUNCEMENT : 16/01/2019 / O R D E R PER DR. A. L. SAINI: THE CAPTIONED APPEAL FILED BY THE ASSESSEE, PERTAIN ING TO ASSESSMENT YEAR 2011-12, IS DIRECTED AGAINST AN ORDER PASSED BY THE LD. COMMISSIONER OF INCOME TAX (APPEALS)-2, KOLKATA IN APPEAL NO.96/CIT(A)-2/1 6-17 DATED 25.10.2016 WHICH IN TURN ARISES OUT OF AN ASSESSMENT ORDER PAS SED BY THE ASSESSING OFFICER U/S 143(3)DATED 13/03/2014 OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT). 2. THE GRIEVANCES RAISED BY THE ASSESSEE ARE AS FOL LOWS: 1. THAT, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. C.I.T.(A) HAS ERRED IN HAVING ENDORSED THE ACTION OF THE A.O. ON ALL THE P OINTS AGITATED BEFORE HIM WITHOUT CONSIDERING THE DETAILED EXPLANATION OF THE ASSESSE E IN PROPER PERSPECTIVE AND THEREBY PASSING A NON-SPEAKING ORDER AND HENCE SUCH ORDER I S BAD IN LAW. 2 (A). THAT, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. C.I.T.(A) ERRED IN UPHOLDING THE DISALLOWANCE OF EXPENSES OF RS.2,269/ - U/S 14A R.W.R. 8D OF THE RULES WITHOUT CONSIDERING THAT LOAN TAKEN DURING THE YEAR CANNOT BE A SOURCE OF PURCHASE OF DIVIDEND M/S H.K. COMMERCIAL PVT. LTD. ASSESSMENT YEAR: 2011-12 ITA NO.2212/KOL/2016 P PP PA AA AG GG GE EE E | || | 2 22 2 EARNING SHARES OF CHAMBAL FERTILIZERS & CHEMICALS L TD. IN PAST YEARS AND HENCE NO INTEREST EXPENDITURE IS ATTRIBUTABLE TO SUCH EXEMPT INCOME. (B) THAT, THE LD. C.LT(A) FURTHER ERRED IN UPHOLDIN G THE DISALLOWANCE OF RS. 2,269/- WITHOUT APPRECIATING THAT THE A.O. TOOK 0.5% OF THE AVERAGE OF TOTAL INVESTMENT AS PER RULE 8D(2)(III) IN SPITE OF THE SETTLED POSITION IN LAW THAT DISALLOWANCE U/S.14 R.W.R. 8D(2)(III) CAN BE MADE ONLY IN RELATION TO THOSE INVESTMENTS W HICH GAVE RISE TO DIVIDEND IN THE RELEVANT ASSESSMENT YEAR. 3. THAT, ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE AND IN LAW, THE A.O. ERRED IN MAKING ADDITION OF ALLEGED UNDISCLOSED INCOME OF RS .66,40,284/- ON ACCOUNT OF CREDIT NOTES RECEIVED FROM ITC LTD. AND THE LD. C.L.T.(A) SIMULTANEOUSLY WENT WRONG IN UPHOLDING THE SAME WITHOUT APPRECIATING THE FACTS A ND DETAILED EXPLANATION OF THE ASSESSEE WITH SUPPORTING EVIDENCES IN PROPER PERSPECTIVE. 4. THAT, SIMILARLY, THE LD. C.I.T.(A) ERRED IN HAVI NG UPHELD THE ADDITION OF RS.4,96,987/- MADE IN THE GARB OF UNDISCLOSED INCOME ON THE ALLEG ED GROUND OF SHORT DECLARATION OF 'ASSISTANCE ON REBATES AND DISCOUNT' RECEIVED FROM ITC LTD. WITHOUT APPRECIATING THE FACTS AND DETAILED EXPLANATION OF THE ASSESSEE WITH SUPPO RTING EVIDENCES IN PROPER PERSPECTIVE. 5) THAT, AS THE ORDER OF LD. C.I.T.(A) ON THE ABOVE ISSUES SUFFERS FROM ILLEGALITY AND IS DEVOID OF ANY MERIT, THE SAME SHOULD BE QUASHED AND YOUR ASSESSEE BE GIVEN SUCH RELIEF(S) AS PRAYED FOR. 6) THAT THE ASSESSEE CRAVES LEAVE TO AMEND, ALTER, MODIFY, SUBSTITUTE, ADD TO, ABRIDGE AND/ OR RESCIND ANY OR ALL OF THE ABOVE GROUNDS. 3. GROUND NO.1 AND 2 WERE NOT PRESSED BY THE LD COU NSEL THEREFORE, THESE GROUNDS DO NOT REQUIRE ADJUDICATION. 4. GROUND NO.3 RAISED BY THE ASSESSEE RELATES TO AD DITION OF UNDISCLOSED INCOME OF RS.66,40,284/- ON ACCOUNT OF CREDIT NOTES RECEIVED FROM M/S ITC LTD. AND GROUND NO.4 RELATES TO ADDITION OF RS.4,96,987/ - MADE BY ASSESSING OFFICER ON ACCOUNT OF ALLEGED SHORT DECLARATION OF ASSISTANCE ON REBATES AND DISCOUNT RECEIVED FROM M/S ITC LTD. ABOVE NOTED GROUND NO.3 AND GROUND NO.4 ARE INTERLINKED AND COMMON THEREFORE, WE ADJUDICATE THE M TOGETHER AS UNDER. 5. THE BRIEF FACTS QUA THE ISSUE ARE THAT DURING TH E COURSE OF SCRUTINY PROCEEDINGS, THE ASSESSEE HAS SUBMITTED THAT HE IS THE STOCKIEST OF M/S ITC LTD AND DEALS IN CIGARETTES, TOBACCO AND CONSUMER GOODS OF ITC BRAND. THE ASSESSEE, DURING THE COURSE OF BUSINESS RECEIVES REBATES AND DISCOUNT FROM ITC LTD. IN ORDER TO VERIFY THE TRANSACTIONS WITH ITC DURING THE F.Y 2010-11, CONFIRMATION U/S 133(6) HAD BEEN BROUGHT FROM ITC LTD. ON 16.07.2013 , THE XEROX COPY OF WHICH M/S H.K. COMMERCIAL PVT. LTD. ASSESSMENT YEAR: 2011-12 ITA NO.2212/KOL/2016 P PP PA AA AG GG GE EE E | || | 3 33 3 WAS HANDED OVER TO THE ASSESSEE. IN THIS CONFIRMATI ON, M/S ITC LTD. STATED VIDE THE LEDGER ACCOUNT COPY OF M/S H.K. COMMERCIAL PVT. LTD . AS APPEARED IN THEIR BOOKS THAT THEY HAVE GIVEN CREDIT NOTES TO ASSESSEE AGGRE GATING TO RS.2,10,48,821/-. ON ANALYSIS OF THE LEDGER OF CREDIT NOTES IT WAS FOUND THAT THE CREDIT NOTES WERE GIVEN IN THE FOLLOWING TWELVE NARRATIONS/HEADS: 1. ASSISTANCE ON ACCOUNT OF SALE PROMOTION 2. ASSISTANCE ON ACCOUNT OF REBATE & DISCOUNT 3. ASSISTANCE ON ACCOUNT OF DAMAGE & DESTROY 4. ASSISTANCE ON ACCOUNT OF ONWARD FREIGHT 5. CREDITS TOWARDS STOCK SUPPLY TO ITC 6. ASSISTANCE ON ACCOUNT OF DISPLAY 7. ASSISTANCE ON ACCOUNT OF BRAND BOARD MAINTENANCE 8. ASSISTANCE ON ACCOUNT OF PRODUCTS STACKING UNIT 9. ASSISTANCE ON ACCOUNT OF TRANSPORT CHARGES 10. ASSISTANCE ON ACCOUNT OF TRADE INCENTIVE 11. ASSISTANCE ON ACCOUNT OF BANK CHARGES 12. AWARD TO CUSTOMERS M/S ITC LTD. WAS AGAIN REQUESTED TO CLARIFY CATEGOR ICALLY WHETHER THE ABOVE ASSISTANCE / CREDIT NOTES UNDER THE ABOVE TWELVE HE ADS WERE GIVEN TO THE ASSESSEE ON ACTUAL BASIS, AS INCENTIVE/DISCOUNT UNDER THE AB OVE HEADS. IN RESPONSE, THE ITC LTD. CLARIFIED TO THE CREDIT NOTES GIVEN IN THE ASS ESSEES FAVOUR IN THE FOLLOWING MANNER WHICH IS REPRODUCED BELOW: ITC DEALS WITH ITS CUSTOMERS ON A PRINCIPAL TO PRI NCIPAL BASIS. AT TIMES THE CUSTOMERS REQUEST FOR FINANCIAL ASSISTANCE TOWARDS EXPENDITURE INCURRED BY THEM DURING THE COURSE OF THEIR BUSINESS OF DISTRIB UTION OF ITCS PRODUCTS. SUCH REQUESTS ARE EVALUATED BY THE COMPANY AND IF FOUND JUSTIFIABLE AND IN THE INTEREST OF THE ITCS BUSINESS, CREDITS ARE GIVEN TO THE CUSTOMER. IN THIS RESPECT SUPPORTING EVIDENCES WERE ALSO ATTA CHED WITH THE SAID REPLY. EXCEPT IN THE CASE OF ASSISTANCE ON ACCOUNT OF BRAND BOAR D MAINTENANCE AGGREGATING TO RS.1,11,59,932/- (AS PER POINT NO.7 ABOVE) WHICH AC COMPANIES THE SUPPORTING BILLS AND VOUCHERS SUBMITTED BY THE ASSESSEE TO M/S ITC L TD. AND ON THE ACCOUNT HEAD CREDIT TOWARDS STOCK SUPPLY TO M/S. ITC LTD AGGRE GATING TO RS.12,71,384/- (AS PER POINT NO.5 ABOVE) WHICH ACCOMPANIES BILLS OF S ALES RAISED IN THE NAME OF M/S ITC LTD., AND ON ACCOUNT HEAD ASSISTANCE ON AC COUNT OF DAMAGE & DESTROY AGGREGATING TO RS.6,67,267/-. (POINT NO.3 ABOVE) IN NO OTHER NINE (9) HEADS AS M/S H.K. COMMERCIAL PVT. LTD. ASSESSMENT YEAR: 2011-12 ITA NO.2212/KOL/2016 P PP PA AA AG GG GE EE E | || | 4 44 4 STATED ABOVE THERE IS ANY SUPPORTING EVIDENCE ANNEX ED WITH THE CLAIMS MADE BY THE ASSESSEE TO M/S ITC LTD. EXCEPT THE DULY FILLED UP FORMAT PRESCRIBED BY M/S ITC LTD. IT IS ALSO OBSERVED FROM THE ANNEXURES TO THE REPLY OF M/S ITC LTD. THAT IT DID NOT SANCTION/APPROVE ITS WHOLE CLAIMS, BUT THEY DID FINALLY SANCTION THE AMOUNT OF CLAIMS MADE ON ACCOUNT OF THOSE 12 DIFFERENT HEADS AS PER THE ENTITLEMENT FIXED BY M/S ITC LTD. ITSELF AS PER THEIR OWN EVALUATION WIT H RESPECT TO THE JUSTIFIABILITY & THE INTEREST OF ITS BUSINESS. IT ALSO ESTABLISHES T HAT IN THE REAL TERM, IT IS NOT REIMBURSEMENT BUT THESE CREDIT NOTES ARE ACTUALLY I NCOME CREDITED IN ITS FAVOUR UNDER DIFFERENT HEADS OF ASSISTANCE, EXCLUDING THE AMOUNT UNDER ACCOUNT HEAD, ASSISTANCE ON BRAND BOARD MAINTENANCE AMOUNTING T O RS.1,11,59,932/-, UNDER THE ACCOUNT HEAD, CREDIT TOWARDS STOCK SUPPLY TO M /S ITC LTD AMOUNTING TO RS.12,71,384/- AND UNDER THE ACCOUNT HEAD, ASSISTA NCE ON ACCOUNT OF DAMAGE & DESTROY AMOUNTING TO RS.6,67,267/-. THE ASSESSEE D ID NOT ACCOUNT FOR THESE CREDIT NOTES IN ITS PROFIT AND LOSS ACCOUNT BY TAKING THE PLEA THAT IT DID NOT BEAR ANY INCOME ELEMENT IN FAVOUR OF ITS BUSINESS. IT IS TO BE NOTED HERE ALSO THAT THE ASSESSEE ITSELF HAVE TAKEN THE CREDIT NOTES ON ACCO UNT OF ASSISTANCE ON ACCOUNT OF REBATES AND DISCOUNTS AMOUNTING TO RS.8,13,967/- A ND CREDITED IN ITS PROFIT AND LOSS ACCOUNT BY DEDUCTING IT FROM THE GROSS AMOUNT OF PURCHASE DURING THE SAID FINANCIAL YEAR. 6. IT WAS NOTED BY THE AO THAT OUT OF THE TOTAL CRE DIT NOTES RECEIVED BY THE ASSESSEE FROM M/S ITC LTD, THE ASSESSEE HAS PASSED ON THE BE NEFIT TO ITS CUSTOMERS/CLIENTS AMOUNTING TO RS.1,11,59,932/- ON ACCOUNT OF ASSISTA NCE ON BRAND BOARD MAINTENANCE INCURRED ACTUALLY RS.12,71,384/- ON AC COUNT HEAD, CREDIT TOWARDS STOCK SUPPLY TO M/S ITC LTD. AND RS.6,67,267/- ON ACCOUNT HEAD DAMAGE AND DESTROY. BUT FOR THE REST OF THE AMOUNT OF CREDIT NOTES AGGREGATING TO RS.66,40,284/- (I.E. RS.2,10,48,822/- MINUS RS.1,11 ,59,932/- I.E. ON ACCOUNT OF BRAND BOARD MAINTENANCE AS PER POINT-7 MINUS RS.1 3,09,955/- ON ACCOUNT OF REBATE AND DISCOUNT AS PER POINT-2 AND RS.12,71,3 84/- ON ACCOUNT OF CREDIT TOWARDS STOCK SUPPLY TO M/S ITC LTD AS PER POINT-5 AND RS.6,67,267/- ON ACCOUNT OF DAMAGE & DESTROY AS PER POINT NO.3), THE ASSES SEE HAS CONTENDED THAT THIS M/S H.K. COMMERCIAL PVT. LTD. ASSESSMENT YEAR: 2011-12 ITA NO.2212/KOL/2016 P PP PA AA AG GG GE EE E | || | 5 55 5 SHOULD BE PASSED THROUGH BALANCE SHEET AND NOT THRO UGH THE PROFIT AND LOSS ACCOUNT BUT THE ASSESSEE ITSELF HAVE ACCOUNTED FOR THE AMOUNT OF ASSISTANCE ON ACCOUNT OF REBATE AND DISCOUNT AS POINT-2 BY DEDU CTING THE SAME FROM GROSS PURCHASES TO ARRIVE AT THE NET PURCHASE FIGURE AS A RRIVED AND REFLECTED IN PROFIT AND LOSS ACCOUNT. IT IS CLEAR CONTRADICTION ON ITS PART AND HENCE ASSESSEE`S CONTENTION THAT THESE CREDIT NOTES HAVE NO ELEMENT OF INCOME I S NOT ACCEPTABLE HENCE REJECTED. THE AO FURTHER NOTED THAT OTHER THAN ASSISTANCE FOR BRAND BOARD MAINTENANCE WHICH CAN BE CONSIDERED AS THE REIMBURSEMENT IN TRU E SENSE (I.E. THE INCENTIVE IN THIS HEAD PROVIDED BY ITC IS FACTUALLY PASSED ON TO ITS DEALERS AND CUSTOMERS) AND ALSO IN ACCOUNT HEAD CREDITS TOWARDS SUPPLY TO M/S ITC LTD. AGGREGATING TO RS.12,71,384/- IN NO OTHER NINE HEADS THERE IS ANY PROOF OF EVIDENCE RECEIVED FROM ITC VIDE THE REPLY DATED 23/08/2013, THAT IT IS RE IMBURSEMENT OF EXPENSES. ON THE OTHER HAND, ON THE ANALYSIS OF THE ABOVE QUOTED POR TION OF THE STATEMENT OF M/S ITC LTD, IT CAN BE UNDERSTOOD THAT ACCORDING TO THE IR BUSINESS EXIGENCIES I.E. FOR THEIR INTEREST OF BUSINESS, M/S ITC LTD. GAVE ASSIS TANCE TO THE ASSESSEE DEPENDING ON THE VOLUME OF THEIR BUSINESS MADE THROUGH THE AS SESSEE. BUT FROM AUDITED ACCOUNTS AND THE DETAILS FILED BY THE ASSESSEE IT W AS NOT UNDERSTOOD HOW DID THE ASSESSEE ACCOUNT FOR THIS AMOUNT OF CREDIT GIVEN BY M/S ITC LTD. THROUGH CREDIT NOTES. ACCORDINGLY, THE ASSESSEE WAS REQUESTED TO S HOW THE REFLECTION OF THIS CREDIT NOTES IN ITS BOOKS OF ACCOUNT AND ALSO THE ASSESSEE WERE REQUESTED TO PRODUCE THE BOOKS OF ACCOUNT WITH RESPECT TO EACH AND EVERY CLA IM DURING THAT YEAR UNDER THE ABOVE HEADS TOWARDS ITC AND IN WHICH ACCOUNT HEAD(S ) THE ASSESSEE HAS CREDITED THE SAME I.E. THE ASSESSEE HAS SHOWN IT IN THE PRO FIT AND LOSS ACCOUNT OR IN THE BALANCE SHEET VIDE THE ORDER SHEET NOTING DATED 08/ 08/2013. IN RESPONSE, THE ASSESSEE HAS STATED THAT THIS RECI TALS (SALES BILLS/CLAIM BILLS) THOUGH MENTIONED ALSO AS BILLS OF SALE BUT IN FACT IT DENO TES THE CLAIMS LODGED ON M/S ITC LTD. IN RESPECT OF IN VARIOUS SCHEME, REPLACEMENT O F STATE CIGARETTES OR OTHER PRODUCTS TO OFF SET / DEPLETE THE STOCK WHICH HAVE BEEN ALREADY DISTRIBUTED TO RETAIL OUTLETS. THE AO NOTED THAT THE ASSESSEE HAS NOT BE EN ABLE TO SUBSTANTIATE THIS CONTENTION EITHER BY REGULAR / DAY TO DAY BOOKS OF ACCOUNT INCLUDING STOCK REGISTER M/S H.K. COMMERCIAL PVT. LTD. ASSESSMENT YEAR: 2011-12 ITA NO.2212/KOL/2016 P PP PA AA AG GG GE EE E | || | 6 66 6 MAINTAINED IN THIS REGARD UNDER THIS PARTICULAR HEA D OF CREDIT NOTES RECEIVED FROM THE M/S ITC LTD. OR THE CLAIMS MADE TO M/S ITC LTD. UNDER THIS HEAD. SO, AO NOTED THAT THIS DEPLETION OF STOCK OR SET RIGHT OF THE STOCK IS NO WAY RELATED TO THE CLAIMS MADE TO M/S ITC LTD. ON MONTHLY BASIS. THERE FORE, AO MADE FOLLOWING ADDITIONS: (1). UNDISCLOSED INCOME OF RS.4,96,987/- ON ACCOUNT OF ASSISTANCE ON REBATES AND DISCOUNTS RECEIVED FROM M/S ITC LTD. (2). UNDISCLOSED INCOME AGGREGATING TO RS.66,40,284 /- ON ACCOUNT OF ASSISTANCE ON RECEIVED FROM M/S ITC LTD ON ABOVE DISCUSSED 9 HEAD S OF ACCOUNT. 7. AGGRIEVED BY THE ADDITION MADE BY THE ASSESSING OFFICER, THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD. CIT(A) WHO HAS CONFIRMED THE ORDER MADE BY THE ASSESSING OFFICER OBSERVING THE FOLLOWI NG: I HAVE CONSIDERED THE SUBMISSIONS OF THE AUTHORIZE D REPRESENTATIVE OF THE ASSESSEE AS WELL AS THE ASSESSMENT ORDER FRAMED IN THE LIGHT OF THE MATERIALS AVAILABLE ON RECORD BEFORE THE ASSESSING OFFICER DURING THE ASSESSMENT PROCEEDINGS . THE ASSESSING OFFICER HAS ALREADY DISCUSSED THE ISSUE IN DETAILS WHILE PASSING THE OR DER. THE ASSESSEE HAS NOT BEEN ABLE TO EXPLAIN THE ISSUE WITH BOOKS OF ACCOUNT NEITHER DUR ING THE ASSESSMENT NOR APPELLATE PROCEEDING. THE GOODS WHICH WERE MOVED OUT FROM THE STOCK WERE NOT PROPERLY RECORDED IN THE REGISTER. THE FREE GIFT SAMPLE WERE NOT EXPLAIN ED WITH BOOKS OF ACCOUNT. THE NORMAL SALE WERE RECORDED ON DAILY BASIS BUT GIFT AND SAMP LE WERE NOT PROPERLY RECORDED. NO NAME OF DELIVERY MAN IS WRITTEN IN THE STOCK REGIST ER WHICH IS OTHERWISE MAINTAINED ON DAILY BASIS. KEEPING IN VIEW OF THE ABOVE, THE ORDE R OF THE ASSESSING OFFICER IS UPHELD AND THIS GROUND OF APPEAL IS DISMISSED. 8. AGGRIEVED BY THE ORDER OF THE LD. CIT(A), THE AS SESSEE IS IN APPEAL BEFORE US. THE LD COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW. ON THE OTHER HAND, THE LD. DR FO R THE REVENUE HAS PRIMARILY REITERATED THE STAND TAKEN BY THE ASSESSING OFFICER , WHICH WE HAVE ALREADY NOTED IN OUR EARLIER PARA AND IS NOT BEING REPEATED FOR T HE SAKE OF BREVITY. 9. WE HAVE GIVEN A CAREFUL CONSIDERATION TO THE RIV AL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD, WE NOTE THAT THE ASSE SSEE BEING ONE SUCH DISTRIBUTOR OF ITC LTD'S PRODUCTS, PURCHASES THE PRODUCTS FROM ITC LTD. (SPECIMEN COPY OF M/S H.K. COMMERCIAL PVT. LTD. ASSESSMENT YEAR: 2011-12 ITA NO.2212/KOL/2016 P PP PA AA AG GG GE EE E | || | 7 77 7 PURCHASE BILL ENCLOSED AT PAGES 17 TO 21 OF THE PAP ER BOOK) AND STACKS THEM IN ITS GODOWN FOR THE PURPOSE OF DISTRIBUTION OF THE PRODU CTS TO THE HAWKERS AND RETAILERS. FROM THE GODOWNS, THE SALESMEN OF THE ASSESSEE COMP ANY TAKE THE PRODUCTS FOR DISTRIBUTION TO SHOPS/OUTLETS/RETAILERS WHERE THE P RODUCTS ARE SOLD TO THE ULTIMATE CONSUMERS. HOWEVER, IN CASE OF CIGARETTES AND TOBAC CO PRODUCTS, THE PRODUCTS ARE SUPPLIED/SOLD TO HAWKERS ALSO WHICH AGAIN ARE SOLD BY THE HAWKERS TO OTHER SHOPS/VENDORS IN THE STREETS FOR SALE TO ULTIMATE C ONSUMERS. WHILE SUPPLYING/SELLING ITC'S PRODUCTS TO BOTH HAWKERS AN D RETAILERS, THE ASSESSEE RETAINS THE MARGIN BETWEEN PURCHASE PRICE OF THE PRODUCTS F ROM ITCS LTD. AND THE PRICE AT WHICH IT SUPPLIES TO HAWKERS/RETAILERS AS ITS INCOM E, WHICH IS DULY CREDITED IN ITS PROFIT AND LOSS ACCOUNT. THE ASSESSEE WHILE DISTRIB UTING ITC'S PRODUCTS INCURS VARIOUS EXPENDITURES LIKE PAYING RETAILERS FOR PUTT ING UP FLAKES/SIGN BOARDS FEATURING ITC'S NAME. ON ACCOUNT OF DESTRUCTION OF DAMAGED/EXPIRED PRODUCTS PURCHASED BY THE ASSESSEE FOR DISTRIBUTION, FOR PAY ING RETAILERS FOR RESERVING SHELVES/COUNTERS FOR EXCLUSIVE DISPLAY OF ITC'S PRO DUCTS IN THE RETAIL OUTLETS. WE NOTE THAT THE ASSESSEE ALSO INCURS EXPENDITURE FOR REMUNERATING THE RETAILERS FOR DISPLAYING ITC LTD'S CIGARETTES IN AN ATTRACTIVE AN D EXCLUSIVE MANNER IN SEPARATE UNITS CREATED FOR THIS PURPOSE, ON ACCOUNT OF REMUN ERATING THE TRANSPORTERS FOR TRANSPORTING ITC'S PRODUCTS FROM ITC'S GODOWNS TO T HAT OF THE ASSESSEE'S GODOWN WHEN REQUIRED, ON ACCOUNT OF GIVING INCENTIVE TO DE POT SALESMEN FOR ACHIEVING THE SPECIFIED SALES TARGET, FOR PAYING SALARY TO SUPERV ISORS, DELIVERYMEN, DEPOT SALESMEN WHO ARE ENGAGED IN THE DISTRIBUTION PROCES S ETC. 10. WE NOTE THAT ASSESSEE ALSO INCURS EXPENSES ON A CCOUNT OF BANK CHARGES WHILE PAYING ITC LTD THROUGH RTGS, WHILE PURCHASING PRODU CTS FROM ITC LTD FOR DISTRIBUTION. ALL THE ABOVE EXPENDITURES BEING INCU RRED BY THE ASSESSEE WHILE DISTRIBUTING ITCS PRODUCTS ARE CLAIMED BY THE ASSE SSEE FROM ITC LTD. THROUGH ITCS PRESCRIBED CLAIM FORMAT AND THE SAME ARE CRED ITED BY ITC LTD TO THE ASSESSEE IN THE FORM OF ASSISTANCE THROUGH CREDIT N OTES POST EVALUATION OF THE ASSESSEE'S CLAIMS. FURTHER ITC LTD, IN ORDER TO MAX IMIZE AND BOOST UP ITS SALES, COMES UP WITH VARIOUS INCENTIVE SCHEMES AT REGULAR INTERVALS. THE INCENTIVE M/S H.K. COMMERCIAL PVT. LTD. ASSESSMENT YEAR: 2011-12 ITA NO.2212/KOL/2016 P PP PA AA AG GG GE EE E | || | 8 88 8 SCHEMES REQUIRE THE DISTRIBUTORS TO PROVIDE FREE SA MPLES OF ITC'S CIGARETTE PACKETS, OTHER PRODUCTS AS GIFTS, AND ALSO SOMETIMES PROVIDE CASH DISCOUNT TO THE HAWKERS/RETAILERS AS INCENTIVE FOR PROMOTING AND SE LLING ITC LTD'S PRODUCTS ON PRIORITY THAN THAT OF ITS COMPETITOR COMPANIES BY P UTTING UP FLAKES/SIGN BOARDS FEATURING ITC'S NAME, RESERVING SHELVES/COUNTERS FO R EXCLUSIVE DISPLAY OF ITC'S PRODUCTS AT THEIR OUTLETS, DISPLAYING CIGARETTE PAC KETS IN ATTRACTIVE MANNER. THEREFORE, THE ASSESSEE ALSO INCURS EXPENDITURE FOR PROVIDING FREE SAMPLES AS GIFTS, DISCOUNTS TO VARIOUS RETAILERS PURSUANT TO DECLARAT ION OF SCHEMES BY ITC LTD, FROM TIME TO TIME. SUCH SCHEMES ARE USUALLY COMMUNICATED TO THE ASSESSEE BY ITC LTD EITHER VIA EMAIL OR TEXT MESSAGES OVER CELL PHONE E TC. NOW WHILE PROVIDING FREE SAMPLES/DISCOUNT TO RETAILERS/HAWKERS THE ASSESSEE' S STOCK GETS DEPLETED RESULTING IN THE ASSESSEE INCURRING EXPENSES. THE SAID DEPLETION OF THE ASSESSEE'S STOCK AND EXPENSES BEING INCURRED BY THE ASSESSEE TO THAT EXT ENT IS SET RIGHT BY ITC LTD BY REIMBURSING THE ASSESSEE THROUGH CREDIT NOTES, ONCE EXPENSES ARE CLAIMED BY THE ASSESSEE THROUGH ITC'S PRESCRIBED CLAIM FORMATS. HE REIN IT IS PERTINENT TO MENTION THAT WHEN THE ASSESSEE WHILE CONTINUING ITS BUSINES S OF DISTRIBUTING ITC'S PRODUCTS INCURS EXPENDITURES ON BEHALF OF ITC LTD. LIKE TRAN SPORTATION CHARGES (FOR TRANSPORTING ITC'S PRODUCTS FROM ITCS GODOWNS TO T HAT OF THE ASSESSEE'S GODOWN WHEN ITC'S VEHICLES ARE NOT AVAILABLE FOR TRANSPORT ATION) OR FREIGHT EXPENSES (WHEREIN SALARY IS PAID TO SUPERVISORS, DELIVERYMEN . DEPOT SALESMEN WHO ARE ENGAGED IN THE DISTRIBUTION PROCESS ETC).IT SELLS I TS STOCK OF GOODS TO MEET THE EXPENSES AND LATER CLAIMS REIMBURSEMENT OF THE EXPE NSES INCURRED BY IT ON ACCOUNT OF DEPLETION OF ITS STOCK FROM ITC LTD., THROUGH IT C'S PRESCRIBED CLAIM FORMAT. 11. WE NOTE THAT ALL THE CLAIMS MADE BY THE ASSESS EE TO ITC LTD, IS LATER ON MADE GOOD BY ITC LTD. BY PROVIDING ASSISTANCE TO THE ASS ESSEE THROUGH CREDIT NOTES, POST EVALUATION OF THE ASSESSEE'S CLAIMS. HOWEVER, IT IS PERTINENT TO MENTION THAT WHILE THE ASSESSEE GIVES OUT ITS STOCK AS FREE SAMPLES/GI FTS AND PROVIDES CASH DISCOUNT AS PER SCHEME, IT SELLS ITS STOCK TO MAKE PAYMENT OF T RANSPORTATION CHARGES OR FREIGHT EXPENSES AS PER ITCS DIRECTION VERBALLY COMMUNICAT ED BY ITCS SALES OFFICIALS. THERE IS NO AGREEMENT FOR THE SAME AND IT IS ADMITT ED BY ITC LTD. ITSELF THROUGH ITS M/S H.K. COMMERCIAL PVT. LTD. ASSESSMENT YEAR: 2011-12 ITA NO.2212/KOL/2016 P PP PA AA AG GG GE EE E | || | 9 99 9 REPLY DATED 23/08/2013 (COPY ENCLOSED AT PAGES 31 T O 80 OF THE PAPER BOOK). WE NOTE THAT ALL THE ABOVE ASSISTANCES RECEIVED BY THE ASSESSEE FROM ITC LTD. HAVE BEEN DULY ACCOUNTED FOR BY THE ASSESSEE BY INCLUDIN G THE SAME IN ITS PROFIT AND LOSS ACCOUNT. APART FROM ASSISTANCE GIVEN TO THE AS SESSEE BY ITC LTD. PURSUANT TO CLAIMS MADE BY THE ASSESSEE DURING THE RELEVANT ASS ESSMENT YEAR, THE ITC LTD. ALSO PROVIDED CREDITS TO THE ASSESSEE DURING THE RELEVAN T ASSESSMENT YEAR IN THE FORM OF AWARDS OR PERFORMANCE INCENTIVE FOR EFFICIENT DI STRIBUTION OF ITS PRODUCTS WHICH HAS BEEN DULY OFFERED TO TAX BY THE ASSESSEE.THE TO TAL AMOUNT OF ASSISTANCE THUS PROVIDED BY ITC LTD. TO THE ASSESSEE DURING THE REL EVANT ASSESSMENT YEAR WAS RS.2,10,48 ,822/-, POST EVALUATION OF THE TOTAL CLA IM OF RS. 2,28,09,349/- MADE BY THE ASSESSEE (EVIDENCING THE SAME LEDGER COPY OF CL AIM ACCOUNT WHICH IS ENCLOSED AT PAGE 109 OF THE PAPER BOOK AND ITCS CONFIRMATIO N OF PAYMENT OF ASSISTANCE AMOUNTING TO RS. 2,10,48,822/-. 12. WE NOTE THAT ASSESSING OFFICER, BEFORE REACHIN G HIS CONCLUSION OF ADDITION RS. 66,40,284/- AND RS. 4,96,987/- TO THE ASSESSEES TO TAL INCOME, ISSUED A NOTICE U/S 133(6) OF THE INCOME TAX ACT, 1961 TO ITC LTD. IN R ESPONSE TO WHICH, ITC LTD. HAD GIVEN TWO CONFIRMATIONS DATED 16.07.2013 AND 23 .08.2013 (COPIES ENCLOSED AT PAGES 31 TO 80 AND 81 TO 107 OF THE PAPER BOOK).FRO M THE FIRST CONFIRMATION RECEIVED BY THE LD. AO FROM ITC LTD. ON 16.07.2013, IT WAS CONFIRMED BY ITC LTD. THAT DURING THE RELEVANT ASSESSMENT YEAR, IT H AD PROVIDED CREDIT NOTES TO THE ASSESSEE WORTH RS.2,10,48,822/- AND IN SUPPORT OF I TS REPLY, ENCLOSED THE ASSESSEES LEDGER ACCOUNT AS IT EXISTED IN ITCS BOOKS DURING THE RELEVANT ASSESSMENT YEAR. ON PERUSAL OF ITCS REPLY AND THE ASSESSEES LEDGER COPY IN ITCS BOOKS, THE LD. AO CAME ACROSS TWELVE HEADS/NARRATIONS UNDER WHICH ITC LTD. HAD ISSUED THE CREDITS TO THE ASSESSEE DURING THE RELEVANT ASSESSM ENT YEAR, WHICH ARE GIVEN BELOW FOR READY REFERENCE: SL NO. PARTICULARS OF ASSISTANCE AMOUNT (IN RS.) 1. ASSISTANCE ON ACCOUNT OF REBATE & DISCOUNT 13,09 ,955 2. ASSISTANCE ON ACCOUNT OF SALE PROMOTION 1,68,856 3. ASSISTANCE ON ACCOUNT OF BRAND BOARD MAINTENANCE 1,11,59,932 4. ASSISTANCE ON ACCOUNT OF DAMAGE & DESTROY 6,67,2 67 5 CREDITS TOWARDS STOCK SUPPLY TO ITC 12,71,384 6 ASSISTANCE ON ACCOUNT OF ONWARD FREIGHT 23,72,308 M/S H.K. COMMERCIAL PVT. LTD. ASSESSMENT YEAR: 2011-12 ITA NO.2212/KOL/2016 P PP PA AA AG GG GE EE E | || | 1 11 10 00 0 7 ASSISTANCE ON ACCOUNT OF DISPLAY 11,07,018 8 ASSISTANCE ON ACCOUNT OF PRODUCTS STACKING UNIT 2 8,70,600 9 ASSISTANCE ON ACCOUNT OF TRANSPORT CHARGES 61,444 10 ASSISTANCE ON ACCOUNT OF TRADE INCENTIVE 5,758 11 ASSISTANCE ON ACCOUNT OF BANK CHARGES 1,800 12 AWARD TO CUSTOMERS 52,500 TOTAL 2,10,48,822 WE NOTE THAT ON RECEIPT OF THE ABOVE REPLY FROM ITC LTD., THE LD. AO SOUGHT FURTHER CLARIFICATION FROM ITC LTD. AS TO WHETHER T HE AFOREMENTIONED CREDITS/ASSISTANCE GIVEN BY ITC LTD TO THE ASSESSEE WERE IN THE NATURE OF REIMBURSEMENT OR INCENTIVE/DISCOUNT UNDER THE ABOVE 12 HEADS. IN RESPONSE TO THE LD. AO'S QUERIES, FURTHER THE ITC LTD, VIDE REPLY D ATED 23/08/2013 (ENCLOSED AT PAGES 31 TO 80 OF THE PAPER BOOK) STATED THE FOLLOW ING IN ITS REPLY: 'ITC DEALS WITH ITS CUSTOMERS ON A PRINCIPAL TO PRI NCIPAL BASIS. AT TIMES, THE CUSTOMERS REQUEST FOR FINANCIAL ASSISTANCE TOWARDS EXPENDITURE INCURRED BY THEM DURING THE COURSE OF THEIR BUSINESS OF DISTRIBUTION OF ITC'S PRODUCTS. SUCH REQUESTS ARE EVALUATED BY THE COMPANY AND IF FOUND JUSTIFIAB LE AND IN THE INTEREST OF THE ITCS BUSINESS, CREDITS ARE GIVEN TO THE CUSTOMER.' ALONG WITH THE ABOVE REPLY DATED 23/08/2013, ITC LT D HAD ENCLOSED SPECIMEN COPIES OF VARIOUS CLAIM FORMATS THROUGH WHICH THE A SSESSEE RAISED ITS CLAIM ON ITC LTD DURING THE RELEVANT ASSESSMENT YEAR, AND SPECIM EN COPIES OF CREDIT NOTES THROUGH WHICH ITC LTD PROVIDED ASSISTANCE TO THE AS SESSEE TOWARDS ITS CLAIM OF EXPENDITURE INCURRED. WE NOTE THAT THE LD. AO BASED ON THE CONFIRMATION OF ITC LTD. DATED 23/08/2013 HELD THAT SUPPORTING EVIDENCE S FOR ASSISTANCE ON ACCOUNT OF 'BRAND BOARD MAINTENANCE' AMOUNTING TO RS.1,11,59,9 32/-, ON ACCOUNT OF 'CREDIT TOWARDS STOCK SUPPLY' AMOUNTING TO RS.12,71,384/- A ND ON ACCOUNT OF 'DAMAGE & DESTROY' AMOUNTING TO RS.6,67,267/- WERE ENCLOSED B Y ITC LTD ALONG WITH ITS CONFIRMATION DATED 23/08/2013 AND HENCE TREATED THE SE THREE ASSISTANCE PROVIDED BY ITC LTD. AS REIMBURSEMENTS, WITHOUT ADDING THE S AME TO THE ASSESSEES TOTAL INCOME. WE NOTE THAT ASSESSEE, BEING ITC'S DISTRIBU TOR, PROVIDED DISCOUNT, FREE SAMPLES AS GIFTS TO RETAILERS/HAWKERS FOR PROMOTING ITC'S SALES PURSUANT TO SCHEMES BROUGHT OUT BY ITC IN THIS REGARD. FURTHER, ON ITC' S DIRECTION IT GENERATED CLAIM BILLS/BILLS OF SALES FOR ACCOUNTING/RECORDING OF TH E SAMPLES MOVING OUT OF ITS STOCK M/S H.K. COMMERCIAL PVT. LTD. ASSESSMENT YEAR: 2011-12 ITA NO.2212/KOL/2016 P PP PA AA AG GG GE EE E | || | 1 11 11 11 1 AS FREE GIFTS THOUGH ITC'S PROVIDED SOFTWARE IN THI S REGARD AND LATER CLAIMED ASSISTANCE FOR DEPLETION OF THE STOCK FROM ITC THRO UGH CLAIM FORMATS. HOWEVER, THE CONTENTION OF THE AO THAT IN THE ABSENCE OF ANY AGREEMENT BETWEEN THE ASSESSEE AND ITC LTD, THE GENERATION OF SALES BILLS AS PER ITC'S DIRECTION THROUGH ITC'S PROVIDED SOFTWARE AND LATER CLAIMING ASSISTAN CE FROM ITC THROUGH CLAIM FORMATS ONLY WITHOUT SUBMITTING THE SALES BILLS GEN ERATED TO ITC CANNOT BE FURTHER SUBSTANTIATED BY THE ASSESSEE THROUGH DOCUMENTARY E VIDENCE, IS NOT ACCEPTABLE. THEREFORE, WHEN ITC LTD HAS ALLOWED ASSISTANCE OF R S.2,10,48,822/- TO THE ASSESSEE AND THE ASSESSEE HAS INCLUDED THE SAME IN ITS INCOME THERE REMAINS NO GROUND FOR THE LD. AO TO ADD BACK PART OF THE ASSIS TANCES OF RS.66,40,284/- AND RS.4,96,987/-, OUT OF RS.2,10,48,822/- TO THE ASSES SEE'S TOTAL INCOME AS ALLEGED UNDISCLOSED INCOME OF THE ASSESSEE. THE LD AO FAILE D TO BRING ANY TANGIBLE MATERIAL ON RECORD TO SHOW THAT ASSESSEE HAS NOT IN CURRED THESE ASSISTANCES/REBATES/REIMBURSEMENTS OF RS.66,40,284/ - AND RS.4,96,987/-, FOR THE PURPOSE OF THE BUSINESS. CONSIDERING THE NATURE OF BUSINESS, AS NARRATED ABOVE, THESE ASSISTANCES/REIMBURSEMENT OF EXPENSES BOUND T O HAPPEN. WE NOTE THAT CONSIDERING THE NATURE OF BUSINESS AND KIND OF BUSI NESSMEN INVOLVED THAT IS, RETAILERS/HAWKERS FOR PROMOTING ITC'S SALES PURSUAN T TO SCHEMES BROUGHT OUT BY ITC IN THIS REGARD, THE ADDITIONS MADE BY ASSESSING OFFICER OF RS.66,40,284/- AND RS.4,96,987/- NEEDS TO BE DELETED AND ACCORDINGLY W E DELETE THESE ADDITIONS. 13. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER IS PRONOUNCED IN THE OPEN COURT ON 16.01.201 9. SD/- ( S. S. GODARA ) SD/- (A.L.SAINI) / JUDICIAL MEMBER / ACCOUNTANT MEMBER /KOLKATA; / DATE:16 /01/2019 ( RS, SR.PS ) M/S H.K. COMMERCIAL PVT. LTD. ASSESSMENT YEAR: 2011-12 ITA NO.2212/KOL/2016 P PP PA AA AG GG GE EE E | || | 1 11 12 22 2 / COPY OF THE ORDER FORWARDED TO : TRUE COPY BY ORDER ASSISTANT REGISTRAR, I.T.A.T, KOLKATA BENCHES, KOLKATA . 1. /THE ASSESSEE- M/S H.K. COMMERCIAL PVT. LTD. 2. ! / THE RESPONDENT- ITO, WARD-8(4), KOLKATA 3. ' ( ) / THE CIT(A), 4. ' / CIT 5. #$% &&'( , '( , / DR, ITAT, KOLKATA 6. %)*+ / GUARD FILE. !# &