The ITO, Ward-1(1)(2), Ahmedabad V. M/s. Bajaj Herbals Pvt. Ltd., Ahmedabad

ITA 2350/AHD/2015

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 5917 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 5 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-01-2020
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 06-08-2019
• Assessment Year: 2010-2011
• Appeal Filed On: 07-08-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: O P SHARMA CIT DR L P JAIN
• Assessee Lawyers: P B PARMAR ARS
• Keywords: Depreciation; Rule of consistency; TDS
• Section: 143(3); 142(1); 115JB; 40(a)(ia); 194C; 201(1); 143(2); 13; 22

Judgement Text

, C- IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH C BEFORE SHRI WASEEM AHMED, ACCOUNTANT MEMBER & MS. MADHUMITA ROY, JUDICIAL MEMBER . ITA NOS. 2277/AHD/2015 / ASSTT. YEAR: 2010-11 M/S. BAJAJ HERBALS PVT. LTD. A-401, SAMUNDRA COMPLEX, NR. HOTEL CLASSIC GOLD, ELLISBRIDGE, AHMEDABAD PAN NO. AAA CB6 654 J VS. ITO WARD-1(2), 3 RD FLOOR, PRATYAKASH- KAR-BHAVAN, AMBAWADI, AHMEDABAD- 380015 / (APPELLANT) / (RESPONDENT) . ITA NOS. 2350/AHD/2015 / ASSTT. YEARS: 2010-11 ITO WARD-1(1)(2), 302, 3 RD FLOOR, PRATYAKASH- KAR-BHAVAN, AMBAWADI, AHMEDABAD- 380015 VS. M/S. BAJAJ HERBALS PVT. LTD. A-401, SAMUNDRA COMPLEX, NR. HOTEL CLASSIC GOLD, ELLISBRIDGE, AHMEDABAD- 380006 PAN NO. AAC CB6 654 J / (APPELLANT) / (RESPONDENT) ASSESSEE BY : SHRI TUSHAR HEMANI, & SHRI P. B. PARMAR ARS REVENUE BY : SHRI O.P. SHARMA CIT DR& L.P. JAIN, SR DR ' #$% /DATE OF HEARING : 20/11/2019 &' $% /DATE OF PRONOUNCEMENT: 31 /01/2020 ITA NO. 2277/AHD/2015 (M/S. BAJAJ HERBALS PVT. LTD. VS. ITO) A.Y. 2010-11, ITA NO.2350/AHD/20 15 (ITO VS. M/S. BAJAJ HERBALS PVT. LTD.) A.Y. 2010-11 2 () / O R D E R PER MS. MADHUMITA ROY- JM : THE CROSS APPEALS BY THE REVENUE AND ASSESSEE ARE DIRECTED AGAINST THE ORDER DATED 18.05.2015 PASSED BY THE CIT(A)-1, AHMED ABAD ARISING OUT OF THE ORDER DATED 28.03.2013 PASSED BY THE ITO WD-1(2), AH MEDABAD U/S. 143(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS TH E ACT) FOR ASSESSMENT YEARS 2010-11. ITA NO. 2277/AHD/2015(ASSESSEES APPEAL):- 2. THIS APPEAL RELATES TO DISALLOWANCE OF RS. 46,52, 291/- BY THE REVENUE TREATING THE SAME AS PRIOR PERIOD EXPENSES. THE SAI D EXPENSES FOUND TO BE CRYSTALLIZED IN THE F.Y. 2009-10 AND HENCE DISALLOW ED BY THE LD. AO, WHICH WAS, IN TURN CONFIRMED BY THE LD. CIT(A). HENCE, THE AP PEAL BEFORE US. 3. THE ASSESSEE COMPANY ENGAGED IN MANUFACTURING OF COSMETIC PRODUCTS FOR DOMESTIC AS WELL AS EXPORTS FILED IT RETURN ON 08.0 4.2011 DECLARING INCOME AT RS. (-) 4,57,78,741/- AND BOOK PROFIT U/S. 115JB OF THE ACT AT RS. 50,82,397/-. NOTICE UNDER SECTION 143(2) DATED 22.09.2011 WAS ISSUED AN D SERVED UPON THE ASSESSEE FLOWED BY AND FURTHER NOTICE DATED 18.05.2012 AND A DETAIL QUESTIONNAIRE UNDER SECTION 142(1) OF THE ACT DATED 23.08.2012. 3. DURING THE COURSE OF ASSESSMENT PROCEEDING IT WA S FOUND THAT THE ASSESSEE CLAIMED REVENUE EXPENSES OF RS. 46,52,561/- WHICH W AS PAID TO FOUR PARTIES BY AND UNDER THE BILLS ISSUED WITHIN THE PERIOD OF 28. 10.2008 TO 01.03.2009. SINCE THOSE EXPENSES WERE NOT PERTAINING TO THE YEAR UNDE R CONSIDERATION I.E. FOR A.Y. 2011-12, THE ASSESSEE WAS DIRECTED TO EXPLAIN AS TO WHY THE SAME SHOULD NOT BE DISALLOWED BEING PRIOR PERIOD EXPENSES. AS NOTHING WAS FORTHCOMING FROM THE ASSESSEE, OBSERVING THOSE EXPENSES HAD CRYSTALLIZED DURING THE CONCERNED FINANCIAL YEAR, TAKING INTO CONSIDERATION MERCANTILE SYSTEM O F ACCOUNTING AS FOLLOWED BY ITA NO. 2277/AHD/2015 (M/S. BAJAJ HERBALS PVT. LTD. VS. ITO) A.Y. 2010-11, ITA NO.2350/AHD/20 15 (ITO VS. M/S. BAJAJ HERBALS PVT. LTD.) A.Y. 2010-11 3 ASSESSEE, THE LD. AO DID NOT FIND THOSE EXPENSES AL LOWABLE DURING THE YEAR UNDER CONSIDERATION AND THUS DISALLOWED THE SAME AND ADDE D TO THE TOTAL INCOME OF THE ASSESSEE. 4. THE CASE OF THE ASSESSEE BEFORE THE CIT(A) IS THI S THAT THOUGH THE SAID EXPENSES PERTAIN TO PRIOR PERIOD THAT IS F.Y. 2008- 09 THERE WERE SOME DISPUTE BETWEEN THOSE PARTIES AND HENCE EXPENSES WERE NOT C LAIMED IN THE A.Y. 2009-10. ONLY UPON SETTLEMENTS OF THOSE DISPUTES IN THE A.Y. 2010-11, THE LIABILITY IN RESPECT OF THE SAME WAS FINALIZED AND THE CLAIM WAS MADE DURING THE A.Y. 2010- 11. HOWEVER, SUCH JUSTIFICATION MADE BY THE ASSESS EE WAS NOT FOUND ACCEPTABLE BY THE FIRST APPELLATE AUTHORITY AND HENCE ADDITION MA DE BY THE AO WAS CONFIRMED. 5. AT THE TIME OF HEARING OF THE INSTANT APPEAL OF THE SR. LD. COUNSEL APPEARING FOR THE ASSESSEE SUBMITTED BEFORE US THAT THE DISPU TES WERE SETTLED IN THE A.Y. 2010-11. THE EXPENSES WERE CRYSTALLIZED ONLY DURING THAT YEAR UNDER CONSIDERATION AND HENCE CLAIM WAS MADE. APART FROM THAT, THE GEN UINENESS OF THE QUANTUM OF EXPENSES WERE NEITHER DOUBTED BY THE REVENUE AS ALS O ARGUED BY HIM. HE HAD ALSO TAKEN US TO THE LEDGER ACCOUNTS OF THOSE CONCERNED PERSON APPEARING AT PAGE 228 TO 248 OF THE PAPER BOOK ON RECORD BEFORE US. THE LD. SENIOR COUNSEL APPEARING FOR THE ASSESSEE FURTHER ARGUED THAT THE AUTHORITIES BE LOW FAILED TO APPRECIATE THAT THE TAX RATE REMAIN THE SAME IN BOTH THE YEARS, WHENEVE R IT IS CLAIMED AND THUS THERE IS NO LOSS OF REVENUE AND HENCE THE DISCUSSION AND/OR OBSERVATION MADE BY THE AUTHORITIES BELOW ARE MERELY ACADEMIC. ON THIS ASP ECT HE RELIED UPON THE JUDGMENT PASSED BY THE APEX COURT IN THE CASE OF CIT VS. EXCEL INDUSTRIES LTD. 358 ITR 295 (SC) AND THE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. NAGRI MILLS CO. 33 ITR 681 (BOM.). 6. ON THE OTHER HAND, THE LD. DR RELIED UPON THE OR DER PASSED BY THE AUTHORITIES BELOW. ITA NO. 2277/AHD/2015 (M/S. BAJAJ HERBALS PVT. LTD. VS. ITO) A.Y. 2010-11, ITA NO.2350/AHD/20 15 (ITO VS. M/S. BAJAJ HERBALS PVT. LTD.) A.Y. 2010-11 4 7. WE HAVE HEARD THE RESPECTIVE PARTIES AND WE HAVE ALSO PERUSED THE RELEVANT MATERIALS AVAILABLE ON RECORD. IT IS THE SETTLED P RINCIPLE THAT MERELY BECAUSE THE EXPENSE RELATES TO EARLIER YEARS THE SAME CANNOT BE SAID TO BE PAYABLE ALWAYS IN THE SAME YEAR UNLESS AND UNTIL IT IS CRYSTALLIZED. IT APPEARS FROM THE RECORD OF THE ASSESSEE IS IN THE PRACTICE OF CLAIMING THE PRIOR P ERIOD EXPENSES AS AND WHEN IT IS CRYSTALLIZED. SINCE IN THIS PARTICULAR CASE WE HAV E VERIFIED FROM THE DOCUMENTS THAT THE SAID EXPENSE OF RS. 46,52,291/- MADE TO THE PAR TIES DURING A.Y. 2010-11 UPON RESOLVING THE DISPUTE BETWEEN THOSE PARTIES, THE SA ME ACTUALLY BEEN CRYSTALLIZED IN A.Y. 2010-11 AND SUCH EXPENSES ARE ALLOWABLE IN NAT URE. IN THIS ASPECT WE RELIED UPON THE JUDGMENT PASSED BY THE JURISDICTIONAL HIGH COURT IN THE MATTER OF DEEPAK FERTILIZERS AND PETROCHEMICALS CORP. LTD. VS. DCIT 11 6 ITD 372(MUM.) WHERE PRINCIPLE OF CONSISTENCY WERE FOLLOWED. THUS, WE FI ND NO JUSTIFICATION IN DISALLOWING SUCH EXPENSES AS AFORESAID BY THE AUTHO RITIES BELOW. HENCE, WE DELETE THE SAME. ASSESSEES APPEAL IS, THUS, ALLOWED. ITA NO. 2350/AHD/2015 (REVENUES APPEAL):- 8. THE REVENUE HAS FILED THE INSTANT APPEAL WITH THE FOLLOWING GROUNDS:- 1. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS. 34,14,124/- MADE U/S. 40(A)(IA) OF THE ACT, ESPECIA LLY WHEN THE ASSESSEE HAS FAILED TO BRING ANY EVIDENCE OF RECORD THAT THE PAYMENTS MADE ARE COVERED UNDER CIRCULAR NO. 723 OF 1995 AND THAT THE NON-RESIDENTS SHIP OWNERS/ CHARTERS HAD FILED RETURNS U/S. 172 OF THE ACT. 2. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN HOLDING THAT THE PROVISIONS OF SEC. 40(A)(IA) ARE NOT ATTRACTED IN CASE WHERE TAX HAS BEEN DEDUCTED IMPROPERLY /INADEQUATELY. 3. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE DISALLOWANCE MADE OF INTEREST AND INSURANCE EXPENSES CLAIMED ON VEHICLE. 4. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN PARTLY DELETING THE DISALLOWANCES MADE OF DEPRECIATION AND INCIDENTAL E XPENSES CLAIMED ON VEHICLE. 5. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE DISALLOWANCE EXPENSES FOR WEB DESIGNING AND DEVELOPMENT AT RS. 6 72442/-. 6. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE DISALLOWANCE EXPENSES FOR MARKET SURVEY & PRODUCTION OF TV COMME RCIAL AT RS. 8,71,278/-. ITA NO. 2277/AHD/2015 (M/S. BAJAJ HERBALS PVT. LTD. VS. ITO) A.Y. 2010-11, ITA NO.2350/AHD/20 15 (ITO VS. M/S. BAJAJ HERBALS PVT. LTD.) A.Y. 2010-11 5 7. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE DISALLOWANCE EXPENSES PAID TO TRITON COMMUNICATION FOR MAKING AD VERTISEMENT FILM AT RS. 30,20,703/-. 8. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE DISALLOWANCE OF RS. 1,16,539/- OUT OF CREDIT CARD EXPENSES. 9. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION MADE OF RS. 13,44,47,290/- ON ACCOUNT OF UNDER INVOICING OF SALES MADE TO SISTER CONCERN. GROUNDS NO.1 & 2: 9. THESE GROUNDS OF APPEAL RELATE TO DISALLOWANCE OF FREIGHT EXPENSES OF RS. 34,14,124/- MADE UNDER SECTION 40(A)(IA) OF THE ACT . THE LEARNED AO DISCUSSED PAYMENT OF SUCH AMOUNT TO EIGHT PARTIES IN RESPECT OF EXPENSES ON ACCOUNT OF DEDUCTION OF TDS UPON REJECTING THE APPELLANTS CONT ENTION THAT TDS WAS DEDUCTED AS PER THE PROVISIONS ON THE BASIS OF EVIDENCES BEI NG PHOTOCOPIES OF THE INVOICES RAISED BY THESE PARTIES. HOWEVER, THE LEARNED CIT(A ) WHILE DEALING WITH THIS GROUND OBSERVED AS FOLLOWS:- (B) GROUND NO. 2 IS AGAINST THE DISALLOWANCE OF FR EIGHT EXPENSES OF RS. 34,14,124/- U/S. 40(A)(IA) OF THE ACT. THE A.O. IN THE IMPUGNED ORDER CONSIDERED PAYMENT OF RS. 34,14,124/- TO EIGHT PARTIES IN RESPECT OF FREIGHT AND FORWARDING EXPENSES (ALREADY DISCUSSED PARA 4A ABOVE) AND REJECTED APPELLANTS E XPLANATION THAT DUE TDS WAS DEDUCTED AS PER THE PROVISION S AS EVIDENCED BY PHO TO COPIES OF INVOICES RAISED BY THESE PARTIES (SUBMITTED BY APPELLANT AND VERIFIED BY A.O.) ON THE AMOUNTS ATTRIBUTABLE TO SERVICING AND HANDLING CHARGES AND NOT REIMBURSEMENT. THE A.O. ALSO REJECTED APPELLANTS CONTENTION ABOUT NON APPLICATI ON OF TDS FOR THE FREIGHT EXPENSES TO NON RESIDENT SHIPPING AGENCIES AGENT. THE APPEL LANT IN APPEAL REITERATED ITS CONTENTION WITH COPIES OF SUCH INVOICES AND EMPHASI ZING THE FACT THAT CIRCULAR NO. 723 DT. 19/09/1995 IS APPLICABLE FOR SUCH NON RESIDENT SHIPPING AGENCIES AND ITS AGENT SINCE TAXABLE U/S. 172 OF THE ACT AND NO PROVISION OF SECTION 195/194C OF THE ACT IS APPLICABLE. THE APPELLANT FURTHER RELIED ON HONBL E GUJARAT HIGH COURT ORDER DT. 25/06/2013 IN THE CASE OF CIT-III VS. GUJARAT NARMA DA VALLEY FERTILIZERS COMPANY LTD.(TAX APPEAL NO. 315 OF 2013) AND HONBLE ITAT A HMEDABAD ORDER IN THE CASE OF M/S. OM SATYA EXIM PVT. LTD. VS. ITO WARD-1(4), SUR AT (ITA NO. 1335/AHD/2010 ORDER DT. 13/05/2011). FROM THE VERIFICATION OF SUCH BILLS IT HAS BEEN GA THERED THAT BILLS ARE RAISED TO APPELLANT WITH COMPOSITE AMOUNT REFLECTING FREIGHT EXPENSES IN FOREIGN CURRENCY I.E. US DOLLAR CONVERTED INTO RUPEES OF THAT DATE WITH O THER CHARGES LIKE TERMINAL HANDLING, DOCUMENTATION ETC. IN INDIAN RUPEES. THE APPELLANTS CONTENTION THAT PAYMENT IN FOREIGN CURRENCY BY THESE PARTIES TO THE NON RESIDENT SHIPPING COMPANY IS ON ACCOUNT OF THEY ARE BEING AGENT AND PERMITTED BY RBI GUIDE LINE FOUND TO BE ITA NO. 2277/AHD/2015 (M/S. BAJAJ HERBALS PVT. LTD. VS. ITO) A.Y. 2010-11, ITA NO.2350/AHD/20 15 (ITO VS. M/S. BAJAJ HERBALS PVT. LTD.) A.Y. 2010-11 6 JUSTIFIED IN VIEW OF BOARD CIRCULAR NO. 723 DT. 19/ 09/1995 AND RATIO OF VARIOUS CASE LAWS RELIED ON BY APPELLANT. THE APPELLANT DEDUCTE D TDS OUT OF THE TERMINAL HANDLING CHARGES, DOCUMENTATION CHARGES ETC. BEING PAID TO T HESE PARTIES TREATING THEM AS CONTRACTUAL PAYMENT WHILE PAYMENT, FOR NON RESIDENT SHIPPING COMPANY IN FOREIGN CURRENCY BY THESE PARTIES IS TREATED AS REIMBURSEME NT OF ACTUAL EXPENSES. HONBLE ITAT AHMEDABAD IN THE CASE DY. CIT BHARUCH VS. HASM UKH J. PATEL (2011) 10 TAXMANN.COM 229(AHD) (ALSO RELIED BY APPELLANT) IN THE SIMILAR FACTS HELD THAT ALL SUCH PARTIES ACTED AS AGENT OF NON RESIDENT SHIPPIN G COMPANIES AND SUCH PAYMENT IN FOREIGN CURRENCY TO SUCH NON RESIDENT SHIPPING COMP ANY DULY PERMITTED BY RBI GUIDE LINE HAS TO BE DEALT WITH SPECIAL PROVISION AS PROV IDED U/S. 172 OF THE ACT HENCE DEDUCTION OF TDS IS NOT REQUIRED U/S. 194C OF THE ACT. THE APPELLANTS A.R. DURING THE COURSE OF APPEAL PROCEEDINGS FURTHER SUBMITTED THAT OUT OF THE COMPOSITE BILL OF EACH SUCH PARTY INCLUDING FREIGHT CHARGES, TERMINAL HANDLING CHARGES, DOCUMENTATION CHARGES, CONTAINER REPO CHARGES ETC., THE APPELLANT DEDUCTED TDS EXCEPT THAT FROM FREIGHT CHARGES, THEREFORE, IS CONSIDERED FOR A COM POSITE BILL THEN THE DEFICIENCY IS OF INCORRECT DEDUCTION OF TAX RATHER THAN NO DEDUCTION OF TAX AND APPELLANT CANNOT BE HELD AS IN DEFAULT U/S. 201(1) OF THE ACT. I AM IN CLINED WITH APPELLANT THAT OUT OF THE TOTAL COMPOSITE BILL IF TDS IS DEDUCTED FROM TERMIN AL HANDLING CHARGES, DOCUMENTATION CHARGES, CONTAINER REPO CHARGES ETC. AS PER PRESCRIBED RATE U/S. 194C OF THE ACT, THEN THE ISSUE BECOMES ABOUT INADEQUACY /IMPROPER DEDUCTION OF TDS FOR TOTAL AMOUNT OF COMPOSITE BILL. IN THIS SITUATION THE APPELLANT CANNOT BE HELD IN DEFAULT U/S. 201(1) OF THE ACT AND PROVISIONS OF SE CTION 40(A)(IA) OF THE ACT WILL NOT BE APPLICABLE. IT IS, THEREFORE, CONSIDERING THE FACT S AND JUDICIAL PREPOSITION, THE A.O. IS DIRECTED TO ALLOW SUCH EXPENSES AND DELETE THE ADDI TION SO MADE OF RS. 3414124/-. THE APPELLANT GETS RELIEF ACCORDINGLY. THIS GROUND IS ALLOWED. HEARD THE PARTIES, PERUSED THE RELEVANT MATERIALS AVAILABLE ON RECORD. 10. IT IS THE CASE OF THE ASSESSEE THAT WHILE EXPOR TING ITS GOODS, IT BOOKS THE CONTAINER OF VARIOUS FOREIGN SHIPPING COMPANIES THR OUGH THEIR OFFICES IN INDIA/CLEARING AND FORWARDING AGENTS (C&F) WHO DEAL WITH THE OFFICE OF SUCH SHIPPING COMPANIES. IN FACT UPON RECEIPT OF BILLS F OR FREIGHT AND OTHER RELATED CHARGES OF SHIPPING COMPANIES THE ASSESSEE PAYS TO CLEARING AND FORWARDING AGENTS, WHO IN TURN, MAKE SUCH PAYMENT TO THE CONCE RNED SHIPPING COMPANIES. AS IT APPEARS FROM THE RECORDS THAT SUCH BILLS COMPRIS E OF FREIGHT IN FOREIGN CURRENCY, TERMINAL HANDLING CHARGES, CONSOLIDATION AND DOCUME NTATION CHARGES, DETENTION CHARGES ETC. IT IS FURTHER THE CASE OF THE ASSESSEE THAT THE ASSESSEE HAS DULY DEDUCTED TAX AT SOURCE ON TERMINAL HANDLING CHARGES, DOCUMEN TATION CHARGES ETC PAID TO THESE AGENTS. HOWEVER, THE PAYMENT MADE TO THE NON-RESIDE NT SHIPPING COMPANY IN FOREIGN CURRENCY BY SUCH AGENTS IS REIMBURSEMENT OF ACTUAL EXPENSES AND THUS NO ITA NO. 2277/AHD/2015 (M/S. BAJAJ HERBALS PVT. LTD. VS. ITO) A.Y. 2010-11, ITA NO.2350/AHD/20 15 (ITO VS. M/S. BAJAJ HERBALS PVT. LTD.) A.Y. 2010-11 7 TAX IS REQUIRED TO BE DEDUCTED AT SOURCE ON THE SAM E AS IT APPEARS FROM THE RECORDS WHICH HAS BEEN DULY TAKEN CARE OF BY THE LEARNED CIT A. 11. IT IS RELEVANT TO MENTION THAT AS PER CBDT CIRCU LAR NO. 723 DATED 19.09.1995 SINCE AGENTS ACTS ON BEHALF OF THE NON-R ESIDENT SHIP-OWNER HE THEREFORE STEPS INTO THE SHOES OF THE PRINCIPAL. ACCORDINGLY PROVISION OF SEC.172 SHALL APPLY AND PROVISIONS OF SEC.194C AND SEC.195 WOULD NOT AP PLY. HAVING REGARD TO THE THIS PARTICULAR ASPECT OF THE MATTER THE LEARNED CIT(A) H AS DELETED SUCH DISALLOWANCE MADE UNDER SECTION 40(A)(IA) OF THE ACT. 12. ALTERNATIVELY IN THE EVENT THE C&F AGENTS HAVE DECLARED TERMINAL HANDLING CHARGES, DOCUMENTATION CHARGES ETC. AS INCOME AND P AY TAX THEREON DISALLOWANCE UNDER SECTION 40(A)(IA) IS NOT CALLED FOR. IN THIS REGARD THE ASSESSEE RELIED UPON THE JUDGEMENT PASSED BY THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. ANSAL LAND MARK TOWNSHIP PVT. LTD. REPORTED IN 377 ITR 635(D EL). IN THAT VIEW OF THE MATTER THE ORDER PASSED BY THE LEARNED CIT(A), IN OU R CONSIDERED OPINION, JUST AND PROPER AND WITHOUT ANY AMBIGUITY SO AS TO WARRANT I NTERFERENCE. THUS, THE ORDER IS PASSED IN THE AFFIRMATIVE I.E. IN FAVOUR OF THE ASS ESSEE AND AGAINST THE REVENUE. HENCE, REVENUES APPEAL ON THIS GROUND IS DISMISSED . GROUND NOS.3 AND 4: 13. THESE GROUND RELATE TO DELETION OF DISALLOWANCE MADE IN RESPECT OF INTEREST AND INSURANCE EXPENSES CLAIMED ON VEHICLES, AND PAR T DISALLOWANCE IN RESPECT OF DEPRECIATION AND INCIDENTAL EXPENSES CLAIMED ON VEH ICLE. THE FOLLOWING EXPENSES WERE DISALLOWED BY THE LEARNED AO IN RESPECT OF TOYO TA COROLLA ALTIS ON THE GROUND THAT THE SAID CAR WAS REGISTERED IN THE NAME OF THE DIRECTOR OF THE COMPANY: INTEREST : RS. 82,121/- INSURANCE : RS. 23,370/- DEPRECIATION : RS. 1,36,000/- CAR EXPENSES (1/4 TH OF TOTAL) : RS. 28,9995/- ITA NO. 2277/AHD/2015 (M/S. BAJAJ HERBALS PVT. LTD. VS. ITO) A.Y. 2010-11, ITA NO.2350/AHD/20 15 (ITO VS. M/S. BAJAJ HERBALS PVT. LTD.) A.Y. 2010-11 8 14. HEARD THE PARTIES, PERUSED THE RELEVANT MATERIA LS AVAILABLE ON RECORD. 15. IT IS THE CASE OF THE ASSESSEE THAT THE CAR IS REFLECTED AS AN ASSET IN THE BALANCE SHEET OF THE COMPANY AND THE CAR LOAN ALSO APPEARS AS A LIABILITY IN THE BALANCE SHEET OF THE COMPANY. FURTHER THAT THE COMPANY HAS PASSED A RESOLUTION FOR REGISTRATION OF THE SAID CAR IN THE NAME OF THE DIR ECTOR BUT THE COMPANY HAS DOMINATION OVER THE SAID CAR AND THE SAME IS USED W HOLLY AND EXCLUSIVELY FOR THE BUSINESS OF THE COMPANY. HOWEVER, THIS PLEA OF THE ASSESSEE HAS FOUND TO BE CONFRONTED BY THE LD.DR BUT HE FAILED TO BRING ANY DECISION IN HIS FAVOUR. 14. HEARD THE PARTIES AND PERUSED THE RECORDS. IT I S THE SETTLED PRINCIPLE OF LAW THAT THOUGH CARS ARE BROUGHT BY A COMPANY THE NAME OF ITS DIRECTOR, THE COMPANY IS ELIGIBLE FOR CLAIMING DEPRECIATION ON THE SAME. IN THIS REGARD, THE ASSESSEE RELIED UPON THE JUDGEMENT PASSED IN THE MATTER OF CIT VS. A RAVALLI FINLEASE REPORTED IN 341 ITR 282(GUJ) WHICH WE HAVE CAREFULLY PERUSED. 16. AS WE FIND THAT THE LEARNED CIT(A) DELETED ADD ITIONS MADE IN RESPECT OF INTEREST RS. 82,121/- AND INSURANCE RS. 23,370/- ; HOWEVER, ADDITION IN RESPECT OF DEPRECIATION RS. 1,36,000/- AND CAR EXPENSE R S. 28,995/- HAS BEEN PARTLY DELETED TO EXTENT OF 75% I.E. 25% WHICH ACCORDING T O US IS UNAMBIGUOUS TAKING INTO CONSIDERATION OF THE ASSESSES BOOKS OF ACCOUNT S MAINTAINED IN REGARD TO THE SAID ASSET AS IT APPEARS FROM THE RECORDS AND THUS WE UPHOLD THE SAME. HENCE, THIS GROUND OF APPEAL PREFERRED BY THE REVENUE IS DISMIS SED. GROUND NO.5 17. THIS GROUND IS AGAINST THE DISALLOWANCE OF EXPEN SES OF RS.6,72,442/- FOR WEB DESIGNING AND DEVELOPMENT HAS BEEN CHALLENGED B EFORE US BY THE REVENUE. 18. HEARD THE PARTIES, PERUSED THE RELEVANT MATERIA LS AVAILABLE ON RECORD. 19. AS IT APPEARS FROM THE RECORDS THAT THE LEARNED AO TREATED THE SAID WEBSITE DESIGN AND DEVELOPMENT EXPENSES OF RS.8,96,589/- AS CAPITAL IN NATURE AND ALLOWED ITA NO. 2277/AHD/2015 (M/S. BAJAJ HERBALS PVT. LTD. VS. ITO) A.Y. 2010-11, ITA NO.2350/AHD/20 15 (ITO VS. M/S. BAJAJ HERBALS PVT. LTD.) A.Y. 2010-11 9 THE PRECISION ON THE SAME @ 25%, AND THEREFORE THE IMPUGNED DISALLOWANCE OF RS.6 ,72,442/- WERE APPEAL AGAINST BEFORE THE LEARNE D CIT(A). 20. IT IS A COMMON PRACTICE OF THE PRESENT BUSINESS SCENARIO THAT A COMPANY CREATES A WEBSITE SO AS TO DISPLAY ALL THE INFORMAT ION ABOUT ITS PRODUCTS AND SUCH WEBSITE NEEDS TO BE UPDATED AT FREQUENT INTERVALS. THEREFORE, SUCH EXPENDITURE NEEDS TO BE INCURRED EACH AND EVERY YEAR. WE HAVE F URTHER PERUSED THE LEDGERS AND INVOICES WHICH IS ON RECORD BEFORE US COMMENCING FR OM PAGE 186 TO 199 OF THE PAPER BOOK FILED BY THE ASSESSEE BEFORE US, WHEREFR OM, IT APPEARS THAT THE PAYMENT TO BC WEB DESIGN P. LTD. WAS FOR PART OF PAYMENT O F INITIAL ONE TIME SET UP COST OF DESIGN AND DEVELOPMENT OF WEBSITE; PAYMENT TO I NNOVATIVE DESIGN ENGINEERING WAS FOR DESIGN AND DEVELOPMENT OF VARIO US PRODUCTS THROUGH COMPUTER BASED RESEARCH AND FIELD RESEARCH; PAYMENT TO M/S. PARAGRAPHIC WAS FOR VARIOUS BROCHURE DESIGNING AND INCIDENTAL WORK SUCH AS PHOTOGRAPHY, DIGITAL PRINTING, ARABIC TRANSLATION OF PRINTED MATERIAL, E TC. IT ALSO APPEARS THAT THE ASSESSEE HAS ALSO DEDUCTED TAX AT SOURCE WHILE RELEASING SUC H PAYMENTS. THUS, IT BECOMES AMPLY CLEAR THAT THE UNDERLYING EXPENSES HAVE BEEN INCURRED FOR DAY-TO-DAY RUNNING OF THE BUSINESS OF THE ASSESSEE. NO ASSET HAS COME INTO EXISTENCE ON ACCOUNT OF INCURRING SUCH EXPENDITURE, AND SUCH EXP ENDITURE HAS NOT RESULTED INTO ANY ENDURING BENEFIT TO THE ASSESSEE. MORE SO, EXP ENSES HAVE BEEN INCURRED WHOLLY AND EXCLUSIVELY IN CONNECTION WITH THE BUSINESS OF THE ASSESSEE. IN VIEW OF THE ABOVE, THE UNDERLYING EXPENSES ARE UNDOUBTEDLY REVE NUE. IN THIS REGARD, THE LEARNED AR RELIED UPON THE JUDGEMENT PASSED BY THE H ONBLE JURISDICTIONAL HIGH COURT IN THE MATTER OF PCIT VS. ZYDUS WELLNESS LTD. RE PORTED IN(2017) 81 TAXMANN.COM 159(GUJ). WE HAVE PERUSED THE JUDGEMENT AND FIND THAT SINCE THE UNDERLYING EXPENSES HAS UNDOUBTEDLY REVENUE IN NATU RE, THE IMPUGNED DISALLOWANCE HAS BEEN RIGHTLY DELETED BY THE LEARNED CIT(A) RELYING UPON THE RATIO LAID DOWN BY THE JUDGEMENT AS AFORESAID. HENCE, WE FIND NO MERIT IN THE GROUND OF APPEAL PREFERRED BY THE REVENUE. THE SAME IS, THUS, DISMISSED. ITA NO. 2277/AHD/2015 (M/S. BAJAJ HERBALS PVT. LTD. VS. ITO) A.Y. 2010-11, ITA NO.2350/AHD/20 15 (ITO VS. M/S. BAJAJ HERBALS PVT. LTD.) A.Y. 2010-11 10 GROUND NO.6: 21. THIS GROUND RELATES TO DELETION OF DISALLOWANCE OF RS.8,71,278/- FOR MARKET SURVEY AND PRODUCTION OF TV COMMERCIAL HAS BEEN CHAL LENGED BEFORE US BY THE REVENUE. SUCH EXPENSES IN QUESTION HAVE BEEN INCURR ED FOR CARRYING OUT MARKET SURVEY PRIOR TO LAUNCH OF ASSESSES PRODUCTS IN FOR EIGN MARKETS AND THIS EXPENSES IN QUESTION ARE PART OF SALES AND MARKETING EXPENSES S INCE IT IS ESSENTIAL FOR THE COMPANY TO CARRY OUT SOME SUCH MARKET SURVEY PRIOR TO LAUNCHING ITS PRODUCT IN THE MARKET AS THE CASE MADE OUT BY THE ASSESSEE. 22. HEARD THE PARTIES, PERUSED THE RELEVANT MATERIA LS AVAILABLE ON RECORDS. IT APPEARS FROM THE ABOVE DISCUSSION THAT THE EXPENDIT URE IN QUESTION HAS NOT RESULTED INTO ANY ENDURING BENEFIT TO THE ASSESSEE. FURTHER THAT SUCH EXPENSES HAVE BEEN INCURRED WHOLLY AND EXCLUSIVELY IN CONNECTION WITH THE BUSINESS OF THE ASSESSEE AS IT APPEARS FROM THE RECORDS BEING REVENUE IN NATURE , AND RELYING UPON THE JUDGEMENT PASSED BY THE JURISDICTIONAL HIGH COURT I N THE MATTER OF PCIT VS. ZYDUS WELLNESS LTD. REPORTED IN(2017) 81 TAXMANN.COM 159(G UJ.), WE FIND NO AMBIGUITY IN THE ORDER PASSED BY THE LEARNED CIT(A). HENCE, W E REJECT THE GROUND OF APPEAL PREFERRED BY THE REVENUE. GROUND NO.7: 23. THIS GROUND RELATES TO DISALLOWANCE OF EXPENSES PAID TO TRITON COMMUNICATION FOR MAKING ADVERTISEMENT FILM AT RS. 30,20,703/-. 24. HEARD THE PARTIES AND PERUSED THE RELEVANT MATE RIALS AVAILABLE ON RECORD. ITA NO. 2277/AHD/2015 (M/S. BAJAJ HERBALS PVT. LTD. VS. ITO) A.Y. 2010-11, ITA NO.2350/AHD/20 15 (ITO VS. M/S. BAJAJ HERBALS PVT. LTD.) A.Y. 2010-11 11 25. IT APPEARS THAT THE AO TREATED EXPENSES OF RS. 40,27,605/- INCURRED ON PRODUCTION OF A COMMERCIAL FILM AND ITS MASTER CO PY AS CAPITAL IN NATURE AND ALLOWED DEPRECIATION ON THE SAME @ 25%. ACCORDINGL Y, THE DISALLOWANCE OF RS. 30,20,703/- (RS. 40,27,605*75%) HAS BEEN MADE. THE ASSESSEE INCURRED THESE EXPENSES FOR AN AD-FILM BY AVAILING THE PROFESSIONA L SERVICES OF A MODEL. AGREEMENT WITH THE MODEL IS ALSO BEFORE US ON R3ECO RD COMMENCING FROM PGS. 216-225 OF THE PAPER BOOK. CLAUSE 4 OF THE SAID AG REEMENT SPECIFIED THAT THE SAME IS VALID FOR A PERIOD OF 12 MONTHS AND IT WAS TO BE EXHIBITED ONLY WITHIN THE TERRITORY OF INDIA. THE AD-FILM HAS ALSO NOT BEEN U SED AFTER 31.03.10 I.E. END OF YEAR IN QUESTION. THE ASSET HAS NOT RESULTED INTO ANY E NDURING BENEFIT TO THE ASSESSEE. THESE EXPENSES HAVE BEEN INCURRED WHOLLY AND EXCLUSI VELY IN CONNECTION WITH THE BUSINESS OF THE ASSESSEE, OR IT ALREADY APPEARS FRO M THE ABOVE DISCUSSION. IN VIEW OF THE MATTER, THE UNDERLYING EXPENSES ARE UNDOUBTE DLY REVENUE IN NATURE AND HENCE, THE DISALLOWANCE HAS RIGHTLY BEEN DELETED. THUS, WE REJECT THE GROUND OF APPEAL IN THE ABSENCE OF ANY AMBIGUITY BEING FOUND IN THE ORDER PASSED BY THE LD. CIT(A). GROUND NO.8 26. THIS GROUND RELATES TO DISALLOWANCE OF RS. 1,16, 539/- BEING CREDIT CARD EXPENSES. 27. HEARD THE PARTIES AND PERUSED THE RELEVANT MATE RIALS AVAILABLE ON RECORD. 28. IT APPEARS THAT THE AO DISALLOWED CREDIT CARD E XPENSES OF RS. 1,16,539/- WITHOUT APPRECIATING FACTS OF THE CASE IN ITS ENTIR ETY. THESE EXPENSES HAVE BEEN INCURRED IN RELATING TO THE BUSINESS OF THE ASSESSE E. WHENEVER DIRECTORS GO OUT FOR BUSINESS PROMOTION IT IS NOT ALWAYS CONVENIENT FOR THEM TO PAY VARIOUS EXPENSES IN CASH AND THUS THE EXPENSES ARE MADE THROUGH CREDIT CARD. WE HAVE ALSO CAREFULLY CONSIDERED THE LEDGER OF CREDIT CARD OF THOSE CONCE RNED EXPENSES WHICH APPEAR AT PAGE 254 TO 255 OF THE PAPER BOOK ON RECORD BEFORE US. ASSESSEES TURNOVER IS RS. ITA NO. 2277/AHD/2015 (M/S. BAJAJ HERBALS PVT. LTD. VS. ITO) A.Y. 2010-11, ITA NO.2350/AHD/20 15 (ITO VS. M/S. BAJAJ HERBALS PVT. LTD.) A.Y. 2010-11 12 16,64,10,392/- FOR THE YEAR UNDER CONSIDERATION WHI CH APPEARS AT PAGE 54 OF THE PAPER BOOK. ACCORDINGLY, THE IMPUGNED EXPENSE IS O NLY 0.07% OF THE TOTAL TURNOVER. THUS, ULTIMATELY, THE IMPUGNED EXPENSES H AVE BEEN FOUND TO BE INCURRED WHOLLY AND EXCLUSIVELY FOR THE BUSINESS OF THE ASSE SSEE BY THE LD.CIT(A), WHICH FINDING ACCORDING TO US IS WITHOUT ANY AMBIGUITY AN D NEEDS NO INTERFERENCE. THE SAME HAVE BEEN DELETED BY THE LD. CIT(A). HENCE, WE REJECT THIS GROUND PREFERRED BY REVENUE. GROUND NO.9 29. THIS GROUND RELATES TO THE ADDITION OF RS.13,44, 47,290/- MADE ON ACCOUNT OF UNDER-INVOICING OF SALES MADE TO SISTER CONCERN. 30. HEARD THE PARTIES AND PERUSED THE RELEVANT MATE RIALS ON RECORD. 31. IT APPEARS THAT AO MADE THE AD-HOC ADDITION OF RS. 13,44,47,290/- ON ACCOUNT OF ALLEGED UNDER-INVOICING OF SALES MADE TO SISTER CONCERNS. THE ASSESSEE HAS MADE EXPORTS OF RS. 2,42,67,490/- TO ITS SISTER CONCERN VIZ. BAJAJ HERBAL FZE LLP. THE AO FURTHER FOUND THAT THE ASSESSEE HAD EXPOR TED SAME PRODUCTS TO VARIOUS OTHER PARTIES AS WELL. THE ESTIMATED VALUE IS 84.71% WHICH APPEARS AT PAGE 22 OF THE PAPER BOOK. WE HAVE CAREFULLY CONSI DERED THE DOCUMENTS RELIED UPON BY THE APPELLANT WHICH IS FORMING PART OF THE RECORDS BEFORE US. WE FIND THAT THE ASSESSEE HAS ALSO SUBMITTED BREAK-UP OF EXPORTS WITH COMPARISON, SAMPLE COPY OF BILLS ISSUED TO ITS SISTER CONCERN ALONG WITH LE DGERS OF ITS SISTER CONCERN AND OTHER PARTIES. HOWEVER, AFTER CAREFUL CONSIDERATION OF T HE MATTER, WE FIND THAT THE AO FAILED TO APPRECIATE THAT DIFFERENCE IN SALES PRICE COULD BE ON ACCOUNT OF VARIOUS FACTORS SUCH AS, STRENGTH OF THE PRODUCT, TERMS OF PAYMENT, THE CONCERNED COUNTRY BEING THE FINAL DESTINATION, STABILITY OF POLITICAL CONDITIONS IN THOSE COUNTRIES, QUANTITY SUPPLIED, QUALITY SUPPLIED, CREDITWORTHINE SS OF PARTIES, MARKET CONDITIONS, RISK FACTOR, ETC. ITA NO. 2277/AHD/2015 (M/S. BAJAJ HERBALS PVT. LTD. VS. ITO) A.Y. 2010-11, ITA NO.2350/AHD/20 15 (ITO VS. M/S. BAJAJ HERBALS PVT. LTD.) A.Y. 2010-11 13 AFTER TAKING INTO ACCOUNT VARIOUS FACTORS AS ENLIST ED HEREINABOVE, WE FIND FOLLOWING FLAWS IN THE METHODOLOGY ADOPTED BY AO:- PRICE CHARGED TO SISTER CONCERN FOR VARIOUS PRODUCT S ARE IN THE RANGE OF RS.318/- (SR. NO.1) TO RS.2622.50 (SR. NO.13-14) WH EREAS THE AVERAGE PRICE CHARGED FROM OTHERS FOR VARIOUS PRODUCTS ARE IN THE RANGE OF RS.632.42 (SR. NO. 16) TO RS.2,828.94/-(SR. NO.13); RANGE OF THE ALLEGED UNDER INVOICING WORKED OUT BY AO FOR VARIOUS PRODUCTS IS 3.16% TO 366.32% (PG.20 OF ASST. ORDER) ; BASED ON ABOVE RANGE, AO ADOPTED AVERAGE RATE OF UN DER-INVOICING BEING 84.71%; THE SO CALLED UNDER INVOICING DIFFERS FROM PRODUCT T O PRODUCT AND SO ALSO THE QUANTITY SOLD; THE GLOBAL AVERAGE RATE CANNOT HE APPLIED IN A STAND ARD MANNER TO ALL THE PRODUCTS BY COMPLETELY OVERLOOKING THE PRICE VARIAT ION OF EACH PRODUCT AS WELL AS QUANTITY SOLD; PICK AND CHOOSE METHOD HAS BEEN ADOPTED BY AO AND V ARIOUS FACTORS AFFECTING THE PRICE HAVE BEEN COMPLETELY OVERLOOKED ; 32. APART FROM THAT ASSESSEES EXPORTS TO ITS SISTE R CONCERN FOR AY 2010-11 ARE OF RS. 2,42,67,490/- WHEREAS AO HAS WORKED OUT UNDE R-INVOICING OF EXPORTS TO A HUGE SUM OF RS. 13,44,47,290/- I.E. ALMOST 5.54 TIM ES OF EXPORTS TO SISTER CONCERN SHOWN BY THE ASSESSEE. WE ALSO FIND THAT THE TOTAL TURNOVER FOR ASST. YEAR 2010-11 IS RS. 16,64,10,392/- AS APPEARS AT PAGE NO. 54 OF THE PAPER BOOK. AFTER ADDITION OF RS. 13,44,47,290/- IN RESPECT OF ALLEGED UNDER I NVOICING THE GROSS PROFIT RATE AND NET PROFIT RATE SHALL BE 64,79% & 46.38% WHICH IS N OT POSSIBLE. IN FACT, A SURVEY WAS TOOK PLACE ON 22.02.10 WHICH IS AT THE FAG END OF THE YEAR. THE ASSESSEE ARE DULY AUDITED ALL BOOKS OF ACCOUNTS. AFTER TAKING I NTO CONSIDERATION THE ENTIRE ASPECT OF THE MATTER, WE FIND THE LD. CIT(A) HAS RIG HTLY DELETED THE IMPUGNED ITA NO. 2277/AHD/2015 (M/S. BAJAJ HERBALS PVT. LTD. VS. ITO) A.Y. 2010-11, ITA NO.2350/AHD/20 15 (ITO VS. M/S. BAJAJ HERBALS PVT. LTD.) A.Y. 2010-11 14 DISALLOWANCE. HENCE, IN THE ABSENCE OF ANY MERIT, W E DISMISS THE GROUND RAISED BY THE REVENUE. 33. IN THE RESULT, ASSESSEES APPEAL IS ALLOWED, AN D THAT OF THE REVENUE IS DISMISSED. [ORDER PRONOUNCED IN THE COURT ON 31.01.2020.] SD/- SD/- ( WASEEM AHMED ) ( MADHUMITA ROY ) ACCOUNTANT MEMBER JUDICIAL MEMBER