The ACIT, Circle-2(1), Guntur V. M/s Shirdi Book Depot, Guntur

ITA 293/VIZ/2009

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 0735 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 11 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-05-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 05-05-2010
• Assessment Year: 2005-2006
• Appeal Filed On: 28-05-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: G S S GOPINATH
• Section: 37

Judgement Text

ITA NO.293/VIZAG/2009 SHIRIDI BOOK DEPOT GUNTUR PAGE 1 OF 4 IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH, VISAKHAPATNAM BEFORE: SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI BR BASKARAN, ACCOUNTANT MEMBER ITA NO.293/VIZAG/2009 ASSESSMENT YEAR: 2005-06 ACIT, CIRCLE-2(1) GUNTUR VS. SHIRIDI BOOK DEPOT, GUNTUR (APPELLANT) (RESPONDENT) PAN NO: AA IFS 2775 E APPELLANT BY: SHRI G.S.S. GOPINATH, DR RESPONDENT BY: NONE ORDER PER SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER: THIS APPEAL IS PREFERRED BY THE REVENUE AGAINST TH E ORDER OF THE CIT(A) ON A SOLITARY GROUND THAT THE CIT (A) HAS ER RED IN ALLOWING THE EXPENDITURE WHICH WERE DISALLOWED BY THE AO ON THE GROUND THAT IT WAS NOT INCIDENTAL TO THE BUSINESS OF THE ASSESSEE. 2. THIS APPEAL CAME UP FOR HEARING ON 5 TH MAY, 2008 BUT NONE APPEARED ON BEHALF OF THE ASSESSEE. ON PERUSAL OF THE RECORD IT IS NOTICED THAT THE NOTICE OF HEARING WAS DULY SERVED UPON THE ASSESSEE THROUGH THE DR. COPY OF THE ACKNOWLEDGEMENT RECEIPT IS PLACED ON RECORD. WE, THEREFORE, HAD NO OPTION BUT TO PROCEED EX-PARTE AGAINST THE ASSESSEE . ACCORDINGLY THE REVENUE WAS HEARD. ITA NO.293/VIZAG/2009 SHIRIDI BOOK DEPOT GUNTUR PAGE 2 OF 4 3. ON CAREFUL PERUSAL OF THE ORDER OF THE LOWER AUT HORITIES, WE FIND THAT THE AO HAS DISALLOWED A SUM OF RS.7,75,592/- OUT OF TOTAL EXPENDITURE OF RS.9,19,501/- DEBITED UNDER THE HEAD SALES PROMOTI ON EXPENDITURE ON THE GROUND THAT THIS EXPENDITURE WAS NOT INCIDENTAL TO THE BUSINESS OF THE ASSESSEE. 4. THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT (A) WITH THE SUBMISSION AND THE ASSESSEE IS A PUBLISHER OF SCHOO L BOOKS AND THE ENTIRE EXPENDITURE ON ACCOUNT OF SALES PROMOTION EXPENDITU RE WAS INCURRED TO MEET EXPENSES INCURRED ON ANNUAL DAY CELEBRATIONS, SPORTS DAY, CRICKET TOURNAMENT & OTHER SCHOOL FUNCTIONS. IT WAS FURTHER CONTENDED THAT THE EXPENDITURE INCURRED FOR ORGANIZING SPORTS TOURNAM ENT ETC., DIRECTLY RESULTS IN PUBLICITY AND ADVERTISEMENT OF THE ASSESSEE AND ITS PRODUCTS AND QUALIFY AS ADMISSIBLE DEDUCTION U/S 37 OF THE ACT. IT WAS F URTHER CONTENDED THAT WHILE COMPUTING THE PROFITS OF BUSINESS, THE TERM PROFITS HAS TO BE UNDERSTOOD IN THE COMMERCIAL CONTEXT AND TRUE PROFI TS SHOULD BE ASCERTAINED ACCORDING TO THE COMMERCIAL PRINCIPLES. 5. IT WAS FURTHER CONTENDED THAT IN PRIMARY EDUCATIO N, MOST OF THE SCHOOL BOOKS ARE APPROVED BY THE SCHOOL AUTHORITIES AND ARE RENEWED ON ANNUAL BASIS. THEREFORE, THE PUBLISHER NEEDED TO BE IN CONSTANT TOUCH WITH THE SCHOOL AUTHORITIES FOR THE SMOOTH CONTINUATION OF BUSINESS. IF THE SCHOOLS REQUESTS WERE NOT MET THERE WAS ALWAYS A CH ANCE OF LOOSING THAT BUSINESS. 6. THE EXPLANATIONS OF THE ASSESSEE WERE EXAMINED B Y THE CIT (A) AND BEING CONVINCED WITH IT HE ALLOWED THE DEDUCTION. R ELEVANT OBSERVATIONS OF THE CIT (A) ARE EXTRACTED HEREUNDER: ITA NO.293/VIZAG/2009 SHIRIDI BOOK DEPOT GUNTUR PAGE 3 OF 4 6. I HAVE CONSIDERED THE SUBMISSIONS AND OTHER EVI DENCES FILED BY THE AUTHORIZED REPRESENTATIVE OF THE APPEL LANT. THE AUTHORIZED REPRESENTATIVE PRODUCED THE FOLLOWING EV IDENCES THAT WERE CALLED FOR DURING THE COURSE OF THE APPEL LATE PROCEEDINGS-(1) SCHOOL SOUVENIRS WHERE THE APPELLAN TS ADVERTISEMENTS WERE PLACED (2) PHOTOGRAPHS OF SCHOO L FUNCTIONS WHICH EXHIBITED THE APPELLANTS BANNERS ( 3) MEMENTOES SHOWING THAT THEY WERE SPONSORED BY THE APPELLANT. (4) LETTERS FROM SEVERAL SCHOOLS STATING THAT THEY WERE USING THE APPELLANTS BOOKS AND REQUESTING SPO NSORSHIP OF VARIOUS SCHOOL EVENTS. THE AUTHORIZED REPRESENTATIV E ALSO FILED A STATEMENT TO SHOW THE SALES MADE IN VARIOUS DISTR ICTS AND SUBMITTED THAT THIS SHOULD BE CORRELATED WITH THE A MOUNTS SPENT TOWARDS VARIOUS SCHOOLS IN THESE DISTRICTS EV EN IF THE SALES WERE NOT MADE DIRECTLY TO THE SCHOOLS THEMSEL VES. 7. AFTER EXAMINING THE EVIDENCES SUBMITTED BEFORE M E AND GOING THROUGH THE SUBMISSIONS MADE, I HAVE TO HOLD T HAT THE EXPENDITURE INCURRED CERTAINLY IS IN THE NATURE OF ADVERTISEMENT AND IN ORDER TO ESTABLISH AND MAINTAIN GOODWILL WIT H THE APPELLANTS CLIENTS OR POTENTIAL CLIENTS. THERE DOE S NOT NECESSARILY HAVE TO BE SALES IN THIS YEAR ITSELF TO MAKE THE EXPENDITURE ELIGIBLE FOR DEDUCTION. EXPENDITURE INC URRED TO CAPTURE POTENTIAL SALES IS ALSO EQUALLY EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF THE APPE LLANTS BUSINESS. IN THIS CASE THE APPELLANT HAS BEEN ABLE TO SHOW THAT THE EXPENDITURE INCURRED IS IN THE NATURE OF ADVERT ISEMENT AND ESSENTIALLY FOR THE PURPOSES OF PROMOTING ITS SALES BY MAINTAINING GOOD RELATIONS WITH ITS CLIENTS AND POT ENTIAL CLIENTS. I THEREFORE, HOLD THAT THE EXPENDITURE IS INCURRED W HOLLY AND EXCLUSIVELY FOR THE PURPOSES OF THE APPELLANTS BUS INESS AND IS ALLOWABLE UNDER SECTION 37 OF THE ACT. 8. I THEREFORE DELETE THE ADDITION OF RS.7,75,592/- MADE BY THE ASSESSING OFFICER AND HOLD THAT IT IS IN THE NATURE OF SALES PROMOTION EXPENDITURE. THE ASSESSING OFFICER IS DIR ECTED TO RE COMPUTE THE APPELLANTS INCOME ACCORDINGLY. 7. NOW THE REVENUE IS PREFERRED AN APPEAL BEFORE US AND DURING THE COURSE OF HEARING HE COULD NOT POINT OUT ANY SPECIF IC DEFECTS IN THE ORDER OF ITA NO.293/VIZAG/2009 SHIRIDI BOOK DEPOT GUNTUR PAGE 4 OF 4 THE CIT (A). WE HOWEVER CAREFULLY EXAMINED THE ORDE R OF THE CIT (A) AND WE FIND THAT THE PUBLISHERS ARE REQUIRED TO REMAIN IN TOUCH WITH THE SCHOOL AUTHORITIES AND ALSO TO FULFILL THEIR DEMAND. SINC E THE EXPENDITURE INCURRED BY THE ASSESSEE IS FOR COMMERCIAL EXIGENCIES, THE S AME ARE TO BE ALLOWED. WE, THEREFORE, FIND NO INFIRMITY IN THE ORDER OF TH E CIT (A). ACCORDINGLY THE APPEAL OF THE REVENUE IS DISMISSED. PRONOUNCED IN THE OPEN COURT ON 14.05.2010. SD/- SD/- (B R BASKARAN) (SUNIL KUMAR YADA V) ACCOUNTANT MEMBER JUDICIAL MEMBER PVV/SPS VISAKHAPATNAM, DATE: 14 TH MAY, 2010 COPY TO 1 ADDL. CIT, RAJAHMUNDRY RANGE, RAJAHMUNDRY 2 M/S SRI KRISHNA ENGINEERING COMPANY & OTHERS, D.N O.80-30-7/5 KOKA BHASKARAMMA NAGAR, RAJAHMUNDRY 3 4 THE CIT (A) RAJAHMUNDRY THE CIT, RAJAHMUNDRY 5 THE DR, ITAT, VISAKHAPATNAM. 6 GUARD FILE. BY ORDER SENIOR PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM