V.Kumarpal Jain, CHENNAI V. ITO, CHENNAI

ITA 3372/CHNY/2016

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 6424 (ITAT-CHENNAI)
• Duration Of Justice: 8 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-08-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 10-07-2017
• Assessment Year: 2012-2013
• Appeal Filed On: 16-12-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: B SAGADEVAN
• Assessee Lawyers: A S SRIRAMAN
• Keywords: Business income

Judgement Text

, .. , IN THE INCOME TAX APPELLATE TRIBUNAL SMC C BENCH, CHENNAI , ! BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER . / ITA NO.3372/MDS/2016 / ASSESSMENT YEAR : 2012-13 MR. KUMARPAL JAIN , THE INCOME-TAX OFFICER, NO.75, PERUMAL MUDALI STREET, V. NON CORPORATE WAR D 5(1), SOWCARPET,CHENNAI-79 CHENNAI 600 006. PAN AFSPK8581K ( /APPELLANT) RESPONDENT) / APPELLANT BY : SHRI A.S.SRIRAMAN, ADVOCATE / RESPONDENT BY : SHRI B. SAGADEVAN, JCIT ! / DATE OF HEARING : 12.07.2017 '# ! / DATE OF PRONOUNCEMENT : 21.08.2017 ' / O R D E R THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME-TAX(APPEALS)-5, CHENN AI DATED 07.10.2016 FOR ASSESSMENT YEAR 2012-13. - - ITA 3372/MDS/16 2 2. THE GROUND RAISED BY THE ASSESSEE IN THIS APPEAL IS AS FOLLOWS: THE CIT(APPEALS) ERRED IN SUSTAINING THE DISALLOWANCE OF THE CLAIM OF DEDUCTION TOWARDS INCURRING OF ADVERTISEMENT EXPENSES TO THE TUNE OF 13,98,067/- AND CONSEQUENTLY ERRED IN CONFIRMING TH E ASSESSMENT OF SUCH SUM IN THE COMPUTATION OF TAXABLE TOTAL INCOME WITHOUT ASSIGNING PROPER REASONS AND JUSTIFICATION. 3. THE FACTS OF THE CASE ARE THAT THE AO FOUND THAT THE ASSESSEE HAD CLAIMED THE ADVERTISEMENT EXPENSES AMO UNTING TO 13,98,067/-. IN THE TRADING ACCOUNT THE ASSESSEE S HOWS GROSS PROFIT OF 7,57,134/- AT 2.6% ON THE TOTAL SALES 2,88,40,749/-. DURING THE COURSE OF HEARING, THE AR REQUESTED TO E XPLAIN THE REASONS FOR THE HUGE EXPENDITURES INCURRED TOWARDS ADVERTISEMENT AND THE RESULTANT GROSS PROFIT IS VER Y LOW. SINCE, THE ASSESSEE HAS NOT FURNISHED ANY DETAILS AS CALLE D FOR, SHOW CAUSE NOTICE WAS ISSUED TO THE ASSESSEE VIDE LETTER DATED - - ITA 3372/MDS/16 3 24.2.2015 CALLING FOR THE DETAILS AND WHILE THE CLA IM TOWARDS THE ADVERTISEMENT EXPENDITURE SHOULD BE DISALLOWED. 3.1 IN RESPONSE TO THE NOTICE, THE ASSESSEE FURNISH ED LETTER DATED 27.2.2015, WHEREIN HE HAS STATED THAT THE DIS TRIBUTORSHIP AGREEMENT, THE MONTHLY BUDGET FOR THE EXPENSES WILL REMAIN NOT MORE THAN 10 LAKHS PER MONTH AND THE SAME WOULD BE REIMBURSED BY THE COMPANY ON PRODUCTION OF RELEVANT DOCUMENTS. FURTHER, HE SUBMITTED THAT DURING THE Y EAR, THE ASSESSEE HAS INCURRED ADVERTISEMENT EXPENSES AMOUNT ING TO 42,57,509/- OUT OF WHICH 28,29,442/- HAS BEEN REIMBURSED BY THE COMPANY AND THE SAME HAS BEEN CREDITED TO THE ADVERTISEMENT EXPENDITURE ACCOUNT. FURTHER, HE STA TED THAT SINCE THE DISTRIBUTORSHIP WAS OBTAINED ONLY ON 17.1 .2011 AND FINANCIAL YEAR 2011-12 BEING THE FIRST FULL YEAR OF DISTRIBUTORSHIP, THE ASSESSEE WAS REQUIRED TO INCUR SUBSTANTIAL/HUGE AMOUNTS ON ADVERTISEMENT FOR THE PRODUCE TO BE WELL KNOWN IN T HE MARKET AND THE SAME HAS RESULTED IN SUBSTANTIAL INCREASE I N THE SALES TURNOVER IN THE SUBSEQUENT YEARS. HENCE, THE AR SU BMITTED THAT THE SAID EXPENDITURE IS GENUINE, WHICH IS INCURRED IN DUE COURSE - - ITA 3372/MDS/16 4 AND FOR THE PURPOSE OF THE BUSINESS. 3.2 THE AO FOUND THAT THE BUSINESS OFFER TO THE ASS ESSEE IS FOR DISTRIBUTION OF PRODUCTS OF BAN LABS LTD. SUCH AS SESA RANG AND SESA COCONUT OIL FOR THE CALENDAR PERIOD OF 201 1 ONLY. IN THIS CONNECTION, THE ASSESSEE WAS REQUESTED TO PRODUCE T HE RENEWAL/FURTHER EXTENSION AGREEMENT, WHICH WAS NOT FURNISHED BY THE ASSESSEE FOR THE CALENDAR YEAR 2012 TILL THE BUSINESS PERIOD FROM JANUARY 2012 TO MARCH 2012. 3.3 THE AO OBSERVED THAT AS PER THE AGREEMENT, TO M EET THE EXPENSE MENTIONED AS ABOVE, COMPANY WILL ALLOW SPEC IAL MARGIN AS MENTIONED IN THE PRICE LIST ATTACHED AND THE MON THLY BUDGET FOR THE EXPENSES WILL REMAIN NOT MORE THAN 10 LAKHS PER MONTH. AT THE BEGINNING OF EACH MONTH, THE ASSESSEE WILL S UBMIT ALL RELEVANT DOCUMENTS/SUPPORTING VOUCHERS FOR THE EXPE NSES MADE BY THE ASSESSEE IN PREVIOUS MONTH TO THE COMPANY, W HICH WILL BE ADJUSTED AGAINST THE SPECIAL MARGIN ALLOTTED TO IT THROUGH INVOICE AND PLUS/MINUS WHICHEVER IS APPLICABLE, WILL BE CAR RY FORWARD ACCORDINGLY. THE AO OBSERVED THAT THE REIMBURSEMEN T DENOTES - - ITA 3372/MDS/16 5 ALL EXPENSES AND NOT ONLY FOR ADVERTISEMENT ALONE. THE ASSESSEE WAS REQUESTED TO PRODUCE THE COPY OF THE R ELEVANT DOCUMENTS / SUPPORTING VOUCHERS FOR THE EXPENSES MA DE AND CLAIM SUBMITTED TO BAN LAB LTD. FOR REIMBURSEMENT, WHICH WAS NOT FURNISHED BY THE ASSESSEE. ACCORDING TO THE AS SESSEE, TDS HAS BEEN DEDUCTED FOR THE ADVERTISEMENT FOR THE CLA IM OF EXPENDITURE ON THE ADVERTISEMENT. ACCORDING TO THE AO, MERE DEDUCTION OF TDS AT 1% OR 2% ON THE ADVERTISEMENT I S NOT SUFFICIENT PROOF FOR CLAIMING THE EXPENDITURE AND T HE ASSESSEE HAD NOT FULFILLED THE TARGET OF TURN-OVER, SAY ABOU T 37 LAKHS PER MONTH AS PER THE TERMS OF THE AGREEMENT. THE AO DI D NOT ACCEPT THE EXPLANATION OF THE ASSESSEE AND DISALLOW ED THE ADVERTISEMENT EXPENSES OF 13,98,067/-. THE AO OBSERVED THAT AS PER THE TERMS OF THE AGREEMENT WITH BAN LABS, TH E ASSESSEE IS SUPPOSED TO RECEIVE ALL AND ANY AMOUNTS SPENT ON BY HIM FOR THE BUSINESS AND FOR THE CALENDAR YEAR AND THE ASSE SSEES CLAIM THAT THE SAME IS EXPENDITURE IN HIS HANDS IS A CLEA R MISREPRESENTATION OF THE FACTS OF AGREEMENT ENTERED INTO WITH BAN LABS. AGGRIEVED, THE ASSESSEE WENT IN APPEAL B EFORE THE CIT(APPEALS). SINCE, THE ASSESSEE HAS NOT PRODUCED ANY BILLS - - ITA 3372/MDS/16 6 AND VOUCHERS RELATING TO THE EXPENDITURE AND INCURR ING OF EXPENDITURE WAS NOT PROVED, THE ADDITION WAS SUSTAI NED BY THE CIT(APPEALS). AGAINST THIS, THE ASSESSEE IS IN APP EAL BEFORE US. 4. I HAVE HEARD BOTH THE PARTIES AND PERUSED THE MA TERIAL ON RECORD BEFORE US. THE CONTENTION OF THE LD.D.R IS THAT THE ASSESSEE IS ONLY TRADER, WHEREIN BUYING AND SELLING OF BRANDED GOODS AS A DISTRIBUTOR AND NO NECESSITY OF INCURRIN G EXPENDITURE ON ANY ADVERTISEMENT, EVEN IF IT IS INCURRED, IT WO ULD BE REIMBURSED BY THE PRINCIPAL. ACCORDING TO LD.A.R, THE EXPENDITURE INCURRED FOR THE PURPOSE OF BUSINESS AN D ALL THE EXPENSES WAS NOT REIMBURSED BY THE PRINCIPAL. THE P ORTION OF THE EXPENDITURE, WHICH WAS NOT REIMBURSED, WAS CLAIMED AS DEDUCTION WHILE COMPUTING THE INCOME OF ASSESSEE AN D THE LD.A.R PRAYED THAT AN OPPORTUNITY MAY BE GIVEN TO E STABLISH THE INCURRING OF EXPENDITURE AND ITS GENUINENESS. CONSI DERING THE PLEA OF THE ASSESSEE, THIS ISSUE IN DISPUTE IS REMI TTED TO THE FILE OF LD. ASSESSING OFFICER FOR FRESH CONSIDERATION AND T HE ASSESSEE HAS TO PROVE THAT THE EXPENDITURE WAS INCURRED WHOL LY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. - - ITA 3372/MDS/16 7 5. IN THE RESULT, THE APPEAL OF ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON 21 ST AUGUST, 2017 AT CHENNAI. SD/- ( $ % & ' ) ()*+,-*.//0*-12 ! 34566/7+8*+89:;<:- $= /CHENNAI, >3 /DATED, THE 21 ST AUGUST, 2017. K S SUNDARAM 3? @ABA / COPY TO: 1 . / APPELLANT 3. C2 / CIT(A) 5. ADE F / DR 2. / RESPONDENT 4. C / CIT 6. EGH / GF