The Asstt. Commissioner of Income-tax, Amritsar. V. M/s. Macwin Pharmaceuticals, Amritsar.

ITA 452/ASR/2011

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 68157 (ITAT-AMRITSAR)
• Duration Of Justice: 2 year(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-08-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 01-07-2013
• Assessment Year: 2005-2006
• Appeal Filed On: 12-08-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business expenditure
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH; AMRITSAR. BEFORE SH. H.S. SIDHU, JUDICIAL MEMBER AND SH. B.P. JAIN, ACCOUNTANT MEMBER I.T.A. NO. 452(ASR)/2011 ASSESSMENT YEAR: 2005-06 PAN: AAIFM2805R ASSISTANT COMMISSIONER VS. M/S MACWIN PHARMAC EUTICALS, OF INCOME TAX, CIRCLE-V, SCF-30, BLOCK-C, RANJIT AVENUE AMRITSAR AMRITSAR (APPELLANT) (RESPONDENT) APPELLANT BY: SH. MAHAVIR SINGH, SR. DR RESPONDENT BY: SH. SANJIV MEHRA, CA DATE OF HEARING: 26.08.2013 DATE OF PRONOUNCEMENT: 30.08.2013 ORDER PER BENCH 1) THE REVENUE HAS FILED THE PRESENT APPEAL A GAINST THE IMPUGNED ORDER DATED 30.05.2011 PASSED BY LEARNED CIT(A), AM RITSAR, FOR THE ASSESSMENT YEAR 2005-06 ON THE FOLLOWING GROUNDS: I. ON THE FACTS AND CIRCUMSTANCES OF THE LEARNED CIT(A PPEALS) HAS ERRED IN DELETING THE ADDITION OF RS. 13,69,314/- O UT OF THE TOTAL 2 I.T.A. NO. 452(ASR)/2011 ASSESSMENT YEAR: 2005-06 ADDITION OF RS. 15,13,394/- MADE BY THE A.O. ON ACC OUNT OF MARKETING AND SELLING EXPENSES. II. THE LEARNED CIT(APPEALS) HAS FAILED TO APPRECIATE T HE FACTS THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS STATEME NT OF SMT. RITU MALHOTRA PROP. M/S MACWIN HEALTH CARE RECORDED BY A.O. ON 12.12.2007 IN PRESENCE OF HER HUSBAND AND SHRI SANJ EEV MEHRA, CA, COUNSEL OF THE ASSESSEE AND SHE HAS ADMITTED TH AT SHE IS NOT AWARE OF ANY RECRUITMENT DONE IN RESPECT OF ANY BOY S ETC. FOR THE PURPOSES OF THE CLAIM REGARDING WORK FOR M/S. MACWI N PHARMACEUTICALS AND EXPENSES INCURRED IN REGARD WIT H THE BUSINESS. III. APPELLANT CRAVES LEAVE TO AMEND OR ADD ANY OR MORE GROUNDS OF APPEAL AT THE TIME OF HEARING OF APPEAL. 2) THE FACTS RELATING TO THE ISSUE IN DISPUTE ARE T HAT THE ASSESSEE- FIRM FILED ITS RETURN OF INCOME ON 24.10.2005 DECLA RING LOSS OF RS. 15,52,067/- WHICH WAS PROCESSED ON 26.04.2006. THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY AS PER INSTRUCTION OF CBD T, NEW DELHI, AND THE ASSESSING OFFICER ISSUED NOTICE UNDER SECTION 143(2 ) OF THE INCOME-TAX ACT, 1961 (IN SHORT THE ACT) TO THE ASSESSEE ON 1 1.09.200. THEREAFTER, NOTICES UNDER SECTION 143(2)/142(1) OF THE ACT ALON GWITH QUESTIONNAIRE WERE ISSUED TO THE ASSESSEE. IN RESPONSE THERETO, A UTHORIZED REPRESENTATIVE OF THE ASSESSEE ATTENDED THE PROCEEDINGS AND PRODUC ED BOOKS OF ACCOUNT WHICH WERE CHECKED BY THE ASSESSING OFFICER. 3) THE ASSESSEE DERIVES INCOME FROM THE BUSINESS O F RESALE OF MEDICAL FORMULATIONS. IT HAS SHOWN TOTAL RECEIPTS O F RS. 99,19,368/- FOR 3 I.T.A. NO. 452(ASR)/2011 ASSESSMENT YEAR: 2005-06 THE YEAR UNDER CONSIDERATION. THE ASSESSEE HAS SHOW N THE GROSS PROFIT OF RS. 44,95,100/- AND AFTER CLAIM OF VARIOUS EXPENSES THE NET LOSS HAS BEEN ARRIVED AT RS. 15,52,066/-. DURING THE COURSE OF AS SESSMENT PROCEEDING, THE ASSESSING OFFICE FOUND THAT THE ASSESSEE HAS CL AIMED EXPENSES UNDER THE HEAD MARKETING AND SELLING AT RS. 15,13,394/-. THE ASSESSING OFFICER EXAMINED THE CLAIM OF THE ASSESSEE AND AFTER CONSID ERING THE INFORMATION FILED, ASKED THE ASSESSEE TO PRODUCE THE PARTY TO W HOM EXPENSES TO THE TUNE OF RS. 7,63,000/- WERE PAID TO THE PARTY MRS. RITU MALHOTRA PROP: M/S HEALTH CARE. ACCORDINGLY, THE ASSESSEE PRODUCED THE PARTY AND HER STATEMENT WAS RECORDED ON PRODUCTION ON 12.12.2007 AND THE ASSESSING OFFICER FOUND THAT MRS. RITU MALHOTRA PROP: M/S MAC WIN HEALTH CARE HAD NOT PROVIDED ANY SERVICES FOR THE PAYMENTS RECE IVED FROM THE ASSESSEE TO THE TUNE OF RS. 7,63,000/- ALTHOUGH THE ASSESSEE CLAIMS TO HAVE MADE PAYMENTS BY CHEQUE AND TDS WAS DONE. THE RECORDED STATEMENT OF THE PARTY REVEALS THAT MRS. RITU MALHO TRA WAS NOT AWARE OF ANY SERVICE PROVIDED BY HER TO THE ASSESSEE FIRM. A S PER HER STATEMENT, HER HUSBAND IS ACTUALLY OPERATING THE BANK ACCOUNT OPENED BY HER IN HER NAME AND SHE IS NOT AWARE OF THE ACTUAL DEALINGS IN THE BANK ACCOUNT. SHE WAS NOT SIGNING ANY PAPERS WHICH IS RELEVANT IN THE LIGHT OF THE INFORMATION FILED BY THE ASSESSEE ON 13.12.2007. TH E ASSESSEE WHEN 4 I.T.A. NO. 452(ASR)/2011 ASSESSMENT YEAR: 2005-06 CONFRONTED ON THE ISSUE AS PER ORDER SHEET ENTRY DA TED 12.12.2007 REGARDING CONTENTS OF THE STATEMENT, FILED THE WRIT TEN SUBMISSION ON 13.12.2007. AFTER CONSIDERING THE REPLY FILED BY TH E ASSESSEE, THE ASSESSING OFFICER COMPLETED THE ASSESSMENT ON 19.12 .2007 UNDER SECTION 143(3) OF THE ACT AND HAS MADE THREE ADDITIONS, FIR STLY OF RS. 15,13,394/- THEREBY FULLY DISALLOWED THE EXPENSES CLAIMED & BOO KED UNDER THE HEAD MARKETING & SELLING EXPENSES BY HOLDING THAT THE PAYMENTS MADE THROUGH HER BANK ACCOUNT ARE NOT GENUINE AND PAYMEN TS REIMBURSED TO THE LADY IN TURN SUBSEQUENTLY BY THE ASSESSEE ALSO HELD TO BE NOT GENUINE, SECOND DISALLOWANCE OF RS. 1,43,831/- FOR UNDENYING PARTNERS PERSONAL EXPENSES MADE UNDER THE HEAD TRAVELLING, THIRDLY AN AD-HOC DISALLOWANCE OF RS. 32,000/- HAS BEEN MADE FOR PERS ONAL ELEMENT OF PARTNERS EXPENSES OUT OF RS. 320052/- CLAIMED UNDER THE HEAD TRAINING & CONFERENCE. 4) BEING AGGRIEVED BY THE ASSESSMENT ORDER DATED 19. 12.2007, THE ASSESSEE FILED AN APPEAL BEFORE LEARNED CIT(A), AMR ITSAR, WHO VIDE IMPUGNED ORDER DATED 30.05.2011, PARTLY ALLOWED THE APPEAL OF THE ASSESSEE. NOW, THE REVENUE BEING AGGRIEVED WITH THE ORDER OF LEARNED CIT(A), AMRITSAR, FILED THE PRESENT APPEAL. 5 I.T.A. NO. 452(ASR)/2011 ASSESSMENT YEAR: 2005-06 5) AT THE TIME OF HEARING, LEARNED DR RELIED UPON THE ORDER DATED 19.12.2007 PASSED BY THE ASSESSING OFFICER. HE STAT ED THAT LEARNED CIT(A) HAS WRONGLY DELETED THE ADDITION OF RS. 13,6 9,314/- OUT OF THE TOTAL ADDITION OF RS. 15,13,394/- MADE BY THE ASSES SING OFFICER ON ACCOUNT OF MARKETING AND SELLING EXPENSES. HE FURTH ER STATED THAT LEARNED FIRST APPELLATE AUTHORITY HAS NOT APPRECIAT ED THE FACTS OF THE CASE AS WELL AS THE STATEMENT OF SMT. RITU MALHOTRA PROP . M/S MACWIN HEALTH CARE RECORDED ON 12.12.2007 IN WHICH SHE ADMITTED T HAT SHE IS NOT AWARE OF ANY RECRUITMENT DONE IN RESPECT OF ANY BOYS ETC. FOR THE PURPOSES OF THE CLAIM REGARDING WORK FOR M/S. MACWIN PHARMACEUTICAL S AND EXPENSES INCURRED IN REGARD WITH THE BUSINESS. THEREFORE, TH E ASSESSING OFFICER HAS RIGHTLY MADE THE ADDITION IN DISPUTE AND THE LEARNE D FIRST APPELLATE AUTHORITY HAS WRONGLY DELETED THE SAME WITHOUT ANY SUFFICIENT EVIDENCE. 6) ON THE CONTRARY, LEARNED COUNSEL FOR THE ASSESSE E RELIED UPON THE ORDER PASSED BY THE LEARNED FIRST APPELLATE AUT HORITY. HE ARGUED THAT THE ASSESSEE IS A PARTNERSHIP FIRM DULY CONSTITUTED UNDER THE INSTRUMENT FOR PARTNERSHIP DATED 09.05.2001. THE MAIN WORKING PARTNERS OF THE FIRM ARE SH. GAURAV BEHAL, SH. S.C.L. MALHOTRA AND INDER JIT SINGH PURI. THE SAID FIRM HAS COMMENCED ITS BUSINESS OF MARKETING O F PHARMACEUTICAL PRODUCTS AND MEDICINE PREPARATION UNDER ITS OWN BRA ND NAME MACWIN 6 I.T.A. NO. 452(ASR)/2011 ASSESSMENT YEAR: 2005-06 FROM THE FINANCIAL YEAR 2001-02, THE SAME DURING TH E FINANCIAL YEAR 2001- 02 WORKED TO THE TUNE OF RS. 16560/- ONLY. IN THE S UBSEQUENT FINANCIAL YEAR ENDING 31.03.2003, THE FIRM ACHIEVED THE TUNE OF RS. 12.94 LACS, AS NEW PRODUCTS DEVELOPED AND MARKETED BY THE PARTNER THEMSELVES, WITHOUT EMPLOYING ANY MARKETING STAFF HOWEVER SERVICES OF O UTSIDE FIRM WAS TAKEN TO PROMOTED SALES AND MARKETING OF THE PRODUC TS. SALARY AND MARKETING EXPENSES AMOUNTING OF RS. 344791/- WERE I NCURRED IN THIS REGARD. HE FURTHER POINTED OUT THAT IN THE SUBSEQUE NT ASSESSMENT YEAR 2004-05, THE ASSESSEE FIRM AVAILED THE SERVICES OF MEDICAL REPRESENTATIVES AND OTHER FIELD STAFF WHICH WAS APP OINTED THROUGH M/S MACWIN HEALTH CARE UNDER AGREEMENT DATED 01.04.2003 . AS PER THE SAID AGREEMENT ON THE DIRECTION OF AMBULANT FIRM, THE SA ID BUSINESS ASSOCIATE M/S MACWIN HEALTH CARE SHALL PUT AT THE DISPOSAL O F THE APPELLANT FIRM SUCH COMPETENT FIRM AND MARKETING STAFF OF MEDICAL REPRESENTATIVES FOR THE SALES AND PROMOTION OF THE PHARMACEUTICALS AND MEDICAL PRODUCTS MARKETED BY THE APPELLANT FIRM. UNDER THE SAID AGRE EMENT, THE SAID BUSINESS ASSOCIATE SHALL PREPARE SALARY BILLS EACH MONTH GIVING EMPLOYEE- WISE DETAIL AND SUBMIT THE SAME TO THE APPELLANT FI RM TOGETHER WITH THE RECORD OF APPOINTMENT LETTER AND AGREEMENT EXECUTED WITH EACH FIELD EXECUTIVE TO ENABLE THE APPELLANT FIRM IN IMPROVING SUCH MONTHLY SALARY 7 I.T.A. NO. 452(ASR)/2011 ASSESSMENT YEAR: 2005-06 BILLS SUBMITTED BY THE BUSINESS ASSOCIATE. WHILE CO NSOLIDATED PAYMENT MADE BY THE APPELLANT FIRM OF THE BUSINESS ASSOCIAT E EACH MONTH, THE BUSINESS ASSOCIATE WAS RESPONSIBLE FOR THE PREPARAT ION OF BANK DRAFT AND OTHER BANKING INSTRUMENT IN FAVOUR OF EACH EMPLOYEE AND ARRANGE FOR ITS DISTRIBUTION TO EACH FIELD EXECUTIVE. IN ADDITION T O ABOVE, IT WAS RESPONSIBILITY TO THE BUSINESS ASSOCIATE TO COLLECT MONTHLY/FORTNIGHT TRAVELLING AND CONVEYANCE BILL FROM EACH FIELD EXEC UTIVE AND SUBMIT THE SAME TO THE APPELLANT FIRM FOR VERIFICATION OF EXPE NSES SO CLAIMED AND THEIR FINAL APPROVAL. IN THIS CASE, CHEQUES AND BAN K DRAFTS WERE ISSUED DIRECTLY BY THE APPOINTED FIRM TO THE RESPECTIVE FI ELD STAFF FROM ITS OWN BANK ACCOUNT WITHOUT ROUTING THE SAME THROUGH THE B USINESS ASSOCIATE, IN CONSIDERATION OF THE SERVICE SO RENDERED BY THE BUS INESS ASSOCIATE THE APPELLANT FIRM AGREED TO PAY A SUM CALCULATED @ 10% OF MONTHLY SALARY BILL AS SERVICE CHARGES. IT WAS ALSO AGREED BETWEEN THE PARTIES, THAT THE SAID BUSINESS ASSOCIATE SHALL NOT WORK FOR ANY OTHE R PHARMACEUTICAL MANUFACTURING AND MARKETING. 7) LEARNED COUNSEL FOR THE ASSESSEE FURTHER STATED THAT HE HAS RAISED ALL THESE ARGUMENTS BEFORE THE LEARNED FIRST APPELLATE AUTHORITY WHICH LEARNED FIRST APPELLATE AUTHORITY HAS MENTION ED IN THE IMPUGNED ORDER. HE FURTHER STATED THAT AFTER AGGRESSIVELY AP POINTING FIELD STAFF 8 I.T.A. NO. 452(ASR)/2011 ASSESSMENT YEAR: 2005-06 THROUGH THE BUSINESS ASSOCIATE M/S MACWIN HEALTH CA RE, THE FIRM ACHIEVED BOOST IN THE SALES RECORDED A SALE OF RS. 76.77 LACS. SALARY AND MARKETING EXPENSES WERE INCURRED TO THE TUNE OF RS. 34.14 LACS IN THIS REGARD. THE CASE FOR THE ASSESSMENT YEAR 2004-05 HA S ALSO BEEN SCRUTINIZE BY THE INCOME TAX DEPARTMENT AND THE SAID BUSINESS AGREEMENT HAS BEEN APPROVED BY THE ASSISTANT COMMISSIONER OF INCOME TA X, CIRCLE V, AMRITSAR, WHO VIDE HER ORDER PASSED UNDER SECTION 1 43(3) OF THE ACT ON 28.11.2006 ASSESSED THE LOSS OF THE ASSESSEE FIRM A T RS. 1656730/- AFTER MAKING ON AGREED OF RS. 50000/- ONLY. IN THE ASSESS MENT YEAR 2005-06, THE ASSESSEE FIRM FILED RETURN ON 24.10.2005 DECLAR ING A LOSS OF RS. 1552067. THE SALES INCREASED TO RS. 99.19 LACS. AGA IN IN THIS YEAR, THE ASSESSEE FIRM INCURRED MARKETING AND SALARY EXPENSE S TO THE TUNE OF RS. 15.13 LACS OUT OF WHICH, A PAYMENT OF RS. 798495/- WAS MADE TO M/S MACWIN HEALTH CARE ON THE SAME BASIS AS IN THE PREC EDING YEAR, I.E. SALARY REIMBURSEMENT OF RS. 725905/- OF SALES AND M ARKETING STAFF DEPLOYED AT THE BEHEST AND FOR THE BUSINESS OF THE APPELLANT FIRM AND 10% SERVICE CHARGES OF THE SAID BUSINESS ASSOCIATE. THE MARKETING AND SALARY EXPENSES OF RS. 714899/- ON ACCOUNT OF TRAVELLING A ND CONVEYANCE EXPENSES PAID DIRECTLY THROUGH ACCOUNT PAY CHEQUE T O THE FIELD STAFF BY THE APPELLANT FIRM OUT OF ITS BANK ACCOUNT. IN ORDE R TO CREATE MORE 9 I.T.A. NO. 452(ASR)/2011 ASSESSMENT YEAR: 2005-06 EFFICIENCY IN THE SELLING AND MARKETING FUNCTION, T HE APPELLANT FIRM TERMINATED THE AGREEMENT FIRM BUSINESS ASSOCIATE MA CWIN HEALTH CARE ON 31.08.2004. FROM THE MONTH OF AUGUST ONWARD, THE AP PELLANT FIRM STARTED RECRUITING AND APPOINTING MEDICAL REPRESENTATIVES D IRECTLY ON ITS ROLE FOR THE BUSINESS OF THE FIRM. 8) LEARNED COUNSEL FOR THE ASSESSEE DREW OUR ATTENT ION TOWARDS THE PAPER BOOK FILED BY HIM CONTAINING PAGES FROM 1 TO 80 IN WHICH HE HAS ATTACHED THE STATEMENTS OF THE FACTS OF THE CASE A S SUBMITTED BEFORE THE FIRST APPELLATE AUTHORITY; INCOME TAX ASSESSMENT OR DER PASSED U/S 143(3) IN THE CASE OF APPELLANT FIRM FOR A.Y. 2004 -05 WHEREIN PAYMENT OF MACWIN HEALTH CARE HAS BEEN ALLOWED; COPY OF STA TEMENT OF SMT. RITU MALHOTRA W/O SHRI ANIL MALHOTRA PROPRIETOR OF M/S MACWIN PHARMACEUTICALS RECORDED BY THE ASSESSING OFFICER; COPY OF AFFIDAVIT DATED 13.12.2007 OF SHRI S.C.L. MALHOTRA, PARTNER OF THE APPELLANT FIRM STATING THEREIN, THAT THE FIRM HAS BEEN ENGAGED MAR KETING AND SALES STAFF THROUGH M/S MACWIN HEALTHCARE FROM APRIL, 2004 TO A UGUST, 2004 AND FURTHER ALL THE APPOINTMENT HAS BEEN APPROVED BY T HE FIRM AND SELLING/TRAVELLING/CONVEYANCE BILLS SUBMITTED HAS A LSO BEEN APPROVED BY HIM AS PARTNER OF M/S MACWIN PHARMACEUTICALS; SUMMA RY OF SALES AND MARKETING EXPENSES DEBITED TO PROFIT AND LOSS ACCOU NT TOGETHER WITH 10 I.T.A. NO. 452(ASR)/2011 ASSESSMENT YEAR: 2005-06 MONTH-WISE BREAK-UP OF SALARY TO OFFICE STAFF AND S ALES AND MARKETING STAFF, EMPLOYED THROUGH MACWIN HEALTH CARE UP TO 31 .08.2004 AND THE APPELLANT FIRM THEREAFTER PERTAINING TO THE F.Y. 2 004-05, MONTH-WISE BREAK-UP OF TRAVELLING AND CONVEYANCE EXPENSES TO O FFICE STAFF AND SALES AND MARKETING STAFF, EMPLOYED THROUGH MACWIN HEALTH CARE UP TO 31.08.2004 AND THE APPELLANT FIRM THEREAFTER PERTAI NING TO THE F.Y. 2004- 05, PERSON-WISE MONTHLY DETAIL OF SALARIES PAID TO MARKETING STAFF UP TO 31.08.2004 EMPLOYED THROUGH MACWIN HEALTH CARE, PER SON-WISE MONTHLY DETAIL OF TRAVELLING AND CONVEYANCE EXPENSE S PAID TO MARKETING STAFF UP TO 31.08.2004 EMPLOYED THROUGH MACWIN HEA LTH CARE; COPIES OF AGREEMENTS EXECUTED BY MACWIN HEALTH CARE WITH T HE EMPLOYEES ENGAGED FROM THE SALES AND MARKETING WORK OF MACWIN PHARMACEUTICALS; COPIES OF TRAVELLING AND CONVEYANCE BILLS SUBMITTED BY THE MARKETING STAFF WHICH HAVE BEEN APPROVED AND PAID DIRECTLY BY THE APPELLANT FIRM; COPY OF AGREEMENT DATED 01.04.2003 ENTERED BETWEEN THE APPELLANT FIRM AND M/S MACWIN HEALTH CARE FOR THE APPOINTMENT AND ENGAGEMENT OF MARKETING AND FIELD STAFF BY M/S MACWIN HEALTH CARE FOR BUSINESS OF THE APPELLANT FIRM; COPY OF LETTER DATED 15.06.2004 OF THE APPELLANT FIRM ADDRESSED TO MACWIN HEALTH CARE FOR CANCELLATION OF AGREEMENT DATED 01.04.2003 BETWEEN THE PARTIES; COPY OF TRAVELLING AND CONVEYANCE 11 I.T.A. NO. 452(ASR)/2011 ASSESSMENT YEAR: 2005-06 EXPENSES ACCOUNT; COPY OF SELLING AND MARKETING EXP ENSES ACCOUNT; COPY OF SALARY ACCOUNT; COPY OF ACCOUNT OF M/S MACW IN HEALTH CARE FOR THE PERIOD FROM 01.04.2004 TO 31.03.2005 IN THE BOO KS OF THE APPELLANT FIRM; STATEMENT OF COMPARISON OF SALARIES AND MARKE TING EXPENSES FOR THE ASSESSMENT YEAR 2003-04, 2004-05 AND 2005-06 TOGETH ER WITH THE TRADING AND PROFIT AND LOSS ACCOUNT FOR EACH OF THE SE THREE ASSESSMENT YEARS; GROUNDS OF APPEAL BEFORE THE FIRST APPELLANT AUTHORITY; AND WRITTEN SUBMISSIONS MADE BEFORE CIT(A) REGARDING DI SALLOWANCES UNDER TRAVELLING AND CONVEYANCE EXPENSES ACCOUNT. 9) HE HAS ALSO DREW OUR ATTENTION TOWARDS THE IMPO RTANT DOCUMENTARY EVIDENCE SUPPORTING THE CLAIM OF ASSESS EE AND ESTABLISHING THAT THE LEARNED FIRST APPELLATE AUTHORITY HAS RIGH TLY DELETED THE ADDITION IN DISPUTE. HE FINALLY STATED THAT DUE TO HEAVY LOS S, NOW THE FIRM IS CLOSED WHICH IS IN THE KNOWLEDGE OF ASSESSING OFFICER. IN SPITE OF THE FACT THAT THE ASSESSEE HAS FILED EACH AND EVERY DOCUMENTARY E VIDENCE BEFORE THE ASSESSING OFFICER, HE HAS NOT FOLLOWED THE PAST HIS TORY OF THE CASE AND HAS MADE THE ADDITION IN DISPUTE WITHOUT ANY EVIDEN CE. AT LAST, HE REQUESTED THAT THE APPEAL FILED BY THE REVENUE MAY BE DISMISSED. 10) WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE RELEVANT RECORDS AVAILABLE WITH US, ESPECIALLY THE WRITTEN S UBMISSION FILED BY THE 12 I.T.A. NO. 452(ASR)/2011 ASSESSMENT YEAR: 2005-06 ASSESSEE ALONG WITH OTHER DOCUMENTARY EVIDENCE AS W ELL AS THE IMPUGNED ORDER PASSED BY THE LEARNED FIRST APPELLATE AUTHORI TY. FOR THE SAKE OF CONVENIENCE, RELEVANT PORTION OF THE IMPUGNED ORDER I.E. PARAS 6 TO 6.2 (PAGES 8 TO 10) ARE REPRODUCED AS UNDER: 6. I HAVE CAREFULLY CONSIDERED THE WRITTEN SUBMIS SIONS FILED BY THE LEARNED COUNSEL FOR THE APPELLANT AND ALSO G ONE THROUGH THE FINDINGS GIVEN BY THE A.O. IN HIS ASSESSMENT ORDER UNDER APPEAL. THE APPEAL IS BEING DISPOSED OF GROUND-WISE AS UNDER: 6.1 GR. NOS. 1 & 5 BEING GENERAL IN NATURE, HENCE NO COMMENTS. 6.2 GROUND NOS. 2.1 TO 2.5 PERTAINS TO THE DISALLO WANCE OF RS. 15,13,394/- IN TOTO OF EXPENSES CLAIMED UNDER T HE HEAD MARKETING & SELLING EXPENSES. IN ITS EXPLANATION, IT HAS BEE N SUBMITTED BY THE APPELLANT THE EXPENSES HAVING BEEN INCURRED WHOLLY AND EXCLUSIVELY FOR APPELLANTS BUSINESS TOWARDS ESTABLISHMENT EXPE NSES OF THE QUALIFIED FIELD STAFF, M.RS. WHICH WERE MAINLY INCU RRED THROUGH THE ABOVE NAMED FRANCHISE. THE ASSESSING OFFICER HAS DR AWN ADVERSE INFERENCE FROM THE STATEMENT DT. 12.12.07 OF THE FR ANCHISE-HOLDER, COMPLETELY IGNORING HER AVERMENTS AND ADMITTANCES M ADE DURING THE COURSE OF CROSS-EXAMINATION DONE BY THE A/R IN THE A.O.S PRESENCE. ON THE OTHER HAND, THE APPELLANT HAS RELIED ON NOT ONLY THE WRITTEN AGREEMENT DT. 01.04.03, THE AFFIDAVIT DT. 13.12.07 OF ITS ONE OF THE PARTNERS, MR. S.C.L. MALHOTRA. AS PER ITS SUMMARY, IT INCLUDES REIMBURSEMENT OF SALARY TO STAFF AT RS. 7,25,905/- UPTO 31.08.04, REIMBURSEMENT OF TA TO STAFF AT RS. 7,14,899/- AND 10% SERVICE CHARGES OF RS. 72,590/- PAID TO SMT. RITU MALHOTRA, PROP: MACWIN HEALTH CARE, ASR SALARY OF SALES & MKT. STAFF FOR 1.4.04 TO 31.8.04 THRU FRANCHISE 725905 SERVICE CHARGES @ 10% THEREON 72590 13 I.T.A. NO. 452(ASR)/2011 ASSESSMENT YEAR: 2005-06 TRAVELLING EXPENSES OF M. RS. 7 14899 IN SUPPORT OF ITS CONTENTION, THE APPELLANT HAS FUR NISHED VARIOUS STATEMENTS OF ACCOUNTS WITH ITS MONTH-WISE SUMMARY AND PERSON-WISE DETAILED BREAK-UP. AS PER COMPARATIVE ANALYSIS OF I TS TRADING VERSION AND EXPENSES UNDER THIS HEAD, THE APPELLANT HAS FIL ED YEAR-WISE DETAILS OF TURNOVER, COMPARATIVE EXPENSES DEBITED UNDER THE HEAD SALARY, SELLING & MARKETING AND TRAVELING & CONVEYANCE, AND INTER ALIA CONTENDED THAT THE COMPARATIVE INCREASE IN EXPENSES UNDER THESE HEADS IS IN CONSONANCE WITH THE COMPARATIVE INCREAS E IN THE TURNOVER. THE LEARNED A/R LAID STRESS ON THE AGREEMENT DATED 1.4.03 (ALREADY AVAILABLE ON RECORD) AS PER WHICH SERVICE CHARGES @ 10% OF THE MONTHLY SALARY BILL WOULD BE PAID TO MACWIN HEALTH CARE, AMRITSAR. IT REMAINED IN FORCE UPTO 31.08.04 AS IS EVIDENT FROM THE TERMINATION LETTER DT. 15.06.04. DERIVING ADVERSE INFERENCE F ROM THE STATEMENT DT. 12.12.2007 OF MS. RITU MALHOTRA, PENALTY PROCEEDING S: MACWIN HEALTH CARE, AMRITSAR ( A HOUSE-WIFE & DAUGHTER-IN- LAW OF ONE OF THE PARTNERS) WHEREIN BESIDES CONSIDERING HER ADMITTANC E ABOUT DRAWING OF MONTHLY SALARY OF RS. 6,000/- P.M. DURING THE PR EVIOUS YEAR RELEVANT TO A.Y. 04-05 UNDER CONSIDERATION, THE A.O . HAS TAKEN NOTE OF HER AVERMENTS TO THE EFFECT THAT SHE IS NOT AWARE H OW HER BANK ACCOUNT IS BEING OPERATED AND WHAT HER DUTIES WERE, INVITIN G SPL. REFERENCE TO HER ANSWER TO QUERY NO. 5. ON THE OTHER HAND, THE LEARNED A/R HAS VEHEMENTLY STATED THAT DURING THE CROSS-EXAMINATIO N BEFORE THE A.O., SHE HAD GIVEN POSITIVE RESPONSE TO ALL THE QUERIES RAISED BY THE A/R AND THIS GOES TO SHOW THAT HER STATEMENT INCLUDING HER REPLIES GIVEN DURING CROSS-EXAMINATION SHOULD BE READ TOGETHER. I T ALSO DOES NOT APPLY TO WIT AS TO HOW A FIRM DEALING IN PHARMACEUT ICAL LINE CAN BE RUN WITHOUT THE ASSISTANCE OF FIELD STAFF, QUALIFIED M. RS, AND M.RS. IN ORDER TO PROCURE ORDERS FOR THE APPELLANTS PRODUCT S, FROM DOCTORS, HOSPITAL, NURSING HOMES HAVE TO PAY FREQUENT VISITS FOR DEMONSTRATION AND CANVASSING BY PRESSING SAMPLES NOT FOR SALE AND ALL THESE EXERCISE NOT ONLY PAYMENT OF SALARY, REIMBURSEMENT OF TRAVEL LING EXPENSES AND PROVIDING FEED BACKS LIKE SAMPLES, PAMPHLETS ETC. A RE EXTENSIVELY REQUIRED. HOWEVER, THE A.O. HAS DISALLOWED THE ENTI RE EXPENSES UNDER THIS HEAD BY HOLDING THEM AS NOT FOR THE PURPOSES O F APPELLANTS BUSINESS AND FURTHER IMPLIEDLY OBSERVING THAT PAYME NTS MADE THROUGH FRANCHISES BANK ACCOUNTS WERE HELD TO BE NON-GENUI NE/BOGUS. 14 I.T.A. NO. 452(ASR)/2011 ASSESSMENT YEAR: 2005-06 HOWEVER, IT IS ARGUED BY THE LEARNED A/R THAT THE S ALES OF THE APPELLANT FIRM HAVE INCREASED TO RS. 99.19 LACS FRO M LAST YEARS RS. 77 LACS. IT IS ADDED THAT OUT OF TOTAL CLAIM UNDER THE HEAD, A SUM OF RS. 3,60,682/- HAS BEEN INCURRED BY THE PARTNERS, OUT O F WHICH SOME EXPENSES HAVE BEEN PAID IN CASH FOR PURCHASE OF RAI LWAY TICKETS, STAY IN HOTELS AND REIMBURSEMENT OF EXPENSES TO THE PART NERS. ALL OTHER EXPENSES OF RS. 10,77,629/- HAVE BEEN PAID BY ACCOU NT PAYEE CHEQUES/BANK DRAFTS TO THE MEDICAL REPRESENTATIVES . AFTER CONSIDERING THE MATTER OF ALL ANGLES, PARTICULARLY THE AVERMENT S GIVEN BY MS. RITU MALHOTRA, PENALTY PROCEEDINGS: MACWIN HEALTH CARE, AMRITSAR (PAN : AFHPM2259P/R-V, ASR) IN HER STATEMENT DATED 12.12.2 007 SHOWING HER TOTAL UNAWARENESS OF THE OPERATION OF BANK ACCO UNT IN HER NAME, NATURE & FUNCTIONS OF HER CONCERN, M/S MACWIN HEALT H CARE, I FIND THAT IN VIEW OF THE MS. RITU MALHOTRAS CATEGORICA L DENIAL OF ANY KNOWLEDGE OR RUNNING BUSINESS UNDER THE NAME & STYL E OF MACWIN HEALTH CARE, A.O. IS QUITE JUSTIFIED IN REJECTING T HE APPELLANTS CLAIM OF 10% SERVICE CHARGES OF RS. 72,590/-. FURTHER, WH EREAS THE A.O. HAS OUTRIGHTLY DISALLOWED SALARY PAID TO FIELD STAFF AM OUNTING TO RS. 7,25,905/- PAID THROUGH THE ABOVE MENTIONED FRANCH ISE, M/S MACWIN HEALTH CARE, KEEPING IN VIEW THE ACCEPTED PASTE HI STORY AS WELL AS TAKING A REALISTIC VIEW THAT NO ESTABLISHMENT CAN B E RUN WITHOUT PAYMENT OF SALARY AND SALARY IS A BASIC AND ESSENTI AL BUSINESS EXPENDITURE WHOLLY AND EXCLUSIVELY INCURRED FOR ONE S BUSINESS, IT CAN BE SAFELY HELD THAT THE A.O. DOES NOT SEEM TO BE JU STIFIED IN DISALLOWING RS. 7,25,905/- TOWARDS SALARY PAID TO T HE FIELD STAFF. HOWEVER, AS FAR AS THE THIRD LIMB OF SUCH EXPENSES PERTAINING TO REIMBURSEMENT OF T.A. TO THE FIELD STAFF AMOUNTING TO RS. 7,14,899/- WHEREAS THE A.O. HAS OUTRIGHTLY DISALLOWED THE ENT IRE CLAIM ALTHOUGH THE APPELLANT HAS PREPARED PERSON-WISE, DATE-WISE D ETAILS OF SUCH REIMBURSEMENTS. HOWEVER, KEEPING IN VIEW THE FACT T HAT TO COVER UP SOME UNVOUCHED ITEMS OF EXPENSES INVOLVED, IT WOULD MEET THE ENDS OF JUSTICE, IF OUT OF TOTAL DISALLOWANCE OF RS. 7,1 4,899/-, DISALLOWANCE OF ONLY RS. 71,490/- (MADE @ 10% OF SUCH T.A. EXPEN SES) IS SUSTAINED. IN THIS WAY, OUT OF TOTAL DISALLOWANCE T HE APPELLANT WOULD BE ENTITLED TO A RELIEF OF RS. 13,69,314/- (RS. 725 905+643409) THEREBY RETAINING THE REMAINING ADDITION OF RS. 1,44,080/- (RS. 72,590 + RS. 71,490/-) WHICH STANDS UPHELD UNDER THIS HEAD. 15 I.T.A. NO. 452(ASR)/2011 ASSESSMENT YEAR: 2005-06 11) KEEPING IN VIEW THE AFORESAID DISCUSSION, WE ARE OF THE CONSIDERED OPINION THAT LEARNED FIRST APPELLATE AUT HORITY HAS RIGHTLY GIVEN THE RELIEF TO THE ASSESSEE BY PASSING A WELL REASONED ORDER. LEARNED FIRST APPELLATE AUTHORITY HAS THOROUGHLY EXAMINED T HE DOCUMENTARY EVIDENCE FILED BY THE ASSESSEE BEFORE THE ASSESSING OFFICER WHICH THE ASSESSING OFFICER HAS NOT PROPERLY APPRECIATED. AS MENTIONED BY THE LEARNED FIRST APPELLATE AUTHORITY IN THE IMPUGNED O RDER THAT THE ASSESSEE IS A PARTNERSHIP FIRM DULY CONSTITUTED UNDER THE IN STRUMENT FOR PARTNERSHIP DATED 09.05.2001. THE SAID FIRM HAS COMMENCED ITS B USINESS OF MARKETING OF PHARMACEUTICAL PRODUCTS AND MEDICINE P REPARATION UNDER ITS OWN BRAND NAME MACWIN FROM THE FINANCIAL YEAR 200 1-02. IT IS ALSO A MATTER OF RECORD THAT THE ASSESSEE FIRM DEVELOPED N EW PRODUCTS AND MARKETED BY THE PARTNER THEMSELVES WITHOUT EMPLOYIN G ANY MARKETING STAFF BUT TAKING THE SERVICES FROM OUTSIDE TO PROMO TE ITS SALE AND MARKETING OF THE PRODUCTS. IN THE SUBSEQUENT ASSESS MENT YEAR 2004-05, THE ASSESSEE FIRM AVAILED THE SERVICES OF MEDICAL R EPRESENTATIVES AND OTHER FIELD STAFF WHICH WAS APPOINTED THROUGH M/S M ACWIN HEALTH CARE UNDER AGREEMENT DATED 01.04.2003. AS PER THE SAID A GREEMENT ON THE DIRECTION OF AMBULANT FIRM, THE SAID BUSINESS ASSOC IATE M/S MACWIN HEALTH CARE SHALL PUT AT THE DISPOSAL OF THE APPELL ANT FIRM SUCH COMPETENT 16 I.T.A. NO. 452(ASR)/2011 ASSESSMENT YEAR: 2005-06 FIRM AND MARKETING STAFF OF MEDICAL REPRESENTATIVES FOR THE SALES AND PROMOTION OF THE PHARMACEUTICALS AND MEDICAL PRODUC TS MARKETED BY THE APPELLANT FIRM. UNDER THE SAID AGREEMENT, THE SAID BUSINESS ASSOCIATE SHALL PREPARE SALARY BILLS EACH MONTH GIVING EMPLOY EE-WISE DETAIL AND SUBMIT THE SAME TO THE APPELLANT FIRM TOGETHER WITH THE RECORD OF APPOINTMENT LETTER AND AGREEMENT EXECUTED WITH EACH FIELD EXECUTIVE TO ENABLE THE APPELLANT FIRM IN IMPROVING SUCH MONTHLY SALARY BILLS SUBMITTED BY THE BUSINESS ASSOCIATE. CHEQUES AND BA NK DRAFTS WERE ISSUED DIRECTLY BY THE APPOINTED FIRM TO THE RESPECTIVE FI ELD STAFF FROM ITS OWN BANK ACCOUNT WITHOUT ROUTING THE SAME THROUGH THE B USINESS ASSOCIATE, IN CONSIDERATION OF THE SERVICE SO RENDERED BY THE BUS INESS ASSOCIATE THE APPELLANT FIRM AGREED TO PAY A SUM CALCULATED @ 10% OF MONTHLY SALARY BILL AS SERVICE CHARGES. IT WAS ALSO AGREED BETWEEN THE PARTIES, THAT THE SAID BUSINESS ASSOCIATE SHALL NOT WORK FOR ANY OTHE R PHARMACEUTICAL MANUFACTURING AND MARKETING. THE CASE OF THE ASSESS EE FOR THE ASSESSMENT YEAR 2004-05 HAS BEEN SCRUTINIZED BY THE ASSESSING OFFICER UNDER SECTION 143(3) OF THE ACT ON 28.11.2006 AND ASSESSED THE LOSS OF THE ASSESSEE FIRM AT RS. 1656730/- AFTER MAKING ON AGREED OF RS. 50000/-. BUT IN THE ASSESSMENT YEAR 2005-06, WHICH IS IN DIS PUTE, THE ASSESSEE HAS FILED RETURN ON 24.10.2005 DECLARING A LOSS OF RS. 1552067/-. AGAIN THIS 17 I.T.A. NO. 452(ASR)/2011 ASSESSMENT YEAR: 2005-06 YEAR, THE ASSESSEE FIRM INCURRED MARKETING AND SALA RY EXPENSES TO THE TUNE OF RS. 15.13 LACS OUT OF WHICH, A PAYMENT OF RS. 79 8495/- WAS MADE TO M/S MACWIN HEALTH CARE ON THE SAME BASIS AS IN THE PRECEDING YEAR. BUT MADE DIRECTLY PAYMENT THROUGH ACCOUNT PAYEE CHEQUE TO THE FIELD STAFF BY THE APPELLANT FIRM OUT OF ITS BANK ACCOUNT. IN ORDE R TO CREATE MORE EFFICIENCY IN THE IN THE SELLING AND MARKETING FUNC TION, THE APPELLANT FIRM TERMINATED THE AGREEMENT FIRM THE BUSINESS ASSOCIAT E MACWIN HEALTH CARE ON 31.08.2004. FROM THE MONTH OF AUGUST ONWARD , THE APPELLANT FIRM STARTED RECRUITING AND APPOINTING MEDICAL REPR ESENTATIVES DIRECTLY ON ITS ROLE FOR THE BUSINESS OF THE FIRM. 12) THE ASSESSING OFFICER HAS WRONGLY MADE THE ADDIT ION IN DISPUTE WITHOUT FOLLOWING THE PAST HISTORY IN THE C ASE OF ASSESSEE AND THE LEARNED FIRST APPELLATE AUTHORITY, AFTER APPRECIATI NG THE DOCUMENTARY EVIDENCE PRODUCED BY THE ASSESSEE, DELETED THE ADDI TION IN DISPUTE. 13) KEEPING IN VIEW THE AFORESAID DISCUSSION, WE ARE OF THE VIEW THAT THE LEARNED FIRST APPELLATE AUTHORITY HAS PASS ED A WELL REASONED ORDER; THEREFORE, NO INTERFERENCE IS CALLED FOR. AC CORDINGLY, WE UPHOLD THE IMPUGNED ORDER DATED 30.05.2011 PASSED BY LEARNED C IT(A), AMRITSAR, AND DISMISS THE APPEAL FILED BY THE REVENUE. 18 I.T.A. NO. 452(ASR)/2011 ASSESSMENT YEAR: 2005-06 14) IN THE RESULT, THE APPEAL FILED BY THE REVENUE I S DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 30 TH AUGUST, 2013 SD/./- SD/./- (B.P. JAIN) (H.S. SIDHU) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 30 TH AUGUST, 2013 /RK/ COPY OF THE ORDER FORWARDED TO: 1. THE ASSESSEE: M/S MACWIN PHARMACEUTICALS, SCF-30, B LOCK-C, RANJIT AVENUE, AMRITSAR 2. THE ACIT, CIRCLE-V, AMRITSAR 3. THE CIT(A), JALANDHAR 4. THE CIT, JALANDHAR 5. THE SR DR, I.T.A.T., AMRITSAR TRUE COPY BY ORDER (ASSISTANT REGISTRAR) INCOME TAX APPELLATE TRIBUNAL, AMRITSAR BENCH: AMRITSAR.