FARGO SALES P.LTD, MUMBAI V. ASST CIT 9(1), MUMBAI

ITA 4707/MUM/2011

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 8168 (ITAT-MUMBAI)
• Duration Of Justice: 5 year(s) 8 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-02-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: F
• Next Hearing Date: 03-03-2015
• Assessment Year: 2004-2005
• Appeal Filed On: 10-06-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: BEENA SANTOSH
• Keywords: Gift
• Section: 143(3); 133(6)

Judgement Text

IN THE INC OME TAX APPELLATE TRIBUNAL F BENCH, MUMBAI BEFORE SHRI G. S . PANNU, AM AND SHRI SANDEEP GOSAIN, JM ./ I.T.A. NO . 4707 / MUM/ 2011 ( / ASSESSMENT YEAR: 2004 - 05 ) FARGO SALES PVT. LTD. 21 SHAKTI NIWAS, RAMCHANDRA LANE, (EXTON) MALAD (W) MUMBAI. / VS. ASST. CIT 9(1 ) AAYKAR BHAWAN , MUMBAI ./ ./ PAN/GIR NO. AAAC F 1705 C ( / APPELLANT ) : ( / RESPONDENT ) / APPELLANT BY : SHRI ADITYA AJGAONKAR / RESPONDENT BY : MS BEENA SANTOSH / DATE OF HEARING : 05/01 /201 7 / DATE OF PRONOUNCEMENT : 15/02/2017 / O R D E R PER SANDEEP GOSAIN, J UDICIAL MEMBER : THE PRESENT APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE ORDER OF COMMISS I ONER OF INCOME TAX (APPEALS) - 49 , DATED 08.03.11 FOR AY 2004 - 05 ON THE GROUNDS OF APPEAL MENTIONED HEREIN BELOW. 2 I.T.A. NO. 4707 /MUM/201 1 (A.Y. 2004 - 05 ) FARGO SALES PVT. LTD. 1. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN DISALLOWING THE CLAIM OF DEDUCTION OF RS. 10,58,168/ - BEING THE AMOUNT OF PROVISION MADE FOR SALES PROMOTION EXPENSES INCURRED DURING THE PREVIOUS YEAR. 2. THE LEARNED COMMISSIONER OF INCOME TAX (APPE ALS) ERRED IN DISALLOWING THE CLAIM OF DEDUCTION OF RS. 9,60,175/ - BEING THE AMOUNT OF EXPENSES INCURRED ON PACKING MAT ERI ALS (RS 8,51,825/ - SUNIL INDUSTRIES) AND TRANSPORTATION EXPENSES (RS. 1,08,890/ - S.T. MAHADIK) 3. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN DISALLOWING THE CLAIM OF DEDUCTION OF RS. 9,00,000/ - BEING THE AMOUNT OF RETAINER SHIP EXPENSES INCURRED BY THE APPELLANT DURING THE PREVIOUS YEAR. THE APPELLANT CRAVES LEAVE TO ADD TO ALTER AMEND AND OR DELETE ANY OR ALL OF THE ABOVE GROUNDS OF APPEAL 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE IS ENGAGED IN THE BUSINESS OF MARKETING PRODUCTS LIKE GAS MANTLES, PLAYING CARDS, COCONUT OIL, ETC. THE ASSESSMENT WAS COMPLETED UNDER 143(3) DETERMINING THE INCOME SUBJECT TO TAX AT R S. 58,10,290/ - AS AGAINST RS. 27,04,836 AS DECLARED BY MAKING VARIOUS ADDITIONS /DISALLOWANCES ON ACCOUNT OF RETAINERSHIP. 3 I.T.A. NO. 4707 /MUM/201 1 (A.Y. 2004 - 05 ) FARGO SALES PVT. LTD. 3. AGGRIEVED BY THE ORDER OF AO , ASSESSEE FILED THE APPEAL BEFORE CIT(A) AND THE CIT(A) AFTER CONSIDERING THE CASE OF THE PARTIES HAD PARTLY ALLOWED THE APPEAL OF THE ASSESSE . 4. AGGRIEVED BY THE ORDER OF CIT(A) , THE ASSESSEE FILED THE PRESENT APPEAL BEFORE US ON THE GROUNDS MENTIONED HEREIN ABOVE. GROUND NO.1 . 5 . THE LD. AR APPEARING ON BEHALF OF THE ASSESSEE SUBMITTED THAT LD. CIT(A) ERRED IN DISALLOWING THE CLAIM OF DEDUCTION OF RS. 10,58,168/ - BEING THE AMOUNT OF PROVISION MADE FOR SALES PROMOTION EXPENSES INCURRED DURING THE PREVIOUS YEA R. LD. AR REITERATED THE SAME ARGUMENTS WHICH WERE RAISED BEFORE LD. CIT(A). LD. AR FU RTHER SUBMITTED THAT THE ASSESSE COMPANY IS ENGAGED IN THE BUSINESS OF MARKETING OF PRODUCTS LIKE GAS MANTLES, PLAYING CARES, COCONUT OIL, ETC MANUFACTURED BY M/S FARGO MANTLE PRODUCTS PVT. LTD. & OTHER COMPANIES. LD. AR FURTHER SUBMITTED THAT A SUM OF RS. 10,58,168 SPENT ON SALES PROMOTION SCHEME UNDER THE TITLE DHAMAKA PRIZE TO ITS SALES DEALER DEBITED UNDER SALES PROMOTION EXPENSES. LD. AR FURTHER SUBMITTED THAT THESE EXPENSES ARE INCURRED WHOLLY TO PROMOTE THE SALES OF THE PRODUCTS OF THE ASSESSEE BY WAY OF PRICES AND 4 I.T.A. NO. 4707 /MUM/201 1 (A.Y. 2004 - 05 ) FARGO SALES PVT. LTD. INCENTIVE TO THOSE DEALERS WHO ACHIEVED CERTAIN SALES. LD. AR FURTHER SUBMITTED THAT REVENUE AUTHORITIES HAD DISALLOWED THE EXPENSES THAT THESE EXPENSES ARE INCURRED IN THE NEXT YEAR AND NOT PERTAINS TO THE YEAR UNDER CONSIDERATION. IT IS ALSO SUBMITTED THAT FOLLOWING THE MERCANTILE SYSTEM OF ACCOUNTING ACCORDING TO WHICH ONE HAS TO ACCOUNT FOR INCOME AND EXPENSES ON ACCRUAL BASIS, THE ASSESSEE COMPANY HAS ALREADY DISTRIBUTED THE PRIZES AND THE GIFT OF GAS MANTLES TO THE DEALERS IN FY 2004 - 05 RELEVANT TO AY 2005 - 06 ON THE PERFORMANCE ACHIEVED ON THE SALES ACHIEVED IN THE FY 2003 - 04 RELEVANT TO AY 2004 - 05, AND IN ADDITION THE ASSESSE AS WELL AS PARTIES HAVE ALREADY COMPL IED THE NOTICES ISSUED U/S 133(6) OF THE INCOME TAX ACT, 1961. LASTLY IT WAS ARGUED THAT SINCE THE LIABILITY TO PAY THIS AMOUNT HAD ALREADY CRYSTALIZED, T HEREFORE NO DISALLOWANCE COULD HAVE BEEN MADE BY THE REVENUE AUTHORITIES. 6 . ON THE OTHER HAND LD. DR APPEARING O N BEHALF OF THE REVENUE RELIED UPON THE ORDERS PASSED BY THE REVENUE AUTHORITIES. 7 . WE HAVE HEARD THE COUNSEL S FOR BOTH THE PARTIES AND WE HAVE ALSO PERUSED THE MATERIAL PLACE ON RECORD AS WELL AS THE ORDER S PASSED BY THE REVENUE AUTHORITIES AND WE HAVE NOTICED THAT 5 I.T.A. NO. 4707 /MUM/201 1 (A.Y. 2004 - 05 ) FARGO SALES PVT. LTD. THE ASSESSE COMPANY IS ENGAGED IN THE BUSINESS OF MARKETING OF PRODUCTS LIKE GAS MANTLES, PLAYING CARDS , COCONUT OIL, ETC MANUFACTURED BY M/S FARGO MANTLE PRODUCTS PVT. LTD. & OTHER COMPANIES. WE FURTHER NOTICED THAT THESE EXPENSES ARE INCURRED WHOLLY TO PROMOTE THE SALES OF TH E PRODUCTS OF THE ASSESSEE BY WAY OF PRIZES AND INCENTIVE TO THOSE DEALERS WHO ACHIEVED CERTAIN SALES . BUT ON THE OTHER HAND THE REVENUE AUTHORITIES HAD DISALLOWED THE EXPENSES BY HOLDING THAT THESE EXPENSES ARE INCURRED IN THE NEXT YEAR AND NOT PERTAINS T O THE YEAR UNDER CONSIDERATION. WE NOTICED THAT WHILE FOLLOWING THE MERCANTILE SYSTEM OF ACCOUNTING ACCORDING TO WHICH ONE HAS TO ACCOUNT FOR INCOME AND EXPENSES ON ACCRUAL BASIS AND SINCE IN THE PRESENT CASE THE LIABILITY TO PAY THIS AMOUNT HAD ALREADY CR YSTALIZED AS ON 31 ST MARCH 2004 AS THE ASSESSE HAS DISTRIBUTED THE PRIZES AND THE GIFT OF GAS MANTLES TO THE DEALERS IN FY 2004 - 05 RELEVANT TO AY 2005 - 06 ON THE PERFORMANCE ACHIEVED ON THE SALES ACHIEVED IN THE FY 2003 - 04 RELEVANT TO AY 2004 - 05. THEREFORE, THIS BASIS OF DISALLOWANCE MADE BY THE DEPARTMENT IS NOT SUSTAINABLE AND HENCE THE ADDITIONS AS MADE ARE LIABLE TO BE DELETED AND HENCE THE 6 I.T.A. NO. 4707 /MUM/201 1 (A.Y. 2004 - 05 ) FARGO SALES PVT. LTD. SAME ARE DELETED. THIS GROUND OF APPEAL RAISED BY THE ASSESSE IS ALLOWED. G ROUND NO. 2 . 8. THE LD. AR APPEARING ON BEHALF OF THE ASSESSEE SUBMITTED THAT LD. CIT(A) ERRED IN DISALLOWING THE CLAIM OF DEDUCTION OF RS. 9,60,175/ - BEING THE AMOUNT OF EXPENSES INCURRED ON PACKING MATERIALS (RS 8,51,825/ - SUNIL INDUSTRIES) AND TRANSPORTATION EXPENSES (RS. 1,08,890/ - S.T. MAH ADIK). LD. AR REITERATED THE SAME ARGUMENTS WHICH WERE RAISED BEFORE LD. CIT(A) AND SUBMITTED THAT ALTHOUGH THE ASSESSE COMPANY HAS DISCHARGED ITS ONUS BY SUPPLY ING THE REQUISITE DETAILS IN ORDER TO ESTABLISH THE GENUINESS OF THE CLAIM MADE BY THE ASSESSE E BUT ON THE CONTRARY, DISALLOWANCE WAS MADE BY THE REVENUE AUTHORITIES ONLY ON THE GROUND THAT THE SUMMONS SENT TO THE PARTIES RETURNED UNSERVED. THE LD. AR DRAWN OUR ATTENTION ON PAGE NO. 34 TO 45 OF THE PAPER BOOK WHICH PERTAINS TO ACCOUNT S , BANK STATEME NT, INVOICES AND CONFIRMATION. IT WAS FURTHER SUBMITTED THAT THE BILLS ISSUES FROM THE PARTIES HAVE ALREADY BEEN PLACED ON RECORD AND THE AMOUNT WAS PAID THROUGH BANKING CHANNEL AND IN THESE 7 I.T.A. NO. 4707 /MUM/201 1 (A.Y. 2004 - 05 ) FARGO SALES PVT. LTD. CIRCUM STANCES, NO DISALLOWANCE OUGHT TO HAVE BEEN MADE BY THE REV ENUE AUTHORITIES IN THIS REGARD. 6 . ON THE OTHER HAND LD. DR APPEARING ON BEHALF OF THE REVENUE RELIED UPON THE ORDERS PASSED BY THE REVENUE AUTHORITIES. 7 . WE HAVE HEARD THE COUNSEL FOR BOTH THE PARTIES AND WE HAVE ALSO PERUSED THE MATERIAL PLACE ON REC ORD AS WELL AS THE ORDER S PASSED BY THE REVENUE AUTHORITIES AND WE HAVE NOTICED THAT IN THE PRESENT CASE THE ASSESSE COMPANY HAS DISCHARGED ITS O NUS BY PLACING ON RECORD/SUPPLY TO THE REVENUE AUTHORITIES OF THE REQUISITE DETAILS IN ORDER TO ESTABLISH THE G ENUINENESS OF THE CLAIM MADE BY THE ASSESSE, THEREFORE IN THESE CIRCUMSTANCES, WE FOUND THAT IT IS UNDISPUTED FACT THAT THE REVENUE AUTHORITIES HAVE NOT PLACED ON RECORD ANY MATERIAL TO SHOW THAT THE PARTIES TO WHOM PAYMENT S WERE MADE WERE IN ANY WAY RELATED TO THE ASSESSE AND MOREOVER NO ATTEMPT HAS BEEN MADE BY THE REVENUE TO CARRY OUT ANY INDEPENDENT INQUIRY. THEREFORE, THE BASIS OF DISALLOWANCE MADE BY THE DEPARTMENT IS NOT SUSTAINABLE AND HENCE THE ADDITIONS AS MADE ARE LIABLE TO BE DE LETED AND HENCE THE SAME ARE DELETED. THIS GROUND OF APPEAL RAISED BY THE ASSESSE IS ALLOWED. 8 I.T.A. NO. 4707 /MUM/201 1 (A.Y. 2004 - 05 ) FARGO SALES PVT. LTD. GROUND NO. 3. 8. THE LD. AR APPEARING ON BEHALF OF THE ASSESSEE SUBMITTED THAT LD. CIT(A) ERRED IN DISALLOWING THE CLAIM OF DEDUCTION OF RS. 9,00,000/ - BEING TH E AMOUNT OF RETAINER SHIP EXPENSES INCURRED BY THE APPELLANT DURING THE PREVIOUS YEAR. LD. AR REITERATED THE SAME ARGUMENTS WHICH WERE RAISED BEFORE LD. CIT(A). LD. AR FURTHER SUBMITTED THAT THE RETAINERSHIP FEES PAID TO THE RETAINERS, VIZ SHRI NASIR SALIM PATEL MARKETING EXECUTIVE, M/S YAMEEN I. KALANIA (PUBLIC RELATION EXECUTIVE) AND M/S GLUREJ I. KALANIA (O FFICE ADMINISTRATION EXECUTIVE) AND IN THIS RESPECT THE ASSES SE HAS ALREADY FURNISHED ALL DETAILS CALLED FOR BY THE LD. AO LIKE CONFIRMATION, COPY O F THE RETURN OF INCOME, XEROX COPY OF BANK STATEMENT SHOWING THE DEBIT/CREDIT ENTRIES IN THE BOOKS OF ACCOUNTS. IT WAS FURTHER SUBMITTED THAT THE RETAINERSHIP FEE PAID TO THEM IS ALREADY SHOWN IN THEIR RETURN OF INCOME AND PAID TAX DUE THEREON, THEREFORE A GAIN TAXING IT IN THE HANDS OF THE ASSESSE COMPANY WOULD AMOUNT TO TAXING THE SAME INCOME TWICE. 6 . ON THE OTHER HAND LD. DR APPEARING ON BEHALF OF THE REVENUE RELIED UPON THE ORDERS PASSED BY THE REVENUE AUTHORITIES. 9 I.T.A. NO. 4707 /MUM/201 1 (A.Y. 2004 - 05 ) FARGO SALES PVT. LTD. 7 . WE HAVE HEARD THE COUNSEL FOR BOTH THE PARTIES AND WE HAVE ALSO PERUSED THE MATERIAL PLACE ON RECORD AS WELL AS THE ORDER S PASSED BY REVENUE AUTHORITIES AND WE HAVE NOTICED THAT THE REVENUE AUTHORITIES HAVE DISALLOWED THIS AMOUNT ON THE GROUND THAT THE N ATURE OF SERVICES BEING RENDERED BY THE PERSON HAVE NOT BEEN PROVED BY THE ASSESSE. WE HAVE NOTICED THAT THE ASSESSE HAS ALREADY FURNISHED ALL THE DETAILS CALLED FOR BY THE LD. AO LIKE CONFIRMATION, COPY OF THE RETURN OF INCOME, XEROX COPY OF BANK STATEMENT SHOWING THE DEBIT/CREDIT ENTRI ES IN THE BOOKS OF ACCOUNTS IN ORDER TO SHOW THAT THE RETAINERSHIP FEE HAS BEEN PAID TO THE RETAINERS AND THE SAME HAS ALREADY BEEN SHOWN IN THEIR RETURN OF INCOME AND PAID TAX DUE THEREON, THEREFORE NOW AGAIN TAXING IT IN THE HANDS OF THE ASSESSE E COMPANY WOULD AMOUNT TO TAXING THE SAME INCOME TWICE. ON THE OTHER HAND, THE REVENUE AUTHORITIES HAVE NOT PLACED ON RECORD ANY MATERIAL IN ORDER TO SHOW THAT THE PARTIES TO WHOM PAYMENT S WERE MADE WERE IN ANY WAY RELATED TO THE ASSESSE E AND MOREOVER NO ATTEMPT HA S BEEN MADE BY THE REVENUE TO CARRY OUT ANY INDEPENDENT INQUIRY. THEREFORE, THIS BASIS OF DISALLOWANCE MADE BY THE DEPARTMENT THAT IT APPEARS TO BE NON - GENUINE IS NOT SUSTAINABLE AND HENCE THE 10 I.T.A. NO. 4707 /MUM/201 1 (A.Y. 2004 - 05 ) FARGO SALES PVT. LTD. ADDITIONS AS MADE ARE LIABLE TO BE DELETED AND HENCE THE SAME A RE DELETED. THIS GROUND OF APPEAL RAISED BY THE ASSESSE IS ALLOWED. 9 . IN THE NET RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED . ORDER PRONOUNCED IN THE OPEN COURT ON 1 5 TH FEB , 2017 SD/ - SD/ - ( G. S. PANNU ) (SANDEEP GOSAIN) / ACCOUNTANT MEMBER / JUDICIAL MEMBER MUMBAI ; DATED : 15 . 02 .201 7 SR.PS . DHANANJAY / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. ( ) / THE CIT(A) 4. / CIT - CONCERNED 5. , , / DR, ITAT, MUMBAI 6. / GUARD F I LE / BY ORDER, . / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI