ACIT 6(1), MUMBAI V. AMAR TEA LTD, MUMBAI

ITA 5781/MUM/2009

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 8950 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 2 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-01-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 01-11-2010
• Assessment Year: 2006-2007
• Appeal Filed On: 30-10-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DR B SENTHIL SR
• Keywords: Business expenditure; Commercial expediency; Revenue expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI D BENCH BEFORE SHRI N.V.VASUDEVAN, JUDICIAL MEMBER & SHRI T.R.SOOD, ACCOUNTANT MEMBER I.T.A.NO.5781/MUM/2009 - A.Y 2006-07 ASST. COMMISSIONER OF I.T., CIRCLE 6(1), MUMBAI. VS. M/S AMAR TEA LTD., 61, DR. S. S. RAO ROAD, LALBAUG, MUMBAI 400 012 PAN: AAACA 3927 D (APPELLANT) (RESPONDENT) APPELLANT BY : DR. B. SENTHIL (SR.A.R) RESPONDENT BY : SHRI RAKESH JOSHI. O R D E R PER T.R.SOOD, AM: IN THIS APPEAL, THE REVENUE HAS RAISED THE FOLLOWI NG TWO GROUNDS: 1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE, THE LD. CIT[A] IS JUSTIFIED IN LAW IN ALLOWING THE ASSE SSEES CLAIM ON ADVERTISEMENT AND PUBLICITY EXPENDITURE OF ` `` ` .4,05,82,970/- AS BUSINESS EXPENDITURE EVEN THOUGH THE ASSESSEE HA D INCURRED THIS EXPENDITURE FOR THE BENEFIT OF ITS SISTER CONC ERN VIZ. M/S HASMUKHRAI & CO., AND NOT WHOLLY AND EXCLUSIVELY FO R THE PURPOSE OF ITS OWN BUSINESS AS REQUIRED U/S.37 OF T HE ACT, 1961. 2. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE, THE LD. CIT[A] WAS CORRECT IN LAW IN DELETING THE ADDIT ION OF ` `` ` .7,17,231/- MADE ON ACCOUNT OF SHORTAGE IN HANDLING OF TEA OF 8925 KGS. 2. GROUND NO.1 : AFTER HEARING BOTH THE PARTIES WE FIND THAT DURIN G ASSESSMENT PROCEEDINGS AO NOTICED THAT ASSESSEE HAS CLAIMED ADVERTISEMENT EXPENSES AMOUNTING TO ` `` ` .4,05,82,970/- WHICH WERE INCURRED FOR PROMOTING THE BRAND NAME OF SOCIETY T EA. THE AO AFTER DETAILED DISCUSSION AND FOLLOWING THE EARLIER YEAR S ORDERS DISALLOWED 2 THIS DEVELOPMENT EXPENDITURE BY OBSERVING THAT ASSE SSEE WAS MERELY BLENDING THE TEA AND IT WAS SOLE LICENSEE OF MANUFA CTURER M/S. HASMUKHRAI & CO., WHO OWNS THE BRAND. 3. ON APPEAL, THE ADDITION WAS DELETED BY THE LD. C IT[A] BY FOLLOWING THE ORDER OF THE TRIBUNAL. 4. BOTH THE PARTIES WERE HEARD. 5. AFTER CONSIDERING THE RIVAL SUBMISSIONS, WE FIND THAT AN IDENTICAL ISSUE CAME UP BEFORE THE TRIBUNAL IN I.T.A.NO.5345/ MUM/2008 FOR A.Y 2005-06 AND THE SAME WAS DECIDED VIDE PARAS 4 AND 5 WHICH ARE AS UNDER: 4. AT THE TIME OF HEARING BEFORE US, THE LEARNED RE PRESENTATIVES OF BOTH THE SIDES HAVE AGREED THAT THE ISSUE INVOLVED IN GROUND NO. 1 OF THIS APPEAL IS SQUARELY COVERED IN FAVOUR OF ASSESS EE BY VARIOUS DECISIONS OF THE TRIBUNAL RENDERED IN ASSESSEES OW N CASE ON SIMILAR ISSUE FOR EARLIER YEARS. AS POINTED OUT BY THE LEA RNED COUNSEL FOR THE ASSESSEE, THIS ISSUE CAME UP FOR CONSIDERATION BEFO RE THE TRIBUNAL FOR THE FIRST TIME IN A.Y. 1996-97 AND VIDE ITS ORDER D ATED 27.2.04 PASSED IN ITA NO. 3084/MUM/99 (COPY PLACED AT PAGE 23 TO 3 5 OF ASSESSEES PAPER BOOK), THE TRIBUNAL UPHELD THE ORDER OF THE L D. CIT(A) ALLOWING THE DEDUCTION CLAIMED BY THE ASSESSEE ON ACCOUNT OF ADVERTISEMENT EXPENDITURE INCURRED FOR POPULARIZING THE BRAND NAM E SOCIETY FOR THE FOLLOWING REASONS GIVEN IN PARA 8 TO 11 OF HIS ORDE R: WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS IN THE LIGHT OF MATERIAL PLACED BEFORE US. ACCORDING TO THE FAC TS OF THE CASE ASSESSEE IS A MANUFACTURER/BLENDER OF TEA AND IS A LICENCED USER OF BRAND NAMES OWNED BY HRC. HRC ITSELF IS NEITHER MANUFACTURER/BLENDER OF THE TEA NOR SELLING IT. IT IS THE CASE OF ASSESSEE THAT BY PLACING ADVERTISEMENT IN MEDIA IT WAS THE ASSESSEE WHO GOT BENEFIT OF INCREASED SALE AS ONLY SOME PERCENTAGE OF SALE WAS TO BE GIVEN TO BRAND NAME HO LDER. IF THE EXPENSES ARE INCURRED FOR THE PURPOSE OF BUSINESS, IT CANNOT BE DISALLOWED FOR THE REASON THAT BY INCURRING SUCH EX PENDITURES SOME OTHER PERSON ALSO BE BENEFITED. THE EXPENSES H AVE TO BE ALLOWED AS REVENUE EXPENDITURE. WHEREAS IT IS THE CASE OF REVENUE THAT SUCH EXPENDITURE ARE NOT ALLOWABLE AS THEY HAVE GIVEN BENEFIT TO THE BRAND NAME OWNER. THE TERMINA TION CLAUSE IN AGREEMENT MADE THE AGREEMENT TEMPORARY. THUS HUG E EXPENDITURE INCURRED ON ADVERTISEMENT WERE TO GIVE BENEFIT TO 3 THE BRAND OWNER ONLY. IN THE LIGHT OF THESE FACTS WE HAVE TO EXAMINE THE ALLOWABILITY OR OTHERWISE OF THESE EXPE NDITURE. WHETHER A PARTICULAR EXPENDITURE IS REVENUE EXPEND ITURE INCURRED FOR THE PURPOSE OF BUSINESS MUST BE DETERM INED ON A CONSIDERATION OF ALL FACTS AND CIRCUMSTANCES AND BY THE APPLICATION OF PRINCIPLES OF COMMERCIAL TRADING. T HE QUESTION MUST BE VIEWED IN THE LARGER CONTEXT OF BUSINESS NE CESSITY OR EXPEDIENCY. IF THE OUTGOING OF EXPENDITURE IS SO R ELATED TO THE CARRYING ON OR CONDUCT OF THE BUSINESS, THAT IT MAY BE REGARDED AS AN INTEGRAL PART OF THE PROFIT EARNING PROCESS, THE EXPENDITURE MAY BE REGARDED AS REVENUE EXPENDITURES. AS THE FA CTS DISCUSSED ABOVE, IT WAS THE ASSESSEE WHO WAS GOING TO BE BENEFITED DIRECTLY BY INCREASE IN ITS SALES BY PLAC ING ADVERTISEMENT IN THE MEDIA. THUS THE EXPENDITURE W AS AN INTEGRAL OF PROFIT EARNING PROCESS SAND RELATED TO THE BUSINESS OF ASSESSEE. NOW COMING TO THE CONTENTION OF REVENUE THAT THE INCURRING OF THESE EXPENDITURE WAS NOT A CONTRACTUA L LIABILITY OF THE ASSESSEE. IT IS THE CASE OF ASSESSEE THAT THE EXPENDITURES HAVE BEEN INCURRED FOR COMMERCIAL EXPEDIENCY. THE COMMERCIAL EXPEDIENCY OF A BUSINESSMANS DECISION T O INCUR AN EXPENDITURE CANNOT BE LISTED ON THE TOUCH STONE OF STRICT LEGAL LIABILITY TO INCUR SUCH AN EXPENDITURE. SUCH DECIS IONS IN THE VERY NATURE OF THINGS HAVE TO BE TAKEN FROM A BUSINESS P OINT OF VIEW AND HAVE TO BE RESPECTED BY THE AUTHORITIES NO MATT ER THAT IT MAY APPEAL TO THE LATER THAT THE EXPENDITURE INCURRED W AS UNNECESSARY OR AVOIDABLE. THUS, THERE IS NO FORCE IN THIS CONTE NTION OF REVENUE. AN EXPENDITURE MADE BY A BUSINESSMAN BY WAY OF COMMERCIAL EXPEDIENCY MUST BE AN EXPENDITURE WHICH HAS BEEN INCURRED IN THE EXPECTATION THAT SUCH PAYMENT SHOUL D DIRECTLY OR INDIRECTLY BENEFIT THE BUSINESS OF THE ASSESSEE. A MANS BUSINESS MAY BE BENEFITED IN NUMBER OF WAY. ONE OF THEM MAY BE PROMOTING OF GOOD BUSINESS RELATION WITH THOSE WHOM HE HAS TO DEAL WITH IN THE COURSE OF HIS BUSINESS. IN THE PR ESENT CASE ADVERTISEMENT EXPENSES WERE INCURRED TO GIVE DIRECT BENEFIT OF INCREASED SALE AS THE BRAND OWNER WAS NOT THE MANUFACTURER/BLENDER OF TEA. THUS, IT WAS AN EXPEND ITURE INCURRED BY THE ASSESSEE FOR THE PURPOSE OF ITS BUS INESS. THE SALES OF ASSESSEE WAS INCREASED IN THE SUBSEQUENT Y EARS WHICH FACT IS APPARENT FROM THE CHART GIVEN AT PAGE 47 OF THE PAPER BOOK. 5. THE DECISION RENDERED ABOVE HAS ALSO BEEN FOLLOWED BY THE TRIBUNAL TO GIVE RELIEF TO THE ASSESSEE ON A SIMILA R ISSUE IN THE SUBSEQUENT YEARS. AS THE ISSUE INVOLVED IN THE YEAR UNDER CONSIDERATION AS WELL AS ALL THE MATERIAL FACTS REL EVANT THERETO ARE ADMITTEDLY SIMILAR TO THAT OF THE EARLIER YEARS , WE RESPECTFULLY FOLLOW THE ORDERS PASSED BY THE TRIBUN AL IN ASSESSEES OWN CASE FOR EARLIER YEARS AND UPHOLD TH E IMPUGNED 4 ORDER OF THE LD. CIT(A) DELETING THE DISALLOWANCE M ADE BY THE A.O. ON ACCOUNT OF ADVERTISEMENT AND PUBLICITY EXPE NDITURE INCURRED FOR POPULARIZING THE BRAND NAME SOCIETY. GROUND NO. 1 OF REVENUES APPEAL IS ACCORDINGLY DISMISSED. FOLLOWING THE ABOVE DECISION, WE DECIDE THIS ISSUE AGAINST THE REVENUE. 6. GROUND NO.2 : AFTER HEARING BOTH THE PARTIES, WE FIND THAT DURI NG ASSESSMENT PROCEEDINGS AO NOTICED THAT ASSESSEE HAS CLAIMED A SHORTAGE OF 1.13% DURING THE PROCESS OF BLENDING AN D, THEREFORE, 10% OF THE WASTAGE CLAIMED BY THE ASSESSEE WAS DISALLOW ED. 7. ON APPEAL, THIS ADDITION WAS ALSO DELETED BY THE LD. CIT[A] VIDE PARA-3 WHICH IS AS UNDER: GROUND NO.2 IS AGAINST DISALLOWANCE OF CLAIM OF SH ORTAGE OF RS.7,16,231/-. ON THIS ISSUE ALSO CIT[A] CENT.6, MU MBAI IN HIS ORDER DATED 17-07-2006 FOR A.Y 2004-05 HAS EXAMINED THE I SSUE IN DETAIL AND COME TO THE CONCLUSION THAT DISALLOWANCE HAS B EEN MADE PURELY ON ADHOC BASIS. CONSEQUENTLY, HE HAS DELETED THE ADDIT ION IN THAT YEAR. THE FACTS OF THE CASE, THE BASIS FOR ADDITION AND THE S UBMISSION OF THE APPELLANT ARE IDENTICAL TO THAT IN THE EARLIER YEAR . FOR THE SAME REASONS AS IN THAT YEAR, THE ADDITION OF RS.7,16,23`/- IS D ELETED. IT MAY ALSO BE MENTIONED THAT IN CASE OF A.Y 1999-00, SIMILAR ADHO C DISALLOWANCE ON ACCOUNT OF SHORTAGE IN HANDLING OF TEA WAS DELETED BY THE HON'BLE TRIBUNAL IN ITA NO.1615/MUM/2003 DATED 15-06-2006. 8. BOTH THE PARTIES WERE HEARD. 9. AFTER CONSIDERING THE RIVAL SUBMISSIONS, WE FIND THAT THIS ISSUE CAME UP BEFORE THE TRIBUNAL FOR A.Y 2004-05 IN I.T. A.NO.5345/M/08 AND THE SAME WAS DECIDED VIDE PARAS 6 AND 7 WHICH A RE AS UNDER: 6. AS REGARDS GROUND NO. 2 RELATING TO THE ASSESSE ES CLAIM FOR SHORTAGE DUE TO HANDLING LOSS ETC., IT IS OBSERVED THAT THIS ISSUE IS ALSO COVERED BY THE ORDERS OF THE TRIBUNAL PASSED IN ASSESSEES OWN CAS E FOR EARLIER YEARS. COPIES OF THE SAID ORDERS ARE PLACED ON RECORD BY THE LEAR NED COUNSEL FOR THE ASSESSEE AND A PERUSAL OF THE SAME SHOWS THAT THIS ISSUE HAD ARISEN FOR CONSIDERATION OF THE TRIBUNAL FOR THE FIRST TIME IN A.Y. 1999-2000 W HEREIN THE SHORTAGE CLAIMED BY THE ASSESSEE WAS LESS THAN 1%. IN THIS CONTEXT, IT WAS NOTED BY THE TRIBUNAL THAT IN THE CASE OF M/S HASMUKHRAI & CO., A SISTER CONCERN OF THE 5 ASSESSEE, A SIMILAR CLAIM FOR SHORTAGE ON ACCOUNT O F HANDLING LOSS ETC. AT 1.20% WAS ALLOWED BY THE TRIBUNAL VIDE AN ORDER DAT ED 20.2.06 PASSED IN ITA NO. 3130/BOM/94. FOLLOWING THE SAID DECISION O F THE TRIBUNAL, A SIMILAR SHORTAGE OF LESS THAN 1% CLAIMED BY THE ASSESSEE WA S ALLOWED BY THE TRIBUNAL. SIMILARLY, IN THE SUBSEQUENT YEARS, THE CLAIM OF THE ASSESSEE FOR SHORTAGE WAS ALLOWED BY THE TRIBUNAL FOLLOWING THE DECISION RENDERED IN THE CASE OF HASMUKHRAI & CO. (SUPRA). 7. IN THE YEAR UNDER CONSIDERATION, THE LOSS CLAIME D BY THE ASSESSEE ON ACCOUNT OF SHORTAGE NO DOUBT WAS 1.52% OF THE TOTAL PURCHASES. HOWEVER, THE A.O. HIMSELF ALLOWED THE SAME TO THE EXTENT OF 1.37 % WHICH WAS HIGHER THAN THE 1.2% ALLOWED BY THE TRIBUNAL IN A.Y. 1999-2000. IT CLEARLY SHOWS THAT SUCH HIGHER SHORTAGE WAS ACCEPTED BY THE A.O. TO BE REASONABLE. HAVING DONE SO, THE A.O., IN OUR OPINION, WAS NOT JUSTIFIE D IN DISALLOWING THE CLAIM OF THE ASSESSEE FOR BALANCE SHORTAGE TO THE EXTENT OF 0.15% (10% OF 1.52%) ON ADHOC BASIS AND THAT TOO WITHOUT GIVING ANY JUST IFICATION IN SUPPORT THEREOF AS RIGHTLY HELD BY THE LD. CIT(A). WE THEREFORE FI ND NO INFIRMITY IN THE IMPUGNED ORDER OF LD. CIT(A) DELETING THE DISALLOWA NCE MADE BY THE A.O. ON ACCOUNT OF SHORTAGE AND UPHOLDING HIS IMPUGNED ORDE R, WE DISMISS GROUND NO. 2 OF REVENUES APPEAL. FROM THE ABOVE IT IS CLEAR THAT IN THE EARLIER YEAR S WASTAGE OF 1.52% WAS ALLOWED , WHEREAS IN THE YEAR UNDER APPEAL THE WASTAGE IS ONL Y 1.13%. THEREFORE, FOLLOWING EARLIER YEARS ORDER, WE DECIDE THIS ISSUE AGAINST THE REVENUE. 10. IN THE RESULT, REVENUE APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 12 TH DAY OF JANUARY, 2011. SD/- SD/- (N.V.VASUDEVAN) (T.R.SOOD) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI:12 TH JANUARY, 2011. P/-* 6