BSN MEDICAL P. LTD, MUMBAI V. DCIT 3(1), MUMBAI

ITA 6703/MUM/2011

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 8480 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 1 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-11-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2008-2009
• Appeal Filed On: 05-10-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: N K MEHTA
• Assessee Lawyers: AJAY R SINGH; SHIVARAM
• Keywords: Gift; Business expenditure; Corroborative evidences

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH B, MUMBAI BEFORE SHRI D. MANMOHAN, VICE PRESIDENT (MZ) AND SHRI D. KARUNAKARA RAO, ACCOUNTAT MEMBER I.T.A. NO.6703/M/2011 ASSESSMENT YEAR: 2008-2009 M/S. BSN MEDICAL PVT. LTD., UNIT NO.501 & 502, 5 TH FLOOR, SEJ PLAZA, MARVE ROAD, MALAD (W), MUMBAI 400 021. PAN: AACCB6297P VS. DEPUTY COMMISSIONER OF INCOME TAX-3(1), MUMBAI. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI SHIVARAM & AJAY R SINGH RESPONDENT BY : SHRI N.K. MEHTA DATE OF HEARING: 6.9.2012 DATE OF ORDER: 14.11.2012 O R D E R PER D. KARUNAKARA RAO, AM: THIS APPEAL FILED BY THE ASSESSEE ON 5.10.2011, IS DIRECTED AGAINST THE ORDER OF CIT (A)-7, MUMBAI DATED 1.7.2011 IN RELATION TO ASS ESSMENT YEAR 2008-2009. 2. IN THIS APPEAL, ASSESSEE RAISED THE FOLLOWING GR OUNDS. I. AD-HOC DISALLOWANCE OF LOCAL TRAVEL ALLOWANCE OF RS . 92,36,000/- PAID TO EMPLOYEES: 1. THE LD CIT (A) ERRED IN CONFIRMING THE AD-HOC DI SALLOWANCE OF RS. 92,36,000/- (50% OF RS. 1,82,70,974/-) BEING LOCAL TRAVEL ALLOWANCE, WITHOUT APPRECIATING THE NATURE OF ASSESSEES MARKETING ACT IVITY WHICH NECESSITATES THE ASSESSEE TO INCUR SUCH EXPENDITURE ON THE FIELD EMP LOYEES FOR GENERATING BUSINESS FOR THE COMPANY AND SUPPORTING EVIDENCES F ROM THE EMPLOYEES WERE PRODUCED BEFORE THE CIT (A) AND ASSESSING OFFICER. 2. THE LD CIT (A) FAILED TO APPRECIATE THAT THE ASS ESSEES BUSINESS OPERATIONS ARE CARRIED OUT IN VARIOUS REGIONS THROU GHOUT THE COUNTRY, THUS THE TRAVELLING EXPENDITURE INCURRED ON THE FIELD EMPLOY EES WERE WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE ASSESSEES BUSIN ESS AND CANNOT BE TERMED AS NON BUSINESS PURPOSE MERELY ON PRESUMPTION AND ASSU MPTIONS. II. AD-HOC DISALLOWANCE OF PROMOTIONAL EXPENSES OF RS. 34,13,000/- 3. THE LD CIT (A) ERRED IN CONFIRMING THE AD-HOC DI SALLOWANCE OF RS. 34,13,000/- (50% OF RS. 68.26 LACS) BEING BUSINESS PROMOTION EXPENSES INCURRED 2 M/S. BSN MEDICAL PVT. LTD., WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE ASSES SEE BUSINESS AND CONFIRMATION FROM THE EMPLOYEES WERE PRODUCED BEFORE THE CIT (A) AND ASSESSING OFFICER. 4. THE LD CIT (A) FAILED TO APPRECIATE THAT IN THE ASSESSEES LINE OF BUSINESS IT IS NECESSARY AND CUSTOMARY TO DISTRIBUTE PROMOTI ONAL ITEMS TO CHEMIST, PHARMACIST AND DOCTORS FOR PROMOTION OF PRODUCTS WH ICH IS APPROVED BY THE COMPANY POLICY AND DISTRIBUTION ON SCIENTIFIC METHO D, AS THERE IS NO PERSONAL ELEMENT THE EXPENSES INCURRED IN THE ORDINARY COURS E OF BUSINESS, MAY BE ALLOWED AS BUSINESS EXPENDITURE. 3. GROUND NO.1 RELATES TO AD-HOC DISALLOWANCE OF LO CAL TRAVEL ALLOWANCE PAID TO THE EMPLOYEES. IN THIS REGARD, LD COUNSEL MENTIONED TH AT THE ISSUE RAISED IN THE PRESENT APPEAL IS IDENTICAL TO THE GROUND RAISED IN APPEAL ITA NO.6702/M/2011 (AY: 2007- 2008). ON PERUSAL OF THE RELEVANT ORDER PASSED BY US IN THE SAID APPEAL, WE FIND THAT AN IDENTICAL ISSUE WAS ADJUDICATED AND SET ASIDE TO THE FILES OF AO AS INDICATED BY LD COUNSEL. WE FIND THAT PARA 7 OF OUR ORDER DATED 19 .10.2012 IN THE ASSESSEES OWN CASE IS RELEVANT AND THE SAID PARA READS AS UNDER: 7. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE ORD ERS OF THE REVENUE AUTHORITIES AND OTHER PAPERS FILED BEFORE US. IT IS AN UNDISPUTED FACT THAT THERE ARE DISTINCTLY TWO TYPES OF PAYMENTS MADE TO THE EM PLOYEES OF THE COMPANY NAMELY (I) DAILY ALLOWANCE (DA) AND (II) OTHER REIM BURSEMENTS. IT IS ALSO AN ADMITTED FACT THAT THE DA IS A FIXED AMOUNT PAID TO ALL THE EMPLOYEES FOR UNDERTAKING LOCAL TRAVEL IN THE HEAD QUARTERS AND O UTSIDE THE HEAD QUARTERS. THE AMOUNTS ARE DIFFERENT FOR BOTH THE TYPES OF TRAVELS . HOWEVER, THERE IS DISPUTE ON IF THE SAID DA IS PAID AS A CASE REIMBURSEMENT IE EMPLOYEES ACTUALLY INCURRED FOR UNDERTAKING THE LOCAL TRAVEL OR IF THE SAME PAID IN COMPLIANCE OF CONTRACTUAL OBLIGATION VIDE THE MEMORANDUM OF SETTLEMENT. IT IS THE CASE OF THE ASSESSEE THAT THE SAID SUM IS PAID AS REIMBURSEMENT AND THE ASSESSEE IN POSSESSION OF REQUISITE EVIDENCE TO SUPPORT THE SAME. IT IS AN UNDISPUTED FACT THAT THE RELEVANT EVIDENCE WAS NEITHER SUBMITTED BY THE ASSE SSEE NOR REQUIRED BY THE AO DURING THE ASSESSMENT PROCEEDINGS. FURTHER, IT IS A FACT THAT ASSESSEE RELIED ON CLAUSE-11 OF MEMORANDUM OF SETTLEMENT WHILE CLAIMIN G THE EXPENSES. IT IS NOT CERTAIN WHETHER THE DAILY ALLOWANCE GIVEN BY THE AS SESSEE TO THE EMPLOYEES WAS ACTUALLY INCURRED OR NOT. THE PERUSAL OF PARA 4.4 OF THE IMPUGNED ORDER DOES NOT REVEAL THAT ANYBODY HAS GONE INTO THE MERITS OF THE CLAIM AS THE SAID PARA IS NOT A SPEAKING ONE. SIMILARLY, REGARDING THE OTHER REI MBURSEMENT, THE EXTENT OF FACTS GATHERED BY THE AO IS NOT UP TO THE MARK AND THE AO PREMATURELY ARRIVED AT THE CONCLUSION THAT 50% OF THE CLAIM IS INCURRED NOT FOR BUSINESS PURPOSES WITHOUT EXAMINING THE EVIDENCES AVAILABLE WITH THE ASSESSEE. FURTHER, REGARDING BASIS FOR ADOPTING @ 50% BY REVENUE AUTHORITIES FOR QUANTIFYING THE DISALLOWABLE EXPENDITURE, IN OUR OPINION, IT SUFFERS FROM REASON ABILITY AND AS THAT IS WITHOUT ANY REASONABLE BASIS AND REVENUE HAS NOT GIVEN ANY DISCUSSION WHY THE SAID PERCENTAGE IS ADOPTED AND HOW IT IS A REASONABLE BA SIS. THEREFORE, THERE IS NEED 3 M/S. BSN MEDICAL PVT. LTD., FOR MORE BASIC FACTS FOR ADJUDICATING THE GROUNDS R AISED IN THE APPEAL. THEREFORE, AS REQUESTED BY THE LD COUNSEL, WE ARE O F THE OPINION THAT THE MATTER SHOULD BE REMANDED TO THE FILES OF THE AO FOR EXAMI NING THE ISSUE AFRESH AND DECIDE THE SAME AFTER AFFORDING A REASONABLE OPPORT UNITY OF BEING HEARD TO THE ASSESSEE. ACCORDINGLY, AS DISCUSSED IN THE COURT, GROUND NO.1 IS SET ASIDE. 4. FROM THE ABOVE, IT IS EVIDENT THAT THE ISSUE REL ATED TO ALLOWABILITY OF LOCAL TRAVEL ALLOWANCE WAS SET ASIDE TO THE FILES OF AO WITH CER TAIN DIRECTIONS AS MENTIONED ABOVE. CONSIDERING THE COMMONALITY OF THE ISSUE, THE SAID DIRECTIONS ARE RELEVANT FOR THE GROUND UNDER CONSIDERATION. ACCORDINGLY, GROUND NO .1 IS SET ASIDE . 5. GROUND NO.2 RELATES TO THE DISALLOWANCE OF PROMO TIONAL EXPENSES. IN THIS REGARD, LD COUNSEL MENTIONED THAT THE ISSUE RAISED IN THE A PPEAL IS IDENTICAL TO THE GROUND RAISED FOR THE AY 2007-2008. HE MENTIONED THAT THE GROUND HAS TO BE ADJUDICATED IN THE LINES FOR THE ASSESSMENT YEAR 2007-2008. CONSI DERING THE SAME, WE HAVE PERUSED THE PARA 11 OF OUR ORDER DATED 19.11.2012 AND FIND THAT THE SAME IS RELEVANT. THEREFORE, THE SAME IS REPRODUCED AS UNDER: 11. WE HAVE HEARD BOTH THE PARTIES ON THIS ISSUE O F PROMOTIONAL EXPENSES. IT IS AN ADMITTED FACT THAT THE ONUS IS ON THE ASSESSE E TO PRODUCE SPECIFIC EVIDENCES IN RESPECT OF THE CLAIM OF DEDUCTIONS MAD E IN THE RETURN OF INCOME BY THE ASSESSEE. THE LAW HAS INBUILT PROVISIONS FOR TA KING CARE OF THE SENSITIVITY AND CONFIDENTIALITY ISSUES. CLAIMS OF THE ASSESSEE ARE ALLOWED ONLY AFTER DUE DISCHARGE OF ONUS BY THE ASSESSEE. WE ALSO FIND TH AT ORDERS OF THE AO AND CIT (A) ARE VERY CRYPTIC AND CANNOT BE DESCRIBED AS A S PEAKING ORDER ON THE SUBJECT. THEREFORE, WE ARE OF THE OPINION THAT THIS GROUND S HOULD ALSO BE SET ASIDE TO THE FILES OF THE AO FOR FRESH ADJUDICATION. AO SHALL PA SS A SPEAKING ORDER AFTER CONSIDERING THE APPLICABILITY OF THE NOTIFICATION/C IRCULAR AS WELL AS THE DECISIONS IF ANY ON THE SUBJECT. AO SHALL PROVIDE THE REASONING FOR ADOPTING CERTAIN PERCENTAGE OF THE EXPENDITURE IF ANY WHILE MAKING D ISALLOWANCE. ASSESSEE SHALL DISCHARGE THE ONUS PROPERLY AND ADEQUATELY AS PER T HE JUDICIAL PRONOUNCEMENTS IN FORCE. ACCORDINGLY, GROUND NO.2 IS SET ASIDE . 6. FROM THE ABOVE, IT IS EVIDENT THAT THE PROMOTION AL EXPENSES ARE NOTHING BUT THE EXPENDITURE INCURRED IN PURCHASE OF GIFTS MEANT FOR DOCTORS, CHEMISTS, DRUGGISTS ETC. WE HAVE DECIDED THE IDENTICAL ISSUE BY SETTING ASIDE T HE SAME TO THE FILES OF AO FOR FRESH ADJUDICATION AFTER CONSIDERING THE NOTIFICATION ISS UED BY THE MEDICAL COUNCIL OF INDIA AND 4 M/S. BSN MEDICAL PVT. LTD., THE CIRCULAR ISSUED BY THE CBDT ON THE SUBJECT. CO NSIDERING THE COMMONALITY OF THE ISSUE, WE ARE OF THE OPINION THAT THIS GROUND SHOUL D ALSO BE SET ASIDE TO THE FILES OF AO FOR FRESH ADJUDICATION. ACCORDINGLY, GROUND NO.2 I S SET ASIDE . ORDER PRONOUNCED IN THE OPEN COURT ON THIS 14 TH DAY OF NOVEMBER, 2012. SD/- SD/- (D. MANMOHAN) (D. KARUNA KARA RAO) VICE PRESIDENT ACCOUNTANT MEMBER DATE : 14.11.2012 AT :MUMBAI OKK COPY TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT (A), CONCERNED. 4. THE CIT CONCERNED. 5. THE DR B, BENCH, ITAT, MUMBAI. 6. GUARD FILE. // TRUE COPY// BY ORDER ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI