Assistant Commissioner of Income tax Central Circle-1(1), Bangalore V. M/s Himalaya Drug Company , Bangalore

ITA 820/BANG/2017

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 5319 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 9 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-01-2019
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: C
• Assessment Year: 2005-2006
• Appeal Filed On: 10-04-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: NEERA MALHOTRA BENGALURU
• Assessee Lawyers: P C KHINCHA
• Keywords: Gift; Business expenditure; Retrospective amendment; Additional evidence; Revenue expenditure
• Section: 143(3); 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : BANGALORE BEFORE SHRI N.V. VASUDEVAN, VICE PRESIDENT AND SHRI JASON P. BOAZ , ACCOUNTANT MEMBER I TA NO. 820/BANG/2017 ASSESSMENT YEAR : 2005 - 06 THE ASSISTANT COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE 1(1), BANGALORE. VS. M/S. HIMALAYA DRUG COMPANY, MAKALI, TUMKUR ROAD, BANGALORE 562 123. PAN: AADFT 3025B APP EL L ANT RESPONDENT ITA NO.802/BANG/2017 & CO NO.82/BANG/2017 [IN ITA NO.820/BANG/2017] ASSESSMENT YEAR : 2005 - 06 M/S. HIMALAYA DRUG COMPANY, MAKALI, TUMKUR ROAD, BANGALORE 562 123. PAN: AADFT 3025B VS. THE ASSISTANT COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE 1(1), BANGALORE. APPELLANT / CROSS OBJECTOR RESPONDENT RE VENUE BY : MS. NEERA MALHOTRA, CIT(DR)(ITAT), BENGALU RU. ASSESSEE BY : SHRI P.C. KHINCHA, CA DATE OF HEARING : 02 .01.2019 DATE OF PRONOUNCEMENT : 25 . 01 . 201 9 ITA NO.802 & 820/BANG/2017 & CO NO.82BANG/2017 PAGE 2 OF 28 O R D E R PER N V VASUDEVAN, VICE PRESIDENT THESE APPEALS IN ITA NO.802 & 820/BANG/2017 ARE C ROSS APPEALS FILED BY THE ASSESSEE AND REVENUE RESPECTIVELY AGAI NST THE ORDER DATED 31.01.2017 OF THE CIT(APPEALS)-11, BANGALORE RELATI NG TO ASSESSMENT YEAR 2005-06. 2. THE ASSESSEE HAS ALSO FILED CROSS OBJECTION IN CO NO.82/BANG/2017 AGAINST THE APPEAL OF THE REVENUE. THE GROUNDS RAISED IN THE CO ARE ONLY SUPPORTIVE OF THE ORDER OF THE CIT( APPEALS) AND THEREFORE DO NOT REQUIRE ANY SEPARATE ADJUDICATION. 3. WE SHALL FIRST TAKE UP FOR CONSIDERATION THE ASS ESSEES APPEAL IN ITA NO.802/BANG/2017 . THE GROUNDS OF APPEAL REQUIRED FOR ADJUDICATION IN THIS APPEAL ARE GROUNDS NO. 3 TO 6 AND 7 TO 11. 4. GROUND NOS. 3 TO 6 RAISED BY THE ASSESSEE READS AS FOLLOWS:- 3. THE APPELLANT DENIES ITSELF LIABLE TO BE ASSESS ED ON A TOTAL LOSS OF 45,52,13,325/- AS DETERMINED BY THE LEARNED ASSESSING OFFICER AND CONFIRMED BY THE LEARNED COMMISSIONER O F INCOME- TAX [APPEALS], AS AGAINST THE REPORTED LOSS BY THE APPELLANT OF 46,53,03,025/- ON THE FACTS AND CIRCUMSTANCES OF TH E CASE. 4. THE LEARNED COMMISSIONER OF INCOME-TAX [APPEALS] WAS NOT JUSTIFIED IN CONFIRMING THE DISALLOWANCES MADE BY THE LEARNED ASSESSING OFFICER, CLAIMED BY THE APPELLANT UNDER T HE FACTS AND CIRCUMSTANCES OF THE CASE. ITA NO.802 & 820/BANG/2017 & CO NO.82BANG/2017 PAGE 3 OF 28 REGARDING CONTRIBUTION TO EMPLOYEEE BENEFIT SCHEME: 5. THE OFFICERS BELOW HAVE ERRED IN HOLDING THAT TH E APPELLANT'S EMPLOYEE BENEFIT SCHEME IS NOT APPROVED BY THE COMMISSIONER OF INCOME TAX. 6. THE OFFICERS BELOW HAVE ERRED IN MAKING THE ADDI TION OF CONTRIBUTION TO THE EMPLOYEE BENEFIT SCHEME IN THE LIGHT OF DICTA, PROPOSITION, LAID DOWN BY THE HONOURABLE JURISDICTI ONAL TRIBUNAL ORDER IN APPELLANT'S OWN CASE FOR ASSESSMENT YEAR 1 998-99, WHICH AMOUNTED TO DENIAL OF LEGITIMATE BUSINESS EXP ENDITURE UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE. 5. THE ASSESSEE IS A PARTNERSHIP FIRM. IT IS ENGAG ED IN THE BUSINESS OF MANUFACTURE AND SALE OF AYURVEDIC MEDICAMENTS. IN THE COURSE OF ASSESSMENT PROCEEDINGS U/S. 143(3) OF THE INCOME-TA X ACT, 1961 [THE ACT], THE AO NOTICED THAT THE ASSESSEE HAD MADE A PAYMENT OF RS.89,700 TO GROUP GRATUITY INSURANCE SCHEME. THE AO IN THE ORDER OF ASSESSMENT HAS MADE A REFERENCE TO THE FACT THAT SIMILAR EXPEN DITURE WAS ADDED BACK IN THE HANDS OF THE ASSESSEE IN THE IMMEDIATELY PRE CEDING YEAR ON THE GROUND THAT THE SCHEME OR FUND TO WHICH THE ASSESSE E MADE PAYMENTS TOWARDS GROUP GRATUITY WAS NOT APPROVED BY THE CIT. THE AO ACCORDINGLY DISALLOWED THE CLAIM OF THE ASSESSEE FOR DEDUCTION OF THE AFORESAID SUM. 6. BEFORE THE FIRST APPELLATE AUTHORITY, VIZ., CIT( APPEALS), THE ASSESSEE SUBMITTED THAT IN THE ASSESSEES OWN CASE FOR THE A Y 1999-2000, 2002-03 TO 2004-05, IDENTICAL ISSUE WAS DECIDED IN FAVOUR O F THE ASSESSEE BY THE TRIBUNAL. THE AO, HOWEVER, SUBMITTED BEFORE THE CI T(APPEALS) THAT THE TRIBUNAL HAS UPHELD THE ADDITION MADE BY THE AO. T AKING COGNIZANCE OF THE REMAND REPORT OF THE AO, THE CIT(APPEALS) UPHEL D THE ADDITION MADE BY THE AO. ITA NO.802 & 820/BANG/2017 & CO NO.82BANG/2017 PAGE 4 OF 28 7. BEFORE US, THE LD. COUNSEL BROUGHT TO OUR NOTICE THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE AY 1998-99 IN ITA NO.816/BANG/2013, ORDER DATED 10.03.2006, WHEREIN T HE TRIBUNAL HELD AS FOLLOWS:- WE HAVE HEARD BOTH THE PARTIES. IT HAS-BEEN SUB MITTED BY THE LEARNED AUTHORISED REPRESENTATIVE THAT PREMIUM IS BEING PAID TO THE LIC UNDER GROUP GRATUITY SCHEME FOR THE LAST SO MANY YEARS. THE LEARNED AUTHORISED REPRESENTATIVE WAS N OT ABLE TO SHOW ANY EVIDENCE IN RESPECT OF APPLICATION MADE TO THE CIT FOR APPROVAL BUT IT WAS STATED THAT APPROVAL WAS OBTAIN ED AND IT HAS BEEN LOST. THE REVENUE HAS ALLOWED SUCH DEDUCTION TO THE ASSESSEE IN THE EARLIER YEARS. THE LEARNED JURISDI CTIONAL HIGH COURT IN THE CASE OF SRIDEV ENTERPRISES, 192 ITR 16 5 HELD THAT CONSISTENCY AND DEFINITENESS OF APPROACH BY THE REV ENUE IS NECESSARY IN THE MATTER OF RECOGNIZING THE NATURE O F AN AMOUNT MAINTAINED BY THE ASSESSEE SO THAT THE BASIS OF CON CLUDED ASST. WOULD NOT BE IGNORED WITHOUT ACTUALLY REOPENING THE ASST. THE LEARNED MADRAS HIGH COURT IN THE CASE OF CIT VS. TAXTOOL COMPANY LTD, 257 ITR 39 ALLOWED THE DEDUCTI ON IN RESPECT OF CONTRIBUTION DIRECTLY PAID TO LIC TOWARD S GROUP GRATUITY FUND. THE REAL INTENTION BEHIND ALLOWING THIS DEDUCTION IS TO ENSURE THAT EMPLOYEES GET GRATUITY AND THE FU NDS CONTRIBUTED FOR PAYMENT OF SUCH GRATUITY ARE NOT UTILIZED BY TH E ASSESSEE. SUCH CONTRIBUTIONS ARE TO BE HELD BY AN APPROVED GR ATUITY FUND UNDER THE IRRECOVERABLE TRUST. LIC OF INDIA SET-U P GROUP GRATUITY SCHEME FOR THE ASSESSEES SO THAT GRATUITY OF SUCH E MPLOYEES CAN BE PAID THROUGH SUCH SCHEME PROVIDED THE EMPLOYER P AYS PREMIUM UNDER SUCH SCHEME. HENCE, THE ASSESSING OF FICER IS DIRECTED TO ALLOW THE DEDUCTION OF PREMIUM PAID UND ER GROUP GRATUITY SCHEME IF IT IS ONLY FOR THE PAYMENT OF TH E GRATUITY TO THE EMPLOYEES AND THE ASSESSEE COMPANY HAS NO RIGHT TO RECEIVE ANY PART OF THE AMOUNT FROM THAT SCHEME FOR ANY PURPOSE OTHER THAN FOR PAYMENT OF GRATUITY. ITA NO.802 & 820/BANG/2017 & CO NO.82BANG/2017 PAGE 5 OF 28 8. SIMILARLY FOR THE 1999-2000 AND 2002-03 TO 2004 -05, THE TRIBUNAL IN ITA NO.409 TO 412/BANG/2007 BY ORDER DATED 28.03.20 08 ON AN IDENTICAL ISSUE HELD AS FOLLOWS:- 3. THE SECOND COMMON ISSUE IS WITH REGARD TO NON-A LLOWING OF CONTRIBUTION MADE TO THE EMPLOYEES GROUP GRATUI TY SCHEME. ON THIS ISSUE, AFTER CONSIDERING THE RIVAL SUBMISSI ONS, ALL THAT WE FEEL IS THAT THE ASSESSING OFFICER SHOULD EXAMINE T HE RECOGNITION GRANTED BY THE COMMISSIONER OF INCOME-TAX TO THE GR OUP GRATUITY SCHEME AND ON CONSIDERATION OF THE SAME AL LOW THE SAME OF THE ASSESSEE. 9. IN THE REMAND REPORT FILED BY THE ASSESSEE BEFOR E THE CIT(APPEALS), THE AO HAS ONLY BROUGHT TO THE NOTICE OF CIT(APPEAL S) THAT THE TRIBUNAL HAS ONLY REMANDED THE ISSUE TO THE AO FOR FRESH CONSIDE RATION AND THAT IN THE ORDER GIVING EFFECT PASSED BY THE AO, THE ADDITION HAS BEEN RETAINED. THE LD. COUNSEL ALSO BROUGHT TO OUR NOTICE THAT THE ASS ESSEE COMPANY WAS EARLIER OPERATING FROM UTTAR PRADESH AND THEREFORE COULD NOT PRODUCE THE ORIGINAL APPROVAL OF THE CIT ON THEIR TRANSFER OF B USINESS FROM UTTAR PRADESH TO BANGALORE. HE, HOWEVER, DREW OUR ATTENTION TO T HE COPY OF THE CERTIFICATE ISSUED BY THE LIC WHICH IS AT PAGE 313 & 314 OF THE ASSESSEES PB. WE ARE OF THE VIEW THAT IT WOULD BE JUST AND APPROPRIA TE TO SET ASIDE THE ORDER OF THE CIT(APPEALS) AND REMAND THE ISSUE OF ALLOWING T HE DEDUCTION FOR FRESH CONSIDERATION BY THE AO, AS WAS DONE IN THE ORDERS BY THE TRIBUNAL FOR THE AY 1998-99 & 1999-2000, 2002-03 TO 2004-05. WE HOL D AND DIRECT ACCORDINGLY. 10. GROUND NOS.7 TO 11 RAISED BY THE ASSESSEE READS AS FOLLOWS:- REGARDING DISALLOWANCE OF AMOUNT SPENT UNDER THE HEADING DOCTORS RELATIONSHIP EXPENSES: ITA NO.802 & 820/BANG/2017 & CO NO.82BANG/2017 PAGE 6 OF 28 7. THE LEARNED COMMISSIONER OF INCOME-TAX [APPEALS] WAS NOT JUSTIFIED IN DISALLOWING THE CLAIM OF BUSINESS EXPENDITURE INCURRED IN CONNECTION WITH THE DOCTORS' RELATION, BY PLACING RELIANCE ON THE CBDT CIRCULAR NO. 5/2012 DATED 01-0 8-2012 WHICH WAS NONEXISTENT ON STATUTE BOOKS DURING THE R ELEVANT ASSESSMENT YEAR 2005-06, PROSPECTIVE IN NATURE, HEN CE IMPOSSIBLE TO COMPLY UNDER THE DOCTRINE OF SUPERVENING IMPOSSI BILITY DURING THE ASSESSMENT YEAR IN QUESTION. THE LEARNED COMMISSIONER OF INCOME-TAX [APPEALS] WA S NOT JUSTIFIED IN DISALLOWING THE CLAIM OF BUSINESS EXPE NDITURE INCURRED IN CONNECTION WITH THE DOCTORS RELATION BY IMPORTING THE PROVISIONS AND PLACING RELIANCE ON THE INDIAN MEDIC AL COUNCIL (PROFESSIONAL CONDUCT, ETIQUETTE AND ETHICS) REGULA TIONS, 2002 WHICH WAS EFFECTIVE ONLY FROM 10-12-2009 AND WAS NO NEXISTENT IN STATUTE BOOKS OF THIS LAND DURING THE RELEVANT A SSESSMENT YEAR IN QUESTION, HENCE IMPOSSIBLE TO COMPLY. 8. THE COMMISSIONER OF INCOME TAX (APPEALS) ERRED I N LAW AND FAILED TO APPRECIATE THAT THE APPELLANT IS INTO MANUFACTURE OF AYURVEDIC MEDICAMENTS. ACCORDINGLY ITS PRODUCTS CAT ER ONLY TO AYURVEDIC DOCTORS. AYURVEDIC DOCTORS ARE NOT GOVERN ED BY THE INDIAN MEDICAL COUNCIL ACT, 1956. FURTHER CROSS PRE SCRIPTION OF THE MEDICINES IS NOT LEGALLY PERMISSIBLE IN INDIA. HENCE DISALLOWANCE OF EXPENDITURE UNDER RULES MADE UNDER THE MEDICAL COUNCIL ACT, 1956 IS CONTRADICTORY AS THE SAME IS N OT APPLICABLE TO THE APPELLANT. 9. WITHOUT PREJUDICE TO THE ABOVE, THE LEARNED CIT (A) HAS ERRED IN HOLDING THAT EACH OF THE ITEMS IS COSTLIER COSTING MORE THAN 1,000/-, WHILE, THE APPELLANT HAS PROVIDED THE DETAILS OF THE EXPENSES WHICH ARE COSTING LESS THAN 1,000/-PER ITE M. HENCE THE PROVISIONS OF THE INDIAN MEDICAL COUNCIL (PROFESSIO NAL CONDUCT, ETIQUETTE AND ETHICS) REGULATIONS, 2002 AS AMENDED FROM 10-12- 2009 ARE NOT VIOLATED. ACCORDINGLY THERE IS NO VIOL ATION OF CBDT CIRCULAR CLAUSE NO. 3, HENCE ADDITION NEEDS TO BE D ELETED TO THE EXTENT. ITA NO.802 & 820/BANG/2017 & CO NO.82BANG/2017 PAGE 7 OF 28 10. THE LEARNED AUTHORITIES BELOW FAILED TO APPRECI ATE THAT APPELLANT IS NOT BOUND BY THE CBDT CIRCULAR UNDER S ECTION 119 OF THE ACT. 11. THE LEARNED AUTHORITIES BELOW FAILED TO APPRECI ATE THE FACT THAT ITEMS GIVEN BY THE APPELLANT CANNOT BE CONSIDE RED AS GIFT AS APPELLANT'S LOGO WAS EMBOSSED ON THESE ITEMS, THOUG H IT WAS PRINCIPALLY AGREED THAT THE SAID EXPENDITURE WAS IN CURRED IN CONNECTION WITH THE SALES PROMOTION OF ITS BUSINESS AND MAJORITY OF THE EXPENSES PERTAIN TO THE PRINTED MATERIALS. 11. AS FAR AS THESE GROUNDS ARE CONCERNED, THE QUES TION TO BE DECIDED IS AS TO WHETHER THE REVENUE AUTHORITIES WERE JUSTI FIED IN NOT ALLOWING DEDUCTION OF A SUM OF RS.1 CRORE OUT OF THE SUM OF RS.1,11,46,943 CLAIMED AS DEDUCTION BY THE ASSESSEE UNDER THE HEAD DOCTOR S RELATIONS EXPENDITURE. WHILE EXAMINING THE CLAIM OF ASSESSE E FOR DEDUCTION, THE AO NOTICED THAT IN THE IMMEDIATELY PRECEDING YEAR, THE EXPENDITURE UNDER THIS HEAD WAS ONLY A SUM OF RS.4,47,176. THE ASSESSEES EXPLANATION BEFORE THE AO WAS THAT IT INCURRED THE EXPENDITURE IN QUES TION FOR IMPROVING THE KNOWLEDGE OF DOCTORS ON AYURVEDIC PRODUCTS AND IMPR ESS UPON THEM TO PRESCRIBE AYURVEDIC DRUGS. THE BREAK-UP OF EXPENDI TURE CLAIMED AS EXPENDITURE BY THE ASSESSEE WAS AS FOLLOWS:- DESCRIPTION OF ARTICLES GIVEN TO THE DOCTORS AMOUNT IN RS. PRINTING MATERIALS 84,27,576.50 COURIER CHARGES 14,21,371.00 REFRIGERATORS 66,447.00 JEWELRY 67,907.00 LUCKY STONES 8,64,302.00 FURNITURE 10,300 VCD PLAYERS 33,800.00 ITA NO.802 & 820/BANG/2017 & CO NO.82BANG/2017 PAGE 8 OF 28 SUITS QTY 3 NUMBERS 15,900.00 COMPUTERS 56,900.00 TV 1,32,860.00 MICRO OVEN 27,580.00 HOSPITAL BED 21,989.00 TOTAL 1,11,46,942.50 12. ON SCRUTINY OF THE AFORESAID DETAILS, THE AO WA S OF THE VIEW THAT THE EXPENDITURE INCURRED BY THE ASSESSEE INCLUDED EXPEN DITURE ON GIVING TV, REFRIGERATORS, MICROWAVE OVEN AND PERSONAL COMPUTER S TO VARIOUS DOCTORS. SUCH KIND OF GIFTS, ACCORDING TO THE AO, CANNOT BE CONSIDERED AS HAVING ANY NEXUS WITH THE PURPOSE OF INCURRING THE EXPENDITURE AND LAWFUL EXPENDITURE. THE AO WAS ALSO OF THE VIEW THAT THE TURNOVER OF THE ASSESSEE HAD DECREASED DESPITE INCURRING OF THE AFO RESAID EXPENDITURE. CONSIDERING ALL THESE ASPECTS, THE AO WAS OF THE VI EW THAT A SUM OF RS.1 CRORE OUT OF THE EXPENSES CLAIMED BY THE ASSESSEE S HOULD BE DISALLOWED AND ADDED A SUM OF RS.1 CRORE TO THE TOTAL INCOME O F THE ASSESSEE. ACCORDINGLY, RS. 1 CRORE WAS ADDED TO THE INCOME OF THE ASSESSEE. 13. ON APPEAL BY THE ASSESSEE, THE CIT(APPEALS) CON FIRMED THE ORDER OF AO BY PLACING RELIANCE ON CBDT CIRCULAR NO.5/2012 D ATED 18.01.2012. IN THE AFORESAID CIRCULAR, THE CBDT HAS TAKEN NOTE OF THE FACT THAT PHARMACEUTICAL AND ALLIED HEALTH SECTOR INDUSTRIES WERE ALSO PROVIDING FREEBIES TO MEDICAL PRACTITIONERS AND DOING SO WAS IN VIOLATION OF THE INDIAN MEDICAL COUNCIL (PROFESSIONAL CONDUCT, ETIQUETTE AN D ETHICS) REGULATIONS, 2002, WHICH WERE ISSUED ON 10.12.2009 IMPOSING A PR OHIBITION ON MEDICAL PRACTITIONERS FROM TAKING GIFTS, TRAVEL FACILITIES ETC. THE CBDT HAS ALSO OPINED THAT SUCH EXPENSES WOULD BE CONSIDERED AS UN LAWFUL EXPENSES ITA NO.802 & 820/BANG/2017 & CO NO.82BANG/2017 PAGE 9 OF 28 PROHIBITED BY LAW WITHIN THE MEANING OF EXPLANATION TO SECTION 37(1) OF THE ACT. FOLLOWING THE AFORESAID CIRCULAR, THE CIT(AP PEALS) UPHELD THE ORDER OF THE AO. AGGRIEVED BY THE ORDER OF CIT(APPEALS), TH E ASSESSEE HAS RAISED GROUND NO.7 TO 11 BEFORE THE TRIBUNAL. 14. THE FIRST AND FOREMOST SUBMISSION OF THE LD. CO UNSEL FOR THE ASSESSEE BEFORE THE TRIBUNAL WAS THAT IMC REGULATIO NS REFERRED TO BY THE CBDT IN ITS CIRCULAR NO.5/2012 CAME INTO EFFECT ONL Y FROM 10.12.2009; WHEREAS THE ASSESSMENT YEAR IN THE PRESENT APPEAL R ELATES TO AY 2005-06 AND NO SUCH RESTRICTIONS EXISTED IN AY 2005-06. TH E SECOND SUBMISSION WAS THAT THE PROVISIONS OF IMC REGULATIONS ARE NOT APPLICABLE TO AYURVEDIC MEDICAL PRACTITIONERS AND THEY ARE GOVERNED BY INDI AN MEDICINE CENTRAL COUNCIL ACT, 1970. THEREFORE, NEITHER THE CBDT CIR CULAR NOR THE IMC REGULATIONS WILL BE APPLICABLE TO AYURVEDIC DOCTORS . IT WAS SUBMITTED THAT THE ASSESSEE IS A MANUFACTURER OF AYURVEDIC DRUGS A ND THE EXPENSES IN QUESTION WERE INCURRED FOR THE PURPOSE OF PROVIDING MATERIAL TO AYURVEDIC DOCTORS. THE THIRD SUBMISSION THAT THE ITAT CHENNA I IN THE CASE OF CITADEL FINE PHARMACEUTICALS (P.) LTD. V. ACIT [2018] 92 TA XMANN.COM 79 (CHENNAI TRIB.) TOOK THE VIEW CBDT CIRCULAR 5/2012 IN F.NO. 225/142/2012-ITA.II ISSUED ON 1.8.2012 PURSUANT TO MCI REGULATIONS DATED 10.12.2009, IS APPLICABLE ONLY FROM ASST YEAR 2013-14 ONLY. 15. THE LD. DR, ON THE OTHER HAND, FILED BEFORE US A COPY OF THE DECISION OF THE HONBLE PUNJAB & HARYANA HIGH COURT IN THE C ASE OF CIT V. KAP SCAN AND DIAGNOSTIC CENTRE (P.) LTD., 344 ITR 476 (P&H) . IN THE AFORESAID DECISION, THE QUESTION BEFORE THE COURT WAS IN RELA TION TO AY 1997-98, WHICH WAS PRIOR TO COMING INTO FORCE OF THE IMC REGULATIO NS. IN THAT CASE, THE EXPENDITURE CLAIMED WAS ON ACCOUNT OF COMMISSION PA ID TO DOCTORS WHO REFERRED PATIENTS TO THE ASSESSEE FOR VARIOUS DIAGN OSTIC TESTS WHICH WAS ITA NO.802 & 820/BANG/2017 & CO NO.82BANG/2017 PAGE 10 OF 28 DISALLOWED BY THE REVENUE AUTHORITIES. THE HONBL E HIGH COURT WHILE DECIDING THE QUESTION WHETHER THE PRACTICE OF GIVIN G COMMISSION WAS AN ILLEGAL PAYMENT HIT BY EXPLANATION TO SECTION 37(1) OF THE ACT, HELD THAT THE PAYMENTS WERE OPPOSED TO PUBLIC POLICY AND FORBIDDE N BY LAW AND THEREFORE HIT BY SECTION 23 OF THE CONTRACT ACT, 18 87. THE COURT ALSO APPLIED IMC REGULATIONS AND ULTIMATELY CAME TO THE CONCLUSION THAT SUCH EXPENDITURE CANNOT BE REGARDED AS BUSINESS EXPENDIT URE. 16. THE LD. DR DREW OUR ATTENTION TO THE LIST OF IT EMS THAT WERE INCURRED AS EXPENDITURE UNDER THE HEAD DOCTORS RELATIONS EX PENSES AND SUBMITTED THAT THESE WERE CLEARLY IN THE NATURE OF GIFTS, THO UGH UNDER A DIFFERENT NOMENCLATURE. 17. IN THE REJOINDER, THE LD. COUNSEL FOR THE ASSES SEE PLACED RELIANCE ON THE DECISION OF THE MUMBAI TRIBUNAL IN THE CASE OF DCIT V. PHL PHARMA (P.) LTD. [2017] 78 TAXMANN.COM 36 (MUMBAI TRIB.) . IN THE AFORESAID DECISION, THE MUMBAI BENCH OF THE TRIBUNAL WAS CONS IDERING THE IMC REGULATIONS AND THE DECISION OF THE HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF KAP SCAN AND DIAGNOSTIC CENTRE (P.) LTD. (SUPRA) IN THE CONTEXT OF ALLOWABILITY OF EXPENSES OF GIFT ARTICLE S AND COST OF FREE SAMPLES TO DOCTORS BY A PHARMA COMPANY. THE APPLICABILITY OF EXPLANATION (1) TO SECTION 37(1) WAS ALSO CONSIDERED IN THE AFORESAID DECISION AND THE TRIBUNAL ULTIMATELY CAME TO THE CONCLUSION THAT SUC H EXPENSES WERE PROMOTIONAL MATERIAL DISTRIBUTED TO DOCTORS FOR BRA ND RECOGNITION AND NOT FOR THE PURPOSE OF GRANTING GIFT OR ANY OTHER FORM OF I NDUCEMENT TO DOCTORS. 18. WE HAVE GIVEN A CAREFUL CONSIDERATION TO THE RI VAL SUBMISSIONS. IN THE CASE OF PHL PHARMA PVT. LTD. (SUPRA) , THE QUESTION BEFORE THE TRIBUNAL WAS ALLOWABILITY OF EXPENDITURE UNDER THE HEAD CUS TOMER RELATIONSHIP ITA NO.802 & 820/BANG/2017 & CO NO.82BANG/2017 PAGE 11 OF 28 MANAGEMENT, WHICH INCLUDED EXPENSE FOR ARRANGING N ATIONAL LEVEL SEMINAR AND DISCUSSION PANELS OF EMINENT DOCTORS. IT ALSO INCLUDED GIFT ARTICLES AND FREE SAMPLES OF MEDICINES. THE GIFT A RTICLES INCLUDED VARIOUS KINDS OF ARTICLES LIKE DIARIES, PEN SETS, CALENDARS , PAPER WEIGHTS, INJECTION BOXES ETC. EMBOSSED WITH BOLD LOGO OF ITS BRAND NAM E. THE TRIBUNAL AFTER ANALYZING THE ENTIRE ASPECTS OF THE CASE, HELD THAT MCI REGULATION WHICH IS STRICTLY MEANT FOR MEDICAL PRACTITIONERS AND DOCTOR S CANNOT BE MADE APPLICABLE TO PHARMACEUTICAL COMPANIES. THE ENTIRE CONDUCT RELATES TO DOCTORS AND MEDICAL PRACTITIONERS AND LISTS OUT THE CENSURES AND FINES IMPOSED UPON THEM. THE TRIBUNAL HELD THAT WHAT HAS NOT BEEN PROVIDED IN THE MCI REGULATION CANNOT BE SUPPLIED EITHER BY THE COURT OR BY THE CBDT. THERE HAS TO BE EXPRESS PROVISION UNDER THE LAW WHE REBY PHARMACEUTICAL COMPANIES ARE PROHIBITED TO CONDUCT CONFERENCES OR SEMINAR OR GIVE FREE SAMPLES. THE TRIBUNAL (IN PARAGRAPH-12 OF ITS ORDE R) MADE THE FOLLOWING OBSERVATIONS ON THE APPLICABILITY OF THE DECISION R ENDERED IN THE CASE OF KAP SCAN (SUPRA) ANOTHER STRONG REFERENCE HAS BEEN MADE TO THE DECI SION OF HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS. KAP SCAN AND DIAGNOSTIC CENTRE (P.) LTD. [2012] 25 TAXMANN.COM 9 2 , WHEREIN COMMISSION WAS PAID TO THE PRIVATE DOCTORS FOR REFE RRING THE PATIENTS FOR DIAGNOSIS TO THE ASSESSEE COMPANY. IN BACKGROUN D OF THESE FACTS AND ISSUES INVOLVED, THE HON'BLE HIGH COURT HELD TH AT SAID PAYMENT OF COMMISSION IS WRONG AND IS OPPOSED TO BE A PUBLI C POLICY. IT SHOULD BE DISCOURAGED AS IT IS NOT A FAIR PRACTICE. THE RATIO OF SAID DECISION CANNOT BE APPLIED ON THE FACTS OF THE PRES ENT CASE BECAUSE THERE IS NO VIOLATION OF ANY LAW OR ANYTHING WHICH IS OPPOSED TO PUBLIC POLICY. SIMILARLY, THERE IS REFERENCE TO TH E DECISION OF HON'BLE SUPREME COURT IN THE CASE OF ESKAYEF (NOW KNOWN AS SMITHKLINE BEECHAM) PHARMACEUTICALS (INDIA) LIMITED V. CIT (20 00) 111 TAXMAN 561(SC) , WHICH WAS GIVEN IN CONTEXT OF SECTION 37(3A) OF THE ACT. IN THE SAID CASE THE ASSESSEE HAD CLAIMED EXPENDITURE ON DISTRIBUTION OF PHYSICIAN'S SAMPLES U/S. 37. IN THE BACKGROUND OF SUCH CLAIM THE HON'BLE APEX COURT HELD THAT, IF THE EXPENDITURE FALLS ITA NO.802 & 820/BANG/2017 & CO NO.82BANG/2017 PAGE 12 OF 28 WITHIN THE BARE MINIMUM IT WILL NOT BE CAUGHT BY SU BSECTION (3A) OF SECTION 37. ON THE CONTRARY, THE HON'BLE APEX COURT OBSERVED THAT PHYSICIANS SAMPLES ARE NECESSARY TO ASCERTAIN THE E FFICACY OF MEDICINE AND INTRODUCE IT IN THE MARKET FOR CIRCULA TION AND IT IS ONLY BY THIS METHOD THE PURPOSE IS ACHIEVED. IN SUCH CAS ES GIVING A PHYSICIAN SAMPLES FOR REASONABLE PERIOD IS ESSENTIA L TO THE BUSINESS OF MANUFACTURE AND SALE OF MEDICINE. IT IS ONLY IF A PARTICULAR MEDICINE HAS BEEN INTRODUCED BY THE MARKET AND ITS USES ARE ESTABLISHED THEN GIVING OF FREE SAMPLES COULD ONLY BE THE MEASURE OF SALE/ PROMOTION AND DEVELOPMENT WOULD THUS BE HIT B Y SUBSECTION (3A). SAID DECISION NO WAY PROHIBITS THE NATURE OF EXPENDITURE WHICH HAS BEEN INCURRED IN THE CASE OF THE ASSESSEE. THER EFORE, SUCH A REFERENCE TO A HON'BLE APEX COURT DECISION IS NOT G ERMANE TO THE ISSUE INVOLVED. THUS, IN OUR OPINION, THE AFORESAID DECISION OF THIS TRIBUNAL IS CLEARLY DISTINGUISHABLE AND CANNOT BE H ELD TO BE APPLICABLE AND ALSO WE HAVE ALREADY GIVEN OUR INDEP ENDENT FINDING AS TO ALLOWABILITY OF EXPENSES IN THE HANDS OF THE ASSESSEE AS BUSINESS EXPENDITURE. 19. IT CAN BE SEEN FROM THE AFORESAID DECISION REND ERED BY THE MUMBAI BENCH OF THE ITAT THAT THE DECISION OF THE HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF KAP SCAN AND DIAGNOSTIC CENTRE (P.) LTD. (SUPRA) WAS DISTINGUISHED AS A CASE, WHERE COMMISSION WAS PAID TO DOCTORS FOR REFERRING THE PATIENTS FOR DIAGNOSIS TESTS AND SUCH CASE WILL STAND ON A DIFFERENT FOOTING TO A CASE WHERE PROMOTIONAL MATER IAL ARE TO BE GIVEN TO MEDICAL PRACTITIONERS. 20. AS FAR AS APPLICABILITY OF MCI REGULATIONS ARE CONCERNED, IT HAS BEEN HELD BY THE HONBLE HIMACHAL PRADESH HIGH COURT IN THE CASE OF CONFEDERATION OF INDIAN PHARMACEUTICAL INDUSTRY (SS I) V. CBDT, 353 ITR 388 (HIMACHAL PRADESH) THAT MCI REGULATIONS ARE APPLICABLE ONLY TO MEDICAL PRACTITIONERS AND NOT TO PHARMACEUTICAL IND USTRIES AND ALLIED HEALTHCARE INDUSTRIES AND THAT THE CBDT CIRCULAR CA NNOT BE GIVEN RETROSPECTIVE EFFECT. THIS WAS ALSO NOTICED BY TH E TRIBUNAL IN THE CASE OF PHL PHARMA (P.) LTD.(SUPRA) . ITA NO.802 & 820/BANG/2017 & CO NO.82BANG/2017 PAGE 13 OF 28 21. AS FAR AS THE APPLICABILITY OF EXPLANATION TO S ECTION 37(1) OF THE ACT IS CONCERNED, WE ARE OF THE VIEW THAT THE NATURE OF EX PENSES INCURRED AND ITS RELATION WITH THE BUSINESS OF THE ASSESSEE NEEDS TO BE LOOKED INTO. WE HAVE ALREADY GIVEN A BREAK-UP OF SUM OF RS.2,11,46, 942 CLAIMED AS DEDUCTION BY THE ASSESSEE UNDER THE HEAD DOCTORS R ELATIONSHIP MANAGEMENT EXPENSES. THE EXPENSES OF PRINTING MAT ERIAL LIKE PRESCRIPTION PADS, ANNUAL DIARY, POSTER COSTS, ETC. CAN BE CONSIDERED AS PROMOTIONAL IN NATURE. SO ALSO, THE COURIER CHARGE S. SIMILARLY, MICROWAVE OVEN, REFRIGERATORS AND HOSPITAL BED, ASSUMING THEY WERE USED IN CLINICS OF THE DOCTORS CAN BE REGARDED AS PROMOTIONAL MATER IAL. REGARDING OTHER EXPENSES LIKE JEWELLERY, FURNITURE, VCD PLAYERS, SU ITS, COMPUTERS AND TV, THE SAME CANNOT BE REGARDED AS HAVING ANY PROMOTION AL VALUE. THEY ARE CLEARLY IN THE NATURE OF GIFTS. TO THE AFORESAID EXTENT, WE ARE OF THE VIEW THAT THE DISALLOWANCE OF EXPENSES IS JUSTIFIED. WE HOLD AND DIRECT ACCORDINGLY. THUS, GROUND NOS. 7 TO 11 ARE PARTLY ALLOWED. 22. IN THE RESULT, THE APPEAL BY THE ASSESSEE IS PA RTLY ALLOWED. ITA NO.820/BANG/2017 23. GROUND NOS. 1 TO 6 RAISED BY THE REVENUE READS AS FOLLOWS:- 1. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE C ASE, THE LD.CIT(A) ERRED IN DELETING THE ENTIRE ADDITION OF RS 2,45,79,931/- ON THE HIMALAYA STORES SHOP-IN-SHOP E XPENSES, HOLDING THAT THE ADDITION IN THE ASSESSMENT ORDER O N THESE EXPENSES WAS MADE ON AN AD-HOC BASIS BY ONLY COMPAR ING THE EXPENSES IN THE PREVIOUS YEAR? 2. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CA SE, THE LD.CIT(A) ERRED IN DELETING THE ADDITION OF RS 2,45 ,79,931/ - ON THE HIMALAYA STORES SHOP-IN-SHOP EXPENSES, HOLDING THAT THE AO IN THE REMAND REPORT HAS CONFIRMED THAT THE APPELLA NT HAS FILED ITA NO.802 & 820/BANG/2017 & CO NO.82BANG/2017 PAGE 14 OF 28 COPIES OF THE AGREEMENTS AND DETAILS OF THE EXPENSE S, WHEN NO SUCH OBSERVATION WAS MADE IN THE REMAND REPORT? 3. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CA SE, THE LD.CIT(A) ERRED IN DELETING THE ADDITION OF RS 2,45 ,79,931/ - ON THE HIMALAYA STORES SHOP-IN-SHOP EXPENSES, HOLDING THAT THE EXPENSES ARE REVENUE EXPENSES RESULTING IN INCREASE IN TURNOVER FOR SUBSEQUENT YEARS, WHEN THE EXPENSES ARE NOT ENT IRELY REVENUE IN NATURE? 4. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CA SE, THE LD.CIT(A) ERRED IN DELETING THE ADDITION OF RS.1,58 ,51,269/- ON FRANCHISEE EXPENSES CREDIT NOTES, MERELY ON THE PRE MISE THAT THERE IS GOOD GROWTH IN THE SUBSEQUENT YEARS? 5. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CA SE, THE LD.CIT(A) ERRED IN DELETING THE ADDITION OF RS.1,58 ,51,269/- ON FRANCHISEE EXPENSES CREDIT NOTES, AFTER EXAMINING T HE COPIES OF THE FRANCHISEE STORES AGREEMENTS AND THE DETAILS OF THESE EXPENSES, WITHOUT GIVING THE AO AN OPPORTUNITY TO E XAMINE THESE DOCUMENTS WHICH ARE IN THE NATURE OF ADDITIONAL EVI DENCE. 6. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CA SE, THE LD.CIT(A) FAILED TO APPRECIATE THAT THE EXPENSES ON HIMALAYA STORES SHOP-IN-SHOP EXPENSES AND FRANCHISEE EXPENSE S CREDIT NOTES, ARE NOT REVENUE EXPENDITURE RELATING TO THE ASSESSEE'S BUSINESS FOR THE CURRENT YEAR. 24. GROUND NOS.1 TO 3 RAISED BY THE REVENUE RELATES TO THE DELETION OF ADDITION OF RS.2,45,79,931 UNDER THE HEAD HIMALAYA STORES SHOP-IN-SHOP EXPENSES, WHILE GROUND NOS. 4 & 5 RELATES TO THE D ELETION OF ADDITION OF RS.1,58,51,269 UNDER THE HEAD FRANCHISEE EXPENSES C REDIT NOTES BY THE CIT(APPEALS). GROUND NO.6 IS COMMON FOR BOTH THE A FORESAID ADDITION. 25. THE FACTS WITH REGARD TO ADDITION ON ACCOUNT OF HIMALAYA STORES SHOP-IN-SHOP EXPENSES ARE AS FOLLOWS. THE ASSESSEE HAD CLAIMED A SUM OF RS.8,77,14,144 AS DEDUCTIBLE EXPENSES UNDER THE HEAD HIMALAYA STORE ITA NO.802 & 820/BANG/2017 & CO NO.82BANG/2017 PAGE 15 OF 28 EXPENSES. A SUM OF RS.2,57,79,931 UNDER THE HEAD S HOP-IN-SHOP EXPENSES AND A SUM OF RS.1,58,51,269/- UNDER THE H EAD FRANCHISE EXPENSES WAS PART OF THE EXPENSES CLAIMED UNDER THE HEAD HIMALAYA STORE EXPENSES. THE AO CALLED UPON THE ASSESSEE TO FURNISH THE DETAILS OF HIMALAYA STORE EXPENSES AND BREAK-UP WAS GIVEN BY T HE ASSESSEE FOR THE AY 2004-05 & 2005-06 AS FOLLOWS:- S. NO ITEM F.Y.2004-05 F.Y.2003-04 1 SHOP-IN-SHOP EXPENSES 2,57,79,931 12,08,393 2 FRANCHISE EXPENSES CREDIT NOTES 1,58,51,269 0 3 FRANCHISE EXPENSES 1,15,72,060 1,79,26,010 4 EXHIBITION STALL 18,38,689 5,91,809 5 PROMOTIONAL AIDS 27,45,650 1,01,890 6 RENT 62,01,088 29,82,148 7 SPECIAL ALLOWANCE 13,00,668 2,81,030 TOTAL 8,77,14,144 3,78,85,979 26. THE ASSESSEE FURTHER EXPLAINED THE NATURE OF SHOP-IN-SHOP EXPENSES OF RS.2,57, 79,931/- AS EXPENSES WHICH ARE REIMBURSEMENT OF THE EXPENSES TOWARDS 800 RETAIL OUTLET SHOPS ACROSS INDIA. THE ASSESSEE CLAIMED THAT IT ENTERED INTO SHOP-IN-SHOP ARRANGEME NT WITH VARIOUS RETAIL OUTLETS FOR PROMOTION OF PRODUCTS OF THE COMPANY WH EREBY THE OUTLET WOULD BE PROVIDED IN THE FORM OF A SHELL WHICH ALSO WOULD PROMOTE THE PRODUCTS OF THE ASSESSEE. THE ASSESSEE WOULD ENGAGE ITS OWN SAL ES GIRLS TO PROMOTE THE PRODUCTS. SUCH SALES GIRLS, WHEN A CUSTOMER WA LKS INTO THE SHOP, WOULD TAKE THEM TO ASSESSEES ENCLOSURE AND EDUCATE THE CUSTOMER ABOUT ITA NO.802 & 820/BANG/2017 & CO NO.82BANG/2017 PAGE 16 OF 28 ASSESSEES PRODUCTS AND INDUCE THEM TO PURCHASE THE PRODUCTS. THE EXPENSES INCURRED TOWARDS THE SALARY OF THE SALES G IRLS AND OTHER INCIDENTAL EXPENSES WOULD BE REIMBURSED TO THE RETAIL OUTLETS. 27. THE AO FIRSTLY NOTICED THAT EXPENDITURE UNDER T HE HEAD CLAIMED IN THE IMMEDIATELY PRECEDING YEAR WAS ONLY RS.12,08,39 3 AND THERE WAS AN INCREASE OF 200 TIMES OF EXPENSES UNDER THIS HEAD. HE ALSO OBSERVED THAT BY INCURRING THESE EXPENSES, THERE WAS NO DRASTIC I NCREASE IN THE TURNOVER. THE AO ALSO NOTICED THAT THE PURPOSE FOR WHICH THE EXPENSES WERE INCURRED WERE NOT MADE CLEAR. HE ALSO WAS OF THE VIEW THAT GOING BY THE NATURE OF CERTAIN EXPENSES, IT WAS DOUBTFUL AS TO WHETHER THE Y WERE REALLY INCURRED FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE. FOR ALL T HE ABOVE REASONS, THE AO RESTRICTED THE EXPENSES UNDER THIS HEAD TO RS.12 LAKHS AND DISALLOWED THE REMAINING SUM OF RS.2,45,79,931. 28. AS FAR AS FRANCHISEE EXPENSES ARE CONCERNED WHI CH ARE SUBJECT MATTER OF GROUNDS NO.4 & 5 BY THE REVENUE, THE AO D ISALLOWED A SUM OF RS.1,58,51,269. THE NATURE OF FRANCHISE EXPENSE WA S EXPLAINED BY THE ASSESSEE AS REIMBURSEMENT OF DAY TO DAY OPERATIONAL EXPENSES AT FRANCHISE STORES. IT WAS EXPLAINED THAT THE ASSESSE E ASSURES THE FRANCHISEE THAT IN CASE HIS SALES FALLS SHORT OF THE MINIMUM R ETURN, THE ASSESSEE WOULD REIMBURSE HIM VARIOUS COST. SUCH EXPENSES ARE CLASS IFIED AS FRANCHISE EXPENSES. THE AO DISALLOWED THE CLAIM FOR DEDUCTIO N, FOR THE FOLLOWING REASONS: 9.11 I HAVE GONE THROUGH THE ASSESSEE'S EXPLANAT ION AND FIND IT UNTENABLE. IT IS IMPORTANT TO CONSIDER OVER HERE TH AT NO SUCH EXPENDITURE WAS INCURRED IN THE IMMEDIATELY PRECEDI NG YEAR. IT IS FURTHER IMPORTANT TO MENTION OVER THAT ASSESSEE IS SEPARATELY CLAIMING AN EXPENDITURE OF RS. 1,15,72,060 AS FRANC HISEE EXPENSES. ACCORDINGLY IT IS NOT CLEAR AS TO WHAT IS THE NEED OF ITA NO.802 & 820/BANG/2017 & CO NO.82BANG/2017 PAGE 17 OF 28 INCURRING FURTHER EXPENDITURE OF RS. 1,58,51,268/-I N THE FORM OF FRANCHISEE CREDIT NOTES. FURTHER, SUCH EXPENDITURE HAS NOT RESULTED INTO ANY INCREASE IN THE TURNOVER AND ON THE CONTRA RY THE TURNOVER HAS FALLEN. CONSIDERING THE FACTS OF THE CASE, I HO LD THE ENTIRE EXPENDITURE OF RS. 1,58,51,268/- IS TOTALLY SUPERFL UOUS, UNNECESSARY AND UNJUSTIFIED. ACCORDINGLY, I DISALLO W THE TOTAL AMOUNT OF RS. 1,58,51,268 AND ADD BACK THE SAME IN THE HANDS OF THE ASSESSEE. (ADDITION: RS.1,58,51,268/-) 29. BEFORE THE CIT(APPEALS), A REMAND REPORT WAS OB TAINED FROM THE AO BECAUSE THE ASSESSEE FILED FRESH EVIDENCE AND MADE SUBMISSIONS WITH REGARD TO DISALLOWANCE OF SHOP-IN-SHOP EXPENSES. T HE EVIDENCE FILED BY THE ASSESSEE BEFORE THE CIT(APPEALS) WERE AS FOLLOW S:- SI. NO. SUBMISS ION MADE TO DOCUMENTS FURNISHED DATE PAGE NO 1. LD. AO LEDGER EXTRACT TRANSACTION WISE DETAILS 17.09.2017 27 2. LD. AO DETAILS OF REIMBURSEMENT & INCIDENTAL EXPENSES INCURRED ON SHOP-IN SHOP EXPENSES 17.09.2017 30 3. LD. AO PHOTOGRAPHS OF TYPICAL SHOP IN SHOP C ONCEPT 12.11.2007 2 4. LD. CIT(A) LEDGER EXTRACT- TRANSACTION WISE DETAILS, COPY OF BILLS OF ALL EXPENSES ABOVE 50,000/- 03.08.2011 10 5. LD. CIT(A) COPY OF INVOICES WHICH ARE IN ROUND FIGURES FOR OBSERVATION OF LD. AO IN PARA NO. 9.7 OF ORDER IN ANNEXURE 2 OF THE SUBMISSION 03.08.2011 10 6. LD. CIT(A) SAMPLE COPY OF CLAIMS MADE, BILLS IN ANN - 2. 29.06.2015 3 ITA NO.802 & 820/BANG/2017 & CO NO.82BANG/2017 PAGE 18 OF 28 7. LD. CIT(A) ANALYSIS OF BUSINESS PERFORMANCE FROM FY 2002- 03 TO 2015-16, CONTAINING TURNOVER, GP, NP IN ANN 2 20.06.2016 2 8. LD. CIT(A) TURNOVER DETAILS 2003 - 04 TO 2012 - 13 22.11.2016 8 9. LD. CIT(A) SUBMISSION AS TO WHY NO REJOINDER ON SHOP IN SHOP WAS NOT FILED. 22.11.2016 14 THESE DOCUMENTS ARE AVAILABLE AT PAGE NOS. 1 TO 177 OF PB-3 FILED BY THE ASSESSEE BEFORE THE TRIBUNAL. 30. THE AO IN HIS REMAND REPORT HAD GIVEN THE FOLLO WING SUBMISSIONS OF SHOP-IN-SHOP EXPENSES:- II) THE ASSESSEE HAS EXPLAINED THAT IT EXPANDED I TS BUSINESS ACTIVITIES BY FRANCHISEE STORES, SHOP-IN SHOP ARRAN GEMENT AND EXCLUSIVE STORES TO DISTRIBUTE ITS PRODUCTS. THE AS SESSEE HAS STATED THAT THIS EXPANSION ACTIVITY COMMENCED DURING F.Y 2 003-04 AND AT PRESENT MORE THAN 90 EXCLUSIVE STORES AND 800 SH OP-IN SHOPS EXIST ACROSS INDIA. THEREFORE, CONSIDERABLE AMOUNT OF EXPENDITURE WOULD HAVE BEEN INCURRED IN THE INITIAL YEARS OF EX PANSION THOUGH WITHOUT IMMEDIATE EFFECT ON TURNOVER I.E., IN 1-2 Y EARS. THE EFFECTS ON INCREASE IN TURNOVER WOULD BE SEEN ONLY IN LONG TERM PERSPECTIVE. AS REGARDS FRANCHISEE CREDIT NOTES, TH E ASSESSEE'S EXPLANATION IS THAT DAY TO DAY EXPENSES AND REIMBUR SEMENT TO THE OWNER IF A MINIMAL RETURN IS NOT ACHIEVED BY SALES, GIVES RISE TO THESE EXPENSES. THE DISALLOWANCE IN THE ASSESSMENT ORDER IS BASED ON THE FACT THAT SUCH EXPENDITURE IS NOT INCU RRED IN THE PREVIOUS YEAR AND HAS NOT RESULTED IN INCREASE IN T URNOVER. THE FACT THAT THE PAYMENT HAS BEEN MADE TO THE FRANCHIS EES, OWNERS OF SHOP-IN-SHOP/OWNERS OF THE PREMISES WHERE EXCLUSIVE SHOPS HAVE BEEN STARTED HAS NOT BEEN DOUBTED, ONLY THAT THE EX ACT NATURE OF THE REIMBURSEMENT OF EXPENSES HAVE NOT BEEN SPELT O UT. HOWEVER, AGREEMENTS WITH THE FRANCHISEE'S, OWNERS OF EXCLUSI VE STORES AND OWNERS OF SHOP-IN SHOP OUTLETS HAVE NOT BEEN CALLED FOR OR VERIFIED. MOREOVER, IN VIEW OF THE ASSESSEE'S EXPLA NATION OF ITA NO.802 & 820/BANG/2017 & CO NO.82BANG/2017 PAGE 19 OF 28 EXPANSION, THE TURNOVER INCREASE/DECREASE SHOULD HA VE BEEN COMPARED WITH 3-4 PRECEDING/SUCCEEDING YEARS. 31. IT CAN BE SEEN FROM THE AFORESAID REMAND REPORT THAT AS FAR AS SHOP- IN-SHOP EXPENSES ARE CONCERNED THE AO HAS ACCEPTED THAT EXPANSION ACTIVITY COMMENCED DURING F.Y 2003-04 (AY 2004-05) AND DURING AY 2005- 06 MORE THAN 90 EXCLUSIVE STORES AND 800 SHOP-IN SH OPS EXISTED ACROSS INDIA AND THEREFORE, CONSIDERABLE AMOUNT OF EXPENDI TURE WOULD HAVE BEEN INCURRED IN THE INITIAL YEARS OF EXPANSION THOUGH W ITHOUT IMMEDIATE EFFECT ON TURNOVER I.E., IN 1-2 YEARS. THE AO HAS ALSO ACCEPT ED THAT THE EFFECTS ON INCREASE IN TURNOVER WOULD BE SEEN ONLY IN LONG TER M PERSPECTIVE. AS FAR AS SHOP-IN-SHOP EXPENSES ARE CONCERNED, THE AO IN T HE REMAND REPORT HAS ACCEPTED THAT PAYMENTS WERE MADE TO THE FRANCHISEES AND THAT WAS NOT DOUBTED BY THE AO AND IT WAS ONLY THE AOS CASE THA T THE EXACT NATURE OF REIMBURSEMENT OF EXPENSES WAS NOT SPELT OUT. THE A O HAS ALSO STATED IN THE REMAND REPORT THAT AGREEMENT WITH THE FRANCHISE ES OWNERS WERE NOT CALLED FOR OR VERIFIED. 32. THE ASSESSEE IN ITS OBJECTIONS TO THE REMAND RE PORT OF THE AO POINTED OUT AS FOLLOWS:- 2. AS REGARDS AGREEMENT WAS NOT FURNISHED : A. THE RESPONDENT FIRM HAD FILED THE FOLLOWING DOC UMENTS INCLUDING COPIES OF AGREEMENT DETAILS SHOP IN SHOP EXPENSES EXPENDITURE TO THE OFFICERS BELOW: ITA NO.802 & 820/BANG/2017 & CO NO.82BANG/2017 PAGE 20 OF 28 ( EXHIBIT 2) SL. NO. SUBMISSION MADE TO DOCUMENTS FURNISHED DATE INTERNAL PAGE NO. ENCLOSED THE SAME PAGE NO. OF THIS PAPER BOOK 1. LD. AO LEDGER EXTRACT TRANSACTION WISE DETAILS RELATING TO SHOP IN SHOP EXPENSES 17.09.2007 27 PAGE NOS. 139-167 OF PAPER BOOK NO.1 OF THIS SUBMISSION 2. LD. AO DETAILS OF REIMBURSEMENT & INCIDENTAL EXPENSES INCURRED ON SHOP-IN-SHOP EXPENSES AS SHOWN IN THE NARRATION IN EACH TRANSACTION 17.09.2007 30 PAGE NOS. 139-167 OF PAPER BOOK NO.1 OF THIS SUBMISSION 3. LD. AO PHOTOGRAPHS OF TYPICAL SHOP IN SHOP CONCEPT 12.11.2007 2 PAGE NOS. 189-192 OF PAPER BOOK NO.2 OF THIS SUBMISSION. 4. LD. CIT(A) LEDGER EXTRACT- TRANSACTION WISE DETAILS, COPY OF BILLS OF ALL EXPENSES ABOVE 50,000/- 03.08.2011 10 246-369 OF PAPER BOOK NO.2 OF THIS SUBMISSION ITA NO.802 & 820/BANG/2017 & CO NO.82BANG/2017 PAGE 21 OF 28 5. LD. CIT(A) COPY OF INVOICES WHICH ARE IN ROUND FIGURES FOR OBSERVATION OF LD. AO IN PARA NO. 9.7 OF ORDER IN ANNEXURE 2 OF THE SUBMISSION 03.08.2011 10 PAGE NOS.292- 293, 310-322., 337-349, 357A TO 357N, 358- 362 & 364-369 OF PAPER BOOK NO.2 OF THIS SUBMISSION 6. LD. CIT(A) SAMPLE COPY OF CLAIMS MADE, BILLS IN ANN - 2. 29.06.2015 3 SAME AS ABOVE. 7. LD. CIT(A) ANALYSIS OF BUSINESS PERFORMANCE FROM FY 2002- 03 TO2014-15, CONTAINING TURNOVER, GP, NP I N ANN 2. 20.06.2016 2 PAGE NOS. 87 &-88 OF PAPER BOOK NO.1 8. LD. CIT(A) TURNOVER DETAILS 2003- 04 TO 2012-13 22.11.2016 8 PAGE NOS. 565 TO 566 OF PAPER BOOK NO. 3 OF THIS SUBMISSION 9. LD. CIT(A) SUBMISSION AS TO WHY NO REJOINDER ON SHOP IN SHOP WAS NOT FILED. 22.11.2016 14 PAGE NO.571 OF PAPER BOOK NO.3 OF THIS SUBMISSION. ITA NO.802 & 820/BANG/2017 & CO NO.82BANG/2017 PAGE 22 OF 28 B. THE LD. AO HAVING GONE THROUGH THESE EVIDENCES A ND HAS NOT MADE ANY ADVERSE COMMENTS OR POINTED ANY DEFECTS AS TO EVIDENCES FURNISHED DURING THE COURSE OF ASSESSMENT IN HER REMAND REPORT. C. FURTHER, ELABORATE SUBMISSIONS WERE MADE EVEN DU RING THE COURSE OF COMMISSIONER (APPEALS). UNDER THE FACTS, THE BASIS AND ELABORATE DETAILS OF EXPENSES WERE FURNISHED TO THE OFFICERS BELOW AND NO ABERRATIONS WERE NOTICED AND IT IS ACCEPTED ON MERITS OF THE CASE. D. IT IS PERTINENT TO NOTE THAT LD. COMMISSIONER (A PPEALS) WHO IS ALWAYS BESTOWED WITH THE POWERS VESTED U/S 250 A ND S. 251 OF THE ACT, HELD ENQUIRY ON THE MATERIALS PLACE D BEFORE THE OFFICERS BELOW AND PREVAILING LEGAL POSITION OF THE ISSUE. E. HENCE, THE ACTION OF THE LD. COMMISSIONER (APPEA LS) IN ALLOWING THE EXPENDITURE IS CORRECT AND THERE IS NO ERROR IN THE ORDER OF THE LD. COMMISSIONER (APPEALS) TO THIS EXT ENT AND HENCE THE APPELLANT'S APPEAL NEEDS TO BE QUASHED AS THE SAME IS DEVOID OF MERIT AS DISCUSSED HEREIN ABOVE. HENCE , THE NEW ALLEGATION BY THE LD. AO IS INCORRECT AND CONTRARY TO THE MATERIALS. F. FURTHER IN THE REMAND REPORT THE LD. AO HIMSELF ACKNOWLEDGED IN PAGE NO. 7, PARA 8. B) AS UNDER: ' THERE IS NO SPECIFIC EVIDENCE OR FACT BROUGHT THAT THE EXPENDITURE UNDER VARIOUS HEADS OF 'HIMALAYA STORE EXPENSES' ARE BOGUS OR NOT INCURRED FOR THE PURPOSE OF BUSINESS OR NOT ADMISSIBLE AS PER APPOINTMENT LETTE RS OR NOT INCURRED AS PER TERMS OF AGREEMENT BETWEEN THE ASSESSEE AND FRANCHISE/SHOP IN SHOP OWNERS / EXCLUSIVE STORE OWNERS . 33. THE CIT(APPEALS) AFTER CONSIDERING THE REMAND R EPORT AND THE OBJECTIONS OF THE ASSESSEE, DELETED THE ADDITIONS M ADE BY THE AO BY OBSERVING AS FOLLOWS:- ITA NO.802 & 820/BANG/2017 & CO NO.82BANG/2017 PAGE 23 OF 28 A. HIMALAYA STORES EXPENSES OF RS. 2,45,79,931 : THE AO HAS DISALLOWED THIS AMOUNT ON THE GROUND THAT IT IS EXCESSIVE WHEN COMPARED TO ONLY A SUM OF RS. 12,08,393.00 INC URRED IN THE EARLIER YEARS. ENTIRE INCREMENTAL EXPENSES HAS BEEN DISALLOWED. THE APPELLANT HAS HOWEVER SUBMITTED THAT THEY HAVE GONE FOR SUBSTANTIAL EXPANSION OF OWN AND FRANCHISE STORES A CROSS INDIA. THE APPELLANT HAS SUBMITTED THAT DUE TO THIS NEW ME THOD OF SELLING THE GOODS, DURING THE YEAR, THEY HAVE INCUR RED HUGE EXPENSES. THE APPELLANT HAS ALSO PRODUCED DETAILS O F SUCH EXPENSES AND ALONG WITH PROOF OF EXPENSES. IN PARA 8A (A) OF THE REMAND REPORT, THE AO HAS INDICATED THAT THE EXPENS ES INCURRED BY THE ASSESSEE ARE NOT DOUBTED AS THE ASSESSEE HAS ESTABLISHED 90 EXCLUSIVE SHOPS AND 800 SHOP IN SHOPS AND CONSIDERA BLE AMOUNT WOULD HAVE BEEN INCURRED WITHOUT IMMEDIATE EFFECT O N TURNOVER ON 1-2 YEARS. THE AO HAS FURTHER OBSERVED THAT INST EAD OF COMPARING THE INCREASE IN THE TURNOVER WITH THE PRE VIOUS YEARS, IF THE FUTURE INCREASE IS COMPARED, IT WOULD HAVE BEEN MORE APPROPRIATE. THE APPELLANT HAS FILED THE TURNOVER D ETAILS FOR THE SUBSEQUENT YEARS WHICH SHOWS A GOOD GROWTH TREND. T HE TURNOVER OF THE APPELLANT HAS GROWN OVER THE YEARS AS UNDER: FY GROSS SALES (RS. IN CRS.) 2002-03 285.71 2003-04 317.74 2004-05 306.74 2005-06 293.05 2006-07 347.34 2007-08 416.57 2008-09 530.67 2009-10 642.57 2010-11 759.92 I FIND THAT THE TURNOVER OF THE APPELLANT HAS INCRE ASED SUBSTANTIALLY OVER THE YEARS. THE AO IN HER REMAND REPORT ALSO HAS CONFIRMED THAT THE APPELLANT HAS ALSO FILED THE COPIES OF THE ITA NO.802 & 820/BANG/2017 & CO NO.82BANG/2017 PAGE 24 OF 28 AGREEMENTS AND THE DETAILS OF EXPENSES AND THERE IS NO NEGATIVE OBSERVATION IN RESPECT OF SUCH EXPENSES. SINCE THE DISALLOWANCE IS MADE ON AN AD HOC BASIS BY MERELY COMPARING THE EXP ENSES IN THE PREVIOUS YEAR, GENUINENESS OF THE EXPENSES ARE NOT DOUBTED BY THE AO IN HER REMAND REPORT AND IT IS EVIDENT THAT THE APPELLANT HAS INCREASED THEIR SALES THROUGH THE STORES SUBSTANTIA LLY BY ESTABLISHING NEW STORES AND HENCE, I HOLD THAT THIS DISALLOWANCE NEEDS TO BE DELETED. B. FRANCHISEE EXPENSES CREDIT NOTES OF RS. 1,58,51,269 : THE AO HAS DISALLOWED THIS AMOUNT ON THE GROUND THAT TH ERE WAS NO SUCH EXPENDITURE IN THE EARLIER YEARS AND HENCE, EN TIRE EXPENDITURE INCURRED HAS BEEN DISALLOWED. THE ASSES SEE HAD FRANCHISEE EXPENSES REIMBURSEMENT AND FRANCHISEE CR EDIT NOTES. THE AO HAS DISALLOWED THE ENTIRE CREDIT NOTES ISSUE D TO THE FRANCHISEES AS THERE WAS NO INCREASE IN THE TURNOVE R AND THERE WAS NO SUCH EXPENDITURE IN THE EARLIER YEARS. THE APPEL LANT HAS HOWEVER SUBMITTED THAT THEY HAVE GONE FOR SUBSTANTI AL EXPANSION OF FRANCHISE STORES ACROSS INDIA. THE APPELLANT HAS SUBMITTED THAT DUE TO THIS NEW METHOD OF SELLING THE GOODS, DURING THE YEAR, THEY HAVE INCURRED HUGE EXPENSES. THE APPELLANT HAS ALSO PRODUCED DETAILS OF SUCH EXPENSES AND ALONG WITH PROOF OF EX PENSES AND ALSO COPIES OF THE AGREEMENTS WITH THE FRANCHISEE S TORES. IN PARA 8A OF THE REMAND REPORT, SHE HAS STATED THAT THE DI SALLOWANCE IN THE ASSESSMENT ORDER IS BASED ON THE FACT ACT SUCH EXPENDITURE IS NOT INCURRED IN THE PREVIOUS YEAR AND HAS NOT RESUL TED INCREASE IN TURNOVER. THE FACT THAT THE PAYMENT HAS BEEN MADE T O THE FRANCHISEES, OWNERS OF SHOP-IN-SHOP/ OWNERS OF THE PREMISES WHERE EXCLUSIVE SHOPS HAVE BEEN STARTED HAS NOT BEE N DOUBTED, ONLY THAT THE EXACT NATURE OF THE REIMBURSEMENT OF EXPENSES HAVE NOT BEEN SPELT OUT. HOWEVER, AGREEMENTS WITH THE FR ANCHISEE'S, OWNERS OF EXCLUSIVE STORES AND OWNERS OF SHOP-IN SH OP OUTLETS HAVE NOT BEEN CALLED FOR OR VERIFIED. MOREOVER, IN VIEW OF THE ASSESSEE'S EXPLANATION OF EXPANSION, THE TURNOVER INCREASE/DECREASE SHOULD HAVE BEEN COMPARED WITH 3- 4 PRECEDING/SUCCEEDING YEARS. THE APPELLANT HAS PRODUCED COPIES OF FRANCHISE STOR ES AGREEMENT AND ALSO DETAILS OF THE EXPENSES. FURTHER, IT IS AR GUED THAT THIS ITA NO.802 & 820/BANG/2017 & CO NO.82BANG/2017 PAGE 25 OF 28 AMOUNT REPRESENTS THE MINIMUM GUARANTEED RETURN ON THE INVESTMENT BY THE FRANCHISEE WHICH IS ALSO SUPPORTE D BY THE COPIES OF THE AGREEMENTS FILED. SINCE THESE EXPENSE S HAVE BEEN GENUINELY INCURRED AND SINCE THERE IS GOOD -GROWTH IN THE SUBSEQUENT YEARS, THE DISALLOWANCE IS HEREBY DELETE D. 34. AGGRIEVED BY THE ORDER OF THE CIT(APPEALS), THE REVENUE HAS RAISED THE AFORESAID GROUNDS OF APPEAL BEFORE THE TRIBUNAL . 35. THE LD. DR SUBMITTED BEFORE US THAT THE AO IN T HE REMAND REPORT BEFORE CIT(A) DID NOT ADMIT THAT AGREEMENT COPIES W ITH VARIOUS FRANCHISEES IN SO FAR AS SHOP-IN-SHOP EXPENSES WERE FURNISHED B Y THE ASSESSEE AND THE OBSERVATIONS OF THE CIT(A) TO THE CONTRARY IN T HE ORDER OF THE CIT(A) IS NOT CORRECT. THE LEARNED DR DREW OUR ATTENTION TO GROUND NO.2 IN THE GROUNDS OF APPEAL. AS FAR AS FRANCHISEE EXPENSES A RE CONCERNED, THE ASSESSEE HAD FILED AGREEMENTS WITH FRANCHISEE ONLY BEFORE CIT(A). IT WAS SUBMITTED THAT IF SUCH AGREEMENTS HAD BEEN FILED BE FORE THE CIT(APPEALS), THE CIT(APPEALS) SHOULD HAVE FIRST CALLED UPON THE AO TO FILE HIS OBJECTION ON THE ADMISSIBILITY OF ADDITIONAL EVIDENCE AND AFT ER GIVING A RULING ON THE ADMISSIBILITY OF ADDITIONAL EVIDENCE, HE OUGHT TO H AVE CALLED UPON THE ASSESSEE TO FILE OBJECTIONS WITH REGARD TO THE MERI TS OF ADDITIONAL EVIDENCE ADMITTED BY THE CIT(APPEALS). THE LEARNED DR RELIE D ON THE ORDER OF THE AO IN OTHER RESPECTS AND REITERATED THE STAND OF TH E REVENUE AS REFLECTED IN GROUNDS 2 TO 6 RAISED BEFORE THE TRIBUNAL. 36. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THERE WAS NO VIOLATION OF RULE 46A AND ALL THE DOCUMENTS WERE CO NFRONTED TO THE AO. IT WAS SUBMITTED BY HIM THAT NO SEPARATE OPPORTUNITY T O ADMIT ADDITIONAL EVIDENCE NEED BE GIVEN TO THE AO, AS HELD BY THE TR IBUNAL IN THE CASE OF ITA NO.802 & 820/BANG/2017 & CO NO.82BANG/2017 PAGE 26 OF 28 ACIT V. ESAOTE INDIA (NS) LTD. [2018] 96 TAXMANN.CO M 624 (AHMEDABAD TRIB.) . 37. WE HAVE GIVEN A CAREFUL CONSIDERATION TO THE RI VAL SUBMISSIONS. IT IS CLEAR FROM THE OBJECTIONS TO THE REMAND REPORT FILE D BY THE ASSESSEE BEFORE THE CIT(APPEALS), COPY OF WHICH IS PLACED AT PAGES 1 TO 28 OF ASSESSEES PB-3 THAT THE ASSESSEE HAS CLEARLY POINTED OUT THAT ALL DETAILS AND AGREEMENTS HAD BEEN FILED BEFORE THE AO. REMAND R EPORT WAS OBTAINED ON 30.08.2016 AND IN THE REMAND PROCEEDINGS, THESE DOCUMENTS HAVE BEEN FURNISHED BY THE ASSESSEE. THE ASSESSEE HAS A LSO FILED LEDGER EXTRACT OF EXPENSES. ALL THESE WERE IN POSSESSION OF THE AO. IT IS CLEAR FROM THE REMAND REPORT OF AO FILED BEFORE CIT(A) CO PY OF WHICH IS AT PAGE 291-297 OF PAPER BOOK-2 FILED BY THE ASSESSEE THAT IN PARA B AT PAGE 7 THE AO HAS ADMITTED THE ALLOWABILITY OF THESE EXPENSES. THE REMAND REPORT OF AO ON NON-PRODUCTION OF AGREEMENT WITH FRANCHISEES APPEARS TO REFER TO ABSENCE OF PRODUCTION OF SUCH AGREEMENTS BEFORE THE AO WHEN THE ORIGINAL ASSESSMENT PROCEEDINGS WERE CONCLUDED AND NOT IN TH E COURSE OF REMAND PROCEEDINGS PURSUANT TO THE DIRECTIONS OF THE CIT(A PPEALS). IN ANY EVENT, THE REMAND REPORT OF THE AO DOES NOT SPECIFICALLY S AY THAT THE AGREEMENTS WERE NOT FILED BEFORE HIM IN THE COURSE OF THE REMA ND PROCEEDINGS. IN THESE CIRCUMSTANCES, WE ARE OF THE VIEW THAT THERE HAS BEEN NO VIOLATION OF RULE 46A OF THE INCOME-TAX RULES. WE ARE ALSO OF T HE VIEW THAT THE BASIS OF DISALLOWANCE HAS BEEN DISPROPORTIONATE INCREASE IN THE QUANTUM OF EXPENSES, COMPARED TO THE INCREASE IN TURNOVER OF A SSESSEE. THIS WAS NOT A RELEVANT CRITERION. EVEN THE AO IN THE REMAND RE PORT ACCEPTS THAT EFFECT OF EXPENDITURE ON SALES WOULD BE REFLECTED ONLY IN FUTURE AND NOT IMMEDIATELY. THE OBSERVATIONS OF THE AO IN THE REM AND REPORT IS THAT AGREEMENT WITH THE FRANCHISEES OWNERS OF EXCLUSIVE STORES AND OWNERS OF SHOP-IN-SHOP OUTLETS HAVE NOT BEEN CALLED FOR OR VE RIFIED. WHETHER THESE ITA NO.802 & 820/BANG/2017 & CO NO.82BANG/2017 PAGE 27 OF 28 OBSERVATIONS RELATE TO THE STAGE OF ASSESSMENT OR R EMAND PROCEEDINGS IS NOT CLEAR. NEVERTHELESS GR.NO.5 THE REVENUE ADMITS THAT THE AGREEMENTS WERE FILED BEFORE CIT(A) BUT THE CIT(A) DID NOT CON FRONT THESE AGREEMENTS RELATING TO FRANCHISEE EXPENSES TO THE AO BY CALLIN G FOR A REMAND REPORT. THE ASSESSEE IN THE OBJECTION TO THE REMAND REPORT HAS ASSERTED THAT ALL AGREEMENTS WERE FILED BEFORE AO IN THE REMAND PROCE EDINGS. WE ARE ALSO OF THE VIEW THAT THERE WAS NO VIOLATION OF RULE 46A OF THE RULES. WE ARE OF THE VIEW THAT NO SEPARATE OPPORTUNITY TO ADMIT ADDI TIONAL EVIDENCE NEED BE GIVEN TO THE AO, AS HELD BY THE TRIBUNAL IN THE CAS E OF ACIT V. ESAOTE INDIA (NS) LTD. [2018] 96 TAXMANN.COM 624 (AHMEDABAD TR IB.) . ONCE DOCUMENTS ARE FORWARDED TO THE AO AND A REMAND REPO RT IS CALLED FOR, IT IS THE DUTY OF THE AO TO RAISE ALL OBJECTIONS REGARDIN G ADMISSIBILITY OF THE DOCUMENT AS WELL AS THE EFFECT OF THE DOCUMENTS ON THE ISSUES UNDER CONSIDERATION IN THE APPEAL. 38. IN THE GIVEN FACTS AND CIRCUMSTANCES OF THE CAS E, WE HAVE TO CONCLUDE THAT THE PLEA OF NON-PRODUCTION OF AGREEME NTS WITH OWNERS OF SHOP-IN-SHOP AND FRANCHISEES IS NOT VERY MATERIAL P LEA AS THE GROUND OF DISALLOWANCE BY THE AO WAS ON THE GROUND THAT INCRE ASE IN EXPENDITURE COMPARED TO EARLIER AY DID NOT RESULT IN INCREASE I N TURNOVER COMPARED TO EARLIER AY. WHEN THIS IS THE BASIS OF DISALLOWANCE BY THE AO, A NEW PLEA REGARDING NON PRODUCTION OF AGREEMENTS WITH THE OWN ERS OF SHOP-IN-SHOP OR FRANCHISEE IN OUR VIEW WOULD NOT HELP THE CASE OF T HE REVENUE. WE FIND NO GROUNDS TO INTERFERE WITH THE ORDERS OF THE CIT(APP EALS), WHO HAS HELD THAT EXPENSES WERE REVENUE IN NATURE. THERE IS NO BASIS FOR THE REVENUE TO CONTEND IN GR.NO.3 & 6 THAT EXPENSES WERE NOT REVEN UE EXPENSES, AS SUCH A CASE WAS NOT MADE OUT BY THE AO. CONSEQUENTLY, T HE APPEAL BY THE REVENUE IS DISMISSED. ITA NO.802 & 820/BANG/2017 & CO NO.82BANG/2017 PAGE 28 OF 28 39. IN THE RESULT, THE APPEAL BY THE REVENUE AND TH E CO BY THE ASSESSEE ARE DISMISSED , WHILE THE APPEAL BY THE ASSESSEE IS PARTLY ALLOWED . PRONOUNCED IN THE OPEN COURT ON THIS 25 TH DAY OF JANUARY, 2019. SD/- SD/- ( JASON P. BOAZ ) ( N.V. VASUDEVAN ) ACCOUNTANT MEMBER VICE PRESIDENT BANGALORE, DATED, THE 25 TH JANUARY, 2019. / D ESAI S MURTHY / COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR, ITAT, BANGALORE.