TMI Blog2006 (2) TMI 221X X X X Extracts X X X X X X X X Extracts X X X X ..... ning sets to distributors and stockists for keeping stocks of its products during the off-season. During the course of assessment proceedings, it was noticed by the AO that the assessee had appointed M/s Herbs India (P) Ltd. as its sole selling agent and as per the sole selling agency agreement, commission at the rate of 15 per cent was to be paid by the assessee to the said agent. It was also noted by the AO that as per cls. 6 and 8 of the said agreement dt.16th April, 1985, the selling agent was to appoint sub-agents, stockists, distributors, etc. and also to incur all the expenses in connection with such appointments. According to the AO, the expenditure of Rs. 1.03,348 incurred by the assessee on presenting steel glasses and morning sets to distributors and stockists thus was to be borne by M/s. Herbs India (P) Ltd. and not by the assessee as per the selling agency agreement. He, therefore, held that the same could not be allowed in the case of the assessee. Similarly, the expenses of Rs. 8,17,403 incurred by the assessee on gift scheme and lucky draw to boost its sale during the off-season period were disallowed by the AO on the ground that the same were to be borne by the sal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... function of the selling agency.' A simple perusal of these two paras reveals that with reference to the issue under consideration, contents of the said para 6 are not applicable. As regards contents of the aforementioned para 8, I am of the view that the words "that the first party shall be responsible for all round progress in sale of products manufactured by the second party and shall incur expenses which are deemed necessary for sale promotion and for effective control over the function of the selling agency" do not in any way be a bar on the first party, i.e., the appellant to incur any expenditure which it considers necessary for commercial expediency and in the interest of its business to boost up its sales. The AO has no quarrel with the appellant with regard to such an expense being fully vouched. His only objection is that these should have been incurred by its sole selling agent as these related to sales promotion for which the said sole selling agent allowed commission by the appellant @ "15 per cent on total sales". But as contended by the appellant that these were incurred on account of its distributive function of its product and for commercial expediency and as all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been incurred on trade discount which is a normal practice, therefore, keeping in view such facts of the appellant's case and legal position in this regard, I hereby hold that the AO was not justified to disallow such expenses and hence the disallowance of Rs. 8,17.403 so made in the impugned assessment order on account of such expenses is hereby deleted." 5. The learned Departmental Representative, at the outset, pointed out that even though a revised ground has been filed by the Revenue modifying the quantum of relief allowed by the learned CIT(A) on the issue in dispute, such quantum as mentioned in the original ground is found to be correct. He submitted that the revised ground filed by the Revenue, therefore, may be ignored and the ground originally raised may be considered and decided on merits. He submitted that sole selling agency was given by the assessee-firm to its sister-concern and as per the agency agreement entered into with the said sister -concern, the selling agent was to bear all the selling as well as marketing expenses as specifically pointed out by the AO in his assessment order. He submitted that commission at the rate of 15 per cent was agreed to be paid b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he relevant material on record. It is observed that the factum as well as quantum of expenses in question incurred by the assessee on sales promotion have not been disputed either by the AO in his assessment order or even by the learned Departmental Representative before us. Even the fact that the said expenses were incurred wholly and exclusively for the purpose of the assessee's business is not in dispute. The disallowance of the same, however, was made by the AO mainly for the reason that the selling and marketing expenses were agreed to be incurred by the sole selling agent as per the relevant agency agreement and not by the assessee-firm. A perusal of the said agreement especially the relevant clauses, however, clearly shows that the assessee was not debarred from incurring such expenses in addition to what the agent was expected to incur especially when the same were to be incurred in the interest of the business. In the present case, the said expenses were incurred by the assessee-firm to promote its sales during the off-season period and this being the undisputed position, the commercial expediency of incurring the same stood duly established. In order to claim deduction on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agent of the assessee, as it was the responsibility of agents to promote business of the assessee as per para 8 of agreement entered into by the assessee with the agent." 11. At the time of hearing before us, the learned representatives of both the sides agreed that the issues relating to the various disallowances involved in this appeal out of sales promotion expenses, gift scheme and lucky draw expenses and travelling expenses are similar to the one involved in the Revenue's appeal for asst. yr. 1990-91 inasmuch as these disallowances were made by the AO mainly on the ground that the relevant expenses were to be borne by the sole selling agent in. terms of the agreement entered into with the assessee without disputing the factum as well as quantum of these expenses incurred for the purpose of the assessee's business. While disposing of the Revenue's appeal for asst. yr. 1990-91. we have already upheld the order of the learned CIT(A) deleting the similar disallowances made by the AO for the reasons given in para No. 7 of this order. Since the facts involved in asst. yr. 1991-92 as well as the arguments of both the sides are similar to that of asst. yr. 1990-91, we follow the dec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its own. In its return of income filed for the year under consideration, a deduction under s. 80-IA was claimed by the assessee-company in respect of profit derived from the manufacturing and sale of ayurvedic veterinary medicines. The AO, however, disallowed the said claim of the assessee for the reason that the machinery taken on lease by the assessee from M/s Indian Herbs Research Supply Co., a partnership firm, according to him, constituted a transfer within the meaning of s. 2(47)(vi) and the value of the machinery so transferred being 31.3 per cent of the total value of machinery or plant used in the assessee's business, the condition stipulated in cl. (ii) of sub-s. (2) of s. 80-IA for claiming the deduction was not satisfied in the initial year, i.e., asst. yr. 1993-94. Even in the year under consideration, the said proportion was found to be 22.6 per cent by him and the same being more than 20 per cent, he held that the assessee was not entitled for deduction under s. 80-IA in view of Expln. 2 to s. 80-IA(2). As provided in the said Explanation, the assessee would not be entitled for deduction under s. 80-IA, in case of an industrial undertaking, where any machinery or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (1992) 104 CTR (SC) 116 : (1992) 196 ITR 188 (SC) is fully applicable to its case. I also agree with the appellant that since the plant and machinery has not been taken on transfer by the appellant-company but only on lease, therefore, it cannot be held that the appellant had infringed the provisions of cl. (ii) of sub-s. (2) of S. 80-IA of the Act. The provisions of s. 2(47)(vi) of the Act, in my opinion, are not applicable to its case as plant and machinery so taken on lease is not an immovable property and further, the same stood not transferred together with land and building, furniture fittings, etc. to the appellant by the old firm. I hold so and thus when taking such plant and machinery on lease, cannot be held as a transfer from old firm to the appellant-company, it cannot be said that the appellant-company was formed by transfer to a new business of plant and machinery previously used for any purpose-a condition laid down in cl. (ii) of sub-s. (2) of S. 80-IA of the Act and on this very basis, even if the said plant and machinery previously used and now taken on lease by the appellant-company and used in the year under consideration for its business purposes worked out to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . He, therefore, urged that the impugned order of the learned CIT(A) on this issue may be set aside and that of the AO be restored. 18. The learned counsel for the assessee, on the other hand, strongly supported the impugned order of the learned CIT(A) on this issue. He invited our attention to the provisions of sub-s. (2) of s. 80-IA as applicable to the year under consideration and pointed out that the conditions stipulated therein were duly fulfilled in the case of the undertaking of the assessee-company. He submitted that the assessee-company was neither formed by splitting up or the reconstruction of the business already in existence nor the same was formed by the transfer to a new business of machinery or plant previously used for any purpose. He submitted that the plant and machinery were taken by the assessee-company from the erstwhile partnership firm on lease and it was not a case of transfer of a machinery or plant as held by the AO relying on the provisions of s. 2(47)(vi). He contended that the said provisions are applicable only to the immovable property and not to the movable property like plant and machinery and the reliance of the AO on the said provisions thus w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nly to the immovable property and not to the movable property like plant and machinery. On the contrary, the taking over of the machinery on lease by the assessee-company from the erstwhile partnership firm was not a transfer within the meaning of definition given in s. 2(47) as rightly contended by the learned counsel for the assessee before us and the condition specified in cl. (ii) of s. 80-IA(2) was thus duly fulfilled by the industrial undertaking of the assessee making it entitled to claim deduction under that section. This view gets support from the decision of Hon'ble Madhya Pradesh High Court in the case of Khemchand Motilal Jain cited by the learned counsel for the assessee wherein the undertaking of the assessee was held to be a new industrial undertaking and not reconstruction of old business in the similar facts and circumstances and deductions under ss. 80HH and 80-I were allowed to the assessee. Further, as pointed out by the learned counsel for the assessee, a similar deduction claimed by the assessee under s. 80-IA in respect of profits of the same industrial undertaking has already been allowed by the AO himself consistently in the subsequent years even in the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X
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