TMI Blog2011 (6) TMI 457X X X X Extracts X X X X X X X X Extracts X X X X ..... appeal filed by the assessee is directed against the order of the CIT (A)-III, Hyderabad dated 31-08-2010 and it pertains to the assessment year 2006-07. We are considering for adjudication only ground No.3 of the grounds of appeal wherein the assessee company contends that disallowance of Rs.2.79 crores towards selling/publicity expenses is arbitrary, just and illegal. The other grounds raised by the assessee are found to be argumentative in nature and they merely support ground No.3. Hence these are not considered for adjudication for which the learned counsel for the assessee did not raise any objection at the time of hearing. 2. Briefly stated facts of the case are that the assessee is a company engaged in business of manufacture and sale of Indian made Foreign Liquor, under an agreement with M/s Jagjit Industries Ltd., (JIL in short). For the assessment year under consideration, it has filed the return of income on 18-11-2006 showing income of Rs.43,85,595/-. During scrutiny of the return the assessing officer noticed that during the previous year, the assessee has made sales of Rs.87.35 crores and the entire sales were made to AP Beverage Corporation Limited (APBCL), whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... summons under section 131, but the same could not be served as Mrs. Sunheri Devi Agarwal, the lady occupant of that premises stated that she is not aware of any such business entity. The Inspector of Income-tax who was entrusted with the enquiries, after conducting local enquiries, reported that no such firm exists or was carrying on business in that name from that premises. In the case of Kishori Textiles Agencies, 1/114E, Naveen Shahdra, Delhi and many other parties in this line, the assessing officer asked the assessee to furnish proof of receipts of such quantity of cloth banners along with lorry receipts etc. Later, the assessing officer has furnished a copy of the said enquiry report to the assessee. In response to such query from the assessing officer, the assessee has submitted that the transactions shown in those invoices are genuine and it was submitted that that the statement given by the said auditor of M/s Makemashi Enterprises Ltd., is not reliable and the reports furnished by the ITI in respect of 5 parties including Meenakshi Cloth Merchant are not reliable. It has furnished ledger accounts, confirmations in respect of 13 parties including M/s Hari Om Fabrics and M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Under these facts and further stating that as per books of that concern, there was no sale to the extent of Rs.4,50,000/- the assessing officer observed that, it shows the assessee obtained a paper invoice from that concern in March, 2006, to claim such expenditure. However, it was stated that the said entire amount of Rs.75,75,883/- has to be disallowed. It was further mentioned without prejudice to the above observations, the last item of Rs.10,50,000/- being a mere claim towards provision for selling expenses, the same is not allowable. The assessing officer further disallowed an amount of Rs.3,80,388/- claimed towards unabsorbed depreciation for assessment year 2005-06. With the both the above disallowances of Rs.2,83,70,014/- and Rs.3,80,388/- made to the returned income, the assessing officer completed the assessment on a total income of Rs.3,31,36,000/- vide order dated 31-12-2008 passed under section 143(3) of the Act. Aggrieved by the order of the assessing officer, the assessee went in appeal before the CIT (A). On appeal, the CIT (A) by elaborately discussing the points at issue, deleted the disallowance to the tune of Rs.4,99,848 and confirmed the balance disallowance o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted by the assessee- Particulars Amount (Rs.) i.Banners cloth purchases 2,57,80,493 ii.Banners stitching Printing 23,08,090 iii.Dangler Boards printing 12,76,132 iv.Air bags SS steel utensils 19,78,712 v.National wines freight charges 51,286 vi.Marketing Conference expenses 83,708 3,14,78,421 Less: Deductions 28,712 Total: 3,14,49,709 6. It is submitted that there are 7,463 Retail outlets in Andhra Pradesh who also sell other popular brands manufactured by other leading companies and therefore these retail shops play important role in sale of our liquor products. The assessee company had to make strenuous efforts in advertising the brands manufactured by it with various retail outlets/shops, besides displaying banners at various retail outlets, bars and restaurants at prominent and other places in the State to attract consumers and photographs of retail shops where above publicity material displaying products/logo of the liquor brands manufactured by the assessee company were filed before the Assessing Offic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... used enquires through Income Tax Inspector at New Delhi in respect of 7 parties only out of 20 parties who had supplied publicity material to the company. The Inspector served Summons under section 131 of the Act on above parties. In one case served on the concerned person partner of the firm who confirmed the supply of material to the company and the Assessing Officer accepted the same. In another case, Inspector reported that the party shifted to Bombay and the said party subsequently, sent confirmation of supply of material and the Assessing Officer accepted the same. In the case of remaining 5 parties, addition was made. It is further submitted that in the case of M/s. Gangaram Ramnath the inspector had contacted one of the partner of the firm and upon enquiry they have confirmed the supply of material and the Assessing Officer accepted the correctness of the transactions of the above firm and allowed the expenditure Rs.20,65,496/-. In the case of supply of materials by an another party M/s. Bradburry Spinning Mills, the Assessing Officer partly accepted the correctness of the transactions based upon filing of their confirmation with PAN No. and the remaining part was allowed b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the Inspectors report in the case of only 5 parties on the basis of enquiries made with outsiders/third parties. Further based on the letter of Deepak Jain except making a bald statement by Assessing Officer that material was not supplied by the parties and they have received only Commission, no evidence was placed by the Assessing Officer that the payments received by the parties was withdrawn by them and was paid back to the assessee company. Further tentative suspicion in the mind of the Assessing Officer cannot warrant addition. In the circumstances disallowance of business expenditure aggregating to Rs.2.79 crores on preponderance of probability and on guesswork is highly unwarranted, arbitrary and requires to be allowed and the Assessing Officer seems to have justified the above addition by relying upon the decisions cited by him which have no relevance to the facts of the case. Further the Assessing Officer himself admitted that the decisions relied upon by him are rendered in the contest of cash credit additions under section 68 of the Income Tax Act. 9. In the case of the assessee, the issue is allowance of business expenditure expended, wholly and exclusively for th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r way. In the above facts and circumstances the lower authorities were not correct to hold publicity material was not used by the assessee. It is further submitted that Assessing Officer completely ignored the evidence furnished in support of purchase of publicity material and their transactions in the form of purchase order invoices of material purchased, payment through account payee cheques, deduction of tax at source wherever applicable, transport receipts, copies of entries in the stock register, affidavits and confirmation by the suppliers, Income Tax returns, PAN. It is also pertinent to note that in the immediate subsequent assessment year 2007-08, the assessee company had incurred similar expenditure on publicity, advertisement and selling expenditure aggregating to Rs.4.63 crores, as against Rs.3.14 crores in the assessment year under consideration, was allowed upon scrutiny assessment under section 143(3) read with section 144 A of the Act dated 31.12.2008 and it may be noted that the Brand owners M/s Jagatjit Industries Limited had sent glass tumblers at their cost for free distribution, in respect of which the assessee paid transport charges Rs.51,286. However transpor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hnology, not to mention additional transportation costs to be incurred. The assessee had 7640 shops/establishments where presumably the publicity expenses were intended. For this, the assessee purchased a staggering 6,47,377 meters of cloth. It is further contended that the following conclusions are to be adopted: (i) It does not get established that the expenditure really pertains to the assessee; (ii) The assessee has not been able to satisfactorily discharge the onus of establishing that the expenditure claimed was wholly and exclusively incurred for the business of the assessee relating to the year of account. (iii) This responsibility in the ultimate analysis is always on the assessee as held by the Hon ble AP High Court in the case of Transport Corporation of India reported in 256 ITR 701. 12. The assessing officer did not make a sweeping addition. In two cases, viz. (1) M/s Gangaram Ramnath, and (2) Bradberry Spinning Weaving Mills, involving an expenditure claim of Rs.20.65 lakhs and Rs.26.8 lakhs respectively, addition was not made having regard to details available. Similarly, CIT (Appeals), in the case of M/s Premium International, deleted addition to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ved the summons and replied that the persons concerned, viz. Shri Vishal Jain and Smt. Urmila Jain are out of station. The ITO takes the findings of the survey dated 26-2- 2008 as facts material to the profile of the addressee firm, to reinforce the fact that no genuine business activity was being carried out at such premises. Under the circumstances, nothing turns on the Assessing Officer s alleged refusal to afford cross examination of the above persons. In fact, the onus shifts to the assessee on these facts. Against these ground realities and business probabilities, the assessee s claim does not get established by the mere production of invoice copies, PAN, ledger account copies produced, fact of cheque payments, etc. The addition upheld by the CIT (Appeals) therefore deserves to be sustained. 16. The learned counsel for the assessee submitted that, in rejoinder, the assessee has procured advertisement material from Delhi and was entirely used in Andhra Pradesh evidencing that the material was used by the assessee in Andhra Pradesh. The assessee has administrative office at Delhi as evident from the letter head of the assessee and therefore publicity material was purchased ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... correct to state that goods were not delivered to assessee company, as the materials were received by the assessee company at Delhi was transferred to Hyderabad. Transportation of material, to Hyderabad, delivery challans and entries in the stock registers bear testimony to the purchase transactions of the assessee. It is further submitted that M/s.NK Mehra Sons, M/s. The Creations, M/s Vijay Kumar Co., M/s. SS Enterprises and M/s. Span advertising appeared before the ITO (Inv) and confirmed supply of material to the assessee. We state that evidence of transport of their goods, with delivery challans, stock registers were produced and their copies were filed on record. It is submitted that M/s. Shiva Enterprises and M/s. Technet Info Systems (P) Ltd., have confirmed the transaction and supply of goods in response to notice issued u/s 133(6) of the Income Tax Act. M/s. S.M. Advertising has closed its business due to sealing by Municipal Corporation of Delhi which is confirmed by the report of the Income Tax Inspector. Parties not produced, summons not replied or summons returned are not conclusive factors for drawing adverse inference. The department, apart from issuing notices ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re at Delhi rather than at Hyderabad, as we find that the assessee company has the administrative office at Delhi which is evident from the letter head of the assessee. Therefore, the commercial expediency in purchasing the publicity material at Delhi through known sources to ensure the quality and competitive rates seems to be correct. It is an admitted fact that the parties from whom the purchases were made are neither interested in the Assessee Company nor directors of the assessee company nor related to them. It appears that the assessee company had furnished number of documentary evidences to establish the identity of the supplies and supply of advertisement material. 19. We also find that the assessee company appears to have established the fact before the assessing officer that the assessee company transported and delivered the goods at Hyderabad by way of delivery challans, stock register which were produced before him. We also find merit in the arguments of the learned counsel for the assessee that parties not produced, summon not replied or summons returned are not conclusive factors for drawing adverse inference. It appears that the department apart from issuing noti ..... X X X X Extracts X X X X X X X X Extracts X X X X
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