2017 (4) TMI 344 - ITAT MUMBAI

Twin branding pricing mechanism - whether this amount of premium generated through alleged twin branding mechanism has flown back to the assessee or not? - proof of assessee being a sole beneficiary of the entire amount or part of the amount? - bogus bank accounts - survey proceedings - Held that:- Without going into the authenticity and veracity of the statements of the witnesses Smt. Nirmala Sundaram, we are of the opinion that this one incident of donation through bank accounts at the direction of one of the employee of the Company does not implicate that the entire premium collected all throughout the country and deposited in Benami bank accounts actually belongs to the assessee company or the assessee company had direct control on these bank accounts. Ultimately, the entire case of the revenue hinges upon the presumption that assessee is bound to have some large share in so called secret money in the form of premium and its circulation. However, this presumption or suspicion how strong it may appear to be true, but needs to be corroborated by some evidence to establish a link that GTC actually had some kind of a share in such secret money. It is quite a trite law that suspicion how so ever strong may be but cannot be the basis of addition except for some material evidence on record. The theory of ‘preponderance of probability’ is applied to weigh the evidences of either side and draw a conclusion in favour of a party which has more favourable factors in his side. The conclusions have to be drawn on the basis of certain admitted facts and materials and not on the basis of presumption of facts that might go against assessee. Once nothing has been proved against the assessee with aid of any direct material especially when various rounds of investigation have been carried out, then nothing can be implicated against the assessee.

The entire basis of the Revenue to draw adverse inference in fact originated from the investigation and surveys carried out in the case of wholesale buyers and the statement given by the wholesale buyers about generation of premium money; and whence, finally the said allegation of the excise department has not been found be acceptable then the entire substratum on which the revenue’s case hinges.

It would be difficult to appreciate the stand of the revenue that the assessee was beneficiary of the premium money or relate back the flow back of the money to the assessee. It appears that the charging of premium amount over and above the MRP by the retailers and wholesale buyers may be keeping the assessee in loop to coordinate for meeting out certain expenses which also included advertisement and sales promotional expenses. The entire scheme was so designed that the liability of sales and promotion expenses or advertisement lies with the wholesale buyers and not on the assessee and assessee merely acts as a coordinating/managing central agency. But such a managing and coordinating of advertisement does not implicate the assessee that it is the sole beneficiary or owner of the entire premium money generated as held by the Hon’ble Apex Court in the case of the ITC [2004 (9) TMI 103 - SUPREME COURT OF INDIA] that there could not be any presumption that manufacturer is getting the money over and above the MRP. Thus, on this account also the revenue’s case fails.- Decided in favour of assessee

Rejection of books of accounts - estimation of income by multiplying the volume of sales of lower price brand with the differential price of higher price brand on account of theory of ‘twin branding mechanism’ and thereby giving an adhoc reduction of 10% on the ground that some of the share in premium money belonged to the wholesale buyers - Held that:- Once we hold that there is no material to implicate the assessee then the presumption that assessee is maintaining cash in bank account outside the books also fails because this allegation too is not flowing from the first premise of the AO. The additional reason cited by the Ld. CIT (A) falls within the realm of suspicion and surmises and based on such suspicion and surmise sans any direct material, the same cannot be upheld. As stated several times herein above, there is no finding or any cogent material to establish that extra amount collected in cash by shopkeepers/retailers have been passed on further from wholesale buyers/ super buyers to the manufacturer, i.e., assessee; and once that is so, the presumption of indirect flow back cannot be made the basis for such addition or estimation of income. Various case laws have been referred by the learned counsel before us on this point; however, we are not referring to these decisions because, we have arrived at our conclusion on the basis of material facts brought on record and as referred to before us.

Best judgment does not entail wild guess work or huge additions should be resorted to, albeit it lays down the determination of income based on fair and reasonable analysis based on some tangible material. The framing of the best judgment though entails some kind of fair and honest estimation but at the same time it should be based on material and information on record. The best judgment is not a provision to penalize the assessee and resort to wild estimate but it is a machinery provision which is to be based on assessing the correct income and that too based on material and evidence having live link nexus with the income which is to be assessed. Thus, on this count also, we are unable to uphold the kind of estimation or addition which has been made by the AO and sustained by the Ld. CIT (A) and accordingly, we direct the AO to delete the entire addition. - Decided in favour of assessee