TMI Blog1988 (6) TMI 71X X X X Extracts X X X X X X X X Extracts X X X X ..... motion and sale of different brands of cigarettes manufactured by that company. The original return for the assessment year 1983-84 was filed on14-10-1983disclosing an income of Rs. 2,92,860. The Income-tax Officer has recorded in the impugned assessment order for this year made on18-6-1985that a duplicate return has been filed on12-2-1985. In the impugned assessment order dated 18-6-1985 for the assessment year 1983-84, the ITO has recorded that the company filed before him copies of identical agreements entered into with the wholesale purchasers (WPs) of Godfrey Phillips India Ltd. and that as per clause IX of the said agreement, the assessee-company is obliged to spend at least 90 per cent of the total contributions accrued during the year on advertising to the promotion and other related services in such areas and in such a manner and on such brand of cigarettes as the assessee-company may deem fit. The balance of the 10 per cent of the contributions was to be earmarked to cover the assessee-company's administrative cost under the other heads including the margin of profit. The ITO has also recorded that the total contribution received from (WPs) during the year was Rs. 3,19,46 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by Godfrey Phillips India Ltd. It was also pointed out to the ITO that as per clause IX of the agreement, the assessee-company was liable to spend at least 90 per cent of the total contribution accrued during the year on advertising promotional and other related services, in such areas and in such manner and on such brands of cigarettes, as the assessee may deem fit. The balance 10 per cent of the contribution shall be earmarked to cover the expenses of the assessee's personnel and other administrative cost including profit margin. These percentages were to be worked out on the total of contribution accruing from wholesale purchasers with whom identical agreements for similar services had been entered into by the assessee. The attention of the ITO was also drawn to the fact that as per clause X of these agreements, the assessee-company is obliged to ascertain the total expenditure incurred on advertising, promotional and other related services as aforesaid and in any case, if the same works out to be lower than 90 per cent of the total contribution for the relevant year, such shortfall in expenditure shall be carried over to next year. The assessee shall be liable to spend such c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n letter dated4th November, 1986, the ITO asked the assessee to produce, inter alia, complete details of expenses on behalf of the clients, and complete details of recovery made from clients. The ITO also required the assessee to give details on the basis of which the amounts thus recovered were worked out. He also wanted the assessee to give photostat copies of agreement, if any, with the clients of third parties. The letter of the ITO required the assessee to produce details of various expenses. The assessee by letter dated19th November, 1986responded to this letter. The assessee in particular replied to the query raised by the ITO with regard to the details of expenses incurred on behalf of the clients and complete details of recovery made from the clients. A statement of expenditure amount to Rs. 3,47,19,345 on advertisement and publicity on behalf of the dealers was enclosed for the ITO. The assessee also projected to the ITO that as regards the details of recovery from the clients was concerned, complete details thereof were in general customers' ledgers which were in the custody of the ITO himself. The assessee further pointed out that the recovery from the clients is being ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e year on advertising and promotional expenses and other services on behalf of the clients. There is also discussion with regard to other items of expenditure in the assessment order. 12. Similarly, in the assessment order the assessment year 1984-85, the ITO has recorded that the chartered accountants of the assessee appeared before him and despite the fact that the books of account of the assessee were seized by the Deptt. under section 132 of the Income-tax Act, 1961 yet the vouchers which were in possession of the assessee-company were produced before the ITO and were examined on test check basis. In this order, which is made under section 143(3) on30th December, 1986, the ITO has again recorded that the assessee-company is carrying on advertisement and sales promotion business for M/s. Godfrey Phillips India Ltd. and for this purpose it had entered into agreements with wholesale dealers of Godfrey Phillips India Ltd. to handle all the advertising activities. The ITO has then recorded that the dealer would pay 3 per cent of the printed price of the filter cigarettes and 2 per cent of the printed price of the plain cigarettes purchased by the dealer from M/s. Godfrey Phillips ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e fact that assessment year 1983-84 was the first year of assessment of the company and the company had been converted from Private Limited Company to a Public Limited Company with the main object of planning advertising campaigns and effectively carrying them out for various promotional activities for its clients so as to assist them for promoting their sales. The ld. Commissioner refers to the identical agreements with the various wholesale purchasers of Godfrey Phillips India Ltd. and the manner in which the assessee was required to conduct publicity campaign on their behalf for the sale of cigarettes manufactured by M/s. Godfrey Phillips India Ltd. He has then recorded that by virtue of these agreements between the assessee-company and the wholesome purchasers, the company had shown the following receipts and expenditure in its published accounts : Rs. P. (i) Recoveries towards advertisement and promotional expenses : 1,92,89,979.00 Less : Expenses incurred on behalf of clients towards advertising, provisional and other related services ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the contributions received from the wholesale purchasers. According to him, the ITO had left even the manner of spending the money to the assessee-company. 16. The Commissioner has also observed that the ITO also did not care to find out whether the obligations cast upon the assessee under Chapter XXII, section-B relating to deductions at source had been complied with and whether the assessee had discharged its liability relating to payment of taxes at source and filing of relevant certificated, etc. According to him, the ITO had not examined whether the sum of Rs. 94,61,474 being the surplus of receipts over the expenditure as worked out by him ante could attract tax for the year under consideration in view of various deficiencies attached to the so-called agreement which did not provide for any satisfactory right or checks to the traders. 17. According to the ld. Commissioner against the service charges, the assessee had claimed a number of expenses about which no enquiries had been made by the ITO. In this regard, he cited the example of claim of rent amounting to Rs. 5.32 lakhs shown to have been paid for hiring charges for properties in the nature of residential proper ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is regard, he has referred to various points mentioned in the show-cause notice and has held that he was of the view that ITO had completed the assessments for these two years, "in hurry, without proper enquiries and investigations. His failure in this regard has led to making of erroneous assessment, which have caused prejudice to the revenue". He, therefore, set aside these assessments with the directions to the ITO to take up the assessment from the stage of filing of the return and pass orders again, "after proper, adequate and detailed investigations and after giving the assessee an opportunity of being heard and having his full say in the matter". Hence the present appeals. 21. Before us, the ld. counsel for the assessee, Shri O. P. Vaish submitted that the ld. Commissioner had not shown what prejudice had been caused by the assessments made by the ITO which had been completed after thorough enquiries as is apparent from the letters issued by the ITO and the replies thereto filed by the assessee. He emphasized that by merely saying that proper enquiries have not been made by the ITO, the orders made by the ITO could not be said to be erroneous so as to be prejudicial to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essment years 1983-84 and 1984-85. The assessments made were after thorough enquiries and the ITO cannot be said to have proceeded either with haste or with hurry to complete the assessments. 23. He submitted that the authorities cited by the CIT in his impugned order do not apply to the facts of the case of the assessee because each authority turns on its facts and, therefore, by merely laying down propositions on the basis of such authorities the Commissioner's procedure to apply the same was like putting the cart before the horse. With regard to the judgment of the Hon'ble Delhi High Court in the case of Gee Vee Enterprises v. Addl. CIT [1975] 99 ITR 375 submitted that in that case, the ITO had granted registration to the firm for the first year by accepting the statements made by the assessee in the return only. But in the case of the present assessee, the ITO had made detailed enquiries, had seized the books of account in his possession, which he examined and made speaking orders. The ITO is not required under law to give reasons for each and every enquiry and its result in the asst. order. Therefore, if the ITO had not recorded any detailed discussion about the enquiries ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t any order passed thereon by the ITO is erroneous in so far as it is prejudicial to the interests of revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such enquiries as he deems necessary, pass such order thereon as the circumstance of the case justify. The Income-tax Act being a self-contained code the ITO as well as the Commissioner have to work within the circumscription of law laid down therein. Therefore, in the context of invoking of the provisions of section 263 by the Commissioner a reference by him to the Directive Principles of State Policy as enshrined in the Constitution of India to us appears to be incongruous. We have to examine whether it can be said that the impugned assessment orders made in the case of the assessee are erroneous so as to be prejudicial to the interests of revenue. In order to see this we have examined and incorporated in paras 2 to 12 supra in this order, albeit, briefly, to see what the ITO did when he made the impugned assessments. We have also recorded in paras 13 to 18 as to how the Commissioner looked at the orders and what show-cause notice he gave to the assessee on the basis of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the assessment to show how prejudice was caused to the revenue by non-compliance of the provisions of Chapter XXII, section-B relating to deduction of tax at source. In this regard, we find that the reference by the ld. Commissioner was apparently to the provisions of section 276B which deals with failure to deduct or pay tax and falls under Chapter XXII of the Act. We are inclined to accept the contention made on behalf of the assessee that this is not and cannot be the basis for considering an assessment erroneous so as to be prejudicial to the interests of revenue because these are independent proceedings and the ITO is at liberty to take action in accordance with law for failure to deduct or to pay the same at any time. The reference to this, therefore, in the order u/s. 263, in our considered opinion, was not in the context justified to hold the order erroneous and prejudicial to the interests of revenue..29. A perusal of the assessment orders made by two different ITOs shows that the Officers were conscious of their responsibilities and made enquiries from the assessee on the various facets of the assessment in each year, as in brief set out by us, in paras 2 to 12 supra. W ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oods of M/s. Godfrey Phillips India Ltd. on terms and conditions contained in the agreements. The observations made by the Commissioner about the agreements are contradictory in terms because he has himself recorded that the ITO called for and the assessee supplied the details in respect thereof. The grievance of the Commissioner is that the ITO did not proceed further to make investigation. In this regard, we find that when the sums involved were huge the break-up thereof also involved substantial amounts. This is apparent from the details filed by the assessee and abstracted by the Commissioner in the show-cause notice as reproduced by us in para 14 supra. 32. The ITO, in fact, made enquiries on various important facets of the assessment and the assessment orders show that for the assessment year 1983-84 he invoked the provisions of section 40A (5) and for the asst. year 1984-85 he added Rs. 85,221 u/s. 40A (5) as against Rs. 42,115 worked out by the assessee. In doing so, he considered perquisites on account of accommodation, furniture, medical reimbursement and electricity used, etc. On this ground also, the Commissioner could not have held that the order made by the ITO was ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
