TMI Blog1995 (12) TMI 123X X X X Extracts X X X X X X X X Extracts X X X X ..... es Ltd., Bombay is a wholesale dealer in Bombay and will be referred to as the Bombay wholesale dealer in this order. Both are public limited companies. Shri Y.S. Mehta was shareholder and the Managing Director of the assessee till 31-5-1988. He has been Director of the Bombay wholesale dealer from 1-6-1988. The assessee was selling its products to several wholesalers, including the Bombay wholesaler, at the same price. 52% of the sales was to the Bombay wholesaler while 48% of the sales was to the other wholesale buyers. During the relevant period, the assessee spent over Rupees two crores for advertisement and sales promotion, while the Bombay wholesale dealer spent Rs. 50,09,285/-. There was no written agreement requiring Bombay wholesal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -6-1988. The Collector observed that though the wholesale price available at the factory gate was the same for all wholesale buyers, the Bombay wholesaler by spending over Rs. 50 lakhs enriched the sales of the assessee by securing free publicity to his products in the market. These factors persuaded the Collector to infer the existence of some underhand dealings between the two and that the Bombay wholesaler acted as marketing agent of the assessee. Since the assessee was getting the benefit of publicity and advertising directly or indirectly without entering into an agreement with the buyer, the Collector opined that there was favoured relationship between them and therefore price shown was not the sole consideration. On account of free p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lace of removal. This is subject to two conditions : (i) the buyer is not a related person; and (ii) the price is the sole consideration for the sale. According to the Collector, though the buyer is not a related person, the price is not the sole consideration for the sale inasmuch as the buyer in whom the assessee has financial interest has spent about Rs. 50 lakhs for advertising the assessee s products without any specific agreement in that behalf, for the benefit of the assessee and thereby enriched the assessee s products and their marketability. There are certain significant omissions in the impugned order. The Collector has not found the Bombay wholesaler was the only wholesale buyer of the assessee who incurred expenses for a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s was spent not by the assessee itself but by a wholesale buyer who commanded about 52% of the market. 6. Undoubtedly the normal price (wholesale price) is ascertainable inasmuch as the price charged to all wholesalers, favoured or otherwise was the same. There would be no logic in the assessee collecting higher price from a so- called favoured buyer. The show cause notice did not rely on the circumstance that the Bombay wholesaler furnished security to the bank of its stock and book debts for the working capital limit sanctioned by the bank to the assessee. That being so the assessee had no opportunity to offer an explanation in this regard. There was only one class of wholesale buyers including the Bombay wholesaler and all of them were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the Bombay wholesaler; (c) The Bombay wholesaler incurred expenses of Rs. 50 lakhs for advertising but this was not under any agreement with the assessee, but on its own; (d) There is no material to show that other wholesale buyers did not incur any expenditure for advertising; (e) The advertising activity of the wholesaler benefitted itself as much as it benefitted the assessee; (f) The assessee spent around Rs. two crores for advertising its products; (g) If Rs. 50 lakhs spent by the Bombay wholesaler is to be regarded as part of the consideration for the transaction of sales of the assessee s products, it would mean the Bombay wholesaler was charged higher price than the other wholesalers; (h) There is not material to sho ..... X X X X Extracts X X X X X X X X Extracts X X X X
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