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TMI Blog2010 (8) TMI 467X X X X Extracts X X X X X X X X Extracts X X X X ..... siness of information technology enabled services called call centre services. While going through the P&L A/c, the AO noticed that the assessee had debited an amount of Rs. 2,12,28,726 as business promotion expenses out of that Rs. 2,04,30,000 accounted in account of customers building. On being asked to furnish the details of these expenses and its justification, the assessee explained the justification of the said expenses vide its letter dated 22nd December, 2006, which is reproduced by the AO in his order at pages 2 & 3, are extracted below:- "As indicated earlier, the study on the BPO Project also involved study of customer building process. It also involved establishing traction with several potential customers and even road shows were conducted in the US, UK and Canada. At a later stage, business development road shows were conducted with TW to introduce them to the potential clients. We are informed that TW is in touch with those potential clients and are developing relationship. Accordingly, in our view, out of the aggregate expenses, the other expenses, the other expenses, to the extent it relates for introducing business contacts to TW for which the benefit may be rece ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e first part, have been considered as being akin to the feasibility study and have been considered on the same lines that of the feasibility study. In the second part, the study of Customer Building process was done when it was almost certain to go for BPO activity and through acquisition route. This time the study was very much focused and the study was from standpoint of view of enhancing the business of the target company. The target company may benefit from this study. This study was carried out by MC. Under the second part, professional charges and such other expenses for Customer building process are incurred mainly for the target company. Accordingly, in our view, subject to the assumption that such expenses would fructify, since the benefits from which would accrue to TW, they could be considered fro TW to bear." 3. The AO did not accept assessee's contention on the following reasons:- "i) There is a change in management during the year, wherein, Aditya Birla Group has taken over the company with effect from 01/06/2003. Since the entire management has been changed from 1st June, 2003, (before that word substituted by us) there was no role to play by the Aditya Birla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing that the business expenditure companies cannot be debited in the account of another company. While distinguishing the cases, on which reliance placed by the assessee, the CIT(A) observed that in those cases the issue was that the expenditure incurred on conducting marketing survey or project report is revenue expenditure. The CIT (A) observed that the expenditure was incurred in the year 2002, while taking over took place in 2003 by agreement dated 28.6.2003 and that the payments were made after the takeover is not material. The relevant Para 3.7 of CIT (A) order is reproduced as under:- "3.7 The appellant has relied on various case laws in support of the claim. However none of these case laws are on the proposition that business expenditure of some other company should be debited in the accounts of some other company. The appellant has filed various case laws on the issue that expenditure incurred on conducting market survey or project report is revenue expenditure. However, issue involved in the present appeal is not whether expenditure incurred is revenue or capital expenditure. This would be obfuscating the real issue, which is, whether expenditure incurred is w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s that the expenses incurred wholly and exclusively for the purpose of the business is only allowable as revenue expenses. The learned DR submitted that the assessee never asked Mc Kenscy & Co. to do any work for the assessee and no job work was given by the assessee to that Mc Kenscy & Co. The learned DR submitted that claim of the assessee is not in accordance with section 37 of the Act. The expenses u/s 37(1) is allowable only in respect of asesssee's business and not for other purposes of other business. 8. We have heard the learned representatives of the parties and perused the record as well as gone through the decisions cited. In principle We agree with the ratios laid down in those decisions cited by the learned AR but those ratios does not help to the assessee as issue under consideration is different. In CIT vs. Ananda Bazar Patrika (P.) Ltd., 184 ITR 542 (Cal.) the Calcutta high court held that the market survey would give information about the circulation of the newspaper at a given point of time. There was no evidence to show that the readership would remain constant over a large number of years. Hence, the expenditure incurred on market survey could ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clear that conditions at (i), (ii) and (iii) above are negative conditions whereas the condition at (iv) above is a positive condition. If the expenditure satisfies the negative conditions, it has to satisfy the positive condition in order to be eligible for deduction under section 37(1) of the Act. Further conditions, in addition to the conditions that the expenditure should be incurred wholly and exclusively for the purpose of business, which are to satisfy, are that the expenditures should be incurred by the assessee during the relevant year. The burden of proving, that a particular expenditure has been laid out or expended wholly and exclusively for the purposes of business so that the assessee may be entitled to claim deduction is on the assessee. Let us proceed to examine whether these necessary conditions existed to claim this allowance under section 37(1) of the Act and whether the assessee discharged the burden cast on it. In the case under consideration the assessee has claimed Rs. 2,04,30,000/- on the basis of one debit note dated 29th October, 2003 issued by Birla Project Development Co to the assessee company, Transworks Information Services Ltd.(previous n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reimbursed to BPDCL." 12. From the above facts, we find that the expenditures were already incurred by another assessee i.e. BPDCL for the purpose of their own business. When the assessee company acquired by Indian Rayon & Industries Ltd., it was decided to share those expenses, which were incurred by BPDCL, admittedly, the expenses were incurred without the consent of the assessee company. There is no material on record based on which it could be said that the assessee company has asked M/s BPDCL to incur such expenses and the same will be apportioned or shared between them. Both the assessee company and the BPDCL are the companies governed by the Rules and Regulations of the Companies Act. Normally, in such circumstances, both the concerns should have passed such an arrangement in their meeting of Board of Directors and should pass necessary resolution in this regard. It was specifically asked the assessee to file the copies of Board of Directors' Resolution, if any, passed in this regard. The assessee filed the Board's approval of business promotion expenses and treatment of expenses reimbursed to BPDCL in their books of account vide assessee's letter dated 10th Ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut the fact is that the job was given by M/s Birla Project Development Co. Ltd. for assessing of potentials of IT companies. The expenses were incurred by M/s Birla Project Development Co. Ltd., and not by Transworks Information Services Ltd. The AO noted that at the time of hearing before him the assessee's representative has submitted that the work of this project was going on for more than a year. This shows the work has not been allotted by Transworks Information Services Ltd. to Mc Kinsey & Co. So, the question of apportioning of expenses incurred by M/s Birla Project Development Co. Ltd. does not arise. He has also noted that there was no work allotment letter given by M/s Transwork information to M/s Mc Kinsey & Co. to carry out the survey. There was no agreement between the M/s Transwork Information and M/s Birla Project Development Co. Ltd., to carry out such a survey. It has also noted by the AO that the assessee has given a single debit note dated 29/10/2003 raised by M/s Birla Project Development & Co. Ltd. in the name of M/s Transwork Information. Both the entities are the registered corporate under the Indian Companies Act. Had there been any understanding ..... X X X X Extracts X X X X X X X X Extracts X X X X
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