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Commissioner of Income Tax-III Versus M/s Socomec HPL Pvt. Ltd.

2015 (10) TMI 403 - DELHI HIGH COURT

Business promotion expenses - ITAT restricted disallowance - Held that:- Assessee had stated that the expenses were incurred through debit card and credit card towards fuel, hotel bills and some instances for which supporting bills could not be produced. The ITAT observed that there could be an inflation of expenditure and the possibility of use of certain facilities for personal purposes could not be ruled out. Therefore, the disallowance was restricted to 20%. The view taken by the ITAT is a p .....

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uch parties, there was no justification for the disallowance. The Court finds nothing legally erroneous in the approach of the ITAT in the matter. If the details were furnished by the Assessee were not verified by the AO for their genuineness by making enquiries, there was no basis for disallowing the expenses. The Court, accordingly, declines to frame a question of law on this issue.

Technical knowhow fee - ITAT examined the technical collaboration agreement entered into by the Asses .....

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paid as revenue expenditure could not have been disallowed. The Court accordingly declines to frame question on this issue. - ITA No. 503/2014, ITA No. 504/2014 - Dated:- 16-9-2015 - S. Muralidhar And Vibhu Bakhru, JJ. For the Petitioner : Mr Kamal Sawhney, Senior Standing Counsel with Mr Raghvendra Singh, Junior Standing Counsel For the Respondent : Mr Gajendra Maheshwari and Ms Swati Thapa, Advs ORDER 1. These are two appeals by the Revenue against the common order dated 6th December, 2013 pa .....

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n income of ₹ 3,12,84,020/-. The case of the Assessee was picked up for scrutiny. The Assessing Officer ('AO') noted that the Assessee had debited a sum of ₹ 3,56,12,515 in its Profit and Loss Account (P&L A/c) under the head of 'Selling and Distribution Expenses'. On further enquiry, the AO found that a sum of ₹ 3,00,00,000/- had been paid to HIL as expenses under this head. 4. A copy of an Agreement dated 18th March, 2006 entered into by the Assessee with .....

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ence to Section 40 (a) (ia) of the Act for failure to deduct tax at source while making such payments. 5. The AO also held that the expenditure of ₹ 17,76,275/- debited on account of payment towards 'commission on sales' was not genuine since the Assessee had furnished inaccurate particulars. Further the said payment was also made without deduction of tax at source. The said amount was accordingly added to the income of the Assessee. 6. The third item picked up for scrutiny was a s .....

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of the expense. 8. The Assessee had claimed an expense of ₹ 55,16,840/- on account of payment of 'technical knowhow fee' to SSA. The Assessee enclosed a copy of the Agreement entered into by it with SSA to substantiate its plea that it was a revenue and not a capital expenditure. The AO, however, rejected the plea and capitalized the amount. After allowing depreciation at 12.5%, the AO disallowed a sum of ₹ 48,27,235/- and added it back to the total income of the Assessee. Li .....

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lowance and consequent addition of ₹ 3 crores paid to HIL towards selling and distribution expenses by holding that the agreement with HIL was sham and an attempt to divert funds. (ii) Confirmed the disallowance and consequent addition of ₹ 9,89,454/- incurred as 'business promotion expenses'. (iii) Confirmed the disallowance and consequent addition of ₹ 21,02,774/- incurred as 'incentive in selling and distribution expenses' by holding that credit notes produce .....

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d be treated as a capital expenditure and 50% as revenue expenditure. As regards, the disallowance of ₹ 17,76275/- paid towards commission on sales, the CIT(A) disagreed with the AO and remitted the issue to the AO for deciding afresh whether the expenditure had to be allowed. 11. In the further appeals filed both by the Assessee and the Revenue, the ITAT has impugned by the common order remanded two issues to the AO for re-determination: one regarding the addition of ₹ 13,15,648/- o .....

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ar claims. (ii) Restricted the disallowance of ₹ 9,89,454/- on account of business promotion expenses to 20% i.e. ₹ 2 lakhs. (iii) Deleted the disallowance of ₹ 21,02,774/- paid as 'incentive in selling & distribution expenses', on the ground that the Assessee had floated a scheme for providing incentives and had also filed credit notes given to various parties. (iv) Deleted the addition of ₹ 55,16,840/- on account of technical knowhow fee by holding that the .....

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sion on sales' and payment of the 'technical knowhow fee'. 13. As far as the issue concerning liabilities not being genuine is concerned, the Court notices that the ITAT has itself remanded the issue to the AO for re-determination. Likewise, on the question of the payment of commission on sales, the ITAT has remanded the issue to the AO to examine the additional evidence filed by the Assessee. The Court finds no reason to interfere with the order of the ITAT on these two issues. 14. .....

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evenue's subsequent appeal. For AY 2010-11, after scrutiny, an assessment order was passed under Section 143 (3) of the Act in which a similar claim was allowed. 15. The Court further notes that even in AYs 2004-05 to 2006-07, the Assessee had justified the payments with reference to similar Agreements with HIL dated 18th March, 2004 and 26th March, 2005 where the only change was as regards the monthly remuneration figures. The remuneration in the first agreement was ₹ 12,54,996/- per .....

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y legal infirmity that the conclusion drawn by the ITAT on the principle of consistency that the above claim could not be held to be bogus and non-genuine. The Court, therefore, declines to frame the question of law as regards this issue. 17. On the issue concerning 'business promotion expenses', the ITAT has restricted disallowance to ₹ 2,00,000/- and has explained the basis for arriving at such a conclusion. The Assessee had stated that the expenses were incurred through debit ca .....

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