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M/s Gillette India Limited Versus Assistant Commissioner of Income Tax, Circle-2, Alwar

2016 (1) TMI 78 - ITAT JAIPUR

Ad hoc disallowance of advertisement and sales promotion expenses - Held that:- It is undisputed fact that percentage of expenses on advertisement and sales promotion with reference to sale of substantial increase compared to preceding year. In immediate preceding year, these expenses were at 10.96% on sale and in current year it increases at 14.11% on sale. The reply submitted by the assessee further shows that in A.Y. 2006-07 and this ratio has increased at 16.05% but no disallowance has been .....

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ultinational company and their share holders are not directly involved in the ordinarily activity of the business of the company.

The assessee has submitted all the details of advertisement and sales promotion expenses in CD form and in form of hard copy it was rendering into around 600 pages on for details. Each and every voucher has been maintained by the assessed as there is an audit has been made by the auditor and not qualifying comment had been made by him under this head. The .....

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he Petitioner : Shri P.C. Parwal (CA) For the Respondent : Shri Kailash Mangal (JCIT) ORDER Per T. R. Meena, A. M. This is an appeal filed by the assessee against the order dated 12/02/2014 passed by the learned CIT(A), Alwar for A.Y. 2005-06. The sole ground of appeal is as under:- 1 The ld CIT(A) has erred on facts and in law in confirming the action of the A.O. in making ad hoc disallowance of ₹ 50 lacs out of advertisement and sales promotion expenses. 2. In this case, this issue has b .....

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. CIT (A) that how such increase has been occurred on account of these expenses. As per orders of AO and ld. CIT (A), full details were not filed. On the other hand, ld. Counsel of the assessee stated that in the shape of CD, the full details were filed. There are more than 30,000 entries on account of these expenses. Whatever query was made by the AO they were answered accordingly. Keeping in view all these facts and circumstances, we set aside this issue to the file of AO to examine the issue .....

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romotion expenses of ₹ 63,98,61,831/-. During the course of assessment proceedings also, the assessee was asked justify the claim of expenses and to establish that the same were incurred wholly and exclusively for the purpose of business. In this regard, the reply filed by the assessee during the set aside assessment proceedings has been considered and neither found convincing nor satisfactory. It is noticed that assessee has claimed Trade Gifts at ₹ 1,21,84,872/-, Trade Gifts Promo .....

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omotion has increased drastically to ₹ 63,98,61,831/- from ₹ 46,50,26,077/- during the last year. The complete bills and vouchers to justify these expenses have not been provided. There is no justification for such increase in advertisement and sales promotion expenses. In the absence of complete bills and vouchers of these expenses it cannot be established that all the expenditure was wholly and exclusively for business . Non business expenditure under this head cannot be ruled out .....

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nsidered the assessment order and submissions made by the appellant and find that A.O. has gone through the details of advertisement and sales promotion expenses filed by the appellant and after considering the material placed on record has disallowed ₹ 50 lacs on estimate basis out of the total expenditure of ₹ 63.98 crores claimed under this head. A.O. has further stated that complete bills and vouchers to justify the claim of expenses under this head were not filed. 5.4 During the .....

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that the appellant has not been able to controvert the findings given by the A.O. and has made bald statements to justify the claim of expenses under this head. The percentage of expenses to sales claimed under this head has increased from 10.96% in the preceding year to 14.11% in the current year. The turnover has increased marginally from ₹ 424.33 crores in the preceding year to ₹ 453.56 crores in the current year. Thus, I agree with the action taken by the A.O. and accordingly con .....

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vouchers to justify these expenses have not been provided. He has also not specified any particular bill or voucher which is not provided or any expenditure which is non business expenditure. Therefore, the disallowance made by him and confirmed by CIT(A) is uncalled for. He further submitted that the expenditure has increased as compared to the last year to have the market penetration and to increase the sales. The position of sales and the expenditure incurred in various years is as under:- A. .....

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/- 68,45,77,760/- 11.44% 50,00,000/- [CIT(A) reduced to ₹ 35 lacs. Appeal Pending before ITAT] 2009-10 6,50,28,18,154/- 81,09,00,508/- 12.47% Nil From the above table, it can be noted that in the year under consideration, the expenditure has increased to boost the sale. The assessee has therefore, to incur higher advertisement expenditure to increase the sales. It may also be noted that in A.Y. 06-07, 07-08 and 09- 10, where the expenditure is more/comparable as compared to the year under .....

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expenditure of ₹ 37.66 crores is in respect of advertisement for which party-wise detail covering an amount of ₹ 36.87 crores was furnished. The remaining expenditure was in respect of sales promotion and free distribution of sample products which is fully verifiable from the individual details submitted in the soft format. The entire expenditure incurred by the assessee is necessarily and exclusively for the purpose of business and duly supported with proper supporting and bills. Th .....

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e a ground for making/confirming adhoc disallowance. He placed reliance on the following cases:- 1. Widex India (P) Ltd. Vs. DCIT (2012) 66 DTR 57 (Del.) (Trib.). 2. PNC Construction Co. Ltd Vs. DCIT (2013) 144 ITD 577 (Agra) (Trib.). 3. ACIT Vs. Ganpati Enterprises Ltd. (2013) 142 ITD 118 (Delhi) (Trib.). 4. CIT Vs. Symphony Comfort System Ltd. (2013) 216 Taxman 225 (Guj.) (HC) (Mag.). 5. Seasons Catering Services (P) Ltd. Vs. DCIT 43 DTR 397 (Del) (Trib). 6. CIT Vs. Oracle India (P) Ltd. 199 T .....

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r of the ld CIT(A). 6. We have heard the rival contentions of both the parties and perused the material available on the record. It is undisputed fact that percentage of expenses on advertisement and sales promotion with reference to sale of substantial increase compared to preceding year. In immediate preceding year, these expenses were at 10.96% on sale and in current year it increases at 14.11% on sale. The reply submitted by the assessee further shows that in A.Y. 2006-07 and this ratio has .....

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