TMI Blog2012 (1) TMI 256X X X X Extracts X X X X X X X X Extracts X X X X ..... t year. In A.Y 2003-04 addition on account of low G.P was made to the extent of 2.8% of sales, the relevant para is quoted below. As mentioned earlier the G.P for A. Y 2001-02, 2002-03 and 2003-04 are 49.01%, 45.79% and 38.98% respectively. There is a fall in gross profit to the extent of 3.2% in A. Y 2002-03 and5.8% in A. Y 2003- 04. Substantial fall in G.P has resulted in nominal income shown by the .assessee. As discussed in the preceding para, book results of the assessee have been rejected in view of the various facts and judicial pronouncement. Now the issue of estimating the gross profit for the year is discussed. Assessee has given following reasons for fall in G.P- 1 The price of raw material has increased in last 2 years. 2 Product mix has changed and required different raw materials. 3 Buying of imported raw material at higher cost 4 increase in cost due to MNC Competition , 14.1 The above submissions of the assessee have been considered with the facts of the case. There is definitely some increase in raw material price. Similarly, product mix has a/so changed considering the change in quantity, consumption of various raw material. Ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s the net addition (Rs.10300744/- - ₹ 3366946/-) is ₹ 6933898/-. Considering this a net addition of ₹ 69,33,898/- is made on account of rejection of books of account and low gross profit disclosed by the assessee. Penalty u/s. 271(1)(c) is initiated for the same. 6.1. During this year assessee gave following additional reasons for fall in G.P. 1. Write off of obsolete-non salable finished goods to the extent of 1.44%. 2. Due to appreciation of rupee against U.S. Dollar and less realization of export proceeds -1.6%. 3. Higher packing material cost -0.98% 4. Balance due to inflation and other reasons -1.07% 6.2 The submissions of the assessee has been considered. The difference in gross profit added last year remains for this year also and therefore addition of 2.8% remain valid for this year also in view of the reasons given in last year's order as mentioned above. Apart from the specific reasons for fall in G.P the general reason for 1.07% fall is not substantiated by any evidence and therefore the fall in G.P to the extent of 1.07% in comparison to previous year is considered unexplained. Total addition on account of low ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the assessee's claim of advertisement expenses cannot be considered wholly and exclusively for the purpose of assessee's business in view of the 2 counts - i) the part of the advertisement also creates Rasna brand value which is capital in nature ii) the other manufacturing concerns of Rasna products are not incurring any advertisement expenses. Even if their products are different they fall in the same Rasna Products category and therefore part of the expenses are attributable for them in views of the facts narrated earlier. Considering the above, I disallow 30% of the advertisement expense (10% relating to brand building and 20% for the benefit to other manufacturer) claimed by the assessed which is ₹ 5,90,85,614/- 30% of the same comes to ₹ 1,77,25,684 which is Penalty proceedings u/s 271(1)(c) will be initiated for the same. The AO was of the view that the huge advertisement expenses cannot be said to be wholly and exclusively incurred for the purpose of business of the assessee. He accordingly made the impugned addition. The learned CIT(A) deleted the addition holding that the issue is covered by the decisions of Mumbai Bench and Delhi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cer is that other associate concerns of the appellant are also benefited by the advertisement expenses incurred by the appellant. In my view, this is not a bar to claim the advertisement expenses u/s. 37 because of the absence of the wordings necessarily. The Mumbai ITAT in the case of Star India (P) Ltd V/s. Addl. C/T 703ITD 73 (Mub) TM held as under:- 43. As far as second question relating to disallowance of expenses is claimed, I find that there is no dispute about the genuineness of the expenditure incurred by the assessee. There can further be no dispute that expenditure incurred by the assessee on advertisement made had direct nexus with earning of income by the assessee. It is possible that expenditure on advertisement might have also benefited the Principal of the assessee but on above ground, the expenditure incurred by the assessee could not be disallowed. The assessee clearly incurred expenses wholly and exclusively for purposes of its business and, therefore was entitled to deduction of expenditure claimed in computing its income. The learned JM has given sound reasons, for allowing expenditure in question. On facts of case, it is not possible for me to agree wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... advertisement expenses incurred on promoting viewership of TV channel by the assessee engaged in procuring programmes for those channel was expenditure incurred wholly and exclusively for the purpose of its business and it could not be disallowed on the ground that it might have also benefited the assessee's principal. In view of what has .been discussed above, we do not find any reason to interfere with the order of the CIT(A) passed in this regard. Hence, the same is upheld. 3.6 Similar view has been expressed by Delhi. ITAT in the case of Sony India P. Ltd. V/s. DCIT JI8 TTJ (Delhi) 865. The relevant discussion is iced as under:- We have considered the rival submissions and also perused the relevant material on record. It is observed that the expenditure incurred by the taxpayer during the year under consideration on advertisement and sales promotion was disallowed by the AO to the extent of. 10 per cent on estimated basis on the ground that the same to that extent was going to strengthen the brand image of Sony worldwide and the benefit thereof thus was going to flow to the parent company viz., Sony Corporation, Japan. At the time of hearing before us, the lea ..... X X X X Extracts X X X X X X X X Extracts X X X X
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