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M/s. SICPA India Ltd. Versus Commissioner of Income Tax -III, Kolkata

2016 (5) TMI 1226 - CALCUTTA HIGH COURT

Eligibility for deduction under Section 80 IB denied - manufacturing activity - Held that:- We find that the assessee has not clearly established that the income was derived from manufacturing activities or that the income is directly relatable to the manufacturing activities. The assessee admittedly had trading activity. It is not clear as to whether the income, as indicated above, aggregating to approximately ₹ 30 lacs arose out of activities relating to manufacturing activity. The quest .....

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No.288 (Kol) of 2006 and ITA No.374(Kol) of 2006 both pertaining to the assessment years 2002-03. There were two appeals because both the revenue and the assessee had challenged the order of the CIT(A). The appeal preferred by the revenue was dismissed and the appeal preferred by the assessee was partly allowed. The assessee has come up in appeal. The following questions of law were formulated when the matter was admitted by this Court on 7th February, 2008: 1. Whether on a true and proper inter .....

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ose of computing the amount of deduction ? 2. Whether the Tribunal was justified in law in upholding the disallowance of ₹ 25 lacs out of business promotion expenditure incurred by the appellant wholly and exclusively for the purposes of its business ignoring the material facts and the settled legal position that the Assessing Officer could not substitute his own views in place of those of the businessman who was the best judge of commercial expediency and its purported findings in that be .....

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income arising out of interest recovered from employees, interest on margin money, interest on short term fixed deposits, interest from debtors, rent realised from the employees which aggregated to a sum of ₹ 30 lacs approximately. Mr. Agarwal, learned advocate for the respondent/revenue, submitted that there is nothing to show that the income of about ₹ 30 lacs was derived from the manufacturing activities. He submitted that unless a link between the income and the manufacturing ac .....

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tion no.1, for lack of appropriate evidence, is answered in the affirmative and in favour of revenue. In so far as the question no.2 is concerned, Mr. Agarwal drew our attention to paragraph 4.2 of the judgement of the learned Tribunal which reads as follows: At the time of hearing before us, it is submitted by the learned counsel that the expenditure was incurred for the purpose of business. He has furnished the details of the expenditure which is placed at page - 186 of the paper book. However .....

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as incurred for the purpose of business promotion, as claimed. The expenditure incurred was disproportionately high as compared to immediately preceding years. In view of the totality of the above facts, in our opinion, some disallowance out of business promotion expenditure was certainly called for. The disallowance was made by the A.O. at ₹ 50,00,000/- out of the total expenditure of ₹ 1.11 crores was certainly excessive. Considering the facts of the case and the arguments of both .....

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fact. He drew our attention to the order of the CIT(A) appearing at page 77 of the Paper Book and internal page 27 of the order of the CIT(A) in order to show that the nature of expenses, name and address of the party to whom paid and the total amount paid during the year were duly furnished by the assessee. The assessee, it appears, had filed a written submission before the C.I.T.(A). The C.I.T.(A) on its part has extensively quoted from the written submissions. The C.I.T.(A) has also quoted t .....

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for purpose of company s business. List of direct customers and dealers to whom the above gifts were given is enclosed herewith and marked as Annexure-2. The above efforts have resulted in an expansion in the market share of commercial inks of the appellant by 41% in Assessment Year 2003-04 as compared to Assessment Year 2002-03 with a corresponding increase in turnover of commercial inks by 57% in the next assessment year. Mr.Khaitan also drew our attention to the views expressed by the statuto .....

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Mr.Khaitan submitted that the statutory auditors have clearly stated that they did not come across any personal expenses, which were charged to the profit and loss account. The question was also considered by the internal audit and the question raised by them were also duly answered and the views were also considered by the audit committee. The purpose of drawing our attention to the aforesaid pieces of evidence is to show that the learned advocate out of misapprehension of facts may have submit .....

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tion regarding the allowability and reasonableness of the aforementioned expenditure and also in view of the comment of the Internal Auditor, ₹ 50,00,000/- is being disallowed. The Commissioner of Appeal did not disallow the sum of ₹ 25 lakhs on the ground that there was any lack of details as regards the recipients of the gifts. Whether the business promotion expenditure incurred by the assessee is an allowable expenditure is a question which need not be answered by us because had i .....

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he question which arises for determination is whether the disallowance to the extent of ₹ 50 lakhs by the assessing officer and to the extent of ₹ 25 lakhs by the C.I.T.(A) which subsequently got the seal of approval from the Tribunal was a correct disallowance. If there is no dispute that the amount has been spent wholly and exclusively for the purpose of business, the question of disallowance of a sum of ₹ 50 lakhs or ₹ 25 lakhs should not have been arisen. We are also .....

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l was satisfied that the expenditure was laid out or expended wholly and exclusively for the purpose of the business of the assessee there was no reason why the full amount expended should not have been allowed. It is open to the Tribunal to come to a conclusion either that the alleged payment is not real or that it is not incurred by the assessee in the character of a trader or that it is not laid out wholly and exclusively for the purpose of the business of the assessee and to disallow it. But .....

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