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2016 (8) TMI 760 - ITAT DELHI

2016 (8) TMI 760 - ITAT DELHI - TMI - Disallowance on account of Sales Promotion expenses - Held that:- Since the transactions are recorded in the books of accounts of the assessee, unless there is a fact to contradict such transactions, disallowances cannot be made on the basis of certain assumptions. It is a normal practice in business that expenses are incurred as incentive to the dealers against bulk orders to push sales. Such endeavor of the assessee can be seen as successful in increase of .....

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allowance cannot be made on the basis of assumptions. Moreover, it is noted that it is a normal practice in the business that expenses are incurred as incentive to the dealers against bulk orders to push sales which can be seen from the increase turnover of the assessee. Therefore, the Ld. First Appellate Authority has rightly deleted the addition in dispute and there is no need to interfere in the well reasoned finding given by the ld. First Appellate Authority, hence, we uphold the order of th .....

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014 - Dated:- 1-7-2016 - SHRI H.S. SIDHU, JUDICIAL MEMBER AND SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER FOR THE DEPARTMENT : Sh. P. Dam Kanunjnja, Sr. DR FOR THE ASSESSEE : None ORDER PER H.S. SIDHU : JM The Revenue has filed the present appeal against the impugned order dated 21/1/2014 passed by the Ld. Commissioner of Income Tax (Appeals-IX), New Delhi on the following grounds:- 1. The order of the Ld. CIT(A) is erroneous and contrary to facts and law. 2. On the facts and circumstances of the .....

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₹ 1,07,87,411/-, made by the AO as the assessee failed to justify the rebates and discounts given to its related party, entirely relying on the submission of the assessee, as the onus of establishing the genuineness of any expenditure is on the assesee which the assessee failed to discharge? 4. That the grounds of appeal are without prejudice to each other. 5. The appellant craves leave to add, to alter, to amend or to forgo any grounds of the appeal either before or at the time of the hea .....

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ng addition of ₹ 1,86,397/- u/s. 14A, ₹ 51,650/- u/s. 40A(3), ₹ 4,21,394/- as sales promotion expenses and ₹ 1,07,87,411/- u/s. 40A(2)(b) of the Act. Aggrieved with the aforesaid additions, assessee filed the appeal before the Ld. First Appellate Authority who vide impugned order dated 27.1.2012 has deleted the additions in dispute by partly allowing the appeal filed by the Assessee. 3. Now the Revenue is aggrieved against the impugned order and filed the present appeal b .....

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he view that no useful purpose would be served to adjourn the case. Therefore, in the interest of justice, we are deciding the issue in dispute exparte assessee, after hearing the Ld. DR and perusing the records. 6. We have heard the Ld. DR and perused and considered the relevant records available with us especially the orders passed by the revenue authorities. 6.1 Apropos deletion of addition of ₹ 4,21,394/- :- The AO noted in the assessment order that the assessee incurred sales promotio .....

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AO has erred in disallowing ₹ 4,21,394/- incurred towards sales promotion expenses. Copy of the debit note dt.20.11.2008 filed with the AO was summarily rejected with the remark that no such expenditure was incurred in the immediately preceding year and no purchase of gift items was included in the bank book. Assessee submitted that keeping in view the nature of business of the assessee and large turnover, business promotion expense of ₹ 4,21,394/- incurred during the year for compl .....

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d. CIT(A) has relied upon the case law in the case of Upper India Publishing House Vs. CIT (1979) 117 ITR 569 (SC) wherein, it has been held that whether payment is excessive or reasonable is a question of fact. Since the transactions are recorded in the books of accounts of the assessee, unless there is a fact to contradict such transactions, disallowances cannot be made on the basis of certain assumptions. It is a normal practice in business that expenses are incurred as incentive to the deale .....

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in the books of accounts of the assessee and unless there is a fact to contradict such transactions, the disallowance cannot be made on the basis of assumptions. Moreover, it is noted that it is a normal practice in the business that expenses are incurred as incentive to the dealers against bulk orders to push sales which can be seen from the increase turnover of the assessee. Therefore, the Ld. First Appellate Authority has rightly deleted the addition in dispute and there is no need to interfe .....

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ustries Ltd. In response to the query of the AO, the assessee submitted that the expenses are incurred as per commercial expediency to increase sales. Similar rebate and discounts were offered to other dealers of the business as well as the sister concern Media Industries Ltd.. The assessee also submitted that there is no particular advantage in transfer of profit from one company to other company when both companies are earning profit and paying tax at the same maximum marginal rate of income t .....

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submissions of appellant and the facts on record are considered. The judicial pronouncements given by the AO are also analyzed. It is seen that, the appellant has already explained with the documentary evidence that how much it would have cost to the assessee if same services were to be availed either by employing whole time employees on its role or obtaining the services of the independent consultants on these areas. The company could not give better justification than this. However, the AO ha .....

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nable and justified. It was for the AO to dispute the claim on some cogent evidence and material which has not been done by him. Hence, the judicial decisions cited by AO does not support AO's findings. The judgments mentioned by the AO in his order simply suggest the principles which are laid down by Section 40A(2)(a)/(b) of the Act. 8.4 As per the provisions of Section 40A(2)(a) some justification on the basis of comparables and bench marking is required to prove the existence and quantify .....

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ain assessee's by diverting business profits to close relatives and concerns in the form of excessive payments for goods and services received. The facts and circumstances of the case does not indicate any such tax evasion plan. Both the companies are the tax -paying entities at the same rate of tax. So long as the arrangement is genuine and bona fide and the intention is not to evade taxes, it cannot be disregarded for the purpose of determining the taxability of the respective entity. 8.5 .....

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e case of Glaxo Smith kline Asia Pvt. Ltd. (SLP Civil No. 18121/2007), the Hon'ble Supreme Court has held that in the case of related party transactions the authorities must examine whether there is any loss of revenue. And, if exercise is revenue neutral, than the matter may be decided accordingly. So long as the arrangement is genuine and payments have actually been made and there is no tax evasion planning involved, when both the entities are paying tax at the maximum marginal rate, there .....

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ers money in pursuing litigation for the sake of it. In the similar facts and circumstances of the case, the Apex Court observed that "It is not as if the Revenue has been deprived of any tax. We are told that the rate of tax remained the same in the present A.Y. as well as in the subsequent A.Y. Therefore, the dispute raised by the Revenue is entirely academic or at best may have a minor tax effect. There was, therefore, no need for the Revenue to continue with this litigation when it was .....

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ary evidence that how much it would have cost to the assessee if same services were to be availed either by employing whole time employees on its role or obtaining the services of the independent consultants on these areas. We also note that the AO did not ascertained Fair Market Value (F.M.v.) of the services and other connotations to establish that assessee has paid unreasonable amount and quantum of payment does not commensurate with the services rendered. Since the level of discount given is .....

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nt is genuine and bona fide and the intention is not to evade taxes, it cannot be disregarded for the purpose of determining the taxability of the respective entity. We further note that Ld. CIT(A) relied upon the decision of Hon'ble High Court in the case of CIT Vs. M/s Gautam Motor (2010) 194 Taxman 21 (Delhi) also 334 ITR 326 (Del) wherein it was held that, "There is no case made out by the Department that any tax avoidance has been attempted by these arrangements. We, therefore, see .....

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matter may be decided accordingly. So long as the arrangement is genuine and payments have actually been made and there is no tax evasion planning involved, when both the entities are paying tax at the maximum marginal rate, there cannot be any justification in disallowing any amount on estimated basis. Such revenue neutral addition made by AO unnecessarily increases avoidable academic exercise. In the case CIT Vs. M/s Excel Industries Ltd. in appeal no. 125 of 2013 vide order dated 08.10.2013 .....

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