TMI Blog2007 (2) TMI 174X X X X Extracts X X X X X X X X Extracts X X X X ..... sment year 1997-98. The petitioner is a 100 per cent. subsidiary of Coca Cola South Asia India Holding, Hongkong, which in turn is a subsidiary of Coca Cola Asia Holding, Singapore, and the ultimate holding company of the petitioner is "The Coca Cola Company U.S.A. ("TCCC" for short). TCCC is the registered owner in India of the trade marks such as Coca Cola, Coke, Fanta and Sprite. The petitioner had entered into an agreement with the TCCC on June 1, 1993, pursuant to which an ordinary gratuitous non-exclusive licence was granted to the petitioner and, accordingly the petitioner has been manufacturing and selling non alcoholic beverage basis also known as "concentrates" and beverages made out of such concentrates. The business activity of the petitioner comprises of blending, bottling and distribution of non-alcoholic beverages. Instead of setting up its own factory, the petitioner has entered into an arrangement with bottlers, fillers, wooden crate manufacturers, etc. so that the "concentrate" sold by the petitioner are used in the manufacture of non-alcoholic beverages under their strict supervision and marketed throughout the country. The petitioner had also entered into a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he amount confirmed to have been received by those parties. The above disallowance included claims which were not confirmed by some of the parties by sending their reply to the Assessing Officer. The above disallowance included disallowance of expenses incurred in the earlier years and ad hoc disallowance of Rs. 2,00,00,000. Thus, out of the sum of Rs. 73,79,03,469 claimed as marketing expenses, the Assessing Officer allowed Rs. 55,79,29,126 and disallowed Rs. 17,99,74,343, the particulars of which are as follows: Rs. Rs. (i) Difference 2,12,04,099 (11 parties) (ii) No reply 3,90,28,917 (14 parties) (iii) Earlier years 9,97,41,327 (7 parties) ----------- 15,99,74,343 (iv) Ad hoc 2,00,00,000 ------------ 17,99,74,343 ------------ The petitioner filed an appeal before the Commissioner of Income-tax (Appeals) ("the CIT (A)" for short), inter alia, challenging the disallowance of service charges and marketing expenses made by the Assessing Officer. After making detai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the appellant. The decision of the hon'ble Supreme Court in the cases of Travancore Titanium Product Ltd. v. CIT [1966] 60 ITR 277 and Indian Aluminium Company Ltd. v. CIT [1972] 84 ITR 735 provide relevant legal authority in this regard in the facts and circumstances of the nature of services rendered by the CCI Inc. to the appellant and other entities in India. (v) There are expenses embedded in the service charges claimed by the appellant and embedded in the reimbursed cost of the appellant to the CCI Inc. which are not allowable in nature as per income-tax law. These include foreign travel expenses of wives of employees for their pleasure trips, capital expenditure on purchase of software etc. (vi) There are expenses on various services directly provided to the appellant for supply of bases and concentrates of the beverages and various other aspects which have been discussed in detail in the appellate order for the assessment year 1998-99." Accordingly, the Commissioner of Income-tax (Appeals) held that since the services rendered by the CCI Inc. benefited not only the petitioner but also benefited other group companies, disallowance has to be made to that extent and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itioner was recovering the full cost of such services from the bottlers in the form of increased sales price of concentrate? (iv) Whether expenses embedded in the service charges such as foreign travel expenses of wives, etc. are allowable as per income-tax law?" As regards the disallowance of the marketing expenses, it is pertinent to note that both the petitioner as well as the Revenue had filed appeals against the order of the Commissioner of Income-tax (Appeals). According to the petitioner, the Commissioner of Income-tax (Appeals) erred in making disallowance of marketing expenses amounting to Rs. 10,00,00,000. According to the Revenue the Commissioner of Income-tax (Appeals) ought to have made disallowance of marketing expenses at Rs. 13,03,94,46 as computed below: Rs. Rs. (i) Difference 94,35,775 (ii) No reply 95,64,184 (iii) Earlier years 5,76,75,624 ----------- 7,66,75,583 (iv) Ad hoc as in the 2,00,00,000 asstt. Order (v) Capital expenditure 3,37,18,863 on films/TV and brand building (bal.fig) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se to the file of the Assessing Officer for redetermination without deciding the issues specifically raised in the appeal. The Tribunal by its order dated July 7, 2006, held that its decision to restore the matter to the Assessing Officer was a conscious decision taken based on the totality of the facts and circumstances of the case. The Tribunal further held that though the Assessing Officer is required to consider as to whether the entire claim of service charges and marketing expenses were incurred in the assessment year in question, the quantification of inadmissible expenses which may ultimately be found to be not having been incurred for the purpose of the assessee's business shall be restricted to Rs. 10,80,04,482 of the service charges and Rs. 17,99,74,343 of the marketing expenses. Challenging the aforesaid orders passed by the Tribunal, the present petition is filed. Mr. Dastur, learned senior advocate appearing on behalf of the petitioner submitted that the Tribunal seriously erred in restoring the matter to the file of the Assessing Officer for de novo consideration of the entire claim of service charges and marketing expenses, instead of adjudicating upon the issues ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed counsel appearing on behalf of the Revenue, on the other hand, submitted that in the present case, from the assessment order dated March 31, 2000, it is clear that the petitioner had not given the basis or break-up of the working of the expenses claimed by them. In these circumstances, the Tribunal was justified in remanding the matter to the Assessing Officer for de novo consideration. Mr. Kotangale submitted that by the remand order no prejudice is caused to the petitioner, because, as per the order of the Tribunal dated July 7, 2006, the disallowance on remand is restricted to the disallowance made by the Assessing Officer in the original assessment order and it would be open to the petitioner to establish before the Assessing Officer that the amounts claimed by them have been actually spent wholly and exclusively for the purpose of business. Relying upon a Full Bench judgment of this court in the case of Ahmedabad Electricity Co. Ltd. v. CIT [1993] 199 ITR 351, Mr. Kotangale submitted that the basic purpose of an appeal in an income-tax matter is to ascertain the correct tax liability of the assessee and for that purpose the Appellate Tribunal under section 254 of the Inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 10,00,000 confirmed by the Commissioner of Income-tax (Appeals), the petitioner claims that before the Tribunal, they were agreeable for confirmation of the disallowances made by the Commissioner of Income-tax (Appeals) i.e., prior period expenses at Rs. 4,11,61,718 and disallowance of Rs. 31,19,317 on account of "differences/no reply". Therefore, the issue to be decided by the Tribunal was whether the disallowance of prior period expenditure should have been Rs. 5,76,75,624 as claimed by the Revenue [instead of disallowance of Rs. 4,11,61,718 confirmed by the Commissioner of Income-tax (Appeals)] and whether the disallowance on account of differences/no reply should have been Rs. 1,89,99,955 as claimed by the Revenue [instead of disallowance of Rs. 31,19,919 confirmed by the Commissioner of Income-tax (Appeals)]. The Tribunal was required to decide as to whether the said differences/no reply cases deserved to be allowed as the payments were made by account payee cheques and constituted a small fraction of the total expenditure of Rs. 73,79,03,469. The Tribunal was required to decide whether the Commissioner of Income-tax (Appeals) was justified in making the disallowance of mark ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d only if it is necessary to decide the issues which are the subject-matter of the appeal. In the present case, none of the issues specifically raised in the appeal have been considered by the Tribunal before remanding the matter to the file of the Assessing Officer. By the impugned order, the Tribunal has directed the Assessing Officer to reconsider the entire claim of service charges and marketing expenses by first segregating the prior period expenses and thereafter determine the actual amount pertaining to the year under appeal and adjudicate as to whether the expenses incurred in the year in question have been incurred wholly and exclusively for the purpose of business. It is pertinent to note that in paragraph 50 of its order, the Tribunal has given a categorical finding to the effect that out of the disallowance of service charges of Rs. 10,80,04,482 confirmed by the Commissioner of Income-tax (Appeals), service charges amounting to Rs. 3,37,06,617 were incurred in the earlier year and that amount is not allowable in the year in question. Having quantified the claims which relate to earlier years, the Tribunal was not justified in remanding the matter to the Assessing Offi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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