TMI Blog2019 (9) TMI 300X X X X Extracts X X X X X X X X Extracts X X X X ..... d claim was also not accepted. Vide para 5.10.2, the Assessing Officer notes that during scrutiny proceedings, assessee was asked several times to produce details of services rendered. The assessee was specifically asked to produce evidence of services rendered but the assessee was only emphasizing on the service agreement for allowability of expenditure. Further, it was held by Assessing Officer that where the assessee was engaged only in the manufacturing of beverage base used by bottlers, services rendered to the bottlers was not allowable. - Expenses not allowed. Proof and genuineness of the expenses - Held that:- the onus was upon the assessee to justify expenditure, but same has not been fully discharged by assessee. Undoubtedly, the payments were made to a related concern and onus upon the assessee was greater in such circumstances to prove and establish that the price paid by assessee for services availed were at market rates. One of the issues which were raised by authorities below in denying the claim was the benefit of services to the bottlers and hence, expenditure not relatable to the business of assessee, cannot be allowed as expenditure. Allowability of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sets and depreciation on such block of assets cannot be denied to the assessee. We find merit in the plea of assessee in this regard and hold that the assessee is entitled to claim depreciation on opening WDV as on 01.04.1999 of ₹ 3.02 crores from year to year. Merely because the assessee had purchased the assets and had shown the said purchases as addition in its block of assets, the assessee was not entitled to claim of depreciation on such assets. This is the basic non-discharge of onus cast upon it. Plea of assessee that placing the coolers also serves as an advertising tool does not carry any weight. The assessee again reiterated that the assessee was the manufacturer of concentrate and in the absence of any business agreement to that extent either with CCI Inc or bottlers, there is no merit in the aforesaid claim of assessee and accordingly we hold that the assessee had failed to establish that the said coolers have been used in the business of assessee. In the absence of assessee fulfilling the conditions laid down in section 32 of the Act, the assessee was not entitled to any claim of depreciation on the additions made to the coolers from assessment year 2000-01 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arges paid by assessee, wherein the Assessing Officer had disallowed 10% of said expenses and the CIT(A) in assessment year 1998-99 had enhanced it to 25% of disallowance resulting in disallowance of ₹ 17,60,18,500/-. The Assessing Officer in assessment year 1999-2000 disallowed 100% of expenses and CIT(A) restricted to 30%. First, we shall deal with the factual and legal aspects raised in assessment years 1998-99 and 1999-2000 in order to adjudicate the aforesaid issue raised of allowability of service charges. It may be pointed out that in assessment year 1998-99, there is no appeal filed by Revenue. However, in assessment years 1999-2000 to 2004-05, there are cross appeals filed by assessee and Revenue. 5. The assessee had filed concise grounds of appeal in assessment year 1998-99 and the Revenue has not filed any appeal for assessment year 1998-99. But in assessment year 1999-2000 onwards, cross appeals are filed. The concise grounds of appeal in assessment year 1998-99 are as under:- Re: Service charges: (a) The CIT(A) erred in disallowing 25% of the service charges amounting to ₹ 17,60,18,500/- on the ground that the services were not wholly and exclu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for various brands of soft drinks of Coca Cola. The assessee was 100% subsidiary of Coca Cola South Asia Holding Inc. The ultimate holding company was The Coca Cola INC, USA (hereinafter referred to as TCCC). The assessee was initially known as Britco Co. Ltd. The Coca Cola company was engaged in the manufacture of certain beverages, essence and beverage bases and related post mix syrups (hereinafter referred to as products) which were used in preparation of non alcoholic beverages (hereinafter referred to as beverages), which were distinct and sold under the trademark COCA COLA. The TCCC Inc., USA was also the registered owner in India of trademarks COCA COLA, COKE, FANTA and SPRITE and was also owner of and retains all proprietary rights in the distinctive bottle for Coca Cola. The TCCC, Inc. also owned the formula and other confidential information and trade secrets for manufacturing the products and beverages. The assessee and TCCC entered into an agreement on 01.06.1993. Under the License Agreement, TCCC granted the assessee an ordinary, gratuitous, non exclusive license to use in connection with the products, the trademarks, in India under certain terms and conditions. The A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee company and Hindustan Coca Cola bottling South West Pvt. Ltd. Another order was also passed by the Hon ble High Court of Delhi dated 30.08.1999. The assessee explained that Pet Can Bottling Unit, Ahmedabad Unit, Goble Contract Packing Unit at Tarapur and units situated at different places were demerged. The assessee had claimed various expenses as allowable under section 37(1) of the Act i.e. marketing expenses, bottle breakage, service charges, travelling expenses and communication expenses. The Assessing Officer analyzed section 37(1) of the Act and was of the view that settled position by the Hon'ble Supreme Court in CIT Vs. Calcutta Agencies reported in 19 ITR 191 (SC) and also in number of other cases was that burden was upon the assessee to prove that the expenditure claimed by assessee satisfies that it was not of capital nature, was expended wholly and exclusively for the purpose of business and was business expenditure. In case, the assessee fails to establish the facts, then the claim of deduction under section 37(1) of the Act was not admissible. The Assessing Officer further relied on the decision of the Hon ble High Court of Gauhwati in the case of Assam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee to TCCC, Inc, USA for use of trademarks and trade secrets and technical knowhow. The name service charges was given to camouflage the real issue. The Assessing Officer observed that payment under the name of service charges was squarely covered under the definition of royalty as per Explanation to section 9 of the Act. However, on without prejudice basis, as the assessee had not filed further details and evidences, as to what kind of services and whether the services had actually been rendered or not, 10% of expenditure was disallowed under section 37(1) of the Act, since the assessee had not fully discharged onus cast upon him; disallowance of ₹ 7,04,07,398/- was made in the hands of assessee. 9. The CIT(A) deals with the issue under para 4 onwards at page 48 onwards. The CIT(A) in the first instance notes the observations of Assessing Officer that the assessee had given only sketched details of expenses and he had disallowed 10% of expenditure. He further goes through case records and observed that disallowance was made by Assessing Officer mainly because the assessee did not furnish requisite details regarding nature of services rendered, etc. The assessee di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Apex Court in Swadeshi Cotton Mills Vs. CIT (1967) 63 ITR 57 (SC), wherein it was categorically held that mere filing of agreement was not an evidence. Further, reference was made to decision of Hon'ble Supreme Court in Laxminarayan Madanlal Vs. CIT reported in 86 ITR 439 (SC), wherein it was held that mere existence of agreement was insufficient to prove that expenditure was led out wholly and exclusively for the purpose of business. The Assessing Officer in the remand report proposed that entire service charges be disallowed. It may be pointed out that Assessing Officer in the assessment order had only disallowed 10% of service charges. The CIT(A) vide para 4.5.1 observed that it had carried out enquiry, wherein it had test checked the vouchers of CCI, Inc for the month of June, 1996, June, 1997 and March, 1998 with a view to understand the nature of expenses claimed as part of service charges. Further statement on oath of Mr. K.S. Nair, General Manager of assessee company was recorded on 22.05.2003 and he submitted copies of minutes of sales and operation meeting by the assessee. The assessee further made submissions before the CIT(A), who vide order sheet entry dated 06.0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ial experts. He then referred to service agreement dated 01.04.1995 and the CIT(A) observed that service agreement was entered into between the parties. As per clause 2 of service agreement, the assessee had no authority to negotiate or conclude contracts on behalf of TCCC or any of its suppliers. It was also specified that the assessee was not an agent of TCCC or CCI Inc. for any purpose. The assessee was required to pay service fees on the basis of actual cost incurred by CCI Inc in providing such services plus markup of 5% on such cost. This service agreement was later modified on 01.04.1997. The terms of amended service agreement dated Nil, but effective from 01.04.1997, was compared with the terms of earlier service agreement relevant to assessment year 1997-98 and it was noted that throws up features which reflected the true nature of activities undertaken. Clause 5 of amended agreement and the earlier agreement were compared and the finding of CIT(A) was that service agreement was only a sham document in so far as clause 5 was concerned. Vide para 7.3, the CIT(A) holds that in such background services rendered to assessee by TCCC required to be examined and which had to be d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that services relating to coordination between the assessee and bottlers were there and expenses relating to the same were required to be allowed. The CIT(A) thus, held that service charges were being paid to CCI Inc. even for services which were not for the purpose of business of assessee. The fact that CCI Inc. was rendering services to other group companies as well was borne out from controversy of toxic residues in cold drinks. He referred to newspaper reports in this regard and pointed out that from the said illustrative example, the fact that the assessee was paying service charges to CCI Inc. which includes expenditure incurred by CCI Inc., for the services being rendered to others and for other purposes was strewn over the vouchers submitted by the assessee. He then under para 8 onwards referred to facts emerging from the examination of vouchers submitted by CCI Inc. with regard to the claim of service charges. First of all, he reiterated that vouchers were maintained by CCI Inc. at Delhi and the assessee or its employees had neither looked into nor examined the vouchers at any stage either before or after paying service charges, which were purely based on the debit notes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re to be allowed but expenses incurred for training CCI Inc employees for International Laws relating to Brand and trademarks were not the business expenses of assessee. Further the appellant could not furnish complete break-up of the legal expenses claimed at ₹ 1.39 crores. He then has referred to different vouchers produced for the month of June, 1996, which were called for to test check the nature of expenses and has pointed out under para 8.5 at pages 67 and 68 of appellate order that out of the said vouchers, one found to be of rent expenses of ₹ 5.1 crores, part of which was not wholly and exclusively for the purpose of assessee as other business entities of CCI Inc group were also being provided services and the brand image of CCI Inc. was separately being taken care of. The CIT(A) also notes that there were security deposits written off in several crores of rupees, for the premises taken on rent at Mumbai and allowability of said expenses was doubtful as per Income tax law. The CIT(A) vide para 8.6 states that Besides the photocopies of the above vouchers of June, 1996, the appellant submitted photocopies of vouchers of June 1997 only in May 2003 and that of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts, whereas the quality of beverages was taken care of by nearly 20 persons who were employees of CCI Inc. The CIT(A) pointed out to him that quality of beverages was the responsibility of bottlers and the type of services which were being provided by CCI Inc. to the licensed bottlers for quality maintenance was a service not wholly and exclusively for the purpose of business of assessee. However, Shri K.S. Nair, General Manager of assessee company failed to furnish requisite information. Further, he also could not give any evidence in support of the claim that price of beverage base and concentrate include the expenses required to promote the beverages in the market. The CIT(A) thus, held as under:- 10. A close examination of the information gathered as a result of appellant s enquiry during the appellate proceedings leads us to arrive at a series of decisions with regard to the nature of services rendered by CCI Inc. to the appellant, bottlers, other Coca-Cola entities in India and Coca-Cola Company, TCCC and the extent of allowability of the service charges claimed by the appellant intangible assets he return of income. The license agreement of the appellant with TCCC, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... competition with other brands. He held that merely because the marketing strategy resulted in benefit/loss to the assessee indirectly would not make corresponding expenditure as the expenditure of assessee by any stretch of imagination. The CIT(A) acknowledged that there was no justification for the claim of Assessing Officer that the assessee had not been able to give any evidence in support of its claim that services actually had been rendered. He referred to the presence of employees of CCI Inc. making representations before the Assessing Officer and he thus, held that services were being rendered to assessee but it had to be seen that disallowance has to be made to what extent. He then referred to foreign travel expenses of spouses of employees, capital expenses and expenses incurred for other than business consideration and also security deposits written of amounting to ₹ 1.30 crores, which was part of service charges claimed during the year as expenses. The CIT(A) in the totality of the facts and issues and after considering breakup of expenses, was of the view that 25% of service charges were not of allowable nature as services were rendered to other than to assessee a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ese appeals was in respect of marketing charges paid by assessee, wherein the Assessing Officer disallowed certain amount and CIT(A) reduced the same, whereas the Tribunal allowed the same. He then referred to assessment year 1998-99, wherein the Tribunal in first round allowed marketing expenses following earlier year. However, in respect of service charges, the Assessing Officer had disallowed 10%, the CIT(A) had disallowed 25% and the Tribunal had sent back the matter for verification of vouchers. Similarly, from assessment year 1999-2000 onwards service charges were disallowed by Assessing Officer at 100%. The CIT(A) followed different percentage of disallowance i.e. in assessment years 1999-2000 and 2000-01 at 35%; in assessment year 2001-02 at 1/3rd and in assessment years 2002-03 to 2004-05 @ 30% were disallowed. He then pointed out that reason for disallowance first was the benefit also to the bottlers, hence the assessee was not the only beneficiaries in assessment years 1999-2000 to 2004-05; whereas the Assessing Officer holds that the assessee was not beneficiary at all. The Ld. AR pointed out that the issue was whether in the facts of case where expenditure may also ben ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had made payments on the basis of debit notes raised and because of agreement between the parties; he admitted that copy of agreement was made available to Assessing Officer on 30.03.2001. It was pointed out to the Ld. AR that the said date was last date of passing of assessment order. He then referred to additional evidence which has been referred by CIT(A) at page 51 and remand report of Assessing Officer before the CIT(A) at page 52 and reliance placed upon two different decisions of Apex Court in Swadeshi Cotton Mills (supra) and Laxminarayan Madanlal Vs. CIT (supra). The CIT(A) refers to the additional evidence at page 53 of his order and Ld. AR pointed out that mere filing of agreement was not additional evidence. He further stated that undoubtedly, there was no dispute to the existence of agreement. He then referred to various agreements wherein on 01.06.1993, was license agreement between assessee and CCI Inc. He then referred to the agreement dated 01.04.1995 which was service agreement between assessee and CCI Inc.; and on 01.04.1997, there was amended service agreement. The Ld. AR then referred to observations of CIT(A) in para 7.2.1 at page 59 and paras 7.4 and 7.5 at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court has set aside the matter back to the file of Tribunal. The Ld. AR stressed that for assessment year 1998-99, complete evidence was filed before the CIT(A) and from assessment year 1999-2000 onwards it was filed before Assessing Officer. This fact was noted by the Hon ble High Court and accordingly, it was concluded and matter was set aside. The Ld. AR then placed reliance on series of decisions:- i) Coca-Cola India Pvt. Ltd. Vs. CCE (2009) 226 CTR 221 (Bom) ii) CIT Vs. Royal Calcutta Turf Club (1961) 41 ITR 414 (SC) iii) DCIT Vs. Kolhapur Zilla Sahakari Dudh Utpadak Sangh Ltd. (2008) 27 CCH 245 (Pune Trib.) iv) CIT Vs. Panipat Co-operative Sugar Mills Ltd. reported in 256 ITR 371 (P H) v) CIT Vs. N.G.C. Network (India) P. Ltd. (2014) 368 ITR 738 (Bom) vi) CIT Vs. Adidas India Marketing (P) Ltd. (2010) 195 Taxman 256 (Del) 19. The Ld. AR reiterated that in assessee s case, no payment was made for grant of license to manufacture concentrate. However, the service agreement was first executed on 01.04.1995 and then later it was amended on 01.04.1997, wherein the assessee had to bear actual cost incurred by CCI Inc. plus markup of 5%. He then took ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. He then referred to page 139 of Paper Book Volume-I to point out the breakup of ₹ 63.19 crores accounted for by CCI Inc as on 31.03.1998, which also included depreciation of ₹ 4.87 crores on which markup was charged. 21. The Ld. CIT-DR referred to the directions of Tribunal in para 76 at pages 62 and 63 of Paper Book-II and pointed out that the plea of assessee was that all expenses as incurred by CCI Inc. would have to be reimbursed with markup by assessee. He then referred to the Hon ble High Court s order placed at pages 223 to 241 of Paper Book-II and pointed out that at page 237, the Hon ble High Court has observed that the Tribunal has not referred to the adequacy or sufficiency or otherwise of the material before CIT(A). He thus, stressed that the Tribunal has to see evidences filed and determine whether expenses were revenue or capital in nature. He then referred to para 19 of order of the Hon ble High Court, where the apprehension of Ld. CIT-DR before the Hon ble High Court was noted and the finding of the Hon ble High Court was that drastic change had happened in this year as against assessment year 1997-98. He then referred to Tribunal s order at para 4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ween TCCC and assessee, then another agreement between TCCC and bottlers and service agreement between assessee and CCI Inc, he referred to RBI's letter dated 28.02.1997 where CCI Inc was permitted to open office in Bangalore for importing green tea. He then pointed out that following expenses were not to be allowed: a) debit of service fee to bottling division; b) service charges paid by assessee to TCCC for restructuring of group companies; c) assessee continued payments to CCI Inc, in respect of products, which it had stopped manufacturing from 01.12.1997, which were manufactured by other group concerns; d) payment to CCI Inc. on account of reimbursement for meeting export obligation of holding companies. e) debiting of service charges of kinley brand of mineral water which was owned by TCCC. 23. The Ld. CIT-DR stressed that the above expenses needed to be disallowed in the hands of assessee as not incurred for the purpose of business of assessee. Another point which was stressed by Ld. CIT-DR was that since CCI Inc. provided direct services to various group companies for which separate permission was received from RBI (letter dated 28.07.1997), then no suc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st incurred by CCI Inc. was not being monitored by assessee at any level; b) Payment being made without verifying anything, simply on the basis of debit notes; c) Assessee was reimbursing whatever parent company was charging. d) No monitor whether the expenses were for Coke or Kinley or for any other beverages. 28. The Ld. CIT-DR referred to para 62 of the order of CIT(A), wherein reference is made to letter dated 17.03.2003 filed by assessee, in which the assessee had admitted that major part of services were to the assessee and some to the bottlers. He then refers to para 9 at page 75 of the order of CIT(A) and statement on oath of K.S. Nair, wherein he had admitted that debit notes submitted by CCI Inc. have been produced but the same cannot be substantiated with vouchers. He stressed that burden of proof was upon the assessee and in this regard, he placed reliance on the decision of Hon ble Bombay High Court in Ramanand Sagar Vs. DCIT in paras 11, 12, 13 reported in 256 ITR 134 (Bom). He then pointed out that under section 37(1) of the Act, role of Assessing Officer was to consider reasonableness of expenses, bonafide nature of any item of expenses and also t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt was made exclusively and wholly for business; it was open to ITO to consider relevant facts. k) Dhimant Hiralal Vs. CIT (2015) 64 taxmann.com 177 (Bom) for the proposition that explains the expression wholly and exclusively as used in section 37(1) of the Act. 30. The Ld. CIT-DR furnished written submissions and the Ld. AR filed rejoinder to the submissions made by Ld. CIT-DR on earlier date of hearing. In rejoinder, the Ld. AR pointed out that the crucial fact is that the Tribunal in assessment year 1997-98 held that service charges were deductible as expenditure. So, in this year, we have to see what are the relevant facts and what case laws have not been seen in earlier year. He stressed that it was not disputed that burden was upon the assessee under section 37(1) of the Act to establish its case of business expediency. Various case laws have been cited by both the learned Counsels in this regard but in case the Tribunal has decided this issue, then no contrary view can be taken in the succeeding year. He further stated that Ld. CIT-DR had referred to various case laws but question was whether they were earlier seen or not. The question was whether activities of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the course of hearing itself, attention of Ld. AR was drawn to para 76 at pages 162 and 163 of said Paper Book-2, wherein the decision was given with regard to both claim of marketing expenses and service charges, wherein the issue of service charges was remitted back to the file of Assessing Officer. The Ld. AR then drew distinction and pointed out that reliance placed upon by Ld. CIT-DR on the decision in CIT Vs. B.M. Kharwar (supra) was not material and not relevant. Similar was reply against reliance placed upon in CIT Vs. CCC Holding (supra), Buland Sugar Co. Ltd. Vs. CIT (supra) and Ramanand Sagar Vs. DCIT (supra). The Ld. AR stressed that undoubtedly, onus was upon the assessee but once the same has been discharged and the assessee had derived benefit from the expenditure and someone else had also derived benefit, then general principle which has been laid down is that such expenditure was for the purpose of business. 33. Coming to assessment year 1999-2000, the Ld. CIT-DR stated that there was no difference in claim of expenditure. The Ld. CIT-DR wanted to point out the distinct features of assessment year 1999-2000, wherein 100% of expenses were disallowed by Assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... box files before the CIT(A). Coming to the conclusion of CIT(A), wherein he had held that loss on sale of assets needs to be disallowed but allowed expenditure to the extent of 70%. It was then stressed that loss on sale of asset was capital loss, which belonged to the owners and had to be written off to WDV of assets and could not be claimed as expenditure separately. Coming to the claim of depreciation, the Ld. CIT-DR stressed that ownership of said assets was with CCI Inc and if it was allowing others to use the assets, then the same had to be established that it was exclusively used for providing services to assessee. Referring to other expenses i.e. Miscellaneous Expenses, no breakup was given i.e. what was the nature of expenditure booked under the head Miscellaneous Expenses . Similarly, payment to Auditor, what was the scope of audit to assessee, where entire expenditure was allocated to assessee. Under the head Travelling Expenses, even expenditure incurred on travelling of spouses was debited. 35. He distinguished the reliance on CIT Vs. Alfa Laval (I) Ltd. (supra) placed upon by the learned Authorized Representative for the assessee and pointed out that wife of Pre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nature of services and evidence of services provided; iii) Under Rule 29, request was made that assessee be directed to produce vouchers; however, assessee fails to produce vouchers, then stand of Assessing Officer disallowing expenses be upheld; iv) It has to be taken into fact that w.e.f. assessment year 1998-99, there were drastic changes, so decision of assessment year 1997-98 was not applicable; v) The plea of Ld. AR that sale of beverages was linked to sale of concentrate can be linked to advertisement and marketing, which is allowed; but not service charges in view of various agreements discussed; vi) After considering various agreements i.e. between TCCC and assessee and TCCC and Bottlers, Service Charges agreement between assessee and CCI Inc and several correspondence with RBI dated 21.10.1992, 28.02.1997 and fact of hiving of Bottling Division from 01.12.1997; were material. vii) The Ld. CIT-DR further pointed out that there were certain expenses a) Service fees of Bottling business; b) Charges paid to TCCC for restructuring of group companies c) Service charges paid in respect of products not related to assessee d) Charges to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pecifically asked to explain the details and nature of services rendered along with evidences of rendering the services by CCI Inc. In the written submissions, the assessee stated that various services as mentioned in service agreement were rendered by CCI Inc to the assessee. Regarding evidence of services rendered, the assessee gave the following note:- Evidence:- As you are aware that your assessee does the business of manufacturing beverage base. CCI Inc. takes care of all other activities required to run the business of your assessee, as per Service agreement entered into between your assessee and CCI Inc. The business of your assessee being carried on well during relevant assessment year is proof of evidence of services rendered by CCI Inc. 41. The Assessing Officer in view thereof, observed that the assessee s claim of service charges was based on the service agreement itself and only evidence it furnished in respect of huge claim of service charges paid was copy of agreement entered. Since the assessee had failed to furnish evidences, another show cause notice in this regard was issued by the Assessing Officer to assessee and the same is reproduced at pages 14 and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on examination of various nuances of the issue. He further observed that enquiries made and the decision arrived at in the appellate order for assessment year 1998-99 were largely relevant even for the present assessment year. After noting the clauses of amended agreement dated 01.04.1997, the CIT(A) referred to various clauses of amended agreement and was of the view that service agreement could only be treated as akin to sham document in so far as clause 5 / clause 2 was concerned. In this background, he was of the view that services rendered by CCI Inc to the assessee were required to be examined and it had to be decided as to what was the extent of service charges which have been incurred, were wholly and exclusively for the purpose of business of the assessee. He also reiterated the fact that during the relevant year, there were no bottling operations carried on by the assessee. The CIT(A) also noted that mere existence of service agreement could not make service charges as allowable expenditure in the light of various decisions of the Hon'ble Supreme Court and similarly, mere approval of RBI, the nature of services rendered was not sufficient to make expenses admissible u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st of names of 140 employees transferred from CCI Inc to HCCBPL but failed to specify as to what services were being provided by these employees to the assessee earlier. 43. The assessee also on 27.11.2003 furnished reply as to the space occupied by the Department that rendered services to HCCBPL during assessment year 1999-2000 and out of total area of 88,000 sq.ft., 16,000 sq.ft. was being used for services to HCCBPL. However, the assessee failed to furnish any basis of allocation and in the absence of even basic details being provided, the CIT(A) held that it had to be found, whether reimbursement of service charges were wholly and exclusively for the service rendered by CCI Inc to the assessee only. Another point which was raised by the CIT(A) was that since there was no bottling unit with the assessee and hence, there was no question of providing any services in the nature of bottling to the assessee. The CIT(A) vide para 5.6.9 acknowledges that the addition made by the Assessing Officer regarding non-furnishing of evidence of provision of services rendered by CCI Inc to the assessee was not fully correct. He further acknowledges that the Assessing Officer should have held ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elief given by the CIT(A). 45. We have heard the rival contentions put forward by both the Ld. ARs and have also gone through written submissions, reply and rejoinder filed by them including the case laws. The issue which arises in the present appeal is consequent to the order passed by the Hon ble High Court in assessee s own case. This is second round of litigation. Considering the facts and issues, wherein the Hon ble High Court had remitted the matter back to the Tribunal to consider and decide the claim in relation to service charges by taking into account the contentions and case of both sides. The Hon ble High Court also noted the submissions of Revenue that the position had undergone drastic change after assessment year 1997-98 in relation to the said claim. The Hon ble High Court also noted the contention of petitioner assessee that position, factual and legal, remains the same and the Tribunal was bound by the finding and conclusion rendered by it in earlier assessment years. It was observed that . when the Tribunal considers the matter again, it will also deal with Revenue s contention that finding and conclusion on this issue of service charges for prior assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pression wholly and exclusively used in s. 37(1) of the IT Act, 1961 was the subject-matter of discussion by the Supreme Court in the case of Sassoon J. David Co. (P) Ltd. vs. CIT (1979) 10 CTR (SC) 383 : (1979) 118 ITR 261 (SC). In this case, the Court held that the expression wholly and exclusively used in s. 10(2)(xv) of the IT Act, 1922 [s. 37(1) of the IT Act, 1961] does not mean necessarily , that ordinarily it was for the assessee to decide whether any expenditure should be incurred in the course of his or its business, that such expenditure may be incurred voluntarily and without any necessity and if it is incurred for promoting the business and to earn profits, the assessee can claim deduction under s. 10(2)(xv) of the Act even though there was no compelling necessity to incur such expenditure, that the fact that somebody other than the assessee was also benefited by the expenditure should not come in the way of an expenditure being allowed by way of deduction under s. 10(2)(xv) of the Act, if it satisfied otherwise the tests laid down by law. 18.5 The legislative history of s. 37 of the IT Act, 1961 was mentioned by the Supreme Court in its order in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, in the case of S.A. Builders Ltd. vs. CIT(A) (supra). In this case the Court held as under : 35. We agree with the view taken by the Delhi High Court in CIT vs. Dalmia Cement (Bharat) Ltd. (2002) 174 CTR (Del) 188 : (2002) 254 ITR 377 (Del) that once it is established that there was nexus between the expenditure and the purpose of the business (which need not necessarily be the business of the assessee itself), the Revenue cannot justifiably claim to put itself in the armchair of the businessman or in the position of the board of directors and assume the role to decide how much is reasonable expenditure having regard to the circumstances of the case. No businessman can be compelled to maximize his profit. The IT authorities must put themselves in the shoes of the assessee and see how a prudent businessman would act. The authorities must not look at the matter from their own viewpoint but that of a prudent businessman. As already stated above, we have to see the transfer of the borrowed funds to a sister-concern from the point of view of commercial expediency and not from the point of view whether the amount was advanced for earning profits. 47. The Tribunal then ref ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he business model chosen by TCCC. The subsidiary companies like the CCI Inc. and the assessee are independent entities for the purpose of the IT Act, 1961. In such a situation, an expenditure incurred by one company may sometimes directly and/or indirectly benefit more than one group company. There will be inter se purchases and sales at rates carefully worked out after taking into consideration various factors. The Courts have laid down clear guidelines for determining the allowability of expenses incurred and claimed under s. 37(1) of the Act, as summarized above. 25. Shri Kapila, the learned Departmental Representative urged that in the case of Chandulal Keshavlal Co. (supra) the Court had made an exception in respect of those cases where the expenditure was incurred to foster the business of another party. He vehemently argued saying that in the present case the services rendered by the CCI Inc. to the bottlers were for fostering the business of TCCC in India, and therefore the reimbursement of these expenses by the assessee could not be allowed in view of the decision of the Supreme Court in the case of Chandulal Keshavlal Co. (supra). He drew our attention to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ental Representative had argued. He insisted that, in the present proceeding the Tribunal had to confine itself to the directions given by the High Court. 28. Now, coming to the specific issues mentioned above, it is, no doubt, true that the services rendered by the CCI Inc. to the bottlers did benefit the business of the bottlers. It is also true that these services benefited TCCC-surely a group company, in enhancing its brand image in India. But it is equally true that these services benefited the assessee company. The services rendered by CCI Inc. helped the bottlers to increase the volume of their business which, in turn, resulted in increased purchases of concentrates by the bottlers from the assessee. There is nothing on record to show that the decision on the part of the assessee company to incur these expenses was not based on commercial expediency . 28.1 In para 8.3.1 of his order, the CIT(A), while justifying a disallowance of 25 per cent of the expenses claimed under the head Service charges , inter alia, made a general and vague observation as under : (v) There are expenses embedded in the service charges claimed by the appellant and embedded in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th evidences thereon (page 14 of assessment order), where the assessee was time and again asked to give breakup of expenditure with supporting vouchers. 50. Another aspect which was also raised by Revenue is that in later years, CCI Inc has also entered market on account of green tea and Kinley water and the said items had no relevance to the concentrate manufactured by assessee and consequently, service charges for such services should not be charged to the assessee. The assessee had objected to the pleadings of Revenue in this regard and has time and again stressed that reason for disallowance in the hands of assessee was the benefit to bottlers and it was an admitted position that where any benefit arises to the bottler, then service charges paid by assessee on account of such benefit to the bottlers was the expenditure of assessee and was to be remunerated by assessee to CCI Inc. Both the parties disputed the issue being decided by the Tribunal, have relied on later decisions on the issue in order to support their contentions, which we shall deal with in the paras hereinafter. 51. The first service agreement which was entered into between the parties was dated 01.04.1995 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with bottlers. Clause 5 provided that CCI Inc had no authority to negotiate or conclude contracts, in any form or manner, for or on behalf of assessee or any of the subsidiary suppliers, without prior approval of assessee. Clause 6 related to consideration for services provided by CCI Inc, wherein it was agreed that fees shall be paid on the basis of invoices issued by CCI Inc and fees to be paid shall be calculated on the basis of actual costs incurred by CCI Inc in providing such services plus mark up of 5%. 54. For entering into this agreement, approval was sought from RBI, copy of which is placed at page 4 of Paper Book-I, wherein reference was made to rendering of technical know-how and support services, which were mentioned in earlier letters of RBI. It was also clarified that the said permission does not cover rendering any type of manufacturing activity directly or indirectly. The assessee in support of its claim of service charges has filed statement mentioning one entry as service charges paid to CCI Inc amounting to ₹ 5.74 crores, no other supporting details were filed against the amount of ₹ 70.40 crores. On 30.03.2001, the assessee filed service agreeme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... required to take care of interest of parent company as well as bottling units / entities including HCCBPL. Reference was made to information submitted by assessee under which Branch office was set up in India in October, 1994 and the communication to RBI in this regard, under which parent company CCI, USA was to provide support services to licensed bottlers of Coco-Cola in India. Hence, the Branch Office was meant to provide services to licensed bottlers to build up quality and goodwill of TCCC Branch besides rendering services to assessee company. Since these aspects were not before the Assessing Officer, the CIT(A) observed that Assessing Officer could not take right decision and there was need to enhance the disallowance out of service charges in assessment year 1998-99. In such background, the need was felt to determine extent of service charges which were incurred and whether the same were wholly and exclusively for the purpose of business of assessee. The CIT(A) vide para 7.5 at page 61 notes that the assessee was given full opportunity to give evidence in support of the nature of expenses incurred under the head service charges . The assessee produced vouchers for one or t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nditure was not for the business of assessee as the assessee had failed to file the details / vouchers and also services were being provided to bottlers and other group companies. The breakup of expenses (headwise) was filed before the CIT(A) as per letter dated 21.02.2002 and the CIT(A) in final analysis disallowed 25% of service charges in assessment year 1998-99. 59. In such scenario, the question which arises is whether there is any justification in the order of CIT(A) in making disallowance to the extent of 25% of service charges. This is the issue in assessment year 1998-99, since the Assessing Officer has also only made disallowance of 10% of expenses. However, when we look at the issues raised in assessment year 1999-2000 onwards, the Assessing Officer had made disallowance at 100% which was restricted to 30% by CIT(A) and both the assessee and Revenue are in appeal for the relevant assessment years. In one year disallowance is of 1/3rd of expenses. 60. Before proceeding further, we may refer to the disallowances made in the hands of assessee from year to year under the head service charges . The claim of assessee is that no part of service charges merits to be disal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Total expenses 601,899,156 5% Markup 30,094,958 __________ Service charges 631,994,114 61. As against breakup of ₹ 63.19 crores, assessee had booked expenditure of ₹ 70.40 crores. The basis for booking expenditure are four debit notes, details of which are as under:- Date Amount 30.01.1998 48,25,08,612 30.01.1998 26,14,908 30.01.1998 98,10,668 09.09.1998 20,91,39,800 Total 70,40,73,988 62. So, as against expenditure of ₹ 70.40 crores, assessee in assessment year 1998-99 had filed vouchers for the months of June, 1997 and March, 1998. The description in the debit notes was expenses incurred for services provided for the period 01.04.1997 to 31.12.1997, under the terms of service agreement, plus markup of 5%; for th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d year. The Tribunal thus, has categorically held that only expenditure relating to the year under consideration merits to be considered for allowance and not expenditure which relates to the earlier year. The same principle is to be followed while allowing the claim of assessee for the year under appeal i.e. assessment year 1998-99. In such circumstances, the expenditure of ₹ 5.04 crores which admittedly, relates to assessment year 1997-98 is not allowable as expenditure in the hands of assessee, as it relates to the preceding year. However, in the present scenario, proceedings for assessment year 1997-98 have attained finality and the order of Tribunal has been passed, hence expenditure relating to assessment year 1997-98 to the extent of ₹ 5.04 crores is not allowable in the hands of assessee. We follow the principle laid down by Tribunal in assessment year 1997-98 vide para 93 of the order. The Ld. AR for the assessee placed reliance on CIT Vs. Excel Industries Ltd. (supra) for the proposition that where rate of taxes was same, it can be allowed in any year. The said decision was on rate of taxes to be applied on duty free imports and has no relevance to present iss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made further claim of ₹ 8,95,64,328/- which was as per debit note dated 14.12.1999. In reply to the show cause notice, the assessee filed submissions dated 13.03.2002 justifying incurring of expenditure which is reproduced under para 5.5 of assessment order. Vide letter dated 20.03.2002 (where assessment proceedings would get time barred by end of March, 2002), the assessee submits the breakup of service charges, which are reproduced under para 5.6 of assessment order. The Assessing Officer thus, deals with head-wise expenses claimed i.e. first, depreciation of ₹ 8.67 crores; the Assessing Officer notes from the return of income filed by CCI Inc with the Income Tax Authorities that in the computation sheet as against depreciation debited of ₹ 8.67 crores, depreciation claimed as per IT Act was ₹ 10.07 crores. The Assessing Officer observed that CCI Inc had claimed depreciation as per IT Act at ₹ 10.07 crores and had also claimed reimbursement of depreciation at ₹ 8.67 crores from the assessee. The Assessing Officer in view of provisions of section 32 of the Act held that reimbursement of depreciation could not be entertained as the assessee was n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CBPL. The CIT(A) further noted that initially it was 13 employees, thereafter, 140 employees from CCI Inc were recruited, who were transferred from CCI Inc to HCCBPL. Another point noted was from the list of employees as on March, 1999 working in three Departments dedicated to HCCBPL and CCI Inc, that out of 91 such employees, 78 were for bottling support. With regard to space occupied on rented premises, the assessee furnished details that out of total area of 88,000 sq.ft., space of 16,000 sq.ft. was occupied by Department rendering services to HCCBPL. The assessee claimed that it had identified and charged the relevant expenditure in providing support services to assessee company and HCCBPL but specific details were not filed and in the absence of basic details, the CIT(A) held that claim of assessee was not verifiable. The CIT(A) in final analysis held that all the expenditure incurred by CCI Inc with markup of 5% could not be the business expenditure of assessee company as the same was not incurred wholly and exclusively for the purpose of business of assessee in actual practice. The CIT(A) admitted that cost relating to coordination between assessee and bottlers was allowable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t in the paras above, some of the said debit notes were issued during accounting period and one debit note, in each of the year, issued much after the close of assessment year, for which the claim of expenditure has been made during the course of assessment proceedings. The assessee had provided breakup of expenses and got vouchers test checked. First of all there is mismatch between the breakup of expenditure and final claim of expenditure from year to year. 70. Let us look at the breakup of expenses which is reproduced under para 60 relating to assessment year 1998-99. The expenditure on salaries and allowance was ₹ 17.42 crores and contribution to Provident Fund and other funds was ₹ 1.70 crores. The Assessing Officer and CIT(A) have time and again referred to services rendered by CCI Inc to assessee and to other concerns including providing services to HCCBPL with which it had entered into separate agreement w.e.f. 01.08.1997. In view of the separate agreed terms between CCI Inc and HCCBPL, under which it was providing services to the said concern, the cost relating to the said concern cannot be full responsibility of assessee. The case of assessee first, on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 999-2000, it is ₹ 8.67 crores. The Assessing Officer had made verification from the claims made by CCI Inc in its return of income and in the computation of income, depreciation to the tune of ₹ 10.07 crores as per Income Tax Act was claimed as expenditure. First of all, the depreciation is to be allowed to the owner of asset, who has utilized the said asset for carrying on its business. The assessee in this regard has pointed out that assets were used for the purpose of business of the assessee and hence reimbursement cost. But we find no merit in the plea of assessee in this regard and especially where the said depreciation has been allowed in the hands of CCI Inc at figure higher than what was claimed in the books of account. In such scenario, the issue which arises is whether the disallowance of entire expenses is to be made in the hands of assessee or part of expenses as made by CIT(A). The Revenue is in appeal from assessment year 1999-2000 onwards and has opposed the order of CIT(A) in restricting disallowance to a percentage. 73. Before proceeding further, we may look at the legal precedents relied upon by both the Ld. ARs before us. 74. It may be pointed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agreement for payment of service charges has been amended and fresh agreement has been entered into between the parties on 01.04.1997, the factual aspects were at variance. In the earlier year, terms of agreement were as per agreement dated 01.04.1995. The revised agreement dated 01.04.1997 as referred by us in the paras above had terms which are different from the terms of original agreement. This fact has been accepted by the Hon ble High Court while deciding the appeal for instant assessment year and was the reason for setting aside the issue back to the Tribunal to decide the same after hearing both the parties. 76. Another aspect which needs to be kept in mind is that initially the assessee, in addition to manufacturing of concentrate, was also engaged in bottling activity which has been discontinued by assessee w.e.f. 01.01.1998. The assessee had Pet Can unit, Ahmedabad unit, Goble Contract Packing Unit at Tarapore and units situated at various places. In such scenario, the question which arises is that in case activity carried on by CCI Inc not only benefits the assessee but also benefits bottlers, then whether such expenditure is to be allowed as deductible in the han ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e payment may enure to the benefit of third party. The Ld. CIT-DR on the other hand, read the said para further and said that the Hon'ble Supreme Court had further held that another test is whether the transaction is properly entered into as a part of assessee s legitimate commercial undertaking in order to facilitate carrying on of its business .; and it is immaterial that a third party also benefits thereby. The Hon'ble Supreme Court further held that but in every case it is question of fact whether the expenditure was expended wholly and exclusively for the purpose of trade or business of assessee. The Ld. CIT-DR stressed that the Hon'ble Supreme Court had laid down the proposition that it was question of fact in each case whether the amount claimed as deductible was laid out wholly and exclusively for the purpose of such business and if the fact finding Tribunal comes to the conclusion on evidence, to give finding, then it will become admissible deduction. He further referred to the said decision of Hon'ble Supreme Court in the said case and pointed out that it was concluded by holding as under:- Thus in cases like the present one in order to justify deduct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... High Court in CIT Vs. N.G.C. Network (India) P. Ltd. (supra). In the facts of said case, the issue which arose was disallowance made out of advertisement and publicity expenses incurred by the assessee. The question was whether the amount paid was to be allowed as expenditure under section 37(1) of the Act. In the facts of the case, the said expenditure was disallowed in the hands of assessee on the ground that foreign principals had also benefitted from the said advertisement and whether expenditure was to be allowed in the hands of assessee. We find no merit in the reliance placed upon by the Ld. AR on the aforesaid decision as in the assessee s own case marketing expenses have already been allowed in its hands and the advertisement and publicity expenses are akin to marketing expenses and hence, this proposition cannot be extended for deciding the issue of allowability of service charges paid by assessee, which admittedly are paid as per terms of agreement entered into between the parties and the said terms very clearly provided that the assessee is to reimburse the actual cost incurred by CCI Inc in this regard. 82. Similarly, the decision in CIT Vs. Adidas India Marketing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ily or solely . The Hon ble High Court referred to the decision of Hon'ble Supreme Court in Sassoon J. David Co. (P) Ltd. vs. CIT (supra), Eastern Investments Ltd. Vs. CIT (1951) 20 ITR 1 (SC) and also the decision of Hon ble Bombay High Court in CIT Vs. N.G.C. Network (I) (P.) Ltd. (supra), where the case of assessee was that the words wholly and exclusively used in the Act does not mean necessarily or solely for its benefit. The Hon ble High Court in this regard observed that in all the said cases expenditure was undisputedly incurred for the purpose of carrying on its business or profession and where such expenditure is incurred for the purpose of business and some third party gets incidental benefit, the expenditure under section 37(1) of the Act cannot be disallowed. The Hon ble High Court categorically observed that there can be no dispute with the above proposition but in the facts of said case it was observed that expenditure incurred was personal in nature and benefit of such expenditure and there was incidental benefit, if any to carrying on of the profession. The Hon ble High Court held that thus, it was not expenditure which could be said to be incurred wholly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expenses of the assessee; (c) The expenditure must be laid out wholly and exclusively for the purposes of business or profession. 87. Vide para 12 it was observed as under:- 12. If the assessee fails to satisfy any of these tests, the expenditure claimed is not allowable. The AO is duty bound to consider reasonableness of the expenditure including the bona fide nature of any item of expenditure and/or its quantum to the extent it may throw light on the bona fide nature. 88. In para 13, it was categorically held that mere fact that the accounts of the assessee contain debit of expenditure would not make the expenses deductible from the taxable profits. It was further held that the Assessing Officer was entitled to find out that the sums so paid are not wholly and exclusively laid out for the business, especially where the payment was made in utter disregard to the value of corresponding goods or services and without any satisfactory explanation for such disregard, the expenditure could be disallowed by Assessing Officer. The Hon ble High Court further observed that mere fact that the payment has been made under a contract is not conclusive of the expenditure bei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hall be justified in disallowing the amount paid as not having been wholly or exclusively laid out for the purposes of business. At the same time, it is also obligatory on the part of the assessee to prove the reasonableness of the amount spent. The proof is required so as to establish that the claim is bona fide. In a nutshell, each case has to be decided on its own merits taking into account the various factors, some of which, are enumerated hereinabove. 90. If we apply the principle laid down by the jurisdictional High Court while deciding the issue of what is the expenditure which is an allowable expenditure incurred for the purpose of business claimed under section 37(1) of the Act, then it is obligatory upon the assessee to prove reasonableness of the amount spent and also the claim is bonafide. But once the same is held to be a bonafide expenditure, then it is not in the realm of Assessing Officer to decide what is reasonable quantum of expenditure for the assessee. The role of Assessing Officer is to decide whether the expenditure relates to the business and is wholly spent for the purpose. Thus, in cases where the burden of proof was not completely discharged, the Ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at it was still open to the Income Tax Officer to consider relevant facts and determine for himself whether the said commission was properly deductible under section 37 of the Act. The Hon'ble Supreme Court in such scenario upheld the order of Hon ble High Court in holding that commission paid for obtaining supply orders from Government agencies was not allowable in the given circumstances. 93. The Ld. CIT-DR has also relied on the decision of Hon ble High Court of Delhi in Buland Sugar Co. Ltd. Vs. CIT (supra) for the proposition that the assessee would be entitled to deduction only in respect of expenditure incurred by it for the purpose of its business and no expenditure incurred by it for the purpose of business of another assessee. It was observed by the Hon ble High Court that in some cases where section of activities undertaken result in income which were not taxable, would not justify the disallowance of expenditure incurred by assessee for the purpose of its business. (This was the position before introduction of section 14A of the Act). It was further held that but where the portion of expenditure incurred by assessee is in relation to business of another assessee, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e later assessment years, hence the proposition laid down by Tribunal in assessment year 1997-98 was on different set of facts and cannot apply in entirety to the issue raised before us. Even the Hon ble High Court had noted the arguments of standing Counsel before it and had observed accordingly. 97. Now, coming to the proposition whether assessee has proper and sufficient material to prove its case. The plea of assessee before us is that it is not case of authorities below that relevant material has not been produced. We find no merit in the said plea of assessee, which has been raised time and again before us. The case of Assessing Officer and CIT(A) has time and again being that the assessee has failed to cooperate and file the details, except for filing the breakup of expenses head-wise, the assessee had failed to even file what was disclosed under the so-called head-wise expenditure. Further even the breakup of expenses was at variance to total claim of expenditure. The learned Authorized Representative for the assessee before us time and again pressed that the issue which had arisen was whether the assessee had discharged the onus cast upon it under the provisions of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allowed in the hands of assessee. But in case, any part of expenditure was solely for the benefit of bottlers, with whom CCI Inc had entered into specific agreement/s for providing such services to the bottlers; and where the assessee in the present set of years was not carrying any business of bottling and selling the beverages, then such expenditure which relates to the bottlers exclusive business needs, cannot be allowed as deduction in the hands of assessee. There is no merit in plea of Ld. AR for the assessee. In any case, the Tribunal being last fact finding authority has power to go into factual aspects of the issue and decide the issue as per law. The question whether a particular sum has been expended wholly and exclusively for the purpose of business is essentially the question of fact to be determined by the Assessing Officer. The Tribunal as final fact finding body has thus authority to go into such questions and thus, decide the issue on the facts available on record. The Ld. CIT-DR had time and again stressed that the assessee be asked to produce vouchers before the Tribunal. Be that as may, the assessee before authorities below have failed to do so. 99. The prese ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not complied with the directions of Assessing Officer in filing the said details in proforma which was intimated to it. In any case, the assessee has only furnished details to the extent of ₹ 1.23 crores and no details of balance expenditure was filed before the Assessing Officer. In such circumstances, where the assessee fails to comply with the directions of authorities, then what is the course of action which has to be followed by such an authority. Can the expenditure be allowed in the hands of assessee in entirety because the said expenditure was being incurred in line with terms of agreement entered into between two parties? The answer to the same is No . The terms of agreement clearly stipulate the actual cost borne for the purpose of business of assessee and it was incumbent upon the assessee to establish that such costs were for the benefit of assessee only. Several opportunities were given to the assessee, but the assessee failed to produce any material that the travelling expenses undertaken by employees of CCI Inc were for the benefit of business of assessee company. Mere furnishing of information/cost and that also partly and making the statement i.e. for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed as deduction. The conditions are that the item of expenditure is not in the nature described under sections 30 to 36 of the Act; the item of expenditure is not in the nature of capital or personal expenses and the expenditure must be laid out wholly and exclusively for the purpose of business or profession. Thus, all these conditions of section 37(1) of the Act are to be fulfilled. In the absence of assessee having failed to furnish information and merely filing head-wise breakup of expenses, we cannot give complete blanket to the assessee and accept its plea that all expenditure which were charged by CCI Inc to it, were expenditure laid out wholly and exclusively for the purpose of its business. 104. Now, coming to the next argument of assessee that accounts of assessee are audited and as per the same, cost has been allocated to the assessee and the same have been paid with markup, we are unable to accept the aforesaid contention of assessee that all claims however, untenable, but once certified by Chartered Accountant or the Directors of the company should be accepted as gospel truth. 105. In the present set of facts, the assessee in assessment year 1998-99 had provided ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... before us is that expenditure may be allowed in any of the years as the rate of taxes in each of the year is the same. As pointed out above, the last debit note for assessment year 1998-99 was for ₹ 20.91 crores was raised on 09.09.1998 out of total debit notes of ₹ 70.40 crores i.e. much after the close of assessment year. Similarly, in assessment year 1999-2000, debit note of ₹ 8.95 crores was issued on 14.12.1999 i.e. much after the close of accounting period and even the closure of the books of account. This claim was made by way of additional claim during assessment proceedings. In such scenario, it is very difficult to accept the pleadings made by the Ld. AR that it had provided all the details during assessment proceedings and the Assessing Officer/CIT(A) have failed to consider the same in entirety. The assessee has time and again changed its claim, but as that may be, we are considering even debit notes which were issued much after close of accounting period or close of books of account in the year to which it relates, but the onus upon the assessee to give breakup of expenses, including the value of debit notes i.e. total expenses headwise for the year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee had debited sum of ₹ 52.92 crores as service charges. The details of service charges for the year ended 31.03.2000 were submitted before the Assessing Officer were as under:- Total service charges paid to CCI Inc - ₹ 52.92 crores Less: Details relating to A.Y. 1999-2000 - ₹ 8.95 crores Details being submitted - ₹ 43.97 crores 110. Expenditure-wise details of ₹ 43.97 crores read as under:- S.No. Nature of services Amount (Rs.) 1 Salaries and allowance 26,63,48,960.03 2 Contribution to provident and other funds 2,04,59,438.95 3 Moving and relocation expenses 1,70,71,652.67 4 Depreciation 9,04,70,575.31 5 Staff welfare 44 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... persons who had travelled did not belong to the assessee company, hence the Assessing Officer asked him to furnish following information vide order sheet entry dated 28.03.2003:- (i) Persons mentioned in detailed submission dated 26.03.2003 were not on the payroll of assessee, then why same should be allowed; (ii) it was brought to the notice of Authorized Representative that places visited by persons who travelled were also not disclosed; (iii) it was also brought to its notice that information in specified proforma relating to travelling was not submitted; (iv) it was also brought to Ld. AR that box files submitted did not include information / vouchers relating to travelling expenses; (v) if the travelling expenditure is on employees of CCI Inc, then it is part and parcel of service charges; (vi) on the next date of hearing 29.03.2003 the assessee submitted details of travelling expenditure of ₹ 1.71 crores out of total reimbursement of travelling expenditure of ₹ 9.59 crores 113. The assessee was again asked to produce all the vouchers of travelling expenses and also to submit the details in the proforma. The travelling expenses were not paid w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der the head service charges and debited the same to the books of accounts of CCIPL directly. The assessing office, somehow did not notice this aspect in full though he has made addition out of disallowance on account of travelling expenditure during the assessment proceedings and disallowed only the service charges debited and nothing further. 116. Vide para 4.5, the CIT(A) drew up list of items which were part and parcel of items of expenditure included under service charges till assessment year 1999-2000 which had been reclassified to avoid disallowance by Assessing Officer. The items of expenditure are as under:- S.No. Items of Expenditure Difference 1 Rent 6,91,75,447 - 5,16,000 6,66,59,447 2 Repairs Maintenance 1,46,45,430 - 18,29,908 1,28,15,522 3 Insurance 64,97,855 - 14,89,928 50,07,927 4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es which were separately disallowed by the Assessing Officer. After considering reply of assessee, the CIT(A) held that travelling expenses were not considered as part of service agreement and since no other contractual obligation was on record to justify the reimbursement of travelling expenses of persons who had travelled to different places for the business of assessee, as well as for the business of HCCBPL and other matters of Coco Cola as a whole, then it could not be held that travelling expenses were done exclusively for the business of assessee and hence, issue was decided against assessee. The issue thus, which arises from assessment year 2000-01 is in respect of items which were booked as reimbursement of expenses, over and above the service charges. The Assessing Officer had disallowed the travelling expenses reimbursed to CCI Inc only but the CIT(A) had also considered the items of expenditure enlisted in Schedule 14 of Profit and Loss Account, which were reimbursement of expenditure of CCI Inc. 119. The assessee is aggrieved by inclusion of said expenses under the head service charges and has pleaded that the said expenditure was on account of reimbursement of exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y to the close of the year and even some, after close of the year and also after filing of return of income. In such scenario, keeping in mind all these facts and circumstances, we find no merit in the claim of assessee for the year under consideration and we uphold the action of CIT(A) in clubbing of reimbursement of expenses and service charges claimed under the head service charges and thereafter making disallowance. In any case burden to prove reimbursement of expenses is always higher, as you can only reimburse expenditure incurred on one s behalf, which had not been discharged. 120. Further, in respect of travelling expenses, where time and again the assessee was asked to furnish details and especially where it claims that the said expenditure was reimbursement of expenses, then the onus cast upon assessee was higher and it had to prove that expenses were actually incurred for the purposes of business of assessee. Merely making the claim would not entitle the assessee to the aforesaid deduction. Before the Assessing Officer, the assessee as against claim of ₹ 9.59 crores had only filed details of ₹ 1.71 crores for assessment year 2000-01, which were also no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... we find that a liberal approach is taken by the officer and still more liberal were the first appellate authority and the Tribunal because the claim made is sustained at 50 per cent without proof for the service rendered justifying allowance of even so much of the claim. 123. The Hon ble Bombay High Court in Chemaux (P.) Ltd. Vs. CIT (1977) 109 ITR 705 (Bom) noted the contention of authorized representative that Taxing Authorities as well as Tribunal were in error in not allowing the deduction on the ground that details of expenditure or purpose for which such expenditure had been incurred had not been furnished by assessee in the assessment. The next contention was that the assessee in that case was not really concerned and was not in a position to prove as to who were the parties to whom either entertainment was granted or presents were given or commission was paid by commission agent and all that the assessee could prove was the payment of commission. The contention was to allow the expenditure as business expenditure. The Hon ble Bombay High Court held that it was not possible to accept any of the submissions of the Counsel for the assessee. It was held that initial factum o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n written off. The assessee explained that the said write off was in respect of premises taken on lease in Mumbai. But such expenditure claimed by assessee is capital in nature and cannot be allowed as deduction. Reliance placed upon the decision of Richardson Hindustan Ltd. Vs. CIT (supra) is misplaced. Another instance is the travelling expenses which we have referred in the paras above. In this regard we have held that reliance on CIT Vs. Alfa Laval (I) Ltd. (supra) is misplaced. One more aspect which needs to be seen is loss on sale of assets which came to the knowledge of CIT(A) while he was examining the facts for assessment year 1999-2000 and such an expenditure had been disallowed in the hands of assessee and there is no appeal against the same. As far as other expenses were concerned, CIT(A) had not made separate disallowance in assessment year 1998-99 and the same had subsumed in 25% disallowance out of service charges. 126. Before parting, we may also point out that beside other expenditure claimed, the assessee also has claimed deduction on account of depreciation on assets owned by CCI Inc, which was recovered from the assessee with markup from year to year. The sai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tedly, the assessee had entered into an agreement with CCI Inc but CCI Inc also enters into separate agreements for providing services to the bottlers and other entities. The terms of agreement are no doubt, sacrosanct but onus was upon the assessee to establish that what was being reimbursed was the actual cost attributable to it though some part of it enured to the bottlers. The onus was also upon assessee is greater because of the change in terms of agreement w.e.f. 01.04.1997 and also as the assessee had stopped to carry on its business of bottling and preparation of beverages, which was being carried out by assessee at different units in India. The assessee for the years under appeal had no bottling division and no division for the manufacture of can pet bottles and it solely engaged in preparation of concentrate. The assessee has failed to produce necessary evidence and has failed to establish its case of cost being attributable to carrying on of its business, which costs with markup had to be reimbursed by the assessee to CCI Inc. Further, under the garb of reimbursement of expenses, the assessee could not claim the amounts as deductible merely because CCI Inc had raised t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the parties after the close of year i.e. on 31.03.2000 could not bind the terms between the parties starting from 01.04.1999. Even in the debit notes issued by CCI Inc, there was no mention of any oral understanding between the parties but reference was made to service agreement only, which undoubtedly was the earlier agreement as the next agreement was entered only after the close of the year. We find no merit in the plea of assessee in this regard and we uphold the entire exercise carried out by CIT(A) in working out the amount of service charges to be considered in the hands of assessee i.e. after including the so-called reimbursement of expenses and out of the same, disallowance has to be made. In assessment year 2001-02 onwards, the terms of said agreement dated 09.05.2000 were pleaded as applicable and it was pointed out that as per understanding only some costs were reimbursed with markup and others which were pure expenditure, then the same were charged as reimbursement. The assessee has not established its case of alleged reimbursement of expenses. The assessee on account of salaries had booked the expenditure both under service charges and under the reimbursement of expen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s failed to give breakup of expenditure itself under the head travelling expenses , then the entire expenses needs to be disallowed. With this, we decide the first issue of allowability of service charges in the hands of assessee, reimbursement of expenses and its allowability and travelling expenses and its allowability. 131. The next issue which arises in the present bunch of appeals starting from assessment year 2000-01 is depreciation on coolers. 132. Brief facts relating to the issue are that the assessee claims that in order to promote its business of sale of concentrate and beverage basis manufactured by it, had as business strategy placed coolers at different places. The said coolers were provided at retail outlets in the bottlers territories which facilitate the sale of beverages in chilled conditions. The assessee further claims that availability of chilled beverages at an affordable price increases the consumption and sale of beverages and also benefitted the assessee company as it would result in proportionate increase in the sale of concentrate. The second plea of assessee was that the coolers also served as an advertising medium as much as the prominently bore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of assessee in assessment years 2000-01 to 2004-05. 134. The Tribunal in the first round had upheld the order of CIT(A) in this regard. However, this matter in one year was recalled by way of Miscellaneous Application and other years by the Hon ble High Court. The issue has been sent back to the Tribunal. 135. Now, the issue stands before us. During the course of hearing, it was put to the Ld. AR that it must establish its case of fulfillment of conditions of section 32 of the Act. In this regard, the Ld. AR time and again stressed that the ownership of aforesaid coolers was undisputed and the only reason why the depreciation on coolers was denied to the assessee was on account of its user. However, he stressed that even if the coolers were used by bottlers or by the end sellers of the beverages, the said coolers were used in the business of assessee as total exercise resulted in increase of sale of concentrate manufactured by the assessee. When asked to furnish the details of coolers purchased by it and where installed, the assessee had furnished list of coolers installed at various places in Punjab on sample basis as in 2015. The Ld. AR again pointed out that the issue stan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee was engaged both in the manufacture of concentrate and also had various bottling units and was also manufacturing beverages i.e. cold drinks. So, the assessee had two lines of business in earlier years. In accordance with the needs of its business, it had made investments in coolers which were then placed at the premises of retailer outlets, who were selling the beverages. When the assessee was carrying on the business both as manufacturer of concentrate and as a bottler in its line of business and where the finished products which were sold by it were beverages which if sold as such, as against, after cooling if sold would bring more profits to the assessee. In such business arrangement, the investment in coolers made by assessee was accepted by the Revenue authorities and depreciation on coolers was allowed in the hands of assessee. The opening WDV of said coolers and other plant and machinery as on 01.04.1999 was ₹ 3.02 crores. The coolers and other plant and machinery were listed as others under the head plant and machinery and hence, the plea of assessee that the coolers have entered the block of assets and depreciation on such block of assets cannot be denied to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e land and building as on 01.04.1999 was ₹ 8.05 crores. As against which, the assessee in the year had made addition of ₹ 9.50 crores on account of coolers + ₹ 30 lakhs (approx.) (total ₹ 9.80 crores). So, it is incumbent upon the assessee to demonstrate the ownership of said assets by way of purchase invoices, etc. 140. Before proceeding further, we may also take into account the fact that not only in this year but in the subsequent years also, the assessee has made substantial investments in purchase of coolers, which is apparent from the fact that the depreciation which has been disallowed in the hands of assessee from year to year works as under:- Asst. Year Depreciation on coolers 2001-02 ₹ 4,32,37,967 2002-03 ₹ 6,65,88,746 2003-04 ₹ 9,90,81,175 2004-05 ₹ 11,49,24,250 141. It may be reiterated that the years under appeal are assessment years 2000-01 to 2004-05, wherein the assessee had made hu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... retailers in area of Punjab (as of 2015) being filed, can it be said that the assessee had discharged its onus of proving the use of asset. Let us go by the argument of assessee that the said assets were used by the retailer outlets. We will decide this issue whether assets were used by retailer outlets or used by assessee in paras later. But the first condition which needs to be fulfilled is the discharge of onus by assessee to establish that it had purchased the coolers, date-wise and value-wise and placed the said coolers at different locations, which the assessee had not fulfilled. In the absence of the same, merely because the assessee had purchased the assets and had shown the said purchases as addition in its block of assets, the assessee was not entitled to claim of depreciation on such assets. This is the basic non-discharge of onus cast upon it. 145. Now, coming to the next stand in the year under consideration i.e. from assessment year 2000-01, the assessee is admittedly, not engaged in any bottling business; it is only engaged in the business of manufacture of concentrate. Admittedly, if more beverages were sold, more concentrate would be manufactured and sold by ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hile addressing the issue of powers of Tribunal, it was held as under:- 64. The powers of the Tribunal are not limited or circumscribed by the grounds raised before it and any order on the subject matter of appeal can be passed if it is found to be necessary, expedient and relevant by the learned Tribunal. 65. Truth being the cherished ideal and ethos of India, pursuit of Truth should be the guiding star of the entire justice system. For justice to be done, truth must prevail. It is truth that must protect the innocent Date of Judgment :23-07-2018 I.T.A.No.512/2017 M/s. Fidelity Business Services India Pvt. Ltd., Vs. Assistant Commissioner of Income-Tax, Anr. and it is truth that must be the basis to punish the guilty. Truth is the very soul of justice. Therefore truth should become the ideal to inspire the courts to pursue. This can be achieved by statutorily mandating the courts to become active seekers of truth. It is of seminal importance to inject vitality into our system. Concern for and duty to seek the Truth should not become the limited concern of the Courts or Tribunals and adjudicating Authorities but should percolate down in other Executive wings of the Sta ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
