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TMI Blog2021 (6) TMI 204X X X X Extracts X X X X X X X X Extracts X X X X ..... disallowance made out of marketing, sales and distribution expenses without appreciating that approval issued in assessee's case under proviso to sub section (1) of section 297 of the Companies Act, 1956 by the Regional Director, South East Region, Ministry of Corporate Affairs in ref.no.10/297/AP/103/2011/SRN A88081831 dt. 04.01.2012 does not pertain to AAY 2010-11 and therefore 'technical fault' is not rectified." 2.1. Mr. Pandey next took us to the CIT(A)'s detailed discussion on the issue reading as under. "5. Ground No.1 (Grounds Nos. 1 to 2(a)): Regarding Disallowance of. Selling, Marketing & Distribution expenses of Rs. 17,35,51,214/- : During the assessment proceedings, the Assessing Officer noticed from the Schedule 15 under sub-head 'Other costs', the assessee incurred an amount of Rs. 17,35,51,214/- towards 'Selling & Distribution expenses' paid to its sister concern "Inbev India International Pvt. Ltd". As per Company Act Rule, prior approval is required to make such payment to the Law Board, which was not done by the applicant. The assessee submitted a note under the head "Significant Accounting Policies and Notes to Accounts" as under: "App ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rwriting the subscription of any shares in, or debentures of, the company: Provided that in the case of a company having a paid-up share capital of not less than rupees one crore, no such contract shall be entered into except with the previous approval of the Central Government. (2) . ............ (3) . ................... (4) . .................... (5) If consent is not accorded to any contract under this section, anything done in pursuance of the contract shall be voidable at the option of the Board. Subsection (5) of Section 297 of the Companies Act, which provides that if the consent is not accorded to any contract under the section, then, anything done in pursuance of the contract shall be voidable at the option of the Board. Clause (i) of Section 2 of the Indian Contract Act, 1872 states that: "An agreement which is enforceable by law at the option of one or more of the parties thereto, but not at the option of the other or others, is a voidable contract. The essence of sub-section (5) is that when there is a violation of subsection (1) of section 297 of the Companies Act, the contract does not automatically become void ab initio, but voidable at the option of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tal sales are as under: Financial Year Total sales (In INR) Selling & Distribution expenses (in INR) % of selling & distribution expenses to sales F.Y. 2007-08 (year of incorporation) 34,98,44,360 17,92,66,614 48% FY 2008-09 69,50,27,641 18,77,23,109 23% FY 2009-10 79,32,55,129 1735,51,214 22% From the above table, it could be seen that the Company had incurred similar quantum of expenditure towards selling and distribution. Hence, this entire expenditure which was incurred during the course of business should be allowed as deductible expenditure. 5.3 The appellant relied upon the following case laws which conclude that noncompliance with legal procedural provisions is not a reasonable basis for holding a payment to be disallowed: (i) Cossul & Co (P) Ltd. --vs- Commissioner of Income tax (2000) 245 ITR 312 (All), Allahabad High Court. (ii) Nilgiri Finance & Hire Purchase Pvt. Ltd -vs- CIT (1995) 213 ITR 384 (Mad), Madras High Court. (iii) CIT -vs- SreeRajendra Mills Ltd (1974) 93 ITR 122 (Mad), Madras High Court. 5.4 The appellant submitted with regard to the Ground No.2(a) that the disallowance should be restricted to Rs. 58,21,760/- i.e. th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g Officer is deleted." 2.2. The Revenue vehemently contended during the course of hearing that the CIT(A) has erred in law and on facts in deleting the impugned disallowance/addition of Rs. 17,35,51,214/- involving selling, marketing and distribution expenses paid by the assessee to its sister concern M/s Inbev India International Pvt. Ltd. in violation of sec.297 of Companies Act (supra)without getting prior approval of the central government. The assessee's case on the other hand is that the CIT(A) has rightly considered the post facto approval coming from Ministry of Corporate Affairs, Govt. of India dated 4.1.2012 qua the impugned issue. 3. We have given our thoughtful consideration to the foregoing rival pleadings against and in support of the CIT(A)'s lower appellate findings deleting the impugned marketing, selling and distribution expenses/disallowance. There is no dispute about the basic fact that the assessee had indeed paid the impugned sum to its sister concern and that too, without even applying for the relevant sanction as it is evident from page 98 of the paper book containing the approval dated 4.1.2012 qua to the period of 4 years from 7.7.2010 to 31.3.2014 only ..... X X X X Extracts X X X X X X X X Extracts X X X X
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