TMI Blog2021 (6) TMI 204X X X X Extracts X X X X X X X X Extracts X X X X ..... not in dispute that this issue has nowhere been examined. The same is restored to the CIT(A) therefore to be adjudicated afresh within three effective opportunities of hearing. Revenue s appeal accepted for statistical purposes. CIT(A) s action upholding the disallowance relevant to the current year and not related to FY 2009-10 on account of its failure in filing the corresponding details in remand proceedings - Assessing officer had disallowed an amount @ 20% as claimed at assessee s behest. The CIT(A) s lower appellate order under challenge has resulted in enhancement thereof in above terms; and that too, without even issuing corresponding notice stipulated in sec.251 (1)(a) of the Act. We thus reverse the CIT(A) s impugned directions and restrict the impugned disallowance to the extent of ₹ 21,45,440/- only in these facts and circumstances. Assessee s cross appeal partly accepted. - I.T.A. No. 589 and 632/Hyd./2017 And I.T.A. No. 633/Hyd./2017 - - - Dated:- 28-5-2021 - Shri S.S. Godara, Judicial Member And Shri L.P. Sahu, Accountant Member For the Assessee : Shri Krishna Kulkarni, AR For the Revenue : Shri Sunil Kumar Pandey, D.R. ORDER ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion expenses in Schedule 15. It was seen, in pursuant to such agreement with IIIPL, the assessee company has been charged off an amount of ₹ 17,43,91,299/paid/payable basis, and paid an amount of ₹ 17,35,51,214/- towards Marketing, Sales and Distribution Services', The assessee submitted that the expenses incurred by the company only ₹ 58,21,760/- was expended as remuneration to M/s Inbev International India Pvt. LTD (IIIPL), a sister company, for Marketing; sales and Distribution Services. As the assessee failed to get approval from the Central Government, which is required and mandatory as per the Company law board rules, hence the Assessing Officer disallowed the expenditure of ₹ 17,35,51,214/-. 5.1 During the appeal proceedings, the appellant submitted the following The company had entered into an agreement for obtaining rv1arketing, Sales and Distribution services from Inbev International India Pvt. Ltd (IIIPL), a company with which It shared common directors for the AY 2010-11. According to the provisions of Section 297 of the Companies Act, 1956, prior approval of the Central Government is required for transactions involvi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts option against validating the contract as per sub-section (1) that the contract becomes void ab initio. In this regard, the Appellant submitted that the Board has not objected to the contracts between the Appellant and IIIPL, thus making such contract for receiving marketing, selling and distribution services valid. The Explanation to Section 37( 1) of the Act reads as under: Explanation. -For the removal of doubts, it is hereby declared that any expenditure incurred by an assessee for any purpose which is an offence or which is prohibited by law shall not be deemed to have been incurred (or the purpose of business or profession and no deduction or allowance shall be made in respect of such expenditure. The appellant submitted that from the above, it could be understood that any expenditure incurred by the assessee, for any purpose which is offence or, is prohibited by law, shall not be deemed to have been incurred for the purpose of business and no deduction shall be allowed. In the present case, the Assessing Officer disallowed the expenditure by observing that since the payment of marketing, selling and distribution expenses was made without p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ground No.2(a) that the disallowance should be restricted to ₹ 58,21,760/- i.e. the remuneration paid to IIIPL in relation to the Marketing, Sales and Distribution Services as against the entire amount of ₹ 17,35,51,214/-. The breakup of the expenditure is submitted as under: Period Selling, marketing and distribution expenses (Rs) Breakup Remuneration paid towards marketing, sales and distribution services (|Rs.) Reimbursement of expenses (Rs.) 01.04.2009 to 31.03.2010 17,35,51,214 58,21,760 16,77,29,454 From above, it could be seen that out of the total selling and distribution expenses, ₹ 16,77,29,454 pertain to reimbursement of expenses of IIIPL and charged to Crown at cost. The appellant submitted that the provisions of Section 297 of the Companies Act, 1956 are applicable only for transactions involving the sale, purchase or supply of any goods, materials or services. However, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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 whereas we are in FY 2009-10 having accounting period up to 31.3.2010. The CIT(A) s impugned reasoning is not found to be sustainable therefore. Coupled with this, there is also no material as to whether the assessee had in fact applied for the necessary approval regarding its transactions/payments to its sister concern executed between 1.4.2009 to 31.3.2010. We thus find no reason to uphold the CIT(A) s impugned reasoning to this effect. This Revenue s argument is accepted in principle. 4. Next comes yet another equally important aspect of interplay of section 292/ 297 of the Companies Act vis- -vis sec.40A(2)(b) of the Act dealing with expenses or payments made to the interested parties. It is not in dispute that this issue has nowhere been examined. The same is restored to the CIT(A) therefore to be adjudicated afresh ..... X X X X Extracts X X X X X X X X Extracts X X X X
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