TMI Blog2022 (8) TMI 684X X X X Extracts X X X X X X X X Extracts X X X X ..... orce was stated to be in the range of Rs.1 Lac per month. The only explanation adduced was that these payments were made as per trade practices notwithstanding the facts that the same were paid in gross violation of provisions of Sec.40A(3) and also in violation of TDS provisions which mandate tax deduction at source on such payment. The argument that these were mere reimbursements could not be accepted in the light of the fact that such payments constitute expenditure for the assessee and has been debited in the Profit Loss Account. Another argument that there was increase in turnover would also not be relevant, in this regard. In another statement recorded during the course of assessment proceedings, the position as aforesaid was maintained. The statement of Area Sales Manager further confirmed the modus operandi of such payments. The argument that these were mere reimbursements could not be accepted in the light of the fact that such payments constitute expenditure for the assessee and has been debited in the Profit Loss Account. Another argument that there was increase in turnover would also not be relevant, in this regard. In another statement recorded during the course ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It will be against public policy to allow the benefit of deduction under one statute of any expenditure incurred in violation of the provisions of another statute or any penalty imposed under another statute. Finally, the expenditure as claimed by the assessee was held to be not deductible. We are of the considered opinion that the ratio of this decision squarely applies to the facts of present case before us. So far as the legality of quantum additions is concerned, we find that incriminating material was found during the course of search operations. A huge difference in cash as per books and physical cash was noted and the statement of a responsible representative was recorded which has been maintained all along. Therefore, it could not be said that the additions were not based on incriminating material found during the course of search. Computation of Short-Term Capital Gains and penal interest for belated tax payments - CIT(A) has deleted the disallowance on the ground that this addition was not based on any incriminating material found during the course of search action - HELD THAT:- We find that the assessee was searched on 11.05.2012. The return of income filed by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Income Tax (Appeals) erred in confirming the disallowance of Sales Promotion expenditure. 2.1 The Appellant submits that it has incurred an amount of Rs.1,79,66,375/- towards Sales Promotion expenditure in the ordinary course of business, hence, disallowance of the same is uncalled for. 2.2 The Commissioner of Income Tax (Appeals) ought to have appreciated that the performance of the appellant company has increased comparatively from the earlier years which is mainly attributable to the Sales Promotions carried out by the appellant, hence, denial of the claim of expenditure incurred towards sales promotion is against the law and uncalled for. 2.3 The Commissioner of Income Tax (Appeals) erred in ignoring the fact that incurring of Sales Promotion expenditure is essential and unavoidable, In order to compete with the competitors in the Trade, hence, incurring of the said expenditure is in the normal course of business and disallowance of the same is not warranted 2.4 The appellant submits that the Sales Promotion expenditure was incurred to incentivise the sales personnel and employees at various levels viz. Depot, Beer Scheme Shops and IMFL Scheme Shops of the appella ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed during the course of the appeal proceedings, the order of learned ClT(Appeals) may be set aside and that of the Assessing Officer be restored. RELIEF CLAIMED IN APPEAL The order of the learned CIT (Appeals) may be set aside and that of the Assessing Officer be restored. 4. The assessment was so framed since the assessee was subjected to search action u/s 132 on 11.05.2012 wherein certain incriminating documents were found and seized. The assessee is stated to be engaged in manufacturing of Beer, IMFL, Spirit, Malt, Glass Bottles, Bio-compost, wind / biomass energy agricultural activities and trading. Assessment Proceedings 5.1 The assessee claimed deduction u/s 80-IA for Rs.865.16 Lacs in respect of income earned through generation of power by windmill. Relying upon assessment orders for AYs 2005-06, 2006-07 2008-09, the same was denied to the assessee. In the earlier orders, the deduction was denied on the premise that deduction is available only for power generating units having long gestation period. Disallowance of Sales Promotion Expenses 5.2 During search operations, statement of Shri Krishnamurthy, the then Chief Financial Officer (CFO) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It transpired that the there was two type of expenditure-one which was paid to own sales representative on achieving the fixed targets. These sales representatives are on pay roll of the assessee. The second incentive was paid by sales representative to Tasmac Depot Managers retail employees in cash with the approval of the assessee. However, the payees could not be identified and it was submitted that these were mere reimbursements which would not warrant Tax Deduction at Source (TDS). However, it transpired that these payments were evidenced merely by self-made vouchers without their being any supporting third party vouchers. 5.7 On the basis of these facts, Ld. AO held that the identity of payees was not revealed and the expenditure could not be treated as laid out exclusively and wholly for the purpose of business. To further strengthen the opinion, one of the Area Sales Manager Shri R. Bhoopathy, was also examined on oath on 06.03.2015 wherein it transpired that the salesman visit Tasmac Shops and upon achieving targets by bar, the bar sales man are given incentive. The details of incentive so paid by him could not be produced. No proof of such payment could be adduced. S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ture by referring to Explanation 1 to Sub-section 1 of Section 37 of the Act which reads as under: ...... it is hereby declared that any expenditure incurred by an assesses for any purpose which Is an offence or which is prohibited by law shall not be deemed to have been incurred for the purpose of business or profession and no deduction or allowance shall be made in respect' of such expenditure This inference is further strengthened by the fact that there are no vouchers, produced either before the AO during assessment proceedings or before the undersigned during the appellate proceedings evidencing such payments duly signed by the recipients. 6.4 The legal grounds were dismissed as under: - The appellant objects to the addition relying on the decision of the Hon'ble ITAT Mumbai in the case of ALL cargo Global Logistics v DCIT 137 ITD 287 (Mum). On the other hand, during search sworn statement recorded from the Chief Financial Officer, Shri T. Krishnamurthy indicates that payments were made to various TASMAC officials which have been claimed in the guise of sales promotion expenses. Thus, it can be concluded that the AO had not made the additions with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re was increase in turnover would also not be relevant, in this regard. In another statement recorded during the course of assessment proceedings, the position as aforesaid was maintained. The statement of Area Sales Manager further confirmed the modus operandi of such payments. 8. Proceeding further, it could also be noted that the assessee is not able to identify the payees of such payments. No details of payees could be submitted and the quantification of the expenditure remained elusive. Nothing was shown that the payments so made were offered to tax by the payees thereof. The only supporting document given by the assessee was self-made vouchers without their being any supporting third-party vouchers. 9. Therefore, on the facts and circumstances of the case, the assessment order framed by Ld. AO, on this issue and as confirmed by Ld. CIT(A) could not be faulted with. It could be well said that the expenditure was not laid out exclusively and wholly for the purpose of business. The explanation to Sec.37(1) was certainly applicable to the case of the assessee since the payments made to Tasmac employees would not be allowable since it is a Public Sector Undertaking of State ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rything which is an offence or which is prohibited by law, or which furnishes ground for a civil action . It is therefore clear that Explanation 1 contains within its ambit all such activities which are illegal/prohibited by law and/or punishable. This was further held that a narrow interpretation of Explanation 1 to section 37(1) defeats the purpose for which it was inserted, i.e., to disallow an assessee from claiming a tax benefit for its participation in an illegal activity. It is also held that a settled principle of law is that no court will lend its aid to a party that roots its cause of action in an immoral or illegal act (ex dolo malo non oritur action) meaning that none should be allowed to profit from any wrongdoing coupled with the fact that statutory regimes should be coherent and not self-defeating. Therefore, denial of the tax benefit cannot be construed as penalizing the assessee pharmaceutical company. Only its participation in what is plainly an action prohibited by law, precludes the assessee from claiming it as a deductible expenditure. Further, one arm of the law cannot be utilized to defeat the other arm of law - doing so would be opposed to public policy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... first issue in revenue s appeal is grant of deduction u/s 80-IA by Ld. CIT(A). The Ld. CIT(A) has deleted the disallowance on the ground that this addition was not based on any incriminating material found during the course of search action. This issue, on merits, is allowed by us in para-13 considering the earlier favorable decision of the Tribunal coupled with the decision of Hon ble Madras High Court in assessee s own case. Accordingly, this ground stand dismissed. 16. The other grounds raised by the revenue are with respect to computation of Short-Term Capital Gains and penal interest for belated tax payments. The Ld. CIT(A) has deleted the disallowance on the ground that this addition was not based on any incriminating material found during the course of search action. We find that the assessee was searched on 11.05.2012. The return of income filed by the assessee on 13.10.2008 was already scrutinized u/s 143(3) on 31.12.2010. Evidently, no proceedings were pending against the assessee and this year was not abated assessment year. It is also a fact that both these additions are not based on any incriminating material found during the search operations. Therefore, no infirm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee reflected loss of Rs.76.40 Crores on sale of Bio-Mass division. However, the gain arising on the same for Rs.28.28 Crores was not considered in the computation. The division was sold to M/s Nanda Energy Ltd. (NEL) at Rs.65 Crores on slump sale basis vide agreement dated 24.05.2010 out of which Rs.12.61 crores was earmarked to discharge the terms lenders of bio-mass division and the balance Rs.52.39 Crores was payable to the assessee. However, in the books of NEL, the addition to fixed asset was shown as Rs.77.80 Crores. As against the same, the assessee computed capital gains considering sale consideration as Rs.68.28 Crores only. In the above facts, Ld. AO added the difference of Rs.9.52 Crores to the income of the assessee. The stand of Ld. AO, upon confirmation by Ld. CIT(A), is in further appeal before us. 23. It is the submission of Ld. AR that the consideration arising out of slump sale is duly evidenced by the agreement which is placed on record. The Ld. AR submitted that no further consideration accrued to the assessee and therefore, the addition was without any basis. The Ld. AR also submitted that the addition was made on bare examination of financial statements ..... X X X X Extracts X X X X X X X X Extracts X X X X
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