Income Tax Appellate Tribunal - Mumbai
Pan Insurance Brokerage Co. P.Ltd, ... vs Acit Cir 8(2), Mumbai on 5 May, 2017
IN THE INCOME TAX APPELLATE TRIBUNAL
"J" Bench, Mumbai
Before Shri Jason P. Boaz, Accountant Member
and Shri Ram Lal Negi, Judicial Member
ITA No. 4198/Mum/2014
(Assessment Year: 2004-05)
M/s. PAN Insurance Brokerage ACIT, Circle-8(2)
Co. Pvt. Ltd. (now Team India 3rd Floor, Aayakar Bhavan
Insurance Broking Services Pvt. Ltd.) M.K. Road, Mumbai 400020
3rd Floor, A-Block, Palam Vs.
Triangle, Palam Vihar
Gurgaon 122017
PAN - AACCP9361R
Appellant Respondent
Appellant by: None
Respondent by: Shri J. Mohammed Rizwan
Date of Hearing: 02.05.2017
Date of Pronouncement: 05.05.2017
ORDER
Per Jason P. Boaz, A.M.
This appeal by the assessee is directed against the order of the CIT(A)- 18, Mumbai dated 07.03.2014 for A.Y. 2005-05.
2. The facts of the case, briefly, are as under: -
2.1 The assessee company, engaged in business as insurance agent, filed its return of income for A.Y. 2004-05 on 30.10.2004 declaring loss of (-) `3,68,84,909/-. The return was processed under section 143(1) of the Income Tax Act, 1961 (in short 'the Act'). A revised return was filed on 31.12.2004 declaring loss of (-) `1,90,11,564/- purportedly in order to claim additional TDS credit, writing off rent payable amounting to `12 lakhs and writing off excess provision of market intelligence collection charges amounting to `1,67,73,345/-. The case was taken up for scrutiny and the assessment was completed under section 143(3) of the Act vide order dated 26.12.2005 wherein the assessed loss determined at `1,14,60,051/- was allowed to be carried forward.2 ITA No. 4198/Mum/2014
PAN Insurance Brokerage Co. Pvt. Ltd.
2.2 Aggrieved by the order of assessment dated 26.12.2005 for A.Y. 2004-05, the assessee preferred an appeal before the CIT(A)-18, Mumbai. The learned CIT(A) disposed off the appeal vide the impugned order dated 07.03.2014 allowing the assessee partial relief.
3. Being aggrieved by the order of the CIT(A)-18, Mumbai dated 07.03.2014 for A.Y. 2004-05 the assessee has preferred this appeal, raising the following grounds: -
"1. On the Facts and circumstances of the case and in law, the CIT(A) has erred in confirming the disallowance of depreciation of Rs.36,76,397/- on Business Development rights;
2. On the Facts and circumstances of the case and in law, the CIT(A) has erred in dismissing the ground No.2 and thereby confirming the disallowance of claim for the brought forward losses made under the provisions of Section 72A(6) read with 47(xiv) Proviso(c) of the Act;
3. On the Facts and circumstances of the case and in law, the CIT(A) has erred in not allowing full relief on the disallowance of Market Intelligence Collection charges which were claimed at Rs. 46,50,139/- and allowing relief only to the extent of Rs. 15,50,046/-thereby resulting in disallowance of Rs. 31,00,093/-
4. The Appellant craves leave to add, amend, modify or delete any ground of appeal, make written and oral submissions at the time of hearing of appeal and request for the admission of additional evidence, as may be warranted."
4. This appeal was posted for hearing on many occasions. On all dates of hearing, except one, the case was adjourned as none was present on behalf of the assessee. On two occasions when the Bench did not function, the case was adjourned and next date was intimated by display on notice board. Even issue of notice for hearing by RPAD a number of times did not elicit any response by the assessee. In these circumstances, we are of the considered opinion that the assessee is not interested in pursuing this appeal. The learned D.R., however, was present and ready to argue Revenue's case. In these circumstances, we proceed to dispose off this appeal exparte with the assistance of the learned D.R. and the material on record.
3 ITA No. 4198/Mum/2014PAN Insurance Brokerage Co. Pvt. Ltd.
5. Ground No. 1 - Disallowance of Depreciation on Business Development Rights 5.1 In this ground, the assessee assails the impugned order of the CIT(A) in upholding the disallowance of depreciation of `36,76,397/- on business development rights.
5.2.1 According to the learned D.R. for Revenue, in the course of assessment proceedings, the Assessing Officer (AO) observed that the assessee had claimed depreciation @25% on business development rights and required the assessee to justify its claim. The assessee, though it submitted that it had taken over the business and assets/liabilities of M/s. JLI Insurance Brokerage Company, proprietary concern of one Sri Vasant Raj Pandit, and these business development rights were pre- operation expenses incurred for training staff; could not furnish any details or documentary evidence to substantiate this claim and therefore the assessee's claim for depreciation @25% was disallowed. The learned D.R. states that, on appeal, the CIT(A), after considering the AO's remand report, dismissed the assessee's claim and thereby upheld the disallowance made by the AO. It is contended that in these proceedings, the assessee has failed to bring on record any material evidence to controvert the findings of the authorities below and therefore the assessee's ground ought to be dismissed.
5.3.1 We have heard the learned D.R. for Revenue and perused and carefully considered the material on record. On a perusal of the impugned order, we find that the learned CIT(A) has dealt with this issue at length and rendered his findings at para 2.4 thereof which is extracted hereunder: -
"2.4 1 have considered the submissions of the appellant, order of the AD and facts of the case carefully. It is noticed that the assessee has claimed depreciation @ 25% on the business development rights. During the assessment proceedings the AO has called for complete details and the nature of assets which has come into existence by incurring the expenditure of preoperative expenses. in response to this show cause notice the AR of the appellant has submitted its reply that the assessee has taken out the business and asset liability of MIs. JLI Insurance Brokerage Ltd, a proprietary concern of Shri Vasant Raj 4 ITA No. 4198/Mum/2014 PAN Insurance Brokerage Co. Pvt. Ltd.
Pandit. It was also submitted that the business development rights were preoperative expenses which were incurred for training of their staff and identifying various locations and staff at different centres. But no details or any documentary evidence was filed along with this written submission. Thus the AO has held that as per Rule 5 of the LT. Rules no asset has come into existence and no documentary evidence has been filed to prove the existence of any asset. Therefore, the claim of depreciation of Rs.36,76,397/- being 25% of Rs,1,47,05,589/- claimed by the appellant was disallowed. On the other hand the AR of the appellant has submitted that there is no depreciation claimed falls in the heading of intangible asset in part B of depreciation table. As the facts of the case show that the rights were covered in this head as other business or commercial rights of similar nature. it was also claimed that depreciation on this item had been allowed by the Department in the A.Y.2003-04 when the expenses were capitalized in the case of JLI Insurance Brokerage Company. The AR has also filed copy of the assessment order for A.Y.2003-04. Thus it was argued that the AO was not correct in submitting the remand report that no depreciation was allowed in A.Y.2003-04. The remand report was also called. for on. this issue, the gist of which is reproduced as under.:
As submitted in the letter dated 11.12.2013, the above case was received on transfer from the charge of DCIT-8(3) in the quarter ending March, 2013. It is seen that the case was earlier assessed with the charge of DCIT-8(2), Mumbai till July, 2011 and the assessment proceedings for the concerned years had been completed in that charge.
However, the assessment records for the AY 2003-04 were not received on transfer from the charge of DCIT-8(3), Mumbai. In spite of all out efforts made to locate the assessment records for AY 2003-04 in the offices of DCIT-8(2) and DCIT 8(3), the same could not be traced.
Under these circumstances, as directed by the Addl. CiT 8(3), Mumbai, vide letter dated 17.12.2013 the assessee was requested to furnish the details submitted by it in course of the assessment proceedings for AY 2003-04, in respect of the 'Business Development expenses in support of its claim of depreciation for that year along with copy of the assessment order passed for the AY 2003-04.
In response to the above the Assessee vide letter dated 30.12.2013 sought one week's time to furnish the details. Accordingly, the assessee was asked to furnish the same by
06.01.2014. However, the assessee vide letter dated 06.01.2014 again asked to grant a further time of twenty days to submit the requisite information. Since no details were filed, the Assessee vide letter dated 03.02.2014 has been again asked to furnish the same latest by 11.02.2014.
5 ITA No. 4198/Mum/2014PAN Insurance Brokerage Co. Pvt. Ltd.
Finally, on. 14.02.2014, following details sent by the Assessee by post have been received in this office -
1. Copy of application form in the appeal submitted by Vasant Raj Pandit who was the proprietor of the JLI insurance Brokerage Company (taken over by PAN Insurance Brokerage Company Pvt. Ltd in the F.Y. 2003-04).
2. Copy of Balance Sheet of JLI Insurance Brokerage Company for the FY 2002-03.
3. Copy of Balance Sheet of PAN Insurance Brokerage Company Private Limited for the FY. 2003-04,
4. Copy of Notice for Remand Report.
In the instant case, the Assessee was asked to furnish the details which had been submitted by the assessee in course of assessment proceedings for A Y 2003-04 in respect of' The 'Business Development Expenses' in support of its claim of depreciation for that year, along with copy of assessment order passed for the AY 2003-04. It is seen that other than appeal memo, audited P&L A/c. and Balance Sheet and copy of assessment order, no other details have been filed by the Assessee Company.
It is informed by the Assessee Company that in the AY 2003-04 the business was carried out under the name and style of JLI Insurance Brokerage Company (Prop.S hri Vasant R. Pandit) which was subsequently taken over by M/s. PAN INDIA INSURANCE BROKERAGE COMPANY PVT. LTD.
On perusal of the copy of assessment order dated 27.03.2003 for AY 2003-04 submitted by the Assessee Company. It is seen that contrary to the claim made by the Assessee company, the claim of depreciation towards business development expenses was disallowed in the said order after a detailed discussion (Para 14, Page 15 & 16). Copy of Assessee's submission dated 11.02.2014 is enclosed herewith. Under the circumstances, the above claim made by the assessee is found to be factually incorrect. From the perusal of the remand report and submissions it is clear that the assessee company has taken over the business of M/s. JLI Insurance Brokerage Co., a proprietary concern of Shri Vasant Raj Pandit. The AO has disallowed the claim of depreciation by holding that no documentary evidence was filed to prove that any asset has been created by incurring the expenditure on the training of staff at various locations at different centers. The AO has also held that no evidence was filed relating to the training of the staff and the genuineness of expenses claimed. Therefore, it was held that no business asset was created. Hence not eligible for claiming depreciation. In the remand report also the AO has mentioned that in the Asst. Year 2003-04 the depreciation was not allowed by the AO. But on the other hand the AR of the appellant has submitted that in A.Y.2003-04 the depreciation was allowed. To verify this fact it is noticed that in the assessment order passed for A.Y. 2003-04 the 6 ITA No. 4198/Mum/2014 PAN Insurance Brokerage Co. Pvt. Ltd.
issue of depreciation has been discussed in para 14 and 15 of the assessment order the gist of which is reproduced as under :
What the assessee submitted is a mere typed statement. The assessee was specifically asked to prove from where and how it is acquired with supporting evidence, cost etc. The assessee has not submitted any corroborative evidence. The onus of establishing the genuineness of expenses lies on the assessee. The principle of natural justice was adhered to. On the basis of facts and circumstances as discussed above, it is obvious that the assessee has failed to establish its claim.
As regards the claim of depreciation on computer and furniture and fixtures, the assessee was specifically asked for the full address of the location where it is installed along with name and address of the party who had carried out the installation of computers and furniture and fixtures. For this also, the assessee has merely filed a typed statement. The assessee has not been able to give the address where it is installed. It has only mentioned at the top of the Annexure-IV "originally sever installed at Transmission House, Marol Coop.Indl. Estate, Andheri(E)". Presently, the assessee has no business activity at the above address as stated by the Representative. In this situation, I am not in a position to accept that the assessee has made any addition to the block of assets as mentioned in the Schedule II (Fixed Assets) to the Audit Report of JLI Insurance Brokerage Company. As mentioned earlier onus is on the assessee to establish its claim. It has failed even to furnish the location where it has installed the computers and servers and also the furniture and fixtures. Accordingly, the depreciation claimed of Rs.54,47,588/- is rejected and the same is added to the total income.
A simple reading of this order it is clear that in absence of supporting evidence the AO has disallowed the depreciation claimed at Rs.54,47,588/-. But it is not understandable how the AR of the appellant has made submission that depreciation was allowed in the A.Y.2003-04. In view of these facts and circumstances, it is held that the assessee has failed to submit complete documentary evidences relating to the preoperative expenses before the AO and before me. Therefore, the claim cannot be allowed. Hence, the depreciation claimed of Rs.36,76,397/- disallowed by the AO is confirmed and the ground of appeal is dismissed."
5.3.2 On an appreciation of the contentions of the learned D.R. for Revenue, the facts of the case and the orders of the authorities below, we find that except for raising this ground, the assessee has failed to bring on record before us any material evidence to establish its claim for being allowed depreciation @25% on business development rights and controvert the findings of the authorities below. In this view of the matter we find no 7 ITA No. 4198/Mum/2014 PAN Insurance Brokerage Co. Pvt. Ltd.
reason to interfere with or deviate from the judicious findings of the learned CIT(A) in rejecting the assessee's claim for being allowed depreciation @25% on business development rights. Consequently, ground No. 1 of Assessee's appeal is dismissed.
6. Ground No. 2 - Disallowance of claim for set off of brought forward losses under section 72A(6) r.w.s. 47(xiv) Proviso (c) of the Act.
6.1 In this ground, the assessee contends that the learned CIT(A) has erred in upholding the disallowance of its claim for brought forward losses made under section 72A(6) r.w.s. 47(xiv) proviso (c) of the Act.
6.2.1 `We have heard the learned D.R. for Revenue in support of the action of the authorities below in disallowing the assessee's claim for set off of brought forward losses under section 72A(6) r.w.s. 47(xiv) of the Act and have perused and carefully considered the orders of the authorities below on this issue. The learned CIT(A) has dealt with this issue at para 3.3 of the impugned order, which is extracted hereunder: -
"3.3 I have considered the submissions of the appellant, order of the AO and facts of the case carefully. It is noticed that the assessee has claimed that it was entitled to set off of brought forward losses u/s. 72A(6) r.w.s. 47(xiv) of the IT. Act. But the AO has held that as per the proviso (c) to section 47(xiv) the sole proprietor cannot receive any consideration or benefit directly or indirectly in any form or manner other than by way of allotment of shares in the company. But in the present case the AO has observed that the assessee company has paid 2,13,23,484/- to one Frontier Trading a proprietary concern of Shri Vasant Raj Pandit. Thus the condition of section 72A(6) r.w.s. 47(xiv) and proviso (c) to section 47(xiv) are not fulfilled because Shri Vasant Raj Pandit, proprietor of M/s. Frontier Trading has received indirect benefit in the nature of market Intelligence collection charges from the assessee company. In the proviso it is very clear that the proprietor cannot receive any consideration or benefit directly or indirectly in any form or manner other than by way of allotment of shares in the company. On the other hand the AR of the appellant has submitted that the proprietary concern in the name of JLI Insurance Brokerage was paying the market Intelligence collection charges to Frontier Trading Company even before the succession to the appellant company. It was not a case as if the appellant company has started paying these charges afresh for the first time. The percentage of payment of these charges has come down from 271% to 89% only. Thus the payment of market Intelligence collection charges was merely continuation of the business practice and that too at much 8 ITA No. 4198/Mum/2014 PAN Insurance Brokerage Co. Pvt. Ltd.
reduced rate. It was also submitted that the payment of such charges to Frontier Trading Company has nothing to do with the succession of proprietary concern with the appellant company for which only consideration was the allotment of 99% shares to the proprietary concern which was evident from the notes to the accounts and Balance Sheet. It was also submitted that there is no law that once a proprietary concern has been succeeded or converted to a company the company cannot enter in any commercial and mutually beneficial agreement with him. Thus it was argued that section 47(xiv) has no obligation to the facts of the case.
From the submissions and facts of the case it is observed that as per the proviso (c) to section 47(xiv) it is very clearly mentioned that the sole proprietor cannot receive any consideration or benefit directly or indirectly in any form or manner than by way of allotment of shares in the company. But in the present case the assessee company has paid the amount of Rs.2,30,23,484/- to Frontier Trading Company, a proprietary concern of Shri Vasant Raj Pandit which clearly is a benefit given to the sole proprietor Shri Vasant Raj Pandit. In view of these facts and circumstances I do not agree with the argument of the AR of the appellant that no benefit has been received by Mr. Vasant Raj Pandit by collecting the market intelligence collection charges from assessee company. Thus I fully agree with the decision of the AO and no interference is called for. Thus the ground of appeal is dismissed."
6.2.2 On an appreciation of the facts on record, the contention of the learned D.R. and the orders of the authorities below, we find that except for raising this ground, the assessee has failed to controvert the findings of the authorities below and thereby establish with material evidence that its claim for being allowed set off of brought forward losses under section 72A(6) r.w.s. 47(xiv) of the Act is in order. In this view of the matter, we find no reason to interfere with the judicious decision rendered by the learned CIT(A) in rejecting the assessee's claim for being allowed set off of brought forward losses under section 72A(6) r.w.s. 47(XIV) of the Act. Consequently, ground No. 2 of the assessee's appeal is dismissed.
7. Ground No. 3 - Disallowance of Market Intelligence Collection Charges - `31,00,093/-
7.1 In this ground the assessee challenges the order of learned CIT(A) in giving partial relief and upholding disallowance of `31,00,093/- on account of market intelligence collection charges.
7.2 According to the learned D.R. for Revenue the AO on noticing that the assessee claimed market intelligence expenses of Rs.2,13,23,484/- @ 9 ITA No. 4198/Mum/2014 PAN Insurance Brokerage Co. Pvt. Ltd.
`450/- per customer, required the assessee to furnish details and evidence in respect of incurring of such expenses; leading to the expenses claim being reduced to `46,50,139/- @ `150/- per customer without any explanation being put forth for the same. The AO restricted the same expenditure to `7,54,023/- @ `25/- per customer, resulting in disallowance of `38,75,116/-. The learned D.R. submits that on appeal the learned CIT(A) affirmed the view of the AO that the expenses claimed by the assessee @150/- per customer was excessive and not established, but granted the assessee partial relief by directing the AO to allow the assessee's claim to the extent of `50/- per customer which worked out to `15,50,046/- out of total claim of `46,26,139/-, thereby upholding the disallowance to the extent of `31,00,093/-. It is strongly contended that in these appellate proceedings the assessee has failed to bring on record any material evidence to controvert the finding of the learned CIT(A) and therefore the assessee's ground No. 3 requires to be rejected.
7.3.1 We have heard the learned D.R. for Revenue and perused and carefully considered the material on record. On a perusal of the impugned order, we find that the learned CIT(A) has dealt with this issue at length and rendered his finding at paras 4.1 to 4.3 thereof as under: -
"4.1 The AO has observed that assessee has debited Rs.46,50,139/- towards market intelligence agencies. When the AO has asked for the explanation of these expenses the assessee has submitted that it was permitted to use third parties to collect information for procuring insurance business. The assessee used the services of another proprietary concern M/s. Frontier Trading Company for rendering services for the purpose of gathering market intelligence. On the basis of that Agreement a separate composite agreement broking licence was procured by them and the services of M/s. Frontier Trading Company was used to collect and procure the information for insurance business. It was argued that for the insurance business market intelligence gathering was essential part as 85% of the business was carried out on the basis of market intelligence and 50% business was generated directly. The AO has considered the submissions of the appellant and observed that the conduct of the assessee with regard to the scaling down of the market Intelligence charges payable to M/s. Frontier Trading Co. from Rs.2,13,23,484/- to Rs.46,50,139/-.Moreover, during the assessment proceedings the assessee has stated that they earn upwards of Rs.50/- and above per form from the insurance companies firm. From 10 ITA No. 4198/Mum/2014 PAN Insurance Brokerage Co. Pvt. Ltd.
the insurance company and the additional agreement with M/s. Frontier Trading Co. was @ 450/- per customer which was reduced to Rs.150/- per customer. The AO has perused the submissions of the appellant and noticed that the specimen forms contain the market intelligence as gathered by the Frontier Trading Co. does not reveal any specialized or skilled operation as claimed by the assessee. Further, the assessee had a functional marketing team to organize and collect such information. Further it was noticed that Rs.1,07,18,000/- as salaries was paid to the marketing, personnel. Further the payments between the company where the director holds the substantial shares and his proprietary concern. Therefore, the reasonableness of the payment made to M/s. Frontier Trading Co. was in doubt. It was also observed by the AO that the Income of the insurance company is as low as Rs.50/- per person in certain policies, payment of Rs.150/- was shown for collecting the information about the prospective customer. It also observed that the income of the assessee from the policy varies from Rs.50/- onwards. In view of these facts and circumstance the AO has scaled down the payment @ Rs.25/- per person in place of Rs.150/- per customer claimed towards gathering of market intelligence and allowed Rs.7,75,023/- and the balance amount of Rs.38,75,116/- was disallowed and added back.
4.2 Before me the appellant submitted as under :
In the third ground, the appellant has challenged the restricting the claim of expenses relating to the market intelligence collection charges from Rs. 150/- per questionnaire to just Rs.25/- per questionnaire, thereby disallowing the expenditure to the extent of Rs.38,75,116/- . The disallowance has been made on the ground that the payment has been made to a concern in which the director of the appellant company has substantial interest and that the income earned from such policies in some cases was as low as Rs.50/- per policy. In this connection, it is submitted that AO has incorrectly stated in his order that the income from 'certain' policies was low of Rs.50/- without pointing out even a singly instance for the same. The low income of Rs. 50/- is there for almost negligible number of policies and that too for general insurance category whereas for most of the policies, the amount is above Rs.500/- for Life Insurance and above Rs. 100/- for general insurance. The AO has failed to notice that this year, the expenditure incurred on such expenses has reduced from 271% to 89% as compared to last year and as such, the expenses claimed were highly reasonable and justified. It may further be mentioned that such charges have resulted in the generation has large revenues to the appellant. In support of this, the appellant is attaching a copy of the details submitted during the course of assessment proceedings showing the number of questionnaire issued and the policies generated there from (pages 78 to 87 of the paper book). This statement would clearly show that the expenditure incurred by the appellant was reasonable, justified and was incurred 11 ITA No. 4198/Mum/2014 PAN Insurance Brokerage Co. Pvt. Ltd.
wholly and exclusively for the purposes of the business of the company. Besides, it is well settled principle, as decided in many judgments, including the Hon'ble Supreme Court of India, that expenditure cannot be disallowed merely because it has not yielded any income or has yielded lower than expected income. The expenditure has to be examined from the yardstick of a reasonable and normal businessman and no disallowance can be made merely because the expenditure should have generated more income. It may lastly be added that the AO's action in estimating the expenditure at Rs.25/- per questionnaire is highly arbitrary and without any basis. No disallowance can be made in this arbitrary manner without giving any basis for the same.
4.3 I have considered the submissions of the appellant, order of the AO and facts of the case carefully. It is noticed that the assessee has claimed market intelligence expenses at Rs.46,50,139/-. The AO has called for details and evidence relating to these expenses. The AR of the appellant has submitted its reply. After considering the same the AO has held that earlier the assessee company has shown the market intelligence expenses at Rs.2,13,23,464/- @ 450 per customer but it was reduced to Rs.46,50,139/- @ Rs.150/- per customer during the assessment proceedings. The AO has observed that the market intelligence charges were collected by M/s. Frontier Trading Co., a proprietary concern of Mr. Vasant Raj Pandit who has substantial interest in the assessee company. On the basis of information submitted the AO has analyzed the specimen forms containing the market intelligence as gathered by M/s. Frontier Trading Co. It revealed that no specialized or any skilled application was required for collecting this information. Since the payment was made to Shri Vasant Raj Pandit who is the proprietor of M/s. Frontier Trading Co. Therefore, the AO has held that it was only a colorable device to increase the expenses in the assessee company for creating losses and payment was given to the person who has substantial interest in the .assessee company just to avoid the payment of taxes. Thus the AO has reduced the payment per person of Rs.25/- against the claim of the assessee at Rs.150/- per customer. The AO has allowed the amount of Rs.7,75,023/- and balance amount of Rs.38,75,116/- was disallowed. On the other hand the AR of the appellant has submitted that the income from certain policy was low of Rs.50/- without pointing out even a single instance for the same. The low income of Rs.50/- is there for almost negligible number of policies and that too for general insurance category whereas for most of the policies the amount was above Rs.500/- for Life Insurance and Rs,100/- for general insurance. It was also submitted that the AO has ignored that the expenses in the year under consideration has been reduced substantially. The AR has also argued that it is well settled principle that expenditure cannot be disallowed merely it has not yielded any income or has yielded lower than the expected income. Thus the disallowance made by the AO is not justifiable.
12 ITA No. 4198/Mum/2014PAN Insurance Brokerage Co. Pvt. Ltd.
From the perusal of the submissions and facts of the case it is noticed that the assessee has claimed that market intelligence expenses @Rs.46,50,139/- which were earlier claimed at Rs.2,13,23,484/-. Earlier the claim was @ Rs.450/- per customer but it was reduced to Rs.150/- per customer. However, no reason was given for such a drastic fall in expenses. Moreover, no reason was also given by the appellant for claiming the expenses @ Rs.150/- per person but the specimen form used for the market intelligence was very simple and has no need for any skilled worker. I have noticed that this issue has also been decided by the AO in the A.Y.2003-04 by holding as under:
From the admissions as made out in its letter to Unmesh Chavan, it is clear that the assessee Ws. Frontier Trading has been debiting bogus incentive payments In their books of account. Therefore, the books of accounts cannot be accepted and the book result is rejected.
Since I have rejected the book result, it is necessary to find out the allowable incentive payments as the assessee has certainly made some payments as admitted by the six persons' mentioned in the earlier paragraph of this order. On the basis of the replies received from the six persons as mentioned earlier, the allowable incentive payment5 is worked out as shown below:
i) Subhash Kulkarni 125667 x 100 = 27.72%
453191
ii) Basil Jude Machado 782328 x 100 = 12.92%
6052581
iii) Late Jagdish N. Patel 319620 x 100 = 31.33%
1019892
iv) Pradnya S. Mangoonkar 87203 x 100 = 23.60%
1019892
v) Vikram B. Patel 405173 x 100 = 32.00%
1265952
vi) Rajinder Singh 998833 x 100 = 84.75%
1178454
The above working gives and average incentive payment of 35.38%. However, considering the fact that one party has admitted receipt of 85% and one party has admitted only 13% of the amount debited by the assessee as incentive in the Profit & Loss Account and taking liberal view in the matter, I allow 50% of the incentive payments as genuine and accordingly, disallow the remaining 50%. Since the total incentive payments debited to the Profit and Loss Account is Rs.50,48,19,992/-, the disallowance works out to Rs.25,24,09,946/- (Say Rs.25.24 Crs). This sum is added to the total income. Penalty proceedings u/s 271(1)(c) are initiated separately. Since the facts and circumstances of the case are the same, therefore, I am of the view that market intelligence expenses should be adopted at Rs.50/- per customer in place of Rs.150/- claimed by the appellant and Rs.25/- allowed by the AO is not reasonable. Therefore, the AO is 13 ITA No. 4198/Mum/2014 PAN Insurance Brokerage Co. Pvt. Ltd.
directed to re-compute the market intelligence expenses @ Rs.50/- which comes to Rs.15,50,046/- out of the total claim of Rs.46,26,139/- and the balance disallowance of Rs.31,00,093/- is upheld. The ground of appeal is partly allowed."
7.3.2 On an appreciation of the contentions of the learned D.R. for Revenue, the facts of the case and the impugned order of the learned CIT(A) (supra), we find that except for raising this ground, the assessee has failed to bring on record material evidence to controvert the findings of the learned CIT(A) and thereby establish with material evidence that its claim for being allowed expenditure incurred on market intelligence collection charges is in order and was to be allowed. In this view of the matter, we find no reason to interfere with the decision rendered by the learned CIT(A), in sustaining the disallowance in respect of the assessee's claim for market intelligence collection charges to the extent of `31,00,093/- @ `50/- per customer.
Consequently, ground No. 3 of the assessee's appeal is dismissed.
8. Ground No. 4 of the assessee's appeal is general in nature and therefore no adjudication is called for thereon.
9. In the result, the assessee's appeal for A.Y. 2004-05 is dismissed.
Order pronounced in the open court on 5th May, 2017.
Sd/- Sd/-
(Ram Lal Negi) (Jason P. Boaz)
Judicial Member Accountant Member
Mumbai, Dated: 5th May, 2017
Copy to:
1. The Appellant
2. The Respondent
3. The CIT(A) -18, Mumbai
4. The CIT - 8, Mumbai
5. The DR, "J" Bench, ITAT, Mumbai
By Order
//True Copy//
Assistant Registrar
ITAT, Mumbai Benches, Mumbai
n.p.