Income Tax Appellate Tribunal - Pune
Deputy Commissioner Of Income-Tax,, ... vs Coca-Cola India Pvt. Ltd.,, Pune on 22 August, 2019
आयकर अपीऱीय अधिकरण पण
ु े न्यायपीठ "ए" पण
ु े में
IN THE INCOME TAX APPELLATE TRIBUNAL
PUNE BENCH "A", PUNE
सुश्री सुषमा चावऱा, न्याययक सदस्य एवं श्री अयिऱ चतुवेदी, ऱेखा सदस्य के समक्ष
BEFORE MS. SUSHMA CHOWLA, JM AND SHRI ANIL CHATURVEDI, AM
आयकर अपीऱ सं. / ITA No.1258/PUN/2003
यििाारण वषा / Assessment Year : 1998-99
Coca Cola India Pvt. Ltd.,
1107-1110, Pirangut
Tal Mulshi,
Pune .... अऩीऱाथी/Appellant
PAN: AAACB8573G
Vs.
The Dy. Commissioner of Income Tax,
Circle 1(1), Pune .... प्रत्यथी / Respondent
आयकर अपीऱ सं. / ITA No.182/PUN/2004
यििाारण वषा / Assessment Year : 1999-2000
Coca Cola India Pvt. Ltd.,
1107-1110, Pirangut
Tal Mulshi,
Pune .... अऩीऱाथी/Appellant
PAN: AAACB8573G
Vs.
The Dy. Commissioner of Income Tax,
Circle 1(1), Pune .... प्रत्यथी / Respondent
आयकर अपीऱ सं. / ITA No.237/PUN/2004
यििाारण वषा / Assessment Year : 1999-2000
The Dy. Commissioner of Income Tax,
Circle 1(1), Pune .... अऩीऱाथी/Appellant
Vs.
Coca Cola India Pvt. Ltd.,
1107-1110, Pirangut
Tal Mulshi,
Pune .... प्रत्यथी / Respondent
PAN: AAACB8573G
2 ITA No.1258/PUN/2003 & Ors
Coca Cola India Pvt. Ltd.
आयकर अपीऱ सं. / ITA No.610/PUN/2004
यििाारण वषा / Assessment Year : 2000-01
Coca Cola India Pvt. Ltd.,
1107-1110, Pirangut
Tal Mulshi,
Pune .... अऩीऱाथी/Appellant
PAN: AAACB8573G
Vs.
The Dy. Commissioner of Income Tax,
Circle 1(1), Pune .... प्रत्यथी / Respondent
आयकर अपीऱ सं. / ITA No.1015/PUN/2004
यििाारण वषा / Assessment Year : 2000-01
The Dy. Commissioner of Income Tax,
Circle 1(1), Pune .... अऩीऱाथी/Appellant
Vs.
Coca Cola India Pvt. Ltd.,
1107-1110, Pirangut
Tal Mulshi,
Pune .... प्रत्यथी / Respondent
PAN: AAACB8573G
आयकर अपीऱ सं. / ITA No.1103/PUN/2005
यििाारण वषा / Assessment Year : 2001-02
Coca Cola India Pvt. Ltd.,
1107-1110, Pirangut
Tal Mulshi,
Pune .... अऩीऱाथी/Appellant
PAN: AAACB8573G
Vs.
The Addl. Commissioner of Income Tax,
Range 1, Pune .... प्रत्यथी / Respondent
3 ITA No.1258/PUN/2003 & Ors
Coca Cola India Pvt. Ltd.
आयकर अपीऱ सं. / ITA No.1162/PUN/2005
यििाारण वषा / Assessment Year : 2001-02
The Dy. Commissioner of Income Tax,
Circle 1(1), Pune .... अऩीऱाथी/Appellant
Vs.
Coca Cola India Pvt. Ltd.,
1107-1110, Pirangut
Tal Mulshi,
Pune .... प्रत्यथी / Respondent
PAN: AAACB8573G
आयकर अपीऱ सं. / ITA No.256/PUN/2007
यििाारण वषा / Assessment Year : 2002-03
Coca Cola India Pvt. Ltd.,
1109-1110, Village Pirangut
Tal Mulshi,
Dist. Pune .... अऩीऱाथी/Appellant
PAN: AAACB8573G
Vs.
The Dy. Commissioner of Income Tax,
Circle 1(1), Pune .... प्रत्यथी / Respondent
आयकर अपीऱ सं. / ITA No.356/PUN/2007
यििाारण वषा / Assessment Year : 2002-03
The Dy. Commissioner of Income Tax,
Circle 1(1), Pune .... अऩीऱाथी/Appellant
Vs.
Coca Cola India Pvt. Ltd.,
1109-1110, Village Pirangut
Tal Mulshi,
Dist. Pune .... प्रत्यथी / Respondent
PAN: AAACB8573G
4 ITA No.1258/PUN/2003 & Ors
Coca Cola India Pvt. Ltd.
आयकर अपीऱ सं. / ITA No.144/PUN/2007
यििाारण वषा / Assessment Year : 2003-04
Coca Cola India Pvt. Ltd.,
Plot No.1107, Village Pirangut
Tal Mulshi,
Dist. Pune .... अऩीऱाथी/Appellant
PAN: AAACB8573G
Vs.
The Addl. Commissioner of Income Tax,
Range 1, Pune .... प्रत्यथी / Respondent
आयकर अपीऱ सं. / ITA No.357/PUN/2007
यििाारण वषा / Assessment Year : 2003-04
The Dy. Commissioner of Income Tax,
Circle 1(1), Pune .... अऩीऱाथी/Appellant
Vs.
Coca Cola India Pvt. Ltd.,
1109-1110, Village Pirangut
Tal Mulshi,
Dist. Pune .... प्रत्यथी / Respondent
PAN: AAACB8573G
आयकर अपीऱ सं. / ITA No.825/PUN/2008
यििाारण वषा / Assessment Year : 2004-05
The Addl. Commissioner of Income Tax,
Range-1, Pune .... अऩीऱाथी/Appellant
Vs.
Coca Cola India Pvt. Ltd.,
1109-1110, Village Pirangut
Tal Mulshi,
Dist. Pune .... प्रत्यथी / Respondent
PAN: AAACB8573G
5 ITA No.1258/PUN/2003 & Ors
Coca Cola India Pvt. Ltd.
आयकर अपीऱ सं. / ITA No.896/PUN/2008
यििाारण वषा / Assessment Year : 2004-05
Coca Cola India Pvt. Ltd.,
Plot No.1107, Village Pirangut
Tal Mulshi,
Dist. Pune .... अऩीऱाथी/Appellant
PAN: AAACB8573G
Vs.
The Addl. Commissioner of Income Tax,
Range 1, Pune .... प्रत्यथी / Respondent
Assessee by : Shri S.E. Dastur, R. Murlidhar, A.K. Sarkar &
Nikhil Garg
Revenue by : S/Shri Rajeev Kumar, CIT & Achal Sharma
सन
ु वाई की तारीख / घोषणा की तारीख /
Date of Hearing : 01.07.2019 Date of Pronouncement: 22.08.2019
आदे श / ORDER
PER SUSHMA CHOWLA, JM:
Out of this bunch of appeals, one appeal filed by the assessee and cross appeals filed by the assessee and the Revenue are against separate orders of CIT(A)-I, Pune relating to assessment years 1998-99 to 2004-05 against respective orders passed under section 143(3) of the Income-tax Act, 1961 (in short 'the Act').
2. This bunch of appeals relating to the same assessee were heard together and are being disposed of by this consolidated order for the sake of convenience.
6 ITA No.1258/PUN/2003 & Ors
Coca Cola India Pvt. Ltd.
3. This bunch of appeals relating to the assessee and in other year, cross appeals filed by assessee and Revenue were decided by the Tribunal in the first round vide order dated 31.03.2010. The assessee carried the matter before Hon'ble High Court and the Hon'ble High Court in Writ Petition No.3650/2014 vide judgment dated 14.08.2014 has remitted the issue of allowability of service charges, back to the file of Tribunal. The relevant findings of the Hon'ble High Court are vide para 19, wherein the Tribunal was directed to decide and consider the claim in relation to service charges by taking into account the contentions and case of both the sides. The Hon'ble High Court vide para 20(C) has recalled the order of Tribunal dated 31.03.2010 to the extent of claim of service charges including travelling expenses and the appeal was restored back to the file of Tribunal for decision afresh on merits and in accordance with law. The Hon'ble High Court thus, directed the Tribunal to decide the claim in accordance with factual and legal aspects of case. Hence, these appeals were consequently fixed for hearing and were heard from date to date.
4. The issue which needs to be adjudicated in the present set of appeals is in respect of service charges 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 7 ITA No.1258/PUN/2003 & Ors Coca Cola India Pvt. Ltd.
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 Rs.17,60,18,500/- on the ground that the services were not wholly and exclusively for the purpose of its business.
(b) The CIT(A) erred in upholding the disallowance on the ground that service had also been rendered by CCI Inc to the appellant's group concern.
(c) The CIT(A) erred in taking the view that a part of the services rendered by CCI Inc to the appellant's bottlers did not have a direct business nexus with the business operation of the appellant.
(d) The CIT(A) erred in totally ignoring the contention of the appellant that it had recovered from the bottlers the cost of the services rendered to them by CCI Inc in the form of increased prices of the concentrate sold to the said bottlers.
(e) The CIT(A) grossly misdirected himself in observing that the service agreement was a sham document in so far as clause 5 / clause 2 was concerned
6. The Revenue in ITA No.237/PUN/2004, relating to assessment year 1999-2000 has raised the following grounds of appeal:-
1. On the facts and in the circumstances and in Law, the CIT(A) erred in allowing 70% expenses on account of reimbursement of service charges, while the A.O. has correctly disallowed 100% expenses, for the reasons:-
i) That the expenses were claimed only on the basis of an agreement between the assessee and Coca Cola India Inc.
ii) That the assessee did not furnish any evidence of services actually rendered by the Coca Cola India Inc. even when specifically asked for by the A.O. vide order sheet entry dated 04.03.2002 and letter dated 07.03.2002.8 ITA No.1258/PUN/2003 & Ors
Coca Cola India Pvt. Ltd.
2. On the facts and in the circumstances and in Law, the CIT(A) erred in not appreciating the decisions of the Apex court in the case of Swadeshi Cotton Mills (63 ITR 57) and Lachminarayan Mandanlal v/s CIT (86 ITR
439) wherein it was held that mere existence of an agreement is not sufficient to prove that the expenditure was incurred wholly and exclusively for the purpose of business.
3. On the facts and in the circumstances and in Law, the CIT(A) erred in allowing the relief to the assessee @ 70% of total service charges, while he himself has given adverse comments in this regard in para numbers 5.4.3, 5.4.5, 5.5, 5.6.5, 5.6.6 of his order.
4. The order of the CIT(A) be vacated and that of the A.O. be restored.
7. Briefly, in the facts of the case, the assessee was a public limited company. The assessee was engaged in the manufacture and sale of non- alcholic beverage bases 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 Assessing Officer during the course of assessment proceedings noted that the said agreement only spoke about 9 ITA No.1258/PUN/2003 & Ors Coca Cola India Pvt. Ltd.
license given to the assessee by TCCC, Inc for use of its trademarks, technical knowhow, etc. Another agreement was entered into between the parties on 01.04.1997 termed as Service Agreement for providing various services mentioned in the agreement, to the assessee. The Assessing Officer noted that agreement was mainly for imparting technical knowhow to the assessee. The assessee had debited service charges amounting to ₹ 70,40,73,989/- in assessment year 1998-99 as against ₹ 46,35,12,031/- during preceding year. The Assessing Officer asked the assessee to justify allowability of said expenditure. In reply, the assessee furnished service agreement along with debit notes which are annexed by Assessing Officer as Annexures 2 and 3 to the assessment order. The Assessing Officer on perusal of debit notes noted that it mentions two amounts stated to be paid by the assessee to Coca Cola India. The three debit notes dated 30.01.1998 mentions the amount incurred for services provided to assessee for the period 01.04.1997 to 31.12.1997. Another debit note dated 09.09.1998 was for expenses incurred from 01.04.1997 to 31.03.1998. The assessee explained that the said expenses were claimed by Coca Cola India Inc (in short 'CCI Inc') towards cost of services rendered and another 5% was charged as markup. The Assessing Officer took note of the business activities carried on by assessee and observed that initially during the year the assessee was having three divisions for the period from 01.04.1997 to 30.10.1997 i.e. Concentrate Division, Pet & Can Division and Glass & Bottles. The manufacturing process carried on by assessee under different divisions was detailed in Annexures 4 and 5 annexed to the assessment order. The finished products for three divisions were non alcoholic beverage base, can & pet and glass & bottles. For the period from 01.12.1997 to 31.03.1998, the Assessing Officer took note of business activities of assessee. The assessee had filed a petition in February, 1999 with the 10 ITA No.1258/PUN/2003 & Ors Coca Cola India Pvt. Ltd.
Hon'ble High Court of Bombay for scheme of arrangement under section 391 and 394 of the Companies Act, 1956 and the effective date for the scheme was 30.11.1997. The Hon'ble High Court vide its order dated 03.05.1999 had approved the scheme of demerger between the assessee 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 Pesticides & Agro Chemicals Vs. CIT reported in 227 ITR 846 (Gau) for the proposition that mere payment by itself would not entitle the assessee to deduction of particular expenditure unless the same is proved for commercial consideration. The onus was upon the assessee to establish by evidence that a particular allowance was justified. Further, reliance was placed on Laxmi Ratan Cotton Mills Co. Ltd. Vs. CIT reported in 61 ITR 744 and affirmed in 73 ITR 634, another decision for the proposition that if the assessee fails to place sufficient material, then the 11 ITA No.1258/PUN/2003 & Ors Coca Cola India Pvt. Ltd.
authorities would be justified to hold that the payment was not revenue expenditure.
8. The Assessing Officer thereafter proceeded to deal with disallowance out of service charges, which is commented upon at pages 14 and 15 of assessment order. The assessee had debited sum of ₹ 70.40 crores under the head 'service charges' during the year as against the claim of ₹ 46.35 crores in the preceding year. The assessee was asked to justify allowability of said expenditure along with evidences. The Assessing Officer raised query Nos.17 and 32 in this regard vide questionnaire dated 10.10.2000. The Assessing Officer in this connection noted that the assessee only filed statements mentioning one entry as service charges paid to CCIL amounting to ₹ 5,74,18,785/- and no other supporting details were filed. On further enquiries, the assessee only submitted copy of service agreement along with debit notes on 30.03.2001 which were annexed by the Assessing Officer as Annexure 3. The Assessing Officer also perused service agreement which was annexed as Annexure 2 to the assessment order, which revealed that services stated to be rendered under the agreement were in the nature of supply of technical knowhow. The Assessing Officer thus, in this connection observed that ultimate holding company, which was the owner of brand, had given license to the assessee company for the use of its trademarks and trade secrets for manufacturing of concentrate base and there was no apparent consideration, which had been paid to ultimate holding company for allowing use of its trademarks and trade secrets. The Assessing Officer had held that combined reading of both the agreements i.e. license agreement and service agreement revealed that the amount paid in the name of service charges was nothing but royalty paid by assessee to TCCC, Inc, USA for use of 12 ITA No.1258/PUN/2003 & Ors Coca Cola India Pvt. Ltd.
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 did submit copies of debit notes on 30.03.2001 along with some details of service charges, filed on 06.02.2001. The debit notes numbering serial Nos.11, 12, 13 and 14 were perused by CIT(A) and it was noted that sum of ₹ 70.40 crores was paid by assessee to TCCC, Inc., USA. At page 50, the CIT(A) has noted the contents of said debit notes. The debit note No.11 talked about sum of ₹ 48,25,08,613/-, dated 30.01.1998 and the description was expenses incurred for services provided to Britco Foods Ltd. for the period 01.04.1997 to 31.12.1997 under the terms of service agreement with markup @ 5%. The debit note No.12 was for sum of ₹ 26,14,908/-, dated 30.01.1998 with same description as above and similarly, debit note No.13 was for ₹ 98,10,667/-, dated 30.01.1998 with the said description. However, debit 13 ITA No.1258/PUN/2003 & Ors Coca Cola India Pvt. Ltd.
note No.14 for ₹ 20,91,39,800/- was dated 09.09.1998 and the description was expenses incurred for services provided to Britco Foods Ltd. for the period 01.04.1997 to 31.03.1998 under the terms of service agreement with markup @ 5%. The CIT(A) thus, observed that the assessee had made the aforesaid payment only on the basis of said debit notes and in terms of service agreement dated 01.04.1997, copy of which agreement was made available to the Assessing Officer only on 30.03.2001. During appellate proceedings, the assessee furnished additional evidence in the form of letter dated 23.07.2002, which was forwarded to Assessing Officer to submit remand report. The remand report is reproduced at page 52 of appellate order, under which it is reiterated by Assessing Officer that the total basis for claiming service charges as allowable expenditure was the service agreement. However, during scrutiny proceedings, the assessee could not produce any iota of evidence regarding actual rendering of services by TCCC to the assessee company. Thus, in view of failure on the part of assessee to substantiate its claim of actually rendering of services, service charges claimed need to be disallowed. It was further reported that burden of proof of substantiating the claim by way of positive evidence was upon the assessee which has not been discharged. Mere book entries in third party account or mere execution of service agreement would not automatically entitle the assessee company for reimbursement of service charges. Reliance was placed on the decision of 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 14 ITA No.1258/PUN/2003 & Ors Coca Cola India Pvt. Ltd.
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 06.03.2003 pointed out that from the perusal of details furnished, it was clear that CCI Inc., which was branch of a subsidiary of TCCC, was not exclusively for managing the business of assessee. The CIT(A) observed that CCI Inc was providing specific services to other companies as well and it was held that the plea of assessee that CCI Inc branch office was set up exclusively to carry out assessee's business operations was apparently not correct. Another observation made by CIT(A) was that it was an admitted fact that cost incurred by CCI Inc branch office was not monitored at any level by the assessee company. Even the vouchers for expenses were maintained by CCI Inc at Delhi only and the payments were made by assessee without verifying anything thereon, on the basis of debit notes. The Finance Manager of assessee company Mr. Tushar Naik stated that only debit notes were with the assessee and nothing further was available with the assessee. The CIT(A) thus, gave notice of enhancement to the assessee under section 251(2) of the Act in respect of service charges.
15 ITA No.1258/PUN/2003 & Ors
Coca Cola India Pvt. Ltd.
10. The CIT(A) proposed that out of said service charges, which were not wholly and exclusively for the purpose of business of assessee company as CCI Inc, (branch office) by its very genesis was required to take care of interests of parent company as well as the bottling units / entities including Hindustan Coca Cola Beverage Pvt. Ltd. From the information submitted by assessee which is referred in paras 7 and 7.1 at pages 56 to 58 of appellate order, the CIT(A) concluded that branch office was meant to provide services to licensed bottlers, to build up quality and goodwill of TCCC brand, besides rendering services to assessee company. He was of the view that these were basic facts, which need to be kept in mind for taking a decision on the issue. He also noted that these aspects were not before the Assessing Officer to take right decision regarding service charges and hence, there was need to enhance disallowance out of service charges. Another agreement i.e. license agreement dated 01.06.1993 between assessee and Coca Cola was perused. As per clause 6 of the license agreement, TCCC was to provide technical and managerial services to the assessee in the area of manufacturing, distribution, marketing, advertising, accounting and other skills required by assessee, by dispatching technical and managerial 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 16 ITA No.1258/PUN/2003 & Ors Coca Cola India Pvt. Ltd.
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 decided as to what was the extent of service charges which have been incurred and whether the same were wholly and exclusively for the purpose of business of assessee. Another point noted was that the assessee had bottling operations during part of the year, which were then closed and the same had also to be kept in mind. The CIT(A) observed that certain details were filed about the services rendered for production, planning, etc. He then relied on the decisions of the Hon'ble Supreme Court in the cases of Swadeshi Cotton Mills (supra) and Laxminarayan Madanlal (supra) and pointed out that mere existence of service agreement would not make service charges as allowable expenditure. Further, it was held by CIT(A) that mere approval of RBI would not make it allowable under section 37(1) of the Act. Vide para 7.5, CIT(A) further points out that the assessee produced vouchers for one or two months, which have been test checked and the comments on the nature of expenses were also obtained. The CIT(A) thus, further observed that expenses incurred by CCI Inc. and debited to the assessee include expenses on account of services rendered to bottlers as well as other group companies. This fact could be culled out from assessment order and Balance Sheet of CCI Inc. Branch office. The enhancement notice issued by CIT(A) talked about admission that major part of services rendered by CCI Inc. were directly to the assessee but some part of it related to bottlers could not be overlooked. The CIT(A) then referred to submissions of assessee 17 ITA No.1258/PUN/2003 & Ors Coca Cola India Pvt. Ltd.
dated 03.03.2003, copy of which is enclosed as Annexure 6 to the appellate order and pointed out that the same would make it clear that the assessee was not stating true facts in its earlier submissions with regard to the exclusive nature of CCI Inc operating only for the assessee and held it to be not correct.
11. He further referred to separate agreement between bottlers and TCCC and observed that there was no contractual obligation on the assessee to incur any expenses or provide services to bottlers. The bottlers were required to purchase concentrate from the assessee as per bottler's agreement with TCCC. The services were rendered by CCI Inc. for quality control of bottlers, plants & products, servicing of bottlers' supply, etc. and they were directly rendered to them without any direct business purpose of assessee. He further held 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 18 ITA No.1258/PUN/2003 & Ors Coca Cola India Pvt. Ltd.
either before or after paying service charges, which were purely based on the debit notes issued by CCI Inc. to the assessee. The CIT(A) noted the submissions of assessee that expenditure was on account of following factors:-
―a) Payment of salaries to employees
b) Payment of lease rent for the various offices situated in different cities
c) Travelling and conveyance expenditure of its staff
d) Payment of consultants for specific services
e) Telephone charges
f) Depreciation on equipment used for rendering the services
g) Other routine administrative charges of running an all India
establishment.‖
12. The plea of assessee that all expenses incurred by CCI Inc. would have to be incurred by assessee in running its business was held to be not correct. Even the minutes of S&OP meeting brought out that the main service charges which should be paid was with regard to accounting, taxation, production planning, inventory control, exports and capacity utilization etc. In this regard, he pointed out that whether services were being provided by CCI Inc has to be looked on the basis of RBI letters and actual practice that was being followed by assessee company. He further observed that part of expenses booked by assessee on infrastructure and manpower requirement of bottlers were to be considered attributable to the bottlers or bottling entities and he also noted that they had separate service agreement. The whole argument of assessee that the Indian branch of CCI Inc. was incurring all expenses exclusively for the benefit of assessee was found to be not correct. The CIT(A) took note of para 1.2.1 of the submission dated 03.03.2003 of assessee, wherein he admitted that some part of services rendered by CCI Inc. related to bottlers but the argument of assessee was that the said services were also for the benefit of assessee as bottlers problems adversely affect the assessee's sale/profit. The CIT(A) in this regard held that there is no direct nexus of these services rendered by CCI Inc., with the business of appellant as the bottlers are licensed by TCCC, who was the main beneficiary. He further 19 ITA No.1258/PUN/2003 & Ors Coca Cola India Pvt. Ltd.
observed that services rendered by CCI Inc. to the bottlers for quality improvement, for purchase of new machinery, etc. were services rendered to bottlers for their business needs in terms of bottlers agreement of TCCC with the bottlers. He further noted the nature of legal expenses and pointed out that though some of it are 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 Rs.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 March 1998 thereafter. He stated that since good quality of photocopies was not given, it could not be verified that all the vouchers were submitted for these two months or not. He test checked those vouchers and the assessee was also given an opportunity to explain how the services reflected were wholly and exclusively for the purpose of business of assessee. The vouchers are independently referred at pages 69 to 72 of appellate order. Item (i) to (iv) were vouchers relating to different 20 ITA No.1258/PUN/2003 & Ors Coca Cola India Pvt. Ltd.
aspects of bottlers business requirement and the plea of assessee was that the increased production of concentrate has to go on hand in hand with the increased capacity to manufacture additional finished beverages by the bottlers, hence the expenses incurred were for the purpose of business of assessee. The CIT(A) in clause (v) refers to the foreign travel of spouses of the employees totaling ₹ 21,50,348/-, which were not allowable as business expenditure even if incurred for the services rendered by the assessee. The CIT(A) concluded by holding that large number of such vouchers reflect services not rendered by CCI Inc. for the purpose of assessee. He also identified voucher Nos.7741 to 7744, 7750, 7790, etc. which were basically for marketing campaigns and legal issues of bottlers. Further part of expenses incurred by Mr. G. Kumar, Production Service Manager were not allowable and the assessee did not furnish documents and evidences mentioned in submissions. The CIT(A) acknowledged the vouchers which depict services rendered for the business needs of assessee company under para 8.7. He pointed out that expenses were either to be allowed in full or partly as they were internal HR functions of CCI Inc. for selection of candidates. Statement on oath of Mr. K.S. Nair, who was the key person of assessee company since 1994, was recorded on 22.05.2003. In the discussion, he admitted that vouchers submitted by CCI Inc. were not checked voucher- wise but quarterly audit of the same was done. He however, could not produce any such audit report stated to be prepared by M/s. Ernst & Young, C.As. He pointed out that CCI Inc. provided technical, legal, marketing, finance, information system and HR related support to the assessee company. The quality of concentrate manufactured by assessee was mainly checked and maintained by the Quality Assurance Manager with a team of six chemists, whereas the quality of beverages was taken care of by nearly 20 persons who 21 ITA No.1258/PUN/2003 & Ors Coca Cola India Pvt. Ltd.
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 service agreement with CCI Inc., bottlers agreement with TCCC and licensed bottlers are documents which, notwithstanding the limitations discussed here in above, do provide the basis for understanding the intricate and subtle nature of relationships between various segments of the set up controlled by TCCC. The correspondence with RBI for setting up of branch office of CCI Inc. Delaware (USA), right from 1994, submitted by the appellant as an additional evidence, bring out true nature of the branch office of CCI Inc. and the assessment order as well as the balance sheet of CCI Inc. branch makes it apparent that CCI Inc. has been rendering services to other Coca-Cola entities in India besides the appellant company right from July, 1997, if not earlier.‖
13. The CIT(A) acknowledged that CCI Inc was providing services to assessee as the assessee did not have human resources and administrative infrastructure, but it was not true that entire expenditure of Indian branch of CCI Inc. was for the business of assessee and hence, the amounts paid were by way of reimbursement of said expenditure. In this regard, the CIT(A) also re- noted the fact that CCI Inc. was not set up exclusively to manage assessee's business. Reference was made to letter to RBI by TCCC dated 26.09.1994 that it was undertaking activities not only to assessee but licensed bottlers, various suppliers to licensed bottlers and towards building equity and goodwill of TCCC's brand. Reference was made to letter dated 23.05.1994 in this 22 ITA No.1258/PUN/2003 & Ors Coca Cola India Pvt. Ltd.
regard. It was further observed by CIT(A) that after demerger of bottling operations of two units from the assessee company, no services were required from CCI Inc., which was being rendered as bottler to the assessee. Further, there were specific services rendered by CCI Inc. to bottler with no direct relevance to the assessee. The CIT(A) held that the cost related to coordination between assessee and bottler was though allowable business expenditure of assessee but this line of arguments could not be stretched to include cost of services directly rendered to the bottlers by CCI Inc. Further, reference was made to marketing strategy designed by S&OP meeting and it was held that these marketing strategies were required to be developed, not only for and on behalf of assessee, but also for brand image and enhanced sale of beverages in different parts of the country, in 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 23 ITA No.1258/PUN/2003 & Ors Coca Cola India Pvt. Ltd.
services were rendered to other than to assessee and mainly to the Coca Cola entities, as per service agreements with them and to the bottlers and their suppliers. Thus, the CIT(A) held that while making disallowance of 25% of service charges, disallowance on account of foreign travel expenses of spouses of ₹ 21,50,348/- and security deposits written off of ₹ 1,30,00,000/- with 5% markup had also been included. The total disallowance was worked out at ₹ 17,60,18,500/-.
14. The assessee is in appeal against the order of CIT(A).
15. The Ld. AR pointed out that factual aspects in assessment years 1998- 99 to 2004-05 were same. He stated that assessee was subsidiary of another concern and ultimate holding company was Coca Cola INC, USA with corporate branch in India and it was set up with the approval of RBI, which renders services to the assessee. He further pointed out that the assessee was manufacturing 'concentrate' which was the basic item for manufacture of drink i.e. Coca Cola, Coke, Fanta and Sprite, etc. The assessee was importing essence from CCI Inc. and from the essence manufactures 'concentrate', which was sold to various bottlers. During the year under consideration, the bottlers were sixty in number; who in turn, from the concentrate purchased by them manufactured / made drinks and sold the same in the market. The assessee claims that sale proceeds of selling the concentrate to bottlers were its income, wherein CCI Inc. had licensed the assessee the brand name at no cost base. The Ld. AR pointed out that there were four-fold transactions with CCI Inc.; at the top, the assessee manufactures concentrate and then bottlers who makes the drinks from concentrate and the ultimate was various persons including retailers, who in turn, sold it to the consumers. He then referred to history of 24 ITA No.1258/PUN/2003 & Ors Coca Cola India Pvt. Ltd.
the case and pointed out that assessment year 1996-97 was the first year in which the assessee was assessed to tax. In assessment year 1997-98, there was disallowance of service charges paid by assessee to CCI Inc., wherein the Assessing Officer had disallowed 10% of service charges. The CIT(A) enhanced the disallowance to 25% and the Tribunal in the second round had allowed expenses fully. In the first round, the Tribunal had sent back the matter but then the Hon'ble High Court had remitted the matter back to the Tribunal to look into it and he further pointed out that the second issue in all these 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 benefits someone else, is it to be disallowed fully or partly i.e. to the extent it benefits someone else. He referring to the order of the Hon'ble High Court in assessment year 1998-99, stated that the Hon'ble High Court stated that ample 25 ITA No.1258/PUN/2003 & Ors Coca Cola India Pvt. Ltd.
material was produced and the Tribunal has to decide the issue. He fairly admitted that for assessment year 1997-98, facts were slightly different where the assessee was engaged in two operations i.e. manufacturing of concentrate and the assessee was also the bottler. However, from December, 1997 to March, 1998, the assessee was not the bottler in assessment year 1998-99 but for the part of year, assessee was the bottler. He referred to revised concise grounds of appeal, wherein ground of appeal No.2 was against service charges, placed at page 123 of Paper Book. He then referred to the order of Tribunal for assessment year 1997-98.
16. He stressed that the assessee was engaged mainly in the manufacturing process and total number of employees employed by the assessee were 50-60. In order to protect the secret formula, the assessee had not engaged many employees but it definitely needed technical and managerial services, which were provided by CCI Inc. He then stressed that there were three facets which need to be kept in mind; firstly increase in business of bottlers also resulted in increased sale of concentrate and hence, assessee's profits increased; secondly, the assessee was sole supplier of concentrate to bottlers and thirdly bottlers were sole purchasers of concentrate.
17. He then pointed out to the provisions of section 37(1) of the Act which only talks of wholly and exclusively for the purpose of business, whereas the test applied by Revenue was 'solely' for the purpose of business. Reliance was placed on the decision of Hon'ble Supreme Court in Sassoon J. David & Co. (P) Ltd. vs. CIT (1979) 118 ITR 261 (SC). The Ld. AR makes special reference to pages 3 and 4 of assessment order, wherein the Assessing Officer had noted that for use of trademarks, no royalty was being paid by assessee and at page 26 ITA No.1258/PUN/2003 & Ors Coca Cola India Pvt. Ltd.
14, total expenditure was ₹ 70.40 crores on account of service charges. He then referred to the order of CIT(A) which at page 50 has referred to four debit notes. It was pointed out to the Ld. AR that the last debit note was dated 09.09.2008, which was after the close of year. The assessee pointed out that it 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 page 61, which were relevant to decide the issue, where the Ld. AR was asked to explain the terms of agreement of CCI Inc. with bottlers. He further referred to pages 147 and 148 in Volume II and observations of CIT(A) at pages 64 and 65 and pointed out that he had examined the vouchers and also referred to Annexures to the order of CIT(A) and stated that CIT(A) has then dealt with expenses. He referred to Annexure 5 to the order of CIT(A), wherein CCI Inc. obligations to bottlers are spelt out i.e. to get crates, bottles, 27 ITA No.1258/PUN/2003 & Ors Coca Cola India Pvt. Ltd.
etc. The Ld. AR also pointed out that there was increase in selling rate of concentrate. It was claimed that when cost was higher, the cost of concentrate will be higher; but what was the basis of increase was not explained by Ld. AR . He referred to Annexure 5 in para 5.1, it mentioned that Indian branch of CCI Inc was set up exclusively to manage the assessee's business. He also referred to Annexure A to CIT(A)'s order i.e. letter dated 25.04.1997 by Coca Cola India to RBI that it would provide support services to bottlers. The Ld. AR pointed out that the assessee was paying for services to these companies as per sanction of RBI dated 28.07.1993; it was initially exclusively for manufacturing process affairs but later services were provided to bottlers for which, permission was sought.
18. He then referred to the order of Tribunal in the first round and submissions of assessee and reply of Revenue and assessee's rejoinder to the same and pointed out that it was the plea of assessee that advertisement expenses also benefitted the bottlers. Similarly, service charges also included the benefit to the bottlers. He further referred to the order of the Hon'ble High Court in assessee's own case in Coca Cola India P. Ltd. Vs. ITO and others (2007) 290 ITR 464 (Bom), wherein the Hon'ble High Court has accepted that apart from incurring service charges, the petitioner incurred huge marketing expenses to boost the sales of non-alcoholic beverages which ultimately boosts the sales of concentrate. He pointed out that same simile applied to even service charges. The Ld. AR pointed out that the Tribunal acknowledges that the assessee had not furnished full details before the Assessing Officer, but details were filed before CIT(A) and hence the matter was restored back to substantiate the claim of expenditure with evidences. However, the Hon'ble High Court has set aside the matter back to the file of Tribunal. The Ld. AR 28 ITA No.1258/PUN/2003 & Ors Coca Cola India Pvt. Ltd.
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 us through the service agreement dated 01.04.1995 and compared the same to 1997 agreement and pointed out that clauses 2, 3 and 4 were new in 1997 agreement. He stressed that whatever was implied in agreement dated 01.04.1995 had been approved and written in clear terms in 1997 agreement. He stressed that agreements were similar but in 1997 agreement, it could be said that more services were to be rendered. The Ld. AR pointed out that in assessment year 2011-12, DRP allows service charges. He then referred to the order of CIT(A) in para 10.12 and 10.13, wherein he talks of security deposits written off of ₹ 1.30 crores, foreign travel of spouses of ₹ 21,50,348/- along with markup of 5%. In this regard, he placed reliance on the decision of Hon'ble Bombay High Court in the case of 29 ITA No.1258/PUN/2003 & Ors Coca Cola India Pvt. Ltd.
Richardson Hindustan Ltd. Vs. CIT (1988) 169 ITR 516 (Bom) that where expenses were held to be on revenue account in obtaining the lease i.e. stamp charges for registration, are to be allowed. He then drew simile to security deposit when not refunded, was to be allowed as revenue expenditure. With regard to foreign travel expenses of wives, he pointed out that Tribunal in assessment year 1997-98 had allowed the claim but in assessment year 1998- 99 it was not allowed. In this regard, he placed reliance on the decision of Hon'ble Bombay High Court in CIT Vs. Alfa Laval (I) Ltd. (2006) ITR 0445 (Bom), wherein expenses incurred on wife of Managing Director was allowed. He pointed out that expenses were for conference at Phuket and also referred to the assessment order of CCI Inc, placed at pages 85 to 97 of Paper Book Volume-2. He also pointed out that the year of admissibility of expenses was not relevant where the rate of tax was same. He placed reliance on the following decisions:
i) CIT Vs. Excel Industries Ltd. reported in 358 ITR 295 (SC)
ii) CIT Vs. Nagri Mills reported in 33 ITR 681 (Bom)
20. He then referred to credit note received and unaccounted for in assessment year 1999-2000 and it was pointed out that if in assessment year 1998-99 it was denied, then in assessment year 1999-2000, the same was to be allowed. He however, pointed out that this entire exercise was futile as per order of Hon'ble Supreme Court and the Hon'ble High Court. He stressed that credit note was to be charged when received. He invited our attention to the breakup of expenses. 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.30 ITA No.1258/PUN/2003 & Ors
Coca Cola India Pvt. Ltd.
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 48, page 131 of Paper Book-II, where Tribunal referred to qualitative difference in factual position. The Ld. CIT-DR pointed out that after 01.12.1997, there was demerger wherein initially the assessee had Concentrate Division, Pet & Can Division and Glass & Bottles; but now the assessee was only manufacturing concentrate. He then referred to reasons at page 131 of Paper Book and at page 133 i.e. points not considered by Tribunal in assessment year 1997-98. First was RBI sanction dated 21.10.1994 where clause (d) was important. He then referred to clauses (b) and (c) that where bottling unit was closed and clause (d) where service charges were paid to CCI Inc. He stressed that CCI Inc. rendered services to other companies, under separate agreements with bottlers and was remunerated at cost plus 5%, but all that expenditure had been charged to the assessee. He further stated that when there was overlapping of expenses, then it was to be disallowed in the hands of assessee. He then referred to expenditure on sale of green tea and kinley business, 31 ITA No.1258/PUN/2003 & Ors Coca Cola India Pvt. Ltd.
wherein CCI Inc. was remunerated and he pointed out that in the absence of any business connection to the assessee, such expenses could not be charged to assessee.
22. The Ld. CIT-DR referred to expense-wise breakup of CCI service charges filed before the CIT(A) for the first time, which is available at pages 138 and 139 of Volume-I and pointed out that total service charges charged were ₹ 63.19 crores. Our attention was drawn to item No.1, 2, 3 and 5 of said list and stressed that CCI Inc. had not provided complete details and even the breakup of expenses was not available with assessee. Where the services had overlapped and the assessee was not able to substantiate services, then allocation key had to be applied. He stressed that onus was upon the assessee to give details where it specifically states that expenses were incurred wholly and exclusively for its business purpose. The Ld. CIT-DR questioned that what precluded / prevented the assessee from filing complete details. He then referred to four debit notes filed by assessee, wherein three were for this year and last one was dated next year. He said that from the perusal of debit notes, the nature of services and for what purpose had not been established. Further evidences by way of vouchers were not filed by assessee. Referring to bottlers agreement between 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;32 ITA No.1258/PUN/2003 & Ors
Coca Cola India Pvt. Ltd.
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 such charges could be charged to the assessee. He placed reliance in CIT Vs. B.M. Kharwar (1969) 72 ITR 603 (SC), wherein it was held that legal relation had to be determined for allowing expenditure. He stressed that in view of three separate agreements entered into, the same may be taken into account for determining payment of service charges, its commercial expediency and whether incurred wholly and exclusively for the purpose of business.
24. The Ld. CIT-DR then pointed out that under Rule 29 of Income Tax (Appellate Tribunal) Rules, 1963, the Tribunal had to decide the matter by asking for additional evidence. He stressed that the Tribunal was last fact finding authority and the vouchers which were not produced before authorities below and only two bundles were produced in assessment year 1998-99 before the CIT(A), so, vouchers have to be seen by the Tribunal as the Hon'ble High Court had directed the Tribunal to decide the issue. He again stressed that 33 ITA No.1258/PUN/2003 & Ors Coca Cola India Pvt. Ltd.
examination of vouchers was necessary. He then referred to Rule 30 of Income Tax (Appellate Tribunal) Rules, 1963, where the Tribunal had the power of verification.
25. The Ld. CIT-DR then referred to various clauses of license agreement dated 01.06.1993 (page 17, Vol.I) and pointed out that in case we go through these clauses, then the assessee was under tight control of parent company and had to follow the norms. There was no discretion as far as sale of concentrate was concerned, as the same had to be sold to bottlers as prescribed by TCCC. Further, the assessee had no role to take any business decisions.
26. The Ld. CIT-DR then referred to agreement between bottlers and TCCC (page 39, Vol.III) and pointed out that under clause 6, obligations of bottlers are provided and under clause 7 it is provided that amounts could be spent for advertising and marketing and then he referred to other clauses of said agreement. He then summarized the same and stated that bottlers were under obligation to carry out advertising and marketing and also to maintain hygiene. He thus, emphasized that in view of various terms / clauses agreed upon between TCCC and bottlers, it was not necessarily incumbent upon the assessee to incur expenditure relating to Bottlers.
27. The Ld. CIT-DR then referred to para 55 of order of CIT(A) for assessment year 1998-99 and pointed out that the conclusion was as under:-
a) Cost 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.34 ITA No.1258/PUN/2003 & Ors
Coca Cola India Pvt. Ltd.
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 the quantum to the extent is attributable to the business of assessee. Simply because the payment had been made in view of the contract, was not the conclusion of expenses being incurred for the purpose of business. In this regard, he pointed out that reliance placed upon by the Ld. AR on different decisions was incorrect as they were factually different.
29. The Ld. CIT-DR placed reliance on the following decisions for different propositions:-
a) CIT Vs. CCC Holding (2003) 260 ITR 433 (Mad) for the proposition that in a taxing Stature, there cannot be presumption as to the facts.
b) Buland Sugar Co. Ltd. Vs. CIT (1981) 130 ITR 434 (Del) for the proposition that the assessee is entitled to the deduction only in respect of expenditure incurred by it for the purpose of its business, but not for the purpose of business of another assessee.
c) CIT Vs. Calcutta Agency Ltd. (1951) 19 ITR 191 (SC) for the proposition that burden was on the assessee to prove that expenditure satisfies the conditions laid down in section 37(1) of the Act - both Assessing Officer and CIT(A) had relied on the said decision.35 ITA No.1258/PUN/2003 & Ors
Coca Cola India Pvt. Ltd.
d) CIT Vs. Panipat Woolen & General Mills Co. Ltd. (1976) 103 ITR 66 (SC) for the proposition that commercial expediency needs to be established.
e) Kedarnath Jute Mfg. Co. Ltd. Vs. CIT (1971) 82 ITR 363 (SC) for the proposition that whether the assessee was entitled to deduction or not - dependent on facts of each case.
f) Swadeshi Cotton Mills Co. Ltd. Vs. CIT (1967) 63 ITR 57 (SC) for the proposition that question of expenditure made wholly and exclusively for business, to be decided on facts of the case.
g) CIT Vs. Amalgamation Pvt. Ltd. (1997) 226 ITR 188 (SC) for the proposition that there must be nexus between nature of expenses and business of assessee.
h) Lachminarayan Madanlal Vs. CIT (1972) 86 ITR 439 (SC) for the proposition that mere existence of agreement was not sufficient to prove that expenses were wholly and exclusively incurred for the purpose of business.
i) Chemaux (P) Ltd. Vs CIT (1977) 109 ITR 705 (Bom) for the proposition that for deduction under section 37 of the Act, burden of proof always lies on assessee.
j) Premier Breweries Ltd. Vs. CIT (2015) 372 ITR 180 (SC) for the proposition that mere existence of agreement between assessee and selling agent does not bind the ITO that payment 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 36 ITA No.1258/PUN/2003 & Ors Coca Cola India Pvt. Ltd.
question was whether they were earlier seen or not. The question was whether activities of bottlers benefitted assessee and if there was benefit to assessee, then test under section 37(1) of the Act was met; the fact that it may benefit someone else would not disentitle the assessee to claim expenditure and its allowability in the hands of assessee. The benefit to someone else is irrelevant. Reliance was placed on the decision of Hon'ble Bombay High Court in this regard. The Ld. AR then goes through the written submissions and states that this would take care of arguments of Ld. CIT-DR.
31. He then refers to para 4.2 at page 49 of order of CIT(A), wherein the Commissioner stresses that four debit notes were produced. The Ld. AR here stressed that there was no distinct features between assessment year 1997-98 and 1998-99. Our attention was drawn to para 8.3.1 of assessment year 1997- 98 and para 10 of assessment year 1998-99. As far as view of Department regarding non production of vouchers was concerned, the Ld. AR states that finding of Assessing Officer in the set aside order was relevant and no deficiency was pointed out in filing of vouchers.
32. The Ld. AR then referred to agreement of CCI with Bottlers placed at page 39 of Volume-3, dated 25.05.1994, where under clause 2 reference is made to company or authorized suppliers i.e. assessee. Coming to agreement with the assessee i.e. License Agreement placed at page 17 of Volume-1, wherein the agreement was to manufacture and sell and this makes assessee the authorized supplier. Further, reference was made to para 3(d) of agreement, wherein the assessee could sell concentrate only to authorized bottlers. Then the assessee pointed out that in Service Agreement between CCI Inc and assessee, under clause 5, reference is to any of the subsidiary 37 ITA No.1258/PUN/2003 & Ors Coca Cola India Pvt. Ltd.
companies including authorized suppliers. Under clause 6, it talks of 'actual cost'. In this regard, he pointed out that where the Auditor had certified that expenses were incurred, then the same had to be allowed. Referring to arguments of Ld. CIT-DR on services to group companies other than assessee, pointed out that same was raised in the first round before Tribunal and there was no adverse finding. Referring to order of Tribunal in the first round dated 31.03.2010 placed in Paper Book-2 at pages 101 to 194 with special reference to pages 138 to 140, the Ld. AR made reference to the submissions of Ld. CIT- DR in the first round of appeal. However, during 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 Assessing Officer and CIT(A) allowed 70% of said 38 ITA No.1258/PUN/2003 & Ors Coca Cola India Pvt. Ltd.
expenditure. Reference was made to grounds of appeal raised by Revenue. Referring to order of Assessing Officer at page 13, it was pointed out by Ld. CIT-DR the debit notes were of 14.12.1999. Under para 5.6 of assessment order, breakup of expenses is given. Under para 5.8, reference was made to Profit and Loss Account of CCI Inc, which had debited depreciation in its accounts and had also claimed the same from assessee with markup. The Ld. CIT-DR here stressed that depreciation could only be depreciation on owned assets. Where the assessee do not own assets and secondly, where cost of acquisition / WDV of assets was not submitted and it was also not established, whether it was used for the benefit of assessee company, then no such claim of depreciation can be allowed in the hands of assessee. The Ld. CIT-DR here stressed that actual cost of assets was to be determined on the basis of invoices that means they have to be backed by proper vouchers and itemized list of assets should be furnished, which have not been filed by assessee. It was also pointed out that similarly loss on sale of assets which were not used by assessee, was not to be allowed as deduction.
34. The Ld. CIT-DR coming to next plea of Ld. AR that debit notes were certified by the Auditor and supported by audit report, pointed out that audit report was not sacrosanct. He stressed that where the basis of expenditure was available, then why the same was not made available to the Assessing Officer. He then referred to para 5.3.4 at page 26 of CIT(A)'s order and reiterated that for this year, it was case of 100% disallowance by Assessing Officer. Where the assessee did not furnish evidences, so after holding that no supports were filed, CIT(A) held that some expenses related to assessee though assessee produced vouchers of June, 1998 and March, 1999 only. Referring to letter of approval from RBI, which allowed CCI Inc to open branch 39 ITA No.1258/PUN/2003 & Ors Coca Cola India Pvt. Ltd.
office in order to give services to group companies, the Ld. CIT-DR pointed out that basic details of services to group companies have not been given. He then took us through various paras of the order of CIT(A) starting from para 5.4.2 to 6.1.1 and placed strong reliance on the said findings of CIT(A) with regard to various expenses claimed by assessee. At page 45 of order of CIT(A), it is noted that assessee had filed 19 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 President of the company had travelled because of invitation extended; but it was not so in the present case and hence that case was distinguishable on facts. The Ld. CIT-DR concluded that reliance placed upon by Ld. AR on CIT Vs. Royal Calcutta Turf Club (supra) and CIT Vs. Panipat Co-operative Sugar Mills Ltd. (supra) were misplaced as the facts of 40 ITA No.1258/PUN/2003 & Ors Coca Cola India Pvt. Ltd.
said cases were at variance. He stressed that in the present case, there was overlapping of services, where services were also provided to others, so determination of actual cost was imperative. Referring to the ratio laid down in CIT Vs. Adidas India Marketing (P) Ltd. (supra) and CIT Vs. N.G.C. Network (India) P. Ltd. (supra) relied upon by Ld. AR, he stressed that in both the cases, decision was on claim of advertisement expenses which operated in different fields i.e. where the expenditure was incurred on advertisement it was general and if benefitting others, then it could be allowed; but in assessee's case, service charges were recouped on actual cost, then no question of benefit flowing to others; parameter of actual cost has to be kept in mind, so reliance by assessee on advertisement cost case law would not support the payment of service charges. With regard to reliance on CIT Vs. Excel Industries Ltd. (supra) by the Ld. AR, it was pointed out by Ld. CIT-DR that the concept of rate of tax was in the context of duty free imports and the DEPP benefits which were notional benefits but the said decision was not in case of real income. He stressed that DEPP was notional and would arise when exports happen. So, the Hon'ble Apex Court had decided the year of taxability. However, income in the hands of assessee had to be determined vis-à-vis year to which it is related. He stressed that this was the second round of appeal and the issue which is to be addressed is whether the vouchers were adequate enough and also whether vouchers asked for by Assessing Officer and CIT(A) have been filed. He also pointed out that this issue had been left open by the Hon'ble High Court for the Tribunal to decide.
36. The Ld. CIT-DR concluded by pointing out that the assessee was not entitled to the claim of expenditure because of following propositions:-
i) Where the assessee has not been able to produce any of original vouchers except four debit notes;41 ITA No.1258/PUN/2003 & Ors
Coca Cola India Pvt. Ltd.
ii) where the assessee has not been able to produce any evidence of 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 meet export obligation of CCI Inc in respect of group companies
e) Agreement between holding company and downstream companies In view of above, expenses incurred by assessee were not admissible under the doctrine of ‗Commercial expediency' 42 ITA No.1258/PUN/2003 & Ors Coca Cola India Pvt. Ltd.
viii) License Agreement and Service Agreement have to be read conjointly;
ix) Burden of proof to provide details of actual expenses with documentary evidence not fulfilled;
37. The Ld. AR pointed out that stand of the Department that no services were rendered was wrong. In this regard, he referred to the grounds of appeal and pointed out that nobody was stating as such. The Ld. AR stressed that there were separate services being provided to assessee and HCCBPL and direct costs were recovered from bottling entities. Referring to Profit and Loss Account of CCI Inc, it was pointed out that from assessee, cost of ₹ 56.39 crores was recovered and from HCCBPL ₹ 44.97 crores was recovered. He then pointed out that even expenses were allocated and were accordingly, charged. The plea of assessee was that invoices were also raised on the basis of split up of expenses.
38. After close of hearing, another written submissions were filed by the Ld. AR in respect of grounds of appeal for assessment years 2000-01 and 2004-05 and also filed reply to the written submissions filed by the Ld. DR, wherein it has reiterated earlier submissions made which were in reply to oral submissions made by the Ld. DR.
39. Before adjudicating the issue, we would refer to the facts and decisions of lower authorities in assessment year 1999-2000.
40. The Assessing Officer during the course of scrutiny proceedings noted that the assessee had debited service charges amounting to ₹ 45,27,29,472/-. During the course of scrutiny proceedings, the assessee stated that total debit 43 ITA No.1258/PUN/2003 & Ors Coca Cola India Pvt. Ltd.
on account of service charges at ₹ 54,22,93,800/-. The details of debit / credit notes raised by CCI Inc are available at page 12 of the assessment order. The Assessing Officer noted that details of ₹ 54.23 crores included debit note dated 14.12.1999 amounting to ₹ 8,95,64,328/- which was not raised during the relevant assessment year and hence, the same could not be considered as expenditure incurred during the relevant assessment year, where the assessee was following mercantile system of accounting. The assessee was specifically 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 15 of assessment order. In detailed submissions again, the assessee pointed out that CCI Inc was the branch office of foreign company and the scope of services that could be rendered by CCI Inc were listed out in the written agreement and the assessee was receiving such services on day-to-day basis. Thereafter, the assessee on 20.03.2002 submitted details of service charges which are reproduced at page 16 of assessment order. The Assessing Officer noted from 44 ITA No.1258/PUN/2003 & Ors Coca Cola India Pvt. Ltd.
the aforesaid service details and dealt with various expenses. First, it talked about the claim of depreciation of ₹ 8.67 crores. The Assessing Officer noted that depreciation was claimed as deduction by CCI Inc branch office and the said fact was noted from the returns of income filed by CCI Inc with Income Tax Authorities. The Assessing Officer thus, observed that where CCI Inc had claimed the depreciation as per IT Act, there was no merit in the claim of assessee in paying reimbursement of depreciation with markup. It was further observed that depreciation is to be allowed only if it fulfills the conditions laid down in section 32 of the IT Act and where the assessee was not the owner of assets, it could not claim the aforesaid expenditure and the same was disallowed. Further, the assessee had reimbursed the expenditure of ₹ 1,47,61,231/- on account of payment of service tax which was charged by CCI Inc to the assessee. The Assessing Officer noted that service tax was paid by CCI Inc to the Excise Department as the liability of payment of service tax was of the service provider. Since it was not the liability of assessee, then the contention of assessee in this regard was not accepted as the assessee had not provided any services and hence, there was no liability for payment of service tax and it was disallowed. Regarding remaining service charges of ₹ 35,12,09,987/-, the assessee during scrutiny proceedings was asked several times to produce the details of services rendered. However, the assessee emphasized on service agreement for allowability of expenditure. Since the details filed by assessee company in this regard were only general in nature, the Assessing Officer rejected the claim of assessee and disallowed expenditure of ₹ 35,12,09,987/- (Balance).
42. The CIT(A) referred to his earlier order in assessment year 1998-99 in which 25% of service charges was disallowed on examination of various 45 ITA No.1258/PUN/2003 & Ors Coca Cola India Pvt. Ltd.
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 under section 37 of the Act. The assessee was given an opportunity to give evidences in support of the nature of expenditure incurred under the head 'service charges'. Vide para 5.3.9, the CIT(A) states that the assessee produced vouchers for June, 1998 and March, 1999 which were test checked and the assessee's comments on the nature of expenses were obtained. The CIT(A) further observed that expenses incurred by CCI Inc and debited to the assessee included expenses on account of services rendered to bottlers as well as other group companies. The CIT(A) then looked through the submissions of assessee in the proceedings for assessment year 1998-99 dated 03.03.2003 and 17.03.2003 and observed that the said position was no longer true in the light of service agreement dated 01.08.1997 between CCI Inc and Hindustan Coca Cola Beverage Pvt. Ltd. 46 ITA No.1258/PUN/2003 & Ors
Coca Cola India Pvt. Ltd.
(HCCBPL). He attached the copy of same as Annexure 2 to the appellate order and observed that the fact remained that the assessee was not giving correct picture during appellate proceedings for assessment year 1998-99. Furthermore, in the light of service agreement between CCI Inc and HCCBPL, it became necessary to examine the extent of service charges allocated by CCI Inc between assessee and HCCBPL. He referred to the communication between CCI Inc and RBI with special reference to letter dated 28.08.1997 referred in para 5.4.2 at page 33 of appellate order and from reading of the said letter observed that it was clear that CCI Inc had been, even prior to July, 1997 rendering services to the holding company and other downstream companies in India. Vide para 5.4.3, the CIT(A) observed that even during appellate proceedings, the assessee in spite of repeated opportunities having been provided, did not submit even basic details of the nature of services, along with verifiable evidence, rendered by CCI Inc to the other business entities covered by new service agreement. Even the basis for allocating service charges to entities of the group other than assessee by CCI Inc were not made available. Only in the submissions dated 27.11.2003, the assessee submitted names of 13 employees who were providing services to HCCBPL but from the discussion it further transpired that HCCBPL was initially being provided services by 13 employees of CCI Inc and thereafter, HCCBPL recruited about 140 employees from CCI Inc. The assessee filed a list 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 47 ITA No.1258/PUN/2003 & Ors Coca Cola India Pvt. Ltd.
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 that the actual services were being rendered but the extent to which services were being rendered, wholly and exclusively for the purpose of business of assessee and the extent to which disallowance was to be made should have been examined. He further notes that the assessee had furnished vouchers in 19 box files before the Assessing Officer. Those vouchers were produced before the CIT(A) also. After going through the vouchers, the CIT(A) observed that while the services relating to production planning, accounting and in some legal affairs were related to the business of appellant, same could not be said about the services rendered to bottlers and the services related to advertisement and marketing of beverages. He further vide para 5.6.10 observes that there were expenses which have been claimed by CCI Inc under the garb of service charges but the same were not allowable under law as business expenditure, under different provisions of the IT Act. In this regard, reference was made to foreign travel expenses of spouses of employees, capital expenses and expenses incurred for other than business consideration. The CIT(A) further observed that the disallowance of depreciation of ₹ 8.67 crores reimbursed by the assessee to CCI Inc was not correct. However, the amount had to be taken 48 ITA No.1258/PUN/2003 & Ors Coca Cola India Pvt. Ltd.
into account while disallowing part of service charges. Further, against the disallowance of service tax of ₹ 1.47 crores, which was reimbursed by the assessee to CCI Inc, the CIT(A) held that the said stand is also not correct but the same has to be considered for working out the percentage of disallowance out of service charges. Another item of expenditure was loss on sale of assets. The CIT(A) held that the said amount is not allowable as it would be required to be set off against block of assets and depreciation re-worked and hence, disallowance of ₹ 36,14,397/- was warranted. He thereafter, estimated reasonable disallowance out of total expenditure i.e. 30% of service charges claimed as against 25% in assessment year 1998-99. He thus, worked out the expenditure to be disallowed in the hands of assessee at ₹ 16,22,50,083/- as per calculation at page 49 of appellate order.
44. Both the assessee and Revenue are in appeal against the order of CIT(A). The assessee is agitated by disallowance of ₹ 16,22,50,083/-. The Revenue is in appeal against the relief 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 49 ITA No.1258/PUN/2003 & Ors Coca Cola India Pvt. Ltd.
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 year will not bind the Tribunal for later years. Hence, the matter is restored to the file of Tribunal for decision afresh on merits and in accordance with law on the claim of service charges including travelling expenditure. The Tribunal was thus, directed to decide the claim without in any manner being influenced by any observations in original order as also in the order passed in rectification application. In view thereof, the matter was heard afresh at length on different dates of hearing and even it was fixed for further clarification in order to adjudicate the issue of claim of service charges.
46. The Tribunal in assessment year 1997-98 (preceding year) consequent to directions of Hon'ble High Court for the said year vide judgment dated 12.02.2007, had passed order dated 30.06.2008 which is reported in (2008) 116 TTJ 880. The Tribunal first took note of legal position on the point by making reference to different decisions in paras 17 to 18.7 and held as under:-
―17. Before proceeding further we consider it necessary to examine and discuss the legal position as laid down in the various decisions relied upon by both the parties.
18. It is seen that the CIT(A) in para 8.3.1.(v) of his order had placed reliance on the decisions of the Supreme Court in the cases of Travancore Titanium Product Ltd. vs. CIT (1966) 60 ITR 277 (SC) and Indian Aluminium Co. Ltd. vs. CIT (supra).
18.1 It was pointed out by Shri Dastur, the learned Authorised Representative, that the ratio laid down by the Supreme Court in the case of Travancore Titanium Product Ltd. (supra) was modified by a Larger Bench of five Judges of the Supreme Court in the case of Indian Aluminium Co. Ltd. (supra).
18.2 In the case of Travancore Titanium Product Ltd. (supra), the test adopted by the Supreme Court was that ‗to be a permissible deduction, there must be a direct and intimate connection between the expenditure and the business'.50 ITA No.1258/PUN/2003 & Ors
Coca Cola India Pvt. Ltd.
18.3 In the case of Indian Aluminium Co. Ltd. (supra), the above test was qualified by stating that if the expenditure laid out by the assessee was ‗incidental' to the carrying on of his business, it should be allowed. In other words, the requirement of a ‗direct and intimate connection between the expenditure and business' was substituted by ‗expenditure being incidental to the carrying on of business'.
18.4 It is seen that the expression ‗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 case of Sassoon J. David & Co. (P) Ltd. (supra) as under :
"........... It is relevant to refer at this stage to the legislative history of s. 37 of the IT Act, 1961, which corresponds to s. 10(2)(xv) of the Act. An attempt was made in the IT Bill of 1961 to lay down the ‗necessity' of the expenditure as a condition for claiming deduction under s. 37. Sec. 37(1) in the Bill reads ‗any expenditure...... laid out or expended wholly, necessarily and exclusively for the purposes of the business or profession shall be allowed.........' The introduction of the word ‗necessarily' in the above section resulted in public protest. Consequently, when s. 37 was finally enacted into law, the word ‗necessarily' came to be dropped. The fact that somebody other than the assessee is 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 satisfies otherwise the tests laid down by law."
18.6 Shri Dastur, the learned Authorised Representative pointed out in this regard that the crucial expression used in s. 37(1) was ‗purpose of business', and in this connection, he drew our attention to the discussion at p. 624 of The Law and Practice of Income-tax (Eighth Edn.) by N.A. Palkhivala, which reads as under :
"Purpose of business.--Before the corresponding section in the 1922 Act was amended in 1939, allowance was given in respect of any non- capital expenditure ‗incurred solely for the purpose of earning such profits or gains'. Under the present law the expenditure should be laid out ‗wholly and exclusively for the purposes of the business'. The two expressions are not synonymous; the latter is wider than the former. Expenditure may be for the purpose of the business although it may not be incurred for the purpose of earning the profits of the business. This is established by the decision of the Supreme Court.
Subba Rao, J., speaking for the Supreme Court, observed in CIT vs. Malayalam Plantations Ltd., "The expression ‗for the purpose of the 51 ITA No.1258/PUN/2003 & Ors Coca Cola India Pvt. Ltd.
business' is wider in scope than the expression ‗for the purpose of earning profits........"
The law directs attention to the purpose for which, and not to the motive with which, the expenditure is incurred."
18.7 Both the parties referred to the recent decision of the Supreme Court, in relation to s. 37(1) of the Act, 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 referred to position of law in relation to section 37(1) of the Act and vide para 18.8 observed as under:-
―18.8 The position in law, in relation to s. 37(1) of the Act, as emerging from the decisions of the Supreme Court, discussed in the above paras, can be summarized as under :
(i) the expenses incurred should be ‗incidental' to the carrying on of the business of the assessee.
(ii) the expression "wholly and exclusively" used in s. 37(1) of the IT Act, 1961, does not mean ‗necessarily'.
(iii) an expenditure incurred ‗voluntarily' without any ‗necessity', would be permissible for deduction under s. 37(1) if it was incurred for promoting the assessee's business.
(iv) 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 for deduction under s. 37(1).
(v) the AO cannot justifiably claim to put himself in the armchair of the businessman to decide whether to incur an expenditure and how much to incur.
(vi) the requirement of ‗commercial expediency' has to be determined from the point of view of a prudent businessman and not from the point of view of the AO.
(vii) the test is : existence of a ‗nexus' between the expenditure and the ‗purpose of business'.52 ITA No.1258/PUN/2003 & Ors
Coca Cola India Pvt. Ltd.
48. Then, referring to the facts of case vide para 20 it was noted that expenses pertaining to earlier years of ₹ 3.37 crores related to earlier years and not related to this year. The other reason given by Assessing Officer was that item-wise details of payment and evidence / details of services rendered by CCI Inc to assessee were not furnished. But the Assessing Officer had not gone into that reasoning but had made disallowance for the reason that it did not relate to that year. Vide para 23, the Tribunal notes that in earlier order dated 05.10.2005 the Tribunal had given clear finding that ₹ 3.37 crores related to earlier years and had to be excluded. This finding of Tribunal was noted by the Hon'ble Bombay High Court in para 25 of its order and was not reversed; therefore, they confined themselves to disallowance of balance ₹ 7.42 crores (para 23). The Tribunal thus, held as under:-
―24. We find that TCCC, USA is a multinational company operating in more than 150 countries through its subsidiaries. The three agreements, mentioned above, are part of the ‗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 following observations of the apex Court :
"Another fact that emerges from these cases is that if the expense is incurred for fostering the business of another only or was made by way of distribution of profits or was wholly gratuitous or for some improper or oblique purpose outside the course of business then the expense is not deductible........."
(emphasis, italicised in print, is ours) 25.1 In our opinion, the word ‗only' appearing in the judgment of the Supreme Court, as reproduced above, is crucial and makes all the difference, in the context of the facts of the present case. The argument of the learned Departmental Representative would have been acceptable if it was demonstrated by the Department that the expenses were incurred by the 53 ITA No.1258/PUN/2003 & Ors Coca Cola India Pvt. Ltd.
assessee for services rendered to bottlers, manufacturing a beverage which was not made from the ‗concentrate' manufactured by the assessee company.
26. In the present case, it is an admitted fact that the bottlers manufacture beverages from ‗concentrates' purchased from the assessee company. An increase in the volume of business of the bottlers has a direct effect of increasing the volume of the business of the assessee. It can be nobody's case that the volume of the business of the assessee company and of the bottlers was not intricately linked with each other, and that the services rendered by CCI Inc. to the bottlers did benefit the assessee by helping the bottlers to increase the volume of their business. Therefore, in respect of the expenses relating to the services rendered by CCI Inc. to the bottlers, it can be said that the necessary ‗nexus' did exist between such expenses and the ‗purpose of the business' of the assessee.
27. Shri Kapila the learned Departmental Representative, reiterated that it was the TCCC which was doing business in India, and that the assessee was merely a captive contract manufacturer and supplier of concentrate. 27.1 Shri Dastur, the learned Authorised Representative, responded by saying that the learned Departmental Representative had made an altogether new case, that if what was contended by the learned Departmental Representative was accepted the entire expenditure claimed by the assessee would have to be disallowed, which even the AO had not done. He argued that it was not open to the Tribunal, at this stage, to consider all that the learned Departmental 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 the reimbursed cost of appellant to CCI Inc. which are not allowable in nature as per IT law. These include foreign travel expenses of wives of employees for their pleasure trips, capital expenditure on purchase of software etc."
28.2 The CIT(A) has not given any detail. He merely says, "these include foreign travel expenses of wives of employees for their pleasure trips, capital expenditure on purchases of software etc.". The observation is too general and vague to form a basis for any disallowance.
28.3 In view of the facts and circumstances discussed above, we are of the opinion that in respect of the impugned expenses incurred by the assessee under the head ‗Service charges', the necessary ‗nexus' between these expenses and the ‗purpose' of the assessee's business did exist, and therefore, the requirement of s. 37(1) can be said to have been fulfilled. The fact that the 54 ITA No.1258/PUN/2003 & Ors Coca Cola India Pvt. Ltd.
bottlers and TCCC-a group company were also benefited by these services is immaterial. The mandate of the Supreme Court, as noted in the above paras, is very clear. Therefore, on the facts of the case, we see no justification for the addition of Rs. 7,42,98,465 (Rs. 10,80,04,482 -3,37,06,017).‖
49. The case of assessee before us is that the issue stands covered by earlier order of Tribunal in assessment year 1997-98 and there is no need to revisit the issue in subsequent years and entire expenditure of service charges needs to be allowed in the hands of assessee. However, the case of Revenue is that facts in the present case were at variance i.e. first of all, service agreement had undergone revision and new terms had been entered into between CCI Inc and assessee w.e.f. 01.04.1997. The second point of distinction was that, earlier, assessee was carrying on three divisions, but from 01.01.1998, the assessee has stopped its Bottling Division and was only engaged in the manufacture of concentrate. Hence, the services which were rendered by CCI Inc to bottlers have no nexus to the services provided by assessee and there was no basis for CCI Inc to charge total cost of its operations to assessee. Further, proceedings for assessment year 1997-98 were on the premise that expenses do not relate to that year. In the present year, case of Revenue is at variance wherein the assessee was given an opportunity to explain justification for the allowability of expenditure along with 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 55 ITA No.1258/PUN/2003 & Ors Coca Cola India Pvt. Ltd.
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 under which CCI Inc acknowledged that it had expertise, know-how in the field of manufacture, sale and marketing of beverages, syrups and foodstuffs and also in providing services in connections therewith and is authorized
a) to develop and promote the export activities of assessee;
b) to coordinate activities of licensed bottlers in India with assessee;
c) to render support services to assessee in terms of RBI approvals.
52. Thus, it was agreed that CCI Inc shall provide advisory services to assessee in the field of development and promotion of export activities of assessee and to advice, monitor and coordinate activities of licensed bottlers in India with assessee and to render support services to assessee. It was specifically agreed that assessee without the approval of company had no authority to negotiate or conclude contracts in any form or manner, for or on behalf of the company or any of its subsidiary companies and also was not an agent of company for any purpose. As per clause 4, in consideration of services provided by CCI Inc, the assessee was to pay fees on the basis of 56 ITA No.1258/PUN/2003 & Ors Coca Cola India Pvt. Ltd.
invoices issued by CCI Inc. Fees to be paid shall be calculated on the basis of 'actual cost' incurred by CCI Inc in providing such services plus mark up of 5% on such costs.
53. The assessee entered into a fresh service agreement on 01.04.1997 with CCI Inc under which clauses 2, 3 and 4 were inserted. As per clause 1, CCI Inc had to provide services for development and promoting export activities of assessee and also to advice, monitor and coordinate the activities of bottlers in the country with assessee and consequently, provide several services enumerated in clause (b). As per clause 2, it was agreed that the company would provide technical know-how, services and assistance to assessee in all its manufacturing operations including its manufacture of products in Cans and Pet bottles, which included not only technical advice and guidance in the manufacturing operations, but also assistance and monitoring quality of finished goods and package in particular, Cans and Pet packages. Clause 3 talked of marketing support to assessee which included development of marketing strategy and other ancillary activities relating to selling of products. Under clause 4, accounting assistance was to be provided to assessee including planning, costing and monitoring of transactions 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%.
57 ITA No.1258/PUN/2003 & Ors
Coca Cola India Pvt. Ltd.
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 agreement along with debit notes before the Assessing Officer. However, in the absence of further details and evidence as to what kind of services and whether services have actually been rendered or not, 10% of expenditure was disallowed in the hands of assessee under section 37(1) of the Act. It may herein be pointed out that the Assessing Officer also took note of the fact that as per the scheme of arrangement approved by the Hon'ble Bombay High Court vide order dated 03.05.1999 there was demerger between assessee company and HCCBPL, as per which Bottling Division was demerged and assessee was not engaged in the business of bottling beverages. The CIT(A) also acknowledges the fact that basic details were not filed before the Assessing Officer. However, additional evidence was filed before the CIT(A), which were confronted to Assessing Officer and CIT(A) test checked the vouchers of CCI Inc for the months of June, 1996, June 1997 and March, 1998. In addition, the statement of General Manager of assessee company was also recorded and the submissions of assessee on different dates were considered including copies of minutes of sales and operation meeting. The CIT(A) from the perusal of accounts of CCI Inc noted that the said company was providing specified services to other group companies as well, which were clear from the Notes on 58 ITA No.1258/PUN/2003 & Ors Coca Cola India Pvt. Ltd.
Accounts to Balance Sheet of CCI Inc Branch office for the period ending 31.03.1999, which was enclosed as Annexure 4 to appellate order. Reference was made to item No.4 of Notes and it was observed by him that submissions of assessee that Branch Office was set up exclusively to carry out assessee's business operations and had been doing so, was not apparently correct.
55. Another fact which was noted was that cost incurred by CCI Inc was not monitored at any level by the assessee company. The vouchers were maintained by said concern at Delhi only and the payments were made without verifying anything but on the basis of debit notes. The Finance Manager of assessee company also stated that only debit notes for 9 months were with the assessee company and nothing further was taken by assessee company. On this ground, the CIT(A) was of the view that service charges were not incurred wholly and exclusively for the purpose of business of assessee company on two accounts i.e. non furnishing of details and also CCI Inc by its very genesis was 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 59 ITA No.1258/PUN/2003 & Ors Coca Cola India Pvt. Ltd.
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 two months which were test checked by him and the comments of assessee on the nature of these expenses were obtained. In such scenario, the CIT(A) concluded that expenses incurred by CCI Inc and debited to assessee included expenses on account of services rendered to bottlers as well as other companies. The assessee in response to enhancement notice submitted a letter dated 17.03.2003, wherein it was admitted that major part of services rendered by CCI Inc were directly to the assessee but some part of its does relate to the bottlers. Then, reference was made to separate agreement between Bottlers and TCCC and it was observed by CIT(A) that the said services to bottlers were directly rendered to them without any direct business purpose of assessee.
56. Another point which was noted was that CCI Inc was rendering services to other group companies as well, which did not relate to assessee as was borne out from certain reports regarding toxic residues in cold drinks. The CIT(A) also noted the arguments of assessee that services rendered to bottlers, were also for the benefit of assessee as bottlers problems adversely affected the profits of assessee. Then, looking at the details furnished by assessee in the form of debit notes without any support, the CIT(A) further observed that out of rent expenses reimbursed, part of were not wholly and exclusively for the purpose of assessee's business as other business entities were also operating from the said business. Further, similar was the position with regard to 60 ITA No.1258/PUN/2003 & Ors Coca Cola India Pvt. Ltd.
telephone charges. With regard to Miscellaneous Expenses, no breakup was given.
57. Another point noted was the write off of security deposit for the premises taken on rent at Mumbai and it was observed that allowability of expenses was doubtful. Vis-à-vis reimbursement of expenses incurred for training of CCI Inc employees for International Laws relating to 'Brand' and 'trade marks', it was observed that they were not business expenses of assessee.
58. Expenditure on foreign travel of spouses of ₹ 21,50,348/- was also noted by CIT(A) including expenses of various employees for giving technical support to the bottlers. The CIT(A) acknowledged that CCI Inc to provide services to assessee, as the assessee did not have human resources and administrative infrastructure and these services had actually being provided, but he held that the entire expenditure 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 61 ITA No.1258/PUN/2003 & Ors Coca Cola India Pvt. Ltd.
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 disallowed, whereas the claim of Revenue is that disallowance at 30% of total expenditure is not correct. The assessee has time and again claimed that it had filed complete evidence before the authorities below and there is no merit in the stand of Revenue authorities that no evidences were filed. The Ld. AR fairly pointed out that in assessment year 1998-99, details were filed before the CIT(A), who had perused the complete details and after that there was no merit in the aforesaid disallowance. We have in the paras above referred to the findings of CIT(A) and evidences filed by assessee, which are in the form of four debit notes filed and vouchers filed for the months of June, 1996, June, 1997 and March, 1998. We are not concerned with the vouchers for the month of June, 1996 as they relate to earlier year, but we are concerned with the vouchers for June, 1997 and March, 1998. The breakup of expenses has been filed before the CIT(A), copy of which is also filed vide letter dated 21.02.2003 and the same reads as under:-
Break up of expenses incurred by CCI Amount (Rs.)
Salaries & allowances 174,259,875
Contribution to provident & other funds 17,087,626
Staff welfare 4,000,596
Moving & Relocation 28,158,579
Travelling and Conveyance 111,281,575
Payment to auditors 743,433
Consultancy Charges 18,388,413
62 ITA No.1258/PUN/2003 & Ors
Coca Cola India Pvt. Ltd.
Rent 51,003,711
Telephone expenses 58,070,148
Repairs & maintenance 14,123,023
Insurance 2,885,119
Miscellaneous expenses 48,945,624
Leasehold improvements w/off 3,584,044
Security deposit w/off 13,000,000
Sports sponsorships 7,591,646
Depreciation 48,775,744
__________
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 63 ITA No.1258/PUN/2003 & Ors Coca Cola India Pvt. Ltd.
services provided for the period 01.04.1997 to 31.12.1997, under the terms of service agreement, plus markup of 5%; for the last debit note dated 09.09.1998 expenses incurred for services provided for the period 01.04.1997 to 31.03.1998. The assessee had also filed tabulated details (debit notes wise) of reconciliation of service charges between assessee and CCI Inc. For assessment year 1998-99, CCI Inc had credited service charges of ₹ 63,19,94,114/- and the assessee had on the other hand, debited expenditure of ₹ 70.40 crores. On reconciliation, the Ld. AR pointed out that sum of ₹ 5.04 crores was charged by CCI Inc during assessment year 1997-98. In other words, sum of ₹ 5.04 crores related to earlier year. In order to get clarification on this point, matter was fixed for hearing. It was brought to the knowledge of Ld. AR that while deciding the appeal for assessment year 1997-98, sum of ₹ 3.37 crores was disallowed as it related to assessment year 1996-97. It was also put to him that since he has time and again stressed that the decision of Tribunal for earlier year was to be applied for this year, then why the said part of decision, be not applied. In this regard, he stated that since the rates of taxes were the same it would not make difference in which year the said expenses are debited / allowed. He stressed that the said amount was considered in the current year and the same should be allowed. Further he also clarified that sum of ₹ 2,16,41,969/- was extra charged by CCI Inc and the same was debited in their accounts (CCI Inc) in assessment year 1998-99, but the assessee had accounted for the same in assessment year 1999-2000. The Ld. CIT-DR strongly opposed the submissions of assessee on this count.
63. Before going into merits of allowing expenditure in the hands of assessee especially in assessment year 1998-99 where admittedly, disallowance is only of 25% of expenses as enhanced by CIT(A), but as a final 64 ITA No.1258/PUN/2003 & Ors Coca Cola India Pvt. Ltd.
fact finding body, we have to first look at the expenditure claimed by assessee in entirety. The Tribunal while deciding the appeal for assessment year 1997- 98 had given categorical finding that expenditure relatable to the year is to be allowed as deduction in the hands of assessee and in such scenario, had disallowed sum of ₹ 3.37 crores, which related to assessment year 1996-97. It is another matter that since the appellate proceedings for assessment year 1996-97 were pending, the said amount was considered in the said 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 issue, where assessee is following mercantile system of accounting and receipts for the year had to be considered. Also issue stands covered against the assessee by order of Tribunal in assessee's own case for assessment year 1997-98, on which issue no appeal was filed before higher Forum.
65 ITA No.1258/PUN/2003 & Ors
Coca Cola India Pvt. Ltd.
64. Now coming to next sum of ₹ 2,16,41,969/-, which admittedly is an amount overcharged by CCI Inc and the same has been debited by CCI Inc in its hands in assessment year 1998-99. Following the principle of accounting on mercantile basis, the said amount is also to be reduced from total claim of ₹ 70.40 crores as CCI Inc itself has debited the said amount to service charges account credit and due from the assessee. Accordingly, we disallow the excess expenditure claimed of ₹ 2,16,41,969/-. Consequently, we have to decide the issue for the balance service charges i.e. ₹ 70,40,73,988/- (-) ₹ 5,04,37,905/- (-) ₹ 2,16,41,969 = ₹ 63,19,94,114/-.
65. Before deciding the issue of allowability of said claim in the hands of assessee, we may also refer to the factual aspects of assessment year 1999- 2000. The Assessing Officer, against the claim of expenditure of service charges, issued show cause notice vide para 5 at page 15 of assessment order. The Assessing Officer vide para 5.3 specifically asked the assessee vide order sheet dated 04.03.2002 to submit the details and nature of services rendered along with evidence of rendering of services by CCI Inc. In reply, the assessee submitted 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.‖
66. Again a query was put to assessee, since it did not furnish any evidence of services actually rendered by CCI Inc to assessee and show cause notice was given to the assessee to give breakup of expenditure spent on the activities relating to manufacturing of beverages and the activities relating to bottlers. The expenditure debited during the year was ₹ 54,22,93,800/-. During 66 ITA No.1258/PUN/2003 & Ors Coca Cola India Pvt. Ltd.
the course of assessment proceedings, the assessee 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 not owner of depreciable assets. Secondly, the assessee had also claimed reimbursement of expenditure on account of payment of service tax which was to be paid by CCI Inc to Excise Department at ₹ 1.47 crores. Since service tax was liability of service provider, as per provisions of Service Tax Act, and where the assessee had not provided any services, the said 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 67 ITA No.1258/PUN/2003 & Ors Coca Cola India Pvt. Ltd.
beverage base used by bottlers, services rendered to the bottlers was not allowable. Hence, the claim of service charges amounting (balance) to ₹ 35.12 crores was disallowed. The Assessing Officer also held that debit note dated 14.12.1999 amounting to ₹ 8.95 crores was not raised during the relevant assessment year and the same could not be considered as expenditure accrued during the relevant assessment year.
67. Coming to the order of CIT(A) relating to assessment year 1999-2000, the assessee was given opportunity to give evidence in support of nature of expenses incurred under the head 'service charges'. The assessee produced vouchers for June, 1998 and March, 1999 which were test checked and the comments of Assessing Officer were obtained. The CIT(A) observed that expenses incurred and debited to assessee included expenses on account of services rendered to bottlers as well as other companies. Reference was made to appellate proceedings for assessment year 1998-99 and the CIT(A) also took note of the fact that service agreement dated 01.08.1997 was entered between CCI Inc and HCCBPL and hence, there was no merit in the plea of assessee. Another fact which was noted was that RBI vide letter dated 28.08.1997 had allowed CCI Inc to open additional office at Bangalore but was prohibited from engaging itself in manufacturing and quality control activities directly. The assessee failed to furnish basic details of nature of services rendered to other business entities except names of 13 employees who were providing services to HCCBPL. 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 68 ITA No.1258/PUN/2003 & Ors Coca Cola India Pvt. Ltd.
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 business expenditure of assessee, but this line of argument could not be stretched to include cost of services directly rendered to bottlers by CCI Inc. Vide para 5.6.9 at pages 44 and 45, the CIT(A) acknowledged that assessee had furnished vouchers in 19 box files before the Assessing Officer and similarly, vouchers were produced before him. However, examination of vouchers, fortified decision taken in assessment year 1998-99 and it was held by CIT(A) that expenses claimed under the garb of service charges were not allowable as per law as business expenditure under different provisions of the Act. The CIT(A) stressed that expenses of the nature such as foreign travel of spouses of employees, capital expenses and expenses incurred for other than business consideration are not allowable (para 5.6.10). The CIT(A) was of the view that depreciation reimbursed by assessee to CCI Inc was not the claim made under section 32 of the Act, but the said item of expenditure was in view of service agreement as reimbursement of cost incurred and the amount should be taken into account while disallowing part of service charges. Similarly, the stand of Assessing Officer regarding disallowance of service tax was held to be 69 ITA No.1258/PUN/2003 & Ors Coca Cola India Pvt. Ltd.
not correct. The CIT(A) further held that loss on sale of assets of ₹ 36,14,397/- was to be separately disallowed. Then, he considered percentage of disallowance to be made in the hands of assessee and disallowed 30% of service charges. The CIT(A) worked out the disallowance of ₹ 16.22 crores including disallowance on loss of sale of assets at page 49 of appellate order. The breakup of expenses is also available at page 17 of order of CIT(A).
68. In such scenario, both the Assessing Officer and CIT(A) had repeatedly asked the assessee to justify its claim of service charges by producing supporting vouchers but except the vouchers for two months in each of the years, wherein in assessment year 1998-99 the said vouchers were produced before the CIT(A) and in assessment year 1999-2000 it was produced before both the Assessing Officer and CIT(A), no other details / supports were filed.
69. The question which arises is whether the assessee had discharged the onus cast upon it to justify the nature of expenditure reimbursed under the garb of service charges. The debit notes have been raised by CCI Inc upon the assessee and as we have pointed out 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 70 ITA No.1258/PUN/2003 & Ors Coca Cola India Pvt. Ltd.
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 other hand is that the said expenditure can be attributable to the assessee as concentrate which is prepared by the assessee was in turn, supplied to the suppliers, who made beverages from the same and increased sale of beverages was increased sale of concentration. We find that the onus was upon the assessee to justify expenditure, but same has not been fully discharged by assessee.
71. Coming to the next head of expenses, wherein expenditure of ₹ 2.81 crores has been debited on account of moving and re-location, travelling expenses to the tune of ₹ 11.12 crores and consultancy charges of ₹ 1.84 crores with rent of ₹ 5.10 crores, telephone expenses of ₹ 5.80 crores, repairs & maintenance of ₹ 1.41 crores, etc. No breakup of any of expenses was filed. Even vouchers were not produced. It is difficult from the head of expenditure to fanthom whether any personal or capital expenditure were debited. The assessee had also booked miscellaneous expenses of ₹ 4.89 crores, for which no breakup has been given. Then the next head was the security deposit written off to the tune of ₹ 1.30 crores. When questioned, the reply of assessee was that in respect of premises at Mumbai, the aforesaid security deposit was not received back and has been written off. The said expenditure of write off of security deposit without any support cannot be allowed in the hands of 71 ITA No.1258/PUN/2003 & Ors Coca Cola India Pvt. Ltd.
assessee as expenditure with markup. Reliance placed upon the case of Richardson Hindustan Ltd. Vs. CIT (supra) is misplaced as the facts are at variance as what was allowed was expenditure incurred on stamp charges for registration; however, write off of security deposit is capital expenditure. It may be pointed out that CIT(A) has not made separate disallowance for security deposit write off or foreign traveling expenses of wives but has disallowed 30% of expenses. The travelling expenses of wives of employees are disallowed to the extent of 25%. Reliance on CIT Vs. Alfa Laval (I) Ltd. (supra) is misplaced as in the said case, wife of MD accompanied on an invitation. But in present cases, wives of employees attended conference in Phuket; first not case of MD and second no invitation details filed. Hence, reliance is misplaced.
72. Another item of expenditure is depreciation to the tune of ₹ 4.87 crores in assessment year 1998-99 and in assessment year 1999-2000, 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 72 ITA No.1258/PUN/2003 & Ors Coca Cola India Pvt. Ltd.
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 out that majority of reliances on case laws which were considered in the hands of assessee in earlier year and on the basis of said decisions, though the expenditure has been allowed in entirety in assessment year 1997-98, but the facts of present case are at variance to the extent that in assessment year 1997-98 the Assessing Officer had raised the issue of non- furnishing of item-wise, date-wise details of payments and evidence / details of services rendered by CCI Inc to the assessee, which were not furnished. The Tribunal vide para 21 of its decision notes that the Assessing Officer on this reason / ground had not made any disallowance. However, entire disallowance was made by Assessing Officer for the reason that it did not relate to this year, hence not allowable. However, we have already referred to the investigation carried out during the course of assessment proceedings and also before the CIT(A) and even after giving enhancement notice in assessment year 1998-99, the case of Revenue authorities time and again was asking the assessee to furnish complete details of breakup of expenditure head-wise and thereafter, to provide vouchers in support of expenditure booked. We have already referred to the proceedings before the Assessing Officer in both the years, wherein time and again the assessee was asked to establish its case of reimbursement of cost with markup, but except for filing the agreement and copy of debit notes in assessment year 1998-99 and in the later year, providing the details at the fag- end of assessment proceedings, the assessee furnished information partly i.e. 73 ITA No.1258/PUN/2003 & Ors Coca Cola India Pvt. Ltd.
in assessment year 1998-99 the vouchers for two months were filed before the CIT(A) and no vouchers at all were filed before the Assessing Officer; in assessment year 1999-2000, vouchers for two months were filed in 19 box files both before the Assessing Officer and CIT(A). In other words, the basis for disallowance in the year under consideration is at variance, to the basis for disallowance in preceding year. Hence, the finding of Tribunal in assessment year 1997-98 would not bind while deciding the issue in the present assessment years. Again, we make reference to para 21 of order of Tribunal dated 04.10.2006 in this regard.
75. Now, coming to next issue raised in the present appeal which is whether in facts and circumstances of assessment year 1998-99 onwards, wherein the 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 74 ITA No.1258/PUN/2003 & Ors Coca Cola India Pvt. Ltd.
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 hands of assessee, especially where the assessee had discontinued its bottling business. The Ld. AR has time and again stressed that the issue stands covered in favour of assessee by the order of Hon'ble High Court in Coca-Cola India Pvt. Ltd. Vs. CCE (2009) 226 CTR 221 (Bom) for the proposition that even if some benefit arises to the bottlers, but since it increases the profits of assessee, as increased sale of drink means the increase in sale of concentrate, then such expenditure is to be allowed in the hands of assessee.
77. In this regard, we may refer to the order of Hon'ble Bombay High Court in DCIT Vs. Coco Cola India Pvt. Ltd. in Income Tax Appeal No.1159/2011, order dated 04.09.2014. The said appeal has been filed by the Revenue against order of Tribunal in allowing the claim of marketing expenses in the hands of assessee. During the proceedings, the assessee in that case had filed an affidavit relying on several judgments of the Court including the case of assessee regarding Excise / CENVAT credit. The Hon'ble High Court in this regard held that Tribunal's order on claim of marketing expenses arises under the Income Tax Act. Hence, whether the judgment of this Court in a matter of CENVAT credit or Excise duty claimed can have any application will have to be considered at a length. The Hon'ble High Court also noted that on similar issue of marketing expenses, an appeal by Revenue was admitted and hence, the said appeal was also directed to be admitted. Taking support from the said proposition laid down by the Hon'ble High Court merely because an issue has been decided under the Excise Law would not bind the issue of allowability of 75 ITA No.1258/PUN/2003 & Ors Coca Cola India Pvt. Ltd.
expenditure under the Income Tax Act. The issue needs to be seen on its facts in entirety and also on legal propositions relied upon by both the parties.
78. Before proceeding further, we may refer to the legal decision on which the Ld. AR had placed reliance i.e. in the case of CIT Vs. Chandulal Keshavlal & Co. (1960) 38 ITR 601 (SC), which is dated 17.02.1960 and is under the provisions of old Income Tax Act. The Ld. CIT-DR also relied on this decision. The proposition raised by the Ld. AR was that while deciding the question of deductible expenditure, then the question of commercial expediency is to be seen and if the payment or expenditure is incurred for the purpose of trade or business, it does not matter that the 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 deduction the sum must be given up for reasons of commercial expediency; it may be voluntary, but so long as it is incurred for the assessee's benefit the deduction would be claimable.‖ 76 ITA No.1258/PUN/2003 & Ors Coca Cola India Pvt. Ltd.
79. Now, coming to the next reliance of the Ld. AR in CIT Vs. Royal Calcutta Tuft Club (supra), wherein also similar proposition following CIT Vs. Chandulal Keshavlal & Co. (supra) was laid down and it was held that any expenditure to be held to be wholly and exclusively for the purpose of business must be for reasons of commercial expediency; it may be voluntary but incurred for assessee's business; and if the expenditure is incurred for the purpose of business of assessee, it does not matter that the payment also enures to the benefit of third party.
80. The next reliance by the Ld. AR was on the decision of Pune Bench of Tribunal DCIT Vs. Kolhapur Zilla Sahakari Dudh Utpadak Sangh Ltd. (supra) for the proposition that in order to decide the question whether expenditure was allowable under section 37(1) of the Act, then the argument that expenditure was necessary or not was not relevant. On the other hand, the expression 'wholly and exclusively' used in section 37(1) of the Act, does not mean necessarily and it was for the assessee to decide whether the expenditure should be incurred in the course of his business. Where the expenditure is incurred voluntarily and without any necessity and if it was incurred for promoting business and to earn profits, then the assessee was entitled to claim deduction under section 37(1) of the Act even though somebody other than the assessee also benefitted by the said expenditure. If the expenditure is incurred for the commercial expediency, then the same needs to be allowed as business expenditure. In this regard, Pune Bench of Tribunal relied on the decision of Hon'ble Supreme Court in Sassoon J. David & Co. (P) Ltd. vs. CIT (supra). Reliance was also placed on the decision of CIT Vs. Panipat Co-operative Sugar Mills Ltd. (supra), wherein the assessee was cooperative society running sugar mill and distillery. It claimed deduction of certain amount spent on 77 ITA No.1258/PUN/2003 & Ors Coca Cola India Pvt. Ltd.
account of supply of pesticides to sugarcane growers at concessional rates. The said expenses were held to be directly connected with the assessee's business and were directed to be allowed.
81. The next reliance placed upon by the Ld. AR is on the decision of Hon'ble Bombay 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 (P.) Ltd. (supra) was on advertisement expenses. The proposition which has been raised is with regard to the term 'wholly and exclusively' used in section 37 of the Act and would it mean necessarily for the purpose of business. The Hon'ble Delhi High Court in this regard held that it was for the assessee to decide whether 78 ITA No.1258/PUN/2003 & Ors Coca Cola India Pvt. Ltd.
any expenditure should be incurred to facilitate its business activities. The Hon'ble High Court further held that for deciding the said issue, the purpose of business is to be considered and looked into having regard to the realities of business from the point of view of a prudent businessman.
83. The Ld. AR further placed reliance on the decision of CIT Vs. Samsung India Electronics Ltd. (2014) 42 taxmann.com 498 (Del). He after taking us through the facts of case, wherein the issue was allowability of brand building and dealer royalty expenditure and it was held that even if part of expenditure incurred was for the benefit of brand, which benefited the parent company, then also such expenditure to promote brand is to be allowed as expenditure in the hands of assessee. The Ld. AR placed reliance on para 20 of said decision.
84. The Ld. CIT-DR pointed out that in the factual aspect of said case, the Hon'ble Delhi High Court have to be seen in entirety, wherein the finding of Tribunal was that part of advertisement expenditure, benefit of which enured to the parent company, was reimbursed by the parent company and was not under challenge. Hence, what was allowed by the Court was the expenditure which benefitted the assessee and part of expenditure where the benefit enures partly to another person was not the question before the Hon'ble High Court to decide.
85. The Ld. CIT-DR in reply, heavily relied on the ratio laid down by jurisdictional High Court in Dhimant Hiralal Thakar Vs. CIT (supra), which a decision dated 28.10.2015. The Ld. CIT-DR pointed out that the Hon'ble High Court decided the issue of expenditure which was eligible for deduction under section 37(1) of the Act and held that where the expenditure was incurred and 79 ITA No.1258/PUN/2003 & Ors Coca Cola India Pvt. Ltd.
was not wholly and exclusively for business, then the same is not to be allowed as expenditure. Our attention was drawn to paras 15 and 16 of the said decision. In para 15, first aspect which was dealt in was whether the expression 'wholly and exclusively' as used in section 37(1) of the Act means 'necessarily' 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 and exclusively for the purpose of business. Addressing the plea of Ld. AR in the said case that some part of expenditure may be allowed as being incurred for professional or business purpose, the Hon'ble High Court held that The words used in Section 37(1) of the Act is wholly and exclusively for the purposes of business. In this case, the finding of fact is that it is incurred for the personal purposes. Be that as it may, the words used are "wholly and exclusively for the purposes of business or profession". In normal understanding the word 80 ITA No.1258/PUN/2003 & Ors Coca Cola India Pvt. Ltd.
"wholly" would mean entirely and the word "exclusively" would mean solely. Thus, any element of expenditure not laid out entirely and solely for the purpose of profession would not be covered by Section 37(1) of the Act. One has to examine this from the perspective/prism of the person who does makes the expenditure. The Hon'ble High Court was deciding the issue of allowability of foreign travel expenses claimed by the appellant therein for the purpose of operation of his eyes. The appellant was professional and claimed that eyes were required to be exclusively used for the purpose of profession by him. The Hon'ble High Court in such circumstances held that eyes were essential, not only for the purpose of business or profession, but for purposes other than these, which were many and expenditure claimed was not in the nature of expenditure wholly and exclusively incurred for the purpose of profession and thus could not be claimed as deduction. In coming to the aforesaid conclusion, reliance was placed on the ratio laid down by the Hon'ble Supreme Court in CIT Vs. Delhi Safe Deposits Co. Ltd. (1982) 133 ITR 756 (SC).
86. Another decision which was heavily relied upon by the Ld. CIT-DR was Ramanand Sagar Vs. DCIT (supra) for the proposition that for allowing expenditure under section 37(1) of the Act, onus of proof was on the assessee to establish that expenditure was incurred for the business of business. The Hon'ble High Court in para 11 refers to the provisions of section 37 of the Act and held that the onus of proof was on the assessee to prove each of the following ingredients before the expenditure can be allowed as deduction:-
(a) The item of expenditure not being of the nature described under Sections 30 to 36 of the Act;
(b) The item of expenditure must not be in the nature of capital or personal expenses of the assessee;81 ITA No.1258/PUN/2003 & Ors
Coca Cola India Pvt. Ltd.
(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 being laid out wholly and exclusively for the purposes of the business. It was further observed as under:-
―Once doubts arise about the bona fide nature of the payment, it is necessary to look into all the necessary circumstances such as relationship of the payee to the assessee, the general standards of similar expenditure in comparable business, the true worth of the services or goods in question and so forth.‖
89. Vide para 14 the Hon'ble High Court observed that it was within the powers of Assessing Officer to consider all the relevant evidences and decide as to what expenditure was attributable to bonafide business purposes and in that event the Assessing Officer would be justified in disallowing the amount paid as not having been wholly and exclusively laid out for the purpose 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 82 ITA No.1258/PUN/2003 & Ors Coca Cola India Pvt. Ltd.
establish that the claim is bonafide. Para 14 of the said decision reads as under:-
―14. It is also open, to the AO to question the reality of the expenditure, i.e., the true nature of payment, the true consideration for it and so forth, once he considers the payment and the purpose to be bona fide, it is not open for him to substitute his own judgment of what is reasonable quantum of expenditure for the assessee. The AO can only decide whether the expenditure is real, whether it relates to the business and is wholly spent for that purpose. The AO would be well within his jurisdiction to disallow the expenditure in excess of reasonable limits. However, the discretion is to be exercised judicially, i.e., it must act according to the reason and justice and not according to his private opinion; according to law and not according to humour or fancy. The mere fact that the assessee had made payments could not carry matter any further, that fact itself would not be sufficient to entitle the assessee to claim deduction. The reasonableness should be judged from the view of the businessman. Where an element of extra-commercial consideration appears, the AO should consider all the relevant evidence and decide to what extent it is to be attributed to bona fide business purposes. Where a person to whom the remuneration is paid is not a genuine entity or the recipient has not rendered any service, then in that event, the AO shall 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 Assessing Officer would be well within his jurisdiction to disallow the expenditure in excess of reasonable limits. Further, reliance is placed on the ratio laid down by the Hon'ble Supreme Court in Swadeshi Cotton Mills Vs. CIT (supra) and Laxminarayan Madanlal Vs. CIT 83 ITA No.1258/PUN/2003 & Ors Coca Cola India Pvt. Ltd.
(supra) for the proposition that mere existence of agreement would not make the expenditure as allowable business expenditure. It is incumbent upon the assessee to prove that expenditure incurred had fulfilled the conditions laid down in section 37(1) of the Act.
91. The Hon'ble Supreme Court in later decision in Premier Breweries Ltd. Vs. CIT (supra) has laid down similar proposition that mere existence of agreement between assessee and selling agent would not bind the Assessing Officer that the payment was made exclusively and wholly for the business and it was open to the Assessing Officer to consider the relevant facts while deciding the said issue.
92. The Hon'ble Supreme Court in Premier Breweries Ltd. Vs. CIT (supra) while deciding the appeal of assessee was abreast with the issue of deductibility of commission paid to commission agents and whether the said commission agents had rendered services. The Hon'ble High Court had reversed the findings in conclusion relied by the Tribunal and eventually had concluded by holding the Tribunal to have committed grave error and had eventually set aside the order of Tribunal and upheld the order of CIT(A) and answered the question in favour of Revenue by holding that assessee had not discharged the burden so as to entitle it to deduction under section 37 of the Act. In such scenario, it was observed that the question posed was whether acceptance of agreements, affidavits and proof of payment would debar the Assessing Officer to go into the question whether the expenses claimed would still be allowable under section 37 of the Act. Reference was made to the decision of Hon'ble Supreme Court in Swadeshi Cotton Mills Vs. CIT (supra) and Laxminarayan Madanlal Vs. CIT (supra). In 84 ITA No.1258/PUN/2003 & Ors Coca Cola India Pvt. Ltd.
Laxminarayan Madanlal Vs. CIT (supra), it was held that mere existence of an agreement between the assessee and selling agent or payment of certain amounts as commission, does not bind the Income Tax Officer to hold that payment was made exclusively and wholly for the purpose of assessee's business. The Hon'ble Supreme Court in this regard had observed that 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, then the assessee would be entitled to deduction only in respect of expenditure incurred by it for the purpose of his business but not expenditure incurred for the purpose of business of another assessee.
85 ITA No.1258/PUN/2003 & Ors
Coca Cola India Pvt. Ltd.
94. Another reliance placed upon by the Ld. CIT-DR was on the decision of Hon'ble High Court of Madras in CIT Vs. C.C.C. Holdings (supra) for the proposition that in Taxing Statute, there cannot be presumption as to the facts. The Hon'ble High Court held that the person who claims the benefit under the provisions of the Act, has to prove before the authorities that it is entitled to the benefit of deduction by placing proper and sufficient material to that effect. In the absence of any such material, the authorities under the Act cannot grant any relief based on presumption.
95. The Hon'ble Supreme Court in CIT Vs. B.M. Kharwar (supra) (relied upon by Ld.CIT-DR) also had laid down the proposition that taxing authority is entitled and is indeed bound to determine true legal relation resulting from a transaction. It was further held that principle would also apply alike to cases in which legal relation is recorded in formal document and to cases where it has to be gathered from evidence - oral or documentary and conduct of the parties to the transaction.
96. We have in the paras above referred to the facts of present case elaborately making reference to the terms of agreement and also the arguments of both the Authorized Representatives in this regard. The fact which emerges is that vide agreement dated 01.04.1997 the terms between the assessee and service provider CCI Inc have undergone amendments. Hence, the plea of assessee that facts of present case are identical to the facts in assessment year 1997-98 cannot stand. Another aspect to be kept in mind is that w.e.f. 01.11.1997 an agreement is entered into between CCI Inc and HCCBPL for providing services to the said concern directly for which even 86 ITA No.1258/PUN/2003 & Ors Coca Cola India Pvt. Ltd.
permission was taken from RBI. Further there was also w.e.f. 01.01.1998 hiving of business of bottling which was carried on by assessee during the year itself. In other words, in such scenario, the assessee in earlier year was engaged in the manufacture of concentrate and also had bottling unit and was receiving services from CCI Inc for both the said units of business carried on by it, is not the case for the year under consideration and even for the 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 Act to justify that the expenditure so claimed was business expenditure wholly and exclusively for the purpose of business of the assessee and whether benefit to bottlers was benefit to assessee. The assessee claimed that the fact that it was earning high income justifies the allowability of expenditure in its hands. The conduct of 87 ITA No.1258/PUN/2003 & Ors Coca Cola India Pvt. Ltd.
assessee before the Assessing Officer in initial years was only to file the copy of agreement and copies of debit notes, which in the first year were filed literally at the close of assessment proceedings and no vouchers at all were produced in assessment year 1998-99. Before the CIT(A), vouchers for two months of the accounting period were produced for test check. Similar was the case in assessment year 1999-2000, where 19 box files were filed relating to two months before the Assessing Officer and CIT(A). In other years, the assessee has filed tabulated details. In the submissions before us filed on 20.03.2019, the Ld. AR points out that for assessment year 2000-01, 25 box files were produced; for assessment year 2001-02, 11 box files; for assessment year 2002-03, 29 box files; for assessment year 2003-04, 31 box files and for assessment year 2004-05, 27 box files were produced.
98. 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. The learned Authorized Representative for the assessee before us has stressed that this was the sole issue for which expenditure was disallowed. Another line of argument before us was that the issue stands covered by earlier year. First of all, the issue arising in assessment year 1997-98 was limited to the extent that as to whether expenditure related to that year and thereafter, a finding has also been given that even if benefit enures to the bottlers, expenditure was allowable in the hands of assessee. We have no issue to such proposition in case where the services which were availed by assessee for advancement of 88 ITA No.1258/PUN/2003 & Ors Coca Cola India Pvt. Ltd.
its business in turn, enures the benefit to some extent to the bottlers, then such expenditure can be 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 present issue which is arising before us is first, factual issue of nature of expenditure, which were being borne by assessee. The assessee as per agreement, had to reimburse the 'actual cost' with markup to CCI Inc, but those costs should be attributable to the assessee. Merely because there is an agreement between the parties would not be the basis for allowance of expenditure in the hands of assessee. Such is the proposition laid down in the Hon'ble Supreme Court in Swadeshi Cotton Mills Vs. CIT (supra) while deciding the issue of whether an amount claimed as expenditure was laid out or expended wholly and exclusively for the purpose of business, pursuant to 89 ITA No.1258/PUN/2003 & Ors Coca Cola India Pvt. Ltd.
agreement, held that merely because of existence of an agreement, it cannot be held that the payment was made wholly and exclusively for the purpose of assessee's business. It is for the Assessing Officer to decide whether the amount paid was wholly and exclusively spent for the purpose of business. The Hon'ble Supreme Court held it to be an erroneous proposition to contend that as soon as the assessee had established two facts i.e. existence of an agreement between the parties and the fact of actual payment, no discretion was left to the Assessing Officer except to hold that payment was made wholly and exclusively for the purpose of business.
100. No doubt, an agreement as a document is cogent factor and cogent piece of evidence, but still it had to be established that the amount which were spent was wholly and exclusively for the purpose of business before such a claim for deduction can be allowed under section 37(1) of the Act. Throwing a document in the face and saying that payment has been made under this agreement does not make it expenditure wholly and exclusively for the purpose of business. Such burden of proving that services were rendered by CCI Inc for day-to-day conduct of business of assessee needs to be established by the assessee and the first step for such establishment was the breakup of expenditure sub-head-wise to be filed with supports. In the absence of assessee filing basic details, the actual cost attributable to assessee was not established. In assessment year 2000-01, the Assessing Officer asked time and again the assessee to file details of travelling expenses, which totaled to about ₹ 9 crores. The perusal of assessment order clearly reflects the assessee having 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 90 ITA No.1258/PUN/2003 & Ors Coca Cola India Pvt. Ltd.
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 purpose of business of assessee is not good enough to establish the case of assessee. In respect of certain foreign travel expenses, the wives of employees of CCI Inc have accompanied. The Assessing Officer in assessment year 2000-01 has clearly brought on record that the purpose of travel was not for the purpose of business. In such circumstances, merely because the travelling expenses have been incurred by CCI Inc, the same cannot be allowed as business expenditure of assessee, either under the head service charges or reimbursement of expenses.
101. The Hon'ble Supreme Court in Bengal Enamel Works Ltd. Vs. CIT (1970) 77 ITR 119 (SC) while deciding the issue of allowability of business expenditure in a case where the amount was paid to an employee pursuant to an agreement had held it to be excessive because of extra commercial considerations and it was held that the Taxing Authority might disallow an 91 ITA No.1258/PUN/2003 & Ors Coca Cola India Pvt. Ltd.
expenditure claimed on the ground that the payment was not real or was not incurred by the assessee in the course of his business or that it was not laid out wholly and exclusively for the purpose of business of the assessee. The Hon'ble Supreme Court held that in such circumstances the authority did not substitute its own view of how the assessee's business affairs should be managed but proceeded to disallow the expenditure because the conditions of its admissibility was absent. Such cases of disallowance of expenses where the assessee has failed to discharge the burden of proving that services were rendered for carrying on the business, which lies upon the assessee, cannot be held to be based on surmises and conjunctures or that it was based on no evidence.
102. The Hon'ble Supreme Court in Lakshmiratan Cotton Mills Co. Ltd. Vs. CIT (1969) 73 ITR 634 (SC) had held that if no reliable evidence was forthcoming, the Tribunal was competent to reach the conclusion it did. The recitals in the agency agreement which authorized the managing agents to do certain acts could not be a substitute for evidence that those acts were in fact done by the managing agents.
103. The Hon'ble Bombay High Court in Ramanand Sagar Vs. DCIT (supra) while referring to provisions of section 37(1) of the Act held that the onus of proof was upon the assessee to prove that each of the ingredients of said section have been satisfied before the expenditure could be allowed 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 92 ITA No.1258/PUN/2003 & Ors Coca Cola India Pvt. Ltd.
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 head-wise breakup of expenditure totaling ₹ 60.18 crores, which is reproduced by us under para 60, against which it produced vouchers for the months of June, 1997 and March, 1998 before the CIT(A), but did not give breakup of expenses under each head, especially where the assessee had to reimburse the costs with markup. It may be reiterated that no such vouchers were produced before the Assessing Officer and the copy of agreement dated 01.04.1997 was filed on the last date of completion of assessment proceedings before the Assessing Officer. The assessee time and again had placed reliance on the terms of agreement and the debit notes raised by CCI Inc. The details of debit notes are provided in para 61 of our order and the perusal of the same would reflect that three of debit notes were dated 30.01.1998 and the last one was after the close of year i.e. on 09.09.1998 for sum of ₹ 20.91 crores, totaling ₹ 70.40 crores. We have already pointed out that breakup of expenses 93 ITA No.1258/PUN/2003 & Ors Coca Cola India Pvt. Ltd.
given is of ₹ 60.18 crores and not of ₹ 70.40 crores. No breakup of expenses totaling to the extent of debit notes are enclosed for ready reference. Except for the period, it is not known, how the expenditure is raised vide debit notes. The assessee claims it was audited by auditors but no such certificate of auditors was produced. The Balance Sheet and Profit and Loss Account are undoubtedly, audited. Another point which may also be pointed out herein itself that vide paras 62 and 63, we have already disallowed service charges of sum of ₹ 5.04 crores relating to earlier year and ₹ 2.16 crores being excess charged by CCI Inc.
106. The assessee for assessment year 1999-2000 had debited sum of ₹ 45.27 crores to its Profit and Loss Account but the total expenditure has been claimed at ₹ 54.23 crores as debit notes of ₹ 8.95 crores dated 14.12.1999 were claimed as allowable being relatable to the year under consideration. It may be pointed out that assessee claims that it had reduced excess debit of ₹ 2.16 crores to assessment year 1999-2000 and if the same is to be considered in assessment year 1998-99, then the expenditure for the year under consideration needs to be increased by another sum of ₹ 2.16 crores. Thus, in total the assessee claims expenditure of ₹ 56.39 crores relatable to the year. The plea of assessee 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 94 ITA No.1258/PUN/2003 & Ors Coca Cola India Pvt. Ltd.
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 issued later, had not been discharged. First of all, sum of head-wise breakup does not match with final claim made. And secondly, the detailed breakup of expenditure under each head had not been filed; hence not known whether expenditure is capital or revenue in nature.
107. Now, coming to allowability of said expenditure in the hands of assessee, wherein the CIT(A) has carried out further investigation during appellate proceedings both in assessment years 1998-99 and 1999-2000. Not only he has test checked the vouchers of two months in each of the years but has also recorded statements of key persons and has come to a finding that the assessee has never enquired into the nature of claims made under the head 'service charges' by CCI Inc. The said vouchers were maintained at Delhi and the assessee received debit notes nearly at the close of year or even after close of the accounting period and had paid the amounts on said account. In the absence of total breakup of expenses being filed, the expenses cannot be allowed. It is time and again being held by the Courts that burden of proof was first on the assessee to prove its case of expenses being wholly and exclusively for the purpose of business of assessee, but in the garb of 'wholly and exclusively' for the purpose of business, service charges which were charged to assessee in respect of items / events which were not relatable to the assessee 95 ITA No.1258/PUN/2003 & Ors Coca Cola India Pvt. Ltd.
cannot be allowed as deduction in the hands of assessee. First such event was expenditure was charged for meeting export obligation of CCI Inc in respect of group companies and / or charges paid for attending seminar on 'brand building', which expenditure cannot be attributed to the assessee. What is the breakup of Miscellaneous Expenditure details were never filed.
108. Another item which needs to be disallowed in the hands of assessee is charges relating loss on assets. The CIT(A) in assessment year 1999-2000 has disallowed the loss on sale of assets to the tune of ₹ 36,14,396/-, which is admittedly not in dispute. The said proposition was put to Ld. AR on one of the date of hearing and it is fairly admitted by him that no appeal has been filed against the same.
109. We may also consider the facts of assessment year 2000-01 onwards, wherein also similar issue of claim of deduction on account of service charges was made. In assessment year 2000-01, the assessee 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 44,83,944.14
Total 39,88,34,571.10
5% mark up 1,99,41,728.56
Service tax 2,09,38,814.98
Total 43,97,15,114.64
96 ITA No.1258/PUN/2003 & Ors
Coca Cola India Pvt. Ltd.
111. The assessee was asked to justify its claim of service charges. In reply, the assessee again referred to the letter dated 23.05.1994 to RBI, under which CCI Inc was to charge services at cost + 5% and also it was stressed that CCI Inc was providing technical support services and assistance to the assessee in its manufacturing operations including its manufacture of products in cans and pet bottles. The assessee then refers to service agreement which was renewed on 09.05.2000, under which it was agreed that in consideration of services provided by CCI Inc, the assessee would reimburse out of pocket expenses incurred in rendering services on production of supportings. Further in addition, the assessee shall pay to CCI Inc fees on the basis of actual cost under certain expense heads incurred by CCI Inc in providing such services + markup of 5% on such actual cost. It may be pointed out that the Assessing Officer notes at page 32 that in support of its claim of expenditure, the assessee furnished copy of agreement and did not furnish any evidence of services actually rendered by CCI Inc. Thereafter, the assessee produced certain box files regarding service charges which were subjected to verification but the assessee was again asked to furnish the nature and evidence of actual rendering of services. In reply, details in Form No.24 of CCI Inc were filed. The Assessing Officer disallowed expenditure of ₹ 52.92 crores.
112. The Assessing Officer further noted that there was increase in travelling expenses from ₹ 40,21,169/- to ₹ 10,09,52,522/- and the assessee in this regard was asked to give justification for its allowability. The Assessing Officer noted that own travelling expenses of assessee were ₹ 50,03,148/- and remaining amount of ₹ 9,59,49,374/- was reimbursed to CCI Inc. The assessee was asked to justify allowability of said expenditure. In reply, the assessee filed 97 ITA No.1258/PUN/2003 & Ors Coca Cola India Pvt. Ltd.
certain information and perusal of the same reflects that 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 with markup. Some vouchers submitted were sample checked and the Assessing Officer asked the assessee to explain the following:-
a) Vr. No.76661 of Rs.30,640/- Shri K V Nair - Jayashree Nair, why his wife travelled? What business purpose of assessee company served?
b) Vr. No.96406 - Rs.40,208/- Shri Ian Paul Pinto and family scouting trip for school and BLR office visit. How it is allowable expenditure?
c) Vr. No.94856 - T V S Krishan - environmental management -
Rs.26,309/- - what business exigencies have been served. 98 ITA No.1258/PUN/2003 & Ors
Coca Cola India Pvt. Ltd.
114. However, the assessee did not furnish any information and the Assessing Officer disallowed total travelling expenditure of ₹ 9.59 crores.
115. The CIT(A) while deciding the issue of disallowance of service charges vide para 4 at page 22 onwards asked the assessee to explain as to why service charges paid to CCI Inc for assessment year 2000-01 had shown decline as compared to assessment year 1999-2000. He then observed that pointer to the same was available in the addition of ₹ 9.59 crores made by Assessing Officer in disallowance of travelling expenses. The assessee was asked to submit its explanation on different dates. On each and every date of hearing, the learned Authorized Representative was reminded to submit reasons for lowering of service charges. However, no explanation was submitted. Then as on 12.03.2004 vide order sheet entry, it was noted by the CIT(A) that no explanation on the issue of lower service charges debited during the year has been given, though reference was made to letter dated 27.02.2004 but there was no explanation on this issue. On perusing the Schedule 14, it was pointed out that items like rent, rates and taxes, travelling, salary and allowances have increased by 100% to 1000% over the amounts as on 31.03.1999. On this it was admitted by the appellant that for these items of expenditure, reimbursement had directly been debited to books of account of assessee and these expenditure were till last year shown under the head 'service charges'. The CIT(A) vide para 4.4 observed as under:-
―4.4 The reason and purpose of not submitting even such basic details is not difficult to understand as the appellant had noticed that the department was disallowing ‗service charges' paid to CCI Inc. in the earlier years and therefore, it deliberately did not include some such terms under 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.‖ 99 ITA No.1258/PUN/2003 & Ors Coca Cola India Pvt. Ltd.
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 Rates and taxes 5,99,05,011 - 56,37,898 5,42,67,113
5 Communication 4,04,82,154 - 52,37,181 3,52,44,973
expenses
6 Printing and stationary 1,16,60,360 - 5,68,461 1,10,91,899
7 Salaries and allowances 3,14,03,495 - 1,45,10,953 1,68,92,542
8 Contribution to PF 30,53,614 - 17,45,848 13,07,766
TOTAL 20,52,87,189
9 Travelling 10,09,52,522 - 40,21,169 9,69,31,353
117. The CIT(A) further observed that above computation was done on rough pages on the basis of data available on record and without any cooperation from the assessee and after considering the fact that neither employees nor fixed assets of assessee company had shown to have increased from last year.
Admittedly, it was reimbursement to CCI Inc and the CIT(A) vide para 4.6 observed that it had not been explained by assessee how these expenses have been incurred by CCI Inc for running business of assessee. The CIT(A) vide para 4.6 notes that expenses referred were in fact expenditure incurred by CCI Inc which have been reimbursed by assessee company to CCI Inc and thus need to be included for disallowance under the head 'service charges' and the total amount had been worked out as under:-
Service charges claimed Rs.52,92,79,422
Less: Debit notes considered in A.Y. 1999-2000 Rs. 8,95,64,328
Rs.43,97,15,094
Add: Other expenses as discussed Above Rs.20,52,87,189
Rs.64,40,02,283
100 ITA No.1258/PUN/2003 & Ors
Coca Cola India Pvt. Ltd.
118. The CIT(A) disallowed 30% of said expenses at 19.32 crores on the ground that facts during the year were similar to assessment year 1999-2000. The CIT(A) separately dealt with the disallowance of travelling expenses 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 expenditure and hence, merits to be allowed in entirety. The case of assessee before us is that the said expenses were reimbursed without any markup and hence, there was no loss to the exchequer. In this regard, reliance is placed on the terms of service agreement dated 09.05.2000. We may point out that the year under appeal relates to assessment year 2000-01 i.e. financial year 1999-2000. The so-called service agreement dated 101 ITA No.1258/PUN/2003 & Ors Coca Cola India Pvt. Ltd.
09.05.2000 is to take effect retrospectively from 01.04.1999 but the same was executed after close of the accounting period. It is not understandable how the said terms of agreement were implemented during financial year in the absence of any agreement between the parties. The assessee was booking all these expenditure under the head 'service charges' upto assessment year 1999-2000 but in assessment year 2000-01 it claims to have undertaken this exercise of bifurcating certain expenses under the head 'service charges' and certain items of expenditure to be reimbursed. We may point out that under the head 'service charges' it had booked salary and allowance and even contribution to PF and other funds to the extent of ₹ 26.63 crores and ₹ 2.04 crores, respectively. Under the items of expenditure reimbursed also, there is booking of salary and allowances of ₹ 3.14 crores and contribution to PF of about ₹ 30 lakhs. Once the assessee has failed to explain how the said bifurcation has been made to two accounts i.e. items booked under service charges or items of expenditure reimbursed, we find in the absence of any agreement during the financial year and where the assessee was initially booking all these expenditure under the head 'service charges', then the said method of accounting cannot be disturbed in the absence of any agreement for the relevant period. There is no merit in the plea of assessee that agreement dated 09.05.2000 which was executed after close of the accounting period is effective as per understanding between parties retrospectively from 01.04.1999. We draw strength from the narration of the debit notes for financial year 1999-2000, which talks of Service Agreement and not any understanding between parties and hence, this plea of assessee is rejected. The assessee had time and again changed its stand regarding claim of the expenditure under the head service charges, wherein debit notes were issued nearly to the close of the year and even some, after close of the year and also after filing of return of income. In 102 ITA No.1258/PUN/2003 & Ors Coca Cola India Pvt. Ltd.
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 not upto the mark and no further details have been filed thereafter. The CIT(A) upheld the disallowance in the absence of details. In such scenario, where the assessee had failed to even file basic details of expenses, the claim of the assessee needs to be dismissed at the threshold.
121. Now, coming to the allowability of said expenditure in entirety. The Hon'ble High Court of Delhi in Goodyear India Ltd. Vs. CIT (2000) 246 ITR 116 (Del) had laid down the proposition that where the assessee was unable to furnish details and / or to justify the claims with reference to vouchers, then the authorities would be left with no option except to disallow the portion of claim. Considering the magnitude of turnover and expenditure of expenses claimed, it 103 ITA No.1258/PUN/2003 & Ors Coca Cola India Pvt. Ltd.
was held that disallowance made in the said case could not be said to be unreasonable. The Hon'ble High Court also held that merely because the audit report is available, there is no fetter on the power of ITO to require the assessee to justify its claim with reference to records, materials and evidences. Such a power is inherent in the Assessing Officer in the scheme of the Act.
122. Another aspect of the issue is the standard of proof required for allowing the claim. In the instant case, where the assessee has received services from related concern, then the standard of proof required for allowing said claim in the hands of assessee was higher in the case of assessee than what is required to be established in other cases where the payment is made to stranger. We find support from the ratio laid down by the Hon'ble High Court of Kerala in Mil Controls Ltd. Vs. CIT (2012) 340 ITR 190 (Ker), wherein it was held that The appellant's contention that the claim is allowable merely because the payment is made and the same is bona fide cannot be accepted. This is because the payee is a related company within the group and, therefore, the standard of proof required for allowing the claim is more than what is required in other cases. If the payment was to a stranger and bona fide, presumption of reasonableness of payment would apply but not when payments are between related parties. This is because in the case of related companies beneficiaries are the same set of people and therefore, unless details are furnished justifying the payment of services charges, the Department is not bound to allow the claim. On the whole, 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.
104 ITA No.1258/PUN/2003 & Ors
Coca Cola India Pvt. Ltd.
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 of expenditure having been incurred by the assessee company for a particular purpose had to be proved by the assessee and it was in this regard that the Taxing Authorities as well as the Tribunal had recorded a finding that the assessee had failed to discharge the burden. One of the contentions raised by the Counsel in that case was that Income Tax Officer had not disputed the fact of payment to the commission agent and that the expenditure could not be disallowed merely on the ground that detailed information as to how it was expended could not be proved. This was the contention before the appellate authority and it observed that when such large expenditure is incurred, complete proof should be given particularly when the appellant is a limited company. My finding is that expenditure has not been proved and therefore, cannot be allowed. The Hon'ble Bombay High Court on this ground given by appellate authority held it to be sufficient to disallow the claim of assessee company. 105 ITA No.1258/PUN/2003 & Ors
Coca Cola India Pvt. Ltd.
Irrespective of the question as to whether the details of expenditure claimed to have been made by the commission agent had been furnished or not furnished, the Tribunal had recorded finding of fact that there is not even indirect evidence of any expenditure incurred on behalf of the company. The Hon'ble High Court held that the assessee company having failed to discharge the burden of expenditure being expended for business purpose cannot be allowed as deduction.
124. Applying the said dictate of the Hon'ble Bombay High Court, we decide the present appeal where we have in the paras above already referred to non furnishing of information by the assessee and non discharge of onus by the assessee to prove that expenditure has been expended wholly and exclusively for the purpose of business especially in the present set of facts where the assessee had even failed to give complete details of expenditure.
125. We may again repeat that the assessee had even failed to give breakup of expenses, for example miscellaneous expenditure and it was difficult to decipher / decide whether under the garb of miscellaneous expenditure any expenditure in the nature of capital or personal expenses or referred to in sections 30 to 36 of the Act, have been debited. One instance which has been pointed out by the CIT(A) is in assessment year 1998-99, wherein security deposit of ₹ 1.30 crores had been 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 106 ITA No.1258/PUN/2003 & Ors Coca Cola India Pvt. Ltd.
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 said depreciation claimed has been allowed in the hands of CCI Inc and the assessee points out that all those assets were used for the purpose of business of assessee, hence depreciation cost with markup was its liability to pay to CCI Inc. The Assessing Officer had disallowed depreciation on this account but the CIT(A) had considered it as part of total expenditure and disallowed 30% in years starting from assessment year 1999- 2000 onwards and in assessment year 1998-99, disallowance has been made at 25% of total expenses.
127. We may again refer to the dictate of Hon'ble jurisdictional High Court in Ramanand Sagar Vs. DCIT (supra), wherein it has been held that the accounts of assessee contained debit and that debit had been duly authorized on behalf of assessee would not make expenses deductible from the taxable profits. The Assessing Officer is entitled to find out whether the sums so paid are wholly and exclusively laid out for the business of the assessee. In fact, it is his duty to apply his mind to this question. He is entitled to disallow any sum which may be held not for the purposes of business i.e. payment in utter disregard of the value of the corresponding goods or services and without any satisfactory 107 ITA No.1258/PUN/2003 & Ors Coca Cola India Pvt. Ltd.
explanation for such disregard. The Hon'ble High Court had also held that the Assessing Officer while exercising his discretion however, should exercise it judicially and according to law and not according to humour or fancy. It is the dictate of law that mere fact that the assessee had made payments itself would not be sufficient to entitle the assessee to claim the deduction. At the same time, it is also obligatory on the part of assessee to prove reasonableness of the amounts spent in order to establish that the claim was bonafide.
128. The present appeals are second round of proceedings before the Tribunal as the issue had been remitted to the file of Tribunal as per the directions of Hon'ble High Court in a Writ Petition filed by assessee. Under the provisions of section 37(1) of the Act, the assessee had to establish (a) reasonableness of expenditure; (b) bonafide nature of any item of expenditure; and (c) quantum to the extent attributable to the business of assessee. Simply because the payment was made in view of the contract was not conclusive proof of expenses being incurred wholly and exclusively for the business of assessee. Undoubtedly, 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 108 ITA No.1258/PUN/2003 & Ors Coca Cola India Pvt. Ltd.
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 the claim. Each and every item of the said expenditure, needed to be proved was for the benefit of assessee's business. In the paras above, we have elaborately discussed various aspects relating to different years and have come to a finding that the assessee has failed to discharge the onus cast upon it. Since the proceedings relate to years starting from assessment year 1998-99 and in the totality of the present facts and circumstances, we hold that disallowance of expenses merits to be upheld in the hands of assessee, as the assessee has failed to discharge the onus cast upon it to furnish the details with support to establish that entire claim of expenditure had been laid out wholly and exclusively for the purpose of business. Accordingly, we uphold the disallowance @ 40% of service charges debited by assessee and also out of reimbursement expenses claimed from assessment year 2000-01. We have in the paras above already held that in assessment year 1998-99 the expenditure of ₹ 5,04,37,906/- relating to assessment year 1997-98 is not to be allowed as deduction in the hands of assessee. Similarly, extra claim of ₹ 2,16,41,969/- in assessment year 1998-99 is to be disallowed in the hands of assessee. The disallowance is to be made out of the balance amount @ 25%, as the Revenue is not in appeal against order of CIT(A) in assessment year 1998-99 and thereafter, disallowance is to be worked out by Assessing Officer. Another credit note which is to be given effect of ₹ 33,33,806/- which is the amount to be reduced from expenses in 109 ITA No.1258/PUN/2003 & Ors Coca Cola India Pvt. Ltd.
assessment year 2000-01 and added to the expenditure of assessment year 2001-02.
129. The next aspect of disallowance made in the hands of assessee is in assessment year 2000-01, wherein under the head 'service charges', the assessee had claimed only some of expenditure and the balance was claimed as reimbursement of expenses. The plea of assessee in this regard is that as per the terms of agreement dated 09.05.2000, certain costs are to be paid with markup and other expenditure is reimbursement of expenses on which no markup is charged. The CIT(A) has carried out the exercise and worked out the reimbursement of so-called expenses and added the same to total value of service charges to be considered for making disallowance in the hands of assessee. The agreement dated 09.05.2000 which has been entered into between 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 110 ITA No.1258/PUN/2003 & Ors Coca Cola India Pvt. Ltd.
reimbursement of expenses. The assessee on account of salaries had booked the expenditure both under service charges and under the reimbursement of expenses. The onus was on the assessee to establish that the alleged expenses were for the benefit of business of assessee and point out what was the basis on which the alleged reimbursement of expenses had been made. The onus in such cases was greater, because it was the reimbursement of actual expenditure, which was for the benefit of business of assessee. The assessee had failed to discharge its onus and furnish any evidence before the authorities below. The said expenditure had been considered as part and parcel of service charges on which disallowance had been made and we uphold the exercise carried out in this regard and the disallowance out of service charges had to be accordingly, made.
130. The last item of expenditure is travelling expenses from year to year, which has been disallowed in the hands of assessee as the assessee has failed to give specific details of expenditure. In the absence of requisite details, the expenditure incurred being relatable to assessee's business does not stand and the disallowance merits to be upheld, especially in assessment year 2000- 01, where the Assessing Officer repeatedly asked the assessee to give details. The standard reply was it is reimbursement of expenses. And only breakup of expenses of ₹ 1.23 crores was given and not of total expenses of ₹ 9.69 crores. The assessee is silent on the same. Merely on the ground the expense was 'reimbursement', can the assessee shy away from the onus cast upon him. The answer is 'No', where the payment was made to related party especially. The assessee could not shy away from filing the details on the ground that they were huge expenses. Even out of the details filed, the Assessing Officer had pointed out that from the breakup of expenses filed, that the same were not 111 ITA No.1258/PUN/2003 & Ors Coca Cola India Pvt. Ltd.
relatable to business of assessee. We thus, uphold the disallowance of expenses for which no details were filed i.e. ₹ 9.59 crores (-) ₹ 1.23 crores = ₹ 8.36 crores. Out of ₹ 1.23 crores, we confirm disallowance of 40% of expenses as in the case of service charges. Similarly, in the balance years, the assessee having failed to furnish breakup of travelling expenditure would not entitle it to the said claim of expenditure. Only to the extent the assessee had furnished breakup of travelling expenses, the disallowance is to be restricted to 40% of expenses but where the assessee has 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 the advertising logo and name of the assessee company. The coolers also created a sense of loyalty amongst the 112 ITA No.1258/PUN/2003 & Ors Coca Cola India Pvt. Ltd.
retailers and other intermediaries in the trade, as per the assessee. The assessee further stated to have entered into agreement for the placement of aforesaid coolers. As per the terms and conditions of said agreement, the ownership of coolers vested with the assessee at all times and also the assessee had access to the outlets for the purpose of verifying its assets. Further, it was also provided that the said coolers could be moved from one retail outlet to another or the size of coolers could be changed. As per agreement, outlet owners could not store anything in the cooler other than finished product manufactured by using the concentrate supplied by assessee company. In such scenario, the assessee claims that ownership of coolers vested with it and it had used the said coolers for the advancement of its business, hence was entitled to claim the depreciation on the aforesaid coolers.
133. The Assessing Officer and CIT(A) in the first round of proceedings have denied the same on the ground that though the assessee was owner of coolers but the coolers were provided either to the bottlers or the retailers who were engaged in the business of sale of beverages i.e. soft drinks. In other words, coolers were used by the parties and not by the assessee. In such background, it was held that the assessee had failed to fulfill the conditions laid down in section 32 of the Act, where the assessee's business activity was limited to manufacture and sale of beverage basis and not the manufacture and sale of beverages i.e. soft drinks. It was also observed by the Assessing Officer that since the bottling activity had been demerged in another company and the assessee had ceased to be engaged in the business of manufacturing and sale of beverages, then it could not be said that the said coolers were used in the business of assessee. It was also observed by the Assessing Officer that there was no agreement between the bottlers and the assessee for providing 113 ITA No.1258/PUN/2003 & Ors Coca Cola India Pvt. Ltd.
coolers to them for running their business activity i.e. sale of cold beverage drinks. In the absence of contractual obligation to incur such huge expenses, assessee's claim of depreciation on coolers was denied and was added back to the total income of assessee. Such an addition has been made in the hands 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 stands settled in favour of assessee on two grounds that no such disallowance was made in earlier years and also on the ground that once the asset enters into block of assets, then no depreciation could be denied to the assessee. The Ld. AR pointed out that the addition to coolers and other plant and machinery during the year was ₹ 9.50 crores. The 114 ITA No.1258/PUN/2003 & Ors Coca Cola India Pvt. Ltd.
Ld. AR was asked to place the breakup of the same. However, no such breakup has been filed till date. The Ld. AR placed reliance on the ratio laid down by the Hon'ble High Court of Gujarat in CIT Vs. Pure Beverages Ltd. (1994) 209 ITR 131 (Guj), Hon'ble Bombay High Court in CIT Vs. G.R. Shipping in Income Tax Appeal No.598 of 2009, judgment dated 28.07.2009 and Delhi Bench of Tribunal in DCIT Vs. M/s. Tropicana Beverages Co. in ITA Nos.482/Del/2009 and 810/Del/2009, relating to assessment year 2004-05, order dated 18.02.2010.
136. The Ld. CIT-DR placing reliance on the orders of authorities below pointed out that where the business of assessee had undergone changes i.e. it was not engaged in the bottling business, then there was no reason for making investment in the coolers. Our attention was again drawn to the depreciation chart filed by assessee and it was pointed out that addition was to the extent of about ₹ 9 crores in assessment year 2000-01, but the bifurcation of the same has not been provided by assessee at any time. The Ld. CIT-DR placed reliance on the ratio laid down by Hon'ble High Court of Madras in CIT Vs. S & S Power Switchgear Ltd. (2012) 247 CTR 604 (Mad).
137. The Ld. AR in rejoinder pointed out that depreciation on WDV is to be allowed in the hands of assessee and assuming if any disallowance was to be made, then it is only to be made to the extent of addition to the asset.
138. We have heard the rival contentions and perused the record. In order to decide the present issue raised against claim of depreciation on coolers, we need to look at the provisions of section 32 of the Act. The said section very clearly at the outset provides that depreciation on the assets can be claimed by 115 ITA No.1258/PUN/2003 & Ors Coca Cola India Pvt. Ltd.
a person who owns the asset and uses the said asset for its business. So, in order to claim the depreciation, these two conditions are paramount conditions which need to be fulfilled in order to be eligible to claim the depreciation on assets. In the case of assessee, in the initial years the assessee 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 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.
139. Now, the next aspect is addition made during the year, which was also available in the depreciation chart filed by assessee and for less than 180 days, a total to ₹ 9.50 crores and for more than 180 days, it is ₹ 29,68,188/-, addition 116 ITA No.1258/PUN/2003 & Ors Coca Cola India Pvt. Ltd.
in coolers was made. The issue which arises is whether such an asset had entered the block and depreciation on the said addition could not be denied to the assessee. The answer to the said proposition is 'No'. In the year of addition, the onus is upon the assessee first to prove that it was the owner of such an asset and such an asset had been put to use for the business needs. So, there is no question of holding that the additions to aforesaid block would automatically be entitled to the claim of depreciation, since WDV of such assets had already been computed. There is no merit in the plea of assessee. The onus is upon the assessee to establish that it fulfils the conditions of section 32 of the Act in the year of acquisition and till such onus has been discharged, the assessee cannot claim the depreciation on the ground of it being part of any block of assets. Once the assessee fulfils all the conditions being the owner of asset and being used for the purpose of business and thereafter the closing value of WDV cannot be disturbed thereafter. So, the issue before us is whether the assessee is entitled to claim depreciation on the additions made to coolers during the year. In this regard, when the assessee was confronted to give breakup of value of ₹ 9.50 crores, but the Ld. AR for the assessee time and again stressed that the same was not in dispute and it was a fresh issue being raised by the Tribunal. He again stressed that only issue which needs to be decided is whether the asset has been used for the purpose of business. Be that as may be, but we are of the view that the onus was upon the assessee to fulfill both the conditions of section 32 of the Act. First, let us be take up the issue whether the asset was owned by assessee. If we look at the total value of assets owned by assessee, the opening WDV of plant and machinery was only ₹ 3.02 crores and the total value of assets owned including the 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 + ₹ 30 117 ITA No.1258/PUN/2003 & Ors Coca Cola India Pvt. Ltd.
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 huge investment in coolers. The assessee has failed to furnish even the basic details of number of coolers purchased, value for which purchased and places where installed. The Ld. AR was specifically asked to provide the list of retailers with whom coolers were placed. Though the assessee claimed it was putting coolers at different places but in reply, the assessee stated in written submissions as under:-
―(iii) List of retailers with whom the coolers have been placed:
A sample list (as of 2015) of retailers in the area of Punjab with whom coolers have been placed is annexed hereto and marked Annexure ‗III'.
There are similar lists available for the coolers placed in other territories which are not annexed as they are voluminous.
Assessment years 2001-02 to 2004-05: The position is the same as for the assessment year 2000-01.‖
142. The Ld. AR for the assessee was specifically asked to clarify whether there was any policy for placement of coolers and it was stated as under:- 118 ITA No.1258/PUN/2003 & Ors
Coca Cola India Pvt. Ltd.
(i) Policy with regard to the placement of coolers with the retailers:
A formal written policy has not been documented. Generally, the business purpose policy is that the assessee will buy and place specified number of coolers so as to attain the objective of increasing the sales of the beverages which in turn leads to an automatic sale of the concentrate. The existence of the practice of the assessee placing coolers with the retailers has not been disputed and is not is issue.‖
143. In respect of agreements with retailers, the assessee has placed copy of one agreement dated 18.05.1998 and it was stated as under:-
―(ii) Copy of the bailment agreement entered into by the assessee with the retailers:
A sample copy of an agreement dated 18.05.1998 entered into with M/s. Om Cool Corner for placement of coolers is already a part of the record. There is a sample of the agreement which was in force in the assessment year 2000-01 and thereafter.
The existence of the agreement has not been doubted and is not in issue. Due to lapse of time as of today, it has not been possible to locate the other agreements.‖
144. The question which arises is whether where the assessee is not even in a position to give year-wise placement of coolers with the retailer outlets because of so-called paucity of time and being voluminous and only sample list of 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.
119 ITA No.1258/PUN/2003 & Ors
Coca Cola India Pvt. Ltd.
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 assessee; but in order to go in the arena of bottlers business which was now separately managed by another company, who had independent agreement with CCI Inc and also because there was no agreement between assessee and CCI Inc for placing of coolers at any place of bottlers or retailers, can such an exercise of placing the coolers be said to be for the business needs of assessee. The answer to the same is 'No'. The permission was obtained by CCI Inc from RBI for establishing and looking after the business needs of assessee, which was separately granted by RBI vide letter in 1994-95. Thereafter, looking at the needs of bottlers, RBI had given separate sanction, pursuant to which CCI Inc enters into separate agreement in 1998/1999 with bottlers. In such circumstances, how can there be intermixing/mingling of burden of carrying on the business activities. The assessee admittedly, was engaged in the manufacture of concentrate and its business was dependent on the bottlers as the sale of concentrate was linked to the cool drinks; but it cannot enter into arena of business obligation of bottlers. It may also be kept in mind that the assessee had already incurred heavy marketing expenses from year to year in order to promote the sale of finished products, cool drinks, which has been allowed in the hands of assessee. Hence, the 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 120 ITA No.1258/PUN/2003 & Ors Coca Cola India Pvt. Ltd.
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 onwards. As held in the above paras, the assessee is entitled to claim depreciation on WDV of coolers at ₹ 3.02 crores as on 01.04.1999.
146. Before parting, we may also take support from the ratio laid down by the Hon'ble High Court of Karnatakka in M/s. Fidelity Business Services India Pvt. Ltd. Vs. ACIT & Anr. in ITA No.512/2017, judgment dated 23.07.2018, wherein while 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 State as well.
66. 'Truth' has a strange but a firm character of finding its way and coming out and revealing itself even though embedded at the bottoms of time periods and piles of papers bound through the chain of litigation in the Courts of law but the quest for truth should not get bogged-down merely because a long period has lapsed.
67. The ultimate object of providing the multiple Tiers of appellate forums and mechanism in the Income Tax law and then further providing for remedies by way 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. of Appeals before the Constitutional Courts on the substantial questions of law is nothing but to allow the quest for Truth to be taken to its logical end.‖ 121 ITA No.1258/PUN/2003 & Ors Coca Cola India Pvt. Ltd.
147. In view thereof, the issues raised before Tribunal stands decided as indicated above. Since the issues raised in all appeals are common, hence our decision shall apply mutatis mutandis to other appeals.
148. In the result, all the appeals of assessee and Revenue are partly allowed.
Order pronounced on this 22nd day of August, 2019.
Sd/- Sd/-
(ANIL CHATURVEDI) (SUSHMA CHOWLA)
ऱेखा सदस्य / ACCOUNTANT MEMBER न्याययक सदस्य / JUDICIAL MEMBER
ऩुणे / Pune; ददनाांक Dated : 22nd August, 2019.
GCVSR
आदे श की प्रयतलऱपप अग्रेपषत/Copy of the Order is forwarded to :
1. अऩीऱाथी / The Appellant;
2. प्रत्यथी / The Respondent;
3. आयकर आयुक्त(अऩीऱ) / The CIT(A)-I, Pune;
4. The CIT-I, Pune;
5. ववभागीय प्रतततनधध, आयकर अऩीऱीय अधधकरण, ऩुणे "ए" / DR 'A', ITAT, Pune;
6. गार्ड पाईऱ / Guard file.
ु ार/ BY ORDER, आदे शािस सत्यावऩत प्रतत //True Copy// वररष्ठ तनजी सधिव / Sr. Private Secretary आयकर अऩीऱीय अधधकरण ,ऩुणे / ITAT, Pune