Income Tax Appellate Tribunal - Delhi
Dabon International India Pvt. Ltd., ... vs Department Of Income Tax on 23 September, 2010
ITA NO. 5442/DEL/2010
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH "B" NEW DELHI
BEFORE SHRI A.D. JAIN, JUDICIAL MEMBER
AND
SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER
I.T.A. No. 5442/Del/2010
A.Y. : 2004-05
ACIT, Circle-10(1), vs. M/s Dabon International India Pvt.
New Delhi Ltd.,
3rd floor, Punjabi Bagh, 10, Rouse
Avenue, New Delhi
(PAN/GIR NO. : AAACD 3039P)
(Appellant ) (Respondent )
Asseessee by : Ms. Lalitha Krishnamurty, CA
Department by : Mrs. Pratima Kaushik, Sr. D.R.,
ORDER
PER SHAMIM YAHYA: AM This appeal by the Revenue is directed against the order of the Ld. Commissioner of Income Tax (Appeals) dated 23.9.2010 pertaining to assessment year 2004-05.
2. The first issue raised is that Ld. Commissioner of Income Tax (Appeals) erred in deleting the addition of 43,04,349/- made on account of advertisement and publicity expenses.
3. Assessing Officer on this issue noted that a sum of ` 86,08,699/- was claimed on account of advertisement and publicity expenses. Assessing Officer further observed as per details submitted by the assessee, it was found that such expenses comprised 'market research', 'interactive promotion', as well, meaning thereby, the assessee was still in the process of product launch/brand building 1 ITA NO. 5442/DEL/2010 during the year under consideration. Hence, he opined that element of capital nature is definitely laced in these expenses. However, since the sales too have risen during the year, he treated 50% of the expenses i.e. ` 43,04,349/- as capital in nature and disallowed the same.
4. Upon assessee's appeal Ld. Commissioner of Income Tax (Appeals) considered the issue and held as under:-
"Keeping in view the fact that the question relating to these expenses were put forth during the far end of assessment proceedings, the same are admitted, in order to impart substantive justice. I have also carefully considered the submission and paper book filed by the appellant and the reliance placed by the appellant on the case of Berger Paint (Supra). The nature of advertisement cases have also been provided in a summarized form. These are inter alia related to cost of samples given free to distributor for promotion: window display, participation in vyapari mandaI; advertisement in media (including print and ratio); T-shirt for distribution, posters, stickers, visicoolers; printing of posters for publicity; market research expenses for getting taste preferences. All the above expenses are clearly related to advertisement, promotion and for increasing market penetration and product awareness and visibility and are necessary concomittent for a product manufactured and sold by the appellant, which is highly dependent on its market visibility.
I have also gone through the specific expenses on which the AO has commented in his remand report and am of the view that 2 ITA NO. 5442/DEL/2010 expenses on film festival conducted by Hindustan Times in Siri Fort Auditorium, where about 80000 children from various schools participated is very much a part of marketing exercise of the appellant as children are definitely the target group for selling of "cheese" produced by the appellant. The other expenses are distribution of leaflets on different varieties of cheese/ paneer; expenses on knowing the taste preferences of school children, expenses on conducting tasting/ sampling the products of appellant company among school children; interactive promotions and making slides for LeBon Movie fiesta for school children, and payment to Frigoglass India P Ltd. for 15 visi coolers purchased for giving to preferred shops for stocking of perishable products of the appellant which is milk products, so as to promote the product (these visi coolers are not returnable)· All the above expenses are for purpose of advertisement and publicity of appellant's product and are therefore allowable as revenue expenses. Accordingly, the addition made for ` 43,04,349/- is directed to be deleted."
5. Against this order the Revenue is in appeal before us.
6. We have heard both the counsel and perused the records. We find that Assessing Officer had disallowed 50% of the advertisement and publicity expenses on adhoc basis, holding it to be of capital nature. The Ld. Commissioner of Income Tax (Appeals) has given a finding that nature of expenditure on advertisement and publicity expenses of the company was revenue in nature. Nothing has been brought by the Revenue to prove that the expenditure incurred was of capital nature. Hence, we do not find any infirmity in the order of 3 ITA NO. 5442/DEL/2010 the Ld. Commissioner of Income Tax (Appeals). Accordingly, we uphold the same.
7. The next issue raised is that Ld. Commissioner of Income Tax (Appeals) erred in deleting the addition of ` 58,50,305/- made on account of sundry creditors.
8. On this issue Assessing Officer noted that a sum of ` 58,50,305/- was shown as sundry creditors. Assessee was asked to furnish the confirmations thereof. However, the assessee failed to do so. Hence, the Assessing Officer held that in the absence of the requisite confirmations the sundry creditors shown by the assessee as unverified. Hence, he added the same u/s. 68 of the IT Act.
9. Upon assessee's appeal Ld. Commissioner of Income Tax (Appeals) considered the issue and held as under:-
"I have carefully considered the submission and details including copy of account and invoices filed by the appellant who has submitted that the credit for Rs.58,50,305/- are trading liabilities for goods and services as is apparent from the account of these parties for FY 03-04. That after five years, (in 2009), the appellant is unable to furnish confirmation of the parties as some of them are not in existence and others are not responding to the appellant. From the details furnished in Annexure to letter dated 19.08.09 it is clear that while in some of the cases the credit have been written back in next financial year 04-05 for which copy of account has been attached, in other cases payment have been discharged in the next FY 04-05 through cheque which establishes the existence of these parties and also the factum of payment. That in law when the Assessing Officer has accepted 4 ITA NO. 5442/DEL/2010 the purchases and sales then the balance in the sundry creditors account cannot be added by him. Regarding the specific objections of the AO in his remand report on the issue of other liabilities credit of ` 13,85,462/- the appellant has provided the break up therefore which comprises of expenses payable for Rs. 5,35,002/-; superannuation payable of Rs. 53745/-; salary payable of Rs. 4,97,093/- provision for expenses for Rs. 2,84,099/- and full and final payable of Rs. 15,523/-. The copy of account of all these expenses for FY 03-04 and 04-05 together with the details of payment in the subsequent financial year have been provided. On a perusal thereof it is clear that there is no cash credit involved in these accounts which are running accounts for payment of various liabilities for services. Further, the copy of account of Dabur India Ltd. having a credit balance of Rs. 7,76,772/- has also been furnished and that this liability has been written back in the next FY 04-05 Lastly Mantequerias Arias SA credit of Rs. 11,21,964/ is also not a cash credit account but that from this party the appellant had purchased a machinery viz. second hand ultra filtration machine used for manufacture of paneer. That this balance amount for Rs. 11219641- is outstanding even to this date on account of dispute.
Keeping in view an the details filed by the appellant and its specific reply to the remand report and submission and details by the appellant it is clear that none of the sundry creditors is a case of cash credit u/s 68 of the IT Act and all these amounts pertain to trade creditors, either for services or goods, and therefore the addition made in this round of appeal for Rs. 58,50,305/- is accordingly directed to be deleted."5
ITA NO. 5442/DEL/2010
10. Against this order the Revenue is in appeal before us.
11. We have heard both the counsel and perused the records. We find that Ld. Commissioner of Income Tax (Appeals) has gone through the assessee's submissions and also obtained remand report from the Assessing Officer. On the basis of details submitted he has given a finding that none of the sundry creditor is a case of cash credit u/s 68 and all these amounts pertain to trade creditors, either for services or goods. The Ld. Departmental Representative has not been able to controvert these findings of the Ld. Commissioner of Income Tax (Appeals). Accordingly, we uphold the order of the Ld. Commissioner of Income Tax (Appeals) on this issue.
12. The next issue raised is that Ld. Commissioner of Income Tax (Appeals) has erred in deleting the addition of ` 8,86,000/- made u/s 40A(2)(b) of the Act.
13. On this issue Assessing Officer noted that a sum of ` 8,86,000/- was added to the total income of the assessee u/s 40A(2)(b) on account of excessive /unreasonable payment made to Sh. Sumit Anand, Director.
14. Upon assessee's appeal Ld. Commissioner of Income Tax (Appeals) considered the issue and held as under:-
"So far as payment to Sh. Sumit Anand, the then CEO of the company is concerned the appellant has invited attention to the copy of contract for employment and his powers and qualifications which have been filed in the paper book dated 04.12.08. It has also been submitted that these documents could not filed earlier as the appellant company was of the bona fide 6 ITA NO. 5442/DEL/2010 belief that it's explanation had been accepted. It is observed from the contract of the employment Shri Sumit Ammd was initially designated as Manager - development and on successful performance within a period of 6 months from the date of joining, Shri Sumit Anand was subsequently made a CEO vide the meeting of the Board of Directors dated 07.12.01 and effective from 01.01.02. On a perusal of these documents of the appellant it is observed that Shri Sumit Anand is essentially in employment of company and therefore his case is not covered within the persons referred to in section 40A(2)(b) of IT Act and therefore the expenditure on his hiring of as CEO cannot be held to be excessive or unreasonable within the meaning of Section 40A(2)(a). In view thereof the addition of Rs. 8.86 lacs made with reference to this ground of appeal is directed to be deleted."
15. Against this order the Revenue is in appeal before us.
16. We have heard both the counsel and perused the records. We find that before the Ld. Commissioner of Income Tax (Appeals) assessee has submitted the necessary details. On the basis of these details Ld. Commissioner of Income Tax (Appeals) has found that Shri Sumit Anand was essentially in employment of company and therefore his case was not covered within the provision of section 40A(2)(b). The Ld. Commissioner of Income Tax (Appeals) has found that expenditure of hiring in this regard was not excessive or unreasonable. We do not find any infirmity in the order of the Ld. Commissioner of Income Tax (Appeals). Accordingly, we uphold the same.
7ITA NO. 5442/DEL/2010
17. The last issue raised is that Ld. Commissioner of Income Tax (Appeals) has erred in deleting the addition of ` 11,08,000/- made on account of non-allowable liability.
18. On this issue Assessing Officer held that as per the directions of the Add. C.I.T. ` 11.08 lacs was added to the total income of the assessee on account of non-allowable liability being unpaid sales tax.
19. Upon assessee's appeal Ld. Commissioner of Income Tax (Appeals) considered the issue and held as under:-
"As regard disallowance of ` 11.08 lacs on account of sales tax pending in terms of section 43B of the Act, the appellant has submitted that the amount of ` 11.08 lacs is appearing in the notes to accounts as the contingent liability. That since this amount of liability to sales tax is disputed and is only a contingent liability therefore there is no question of application of section 43B to this amount of sales tax. Moreover from the copy of notes to account it is seen that this contingent liability has been shown from an earlier period that is even on 31.03.03 and therefore it does not pertain to the year consideration. Keeping in view the above submission and the fact that this is merely a contingent liability which is disputed by the appellant no addition u/s 43B can be made with reference to the amount of ` 11.08 lacs which is accordingly directed to be deleted."
20. Against this order the Revenue is in appeal before us.
21. We have heard both the counsel and perused the records. We find that Ld. Commissioner of Income Tax (Appeals) has given a finding that the liability involved did not pertains to the year under 8 ITA NO. 5442/DEL/2010 consideration. He has also found that it is merely a contingent liability, which is disputed by the assessee. Hence, he has found that the addition was not coming u/s 43B. The Ld. Departmental Representative could not controvert these findings. Hence, we do not find any infirmity in the order of the Ld. Commissioner of Income Tax (Appeals). Hence, we uphold the same.
22. In the result, the appeal filed by the revenue stands dismissed.
Order pronounced in the open court on 20/7/2011.
Sd/- Sd/-
[A.D. JAIN] [SHAMIM YAHYA]
JUDICIAL
JUDICIAL MEMBER ACCOUNTANT MEMBER
Date 20/7/2011
SRB
Copy forwarded to: -
1. Appellant 2. Respondent 3.CIT 4.CIT (A) 5. DR, ITAT
TRUE COPY
By Order,
Assistant Registrar, ITAT, Delhi Benches
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