Income Tax Appellate Tribunal - Jaipur
Gillette India Ltd., Jaipur vs Assessee on 14 December, 2015
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IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES, JAIPUR
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BEFORE: SHRI R.P. TOLANI, JM & SHRI T.R. MEENA, AM
vk;dj vihy la-@ITA No. 221/JP/2014
fu/kZkj.k o"kZ@Assessment Year : 2005-06
M/s Gillette India Limited, cuke Assistant Commissioner of
65-A, Industrial Area, Bhiwadi Vs. Income Tax,
Circle-2, Alwar.
LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AAACI 3924 J
vihykFkhZ@Appellant izR;FkhZ@Respondent
fu/kZkfjrh dh vksj ls@ Assessee by : Shri P.C. Parwal (CA)
jktLo dh vksj ls@ Revenue by : Shri Kailash Mangal (JCIT)
lquokbZ dh rkjh[k@ Date of Hearing : 16/10/2015
mn?kks"k.kk dh rkjh[k@ Date of Pronouncement : 14/12/2015
vkns'k@ ORDER
PER: T.R. MEENA, A.M. This is an appeal filed by the assessee against the order dated 12/02/2014 passed by the learned CIT(A), Alwar for A.Y. 2005-06. The sole ground of appeal is as under:-
"1 The ld CIT(A) has erred on facts and in law in confirming the action of the A.O. in making ad hoc disallowance of Rs. 50 lacs out of advertisement and sales promotion expenses."
2 ITA 221/JP/2014_ M/s Gillette India Limited Vs. ACIT
2. In this case, this issue has been set aside by the ITAT vide order dated 11/2/2011 in ITA No. 1234/JP/2010 A.Y. 2005-06. The operative portion of the order is reproduced as under:-
"6. After considering the submissions and perusing the material on record, we find that this issue needs re-verification at the end of the AO. The expenses on advertisement and sales promotion have increased substantially whereas turnover of the assessee has increased marginally. No plausible explanation has been given either before AO or before ld. CIT (A) that how such increase has been occurred on account of these expenses. As per orders of AO and ld. CIT (A), full details were not filed. On the other hand, ld. Counsel of the assessee stated that in the shape of CD, the full details were filed. There are more than 30,000 entries on account of these expenses. Whatever query was made by the AO they were answered accordingly. Keeping in view all these facts and circumstances, we set aside this issue to the file of AO to examine the issue afresh after affording opportunity of being heard to the assessee. We order accordingly."
Thereafter, the ld Assessing Officer decided this issue vide order dated 05/12/2011 by providing a fresh opportunity to the assessee. The assessee replied vide order dated 29/11/2011, which has been reproduced by the Assessing Officer on page No. 4-5 of the assessment order. After 3 ITA 221/JP/2014_ M/s Gillette India Limited Vs. ACIT considering the assessee's reply, the ld Assessing Officer has held as under:-
"The assessee has claimed advertisement and sales promotion expenses of Rs. 63,98,61,831/-. During the course of assessment proceedings also, the assessee was asked justify the claim of expenses and to establish that the same were incurred wholly and exclusively for the purpose of business. In this regard, the reply filed by the assessee during the set aside assessment proceedings has been considered and neither found convincing nor satisfactory. It is noticed that assessee has claimed Trade Gifts at Rs. 1,21,84,872/-, Trade Gifts Promo Ne- Rs. 2,51,97,162/-, Con. Promo Campaign Rs. 34,37,3754/-, trade Gifts Promo- Rs. 19,88,825/-, sampling/inventories Rs. 8,81,19,911/-, Merchandising- Rs. 7,77,061/-, Sales Prom- others- Rs. 5,44,11,963/-, Others Rs. 67,89,275/-. It is further noticed that the gross sales of the assessee have increased to Rs. 453,56,81,999/- as compared to gross sales of Rs. 424,33,09,514/- during the immediately preceding year, but the expenditure on advertisement and sales promotion has increased drastically to Rs. 63,98,61,831/- from Rs. 46,50,26,077/- during the last year. The complete bills and vouchers to justify these expenses have not been provided. There is no justification for such increase in advertisement and sales promotion expenses. In the absence of complete bills and vouchers of these expenses it cannot be established that all the expenditure was "wholly and exclusively for business". Non
4 ITA 221/JP/2014_ M/s Gillette India Limited Vs. ACIT business expenditure under this head cannot be ruled out and therefore t4his expenditure is not allowable. In view of the above facts the disallowance on account of Advertisement expenses of Rs. 50,00,00/- made by the A.O. and subsequently confirmed by the ld CIT(A) is in order and as such no interference in the said addition/disallowances is warranted"
3. Being aggrieved by the order of the ld Assessing Officer, the assessee carried the matter before the ld CIT(A), who had also confirmed the order of the Assessing Officer as under:-
"5.3 I have considered the assessment order and submissions made by the appellant and find that A.O. has gone through the details of advertisement and sales promotion expenses filed by the appellant and after considering the material placed on record has disallowed Rs. 50 lacs on estimate basis out of the total expenditure of Rs. 63.98 crores claimed under this head. A.O. has further stated that complete bills and vouchers to justify the claim of expenses under this head were not filed.
5.4 During the course of appellate proceedings, it is submitted that the sales promotion expenses and advertisement have increased from Rs. 46.50 crores in the preceding year to Rs. 63.98 crores during the current year. The increase in the expenses is necessary to have the market penetration and to maintain the sale. The appellant has submitted a chart 5 ITA 221/JP/2014_ M/s Gillette India Limited Vs. ACIT showing the increase in the expenses under this head as a proportion to the sales in the last three years. 5.5 Considering the submission made, I find that the appellant has not been able to controvert the findings given by the A.O. and has made bald statements to justify the claim of expenses under this head. The percentage of expenses to sales claimed under this head has increased from 10.96% in the preceding year to 14.11% in the current year. The turnover has increased marginally from Rs. 424.33 crores in the preceding year to Rs. 453.56 crores in the current year. Thus, I agree with the action taken by the A.O. and accordingly confirm the ad hoc disallowance of Rs. 50 lacs made by the A.O.
4. Now the assessee is in appeal before us. The ld AR of the assessee has submitted that in the set aside proceedings, assessee has specifically drawn the attention of the AO to the CD containing the complete details of expenses in the soft format and the other details during the course of original proceedings. AO has not denied the submission of these details. Therefore, it is incorrect on his part to held that complete bills and vouchers to justify these expenses have not been provided. He has also not specified any particular bill or voucher which is not provided or any expenditure which is non business expenditure. Therefore, the disallowance made by him and confirmed by CIT(A) is uncalled for.
6 ITA 221/JP/2014_ M/s Gillette India Limited Vs. ACIT He further submitted that the expenditure has increased as compared to the last year to have the market penetration and to increase the sales. The position of sales and the expenditure incurred in various years is as under:-
A.Y. Sales Expenses on Expenses as % Adhoc
Advertisement of sales disallowance
and Sales made by the AO
Promotion
2002-03 4,70,08,16,930/- 38,69,51,744/- 8.23% Nil
2003-04 4,32,81,84,063/- 30,39,49,788/- 7.02% Nil
2004-05 4,24,33,09,514/- 46,50,26,077/- 10.96% 46,50,000/-
[Appeal
Pending before
ITAT]
2005-06 4,53,56,81,999/- 63,98,61,831/- 14.11% 50,00,000/-
(Present
appeal)
2006-07 4,12,14,38,500/- 66,16,25,564/- 16.05% Nil
2007-08 5,25,45,24,097/- 57,43,78,947/- 10.93% Nil
2008-09 5,98,49,04,298/- 68,45,77,760/- 11.44% 50,00,000/-
[CIT(A) reduced
to Rs.35 lacs.
Appeal Pending
before ITAT]
2009-10 6,50,28,18,154/- 81,09,00,508/- 12.47% Nil
From the above table, it can be noted that in the year under consideration, the expenditure has increased to boost the sale. The assessee has therefore, to incur higher advertisement expenditure to increase the sales. It may also be noted that in A.Y. 06-07, 07-08 and 09- 10, where the expenditure is more/comparable as compared to the year under consideration, the AO has not made any disallowance in assessment 7 ITA 221/JP/2014_ M/s Gillette India Limited Vs. ACIT framed u/s 143(3). So far as details of advertisement and sales promotion expenditure are concerned, the assessee has furnished the complete details. Such details were furnished in a CD due to its voluminous nature (the hard copy containing more than 30,000 individual entries running into around 600 pages). The summary of the expenditure was provided in the hard copy. From the same, it can be noted that out of the total expenses, expenditure of Rs. 37.66 crores is in respect of advertisement for which party-wise detail covering an amount of Rs. 36.87 crores was furnished. The remaining expenditure was in respect of sales promotion and free distribution of sample products which is fully verifiable from the individual details submitted in the soft format. The entire expenditure incurred by the assessee is necessarily and exclusively for the purpose of business and duly supported with proper supporting and bills. The AO/CIT(A) has not pointed any particular expenses for which bills/vouchers were not submitted or that the same is not wholly and exclusively for the purpose of business. The statutory auditor has verified all these expenses and there is no qualification by them. The system of internal control is such that no expenses are booked without appropriate approval and evidence of expenses. In these circumstances, only because expenditure claimed has increased as compared to the earlier years, 8 ITA 221/JP/2014_ M/s Gillette India Limited Vs. ACIT cannot be a ground for making/confirming adhoc disallowance. He placed reliance on the following cases:-
1. Widex India (P) Ltd. Vs. DCIT (2012) 66 DTR 57 (Del.) (Trib.).
2. PNC Construction Co. Ltd Vs. DCIT (2013) 144 ITD 577 (Agra) (Trib.).
3. ACIT Vs. Ganpati Enterprises Ltd. (2013) 142 ITD 118 (Delhi) (Trib.).
4. CIT Vs. Symphony Comfort System Ltd. (2013) 216 Taxman 225 (Guj.) (HC) (Mag.).
5. Seasons Catering Services (P) Ltd. Vs. DCIT 43 DTR 397 (Del) (Trib).
6. CIT Vs. Oracle India (P) Ltd. 199 Taxman 181 (Del) (HC) (Mag.).
7. Arthur & Anderson & Co. Vs. ACIT (2010- TIOL-416-ITAT).
In view of above, the disallowance confirmed by the CIT(A) be directed to be deleted.
5. At the outset, the ld DR has vehemently supported the order of the ld CIT(A) and argued that the assessee's expenses under this head is disproportionate with reference to sale and also has not been able to give the part vouchers of the expenses before the Assessing Officer. Therefore, he prayed to confirm the order of the ld CIT(A).
9 ITA 221/JP/2014_ M/s Gillette India Limited Vs. ACIT
6. We have heard the rival contentions of both the parties and perused the material available on the record. It is undisputed fact that percentage of expenses on advertisement and sales promotion with reference to sale of substantial increase compared to preceding year. In immediate preceding year, these expenses were at 10.96% on sale and in current year it increases at 14.11% on sale. The reply submitted by the assessee further shows that in A.Y. 2006-07 and this ratio has increased at 16.05% but no disallowance has been made by the Assessing Officer. Even the assessee's sale has gone down from Rs. 454 crores in preceding year i.e. 2005-06 to Rs. 412 crores in A.Y. 2006-07. Therefore, there is no correlation between the expenses incurred and sale increased or decreased. The assessee incurred these expenses for penetration of the market and to increase the sale with the help of experts in the line of marketing. It is not necessary that the expert opinion always worked in positive line. The assessee is a multinational company and their share holders are not directly involved in the ordinarily activity of the business of the company. The assessee has submitted all the details of advertisement and sales promotion expenses in CD form and in form of hard copy it was rendering into around 600 pages on for details. Each and every voucher has been maintained by the assessed as there is an audit has been made 10 ITA 221/JP/2014_ M/s Gillette India Limited Vs. ACIT by the auditor and not qualifying comment had been made by him under this head. The ld Assessing Officer also even not made any addition in A.Y. 2006-07 under this head where the ratio of expenses increased up to 16.05%. In other year also i.e. A.Y. 2007-08 and 2009-10, the ld Assessing Officer has not disallowed any amount from this head on the ground that the assessee had not incurred these expenses wholly and exclusively for the business purposes. The assessee's submission has not controverted by him, therefore, we allow the assessee's appeal on this ground.
7. In the result, the assessee's appeal is allowed. Order pronounced in the open court on 14/12/2015.
Sd/- Sd/-
¼vkj-ih-rksykuh½ ¼Vh-vkj-ehuk½
(R.P.Tolani) (T.R. Meena)
U;kf;d lnL;@Judicial Member ys[kk lnL;@Accountant Member
Tk;iqj@Jaipur
fnukad@Dated:- 14th December, 2015
*Ranjan
vkns'k dh izfrfyfi vxzsf'kr@Copy of the order forwarded to:
1. vihykFkhZ@The Appellant- M/s Gillette India Limited, Bhiwadi.
2. izR;FkhZ@ The Respondent- The ACIT, Circle-2, Alwar.
3. vk;dj vk;qDr@ CIT
4. vk;dj vk;qDr¼vihy½@The CIT(A) 11 ITA 221/JP/2014_ M/s Gillette India Limited Vs. ACIT
5. foHkkxh; izfrfuf/k] vk;dj vihyh; vf/kdj.k] t;iqj@DR, ITAT, Jaipur
6. xkMZ QkbZy@ Guard File (ITA No. 221/JP/2014) vkns'kkuqlkj@ By order, lgk;d iathdkj@Asst. Registrar