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I.T.A Nos. 1843, 1050 & 1562 & CO Nos. 166,121 & 174 A.Y. 2005-06 to 2007-08 Page No 3 Assessee: M/s. Parle Sales Services Pvt. Ltd Assessment Year 2005-06 Revenue's Appeal 1843/Ahd/2009 and assessee's cross objection no. 166/Ahd/2009

2. The Revenue's first substantive ground assails correctness of the lower appellate order deleting disallowance/addition of Rs. 2,18,14,064/- on account of discount on sales. It appears from assessment order dated 28-012-2007 that the same is rather disallowance @ 50% of assessee's claim for damages, discount to sale, stock return as damages and unreasonable/excessive payment made to sister concern; totaling to Rs. 4,36,28,127/-. The assessee- company trades in aerated water, agro-based products and packed drinking water. It filed its return on 31-10-2005 declaring nil income after claiming set of unabsorbed business loss/depreciation. The Assessing Officer took up scrutiny. He noticed that assessee was a 100% subsidiary of its holding entity M/s Parle Agro Pvt. Ltd. And it purchased the above stated products from the holding entity. The Assessing Officer was of the view that the assessee had no business of its own but had been using that of its associate concern by availing all office services. He invoked the impugned disallowance @ 50% of the above stated head of expenditure by holding that the assessee had failed to provide the relevant supportive evidence. The CIT(A) summarizes Assessing Officer's finding and assessee's submissions made in the course of lower appellate proceedings as under:-

"2. The first ground of appeal raised by the appellant is against disallowance of Rs.2,18,14,064/- made in respect of expenses incurred on account of discount on sales and damages, rebate and I.T.A Nos. 1843, 1050 & 1562 & CO Nos. 166,121 & 174 A.Y. 2005-06 to 2007-08 Page No 4 Assessee: M/s. Parle Sales Services Pvt. Ltd discount and loss for damages. This addition has been discussed by the Assessing Officer in para 4 of the assessment order. He has stated that the appellant company is a 100% subsidiary company of Parle Agro Pvt. Ltd. The appellant is engaged in the business of agro products and drinking mineral water. The entire purchases of these products are from the holding company Parle Agro Pvt. Ltd. In para 3 of the assessment order, the Assessing Officer has noticed as under:-
17. It is observed that you are involved in trading activity however the huge amount of damages has been accepted by you, why the same has not been recovered / claim from supplier by you.
19. Reasons for incurring losses in trading activity in earlier years.
The appellant had, therefore, stated before the Assessing Officer that they were maintaining complete quantitative details which were already available with the Assessing Officer and no defect thereof was found. The appellant further furnished explanation, which is also not acceptable to the Assessing Officer and it is observed by him that the appellant had remained silent about party-wise purchases with quantity and value. It is stated that the payments have been made on account of following to Parle Agro. Pvt. Ltd:-

I.T.A Nos. 1843, 1050 & 1562 & CO Nos. 166,121 & 174 A.Y. 2005-06 to 2007-08 Page No 8 Assessee: M/s. Parle Sales Services Pvt. Ltd

5. The assessee preferred appeal. It inter alia argued to have made the loans and advances to associate concern, M/s Parle Agro Pvt. Ltd and Parle Pet Pvt. Ltd for business consideration, emphasized that no interest bearing funds had been utilized therein, pleaded that it was a distributor of above entity, it would highlight that it had already availed interest free advances of Rs. 5,37,53,300/- from the former entity and further pointed out that the loan in question was on account of sale/purchase account to the former and advance rate to the latter entity. The assessee thereafter stated that interest sum in question was on account of trade deposits involving interest in question. Its last plea submitted that the Assessing Officer did not establish any nexus between interest bearing fund and interest amount disallowed of Rs. 1,38,540/-. The CIT(A) take notice of all these arguments to hold that that the assessee has incurred the above stated interest outgo in business expediency.