Income Tax Appellate Tribunal - Jaipur
Assistant Commissioner Of Income Tax, ... vs M/S Gillette India Limited, Alwar on 26 November, 2018
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IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES,"B" JAIPUR
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BEFORE: SHRI VIJAY PAL RAO, JM & SHRI VIKRAM SINGH YADAV, AM
vk;dj vihy la-@ITA No. 388/JP/2018
fu/kZkj.k o"kZ@Assessment Year : 2012-2013
M/s Gillette India Ltd. cuke The ACIT,
SPA-65-A, Industrial Area, Bhiwadi. Vs. Circle-2
Alwar. Alwar.
LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AAACI 3924 J
vihykFkhZ@Appellant izR;FkhZ@Respondent
vk;dj vihy la-@ITA No. 634/JP/2018
fu/kZkj.k o"kZ@Assessment Year : 2012-13
The ACIT, cuke M/s Gillette India Ltd.
Circle-2 Vs. SPA-65-A, Industrial Area, Bhiwadi.
Alwar. Alwar.
LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AAACI 3924 J
vihykFkhZ@Appellant izR;FkhZ@Respondent
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s Assessee by : Shri P.C. Parwal (C.A.)
jktLo dh vksj ls@ Revenue by : Shri J.C. Kulhari (JCIT)
lquokbZ dh rkjh[k@ Date of Hearing : 29/08/2018
mn?kks"k.kk dh rkjh[k@Date of Pronouncement: 26/11/2018
vkns'k@ ORDER
PER: SHRI VIKRAM SINGH YADAV, A.M. These are the cross appeals filed by the assessee and the Revenue directed against the order of ld. CIT(A), Alwar dated 2 ITA No. 388 & 634/JP/2018 M/s Gillette India Ltd. Vs. ACIT 12.03.2018 for A.Y. 2012-13. These appeals were heard together and are being disposed off by this consolidated order. The respective grounds of the appeal are as under:-
Revenue's grounds of appeal (ITA No. 634/JP/2018) "1. On the facts and circumstances of the case and in law ld.CIT(A) has erred in deleting the addition of Rs. 1,53,19,40,929/- in respect of TP adjustment made by the AO on account of AMP expenses without appreciating the material facts of the case.
2. On the facts and circumstances of the case and in law, ld.
CIT(A) has erred in deleting the disallowance of 4,20,57,362/- made by AO on account of inventory written off without appreciating the material facts of the case."
Asseesse's grounds of appeal (ITA No. 388/JP/2018) " 1. The Ld. CIT(A) has erred on facts and in law in confirming the disallowance of Rs. 44,02,900/- out of travelling & conveyance expenses. He has further erred in holding that assessee has not produced bills &vouchers ignoring that head wise details and sample vouchers were filed before the AO.
2. The Ld. CIT(A) has erred on facts and in law in confirming the disallowance of Rs. 1,95,03,707/- out of other expenses. He has further erred in holding that assessee has not produced bills & vouchers ignoring that head wise details and sample vouchers were filed before the AO.
2. Firstly, we take up the Revenue's appeal. In ground no. 1 of the Revenue's appeal, it has challenged the action of the ld. CIT(A) in deleting the addition of Rs. 1,53,19,40,929/- being ALP of international transaction relating to non-routine advertisement expenditure in print 3 ITA No. 388 & 634/JP/2018 M/s Gillette India Ltd. Vs. ACIT media incurred by the assessee company for the brand not owned by the assessee company.
3. In this regard, briefly the facts of the case are that during the course of assessment proceedings, the matter relating to determination of Arm's Length Price was referred by the Assessing Officer to the Transfer Pricing Officer (TPO). The TPO observed that the level of advertisement, marketing and promotion expenses (AMP)/sales ratio is much higher than that of the comparables. Further, the TPO observed that year after year, the assessee has been carrying out this high intensity of AMP activities which by itself proof that there exists an arrangement between the assessee and the AE that compels the assessee to carry out this level of expenditure. It was held by the TPO that by incurring this kind of expenditure when viewed alongwith all the surrounding circumstances, it gives rise to an international transaction in the form of creation of a marketing intangible in India in favour of its associate enterprise (AE) which owned the brand. It was held by the TPO that the benefit to the AE is much more than the benefit being received by the assessee and significant benefit goes to the AE and only incidental benefit is received by the assessee. Thereafter, on the expenditure on advertisement in print media amounting to Rs. 1,45,89,91,261/-, the TPO determined a margin of 5% and proposed an adjustment of Rs. 1,53,19,40,929/- to the income of the assessee company, being the ALP of international transaction relating to non- routine expenditure incurred by the assessee and which has been added to the assessee's income by the AO. The said addition has since been deleted by the ld. CIT(A) by following the Coordinate Bench 4 ITA No. 388 & 634/JP/2018 M/s Gillette India Ltd. Vs. ACIT decisions in the earlier years as well as decision of the Hon'ble Rajasthan High Court in assessee's own case.
4. In IT(TP)A No. 01& 02/JP/2016 dated 04.07.2017 for the assessment year 2011-12, the Coordinate Bench has held as under:-
"3.8 The Coordinate Bench (where one of us was a party) has examined the subject matter at length in assessee's own case in ITA Nos. 01/JP/2013 & 02/JP/2015 and after taking into consideration the rival contentions and the decision of the Hon'ble Delhi High Court in case of Maruti Suzuki India Ltd (ITA No. 11/2014) has decided in favour of the assessee. The operative part of the order of the Coordinate Bench dated 12.08.2016 reads as under:
"4.17 Applying the above legal proposition to the facts of the present case, it is not a case of the Revenue that there existed an understanding or an arrangement or an action in concert between the assessee-company and its foreign AE to incur AMP expenditure to promote the brand value of the products manufactured and distributed by the assessee company. Merely because the assessee-company incurred excessive AMP expenditure compared to the expenditure incurred by comparable companies, it cannot be inferred that there existed international transaction between assessee-company and its foreign AE. As held in the case of Sony Ericsson case, application of Bright Line Test as a tool to ascertain an alleged international transaction is not permissible under the Indian TP regulations. The onus is on the Revenue to demonstrate that de hors the BLT an AMP expense incurred by the taxpayer constitutes an international transaction which has not been discharged in the instant case. The Revenue has failed to demonstrate the existence of an international transaction. Therefore, the question of determination of ALP on such transaction does not arise. Respectfully following the ratio decidendi of the Hon'ble Delhi High Court in the case of Maruti 5 ITA No. 388 & 634/JP/2018 M/s Gillette India Ltd. Vs. ACIT Suzuki and subsequent Hon'ble Delhi High Court decisions referred supra, we hold that AMP expenditure incurred by the assessee cannot be treated and categorised as an international transaction under section 92B of the Act. In light of the above, the additional ground no. 7 raised by the assessee company is allowed in favour of the assessee company. In view of additional ground decided in favour of the assessee-company, ground no. 2 doesn't arise for consideration. The AO is directed to delete the adjustment on account of AMP spend by the assessee."
3.9 Undisputedly, there is no change in facts and circumstances of the case and no contrary authority has been brought to our notice. The ld CIT DR fairly conceded that the issue is covered in favour of the assessee's by earlier decision of the Coordinate Bench. Given the above factual matrix and respectfully following the decision of Hon'ble Delhi High Court in case of Maruti Suzuki and Coordinate Bench decision in assessee's own case, AMP expenditure incurred by the assesse could not be treated and categorized as an international transaction u/s. 92B of the Act and thereby, the adjustment on account of AMP expenditure is hereby deleted and ground of the assessee's appeal is allowed."
5. In DB ITA No. 40/2017 & 39/2017 dated 18.07.2017, the substantial question of law before the Hon'ble Rajasthan High Court reads as under:-
"3. Counsel for the department has framed following substantial question of law no. 1,2, & 3 which are common in both these appeal and the same reads as under:-
"1. Whether the Tribunal was illegally justified in deleting the addition of Rs. 87,12,49,257/- (in appeal no. 39/2017) and Rs. 1,10,87,46,190/- (in appeal no. 40/2017) being adjustment on account of compensation to be received by the assessee from its Associated Enterprise (AE) for creating marketing intangibles and promoting the brand name of its AE, specially when the assessee 6 ITA No. 388 & 634/JP/2018 M/s Gillette India Ltd. Vs. ACIT company was promoting marketing intangibles of its AE though the brand belongs to the AE and not to the assessee and the products manufactured by the assessee are also manufactured by the AE and its other subsidiaries in different countries with the same name?
2. Whether the Tribunal was legally justified in holding that Advertisement marketing and Promotion (AMP) expenditure was not an international transaction even though the assessee was performing Development, Enhancement, maintenance, protection and Exploitation (DEMPE) functions for its AE and doing activity of brand building?"
And the relevant findings of the Hon'ble Rajasthan High Court wherein the matter has been decided in favour of the assessee reads as under:-
"6.1 Regarding issue no. 1,2 &3, tribunal while considering the expenses of the associated enterprise (AE) for creating marketing intangibles and promoting the brand name of its AE, it is for the marketing people to look new products which has competition in the national level or grass route level and International level. It is always for the Company to decide on what ratio the expenses are to be incurred at grass route and on that ratio for promoting their product.
6.2 In that view of the matter, unless the amount which was found to be not genuine merely because excess amount has been spent on advertisement, will not be a ground for disallowing the expenses.
6.3 In that view of the matter, on issue no. 1 & 2, we are of the view that the tribunal has not committed any error. The issue are answered in favour of the assessee."
6. We have heard the rival contentions and perused the material available on record. Undisputedly, there are no changes in the facts and circumstances of the case as compared to the earlier years wherein the 7 ITA No. 388 & 634/JP/2018 M/s Gillette India Ltd. Vs. ACIT matter has been consistently decided in favour of the assessee by the Coordinate Benches and which has since been upheld by the Hon'ble Rajasthan High Court. Therefore, respectfully following the decision of Hon'ble Rajasthan High Court in assessee's own case, we donot see any infirmity in the order of the ld CIT(A) which is hereby confirmed. In the result, ground no. 1 of the Revenue's appeal is hereby dismissed.
7. In ground no. 2, the Revenue has challenged the deleting the disallowance of Rs. 4,20,57,362/- made by the AO on account of 'inventories written off'.
8. At the outset, the ld AR submitted that the matter has been decided by the Hon'ble Rajasthan High Court in assessee's own case for AY 2006-07 in DBITA No. 134/2014 where at Para 4, the issue was decided in favour of the assessee. It was further submitted that following this order, appeal for AY 2002-03 in DBITA No.65/2015, AY 2007-08 in DBITA No.33/2016 & AY 2008-09 in DBITA No.125/2016 filed by the revenue were also dismissed. For AY 2003-04 in DBITA No.291/2010, appeal of the assessee on the issue of write off of raw material of Duracell batteries is also decided in favour of the assessee. Thus, it was submitted that this issue is now settled in favour of the assessee by Hon'ble Rajasthan High Court.
9. Per contra, the ld DR relied on the order of the Assessing officer.
8 ITA No. 388 & 634/JP/2018M/s Gillette India Ltd. Vs. ACIT
10. In DB Appeal No. 134/2014 for AY 2006-07 dated 23.05.2017, the substantial question of law before the Hon'ble Rajasthan High Court reads as under:-
"(ii) Whether the Tribunal was legally justified in deleting the addition of Rs. 8,28,35,757/- made on account of inventories written off specifically when neither any details were furnished by the company and nor there was any supporting evidence to justify and establish that the inventories were actually destroyed?"
And the relevant findings of the Hon'ble Rajasthan High Court wherein the matter has been decided in favour of the assessee reads as under:-
"4 In so far as the issue No. (ii) is concerned, the Tribunal while considering the case in para 4.1 has observed as under:-
"4.1 After considering the rival submission, we noted that the details of inventory written off as well as procedure or written off is explained before the AO and the same is also placed before us at PB Page 421-664. We also find that similar issue is decided by this Bench in A.Y. 03-04 in ITA No. 188/JP/07 dated 09.08.2010 in assessee's favour and followed in A.Y. 0405 in ITA No. 180/JP/09 dated 27.05.2011 and in A.Y. 05-06 in ITA No. 1234/JP/2010 dated
11.02.2011. The relevant portion of the decision of Tribunal in Para 16 in A.Y. 03-04 is reproduced as under:-
"As regard to the disallowance of Rs 8,37,10,704/- in respect of damaged goods retail and Rs 3,64,71,703/- in respect of provision for obsolesce made by the AO for want of item wise details and the procedure thereof, the Ld. CIT(A) after considering the item wise 9 ITA No. 388 & 634/JP/2018 M/s Gillette India Ltd. Vs. ACIT details and considering the procedure adopted for disposal and destruction of such stock, copy of which is placed in the paper book has rightly deleted the disallowance of Rs 8,37,10,704/- but at the same time he did not allowed the claim of Rs.3,64,71,703/-on the ground that it is only a provision and not actually destroyed. We find that in respect of both these amounts item wise details is filed. The procedure adopted and the recommendation of appropriate authorities is placed on record. The disallowance of Rs 3,64,71,703/- confirmed by the Id. CIT(A) only for the reason that these items are not actually destroyed and is only a provision can't be upheld for the reason that item wise details of the same is filed, these are the identified items and have been subsequently destroyed as per the regular procedure followed. The write off for obsolesce of such identified items is allow able deduction as per the case laws relied by the Ld. AR. In fact no provisions is created in books of accounts but only the nomenclature of provisions for obsolesce is used. In the balance sheet also no such provision is appearing either in the liabilities side or as reduction from asset side not the ld. D/R could point out any such provision in the balance sheet. Therefore the disallowance of Rs. 3,64,71,703/- confirmed by the Ld. CIT(A) is deleted."
Following the orders of the Tribunals in case of the assessee, the claim of the inventory written off of Rs. 8,28,35,757/- is allowed and hence the addition made by the AO is deleted. This ground is therefore allowed."
4.1 The observations made by the Tribunal in the earlier year where appeal was preferred but this question was not admitted and today an 10 ITA No. 388 & 634/JP/2018 M/s Gillette India Ltd. Vs. ACIT application was also moved for amending or adding question of law which has been rejected by us.
4.2 In that view of the matter, the view taken by the Tribunal is required to be accepted in favour of the assessee."
11. In the instant case, we find that the Assessing officer, following the reasoning adopted in the earlier years, has disallowed the claim of the inventory written off amounting to Rs 4,20,57,362. It is noted that the Coordinate Benches in the past have consistently allowed the claim of the inventory written off in favour of the assessee. In this regard, we refer to the latest decision of the Coordinate Bench in IT(TP)A No.01& 02/JP/2016 dated 04.07.2017 for the assessment year 2011-12 wherein the relevant findings reads as under:
"6.4 In the year under consideration, the DRP has deleted the addition in principle and at the same time, the AO was directed to examine the facts and allow so much of the expenditure under this head which the assessee is able to substantiate. The assessee thereafter submitted a letter dated 21.12.2015 whereby it furnished the material code and quantity wise details of inventory written off. The AO has given a finding that the assessee has submitted lists of inventory destroyed and certain destruction certificates of the inventory. However, the AO went ahead and disallowed the claim of inventory written off. Firstly, the AO held that the department has appealed against the orders of the Tribunal pertaining to earlier years before the Hon'ble Rajasthan High Court and hence, the fact that the relief be granted merely on ground of earlier years is not tenable. Further, coming to the specifics facts for 11 ITA No. 388 & 634/JP/2018 M/s Gillette India Ltd. Vs. ACIT the year under consideration, the reasons given by the AO are that these destruction certificates are not given by any statutory department/authority and have been signed by the assessee itself and its own auditor. Further, the AO held that the assessee has failed to substantiate as to how the amount of inventory written off is not amounting to double benefit for income tax purposes. In our view, the directions of the DRP are clear to the effect that the allowance for inventory written off is to be allowed to the assessee in principle and the AO is to verify and allow to the extent the assessee is able to substantiate. Therefore, the AO is required to follow the said directions of the DRP and carry out the necessary examination within the scope of the said directions. The assessee claims that it has substantiated its claim by furnishing the necessary details in terms of material code, quantity wise details and sample destruction certificates. The AO acknowledges the same and refuses to accept for the simple reason that these destruction certificates are not given by any statutory department/authority and have been signed by the assessee itself and its own auditor. The assessee deals in personal care products and there is nothing on record to suggest that the assessee is engaged in any hazardous or any other sensitive activities where the destruction of its products would require approval of and verification of any statutory or regulatory authority. Further, the matter relating to double deduction has already been dealt with by the Coordinate Bench in AY 2003-04 in favour of the assessee. Similar issue relating to inventory written off is involved in earlier years where the matter has been decided in favour of the assessee by the Coordinate Benches and there is no change in the method of accounting relating to inventory write off during the year as 12 ITA No. 388 & 634/JP/2018 M/s Gillette India Ltd. Vs. ACIT compared to earlier years. In light of above, we do not see any justification in disallowing the write off of inventory amounting to Rs 5,79,30,029. In the result, ground of the assessee is allowed."
12. As in AY 2011-12, in the instant year, the AO applying the same reasoning of double benefit by way of inventory write off and destruction certificates not issued by any statutory authority has denied the claim of the assessee. Following the detailed finding given in AY 2011-12 by the Coordinate Bench, the said reasoning of the AO cannot be accepted. Further, the matter has since been decided in favour of the assessee by the Hon'ble Rajasthan High Court for the earlier years where the similar claim of inventory write off was claimed by the assessee. In light of the same, we donot see any infirmity in the order of the ld CIT(A) and the same is hereby confirmed. In the result, the ground no. 2 of the Revenue's appeal is dismissed.
13. Now, we take up the assessee company's appeal. In ground no. 1, the assessee has challenged the disallowance of Rs. 44,02,900/-, being 10% of total traveling & conveyance expenses incurred by the assessee company.
14. Briefly, the facts of the case are that during the year under consideration, the assessee company has claimed travelling & conveyance expenses of Rs. 4,40,29,008/-. During the course of assessment proceedings, the details were called for by the AO and the assessee claimed to have submitted the required information. The AO however held that neither the bills & vouchers were produced nor any 13 ITA No. 388 & 634/JP/2018 M/s Gillette India Ltd. Vs. ACIT submission to support the non-production of the bills & vouchers was given. Further, the AO held that the assessee has furnished marginal details of bills/vouchers/documentation in support of its claim but full & comprehensive details with regard to same have not been submitted in absence of which it is difficult to establish the correctness and veracity of the claim. Since, the assessee has failed to submit supporting evidence for entire expenses, it was not possible to make specific disallowance. Accordingly, the AO disallowed 10% of total expenditure of Rs. 4,40,29,008/-, i.e. Rs.44,02,900/-.
15. On appeal, the ld. CIT(A) confirmed the disallowance by holding that assessee has failed to provide supporting documents to prove that such expenditure are incurred wholly and exclusively for the purpose of business or profession. The AO has noted in the assessment order itself that neither bills and vouchers were produced nor any submission to support the non-production of the bills and vouchers were given. The assessee company has failed to discharge the onus to get the expenses verified by providing proper details, copy of ledger and bills/ vouchers etc. to revenue. Hence, the entire expenses remained unverified.
16. During the course of hearing, the ld AR submitted that the assessee vide letter dt.18.11.2015 produced head wise and month wise details of the expenses along with sample vouchers. Thereafter, AO vide letter dt.09.02.2016 required the assessee to furnish complete vouchers of expenses of any two months of the previous year relevant to AY under consideration. In response to same, assessee vide letter dt.10.02.2016 produced bills and vouchers for more than two months.
14 ITA No. 388 & 634/JP/2018M/s Gillette India Ltd. Vs. ACIT It was further pointed out that similar disallowance made by AO in AY 2006-07 to 2010-11 has been deleted by Hon'ble ITAT/DRP.
17. It was further submitted that travelling and conveyance expenses are regular expenditure incurred on day to day working of the assessee. The turnover and the amount of expenditure under this head in various years is as under:-
AY Travelling & Turnover Expenditure as
Conveyance (Rs. in % of Turnover
Expenses (Rs. in crores)
crores)
2003-04 7.95 432.80 1.84
2004-05 7.37 424.33 1.74
2006-07 9.94 412.14 2.41
2007-08 5.69 525.45 1.08
2008-09 4.16 598.49 0.70
2009-10 3.44 650.28 0.54
2010-11 2.51 793.94 0.31
2011-12 3.71 1029.65 0.36
2012-13 4.40 1202.33 0.37
From the above table, it is evident that the amount of expenditure on travelling and conveyance expenses has decreased since AY 2006-07 and continuously on downward trend. Therefore, considering the fact that expenditure in terms of volume as well as percentage of the turnover has declined, no disallowance is warranted.
18. The ld. AR further submitted that the books of accounts of the assessee are duly audited. The system of internal control is such that no expenses are booked without appropriate approval and evidence of expenses. There is no adverse remark of the auditor on these expenses.
15 ITA No. 388 & 634/JP/2018M/s Gillette India Ltd. Vs. ACIT The AO has not found any expenses which are not for the purpose of business or which are without proper authority. In course of assessment proceedings, assessee vide letter dt.18.11.2015 produced head wise and month wise details of expenses along with sample vouchers. Further, vide letter dt.10.02.2016, it produced bills and vouchers for more than two months as required by AO but AO incorrectly held that bills & vouchers were not produced for verification. The AO on the one side has accepted that assessee has furnished marginal details of bills/vouchers/documentation but on the other side has held that it has not produced bills & vouchers which is contradictory in itself. The Ld. CIT(A) has also incorrectly held that assessee has failed to discharge the onus to get the expenses verified by providing proper details, copy of ledger and bills/ vouchers ignoring the details and sample invoices produced by assessee. Hence, adhoc disallowance made by AO and confirmed by Ld. CIT(A) is bad in law.
19. The ld. AR further submitted that in past, no disallowance out of these expenses were made. For the first time, disallowance was made in AY 2006-07 which was deleted by the ITAT in ITA No.1378/JP/2010 dt.28.02.2014. Again, DRP in AY 2007-08, AY 2009-10 & AY 2010-11 deleted such adhoc disallowance made by the AO. The issue has also been decided in assessee's favour by ITAT in ITA No.37 & 192/JP/14 dt.18.12.2015 for AY 2008-09 and IT(TP)A No.1/JP/16 dt. 04.07.2017 for AY 2011-12. The system of maintenance of the books of accounts and bills and vouchers remains the same as in earlier years. Therefore following the principles of consistency and in the absence of any specific material, the adhoc disallowance made is uncalled for.
16 ITA No. 388 & 634/JP/2018M/s Gillette India Ltd. Vs. ACIT
20. The ld. AR further submitted that against the order of ITAT for AY 2006-07 & 2008-09 deleting the disallowance, the department has filed an appeal before the Hon'ble Rajasthan High Court but the appeal of the revenue is dismissed by the Hon'ble High Court vide its order dt. 23.05.2017 in DBITA No.134/2014 for AY 2006-07 and in DBITA No.125/2016 for AY 2008-09.
21. The ld. DR has vehemently argued the matter and taken us through the findings of the lower authorities which we have noted above.
22. We have heard the rival contentions and perused the material available on record. Though the incurrence of travelling expenditure for the purposes of business is a factual finding and past year findings need not necessarily be applicable. However in the instant case, inspite of assessee company submitting bills and vouchers for two months, the AO choose to ignore the same. He could have questioned the sample size so submitted by the assessee or could have asked for more specific details. The AO however apply adhoc disallowance of 10% of travelling expenses as was done in earlier years. Therefore, in absence of a specific finding by the AO, consistent with the position taken by the Coordinate Benches in earlier years, the adhoc disallowance is hereby directed to be deleted as there is no basis for adhoc disallowance in the eyes of law, a position which has been affirmed by the Hon'ble Rajasthan High Court in assessee's own case where in DB Appeal No. 134/2014 dated 23.05.2017, it has held as under:
17 ITA No. 388 & 634/JP/2018M/s Gillette India Ltd. Vs. ACIT "5. In so far as issue No. (iii) with regard to travelling expenses is concerned, counsel for the appellant has contended that the expenses which were made out of which the substantial amount was allowed, however, Rs. 50,00,000/- was disallowed by the Assessing Officer was required to be upheld in view of the fact that the same was not allowable in view of the circular of CBDT. However, the Tribunal in para 5 & 5.1 has specifically observed as under:-
"5. The third ground of appeal is against disallowance of Rs. 50 lacs out of travelling and conveyance expenses. We noted that AO made lumpsum disallowance out of expenses of Rs.9,94,33,712/- on the ground that assessee has not filed supporting evidence to justify the claim which is approved by the DRP. The Ld. AR contended that the AO has wrongly stated that assessee has not filed supporting evidence to justify the claim and failed to explain the nature and purpose of expenses and therefore it lacks verification. The system of internal control is such that no expenses are booked without appropriate approval and evidence of expenses. To produce the voluminous files of vouchers serves no purpose. There is no adverse comment from the auditors on the expenses incurred under this head. The AO has not required assessee to produce vouchers for any specific expenditure. In the past, no disallowance out of these expenses were made by AO. In A.Y. 07-08, the DRP has also deleted such adhoc disallowance. It is further contended that on traveling and conveyance expenses, fringe benefit tax has been paid by the assessee and accepted by the department. The CBDT in Circular No. 8/2005 dated 29.8.2005 in reply to question no. 35 & 36 has clarified that if any 18 ITA No. 388 & 634/JP/2018 M/s Gillette India Ltd. Vs. ACIT expenditure is not allowed u/s 37, then the same cannot be considered for fringe benefit tax. Conversely if any expenditure is considered for fringe benefit tax, it cannot be disallowed u/s 37. For this proposition, reliance is placed on the decision of Jaipur ITAT in case of ACIT Vs. Natural Slate and Stand Stone Pvt. Ltd. in ITA No. 1090/JP/10 dt. 04.02.2011. On the other hand, the Ld. DR supported the order of the AO.
5.1 After considering the rival submission, we found that AO at Page 2 of its order has stated that assessee has produced entire module, bill and vouchers of expenses for verification as desired. However, in making disallowance out of the above expenses after submission of month wise details of the expenses by the assessee, AO has not required assessee to furnish the details of any specific expenses. We also note that on these expenses, FBT is paid and that such adhoc disallowance is not made in the past and in A.Y. 07-08, the DRP has directed the AO not to make such adhock disallowance. In these facts and circumstances, we direct the AO to delete the disallowance of Rs. 50 lacs made by him."
5.1 Counsel for the appellant has contended that the expenses which were paid as Fright Benefit Tax (FBT) and the dispute was referred to the Dispute Resolution Penal (DRP) where the disputed for the assessment year 2007-08.
5.2 Therefore, we accept the observations made by the Tribunal in para 5.1 and in that view of the matter the issue is answered in favour of the assessee."
19 ITA No. 388 & 634/JP/2018M/s Gillette India Ltd. Vs. ACIT
23. In the result, ground of appeal no. 1 of the assessee's appeal is hereby allowed.
24. In ground no. 2, the assessee company has challenged confirming the disallowance of Rs. 1,95,03,707/- out of "other expenses".
25. Briefly, the facts of the case are that during the year under consideration, assessee company claimed other expenses of Rs.19,50,37,075/-. The AO held that assessee company attended on 11.02.2016 but neither the bills & vouchers were produced nor any submission to support the non-production of the bills & vouchers was given. Further, assessee has furnished marginal details of bills/ vouchers/ documentation in support of its claim but full & comprehensive details with regard to same have not been submitted in absence of which it is difficult to establish the correctness and veracity of the claim. Since, the assessee has failed to submit supporting evidence for entire expenses, it is not possible to make specific disallowance. Accordingly, he disallowed 10% of total expenditure of Rs.19,50,37,075 /-, i.e. Rs.1,95,03,707/-.
26. On appeal, the Ld. CIT(A) confirmed the disallowance by holding that assessee has failed to provide supporting documents to prove that such expenditure are incurred wholly and exclusively for the purpose of business or profession. The AO has noted in the assessment order that since assessee has furnished marginal details of bills/ vouchers/ documentation in support of its claim but full & comprehensive details 20 ITA No. 388 & 634/JP/2018 M/s Gillette India Ltd. Vs. ACIT with regard to same have not been submitted in absence of which it is difficult to establish the correctness and veracity of the claim. Thus, the disallowance of 10% of the expenses is reasonable to cover the discrepancies mentioned by the AO.
27. During the course of hearing, the ld. AR submitted that the break-up of other expenses as submitted to the AO under various heads is as follow:-
Particulars Amount (in
Rs.)
Office Expenses 8,53,27,938
Recruitment Expenses 19,02,998
Training Expenses 42,07,231
Relocation Expenses 1,25,58,014
Others 1,12,98,795
Professional Services 41,90,009
Others 7,55,52,090
Contractual Services Others
Total 19,50,37,075
28. The ld. AR further submitted that the books of account of the assessee are duly audited. The system of internal control is such that no expenses are booked without appropriate approval and evidence of expenses. There is no adverse remark of the auditor on the expenses incurred under this head. The AO has not found any expenses which are not for the purpose of business or which are without proper authority. In course of assessment proceedings, assessee vide letter dt. 09.10.2015 produced nature wise details of the expenses along with sample invoices. Thereafter, vide letter dt.10.02.2016, the assessee 21 ITA No. 388 & 634/JP/2018 M/s Gillette India Ltd. Vs. ACIT produced bills and vouchers in CD form. The AO on the one side has accepted that assessee has furnished marginal details of bills/vouchers/documentation but on the other side has held that it has not produced bills & vouchers which is contradictory in itself. The Ld. CIT(A) has incorrectly held that assessee has failed to provide supporting documents to prove that such expenditure are incurred wholly and exclusively for the purpose of business or profession ignoring the details and sample invoices produced by assessee. Hence, adhoc disallowance made by AO and confirmed by Ld. CIT(A) is bad in law.
29. The ld. AR further submitted that in AY 2003-04, similar disallowance made by the AO was deleted by the Hon'ble ITAT in ITA No. 188 & 265/JP/07 vide order dt.09.08.2010. Again disallowance was made in AY 2006-07 which was deleted by Hon'ble ITAT in ITA No.1378/JP/2010 dt.28.02.2014. Again, Hon'ble DRP in AY 2007-08, AY 2009-10 & AY 2010-11 deleted such disallowance. The issue has also been decided in assessee's favour by Hon'ble ITAT in ITA No.37 & 192/JP/14 dt.18.12.2015 for AY 2008-09 and IT(TP)A No.1/JP/16 dt.04.07.2017 for AY 2011-12. The system of the maintenance of the books of accounts and bills and vouchers remains the same as in earlier years. Therefore following the principles of consistency and in the absence of any specific material, the adhoc disallowance made is uncalled for. The issue has now been decided by Hon'ble Rajasthan High Court in favour of assessee vide its order dt.23.05.2017 in DBITA No.134/2014 for AY 2006-07.
22 ITA No. 388 & 634/JP/2018M/s Gillette India Ltd. Vs. ACIT
30. The ld. DR is heard who has relied on the lower authorities.
31. We have heard the rival contentions and perused the material available on record. We find that similar to adhoc disallowance in respect of travelling expenses, the adhoc disallowance has been made in respect of other expenses. Therefore, our findings and directions contained in respect of ground no. 1 of the assessee's appeal which we have directed the deletion of adhoc travelling expenses shall apply with equally in the present case. Accordingly, we directed the deletion of adhoc disallowance of expenses under the head "other expenses" in absence of a specific finding that the expenses are either bogus or not incurred for the purposes of the assessee's business. In the result, the ground of appeal no. 2 is hereby allowed.
In the result, the appeal of the Revenue is dismissed and the appeal of the assessee is allowed in light of above directions.
Order pronounced in the open court on 26/11/2018.
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(Vijay Pal Rao) (Vikram Singh Yadav)
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fnukad@Dated:- 26/11/2018.
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vkns'k dh izfrfyfi vxzfs 'kr@Copy of the order forwarded to:
1. vihykFkhZ@The Appellant- M/s Gillette India Ltd., Bhiwadi, Alwar.
2. izR;FkhZ@ The Respondent- ACIT, Circle-2, Alwar.23 ITA No. 388 & 634/JP/2018
M/s Gillette India Ltd. Vs. ACIT
3. vk;dj vk;qDr@ CIT
4. vk;dj vk;qDr@ CIT(A)
5. foHkkxh; izfrfuf/k] vk;dj vihyh; vf/kdj.k] t;iqj@DR, ITAT, Jaipur.
6. xkMZ QkbZy@ Guard File {ITA No. ITA No. 388 & 634/JP/2018} vkns'kkuqlkj@ By order, lgk;d iathdkj@Asst. Registrar