DCIT CIRCLE 1(1), PUNE, SWARGATE PUNE vs. COCA COLA INDIA PVT LTD, PUNE

Facts of the case, in brief, are that the assessee is a company engaged in the business of manufacturing and sale of concentrate / beverage bases (known as Non-alcoholic beverage bases – NABB) and Georgia Coffee / Tea premix and dairy whiteners during the relevant previous year. It filed its return of income on 30.11.2018 declaring total income of Rs.848,17,99,820/-. The return was processed u/s 143(1) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) accepting the returned income. Subsequently the case was selected for scrutiny and accordingly notice u/s 143(2) was issued and served on the assessee.

During the course of assessment proceedings the Assessing Officer noted that the assessee has debited an amount of Rs.563,86,10,000/- towards advertising and sales promotion expenses and an amount of Rs.32,90,64,000/- on account of marketing support expenses. He asked the assessee to furnish all such details especially in respect of the expenses so as to establish that the same were genuine expenses pertaining to the year under consideration and had been laid out wholly and exclusively for its business only. The assessee in response to the same filed the reply which has been reproduced by the Assessing Officer and which reads as under:

However, the Assessing Officer was not satisfied with the submissions made by the assessee on the ground that the assessee has not proved that the entire expenditure has been incurred wholly and exclusively for the purpose of assessee’s own business. Further, he also held that the decision of the Tribunal has not been accepted by the department and the Revenue has filed an appeal before the Hon’ble Bombay High Court which is pending. Therefore, to keep the issue alive, he made addition of Rs.563,86,10,000/- on account of advertisement and sales promotion expenses.

So far as market support expenses is concerned, the Assessing Officer held that the DRP has confirmed the addition made by the Assessing Officer for the impugned assessment year holding that the expenses incurred on account of marketing support charges amounting to Rs.32,90,64,000/- has not been incurred

The Assessing Officer noted that the assessee has incurred expenses on account of service charges and reimbursement of expenses paid to Coca-Cola India Inc. The total expenditure on service charges and reimbursement of service charge during the year is at Rs.11,79,28,955/- & Rs.82,88,463/- respectively totaling to Rs.12,62,17,418/-. The assessee has claimed expenses towards such service charges and reimbursement in earlier years also. On a detailed examination of the nature and purpose of such expenses, he found that the assessee has not been able to prove without doubt, that the services had been rendered by various persons of CCI Inc. to the assessee company and that the expenses were for the business of the assessee. He, therefore, asked the assessee to furnish the reasoning of allowability of these expenditure as business expenditure. Rejecting the various explanations given by the assessee and observing that the decision of the Tribunal has not been accepted by the Revenue and an appeal has been filed before the Hon’ble Bombay High Court, the Assessing Officer disallowed the claim of deduction in respect of service charges and reimbursements amounting to Rs.12,62,17,418/-.

The Assessing Officer further noted that the assessee during the year under consideration has claimed depreciation on coolers at Rs.71,23,35,620/-. He noted that as per the practice followed by the assessee, all these coolers are installed at the premises of retailers selling the final product i.e. bottled beverages

The Assessing Officer further noted that the assessee during the year under consideration has claimed deduction u/s 80G of the Act to the tune of Rs.6,77,72,729/-. However, the assessee failed to furnish the details along with

In appeal, the Ld. CIT(A) deleted all the additions. So far as the deletion of advertisement and sales promotion expenses of Rs.563,86,10,000/- is concerned, the Ld. CIT(A) deleted the same by observing as under:

So far as the disallowance of marketing support charges of Rs.32,90,64,000/- is concerned, the Ld. CIT(A) deleted the same by observing as under:

So far as the disallowance of service charges and reimbursement of expenses of Rs.12,62,17,418/- is concerned, the Ld. CIT(A) deleted the same by observing as under:

So far as the addition on account of disallowance of depreciation on coolers of Rs.71,23,35,620/- is concerned, the Ld. CIT(A) deleted the same by observing as under:

So far as the disallowance of deduction u/s 80G of Rs.6,77,72,729/- is concerned, the Ld. CIT(A) deleted the same by observing as under:

Aggrieved with such order of the Ld. CIT(A) the Revenue is in appeal before the Tribunal by raising the following grounds: (1) Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) is justified in allowing the Assessee's claim of Advertisement and Sales Promotion Expenses incurred by the Assessee of Rs.5,96,76,74,000/- and disallowed by the Assessing Officer, the expenditures being not wholly and exclusively for the purpose of business of the Assessee?

In grounds of appeal No.1 and 2 the Revenue has challenged the order of the Ld. CIT(A) in deleting the addition made by the Assessing Officer of

After hearing both the sides, we do not find any infirmity in the order of the Ld. CIT(A) on this issue. We find the Assessing Officer while making the disallowance has relied on the assessment orders for earlier years i.e. from assessment year 2006-07 to 2017-18. We find the issue has already been decided by the Tribunal in assessee’s own case for various assessment years. Merely because the Revenue has not accepted the order of the Tribunal and has challenged the same before the Hon’ble Bombay High Court which is pending and therefore, to keep the matter alive the additions have been made cannot be a ground to sustain such addition. Since the Ld. CIT(A) while deleting the additions has followed the decision of the Tribunal in assessee’s own case for the past so many years, therefore, respectfully following the decision of the Tribunal in assessee’s own case and in absence of any distinguishing features brought before us, we uphold the order of the Ld. CIT(A) on this issue. The grounds of appeal No.1 and 2 raised by the Revenue are accordingly dismissed.

Grounds of appeal No.3, 4 and 5 relate to the order of the Ld. CIT(A) in deleting the addition of Rs.11,79,28,955/- on account of service charges incurred by the assessee.

After hearing both the sides we find the Assessing Officer while making the addition has referred to the past assessment orders and the orders of the DRP from assessment year 1998-99 to 2016-17. We find the Ld. CIT(A) while deleting the addition relied on the decision of the Tribunal in assessee’s own case for the preceding assessment years. We find the Tribunal in assessee’s own case vide ITA Nos.1258/PUN/2003, 182/PUN/2004 and ITA No.237/PUN/2004 for assessment years 1998-99 and 1999-2000 at paras 12 and 13 of the order has decided the issue in favour of the assessee by observing as under: “12. The only issue raised in the cross appeals for the assessment year 1999-2000 is about the extent of deductibility of service charges paid by the assessee to CCI Inc. For this year also, the assessee claimed deduction of service charges amounting to Rs.45,27,29,472/- after adjustment of certain debit notes with the gross amount at Rs.54,22,93,800/-. The AO, following the parity of reasoning given for the earlier years, disallowed the full amount of service charges. The ld. CIT(A), however, restricted the disallowance to 30%. Both the assessee as well as the Revenue have come up in cross appeals on their respective stands. 13. We have heard both the sides and gone through the relevant material on record. At the very outset, the rival parties fairly conceded that the facts and circumstances of the appeals for the instant year are mutatis mutandis similar to those of the preceding year, which was argued by them at length. In fact, the parties simply adopted their arguments made for the assessment year 1998-99. The only distinguishing feature brought to our notice was that the assessee did not carry out any bottling activity in the instant year. Having regard to the fact that there is no distinction in the facts and circumstances of the case qua the Service charges paid by the assessee to CCI Inc., following the view taken by the Tribunal for the preceding years, we direct to allow the deduction for service charges in full. At the cost of repetition, it is once again made clear that the deduction is being allowed so as to maintain consistency in the view of the Tribunal as the matter is sub judice before the Hon’ble High Court notwithstanding the fact that the Department has a good arguable case.”

We find, following the above order, the Tribunal vide bunch of appeals filed by the assessee as well as the Revenue in assessee’s own case for assessment years 2001-02 to 2004-05 vide consolidated order dated 29.04.2022 at para 13 of the order has deleted the entire service charges by observing as under:

We find this view has been followed by the Tribunal in assessee’s own case in a batch of appeals filed by the assessee as well the Revenue for assessment years 2005-06 to 2016-17 vide consolidated order dated 12.01.2023 and decided the issue in favour of the assessee. Since the Ld. CIT(A) while deleting the addition has relied on the decision of the Tribunal in assessee’s own case for the preceding assessment years, therefore, in absence of any contrary material brought to our notice by the Revenue on this issue, we uphold the order of the Ld. CIT(A) on this issue. The grounds of appeal No.3, 4 and 5 raised by the Revenue are accordingly dismissed.

Ground of appeal No.6 relates to the order of the Ld. CIT(A) deleting the addition on account of depreciation on coolers.

After hearing both the sides we find the Assessing Officer while making the disallowance followed his order for earlier assessment years stating that the coolers are being provided either to the bottlers or to the vendors who are engaged in the business of sale of beverages i.e. soft drinks. The assessee however, is a manufacturer of soft drink concentrate. According to the Assessing Officer it

Ground of appeal No.7 relates to the order of the Ld. CIT(A) in deleting the disallowance made by the Assessing Officer on account of claim of deduction u/s 80G of the Act.

After hearing both the sides, we find the Assessing Officer rejected the claim of deduction u/s 80G on account of failure of the assessee to furnish the details along with documentary evidence in support of the claim including receipts, eligibility of the organizations for 80G claim, payment made via bank account etc. We find the Ld. CIT(A), on the basis of certain additional evidences and on a sample basis, deleted the addition, the reasons of which have already been reproduced in the preceding paragraphs. In our opinion, for claiming the deduction u/s 80G, it was incumbent upon the assessee to submit all the details such as copy of receipts, eligibility of the organizations, issuing receipts for claim of 80G deduction, payments made through banking channel etc. Although the Assessing Officer has not asked for the details relating to the eligibility of the organization to which donations were made and made the addition on that account, however, in our opinion the powers of the Ld. CIT(A) are co-terminus with that of the Assessing Officer. He should have called for those details. He has merely checked some receipts on sample basis and allowed the entire claim of deduction u/s 80G amounting to Rs.6,77,72,729/-. Under these circumstances, we deem it proper to restore the issue to the file of the Assessing Officer with a direction to verify the details and upon satisfaction, allow the claim of deduction of Rs.6,77,72,729/- claimed by the assessee u/s 80G. Ground of appeal No.7 raised by the Revenue is accordingly allowed for statistical purposes.

In the result, the appeal filed by the Revenue is partly allowed for statistical purposes.