PRINCIPAL COMMISSIONER OF I T ALWAR vs. M/S GILLETTE INDIA LTD

HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH AT JAIPUR D.B. Income Tax Appeal No. 33 / 2016 Principal Commissioner Of Income Tax, Alwar. ----Appellant Versus M/S Gillette India Ltd., SPA-65A, Industrial Area, Bhiwadi. ----Respondent

_____________________________________________________ For Appellant(s) : Mrs. Parinitoo Jain with Mr. Mukesh Meena For Respondent(s) : Mr. Sanjay Jhanwar with Mr. Prakul Khurana & Ms. Archana _____________________________________________________ HON'BLE MR. JUSTICE K.S. JHAVERI HON'BLE DR. JUSTICE VIRENDRA KUMAR MATHUR Judgment Per Hon’ble Jhaveri, J. 23/05/2017 1. By way of this appeal, the appellant has challenged the judgment and order of the Tribunal whereby the Tribunal has partly allowed the appeal preferred by the assessee and dismissed the appeal preferred by the department. 2. This Court while admitting the appeal along with appeal No.125/2016 and 134/2014 on 04.10.2016 has framed the following substantial questions of law:

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“(i) Whether the Tribunal was legally 91,83,353/- 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? (ii) Whether the Tribunal was legally 23,44,747/- and allowing deduction u/s 37, on account of advertisement expenses specifically when the payment was made to a foreign company which was liable to deduction of tax at source in view of section 195, the failure of which attracted section 40(a)(ia)? (iii) Whether the Tribunal was legally 37,14,84,213/- and allowing deduction u/s 37 on account of advertisement expenses and trade incentive expenses specifically when the payment was made which was liable to deduction of tax at source u/s. 194C, the failure of which attracted section 40(a)(ia) as the details of payment and TDS were not furnished?” 3. In so far as issue No.(i) is concerned, the Tribunal in its order has observed as under: “8.8. The A O has raised a new issue about the claim of double deduction. Such issue was never raised in earlier years nor any query was raised in assessment proceedings. In fact the A O has made these observations in the assessment order on the basis of arguments of ld. D/R in course of appellate proceedings for assessment year 2003-04 before the ITAT. Hon’ble ITAT in assessment year 2003-04 in ITA No. 188 & 265/JP/2007 dated 9.8.2010 after considering the said arguments of ld. D/R held that there is no case of double deduction and deleted the disallowance made in respect of the inventories written off. Copy of ITAT order is at. 1.Reliance is placed on following cases: J. C. I. T. Vs. ITC Ltd. 299 ITR (AT) 341(SB)

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(Cal.): CIT Vs. Alfa Leval (India) Ltd. 295 ITR 451 (SC): 8.9. In the present case, the assessee has actually written off the inventory of Rs. 91,83,353/- by identifying the damaged / obsolete items. This is also the regular practice of the assessee. In any case since stock are valued at cost or market price whichever is lower and these inventory has no value, the same is to be allowed to the assessee in view of the accounting principles and the ratio laid down by Hon’ble Supreme Court. CIT Vs. Hotline Teletube and Components Ltd. 175 Taxman 216 (Del.): Provision for diminution in value of stock is allowable as business loss. 8.10. In view of above, it is contended that asessee’s claim of inventory written off is fully allowable.” 4. Therefore, the observations made by the Tribunal in the earlier year where appeal was preferred but this question was not admitted and the same issue is squarely covered by the decision on issue No.(ii) of appeal No.134/2014 as above. 5. Regarding issue No.(ii) & (iii), the same are covered by the decision on issue No.(iv) & (v) of appeal No.134/2014, wherein the following reasoning was adopted. “6. Regarding issue No.(iv) & (v) counsel has relied upon the decision of the Supreme Court in the case of Commissioner of Income Tax. vs. Alfa Laval (India) Ltd. [2007] 295 ITR 0451 and the decision of Bombay High Court in the case of Commissioner of Income Tax vs. Retilal Becharlal & Sons and Commissioner of Income Tax vs. General Atlantic (P) Ltd. [2016] 384 ITR 0271 (Bom). 6.1 Counsel for the appellant has contended that the expenses made were not admissible under Section 37 of the Act, where the income was disproportionate to the turn-over.

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6.2 In that view of the matter, the Tribunal has seriously committed an error in allowing expenses. 6.3 However, counsel for the respondent has taken us to para 6.3 where the Tribunal summarizing the same observed as under: “6.3 After considering the rival submission, we find that Group M Media India Pvt. Ltd. is an Indian Co. as is evident from the company master details placed at Paper Book Page 17. From the same, it is noted that this company is incorporated on 29.11.2001 having registered office at Mumbai. Therefore, it is an Indian Co. as defined u/s 2(26) and is a company resident in India u/s 6(3). All payment made

this

company

towards advertisement charges is in Indian currency. Tax is deducted at source on such payment u/s 194C. Sec. 195 is applicable when payment is made to a non resident. Admittedly, payment to Group M Media India Pvt. Ltd. is a payment to resident and not a non resident. Therefore, section 195 is not attracted. The AO has not disputed the genuineness of the payment and therefore only because there is no agreement for the advertisement work with this company cannot be viewed adversely. Therefore,

the

disallowance

of Rs.36,70,04,056/- made by the AO is incorrect, against law and the same is deleted. So far as expenses on trade incentive is concerned, we find that similar incentives given as per various schemes in earlier years has been allowed. The AO at Page 2 of the order has admitted that bills and vouchers of expenses, as desired, were produced for verification which was test checked. The observation of AO that services has been received by the assessee against these payment and therefore he should have deducted tax at source on the value of the gift is ill founded in as much as the payment is not against the services but against the sale of goods to the distributors and therefore TDS provisions are not applicable. Therefore, the disallowance of Rs.16,17,24,303/- made by the AO on this account is deleted.” 6.4 In our considered view, the view taken

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by the Tribunal is required to be accepted on facts.” 6. In that view of the matter, the issues are answered in favour of the assessee and against the department. 7. The appeal stands dismissed. (VIRENDRA KUMAR MATHUR),J. (K.S. JHAVERI),J. Asheesh Kr. Yadav/192