PERNOD RICARD INDIA PVT. LTD.,NEW DELHI vs. DCIT, NEW DELHI

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: ‘I-1’, NEW DELHI BEFORE SHRI AMIT SHUKLA, JUDICIAL MEMBER AND SHRI O.P. KANT, ACCOUNTANT MEMBER ITA Nos.910 to 914/Del/2015 Assessment Years:2007-08 to 2011-12 M/s. Pernod Ricard India Pvt. Vs. DCIT, Ltd. (Formerly known as Central Circle-31, New Delhi Seagram India Pvt. Ltd.), 104, Ashoka Estate, Barakhamba Road, New Delhi PAN :AAACS4781P (Appellant) (Respondent) Appellant by Sh. Deepak Chopra, Adv. Sh. Yujit Pareek, Adv.; and Ms. Rashi Khanna, Adv. Respondent by Sh. Sanjay I. Bara, CIT(DR)

Date of hearing 01.07.2019 Date of pronouncement 10.07.2019 ORDER PER O.P. KANT, A.M.: The captioned five appeals have been filed by the assessee against the respective orders passed by the Assessing Officer under section 144C(13) of the Income-tax Act, 1961 (in short “the Act”), in conformity with the direction of the learned Dispute Resolution Panel (DRP). Being connected with the one assessee and having identical issues involved, these appeals have been heard together and disposed off by way of this consolidated order for convenience and to avoid repetition of same facts.

2 ITA Nos. 910 to 914/Del./2015 2. Now we take up the appeal having ITA No. 910/Del/2015 for assessment year 2007-08. 3. The appeal was heard and disposed off by the Tribunal on 15/03/2019, however, on miscellaneous application filed by the assessee that additional ground raised by the assessee during the course of the hearing was not adjudicated, the appeal was recalled on 14/06/2019 by way of allowing miscellaneous application No. 440/Del/2019 for the limited purpose of admission and adjudication of the additional ground. 4. The additional ground raised by the assessee and noted in the miscellaneous application is reproduced as under:

“11.3 That the Ld. DRP/AO has failed to appreciate that the reimbursement of trade scheme to promoters was in the nature of incentives and discounts to retailers and did not contain any element of commission and hence was not subject to TDS under Section 194H of the Act.” 5. The learned counsel of the assessee submitted that the issue of disallowance of amount of Rs.6,35,40,939/- paid to the “Sales Promoters” toward ‘trade schemes’, under section 40(a)(ia) of the Income-tax Act, 1961 (in short ‘the Act’) for non-deduction of tax at source was raised as ground No. 11 to 11.2 in the Appeal. It was contended by the assessee that amount was paid by the sales Promoters to the retailers for sales promotion in their area and the assessee has reimbursed that amount to the sales Promoters and the amount being in the nature of the reimbursement, no tax was required to be deducted under section 194H of the Act as alleged by the Assessing officer. The Tribunal in order dated 15/03/2019 restored the issue to the file of the Assessing Officer/TPO for verification of the fact whether the impugned

3 ITA Nos. 910 to 914/Del./2015 disbursement were reimbursement and directed that if found so, same be allowed as deduction. The learned counsel before us submitted that all factual information in respect of the ‘trade scheme’ to ‘Sales Promoters’ are already available on record and in additional ground, the assessee is seeking remedy by way of a legal ground that the reimbursement was in the nature of ‘incentive’ and ‘discounts’ to the retailers and not in the nature of commission liable for deduction of tax at source under section 194H of the Act as alleged by the Assessing Officer. The learned counsel submitted that no investigation of fresh facts is required and issue being of legal nature, may be admitted in way of the decision of the Hon’ble Supreme Court in the case of NTPC Vs. CIT, 229 ITR 383. 5.1 The Ld. DR, on the other hand, submitted that issue of disallowance has already been the restored to the file of the Assessing Officer and this alternative claim may also be filed before the Assessing Officer and there is no requirement to raise this issue by way of additional ground before the Tribunal. 5.2 We have heard the rival submission and perused the relevant metal on record. As all the facts in respect of the issue raised by way of additional ground are available on record and no investigation of fresh facts is required, we admit the additional ground raised by the assessee in view of the decision of the Hon’ble Supreme Court in the case of NTPC (supra). 5.3 The brief facts in respect of the assessee mentioned in the Tribunal order dated 15/03/2019 are reproduced as under:

“5. The appellant company is engaged in the business of manufacture and sale of alcoholic beverages in India. Furthermore,

4 ITA Nos. 910 to 914/Del./2015 the appellant also has a distribution agreement with PR Group and is engaged in the distribution activity of Bottled in Origin [BOI] products imported from PR Group into India. Brands that are imported by the appellant are Chivasa Regal, Marteli, Royal Salute, Absolult, Jacobs Creek etc., which the brands bottled in India Primarily included Blenders Price, Imperial Blue, Royal Stag, etc. Primarily the appellant is organized in two business segments in India viz. Manufacturing [Class I] and Distribution [Class II]. 5.4 The learned counsel of the assessee filed paperbook in 2 volumes containing pages 1 to 640 and submitted that certain products of the assessee company were sold to retailers through the agency appointed by the State governments and for enhancing sales of those products the assessee had appointed ‘Sales Promoter’. The assessee gives commission to those ‘Sales Promoters’ for enhancing sales on which the assessee deduct tax at source according the provisions of the Act. In addition to the commission amount, the assessee also reimbursed to those Sale Promoters certain trade discounts given by them to the retailers according to the trade schemes of the assessee. The learned counsel referred to page 124 to 132 of the paper book, which are copy of letter of appointment issued to few ‘Sales Promoter of State of Karnataka. The learned counsel referred to relevant terms and condition of the letter of appointment to press his point that ‘trade schemes’ amount were reimbursed in addition to the separate commission amount allowed to the Sales Promoters. The learned counsel submitted that identical payment of reimbursement have been held by the Tribunal, Visakhapatnam bench in the case of United Breweries Ltd. Vs. Income Tax Officer reported in 155 ITD 482 as ‘trade discount’ in the nature of sales promotion and not falling under the category of ‘commission’ within the scope of section 194H of the Act. The learned counsel

5 ITA Nos. 910 to 914/Del./2015 submitted that Hon’ble High Court of Andhra Pradesh and Telangana has upheld the above order of the Tribunal on the ground that there was no relationship of the principal and agent between the assessee and the retailers and thus, the amount reimbursed were not in the nature of the commission. The learned counsel also referred to copy of detailed computation of trade scheme reimbursement and ledger account in case of one of the sales promoter available on page 249 to 251 and page 199 respectively. The learned counsel submitted that in the instant case also there is no relation of agency with the retailers, who buy the products from the agencies appointed by the state for procuring goods from the assessee. The learned counsel also relied on the decision of the Tribunal, Visakhapatnam bench in the case of Additional Commissioner of income tax versus Pearl Bottling Private Limited reported in 46 SOT 133. In view of the decisions relied upon, the learned counsel submitted to delete disallowances made by the Assessing Officer under section 40(a)(ia) of the Act. 5.5 The learned DR, on the other hand, submitted that the Tribunal in order dated 15/03/2019 has already restored the issue for verification whether the payments in question are reimbursement or not. Thus according to him the matter of determination of the character of the transaction is already before the Assessing Officer and thus this issue of whether the reimbursement is of the trade discount, may also be sent back to the Assessing Officer for deciding along with the matter restored in ground number 11 to 11.2 of the ITA No. 990/Dell/2015 for assessment year 2007-08.

6 ITA Nos. 910 to 914/Del./2015 5.6 We have heard rival submission of the parties and perused the relevant material on record including the order of the Tribunal (supra). The assessee in its regular grounds placed before the Tribunal submitted that the transaction in dispute was only of reimbursement and therefore not liable for deduction of tax at source. The matter has been accordingly restored by the Tribunal to the Assessing Officer for factual verification whether the transaction is only of reimbursement. Now the assessee in additional ground claiming that reimbursement is of trade discount and therefore not liable for deduction of tax at source. Now the assessee wants to decide this issue by the Tribunal, whereas the learned DR is of the view that this issue should also be restored back to the Assessing Officer for deciding along with the earlier direction of the Tribunal. We agree with the view of the Ld. DR, because once the Tribunal has taken the decision for verification of the transaction whether it is reimbursement, then, it is appropriate to restore for verification whether the reimbursement is for trade discount. In our opinion the issue raised in additional ground is connected with the issue raised in the original ground and thus may be examined by the Assessing Officer along with the verification of the ground restored by the Tribunal (supra). We note that assessee has claimed before us that the trade discount was given by the sale promoters to the retailers and the assessee has reimbursed the same to the sale promoters. In this regard, we direct the Assessing Officer to verify the trade schemes floated by the assessee for giving trade discounts to the retailers and agreement among the assessee, sale promoters and retailers if any in respect of trade discount. The Assessing Officer may also verify from the accounts of the sale

7 ITA Nos. 910 to 914/Del./2015 promoters as well as the retailers to ascertain whether the reimbursement was for trade discounts. If on verification, it is found so, then no disallowance would be required in view of no liability of deducting tax at source on trade discounts. It is needless to mention that the assessee shall be afforded adequate opportunity of being heard on the issue in dispute. The additional ground raised by the assessee is accordingly allowed for statistical purposes. 5.7 In the result, the recalled matter of the appeal is allowed for statistical purposes. 6. Now, we take up appeals having ITA No. 911/Del/2015 for assessment year 2008-09, ITA No. 912/Del/2015 for assessment year 2009-10, ITA No. 913/Del/2015 for assessment year 2010- 11 and ITA No. 914/Del/2015 for assessment year 2011-12. 7. The Ld. counsel of the assessee submitted that except ground number 14 to 14.3 of the ITA No. 911/Del/2015 for assessment year 2008-09 and ground No. 12 to 12.2 of ITA No. 914/Del/2015, all other grounds raised in the appeals are covered by the decision of the Tribunal (supra) dated 15/03/2019 for assessment year 2007-08, and may be decided Mutasis Mutandis. The Ld. DR also could not controvert this submission of the learned counsel of the assessee. Accordingly, the issues which are covered by the order of the Tribunal (supra) and other issues adjudicated in below paragraphs.

8 ITA Nos. 910 to 914/Del./2015 ground No. 5 to 6.8 of ITA No. 914/Del/2015 for assessment year 2011-12 are related to transfer pricing adjustment on account of advertisement, marketing and sales promotion (AMP) expenses. 9. For reference, the Grounds No. 5 to 6.8 for assessment year 2008-09 are reproduced as under:

Transfer pricing Grounds “5. That on the facts and circumstances of the case, and in law, the Hon’ble DRP/Ld. AO/Ld. Transfer Pricing Officer (‘TPO') erred in enhancing the income of the Appellant by INR 1,03,69,60,592/- for FY 2007-08 (i.e. AY 2008-09) by making a Transfer Pricing (TP) adjustment on account of “advertising, marketing and promotion” (‘AMP’) expenses incurred by the Appellant in the regular course of its business on the ground that it was excessive and should have been reimbursed by the Associated Enterprise “AE”. 5.1 That the Hon’ble DRP/Ld. AO/Ld. TPO gravely erred in not appreciating that the Indian transfer pricing provisions are applicable only when there is shifting of profits from one taxable jurisdiction to another and not to extract or generate tax revenue or to create a notional tax charge on a transaction. 5.2 That the Hon’ble DRP/Ld. TPO/Ld. AO grossly erred on facts and in law in ignoring the fact that similar adjustment was deleted by the Ld. Commissioner of Income Tax Appeals [‘CIT (A)’] in the Appellant’s own case in AY 2005-06. No Transaction much less than International Transaction No Transaction much less than International Transaction 5.3 That the Ld. TPO/Ld. AO/Hon’ble DRP erred in assuming such transaction to be international transaction within the meaning of the term as contained in section 92B of the Act. 5.4 That the Hon’ble DRP / Ld. AO / Ld. TPO erred in assuming that under the amended provisions of section 92B and post the insertion of the explanation thereto by Finance Act 2012, transaction of incurring of AMP expenses in the normal course of business tantamounts to an international transaction. 5.5 That the Hon’ble DRP / Ld. AO / Ld. TPO erred in making the TP adjustment even as under the amended provisions of sub-section (2B) of section 92CA of the Act, the Ld. TPO is not vested with any power to assume a transaction to be ‘international transaction’.

9 ITA Nos. 910 to 914/Del./2015 5.6 That the Hon’ble DRP / Ld. AO / Ld. TPO gravely erred in not adducing any evidence, document or otherwise while concluding that there was “an international transaction’’ with the AE’s in connection with the AMP expenditure incurred by the Appellant. No Arrangement / Agreement / Understanding / Contract with AE’s No Arrangement/Agreement/Understanding/Contract with AE’s 5.7 That the Hon’ble DRP/Ld. AO/Ld. TPO gravely erred in law in not appreciating that in the absence of any contractual or verbal understanding or the conduct of the parties, creation of marketing intangibles by the Appellant on behalf of the AEs or rendering of services by the Appellant to the AEs could not have been imputed. 5.8 That the Hon’ble DRP/Ld. AO/Ld. TPO gravely erred in not appreciating that in the absence of any royalty payment to the AE’s, no other transaction could be assumed or imputed. 5.9 That the Hon’ble DRP/Ld. AO/Ld. TPO grossly erred on facts and in law in not appreciating that in the absence of any understanding/arrangement between the Appellant and the AEs, the AEs were under no obligation to reimburse the AMP expenses incurred by the Appellant for sale of Appellant’s products. “Bright Line” Method does not have recognition/authorization of Chapter X 5.10 That the Hon’ble DRP / Ld. AO / Ld. TPO gravely erred on facts and in law in not appreciating that in the absence of any legislation under section 92C of the Act or in the absence of any statutory guidelines on the application of “Bright Line’’ method, such method fails on the ground of being invented, unknown, and being arbitrary in nature. 5.11 That the Ld. TPO gravely erred in attempting to artificially determine a limit, i.e. “bright line limit” for AMP expenses based on the average AMP spend of independent companies without taking cognizance of the fact that such application of the BLT shall be prejudicial against the Indian subsidiaries licensed to use the brand owned by AEs outside India when compared with Indian entrepreneurs. 5.12 That the Hon’ble DRP/Ld. TPO/Ld. AO erred on facts and in law in ignoring India’s position before United Nations (UN) in which marketing intangible issue in the India chapter has been discussed by the Indian tax administration from the perspective of a distributor and not a manufacturer, thereby erred in making AMP addition in the hands of Appellant who is a full-fledged manufacturer. 5.13 Without prejudice to above, Hon’ble DRP / Ld. AO / Ld. TPO erred in making an adjustment in respect of AMP expenses while selectively applying the principles laid down by the Delhi Special Bench in the case of LG Electronics India Pvt. Ltd. [(2013) 29 taxmann.com (Delhi) SB],

10 ITA Nos. 910 to 914/Del./2015 6. That the Hon’ble DRP/Ld. TPO grossly erred in making transfer pricing adjustment in relation to the AMP expenditure in complete disregard to the business activities of the Appellant, functions performed by the Appellant under various business segments and transactions undertaken during the year. 6.1 That the Hon’ble DRP/Ld. TPO/Ld. AO erred on facts and in law in ignoring that Appellant is full-fledged entrepreneur and had incurred AMP expenses at its own behest, for the purpose of its business in India and performing all functions by bearing all economic costs and risks associated with its business, therefore, the concept of Bright Line adjustment per se cannot be applied. 6.2 That the Hon’ble DRP/Ld. TPO/Ld. AO erred in disregarding the fact that the premium profits earned by the Appellant more than compensate the allegedly excessive AMP spends (if any) incurred by it. That the Hon’ble DRP/Ld. TPO/Ld. AO grossly erred on facts and in law in disregarding on flimsy grounds the evidence adduced by the Appellant in form of an industry specific independent research report to identify appropriate comparables. 6.4 That the Hon’ble DRP/Ld. TPO/Ld. AO grossly erred in facts and in law in erroneously computing the total AMP expenses of the Appellant by including expenses in connection with sales within the ambit of total AMP spend and thus, not appreciating the fact that sales promotion expenses do not contribute towards brand building exercise and in effect, disregarding the judgment of the Hon’ble ITAT in case of LG Electronics. 6.5 That the Hon’ble DRP/Ld. TPO/Ld. AO grossly erred in facts and in law in imputing mark-up of 15.84% on the alleged excessive AMP expenses by holding out that the Appellant had provided brand building services to its AEs in the absence of any arrangement to that effect. 6.6 Without prejudice to above, Hon’ble DRP / Ld. AO / Ld. TPO grossly erred on facts and in law in disregarding the fact that for its distribution business segment (BIO products), Appellant was merely acting as limited risk distributor with assured and guaranteed returns by AE’s and hence no AMP adjustment is warranted on this segment. 6.7 Without prejudice to above, since the “Bright line” of comparable companies has been computed by the Hon’ble DRP/Ld. TPO by selecting/adopting comparables which were engaged only in manufacturing activities, the adjustment on account of AMP expenses, if any, should be restricted only to the manufacturing segment. 6.8 Without prejudice the Hon’ble DRP/Ld. TPO/Ld. AO grossly erred in facts and in law in selecting comparables having dissimilar functional or product or brand profile when compared to Appellant for the purpose of benchmarking the AMP spend.

11 ITA Nos. 910 to 914/Del./2015 9.1 We find that identical issue has been decided by the Tribunal (supra) in order dated 15/03/2019 for assessment year 2007-08 is under:

“4. Ground Nos. 7 to 8.8 relates to Transfer Pricing adjustment of Rs. 52.05 crores made on account of Advertisement, Marketing and Sales Promotion Expenses [AMP]. 5. The appellant company is engaged in the business of manufacture and sale of alcoholic beverages in India. Furthermore, the appellant also has a distribution agreement with PR Group and is engaged in the distribution activity of Bottled in Origin [BOI] products imported from PR Group into India. Brands that are imported by the appellant are Chivasa Regal, Marteli, Royal Salute, Absolult, Jacobs Creek etc while the brands bottled in India primarily include Blenders Pride, Imperial Blue, Royal Stag, etc. Primarily the appellant is organized in two business segments in India viz. Manufacturing [Class I] and Distribution [Class II]. 6. Under Class I - Manufacturing, the appellant is manufacturer of alcoholic beverages and bears normal risks associated with its operation. The appellant is characterised as ‘manufacturer of alcoholic beverages’ under Class I. Under the distribution segment, the appellant entered into a Distributor Agreement with PR Group and is engaged in the business activity of distribution of BIO products imported from PR Group into India. The appellant has been characterised as ‘limited risk distributor’ for BIO products. 7. The international transactions undertaken by the assessee company with its Associated Enterprise [AEs] are summarised as under: S No. Nature of transaction Method Value of transaction 1 Import of raw material TNMM 17,79,44,109 2 Export of finished goods TNMM 13,85,42,150 3 Reimbursement of expenses by PRIPL TNMM 27,85,658 4 Import of finished goods TNMM 3,69,08,306 5 Provision of marketing support TNMM 4,65,37,700 services 6 Reimbursement of expenses to PRIPL CUP 11,70,97,697 8. The assessee incurred the following AMP expenditure:

12 ITA Nos. 910 to 914/Del./2015 Sl No Name of expenditure Amount (Rs.) 1. Advertising, Sales Promotion and 114,22,82,000 rebates 5,69,83,000" 11,70,97,697 TOTAL 131,63,62,697

13 ITA Nos. 910 to 914/Del./2015 Radico Khaitan Ltd. 977.68 84.79 8.67 Rangar Brewehes Ltd. 34.22 1.98 5.79 Ravikumar Distiliehes Ltd. 64.99 2.23 3.43 Shaw Wallace & Co. Ltd. (Merged] 249.15 0.10 0.04 Shiva Distiliehes Ltd. 735.89 0.11 0.01 Southern Aghfurane Inds. Ltd. 370.84 20.43 5.51 Tilaknagar Industries Ltd. 112.43 18.41 16.37 United Spihts Ltd. 4678.74 398.69 8.52 Vindhyachal Distilleries Pvt. Ltd. 25 0.11 0.44 Average 3.97

14 ITA Nos. 910 to 914/Del./2015 intangible which should have been reimbursed Rs. 12,46,23,528/- Add: Mark-up @ 21.94% Rs. 24,67,42,402/- Arm's length price of international transaction Rs.137,13,65,930/- Less: Price reimbursed by the assessee Rs. 11,70,97,697/-

Proposed adjustment u/s 92CA Rs. 125,42,68,233/-

15 ITA Nos. 910 to 914/Del./2015 3.3 In view of the same, Ld. TPO initially recalculated the AMP adjustment on the basis of the directions of the DRP which was intimated to this office vide letter dated 30.12.2014, which was subsequently revised on 06.01.2015 recalculating the transfer pricing adjustment to be made. The same is reproduced below:-

SI. No Company Name Revised AMP/Sales % 1 Amber Distilleries Ltd. 0.24 2 Bhagat Industrial Corpn. Ltd. 3.61 3 Jagatjit Industries Ltd. 9.85 4 John Distilleries Pvt. Ltd. 3.59 5 Globus Spirits Ltd. 0.46 6 Khoday India Ltd. 2.62 Mohan Rocky Spring water 7 0.16 Breweries Ltd. 8 Radico Khaitan Ltd. 9.50 Shaw Wallace & Co. Ltd. 9 0 [Merged] 10 Southern Agrifurane Inds. 5.51 Ltd. 11 Tilak Nagar Industries Ltd. 24.06 12 United Spirits Ltd. 9.09 Average 5.73

Particulars A.Y. 2007-08

Advertising, Marketing and Sales Promotion (A) 1.19,92,65,000 Reimbursement from AE (B) 11,70,97,697 Total expenditure on AMP (C)— (A) +(B) 1,31,63,62,697 Gross Sales of assessee (D) 5,76,48,29,000 Add: Sales made by Third party Bottlers (E) 2,85,06,87,558 Total sales for AMP/Sales (F)-(D) +(E) 8,61,55,16,558 AMP % of assessee G-C/F 15.28% Arm's Length level of AMP% (Revised) (H) 5.73% Arm's length level of AMP expenses (I)-(D)*(H) 33,03,24,702 Difference (J)=(G)-(H) 9.55%

16 ITA Nos. 910 to 914/Del./2015

Amount spent in excess of bright line' and on 55,04,82,131 creation of marketing intangibles (K)=(D)*(J) Markup (L) 15.84% The amount by which the assessee company 63,76,78,500 should have been reimbursed byA.E. (M— K*100+L) Less: Reimbursement received (N) 11,70,97,697 Total Revised adjustment post DRP directions 52,05,80,803 (0)=(M)-N)

17 ITA Nos. 910 to 914/Del./2015 that the TPOs/Assessing Officers have universally applied bright line test to decipher and compute value of international transaction and thereafter applied Cost Plus Method or Cost Method to compute the arm‘s length price. The said approach is not mandated and stipulated in the Act or the Rules. The list of parameters for ascertaining the comparables for applying bright line test in paragraph 17.4 and, thereafter, the assertion in paragraph 17.6 that comparison can be only made by choosing comparable of domestic cases not using any foreign brand, is contrary to the Rules. It amounts to writing and prescribing a mandatory procedure or test which is not stipulated in the Act or the Rules. This is beyond what the statute in Chapter X postulates. Rules also do not so stipulate.” 11. Respectfully following the judgment of the Hon'ble High Court of Delhi [supra], we hold that BLT has no mandate under the Act and accordingly, the same cannot be resorted to for the purpose of ascertaining if there exists an international transaction of brand promotion services between the assessee and the AE. 12. In our considered opinion, while dealing with the issue of bench marking of AMP expenses, the Revenue needs to establish the existence of international transaction before undertaking bench marking of AMP expenses and such transaction cannot be inferred merely on the basis of BLT. For this proposition, we draw support from the judgment of the Hon'ble Delhi High Court in the case of Maruti Suzuki India Ltd 381 ITR 117. 13. In this case, the Hon'ble High Court held that existence of an international transaction needs to be established de hors the Bright Line Test. The relevant finding of the Hon’ble High Court reads as under: “43. Secondly, the cases which were disposed of by the judgment, i.e. of the three Assessees Canon, Reebok and Sony Ericsson were all of distributors of products manufactured by foreign AEs. The said Assessees were themselves not manufacturers. In any event, none of them appeared to have questioned the existence of an international transaction involving the concerned foreign AE. It was also not disputed that the said international transaction of incurring of AMP expenses could be made subject matter of transfer pricing adjustment in terms of Section 92 of the Act. 44. However, in the present appeals, the very existence of an international transaction is in issue. The specific case of MSIL is that the Revenue has failed to show the existence of any

18 ITA Nos. 910 to 914/Del./2015 agreement, understanding or arrangement between MSIL and SMC regarding the AMP spend of MSIL. It is pointed out that the BLT has been applied to the AMP spend by MSIL to (a) deduce the existence of an international transaction involving SMC and (b) to make a quantitative 'adjustment' to the ALP to the extent that the expenditure exceeds the expenditure by comparable entities. It is submitted that with the decision in Sony Ericsson having disapproved of BLT as a legitimate means of determining the ALP of an international transaction involving AMP expenses, the very basis of the Revenue's case is negated. XXX 51. The result of the above discussion is that in the considered view of the Court the Revenue has failed to demonstrate the existence of an international transaction only on account of the quantum of AMP expenditure by MSIL. Secondly, the Court is of the view that the decision in Sony Ericsson holding that there is an international transaction as a result of the AMP expenses cannot be held to have answered the issue as far as the present Assessee MSIL is concerned since finding in Sony Ericsson to the above effect is in the context of those Assessees whose cases have been disposed of by that judgment and who did not dispute the existence of an international transaction regarding AMP expenses. XXX 60. As far as clause (a) is concerned, SMC is a non-resident. It has, since 2002, a substantial share holding in MSIL and can, therefore, be construed to be a non-resident AE of MSIL. While it does have a number of 'transactions' with MSIL on the issue of licensing of IPRs, supply of raw materials, etc. the question remains whether it has any 'transaction' concerning the AMP expenditure. That brings us to clauses (b) and (c). They cannot be read disjunctively. Even if resort is had to the residuary part of clause (b) to contend that the AMP spend of MSIL is "any other transaction having a bearing" on its "profits, incomes or losses", for a 'transaction' there has to be two parties. Therefore for the purposes of the ‘means’ part of clause (b) and the 'includes’ part of clause (c), the Revenue has to show that there exists an 'agreement' or 'arrangement' or 'understanding' between MSIL and SMC whereby MSIL is obliged to spend excessively on AMP in order to promote the brand of SMC. As far as the legislative intent is concerned, it is seen that certain transactions listed in the Explanation under clauses (i) (a) to (e) to Section 92B are described as 'international transaction'. This

19 ITA Nos. 910 to 914/Del./2015 might be only an illustrative list, but significantly it does not list AMP spending as one such transaction. 61. The submission of the Revenue in this regard is: "The mere fact that the service or benefit has been provided by one party to the other would by itself constitute a transaction irrespective of whether the consideration for the same has been paid or remains payable or there is a mutual agreement to not charge any compensation for the service or benefit." Even if the word 'transaction' is given its widest connotation, and need not involve any transfer of money or a written agreement as suggested by the Revenue, and even if resort is had to Section 92F (v) which defines 'transaction' to include 'arrangement', 'understanding' or 'action in concert', 'whether formal or in writing', it is still incumbent on the Revenue to show the existence of an 'understanding' or an 'arrangement' or 'action in concert' between MSIL and SMC as regards AMP spend for brand promotion. In other words, for both the ‘means’ part and the ‘includes’ part of Section 92B (1) what has to be definitely shown is the existence of transaction whereby MSIL has been obliged to incur AMP of a certain level for SMC for the purposes of promoting the brand of SMC. XXX 68………………..In other words, it emphasises that where the price is something other than what would be paid or charged by one entity from another in uncontrolled situations then that would be the ALP. The Court does not see this as a machinery provision particularly in light of the fact that the BLT has been expressly negatived by the Court in Sony Ericsson. Therefore, the existence of an international transaction will have to be established de hors the BLT.” 14. In the light of the aforesaid finding of the Hon'ble High Court, before embarking upon a benchmarking analysis, the Revenue needs to demonstrate on the basis of tangible material or evidence that there exists an international transaction between the assessee and the AE. Needless to mention, that the existence of such a transaction cannot be a matter of inference. 15. The Hon'ble Delhi High Court in case of Whirlpool of India Ltd vs DCIT 381 ITR 154 has held that there should be some tangible evidence on record to demonstrate that there exists an international transaction in relation with incurring of AMP expenses for development of brand owned by the AE. In our considered opinion, in the absence of such demonstration, there is no question of undertaking any benchmarking of AMP expenses. The relevant

20 ITA Nos. 910 to 914/Del./2015 findings of the Hon’ble High Court in the case of Whirlpool of India Ltd [supra] read as under: “32. Under Sections 92B to 92F, the pre-requisite for commencing the TP exercise is to show the existence of an international transaction. The next step is to determine the price of such transaction. The third step would be to determine the ALP by applying one of the five price discovery methods specified in Section 92C. The fourth step would be to compare the price of the transaction that is shown to exist with that of the ALP and make the TP adjustment by substituting the ALP for the contract price. XXX 34. The TP adjustment is not expected to be made by deducing from the difference between the 'excessive' AMP expenditure incurred by the Assessee and the AMP expenditure of a comparable entity that an international transaction exists and then proceed to make the adjustment of the difference in order to determine the value of such AMP expenditure incurred for the AE. 35. It is for the above reason that the BLT has been rejected as a valid method for either determining the existence of international transaction or for the determination of ALP of such transaction. Although, under Section 92B read with Section 92F (v), an international transaction could include an arrangement, understanding or action in concert, this cannot be a matter of inference. There has to be some tangible evidence on record to show that two parties have “acted in concert”. XXX 37. The provisions under Chapter X do envisage a ‘separate entity concept’. In other words, there cannot be a presumption that in the present case since WOIL is a subsidiary of Whirlpool USA, all the activities of WOIL are in fact dictated by Whirlpool USA. Merely because Whirlpool USA has a financial interest, it cannot be presumed that AMP expense incurred by the WOIL are at the instance or on behalf of Whirlpool USA. There is merit in the contention of the Assessee that the initial onus is on the Revenue to demonstrate through some tangible material that the two parties acted in concert and further that there was an agreement to enter into an international transaction concerning AMP expenses. XXX

21 ITA Nos. 910 to 914/Del./2015

22 ITA Nos. 910 to 914/Del./2015

23 ITA Nos. 910 to 914/Del./2015 Communications India Pvt Ltd in Tax Appeal NO. 16 of 2014 has held that if the Indian entity has satisfied Transactional Net Margin Method (TNMM), i.e., as long as the operating margins of the Indian enterprise are higher than the operating margins of comparable companies, no further separate compensation for AMP expenses is warranted. The Hon’ble Court held as under: “101. However, once the Assessing Officer/TPO accepts and adopts TNM Method, but then chooses to treat a particular expenditure like AMP as a separate international transaction without bifurcation/segregation, it would as noticed above, lead to unusual and incongruous results as AMP expenses is the cost or expense and is not diverse. It is factored in the net profit of the inter-linked transaction. This would be also in consonance with Rule 10B(1)(e), which mandates only arriving at the net profit margin by comparing the profits and loss account of the tested party with the comparable. The TNM Method proceeds on the assumption that functions, assets and risk being broadly similar and once suitable adjustments have been made, all things get taken into account and stand reconciled when computing the net profit margin. Once the comparables pass the functional analysis test and adjustments have been made, then the profit margin as declared when matches with the comparables would result in affirmation of the transfer price as the arm‘s length price. Then to make a comparison of a horizontal item without segregation would be impermissible.” 21. In light of the aforementioned discussion, we find that the TPO has considered this at length and has submitted a report dated 26.2.2019. The said report can be summarised in the following chart:

S.no Asst Year Assessee Comparables Operating Operating Operatin margins margins Operating Operating Operating g excluding excluding margins margins margins margins AMP & AMP & Selling including including ail excluding excludin Selling and all operating AMP g AMP and Distribution operating expenses expenses expense distributi expenses expenses s on expenses 10.60 1 2007-08 7.04% 27.04% 28.03% 5.11% 6.63% 12.75 2 2008-09 23.56% 42.08% 42.90% 5.83% 9.64% 8.10 3 2009-10 19.31% 34.05% 34.04% 3.65% 5.86% 11.49 4 2010-11 17.57% 23.50% 31.23% 6.73% 8.40% 8.19 5 2011-12 15.08% 20.37% 28.14% 3.31% 5.60%

24 ITA Nos. 910 to 914/Del./2015

9.2 Thus, respectfully following the decision of the coordinate bench in the case of the assessee itself, we delete the impugned addition on account of AMP expenditure and allow the respective grounds of the appeal raised by the assessee. 10. The ground Nos. 7 to 7.2 of ITA No. 911/Del/2015 for assessment year 2008-09, ground Nos. 7 to 7.2 of ITA No. 912/Del/2015 for assessment year 2009-10, Ground Nos. 7 to 7.24 for assessment year 2010-11 and Ground Nos. 7 to 7.24 for assessment year 11-12 are related to disallowance of brand expenses under section 37(1) of the Act. All the grounds in question being identical, for convenience ground No. 7 to 7.2 of ITA No. 911/Del/2015 for assessment year 2008-09 are reproduced as under: Corporate Tax Grounds 7. That the Hon’ble DRP/Ld. AO has erred on facts and in law in making the adhoc disallowance of INR 11,11,87,201/- under section 37(1) of the Act, being 20% of the brand expenses (excluding already considered for transfer pricing adjustment) on the ground that such expenditure resulted in an enduring benefit to the Appellant. 7.1 That the Hon’ble DRP erred in confirming the disallowance on account of brand expenses in complete ignorance of the fact that the disallowance had been deleted by the CIT(A) in the orders passed in appellant’s own case for AYs 2002-03, 2003- 04, 2004-05 and 2005-06.

25 ITA Nos. 910 to 914/Del./2015 7.2 Without prejudice to ground 7, the Hon’ble DRP / Ld. AO erred on facts and in law in not allowing depreciation under section 32 of the Act while disallowing brand expenses as being capital in nature.

10.1 We find that issue in dispute has been decided in favour of the assessee by the Tribunal (supra) in order dated 15/03/2019 for assessment year 2007-08 as under:

“23. Ground Nos. 9 to 9.2 relates to disallowance of Rs. 8,21,29,536/- u/s u/s 37(1) of the Act being 20% of the brand expenses. 24. During the course of scrutiny assessment proceedings, the A.O observed that the assessee has debited brand expenses of Rs. 70,58,03,632/- under the head “Advertisement and Sales Promotion”. The Assessing Officer observed that in the preceding years, a portion of the same has been held to be capital in nature and has been disallowed by his predecessors. Past history of disallowance of brand expenses as considered by the Assessing Officer is as under:

AY Brand CIT(A)/D ITAT Brand %age of Brand Total brand expenses disallowa expenses expenses RP nce disallowed debited in P& disallowed, expenses LA/c being capital disallowed in nature TP

2002-03 311,818,080 10% 31,181,808 NIL 31,181,808 Appeals pending Addition at ITAT 2003-04 377,548,605 20% 75,509,720 NIL 75,509,720 Deleted 2004-05 389,550,709 10% 38,955,070 132,400,000 171,355,070 2005-06 467,342,660 10% 46,734,266 89,395,976 136,130,242 2006-07 529,677,093 10% 52,967,709 59,991,091 112,958,800 DRP (stands abated) 25. Taking a leaf out of the past history of the assessee, the Assessing Officer disallowed Rs. 8,21,29,536/- following the directions of the DRP. 26. Before us, the ld. counsel for the assessee, at the very outset, stated that this issue has been settled in favour of the assessee and against the revenue by the order of the Hon'ble jurisdictional High Court of Delhi and the Tribunal in earlier assessment years. 27. Per contra, the ld. DR could not bring any distinguishing decision in favour of the revenue. 28. We have heard the rival submissions and have given thoughtful consideration to the orders of the authorities below. We find force in the

26 ITA Nos. 910 to 914/Del./2015 contention of the ld. counsel for the assessee. The Hon'ble High Court in ITA No. 885/2016 was, inter alia, seized with the following substantial question of law: “Whether advertisement and promotion expenses incurred by the assessee have an enduring benefit to the assessee as it creates tangible asset being goodwill, reputation and credibility and if yes, whether it s be treated as capital expenditure.” 29. The Hon'ble High Court answered as under: “So far as Question No. 3 – Advertising and Promotion Expenditure is concerned, the issue has been concluded in an identical case in the case in the matter of another group company in Principal CIT vs. M/s Seagram Distilleries Pvt Ltd ITA Nos. 224-225/2016 decided on 6.4.2016. Therefore, question No. 3 does not arise for consideration.” 30. The Tribunal in assessee's own case for assessment year 2004-05 and 2005-06 in ITA No. 3525/DEL/2009 and 2770/DEL/2011 has held as under: “8.0 The last issue involved in the present batch of appeals raised by the revenue pertains to deletion of addition of Rs. 3,89,55,070/- in AY 2004-05 and Rs. 4,67,32,266/- being 10% of brand expenses made by the AO treating the same as being capital in nature. 8.1 The brief facts involved therein are that the assessee company had claimed brand expenses amounting to Rs. 38,95,50,709/- for AY 2004-05 and Rs. 46,73,42,660/- for AY 2005-06. These expenses comprised of expenditure on event management, business promotion, merchandising, printing of brochures/mailers, market research etc. to determine the consumer reaction to company’s products. The AO vide order dated 28.12.2006 for AY 2004-05 and vide order dated 08.12.2008 for AY 2005-06 disallowed 10% of such expenditure as being capital in nature on the premise that the benefit of such expenditure is enduring in nature and available to the assessee over a period of time than being restricted to the relevant previous year alone in which it was incurred, thereby leading to creation of a tangible asset being goodwill, reputation and credibility. However, the Ld. CIT (A) vide order dated 29.06.2009 for AY 2004-05 and vide order dated 28.02.2011 for AY 2005-06 deleted the said disallowance while relying upon his predecessor’s order in earlier years and noting that expenditure on sales and marketing was required to refresh the memory of the consumer of the products manufactured by the assessee and hence there was no enduring benefit. The Revenue is aggrieved by this finding of the Ld. CIT (A).

27 ITA Nos. 910 to 914/Del./2015 8.2 During the course of proceedings, the Ld. AR. pointed out that the issue was squarely covered in favour of the assessee vide this Tribunal’s order dated 14.03.2016 passed in Assesse’s own case for the immediately preceding years, i.e., AY 2002-03 and 2003-04. It was further pointed out that the aforesaid issue had also been decided in favour of the assessee by Hon’ble High Court of Delhi vide order dated 6.04.2016 passed in ITA No. 224/2016 and 225/2016 in the case of assessee’s sister concern, viz., M/s Seagram Distilleries Pvt Ltd.. The Ld. AR also cited Hindustan Aluminium Corporation Limited v. CIT: 159 ITR 673, CIT v. Berger Paints (India) Ltd. (254 ITR 503), CIT v. Salora International (308 ITR 199) (Del.), CIT v. Casio India Ltd. (335 ITR 196) (Del) and CIT v. Adidas India Marketing Ltd. (195 Taxman 256) (Del.) to support his contentions. 8.3 The Ld. CIT (DR) supported the order of the Ld. TPO/AO. 8.4 We have heard the rival contentions and perused the orders of the jurisdictional High Court and that of the co-ordinate benches. We find force in the arguments of the Ld. Counsel that the issue is squarely covered in favour of the assessee as there is a clear finding that such expenditure does not result in any enduring benefit. Hence, these grounds of the revenue are dismissed and the order of the Ld. CIT (A) is confirmed.” 31. Respectfully following the findings of the Hon'ble High Court and the co- ordinate bench, we direct for deletion of addition of Rs. 8,21,29,536/-.”

10.2 The issue in dispute raising before us in above grounds being identical, respectfully following the finding of the Tribunal, we direct for deletion of the addition made in respective assessment years and accordingly, allow the respective grounds of the appeals. 11. The Grounds Nos. 8 to 8.4 of ITA No.911/Del/2015 for assessment year 2008-09, Grounds Nos. 8 to 8.4 of ITA No. 912/Del/2015 for assessment year 2009-10, Ground No. 8 to 8.4 of ITA No. 913/Del/2015 for assessment year 2010-11 and Grounds No. 8 to 8.4 of ITA No. 914/Del/2015 for assessment year 2011-12, are related to disallowance of provision for transit

28 ITA Nos. 910 to 914/Del./2015 breakages on the ground that same is contingent in nature. The above grounds raised in respective years are identical and thus, for convenience, the Ground Nos. 8 to 8.4 of ITA No. 911/Del/2015 for assessment year 2008-09 are reproduced as under:

11.1 The Coordinate bench of the Tribunal (supra) has decided identical issues raised in assessment for 2007-08 observing as under:

“32. Ground No. 10 to 10.4 relates to disallowance of Rs. 1,12,16,288/- made on account of provision for transit breakages. 33. During the course of scrutiny assessment proceedings, the A.O found that the assessee has claimed deduction on account of provision for transit breakages amounting to Rs. 1,12,16,288/-.

29 ITA Nos. 910 to 914/Del./2015 34. At the very outset, the ld. counsel for the assessee fairly stated that such disallowance has been upheld by the Hon'ble High Court of Delhi vide order dated 23.10.2015 in ITA No. 237/2015 Seagram Distilleries Pvt Ltd in assessee's own case for assessment year 2001-02. The ld. counsel for the assessee further stated that the order passed by the jurisdictional High Court of Delhi has been confirmed by the Hon'ble Supreme Court vide order dated 11.07.2016. However, it is the say of the ld. counsel for the assessee that in order to avoid double taxation, any reversals in the provision has to be considered. 35. The ld. DR fairly conceded to this submission of the ld. counsel for the assessee. 36. Having considered the decision of the Hon'ble High Court [supra], we are of the view that any reversals in the provision and the actual amount have to be allowed as a deduction. We, therefore, restore this issue to the file of the Assessing Officer/TPO with the direction to verify the reversals of provision and only the actual amount to be allowed as deduction. 37. This is in line with the findings of the Hon'ble High Court and the same read as under: “28. It is clarified that while giving an appeal effect to this order, the AO shall allow the actual transit breakages for AY 2001-02 as revenue expenditure consistent with the settled legal position. The Assessees would also be permitted to get the benefit of the reversal of the provision for transit breakages made in the AYs in question accordance with law.”

11.2 Thus, respectfully, following the finding of the coordinate bench of the Tribunal, we direct the Assessing Officer to examine the issue in the light of the directions given by the Tribunal(supra) in para 38 of the order. The grounds raised by the assessee on this issue in respective appeals are accordingly allowed for statistical purposes. 12. The Ground Nos. 9 to 9.2 of ITA No. 911/Del/2015 for assessment year 2008-09, Grounds Nos. 9 to 9.2 of ITA No. 912/Del/2015 for assessment year 2009-10, Grounds Nos. 9 to

30 ITA Nos. 910 to 914/Del./2015 9.2 of ITA No. of 913/Del/2015 for assessment year 2010-11 and Ground No. 9 to 9.2 of ITA No. 914/Del/2015 for assessment year 2011-12 are related to disallowance of being trade scheme reimbursement to sales promoters for non-deduction of tax under section 40(a)(ia) of the Act. The grounds raised in respective appeals being identical, for convenience Ground Nos. 9 to 9.2 of ITA No. 911/Del/2015 for assessment year 2008-09 are reproduced as under: 9. That the Hon’ble DRP/Ld. AO grossly erred on facts and in law in arriving at the conclusion that tax is required to be deducted under section 194H on pure reimbursements. 9.1 That the Hon’ble DRP/Ld. AO grossly erred on facts and in law in arriving at the conclusion that tax is required to be deducted under section 194H on pure reimbursements. 9.2 That the Hon’ble DRP/Ld. AO grossly erred in not appreciating that tax was duly deducted at source by the Appellant on the “Commission” paid to Sales Promoter but on reimbursements, which does not have any element of “income”, no tax was required to be deducted.

12.1 We find that the Coordinate bench of the Tribunal (supra) while adjudicating the Grounds No. 11 to 11.2 of the appeal, remanded the matter back to the file of the Assessing Officer for verification of the documentary evidences filed by the assessee and verify whether the impugned disbursement were reimbursement and if found so, the same might be allowed at deduction. The relevant finding of the Tribunal is reproduced as under:

“39. Ground Nos. 11 to 11.2 relate the disallowance of Rs. 6,35,40,939/- made u/s 40(a)(ia) of the Act. 40. During the course of scrutiny assessment proceedings, the A.O noticed that the assessee has disbursed an amount of Rs. 6,35,40,939/- on account of reimbursement of trade schemes through sales promoters to various retailers.

31 ITA Nos. 910 to 914/Del./2015 41. The Assessing Officer asked the assessee to explain the same and the assessee submitted that the trade incentives and schemes are provided by the assessee to its customers to boost the sale of the assessee’s products and in certain cases, trade schemes are given through independent third parties [sales promoters] as per instructions of the assessee company with a view to promote its sales. 42. After considering the submissions of the assessee, the Assessing Officer found that in assessment year 2006-07, his predecessor has treated the same as commission and since the assessee has not deducted tax at source, applying the provisions of section 40(A)(ia) of the Act, the Assessing Officer made the disallowance. 43. The assessee raised objections before the DRP but without any success. 44. Before us, the ld. counsel for the assessee stated that in assessee’s sister concern Seagram Distilleries [supra] for assessment year 2005-06 to 2009-10, the first appellate authority has allowed the ground on principle basis that withholding tax obligations do not arise in the case of pure reimbursements and the matter was set aside to the Assessing Officer to verify whether the payments made by the assessee were in the nature of reimbursements and while giving effect to the order of the first appellate authority and after verification, the Assessing Officer was convinced that the impugned disbursement were in the nature of reimbursements and allowed the entire amount claimed by the assessee. 45. In our considered opinion, verification needs to be done in the case of the appellant. We, accordingly, set aside this issue to the file of the Assessing Officer/TPO with a direction to examine the documentary evidences to be filed by the assessee and verify whether the impugned disbursements are reimbursement and if found so, the same be allowed as deduction. Thus, ground No. 11 to 11.2 is accordingly allowed for statistical purposes.” 12.2 The issue involved in grounds before us being identical, thus, respectfully following the finding of the Tribunal the issue in dispute involved in above grounds of the respective appeals are also remanded back to the file of the Assessing Officer for verification of the documentary evidences filed by the assessee and decide whether the impugned disbursement were reimbursement and if found so, the same might be allowed as deduction. The respective grounds of the appeal are accordingly allowed for statistical purposes. 13. The assessee has also raised additional ground in all the appeals from ITA No. 911/Del/2015 for assessment year 2008-09

32 ITA Nos. 910 to 914/Del./2015 to ITA No. 914/Del/2015 for assessment year 2011-12, on the issue of disallowance under section 40(a)(ia) of the Act on the ground that reimbursement made to the sale promoters were in respect of trade discount and therefore the assessee was not required to deduct tax at source and thus no disallowance was required. Since we have already adjudicated the additional ground raised by the assessee in assessment year 2007-08, to have consistency in our decision on the issue in dispute, the additional ground raised in all the respective appeals are restored back to the file of the Assessing Officer with directions identical to the directions issued in assessment year 2007-08. Thus, the additional grounds raised by the assessee are accordingly allowed for statistical purposes. 13.1 The Grounds Nos. 10 to 10.2 of ITA No. 911/Del/2015 for assessment year 2008-09 and Ground Nos. 10 to 10.2 of ITA No. 912/Del/2015 for assessment year 2009-10 are related to disallowance under section 14A of the Act. The grounds raised being identical, the ground Nos. 10 to 10.2 of ITA No. 911/Del/2015 are reproduced as under for brevity: 10. That the Hon’ble DRP/Ld. AO erred on facts and in law in making a disallowance under section 14A of the Act amounting to INR 12,18,082/-in the absence of exempt income earned by the Appellant during the captioned assessment year. 10.1 That the Hon'ble DRP erred in directing the Ld. AO to re-compute the disallowance under section 14A of the Act without appreciating that that investment has been made by the Appellant in the shares of its 100% subsidiary company in view of business consideration and not with the intention to earn exempt income. 10.2 That the DRP/Ld. AO grossly erred on facts and in law in not appreciating that the Tax Audit Report of the Appellant clearly provides that no expenditure has been incurred for earning income which is exempt.

33 ITA Nos. 910 to 914/Del./2015 13.2 The identical issue has been decided by the coordinate bench of Tribunal (supra) as under: “46. Ground No. 12 to 12.3 relates to the disallowance of Rs. 12.68,781/- u/s 14A of the Act. 47. At the very outset, we have to state that the assessment year under consideration is assessment year 2007-08 and, therefore, Rule 8D of the Income tax Rules, 1962 does not apply, but at the same time, we find that there is no exempt income claimed by the assessee during the year under consideration. Therefore, the ratio laid down by the Hon'ble High Court of Delhi in the case of Cheminvest Ltd 378 ITR 33 and CIT Vs. Holcim 272 CTR 282 squarely apply wherein the Hon'ble High Court has held that where there is no exempt income, there cannot be any disallowance u/s 14A of the Act. Respectfully following the same, we direct the Assessing Officer to delete the disallowance of Rs. 12,68,781/-. Accordingly, Ground No. 12 with all its sub grounds is allowed.”

13.3 Before us also, the learned counsel of the assessee submitted that there was no exempt income claimed by the assessee in both the assessment years involved, i.e., assessment years 2008-09 and 2009-10. In view of identical facts, following the decision of the Coordinate bench of Tribunal (supra), we direct the Assessing Officer to delete the disallowance in question and allow the respective grounds of the appeals. 14. The Ground Nos. 11 to 11.3 of ITA No. 911/Del/2015 for assessment year 2008-09, Ground Nos. 11 to 11.3 of ITA No. 912/Del/2015 for assessment year 2009-10, Ground Nos. 10 to 10.3 of ITA No. 913/Del/2015 for assessment year 2010-11 and Ground Nos. 10 to 10.3 of ITA No. 914/Del/2015 for assessment year 2011-12 are related to disallowance of unexplained expenses alleged to be payment to excise officials under section 37(1) of the Act. The grounds raised in respective appeal being identical, the Ground Nos. 11 to 11.3 of ITA No. 911/Del/2015 for assessment year 2008-09 are reproduced as under for brevity:

34 ITA Nos. 910 to 914/Del./2015 11. That the Hon’ble DRP/Ld. AO erred on facts and in law in making the disallowance under Section 37(1) of the Act amounting to INR 1,080,000/- treating the same as unexplained expenses on complete conjectures and surmises by completely ignoring the submissions filed by the Appellant. 11.1 That the Hon’ble DRP/Ld. AO grossly erred on facts and in law in not appreciating that the seized document pertained to the period of 2001-02 and hence could not have been the subject matter of the present proceedings. 11.2 That the Hon’ble DRP/Ld. AO grossly erred in not appreciating that the documents otherwise were fully explainable and were not in respect of any unaccounted payments or unexplained expenses. 11.3 That without prejudice, the Hon’ble DRP/Ld. AO erred on facts and in law in disallowing again in case of the Appellant, wherein the same disallowance has already been made in the case of its subsidiary company Seagram Distilleries Private Limited (now merged with the Appellant) on the same set of seized documents.

14.1 The issue in dispute has been decided in favour of the assessee by the coordinate bench of the Tribunal (supra) as under: “48. Ground No.13 to 13.3 relates to the disallowance of Rs. 10.80 lakhs as unexplained expenses. 49. Facts on record show that during the course of search conducted on the premises of the assessee on 15.02.2011, a diary belonging to Shri Purwez Patel, EVP Manufacturing was seized. In this diary, some projected cost of investments in Shaiv Distilleries, Goa has been drawn/computed for some discussion with its director. On perusing the said diary, the Assessing Officer was of the opinion that the assessee is making payment of Rs. 15000/- p.m. to the Excise Inspector and Rs. 75,000/- as licence fees. The Assessing Officer formed a belief that the appellant has not discharged the onus cast upon it by section 292C of the Act and accordingly, made disallowance of Rs. 10.80 lakhs. 50. Objection of the assessee did not result in any relief. 51. Before us, the ld. counsel for the assessee drew our attention to the decision of the Tribunal in ITA Nos 3847 & 3848/DEL/2017 wherein the Tribunal has deleted the disallowance. 52. Per contra, the ld. DR could not bring any distinguishing decision in favour of the revenue.

35 ITA Nos. 910 to 914/Del./2015 53. We have carefully perused the order of the authorities below and have considered the decision of the Tribunal and the same reads as under: “10. Similarly, as per the details filed by the assessee, we find the addition of Rs.14,70,300/- made u/s 14A, addition of Rs.1,31,54,527/- on account of disallowance of Brand Registration Expenses u/s 37(1) and addition of Rs.2,83,63,949/- on account of disallowance of reimbursement of Trade Scheme to Promoters are not based on any incriminating material found during the course of search. So far as addition of Rs.10,80,000/- on account of Payment to ITA Nos.3847 & 3848/Del/2017 Officials is concerned, the same was made by the Assessing Officer on the ground that the expenses of Rs.15,000/- per month were paid to Excise Officials for getting the licence and fee of Rs.75,000/- per month needed to be paid. It is the submission of the ld. counsel for the assessee that the sheet of paper which were recovered during the course of search conducted on 15.02.2011 pertained to assessment year 2002-03 and, therefore, the same is outside the purview of section 153A proceedings for the impugned assessment years. It is also his submission that the observations made by the Assessing Officer were based on isolated reading of all the pages instead of reading of altogether. We find merit in the above argument of the ld. counsel for the assessee. The submission of the ld. counsel for the assessee that the paper relates to assessment year 2002-03 could not be controvert by the ld. DR. We find the Assessing Officer on the basis of the seized paper relating to assessment year 2002-03 presumed that similar expenditure must have been incurred by the assessee for which he made additions in both the years under appeal. We find the issue is now settled in favour of the assessee by the decision of the Hon'ble Supreme Court in the case of CIT vs. Sinhagad Technical Education Society in Civil Appeal No.11081/2017 order dated 29.08.2017, wherein the Hon'ble Supreme Court has observed that the seized material must have a co-relation with the assessment year to which they pertain to and therefore invoking jurisdiction u/s 153C for an assessment year that had no relation to the seized material is bad in law.” 54. In light of the above, we direct the Assessing Officer to delete the impugned addition. Ground No. 13 is allowed.”

14.2 As the issue identical to involved in present grounds of respective appeals, has been adjudicated , thus respectfully

36 ITA Nos. 910 to 914/Del./2015 following the decision of the coordinate bench of the Tribunal we direct the Assessing Officer to delete the respective additions. The respective grounds of the appeal are accordingly allowed. 15. The ground No. 12 to 12.3 of ITA No. 911/Del/2015 for assessment year 2008-09, ground No. 12 to 12.3 of ITA No. 912/Del/2015 for assessment year 2009-10, ground No. 11 to 11.3 of ITA No. 913/Del/2015 for assessment year 2010-11 and ground No. 11 to 11.3 of ITA No. 914/Del/2015 for assessment year 2011-12 are related to disallowance made under section 40A(3) of the Act for payment made in cash on the basis of the documents seized from the premises of Sri Sameer Goyal. The about grounds raised being identical, for brevity, the ground No. 12 to 12.3 of ITA No. 911/Del/2015 for assessment year 2008-09 are reproduced as under: 12. That the Hon’ble DRP/Ld. AO erred on facts and in law in making the disallowance under section 40A(3) of the Act amounting to INR 45,000/- by holding that the payment is made in cash to the excise authorities on mere conjectures and surmises. 12.1 That the Hon’ble DRP/Ld. AO grossly erred on facts and in law in not appreciating that the document is seized from the premises of Sh. Samir Goyal who is related to NV group and as such Appellant has no view on such document. 12.2 That the Hon’ble DRP/Ld. AO grossly erred in facts and in law in disregarding the submission of the Appellant that all payments made to NV group by the Appellant are made by way of account payee cheques / RTGS in the normal course of business and as such section 40(A)(3) of the Act does not get attracted for such payments. 12.3 That the Hon’ble DRP erred in holding that the word ‘expenditure’ has not been defined, and hence the payment made by the Appellant is covered under the provisions of Section 40(A)(3) of the Act.

15.1 The coordinate bench of Tribunal (supra) has decided the issue of disallowance of cash payments on the basis of the

37 ITA Nos. 910 to 914/Del./2015 documents seized from the premises of Sri Sameer Goyal in assessment year 2007-08 observing as under:

“55. Ground No. 14 relates to the disallowance of Rs. 45,000/- u/s 40A(3) of the Act. 56. Facts show that on the basis of search conducted on the premises of the N.V. Distilleries, Ambala and its proprietor Shri Samir Goyal, some document was found and seized. On reading the said document, the Assessing Officer formed a belief that the assessee has paid cash payment of Rs. 45,000/- to Excise Official. The Assessing Officer was of the firm belief that the provision of section 40A(3) of the Act squarely applied and accordingly made the addition of Rs. 45,000/-. 57. Before us, the ld. counsel for the assessee drew our attention to the said seized document which was seized from the premises of Shri Samir Goyal and pointed out that the said document does not contain any date nor any year. Therefore, it is unlawful to consider the same for the year under consideration. On perusal of the said document, the ld. DR also could not point out any date or year. 58. We have considered the seized document which is reproduced as under:

COMPARISON - DEPOT EXPENSES SEAGRAM VS. NV SEAGRAM NV S.No Particulars AMOUNT in : AMOUNT IN . Rs. RS.

' 1 Delivery Charges 12.00 14.60 2 Unloading charges 0.50 0.70 3 EXCISE EXPENSES

30000.00 Inspection Guard 6000.00 10000.00 Office 10000.00 10000.00 Miscellaneous 10000-00 10000.00 Four departments 10000.00 Total -5 46030.00 70000.00

38 ITA Nos. 910 to 914/Del./2015 4 Rent 160000.03- 175000.00

5 OFFICE OVERHEAD I Telephone 20000.00 30000.00; Electricity/Generator 20000.00 30000.00 Stationery 20000.00 25030.00 Staff Welfare 6000.00 6030.00 Misc Office expenses 0.00 39500.00 Total - 5 6500.00 129500.00

6 Salaries 289000.00 570500.00 59. A perusal of the same shows that it is nothing but a dumb document which requires no consideration. Moreover, it is an undisputed fact that the documents were seized from the premises of Samir Goyal and, therefore, any relevance to be deduced from the same has to be in the case of Samir Goyal and not the assessee keeping in mind that the assessment has been framed u/s 153A of the Act. We, accordingly, do not find any merit in the addition and direct the Assessing Officer to delete the same. Ground No. 14 is allowed.”

15.2 In view of the identical issue involved in grounds raised in present appeals before us, respectfully following the finding of the Coordinate bench of the Tribunal (supra) , the delete the additions in dispute in the respective ground raised and accordingly those grounds of the appeals are allowed. 16. The ground Nos. 13 to 13.1 of ITA No.911/Del/2015 for assessment year 2008-09 and ground Nos. 13 to 13.1 of ITA No. 912/Del/2015 for assessment year 2009-10 are related to disallowance under section 40A(3) of the Act in respect of the payments made to Skyview Consultants. For brevity, the ground Nos. 13 to 13.1 of ITA No. 911/Del./2015 for assessment year 2008-09 are reproduced as under:

39 ITA Nos. 910 to 914/Del./2015 13. That the Hon’ble DRP/Ld. AO erred on facts and in law in making the disallowance under section 40A(3) of the Act amounting to INR 46,06,333/- by holding that the payment is made in cash on mere conjectures and surmises. 13.1 That the Hon’ble DRP/Ld. AO grossly erred on facts and in law in not appreciating that the payments have been made through normal banking channels on which taxes have also been deducted at the applicable rates and hence section 40(A)(3) does not get attracted.

16.1 The identical issue has been decided by the Coordinate bench of the Tribunal(supra) in assessment year 2007-08 observing as under:

“60. Ground No. 15 relates to the disallowance of Rs. 40,61,565/- made u/s 40A(3) of the Act. 61. From a perusal of the seized material, the Assessing Officer found that the assessee has made cash payments of Rs. 91.98 lakhs from June/July 2006 to April 2008, most of which exceeded Rs. 20,000/-. The assessee was asked to explain as to why the same should not be disallowed u/s 40A(3) of the Act. 61. The assessee filed a detailed reply with necessary documentary evidences claiming that the payments have not been made in cash. The detailed reply of the assessee did not find any favour with the Assessing Officer and the Assessing Officer proceeded by making addition of Rs. 40.61 lakhs u/s 40A(3) of the Act. 62. Objection was raised before the DRP but the same was dismissed. 63. Before us, the ld. counsel for the assessee drew our attention to the chart exhibited at page 16 of the paper book and pointed out that the payments have been made in terms of the consulting agreement in respect of variable component payment by way of account payee cheques/RTGS. It is the say of the ld. counsel for the assessee that on such payment, tax has been deducted at source at applicable rates. It is the say of the ld. counsel for the assessee that the Assessing Officer has been carried away by nomenclature given to the file being cash.xls. Reliance was placed on the judgment of the Hon'ble High Court of Delhi in the case of Anand Swarup Khandelval 177 Taxman 450. 64. Per contra, the ld. DR strongly supported the findings of the Assessing Officer and reiterated that the name of the file was cash.xls and therefore, the impugned payments must have been made in cash. 65. We have heard the rival submissions and have given thoughtful consideration to the orders of the authorities below. It is true that the disallowance is based on the file cash.xls. It is equally true that the payments

40 ITA Nos. 910 to 914/Del./2015 have been made by way of account payee cheques/RTGS. In our considered opinion, such payments do not attract the provisions of section 40A(3) of the Act. Moreover, the assessee has also furnished the ledger account of M/s Sky View in the books of the assessee for the period 01.04.2007 to 31.03.2011. It appears that the Assessing Officer has not examined the details from correct perspective. In the interest of justice and fair play, we restore this issue to the file of the Assessing Officer. The Assessing Officer is directed to verify from the ledger account of Sky View and verify whether payments have been made by A/c payee cheques/RTGS and after satisfying himself, no addition need be made u/s 40A(3) of the Act. Ground No. 15 with all its sub grounds is treated as allowed for statistical purposes.”

16.2 Thus, respectfully following the decision on Coordinate bench of the Tribunal, we restore the issue to the file of the Assessing Officer for verification in the manner directed by the Tribunal(supra) in assessment year 2007-08. The respective grounds of the appeals are accordingly allowed for statistical purposes. 17. The ground Nos. 15 to 15.4 of ITA No. 911/Del/2015 for assessment year 2008-09, ground Nos. 14 to 14.4 of ITA No. 912/Del/2015 for assessment year 2009-10, grounds Nos. 12 to 12.4 of ITA No. 913/Del/2015 for assessment year 2010-11, and ground Nos. 13 to 13.4 of ITA No. 914/Del/2015 for assessment year 2011-12 are related to disallowance of payment made to certain parties under section 37(1) of the Act due to non- verification or nonproduction of the parties. For brevity, the ground No. 15 to 15.4 of ITA No. 911/Del/2015 for assessment year 2008-09 are reproduced as under:

41 ITA Nos. 910 to 914/Del./2015 15.1 That the Hon’ble DRP/Ld. AO grossly erred in law in violating the principles of natural justice by completing the impugned assessment on mere surmises and conjectures without appreciating that the identities of said parties were undisputed as all the evidences and documents have been placed on record by the Appellant. 15.3 That the Hon’ble DRP/Ld. AO erred in proceeding to complete the assessment and making disallowance in respect of such parties in utter haste wherein a time period of less than 10 days was allowed to the parties to file voluminous details of its 5 years transaction with assessee. 15.4 That the Hon’ble DRP/Ld. AO erred on facts and in law in completely disregarding the fact that the Appellant had even deducted tax at source wherever it is applicable under Chapter XVII- B of the Act.

17.1 The identical issue has been decided by the Coordinate bench of Tribunal(supra) in assessment year 2007-08 observing as under:

“66. Ground No. 16 relates to disallowance of Rs. 7,16,79,359/- u/s 37(1) of the Act for want of verification /non-production in respect of payments made to certain parties. 67. During the course of investigation proceedings, some parties were identified with whom the assessee had transactions during the year. The name of the parties are as under: (a) M/s Classic Alcobev Pvt. Ltd (b) M/s Classic Distributor Company.

(c) M/s Jaiswal Traders

(d) M/s Monarch enterprises (e) M/s Ramp Edge (f) M/s Nucleus Advertising & Communications

(g) M/s Mission Xcellence

42 ITA Nos. 910 to 914/Del./2015 (h) M/s Ghaio Mai & Sons

(i) M/s Paras Enterprise (j) M/s Fairdeal Agencies (k) BTB Advertising (l) M/s S.S. Enterprises

(m) M/s Concern Event Promotions Pvt Ltd (n) M/s Studio Print Art (o) M.s Excel Advertising Agency (p) M/s Dilip Print House

M/s Classic Alcobev Pvt. Ltd NIL M/s Classic Distributor Company. a) Commission - Rs. 54,475 b) Non-Trade Scheme reimbursements , Other Reimbursements -

43 ITA Nos. 910 to 914/Del./2015 a) Commission - Rs.9,30,117 M/s Jaiswal Traders b) Non-Trade Scheme reimbursements / Other Reimbursements - Rs. 11,12,167 M/s Monarch enterprises Marketing and Sales promotion expenses - Rs. 41,00,827 M/s Ramp Edge Marketing and Sales promotion expenses - Rs. 3,09,883 a) Marketing and Sales M/s Nucleus Advertising & promotion expenses -Rs. Communications 1,20,34,023 b) Purchase of marketing material - Rs a) Marketing and Sales M/s Mission Xcellence promotion expenses -Rs. 14,33,692 b) Purchase of marketing material - Rs a) Commission - M/s Ghaio Mai & Sons Rs.2,99,77,531 b) Non-Trade Scheme reimbursements / Other Reimbursements - Rs.6,94,110 M/s Paras Enterprise NIL a) Commission - Rs.2,01,084 M/s Fairdeal Agencies b) Non-Trade Scheme reimbursements / Other BTB Advertising NIL M/s S.S. Enterprises NIL M/s Concern Event Promotions Pvt. Ltd. Marketing and Sales promotion expenses - Rs. 20,74,305 M/s Studio Print Art NIL

44 ITA Nos. 910 to 914/Del./2015 M/s Excel Advertising Agency Marketing and Sales promotion expenses - Rs. 14,310 M/s Dilip Print House Marketing and Sales promotion expenses - Rs. 5,12,505 Total 7,16,79,359

17.2 Thus, respectfully, following the finding of the Tribunal we restore the issue in dispute involved in respective grounds in present appeals to the file of the Assessing Officer for deciding in view of the direction given by the Tribunal on the issue in

45 ITA Nos. 910 to 914/Del./2015 assessment year 2007-08. The respective grounds of the appeals are accordingly allowed for statistical purposes. 18. The ground Nos. 16 of ITA No. 911/Del/2015 for assessment year 2008-09, ground Nos. 15 of ITA No. 912/Del/2015 for assessment year 2009-10, ground Nos. 13 of ITA No. 913/Del/2015 for assessment year 2010-11 and ground Nos. 14 of ITA No. 914/Del/2015 for assessment year 2011-12 relates to initiation of penalty proceedings under section 271(1)(c) of the Act. As these grounds raised are premature, same are dismissed. 19. The ground No. 14 to 14.3 of ITA No. 911/Del/2015 for assessment year 2008-09 relates to disallowance of cash payment of Rs.1,40,000/- under section 40A(3) of the Act. 19.1 The Ld. counsel of the assessee before us submitted that relevant payment was made by cheque and not by cash. In this regard he referred to page 572 of the paper book showing payment by cheque. 19.2 The Ld. DR, on the other hand, submitted that if on verification, the payment is found to be made by cheque, then issued might be decided in accordance with law. 19.3 We have heard the rival parties on the issue in dispute. In view of the contention of the Ld. counsel of the assessee, the issue in dispute need verification by the Assessing Officer as to whether the payment has been made by the cheque and if found so, the Assessing Officer is directed to delete the addition. The issue in dispute is accordingly restored to the file of the Assessing Officer for necessary verification from the bank statement of the assessee. The assessee is directed to produce necessary evidence in support of its claim before the Assessing Officer. The ground of the appeal is accordingly allowed for statistical purposes.

46 ITA Nos. 910 to 914/Del./2015 20. The ground No. 12 to 12.2 of ITA No. 914/Del/2015 for assessment year 2011-12 relates to addition on account of undisclosed sales of Rs.54,27,600/-. The respective grounds are reproduced as under:

20.1 Before us, the Ld. counsel of the assessee submitted that during the course of search at Okhla Office of the NV Group, physical stock of certain items was found less as compared to stock recorded in books of accounts. According to the learned counsel, the assessee has explained reason of shortage as not recording of bottled cases broken in transit. The Ld. counsel submitted that relevant excise records were shown to the Assessing Officer, however, completely ignored. The Ld. counsel submitted that identical issue has been decided by the Hon’ble Delhi High Court in decision dated 3rd of August 2012 in the case of CIT versus DD Gears Ltd in ITA No. 896 of 2008. Accordingly, he submitted that issue in dispute may be restored back to the

47 ITA Nos. 910 to 914/Del./2015 file of the Assessing Officer for verification and deciding in view of the decision of the Hon’ble Delhi High Court (supra). 20.2 The Ld. DR, on the other hand, relied on the order of the lower authorities. 20.3 We have heard the rival submission and perused the relevant material on record. We find that the assessee made detailed representation before the learned Dispute Resolution Panel which is reproduced as under:

“18.3 The assessee give a detailed reply explaining the reason for shortage of stock and also submitted the stock was fuily recorded in the books and physically stock was short and hence there cannot be any unaccounted sales. The submissions (given at Page 102 to 104 of the DRP application for AY 2011-12) and arguments of the assessee on this issue are summarized as under:- a) At the outset, it is imperative to note that the stock was found less as per physical verification as compared to a higher number of cases recorded in the books. Thus, the books of the assessee have reflected more sales and hence, there cannot be any unaccounted sales in any circumstances. Unaccounted Sales is possible only in reverse situation i.e when stock is iess in books and more as per physical verification, in any case, the reasons for deviation and reconciliation has also been provided.

That aggregate position of breakages not reduced from Stock Register was shown as under:

Brand Name Pack size Breakages from Breakages Total from Feb 1 breakages July to January to Feb 15 upto the date as certified (Ref of search Ann 2.1 to 2.7 of submissions) Blenders Pride Litre 64.54 3.23 67.77 Blenders Pride Quart 199.90 8.26 208.16 Blenders Pride Pint 57.41 5.21 62.62 Blenders Pride Nip 6.52 - 6.52 Total Blenders Pride 16.70 345.07 Fue! Vodka Quart 29.00 2.00 31.00 Fuel Vodka Pint 1.46 63.54 62.08 Fue! Vodka Nip 15.19 16.85 1.66

48 ITA Nos. 910 to 914/Del./2015 Total Fuel Vodka 4.76 111.39 100 Pipers Litre 2.32 - 2.32 100 Pipers Quart 10.74 0.26 11.00 Total 100 Pipers 13.32 0.26 Something Special Quart 0.17 - 0.17 Total Something Special 0.17 0.17 That in addition to above, during the course of physical check, it was submitted that the personnel from department did not count the following: • 4 cases of Blenders Pride Pint; • 9 cases of Blenders Pride NIP; • 1 case of 100 Pipers Quart. b) The shortage of stock was due to non-reduction of bottled cases (which have either broken in transit or in the bond} from the stock register as any reduction in stock register on account of transit breakage or bond breakage would require a pre-approval from the excise authorities and even reports of the excise authorities were shown which was completely ignored by the Ld. AO. c) Further, the process of approval required from excise authorities as stipulated under Exciserules was also bought to our notice which is summarized below:- i. Monthly transit/ bond breakages report isprepared under supervision of the Excise inspector present on the premises. ii. Thereafter, the Assistant Commissioner from Excise department issues an order for destruction of thesestocks and deputes an Excise Officer for this purpose who physically visits thepremises and witnesses the destruction so carried out. Thereafter, the Excise Officer presents at the bond along with the excise supervisor for said destruction sign the necessary entry in LI register.Generally, such destruction takes place periodically, after a time lag of 6 to 9 months. It is only after such physical destruction, that an entry reducing transit and bond breakages is recorded by the Company. d) Further, it was submitted that alcohol industry is highly controlled and supervised by attribution, transportation, storage and sale are fully controlled and supervised. Like in the instant case, every month the Excise Officer certifies the breakages occurred during transit and/ or while lying in bond. The breakages are physically counted by the Excise Officer and thereafter, a sheet incorporating such details brand wise, quantity wise breakages is prepared, signed and handed over to the Company personnel in-charge of the Bond.

49 ITA Nos. 910 to 914/Del./2015 e) During the course of physical check, the personnel from their office did not count certain stocks due to the reason that they were lying on the corner and were looking old and shabby which has not been considered by Ld. AO. Further, it was submitted that Ld. AO may corroborate this fact with the team which conducted stock verification that day at Z - 45/3, Okhla Phase-ll, New Delhi. For further information, it was also submitted that the above process of verification of stock was witnessed by Shri Manoj Kumar, Bond Inspector, Excise Department who was also physically present in the Bond at the time of survey. f) The difference as indicated by the Ld. AO was primarily due to procedure of recording the stock (after certifying breakages) in the Stock Register which is governed by the Excise rules and not an actual difference. g) Further, the products manufactured by the applicant are subject to strict excise regulations and very movement of stock is monitored by the excise authorities. They had not reported any discrepancy in the production or sale of the products for the period under consideration or any of the earlier years. h) Reliance was placed on judgment of Hon'ble Delhi High Court (HC) in case of CIT vs D.D Gears Ltd. 25 Taxmann.com 562 wherein HC accepted the submissions of assessee that its products are excisable and the excise authorities were present in the premises to monitor the production and dispatches from the bonded section. They had not reported any discrepancy in the production or sale of the products for the period under consideration or any of the earlier years. This fact was missed by the Assessing Officer who, contrary to the excise records, erroneously concluded that there were discrepancies, in the finished goods produced by the assessee and that it had indulged in selling the materials/goods outside the books of account. The HC also accepted the findings of the tribunal that due weightage should be given to the fact that for the finished goods the assessee was maintaining were complete records as required by the excise laws. i) The assessee also requested that if any disallowance is to be sustained, it should be restricted to the gross profit earned from such sales and not the entire value of sales. There are various judicial precedents in which it has been held that addition on account of shortage of stock, if any should be limited to the gross profit earned from such short stock. j) Reliance was placed on the judgment of Hon'ble Gujrat High Court (HC) in case of CIT vs President Industries 124 Taxman 654 (Guj HC) wherein HC held that amount of sales cannot represent the income of the assessee who has not disclosed the sales. The sales only represent the price received by the seller of the goods for the

50 ITA Nos. 910 to 914/Del./2015 acquisition of which it has already incurred the cost. It is the realization of excess over the cost incurred that only forms part of the profit included in the consideration of sales.”

20.4 The learned DRP, upheld the decision of the Assessing Officer observing as under: “18.4 Findings - The submission of the assessee has been duly considered by the DRP.’The AO during the course of assessment proceedings for the A.Y. 2011-12, noted as below: "During the course of search and survey proceedings at Okhla office of NV group revealed that stock of brands of the assessee company were found less as per following details:

Band No. of cases Average price Total value of found short per case(Rs.) found Short (Rs.) Blenders Pride 358 10800 3866400 Fuel Vodka 468 3000 1404000 100 Pipers 14 151200 10800 Something Special 1 6000 6000 Total 54,27,600

The assessee was asked to explain as to why Rs. 54,27,600/- may not be added to assessee's income as undisclosed sale. The assessee vide its submission dieted 22.02.2014 filed its reply which is summarized below and which has been duly considered. The assessee submitted that the difference between the physical stock and stock recorded in the stock register was due to non- reduction of bottles which have either broken in transit or in the bond. The assessee also submitted the copies of orders from excise authorities authorizing the breakages. The assessee submitted that order is from breakages from October 2009 to June 2010. However, the assessee could not furnish proof for the breakages/order of the subsequent period, in the absence of any evidence, the difference in the stock is being considered as the unaccounted sales and added back. Since the assessee could not explain to the satisfaction of the panel with evidence regarding its submission of sales out of books, the panel is of the considered view that the addition as proposed by the AO of Rs.54,27,600/- for the A.Y. 2011-12, deserves to be ratified. The assessee gets no relief on this ground of objection.”

51 ITA Nos. 910 to 914/Del./2015

20.5 In our opinion, the contention of the assessee regarding breakage of bottled cases during transit and reconciliation of the same with records of the Excise Authorities have not been verified by the lower authorities. Accordingly, we restore the issue in dispute to the file of the learned Assessing Officer for verification of the claim of the assessee and decide the issue in dispute in accordance with law. Though, the issue should have been restored to the Ld. Dispute Resolution Panel, however, to avoid proceedings in the case at multiple stages, we have restored this issue to the file of the Assessing Officer. The ground of the appeal is accordingly allowed for statistical purposes. 21. In the result, the recalled matter of the appeal in ITA No. 910/Dell/2015 for assessment year 2007-08 is allowed for statistical purposes. The other appeals, having ITA Nos. 911, 912, 913 and 914/Del/2015 for assessment years 2008-09, 2009-10, 2010-11 and 2011-12 respectively are allowed partly for statistical purposes. Order is pronounced in the open court on 10th July, 2019.

Sd/- Sd/- [AMIT SHUKLA] [O.P. KANT] JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 10th July, 2019. RK/-[d.t.d.s] Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR Asst. Registrar, ITAT, New Delhi