DCIT CIR 2, KALYAN vs. RAMESH P. BUDHWANI, PROP.M/S.P.K.MARKETING, ULHASNAGAR

Shri Ramesh P. Budhwani Assessment Year :2013-14 2. The Ld. Authorized Representative for Assessee [AR], Ms. Bhavya Goyal, at the outset, submitted that the facts of the present case stood squarely covered in assessee’s favor by the decision of this Tribunal rendered in the case of DCIT Vs. Shri Vinod Naraindas Kishnani [ITA No. 6227/Mum/2016 dated 26/10/2018]. The copy of the order has been placed on record. Although Ld. DR supported the stand of Ld. AO but failed to controvert the aforesaid submissions. 3 Facts qua the addition are that the assessee has been saddled with impugned disallowance on account of Sales Promotion Expenses in scrutiny assessment u/s 143(3) on 31/03/2016. These expenses represent purchase of tobacco products (cigarettes) which are claimed to be distributed as gift articles. The Ld. AO opined that free of cost distribution promotes the higher consumption of the said commodity which is prohibited u/s 5(3) of the ‘The Cigarettes and other Tobacco Products (Prohibition of Advertisement and Regulation of Trade and commerce, production, supply and Distribution Act, 2003’ (COTP Act) and therefore, the same were to be disallowed in terms of Explanation to Section 37 of the Income Tax Act, 1961. Although the assessee defended its stand, however, not convinced, Ld. AO disallowed the same.

Aggrieved, the assessee agitated the same with success before Ld. first appellate authority vide impugned order dated 05/07/2017 wherein the matter was concluded in assessee’s favor by making following observations: - 5.0 Ground No. 1 is directed against the addition of Rs. 1,73,59,411/- out of sales promotion expenses by applying the provisions of Explanation 1 to Section 37(1) of the Act.

Upon careful consideration of factual matrix, we find that identical issue stood covered in assessee’s favor by the cited decision of co- ordinate bench of this Tribunal. For ease of reference, the relevant observations as well as conclusion drawn by the bench may be extracted in the following manner: - 5. We have considered the rival submission of the parties and have gone through the orders of authorities below. During the assessment proceeding the assessing officer disallowed the sale promotion expenses holding that the expenditure incurred on purchase of cigarette and tobacco product is not allowable expenditure due to disabling provision in section 37(1) of Act as distribution of tobacco product is not allowed under section 5(3) of COTP Act. We have perused the provisions of section 5 &6 of COTP Act, which is reproduced below: 5. Prohibition of advertisement of cigarettes and other tobacco products. - (1) No person engaged in, or purported to be engaged in the production, supply or distribution of cigarettes or any other tobacco products shall advertise and no person having control over a medium shall cause to be advertised cigarettes or any other tobacco Shri Ramesh P. Budhwani Assessment Year :2013-14 products through that medium and no person shall take part in any advertisement which directly or indirectly suggests or promotes the use or consumption of cigarettes or any other tobacco products. (2) No person, for any direct or indirect pecuniary benefit, shall- (a) display, cause to display, or permit or authorise to display any advertisement of cigarettes or any other tobacco product; or (b) sell or cause to sell, or permit or authorise to sell a film or video tape containing advertisement of cigarettes or any other tobacco product; or (c) distribute, cause to distribute, or permit or authorise to distribute to the public any leaflet, hand-bill or document which is or which contains an advertisement of cigarettes or any other tobacco product; or (d) erect, exhibit, fix or retain upon or over any land, building, wall, hoarding, frame, post or structure or upon or in any vehicle or shall display in any manner whatsoever in any place any advertisement of cigarettes or any other tobacco product: Provided that this sub-section shall not apply in relation to- (a) an advertisement of cigarettes or any other tobacco product in or on a package containing cigarettes or any other tobacco product; (b) advertisement of cigarettes or any other tobacco product which is displayed at the entrance or inside a warehouse or a shop where cigarettes and any other tobacco products are offered for distribution or sale. (3) No person, shall, under a contract or otherwise promote or agree to promote the use or consumption of- (a) cigarettes or any other tobacco product; or (b) any trade mark or brand name of cigarettes or any other tobacco product in exchange for a sponsorship, gift, prize or scholarship given or agreed to be given by another person.

On careful perusal of section 5(1) of COTP Act makes it clear that advertisement of tobacco products are prohibited under the law on the purchases who are engaged in production, supply or distribution, directly or indirectly. Subsection (2) of section 5, further puts a condition that no person for any direct or indirect pecuniary benefit shall display, cause to display, or permit or authorise to display any advertisement of cigarettes or any other tobacco product; or for sale or cause to sale , or permit or authorise to sell a film or video tape containing advertisement of cigarettes or any other tobacco product or to distribute, cause to distribute, or permit or authorise to distribute to the public any leaflet, hand-bill or document which is or which contains an advertisement of cigarettes or any other tobacco product; or erect, exhibit, fix or retain upon or land, building, wall, hoarding, frame, post or structure or upon or m w vehicle or shall display in any manner whatsoever in any place an> advertisement of cigarettes or any other tobacco product. The proviso attached with this sub- section further prescribes that an advertisement of cigarettes or any other tobacco product in or on a package containing cigarettes or any other tobacco product; advertisement of cigarettes or any other tobacco product which is displayed at the entrance or inside a warehouse or a shop where cigarettes and any other tobacco products are offered for distribution or sale. Sub section 3 of section 5 of this Act prescribe that no person, shall, under a contract or otherwise promote or agree to promote the use or consumption of cigarettes or any other tobacco product; or any Shri Ramesh P. Budhwani Assessment Year :2013-14 trade mark or brand name of cigarettes or any other tobacco product in exchange for a sponsorship, gift, prize or scholarship given or agreed to be given by another person. Further section 6 of the COTP Act put certain condition on sale of tobacco product to the person of below the age of 18 years or within radius of hundred metres of educational institutions.

We have seen that the assessing officer has not brought any material on record which may show that assessee has undertaken the promotion of specific tobacco product or sponsored them.

The learned Commissioner (Appeals) on considering the contention of assessee concluded that section 5(3) of COTP Act appiies only where a person by contract or otherwise promote or agree to promote the consumption of tobacco products, however the assessee nowhere , has entered into a contract for any specified brand of tobacco product The assessee is not manufacturer or dealer or advertiser of any such product of the assessee is promoting sale of liquor by distributing the tobacco items. The Government has not prohibited the manufacturing of tobacco product, the assessee is also not a manufacturer thereof, and therefore, the provision of section 5 of COTP Act are not applicable on the assessee. The learned Commissioner (Appeals) also observed that the assessee is not concerned whether the product distributed by assessee is consumed or not. Mere distribution does not tantamount to promotion of consumption, unless the distributor actively promotes the product. The learned Commissioner (Appeals) also observed that if the provision of COPT Act is interpreted in such a manner, every shopkeeper who sells tobacco product will become an offender. Therefore, we are also in agreement with the conclusion arrived by Learned Commissioner.

The Hon'ble Bombay High Court in the Maharashtra Sugar Syndicate Versus DCIT (supra) while considering the issue whether the reimbursement of the liquor drawn and paid by the regiment/unit on an occasion like celebrating the Regiment's annual day which is reimbursed can be said to be against the public policy or not. The Hon'ble Bombay High Court on the facts that assessee-company was manufacturer of Indian made foreign liquor (IMFL). It was depending to a large extent on orders from military canteen for the sale of its products. During the relevant assessment year, it offered samples of its products at various military functions so that the personnel could develop a taste for it and it could secure bigger orders from the CSD (Canteen Stores Department). The modus operandi of offering such samples was that the concerned defence establishment used to buy the requisite quantity of company's liquor from the army liquor shops on actual payment and later on the regiment or the defence establishment forwarded the cash memos to the assessee-company for reimbursement. The assessee claimed said amounts as business promotion expenses. The Assessing Officer disallowed such expenses on ground that it was clear entertainment of customers. On appeal, the Commissioner (Appeals) upheld the disallowance on the ground that such expenses were against the public policy. The Tribunal upheld the order of the Commissioner (Appeals), On appeal to the High Court it was held that the Tribunal was not justified in holding that the expenditure incurred by the assessee for sales promotion was not allowable. The Hon'ble Court concluded that the army unit could not directly purchase liquor from a manufacturer. Liquor had to be purchased through CSD. This was done by the army unit. The second aspect was that the amounts spent by the unit towards purchase of that liquor was reimbursed by the assessee not to any Shri Ramesh P. Budhwani Assessment Year :2013-14 individual but to the army unit itself and which went into the coffers of the Government. There was no bar in taking such reimbursement as evidenced by receipt. In other words. such a contract was not prohibited by law nor was it in the nature of bribe to an officer. The public policy would involve that income and expenditure which is from an activity which is prohibited by law or is immoral. Only then, the expenditure could have been disallowed. In the instant case, the amount had been spent by way of commercial expediency for promoting the assessee's products. The finding was that it was by way of sales promotion. Such expenditure was not against public policy. Once that be the case, the deduction was allowable, 10. Considering the decision of Hon'ble jurisdictional High Court that and view of the discussion referred above, we do not find any illegality or infirmity in the order passed by learned Commissioner (Appeals), which we affirmed. Hence, the ground of appeal