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Income Tax Appellate Tribunal, MUMBAI BENCH “I”, MUMBAI
Before: Shri Joginder Singh & Shri G Manjunatha
hence, his order should be set aside and addition made by the AO
12 M/s National Liquors & Others should be sustained.
None appeared on behalf of the assessee. We have heard the Ld.DR, perused the material available on record and gone through the orders of authorities below. It is an admitted fact that the assessee has incurred sales promotion expenses for purchase of tobacco products to be distributed free of cost to its customers for purchase of IMFL and beer products. It is also an admitted fact that as per the provisions of cigarettes and tobacco products (Prohibition of advertisement) & Regulation of Trade & Commerce, Production, Supply and Distribution of Tobacco Products Act, 2003 (COTP Act) by way of section 5(3) prohibits any person to promote or agree to promote the use or consumption of cigarettes or any other tobacco products under a contract or otherwise.
It is also an admitted fact that WHO framework Convention on tobacco control (WHO FCTC), Article 16 prohibits or permits the prohibition of the distribution of free tobacco products to the public, especially to minors.
These facts are not disputed by the assessee. According to the assessee, when the State has not imposed any ban or restriction on production, sale and consumption of tobacco products, mere purchase of tobacco products in the open market for free distribution to increase sales turnover and expand customer base cannot be considered as expenses incurred for any purpose which is an offence or which is 13 M/s National Liquors & Others prohibited by law and hit by the provisions of Explanation (1) to section 37(1) of the Act.
There is no dispute with regard to the fact that the government policy is to discourage usage of tobacco products by the general public.
To regulate and control tobacco products, the government has brought out various legislation. The provisions of section 5(3) of (COTP Act) , 2003 specifically prohibits any person promotes or distribution of free cigarette product to general public and especially to minors. As per the Ministry of Health & Family Welfare, Government of India, free distribution of tobacco products amounts to promotion which is prohibited under the COTP Act, 2003. In this legal back ground, when we analysis expenditure incurred by the assessee towards sales promotion, it is obviously certain that the assessee has incurred expenditure for purchase of tobacco product to be distributed free of cost to its customers to enhance its sales and customer base. Although, expenditure incurred by the assessee is in the nature of sales promotion expenses which has been incurred wholly and exclusively for the purpose of business, but such expenses are in the nature of expenditure incurred for any purpose which is an offence or which is prohibited by law. Although, the State has not imposed any restriction on production, sale and consumption of tobacco products, it is the duty of the every
14 M/s National Liquors & Others general public to adhere to the law which specifically bans promotion of free distribution of tobacco products, under whatever may be the circumstances. In this case, the assessee has incurred sales promotion expenses for free distribution of tobacco products which is in our considered opinion, expenditure incurred for the purpose which is an offence or which is prohibited by law and hit by Explanation (1) to section 37(1) of the Income-tax Act, 1961. Therefore, we are of the considered view that the AO was right in disallowing sales promotion expenses u/s 37(1) of the Act. The Ld.CIT(A) without appreciating the facts, has deleted addition made by the AO. We further notice that the case laws relied upon by the assessee and considered by the Ld.CIT(A) are rendered under different set of facts and hence, will not come to the rescue of the assessee. We, therefore, reverse the order passed by the Ld.CIT(A) and uphold the addition made by the AO towards disallowance of sales promotion expenses.
In the result, appeal filed by the revenue is allowed.
The facts and issues involved in all other appeals are identical to the issue discussed in , in the preceding paragraphs. The reasons given by us in the preceding paragraphs, shall mutatis mutandis apply to these appeals also. Therefore, for the detailed reasons given therein, we reverse the orders passed by the CIT(A) and 15 M/s National Liquors & Others restore the addition made by the AO towards sales promotion expenses. 12. In the result, all the 8 appeals filed by the revenue are allowed. Order pronounced in the open court on 20th July, 2018.