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Income Tax Appellate Tribunal, MUMBAI BENCH “B”, MUMBAI
Before: SHRI G.S. PANNU & SHRI SANDEEP GOSAIN
The captioned appeal by the assessee is directed against the order of CIT(A)-9, Mumbai dated 03.03.2014 pertaining to the Assessment Year 2010- 11, which in turn has arisen from the order passed by the Assessing Officer, Mumbai dated 31.01.2013 u/s 143(3) of the Income Tax Act, 1961 (in short ‘the Act’).
M/s. Nielsen (India) Pvt. Ltd.
In this appeal, although assessee has raised multiple Grounds of appeal, but the dispute revolves around three issues which we shall take in seriatim.
3. Briefly put, the relevant facts are that the appellant is a company incorporated under the provisions of the Companies Act, 1956 and is, inter- alia, engaged in the business of market research. In the course of assessment proceedings, the Assessing Officer, inter-alia, noted that the Audit report in Form 3CD showed that prior period expenses of Rs.18,56,471/- were debited to the Profit & Loss Account. Such expenses were under various account heads, namely, compensation, staff welfare, travel, conveyance, etc. After show-causing the assessee, the Assessing Officer did not find the explanations satisfactory and disallowed such expenses debited to the Profit & Loss Account primarily for the reason that since assessee was following mercantile system of accounting, debiting of prior period expenses is not justified on the basis of the matching principle. This addition has since been upheld by the CIT(A) also, against which assessee is in further appeal before us.
On this aspect, it was a common point between the parties that similar issue had come-up before the Tribunal in Assessment Years 2008-09 as well as in 2009-10 and vide order in and 7195/Mum/2014 dated 29.05.2017 and 08.09.2017 respectively, the issue has been decided in favour of the assessee. Notably, in Assessment Year 2008-09, the Tribunal noted the submissions of the assessee to the effect that since it was closing its accounts for the year ending 31st March by 30th
M/s. Nielsen (India) Pvt. Ltd.
April, to be in line with the practice followed by its holding company in USA, certain vouchers/bills of expenses though pertaining to period ending 31st March were received from the branches after 30th April and, therefore, such like expenses were booked in the Profit & Loss Account of the next year. Similar plea has been raised in the instant year also. In fact, in Assessment Year 2008-09, the Tribunal noted that the said methodology was consistently being followed by the assessee since more than 15 years and, therefore, it deemed it fit to delete the addition. The relevant discussion in this regard is as follows :-
“7. We have carefully considered the rival submissions. Factually speaking, the assessee has been consistently explaining before the lower authorities the reasons for which such expenses have been debited in the Profit & Loss Account for the year under consideration. It has been explained that it’s accounts for the year ending 31.3.2007 are closed on 30.4.2007, to be in line with the practice followed by its holding company in USA and, therefore, the bills/details of expenditure of certain expenses, which pertain to 31.3.2007 ending, were received from its Branches after 30.4.2007 and, thus debited in the Profit & Loss Account for the year under consideration, i.e. ending on 31.3.2008. Such expenditure has been treated as a prior period expenditure and disallowed. The learned representative made a statement at Bar that the aforesaid methodology adopted by the assessee has been consistently followed since more than 15 years and that after the initial disallowance in the Assessment Year 1996- 97, there has been no disallowance till now. Be that as it may, one point which clearly emerges is that there is no dispute insofar as the nature of the expenditure is concerned, as being relatable to the business of the assessee. It is also correct that the assessee is following the mercantile system of accounting, so however, the impugned expenses may relate to an earlier period, but they cannot be said to arise in the preceding year. Quite clearly, the expenses have arisen and crystallized during the year under consideration inasmuch as the requisite bills, details, etc. have been received by the assessee for incorporation in accounts by its Head office
M/s. Nielsen (India) Pvt. Ltd. during the year under consideration and, therefore, the same have been rightly accounted for in the instant year. There is no controversion to the assertion of the learned representative that such practice has been consistently followed by the assessee and that such practice evens out any difference in deductibility of the total expenses over a period of time. Considering the aforesaid, we find no reason to deny the claim of assessee for deduction of the impugned expenditure.
8. Before parting, we may also refer to the judgments of the Hon'ble Bombay High Court in the case of Taparia Tools Ltd., 260 ITR 102 (Bom) and Madras Industrial Investment Corporation Ltd., 225 ITR 802 (Bom), which have been referred to by the CIT(A). In our considered opinion, the ratio of the aforesaid decisions have no relevance so far as the instant controversy is concerned which is required to be adjudicated on the principles of consistency as well as on the basis of the year of crystallization of liability, which clearly takes place in the year in which such expenses are booked by the assessee. Thus, we set-aside the order of CIT(A) and direct the Assessing Officer to delete the disallowance of Rs.24,84,082/-.”
The aforesaid view has since been reiterated by the Tribunal in Assessment Year 2009-10 vide order dated 08.09.2017 (supra). In the instant year too, the reasons for debiting of prior period expenses in the Profit & Loss Account remains the same and, in our view, the precedents fully cover the controversy in favour of the assessee. Therefore, following the precedents in assessee’s own case, we set-aside the order of the CTIA and direct the Assessing Officer to delete the disallowance of Rs.18,56,471/-. Thus, on this aspect, assessee succeeds.
The second dispute is with regard to disallowance of Rs.31,30,696/- on account of ‘job cost transfer’ expenses. In this context, the relevant facts are that before the Assessing Officer, assessee explained that such charges are M/s. Nielsen (India) Pvt. Ltd.
on account of expenses incurred on printing, photocopying, duplication charges, etc. It was explained that where expenses related to the assessee- company but the third party had raised invoices in the name of the assessee’s sister concern, such cost was transferred to the assessee- company at the end of the month and similarly, when certain expenses pertained to the assessee’s sister concern but the third party had raised the invoices in the name of the assessee-company, such cost was transferred to the assessee’s sister concern at the end of the month. In other words, as per the assessee, such expenses debited under the head ‘job cost transfer’ of Rs.31,30,696/- pertained to the assessee and were, therefore, allowable expenses.
The Assessing Officer, however, disallowed the expenses and the relevant discussion is contained in para 7.2 of his order. Firstly, the Assessing Officer noted that such expenses were incurred by assessee’s sister concern on behalf of the assessee and that onus was not discharged by the assessee to prove that the expenses were incurred wholly and exclusively for the purpose of business. The Assessing Officer also made an observation that assessee has neither provided the bills/vouchers or copy of Board resolution in support of its claim. Accordingly, the Assessing Officer disallowed the expenses.
Before the CIT(A), assessee reiterated similar explanation and explained that the amount was on account of ‘job cost transfer’ from sister concern and, in support, a Board resolution passed in Board meeting of the assessee-company on 18.05.2009 was furnished. It was also explained that assessee’s business of market research required incurrence of duplication
M/s. Nielsen (India) Pvt. Ltd. charges pertaining to data duplication on account of printing charge, photocopying charges, etc. and, therefore, the same were incurred essentially for conducting the business. It was reiterated that the expenses towards printing charges, photocopying charges, etc. are incurred wholly and exclusively for the purpose of business of the assessee-company. The CIT(A) has since upheld the disallowance made by the Assessing Officer. The CIT(A) noted the absence of any evidence in the form of bills/vouchers in support of the impugned expenditure. The CIT(A) also refused to accept the Board resolution as it was a fresh evidence according to him. Furthermore, the CIT(A) noted that the expenses were covered by the provisions of Section 40A(2)(b) of the Act and, therefore, the onus was on the assessee to prove what specific services were rendered against such payments. Against such action of the CIT(A), assessee is in further appeal before us.
Before us, the learned representative for the assessee referred to the details of ‘job cost transfer’ amount and reiterated the submissions made before the lower authorities. It has been emphasised that such expenses are incurred in the course of carrying on the activities of market research and, therefore, there was no justification to disallow the same. In particular, it has been pointed out that the CIT(A) erred in not appreciating the copy of the Board resolution inasmuch as the Assessing Officer, in the assessment order, has found non-filing of Board resolution as one of the infirmities in the claim of the assessee. In any case, it has been explained by the learned representative that the lower authorities at no stage asked for production of any bills/vouchers in support of the claim. Further, the learned representative pointed out that the CIT(A) is grossly wrong in invoking Section 40A(2)(b) of the Act inasmuch as the expenditure reflected by the M/s. Nielsen (India) Pvt. Ltd.
impugned payments are not for services rendered by assessee’s sister concern, but for services rendered by third party, though the invoices were incidentally raised in the name of the assessee’s sister concern. It was, therefore, contended that reference to Sec. 40A(2)(b) of the Act by CIT(A) is quite irrelevant.
On the other hand, the ld. DR appearing for the Revenue has relied upon the orders of the authorities below which we have already detailed in the earlier paras and is not being repeated for the sake of brevity.
Having considered the rival submissions, in our view, the lower authorities have erred in not appreciating the facts in their proper perspective. Firstly, it is quite evident that the plea of the assessee was that the expenses debited under the head ‘job cost transfer’ is on account of duplication charges, printing expenses, photocopying charges, etc. It has also been explained that such expenses were incurred while carrying on the activities of market research, which is the main line of assessee’s business. In this context, we have also perused the details of ‘job cost transfer’ Account, copy of which has been furnished in the course of hearing. Explaining the various entries, the learned representative had pointed out that certain times, the third party vendors raised the invoices in the name of assessee’s sister concern, which costs are transferred to the assessee at the end of each month. Similarly, when the expenses pertain to assessee’s sister concern, but the third party has raised the invoices in the name of the assessee-company, such costs are transferred to assessee’s sister concern at the end of the month. All these transfers are classified as ‘job cost transfer’. The explanation of the assessee is borne out of entries found in the ‘job cost
M/s. Nielsen (India) Pvt. Ltd. transfer’ details furnished by the assessee. In fact, a perusal of the same shows that it is constituted of numerous entries of small amounts and the narration clearly brings out that the expenses are in the nature of duplication, printing expenses, xerox expenses, etc. Moreover, the Board resolution which the assessee had furnished before the CIT(A) supported the claim of the assessee that such expenses were indeed in relation to the business of the assessee alone. It is quite inexplicable that on the one hand the Assessing Officer insists on the Board resolution not being furnished and when the same is furnished before the CIT(A), the same is not entertained, especially in the face of the fact explained by the learned representative that at the initial stage, the Assessing Officer had not called for the Board resolution at all. Considering the entirety of the circumstances, in our view, the assessee had sufficiently discharged its onus of explaining the nature of expenses in question and apart from disbelieving the explanation, there is no material brought out by the lower authorities to deny the claim of expenses. Therefore, we set-aside the order of CIT(A) and direct the Assessing Officer to delete the addition of Rs.31,30,696/-. Thus, on this aspect, assessee succeeds.
The third dispute in this appeal relates to the disallowance of Rs.61,62,759/- made by the Assessing Officer out of ‘other incentive expenses’. The said expenditure is a part of direct expenses incurred by the assessee for research activities. Before the Assessing Officer, assessee explained that the said expenditure reflected expenses attributable to market research activities and was incurred by way of payment to shopkeepers for data collection in connection with the market research conducted by the assessee. The Assessing Officer noted that there was a M/s. Nielsen (India) Pvt. Ltd.
contradiction in the explanation of the assessee inasmuch as initially, on 02.01.2013, the description of the expenses claimed was ‘purchase of product samples’ whereas subsequently, on 30.01.2013, the expenditure was claimed as incentive given to shopkeepers for data collection. Apart from the aforesaid, the Assessing Officer held that assessee has not proved that the expenditure was actually incurred for the purpose of business.
Before the CIT(A), assessee reiterated that these are routine expenses incurred for incentive given to shopkeepers for data collection and that inadvertently, initially the same was wrongly stated to be ‘purchase of product samples’. With regard to the plea of the Assessing Officer that assessee had not justified the incurrence of expenditure for the purpose of business, the learned representative pointed out before the CIT(A) that the requisite details called for were produced before the Assessing Officer, who did not call for any further details/justification as regards the impugned expenses. Therefore, the basis adopted by the Assessing Officer was unjustified. Apart therefrom, assessee also explained that it was carrying on market research activities in retailing for various kinds of products such as edible oil, soft drinks, lubricants, mobile handsets, etc. for which purpose, assessee had to regularly approach numerous shopkeepers across India to obtain data based on their dealing and interaction with their customers. In order to incentivise the shopkeepers, the representatives of the assessee- company visit them for conducting the data collection relating to research and pay a small incentive, which may range from Rs.20 to Rs. 1000 per visit. These payments are generally cash payments and such expenses have been consistently incurred over the years. The CIT(A) has noted all the submissions, but disagreed with the assessee and has affirmed the M/s. Nielsen (India) Pvt. Ltd.
disallowance made by the Assessing Officer. The discussion by the CIT(A) in para 5.3 of his order reveals that he has upheld the disallowance primarily on the reasoning advanced by the Assessing Officer that the expenditure remained unsubstantiated.
Before us, the learned representative for the assessee has reiterated the submissions put forth before the lower authorities and has also furnished copy of the submissions made before the lower authorities and has referred to the details of such expenses which are debited under the head ‘other expenditure’ amounting to Rs.22,42,60,722/-. It has been pointed out that the lower authorities have unjustly disallowed the expenditure and the very nature of the expenditure showed that they were incurred in small denominations at geographically spread-out locations where the representatives of the assessee visited for data collection from the shopkeepers. Considering the nature of the expenditure and the details furnished, according to the learned representative, the claim of the assessee is justified under the facts and circumstances of the case.
On the other hand, the ld. DR has pointed out that the lower authorities have justifiably disallowed the expenditure as the onus was on the assessee to substantiate the expenditure.
We have carefully considered the rival submissions. The discussion in the orders of the authorities below reveal that the disallowance has been made primarily on two grounds. Firstly, that assessee had initially explained it to be expenditure on ‘purchase of product samples’ and it is only subsequently that assessee explained that these were incentives given to M/s. Nielsen (India) Pvt. Ltd.
shopkeepers for data collection. In our view, the said objection has been overemphasised by the lower authorities. The assessee had explained that it was only on account of inadvertence that the same was explained as ‘purchase of product samples’ and, in this context, the learned representative had also referred to the written explanation furnished by the assessee before the Assessing Officer dated 30.01.2013 and the relevant details, wherein the amount of Rs.61,62,759/- has been stated to be on account of incentives to the shopkeepers for data collection. Other than that, the objections raised by the lower authorities are too general in nature and are not based on any objective verification of the expenditure claimed. As the learned representative had explained, assessee had furnished the details as called for by the Assessing Officer and if the Assessing Officer was not satisfied, he ought to have made further inquiries with the assessee. No such approach has been adopted and the Assessing Officer just disallowed the expenditure by observing that assessee had failed to prove that the expenses were incurred wholly and exclusively for the purpose of business. Rather, assessee’s explanation was very much before the Assessing Officer, which is to the effect that such expenses were incurred in the course of visit by assessee’s personnel for data collection from shopkeepers spread-out over a large geographical area. All such submissions have also been reiterated before the CIT(A), but instead of subjecting the explanations to any verification, the lower authorities have merely sought to disagree with the same and disallow the expenditure without even an iota of evidence to the contrary. Therefore, we deem it fit and proper to set-aside the order of CIT(A) on this aspect and direct the Assessing Officer to delete the addition. Thus, on this aspect, assessee succeeds.
M/s. Nielsen (India) Pvt. Ltd.
In the result, appeal of the assessee is allowed, as above.
Order pronounced in the open court on 31st May, 2018.