M/S. PEARL DRINKS LIMITED,NEW DELHI vs. ITO, NEW DELHI

Assessee has filed the appeal against the Order dated 05.12.2013 passed by the Ld. Commissioner of Income Tax (Appeals)-XVII, Delhi pertaining to assessment year 2007-08 on the following grounds:-

1. The order passed by the Hon'ble CIT(A) is bad in law, wrong on facts and against the principles of natural justice.

2. (a) The Hon'ble CIT(A) has erred in confirming the penalty of Rs.1374742/- levied u/s 271(1)(c) of the Income Tax Act and has failed to appreciate that the company has not concealed its income or furnished inaccurate particulars thereof and as such the penalty u/s 271 (1)(c) has been wrongly imposed and the penalty deserves to be deleted.

(b) That the Hon'ble CIT(A) has erred in confirming penalty of Rs.1374 7 42/- levied by the ld. AO @ 100% of the tax allegedly sought to be evaded by filing of alleged inaccurate particulars of income or concealment of particulars of income u/s 271 (1 )(c) of the Income Tax Act in respect of disallowance out of advertisement and publicity expenses of Rs.

4059064/- and out of interest paid of Rs.25136/-.1he expenses are genuine and incurred for business exigencies and merely disallowance of expenses does not amount to concealment or furnishing inaccurate particulars.

(c) The Hon'ble CIT(A) has grossly erred in confirming the penalty of Rs.1374742/- levied by the ld. AO without considering the submissions and without dealing with the issue at all that in the case of the appellant company, the income was assessed u/s 115JB of the Income Tax Act wherein no addition was made by the Ld. AO and the income as per normal provisions of the Income Tax Act was Nil and therefore the returned income and the assessed income was same and the order of the Hon'ble Delhi High Court in the case of MIs. Nalwa

Soils investment Ltd. (2010 TIOL 890) squarely covers the case of the appellant company wherein it has been held that no penalty u/s 271 (1 )(c) is leviable in such circumstances.

The appellant craves leave to add, alter amend, delete forego or modify any of the grounds of appeal before or at the time of hearing.

“3. The main effective ground of the assessee read as follows:-

“2(a). The Hon’ble CIT(A) has erred in confirming the disallowance of a sum of Rs.40,59,064/- out of advertising and publicity expenses representing wall painting and other advertisement expenses paid to M/s Vision & Images on the alleged belief that the party was merely used as a conduit for providing fake bills of various expenses.

3. The Hon’ble CIT(A) has erred in confirming the disallowance of a sum of Rs.25,136/- representing interest paid to M/s Gee Capital TFS Ltd. being interest on assets on hire purchase on the ground that no TDS has been deducted on the aforesaid interest.”

Ground No. 2(a) of the assessee:-

3. Apropos above ground, we have heard arguments of both the sides and carefully perused the materials placed on the record of the Tribunal. The ld. Counsel for the assessee has drawn our attention to page 1 & 2 of the assessment order and contended that the A.O made disallowance and addition of Rs.40,59,064/- for wall paintings and Pepsi logo paid to M/s Vision & Images only on the basis that notice issued to this entity received with the remarks “Left”. The Ld. Counsel also pointed out that the CIT(A) dismissed claim of the assessee by taking a hyper technical approaches and without proper appreciation of facts. This impugned order was be set aside. He drew our attention to Para 2.4 of the order of the CIT(A) and pointed out that the first appellate authority without providing opportunity to explain its case properly. The Ld. Counsel pointed out that as per assessee profit & loss a/c (APB Page 11), Schedule 12 to final accounts (APB page 24) the total turnover was 13 crores and in the field of cold drinks and beverages advertisement and publicity has vital role to play to boost sale of these items and assessee genuinely incurred expenditure on logo and wall paintings by making impugned payment to M/s Vision. The Ld. Counsel also submitted that the assessee filed copy of the return of income of the payee at pages 141 to 142 of assessee’s paper book and explained before CIT(A) the basis of claim as noted by the CIT(A) at pages 3 to 6 of the impugned order.

4. The Ld. Counsel also drawn our attention to operative Para 2- 4 of the impugned order of CIT(A) and contended that merely because notice u/s 133(6) was not responded on account of shifting of page from earlier place is not a legally tenable ground for making disallowance. The Ld. Counsel vehemently pointed out that lack of funds for business purpose and income of very low amount in the hands of the assessee cannot be a basis for making disallowance and addition in regard to advertisement and publicity expenses genuinely incurred on the assessee by making payment through banking channels thus claim should be allowed and addition may finding by deleted. To support above contentions the Ld. Counsel has placed reliance on the following orders of the Tribunal & Hon’ble Gujrat High Court:-

7 ITR 205 [2011] ITAT, Delhi b. ITO Vs. Hardrock Electric & Engg Co.

44 Taxmann.com 206 [2014] Gujarat High Court d. Amitabh Bachchan Corpn. Ltd VS. DCIT

56 Taxmann.com 77 [2015] [Mum-Tri] ITAT, Mumbai

5. Replying to the above, the Ld. Departmental Representative (DR) strongly supported the action of the A.O and contended that the CIT(A) after proper appreciation of facts upheld the order of the A.O on this issue which requires no interference.

6. On careful consideration of above in the present case the A.O dismissed claim of the assessee by merely observing that the notice issued u/s 133 (6) of the Act could not be served on the payee (M/s Images) as it left the premises. The CIT(A) proceeded to confirm the same by observing that no payment has been made up to 3rd July 2006 and all the payments have been made on two dates i.e on 5/8/2006 through 13 cheques of around figure of Rs.4,00,000/- each. The CIT(A) further observed, from the copy of the FIR of payee, that a sum of Rs.137,391/- has been shown as income from 7 firms. The CIT(A) also alleged that the balance sheet and P & L A/c of payee have been submitted and only Rs.25,224/- has been shown as income from the Firm Vision and M/s Images. The CIT(A) also alleged that only a small sum of Rs.43,557/- has been shown undue the head cash and bank balances which clearly shown that it did not have any source for incurring huge expenses on salary material consumed etc from its own pocket and there are discrepancies in the TDS claim placed by Shri Rajender Kumar, the proprietor of payee firm. After observing above, the CIT(A) upheld the disallowance by concluding that Mr. Rajendera Kumar has been used as a conduit for providing fake bills of various expenses in the various fields.

7. In our considered view the allegations labeled against the payee cannot be held as sustainable and acceptable for making do allowance without bringing on any cogent evidence or allegation to show that the assessee shifted funds in the garb of fake bills by using Mr. Rajendra Kumar as conduit for making false claim. It is also not case of the CIT(A) that Mr. Rajendra Kumar and his payee firm is not in the business of advertisement and publicity and these bills are bogus and the assessee received the impugned amount of payment make from Mr. Rajendra Kumar and thus it is not allowable. We may point out that the lack of financial resources for conduct of business and major income or low income by the payee cannot be a basis for making disallowance as to basis of doubt only.

The payee is a tax payer and if he left the earlier place of business then he may be called from new address to explain his position and in the extent of return of notice unserved on the old address can be obtained from the payer assessee to establish its claim. We are of the considered opinion that the CIT(A) upheld the addition on wrong premise and by considering the irrelevant facts and thus we decline to accept conclusion drawn in the first appellate order. At the same time, from the explanation and documents filed by the assessee we clearly observe that the assessee submitted all relevant documents, evidence and explanation within his control to establish its claim 8 and by showing that the payee M/s Vision and Images received payment through banking channels towards bills raised for logo and wall painting which is nothing but actual advertisement and publics expenses. The DR did not take the assessee to submit new address of the payee thus addition cannot be made only because notice u/s 133(b) of the Act could not be served upon the assessee due the reasons beyond control. We may also point out that 10 years have been elapsed after transaction thus at this stage we cannot expect the assessee to submit more evidence s to support its claim which is suffice to establish genuineness of the claim which was incorrectly disallowed by the authorities , in view of above discussion, we demolish the conclusion of the CIT(A) and we direct the A.O to allow the claim of the assessee. Accordingly, Ground No. 2(a) is allowed.

Ground No.3

Accordingly, we accept contentions of the Ld. Counsel of the assessee and there from, Ground No. 3 of the assessee is also allowed.”

6.1 Keeping in view of the facts and circumstances of the case, we find that the additions on which the penalty in dispute was levied, has already been deleted by the ITAT vide order dated 03.8.2016 in (AY 2007-08) in assessee’s own case as aforesaid, hence, the penalty in dispute will not survive. Accordingly, we cancel the orders of the authorities below and delete the penalty in dispute and allow the Appeal filed by the Assessee.

Order pronounced in the Open Court on 13/04/2017.