FARGO SALES P.LTD,MUMBAI vs. ASST CIT 9(1), MUMBAI

The Present Appeal has been filed by the assessee against the order of Commissioner of Income Tax (Appeals)-49, dated 08.03.11 for AY 2004-05 on the grounds of appeal mentioned herein below.

The learned Commissioner of Income Tax (Appeals) erred in disallowing the claim of deduction of Rs. 9,60,175/- being the amount of expenses incurred on packing materials (Rs 8,51,825/- Sunil Industries) and transportation expenses (Rs. 1,08,890/- S.T. Mahadik) 3. The learned Commissioner of Income Tax (Appeals) erred in disallowing the claim of deduction of Rs. 9,00,000/- being the amount of retainer ship expenses incurred by the appellant during the previous year.

Aggrieved by the order of AO, assessee filed the appeal before CIT(A) and the CIT(A) after considering the case of the parties had partly allowed the appeal of the assesse.

Aggrieved by the order of CIT(A), the assessee filed the present appeal before us on the grounds mentioned herein above. Ground No.1.

The Ld. AR appearing on behalf of the assessee submitted that Ld. CIT(A) erred in disallowing the claim of deduction of Rs. 10,58,168/- being the amount of provision made for sales promotion expenses incurred during the previous year. Ld. AR reiterated the same arguments which were raised before Ld. CIT(A). Ld. AR further submitted that the assesse company is engaged in the business of marketing of products like gas mantles, playing cares, coconut oil, etc manufactured by M/s Fargo Mantle Products Pvt. Ltd. & other companies. Ld. AR further submitted that a sum of Rs. 10,58,168 spent on sales promotion scheme under the title ‘Dhamaka Prize’ to its sales dealer debited under sales promotion expenses. Ld. AR further submitted that these expenses are incurred wholly to promote the sales of the products of the assessee by way of prices and (A.Y. 2004-05) Fargo Sales Pvt. Ltd. incentive to those dealers who achieved certain sales. Ld. AR further submitted that revenue authorities had disallowed the expenses that these expenses are incurred in the next year and not pertains to the year under consideration. It is also submitted that following the mercantile system of accounting according to which one has to account for income and expenses on accrual basis, the assessee company has already distributed the prizes and the gift of gas mantles to the dealers in FY 2004-05 relevant to AY 2005-06 on the performance achieved on the sales achieved in the FY 2003-04 relevant to AY 2004-05, and in addition the assesse as well as parties have already complied the notices issued u/s 133(6) of the Income Tax Act, 1961. Lastly it was argued that since the liability to pay this amount had already crystalized, therefore no disallowance could have been made by the revenue authorities.

We have heard the counsel for both the parties and we have also perused the material place on record as well as the orders passed by the revenue authorities and we have noticed that in the present case the assesse company has discharged its onus by placing on record/supply to the revenue authorities of the requisite details in order to establish the genuineness of the claim made by the assesse, therefore in these circumstances, we found that it is undisputed fact that the revenue authorities have not placed on record any material to show that the parties to whom payments were made were in any way related to the assesse and moreover no attempt has been made by the revenue to carry out any independent inquiry. Therefore, the basis of disallowance made by the department is not sustainable and hence the additions as made are liable to be deleted and hence the same are deleted. This ground of appeal raised by the assesse is allowed.

The Ld. AR appearing on behalf of the assessee submitted that Ld. CIT(A) erred in disallowing the claim of deduction of Rs. 9,00,000/- being the amount of retainer ship expenses incurred by the appellant during the previous year. Ld. AR reiterated the same arguments which were raised before Ld. CIT(A). Ld. AR further submitted that the retainership fees paid to the Retainers, viz Shri Nasir Salim Patel – Marketing Executive, M/s Yameen I. Kalania (Public Relation Executive) and M/s Glurej I. Kalania (Office Administration Executive) and in this respect the assesse has already furnished all details called for by the Ld. AO like confirmation, copy of the return of income, Xerox copy of bank statement showing the debit/credit entries in the books of accounts. It was further submitted that the retainership fee paid to them is already shown in their return of income and paid tax due thereon, therefore again taxing it in the hands of the assesse company would amount to taxing the same income twice.

On the other hand Ld. DR appearing on behalf of the revenue relied upon the orders passed by the revenue authorities.