DCIT, COIMBATORE vs. T. STANES & COMPANY LTD., COIMBATORE

आदेश / O R D E R

PER D.S.SUNDER SINGH, ACCOUNTANT MEMBER

1.0 Delay:

The Revenue filed appeal in this case with nine days delay and the

DCIT, Corporate Circle, Coimbatore, has filed an Affidavit requesting

for condition of delay stating that the delay was due to non-location

of records in time and it was un-intentional. We heard both the

parties and convinced that there was a reasonable cause for the

delay and the same is condoned and the appeal is admitted.

2.0 This is an appeal filed by the Revenue against the Order dated

29.01.2015 of Commissioner of Income Tax (Appeals)-1, Coimbatore, in

ITA No.260/13-14 for AY 2010-11 on the following grounds:

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3.0 Ground No.1 & 6 are general in nature which does not require any

specific adjudication.

4.0 Ground No.2 is related to the estimated expenditure allowed by the

Ld.CIT(A) @ 40% on suppressed sales amounting to Rs.3.73 Cr. During

the course of assessment proceedings, the AO found that the assessee

has suppressed sales to the extent of Rs.3.73 Cr. and noticed that the

assessee has made the total sales of Rs.981.38 lakhs to the National

Horticultural Mission (NHM) and had accounted for a sum of Rs.614.62

lakhs in their Profit & Loss A/c and the balance of amount of sales of

Rs.373.76 lakhs was not accounted for in the Books of Accounts. The AO

has issued show cause notice to the assessee and the assessee replied

that sales of Rs.3.73 Cr. accounted in Selling and Distribution Expenses

(SDE Dept.). The total expenses debited to the SDE A/c was Rs.432.67

lakhs and the sales were credited to SDE A/c and the remaining balance

was claimed as expenditure. However, the assessee did not furnish any

evidence to the expenditure claimed against the suppressed sales.

Therefore, the AO treated the entire unaccounted sales made to NHM as

unaccounted income and brought to tax.

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5.0 Aggrieved by the Order of AO, the assessee went on appeal before

the Ld.CIT(A) and the Ld.CIT(A) allowed 40% of expenditure as per his

observation in Para No.23, which is extracted as under:

I have examined some of the details furnished by the appellant company regarding sales promotion expenses. From the Area Office, Bangalore to the Headquarters of the Marketing Director, the details of various amounts spent as sales promotion expenses are submitted and the balance amount to be released are notified. The necessary invoice and C.R. copies are sent to Headquarters for verification. The statement shows the various taluks in the Districts where demonstrations were conducted and products were distributed among the farmers. Going through the evidences submitted by the appellant company regarding sales promotion expenditure, it cannot be said that the appellant company has not incurred any expenditure. The communications from the Branch Office in Karnataka with the Head of Office of Agri Division in Coimbatore show the sales made in the different districts and requesting for the release of sales promotional expenses incurred as per statements. Regarding the payment of cash to the Field Assistants with respect to their travel expenses and daily batta, the facts and circumstances have to be considered. In the rural areas where field demonstrations are conducted at different locations, the issue of cheques' to Field Assistants etc. may not be practical solution. In the rural areas with the restriction of banking facilities and also the insistence of cash payment by the Field Assistants, campaign agencies, and meeting organizers, the cash expenditure forms an inevitable portion. Considering all the above discussions, it is a fact that the appellant has spent for sales promotion expenses, over and above the expenditure mentioned in the cost sheet submitted to the National Horticultural Mission. As per cost and selling price workings, the expenditure of selling cost and administrative cost are in the range of 13.25%. Taking into consideration the various activities done by the appellant company to promote its products with the farmers, a part of the expenditure has to be allowed. The Assessing Officer has not allowed any expenditure and has disallowed the complete expenditure. Taking into consideration the campaign /demonstrations organized by the Field Staff at the Village Level, additional 25% of the expenditure over and above the cost of selling expenses as per cost sheet are to be allowed. The expenditure to the extent of 40% of the claim made by the appellant company is to be allowed, considering the fact that the appellant company could not furnish the details of the persons to whom these payments were made. The grounds of appeal are PARTLY ALLOWED.

6.0 Aggrieved by the order of the Ld.CIT(A) the Revenue is in appeal

before us. Appearing for the Revenue, the Ld.DR argued that the AO has

given sufficient opportunity to the assessee to prove it’s case and to

furnish necessary evidence towards the expenditure incurred but the

assessee has not produced any details, such as names and address of the

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parties to whom the payment was made, mode of payment, purpose and

confirmation, etc. The assessee has not furnished any information which

was supposed to have produced before the Ld.CIT(A) in support of it’s

claim for expenditure. The Ld.CIT(A) has not given any opportunity to the

AO to defend his case. Therefore, the Ld.DR argued that allowing the

expenditure of 40% on estimate basis is not correct. According to the

Ld.DR, the Ld.CIT(A) should not have allowed any expenditure in the

absence of the evidence. On the other hand, the Ld.AR relied on the

CIT(A)’s Orders.

7.0 We heard the rival submissions and perused the material placed on

record. The assessee has suppressed the sales to the extent of

Rs.3,73,76,653/- made to the National Horticultural Mission. The

assessee has accounted Rs.614.62 lakhs against the sales of Rs.981.38

lakhs in respect of sales made to NHM. The AO made the entire sales as

addition as unaccounted income. According to the assessee, it has routed

the entire sales of Rs.373.76 lakhs through Sales Development Expenses

A/c (‘SDE Dept’ Account). The assessee has debited the expenditure of

Rs.432.67 lakhs and credited the sales of Rs.373.76 lakhs and claimed the

balance amount of Rs.58,90,391/- as expenditure (net amount of Rs.

432.67-373.76). The assessee did not furnish the proof and details

regarding the expenditure incurred by the company. It is the duty of the

assessee to produce necessary evidence to show that the entire

expenditure is incurred wholly and exclusively for the purpose of business.

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In this case, no such information or proof was filed by the assessee before

the AO, except submitting some broad heads of expenditure. Before the

Ld.CIT(A) also, the assessee has not submitted any details with regard to

genuineness and identity of the recipient. The Ld.CIT(A) has allowed 40%

of expenditure by scrutiny of details regarding sales promotion expenses,

the demonstrations conducted, campaigns, meetings organized, etc., by

the assessee in field units on the explanation which was general in nature.

The Ld.DR has argued that such information was not provided before the

AO and the Ld.CIT(A) a has not called any Remand Report. The Ld.AR did

not place any evidence regarding the genuineness of expenditure before

us in the appeal proceedings. Therefore, we are on the considered opinion

that the entire issue should be remitted back to the file of the AO to re-

examine the issue afresh. Accordingly, we set-aside the order of lower

authorities and remit the matter back to the file of AO with directions to

re-examine the expenditure incurred and allow the actual expenditure on

the basis of evidence produced by the assessee. The assessee is directed

to submit the necessary details and evidences before the AO. The

Revenue’s appeal on this ground is allowed for statistical purposes.

8.0 Ground No.3 is related to the adjustment made u/s.115JB of Income

Tax Act. The AO while computing book profit u/s.115JB has made

addition of Rs.3,73,76,653/- on account of disallowance of sales

development expenses. The Ld.CIT(A) deleted the addition made by the

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AO. Detailed discussion was made by the Ld.CIT(A) in Para No.27 & 28,

explaining the relevant provisions and the same is extracted as under:

“Provided that preparing the annual accounts including profit and loss account:-

(i) the accounting policies;

(ii) the accounting standards adopted for preparing such accounts including the profit and loss account;

(iii) the method and rates adopted for calculating the depreciation,

shall be the same as have been adopted for the purpose of preparing such accounts including profit and loss account and laid before the company at its annual general meeting in accordance with the provisions of Section 210 of the Companies Act, 1956 (1 of 1956)”.

As per Explanation (1) “for the purpose of this Section, “book profit” means the net profit as shown in the Profit & Loss account for the relevant previous year prepared under sub section (2) as increased by;

a) the amount of income tax paid or payable, and the provision therefore; and

b) the amounts carried to any reserves by whatever name called (other than the reserve specified u/s.33AC or [the amount or amounts set-aside to provision made for meeting liabilities, other than ascertained liabilities or;

c) the amount by way of provision for losses or subsidiary companies or;

d) the amount or amounts of dividends paid or proposed

e) the amount or amounts of expenditure relatable to any income to which any of the provisions of Chapter III applies; or; [Section 10, Section 11 or Section 12]

f) the amount of depreciation

g) the amount of deferred tax and the provision therefore,

h) the amount or amounts set-aside as provision for diminution in the value of any asset

i) the amount standing in revaluation reserve to revalued asset on the retention or disposal of such asset

if any amount referred to in clauses (a) to (i) is debited to the Profit & Loss A/c or if any amount referred to in Clause (j) is not credited to Profit & Loss A/c...

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prepared in accordance with Schedule VI of the Companies Act. The appellant also furnished Form No.29B i.e. report u/s.115JB of the Income Tax Act, 1961 for computing the book profit of the company as per the provisions of Income Tax Act. The appellant relied on the decision of the Supreme Court in the case of Apollo Tyres Ltd Vs CIT reported in 255 ITR 273 and the decision of the Bombay High Court in the case of Kinetic Motor Co. Ltd. Vs DCIT reported in 262 ITR 330. The Hon’ble Apex Court in the case of HCL Comnet Systems and Services Ltd reported in 305 ITR 409 held that the Assessing Officer cannot go beyond the net profit as shown in the P & L account which is prepared in accordance with Parts II and III of Schedule VI of the Companies Act, 1956 except for the adjustments permissible under Explanation 1 to Section 115JB of the Income Tax Act, 1961. In the present case, the Assessing Officer has added the disallowance of sales development expenditure to compute the book profit u/s.115 JB of the Income Tax Act, 1961 which is beyond the jurisdiction of the Assessing Officer. Relying on the judicial decisions discussed above, the Assessing Officer is directed to delete the addition of Rs.3,73,76,653/- while computing the book profits u/s.115JB of the Income Tax Act, 1961. The ground of appeal is ALLOWED.

8.1 Now, it is settled law as per the Hon’ble Supreme Court judgement

in the case of Apollo Tyres Ltd Vs. CIT reported in 255 ITR 273 that

the AO cannot make any adjustment u/s.115JB except/otherwise provided

in the act which is discussed in the Ld.CIT(A)’s Orders. The addition of

Rs.3,73,76,653/- is not in line with section 115JB of Income Tax Act.

Therefore, we agree with the Ld.CIT(A)’s Orders and uphold the same.

The Revenue’s appeal on this ground is dismissed.

9.0 ITA No.1386/Mds/2015 for the AY 2011-12

The assessee filed return of income declaring the total income of

Rs.5,72,32,789/- during the assessment proceedings, the AO found that

the assessee has suppressed the sales to the extent of Rs.1,57,23,000/-

in the case of NHM. Therefore, the AO made the entire addition of

Rs.1,57,23,000/- as suppressed sales.

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before the Ld.CIT(A) and the Ld.CIT(A) allowed 30% of the expenditure

on estimation basis. Aggrieved by the Orders of Ld.CIT(A), the Revenue is

in appeal before this Tribunal on the following grounds:

No.888/Mds/2015, we have set aside the Order of the Ld.CIT(A) and

remitted back to the AO for fresh consideration, on this very same issue.

Therefore, for the AY 2011-12 also, we set aside the Orders of lower

authorities on the issue of suppressed sales relating to NHM and remit the

matter back to the file of AO with an instruction to re-do the assessment

afresh on merits. Of course, AO should give reasonable opportunity to the

assessee.

ITA No.888 & 1386/Mds./2015 :- 10 -:

Order pronounced in the open court on 29th December, 2016, at Chennai.

Sd/- Sd/- (एन.आर.एस. गणेशन) (�ड.एस. सु�दर �संह) (N.R.S. GANESAN) (D.S.SUNDER SINGH) �या�यक सद�य/JUDICIAL MEMBER लेखा सद�य/ACCOUNTANT MEMBER

चे�नई/Chennai �दनांक/Dated: 29th December, 2016. tln

आदेश क� ��त�ल�प अ�े�षत/Copy to: 1. अपीलाथ�/Appellant 4. आयकर आयु�त/CIT 2. ��यथ�/Respondent 5. �वभागीय ��त�न�ध/DR 6. गाड� फाईल/GF 3. आयकर आयु�त (अपील)/CIT(A)