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Income Tax Appellate Tribunal, “A” BENCH, MUMBAI
Before: SHRI MAHAVIR SINGH & SHRI RAMIT KOCHAR
सुनवाई क" तार"ख /Date of Hearing : 16-06-2016 घोषणा क" तार"ख /Date of Pronouncement : 24-08-2016 आदेश / O R D E R
PER RAMIT KOCHAR, Accountant Member
1. This appeal, filed by the Revenue, being 19th January, 2010 passed by learned Commissioner of Income Tax (Appeals)- 20, Mumbai (hereinafter called “the CIT(A)”), for the assessment year 2006-07, the appellate proceedings before the learned CIT(A) arising from the assessment order dated 30th December 2008 passed by the learned Assessing Officer (hereinafter called “the AO”) u/s 143(3) of the Income Tax Act,1961 (Hereinafter called “the Act”).
ITA 2541/Mum/2010 2
The grounds of appeal raised by the Revenue before Income Tax Appellate Tribunal, Mumbai (hereinafter called “the Tribunal”) in the memo of appeal filed with the Tribunal read as under:-
“1. On the facts and in the circumstances of the case and in law, the Id. CIT(A) has erred in deleting the addition made by the Assessing Officer on account of discrepancy in expenditure incurred by the assessee under the head purchase, advertisement & legal expenses through M/s Carat Media Services India Pvt. Ltd. and M/s. Ogilvy & Mather P. Ltd., to the extent of Rs. 82,02,601/- and Rs. 71,67,764/-, respectively without appreciating the fact that the assessee failed to satisfactorily explain the same with supporting evidences.
2. The appellant prays that the order of the CIT(A) on the grounds be set aside and that of the Assessing Officer be restored.”
The Brief facts of the case are that the assessee is engaged in the business of manufacturer of non-stick cook wares, pressure cookers and mixer grinders. The assessee has four manufacturing unit, three at Daman and one at Baddi in Himachal Pradesh. During the course of assessment proceedings u/s 143(3) read with Section 143(2) of the Act, it was observed by the A.O. that the assessee has claimed expenses on account of advertising, business promotion, legal expenses etc. paid to two concerns namely M/s Carat Media Services India Pvt. Ltd. and M/s Ogilvy & Mather Pvt. Ltd. It was observed by the A.O. that the assessee has debited various payments made to these two concerns under the head purchases, sales promotion expenses and administrative expenses etc. the details of which are as under:-
Purchases Rs. 1,20,53,345/- Advertisement expenses Rs. 1,06,56,223/- Total Rs. 2,27,09,568/- ITA 2541/Mum/2010 3 The A.O. issued notices u/s 133(6) of the Act to M/s Carat Media Services India Pvt. Ltd. asking for the details of services rendered, ledger account of the assessee in their books and other relevant details. The reply was received from the said concern whereby it confirmed that total amount billed to the assessee company during the financial year 2005-06 was Rs. 1,45,06,967/- therefore , the assessee was asked to explain the difference of Rs. 82,02,601/. In response, the assessee simply filed the revised statement of purchases adjusting the amount accordingly. Further, the assessee has increased the miscellaneous purchases below Rs. 3 lacs to Rs. 3,05,24,989/- from Rs. 1,68,77,393/- without explaining or filing any supporting evidence thereof. It was observed by the AO that the assessee has still an amount of Rs. 24,77,891/- due to M/s Carat Media Services India Pvt. Ltd. under the head purchases. The assessee has also changed the items purchased from ‘TV Commercial Advertisement’ to just ‘purchases’. The said concern Carat Media Services India Private Limited in their reply has only confirmed payment for advertisement expenses while the assessee failed to explain that how the said expenses were accounted for under the head ‘purchases’. The assessee did not produce its books of account or bills for purchases in support of its claim, hence, the A.O. held that the assessee has entered in to bogus entry under the head ‘purchases’ to reduce the taxable income and therefore the A.O. added an amount of Rs. 82,02,601/- to the total income of the assessee, vide assessment order dated 30-12-2008 passed u/s. 143(3) of the Act.
Similarly, with respect to the M/s Ogilvy & Mather Pvt. Ltd ( O&M), notice was issued u/s 133(6) of the Act, asking for the details of services rendered , ledger account of the assessee in their books of accounts and other details. The details of the transactions as per assessee’s books are as under:-
M/s Ogilvy &Mather Pvt. Ltd. Purchases Rs. 79,61,950/- ITA 2541/Mum/2010 4 Advertisement expenses Rs. 33,24,000/- Legal and professional fees Rs. 22,39,000/- Total Rs. 1,35,24,950/- The reply was received from the said concern O& M whereby the said concern O &M confirmed only the advertisement services during the financial year 2005-06 and the total amount billed was shown as Rs. 63,53,186/- and hence , the difference between the assessee’s claim and the information received u/s 133(6) of the Act comes to Rs. 71,67,764/-. The assessee was asked to explain the same. The assessee has changed the items purchased from ‘TV Commercial Advertisement’ to just ‘purchases’. Further to adjust the same the assessee has also increased the miscellaneous purchases. The said concern O & M has only confirmed payment for advertisement of the products of the assessee. The A.O. accordingly disallowed the difference of Rs. 71,67,764/- and added the same to the total income of the assessee vide assessment order dated 30-12-2008 u/s 143(3) of the Act passed by the AO.
Aggrieved by the assessment order dated 30-12-2008 passed by the AO u/s 143(3) of the Act, the assessee has filed its first appeal before the ld. CIT(A).
Before the learned CIT(A) , the assessee submitted that the assessee has wrongly included the details of purchases of Baddi unit. The assessee furnished a list showing the purchases aggregating Rs. 1,68,77,393/- made by assessee’s four units and while preparing these details the total credits aggregating to Rs. 2,00,15,295/- comprising Rs. 1,20,53,345/- appearing in the ledger account of Carat Media Service Pvt. Ltd. and Rs. 79,61,950/- appearing in the ledger account of Oglivy & Mather Pvt. Ltd. were wrongly included in the details of purchases of Baddi Unit . Thus, in this process the intra-unit purchases amounting to Rs. 1,71,80,708/- made by Baddi unit from Unit-III, Daman was omitted from the figure of purchases submitted in ITA 2541/Mum/2010 5 respect of Baddi unit. Thus, it was submitted that the incorrect details of purchases amounting to Rs. 1,71,80,708/- wrongly classified as under:-
Carat Media Service Pvt. Ltd. Rs. 1,20,53,345/- Oglivy & Mather Pvt. Ltd. Rs. 79,61,950 Branch transfer – Unit –III Daman Rs. (28,34,587) ============ Total Rs. 1,71,80,708/- The A.O. did not appreciate that there was no difference in the unit wise purchase except in the case of Baddi unit. It was submitted that no purchases were made by the assessee from these two concerns and the credit in their accounts were wrongly included in the purchase details, the assessee corrected the same and had filed the corrected/revised details of purchases immediately on the next day. The AO ignored them and made the impugned additions vide assessment order dated 30-12-2008 passed u/s. 143(3) of the Act which should be deleted.
The ld. CIT(A) considered the reply of the assessee. The ld. CIT(A) observed from the audited accounts that the assessee had debited a sum of Rs. 3,03,67,958/- to the P&L account under the head ‘Sales and Distribution Expenses’ giving break up of these expenses which shows that the said sum included an amount of Rs. 1,54,19,700/- under the sub head ‘Advertising and Publicity Expenses’ . Further, the assessee debited an amount of Rs. 2,53,92,744/- under the head ‘Administration Expenses’ and a sum of Rs. 46,99,413/- shown under the head ‘Legal and Professional fees’. The ld. CIT(A) observed that the details of these expenses were furnished to the A.O. vide letter dated 1st December, 2008 which shows that the assessee had incurred Rs. 1,07,50,844/- and Rs. 33,24,000/- towards advertisement expenses payable to Carat Media Service Pvt. Ltd. and Oglivy & Mather Pvt. Ltd. respectively. The details of expenses also show that the assessee had ITA 2541/Mum/2010 6 incurred additionally an amount of Rs. 22,39,000/- towards legal and professional expenses payable to Oglivy & Mather Pvt. Ltd. Thus, the total expenses incurred through M/s Oglivy & Mather Pvt. Ltd. stood at Rs. 55,63,000/- and the A.O. has not disputed these figures. The ld. CIT(A) further observed that the details of purchases initially furnished to the A.O. showed an amount of Rs. 21,94,71,340/- and the revised details of purchases were also same and the same amount was debited to the P&L account which was also not disputed by the A.O. Similarly, there is no dispute with respect to the total value of credits in the accounts of two concerns which was claimed wrongly while submitting details of purchases. Thus, the ld. CIT(A) found that these credits representing Rs. 1,20,53,345/- and Rs. 79,61,950/- in the accounts of Carat Media Service Pvt. Ltd. and Oglivy & Mather Pvt. Ltd. respectively. The A.O. had considered advertisement expenses once Rs. 1,20,53,345/- as total of credits shown initially as purchases and again Rs. 1,06,56,223/-(however as per ld CIT(A) the correct amount is Rs. 1,07,50,844/- ) as actual expenses incurred on advertisement, and compared the same with the details submitted by Carat Media Services Private Limited. Similarly, the A.O. considered twice the advertisement expenses and legal expenses once Rs. 79,61,950/- as total credits and again Rs. 33,24,000/- and Rs. 22,39,000/- incurred respectively as advertisement expenses and legal expenses, and compared the same with the details submitted by O & M. The ld. CIT(A) observed that the AO observation in para 2 on page 4 of the assessment order that the assessee has submitted the revised statement of purchases adjusting the miscellaneous purchases below 3.00 lacs to Rs.3,05,24,980 and still an amount of Rs.24,77,981/- is shown as purchase from Carat Media Services Private Limited is not discernible from record. Further, it was observed by learned CIT(A) that the observation of the AO that the assessee has entered bogus entry under the head ‘purchases’ in order to reduce its taxable income is not correct when the AO has not disputed the total purchases shown in the corrected details and those debited to the Profit ITA 2541/Mum/2010 7 and Loss Account which are same. Thus, the A.O. had treated the sum of Rs. 82,02,601/- and Rs. 71,67,764/- as bogus purchases when it was not actually claimed as purchases and no such items were debited to the Profit and Loss account which are same. It was observed by the learned CIT(A) that the AO has no basis to treat them as bogus entities or purchases in order to reduce taxable income . The ld. CIT(A) held that the A.O. has no basis to treat that these are bogus entries or purchases to reduce the taxable income of the assessee and accordingly the additions of Rs.82,02,601 and Rs.71,67,764/- were deleted by the learned CIT(A) vide appellate orders dated 19-01-2010.
Aggrieved by the appellate order dated 19-01-2010 of the ld. CIT(A), the Revenue is in appeal before the Tribunal.
The ld. D.R. submitted that the assessee is a manufacturer of non-stick cook wares, pressure cookers and mixer grinders. The assessee has four manufacturing units out of which three are situated at Daman and one is situated at Baddi, Himachal Pradesh. The assessee had incurred expenses which is payable to Carat Media Services P. Ltd. and M/s Oglivy & Mather P. Ltd. which has not been substantiated by the assessee properly. The ld DR submitted that the assessee has not produced its books of accounts and purchase bills before the authorities below for verification. The ld. D.R. submitted that the ld. CIT(A) erred in allowing the appeal of the assessee without forwarding the matter to the AO for verification of the claim of the assessee and without asking assessee to produce books of accounts and purchase invoices for verification. For the purpose of verification, the matter may be sent back to the file of the A,O.
On the other hand, the ld. Counsel for the assessee submitted that notices u/s 133(6) were issued to the two parties i.e. M/s Carat Media Service Pvt. Ltd. and M/s Oglivy & Mather Pvt. Ltd. asking the details of the services rendered to the assessee , statement of account and other relevant details.
ITA 2541/Mum/2010 8 The said concerns had given the replies directly to the AO but the same were not forwarded to the assessee for comments and hence the assessee is prejudiced by the use of such material collected by the AO at its back which was not confronted to the assessee before using the said material against the assessee. The ld. Counsel submitted that if opportunity is given, the assessee will be able to reconcile the differences in the accounts of these two concerns.
We have considered the rival contentions and also perused the material available on record. We have observed that the issue in the appeal is in context of differences in account balance with respect to expenses incurred by the assessee on account of advertisement, legal and professional charges and purchases made from two parties namely M/s Carat Media Service Pvt. Ltd. and M/s Oglivy & Mather Pvt. Ltd. as are reflected in the books of accounts of the assessee vis-à-vis in the books of accounts of the two parties . The assessee was asked to explain the said differances. The A.O. issued notices u/s 133(6) of the Act to the two parties i.e. M/s Carat Media Service Pvt. Ltd. and M/s Oglivy & Mather Pvt. Ltd. asking information regarding the services rendered to the assessee. The information were received by the AO but the information obtained by the AO from these two parties were not forwarded/confronted to the assessee for comments and rebuttal.The assessee was prejudiced by the action of the AO as the said information was used against the assessee by the AO without confronting the same to the assessee. The assessee on its part had also failed to produce its books of accounts and purchase bills before the AO for verification. These books of accounts as well purchase invoices were not even produced by the assessee before the learned CIT(A). In our considered view and in the interest of justice, we are inclined to restore the matter to the file of the A.O. to de-novo decide the issue’s on merits and hence we set aside the order of learned CIT(A). The A.O. shall forward to the assessee all the information which was obtained by the AO in pursuance of notices issued u/s 133(6) to these two parties namely ITA 2541/Mum/2010 9 M/s. Carat Media Service Private Limited and M/s Ogilvy and Mather Private Limited. The assessee is directed to produce all the relevant evidences and explanations before the AO in its defense to justify and defend its claims and contentions to reconcile the difference. Needless to say proper and adequate opportunity of hearing shall be granted by the AO to the assessee in accordance with principles of natural justice in accordance with law. We order accordingly.
In the result, the appeal filed by the Revenue in ITA N0. 2541/Mum/2010 for the assessment year 2006-07 is allowed for statistical purposes.