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Income Tax Appellate Tribunal, MUMBAI BENCH “E”, MUMBAI
Before: SHRI N.K. BILLAIYA & SHRI SANJAY GARG
Per Sanjay Garg, Judicial Member:
The above titled appeals have been preferred by the assessee against two separate orders both dated 13.09.2011 of the Commissioner of Income Tax (Appeals) [hereinafter referred to as the CIT(A)] relevant to assessment years 2004-05 & 2005-06 respectively. Since the facts and issues involved therein are identical in nature, hence the same are taken together for disposal by this common order.
First we take up the assessee’s appeal i.e. for A.Y. 2004-05. for A.Y. 2004-05 3. The assessee has taken the following grounds of appeal:
1. In passing the appellate order which is in gross violation of the principles of natural justice and has been passed without considering the evidence placed during the course of the appellate proceedings. The appellate order has been passed without giving proper and 2 & 1354/M/2012 M/s. Sumitomo Chemical India Pvt. Ltd. effective opportunity of hearing to the Appellant and without causing proper inquiry.
2. In confirming the disallowance made by the Assessing Officer (‘AO') with respect to commission expenses of Rs. 82,33,042 paid to Karamchand Appliances Private Limited ('KAPL'). In doing so, the CIT(A), without considering the evidence placed during the course of appellate proceedings, erred in concluding that the Appellant has failed to provide proof / documentary evidence to substantiate that services were provided by KAPL to the Appellant, for which the commission payments were made.
3. In confirming the disallowance made by the AO with respect to commission expenses of Rs.35,00,000 paid to Sumitomo Corporation India Private Limited ('Sumitomo Corporation'). In doing so, the CIT(A) erred in concluding that the arrangement between the Appellant and Sumitomo Corporation is for a self serving purpose and with the sole intention to reduce the tax liability of the Appellant. Further, the CIT(A) erred, without specifically calling for proof of payment alongwith the TDS certificates for the commission payment to Sumitomo Corporation, in concluding that the Appellant's authorized representative failed to furnish such information.
4. In confirming the disallowance made by the AO with respect to advertising and promotional expenses of Rs 45,00,000 under Section 37(1) of the Income-tax Act, 1961 paid to Godrej Saralee Limited ('Godrej').
5. In confirming the disallowance made by the AO with respect to treatment of leasehold improvements of Rs.14,90,000 as revenue expenditure.
The Appellant craves leave to add, alter, vary, omit, substitute or amend the above grounds of appeal, at any time before or at, the time of hearing of the appeal, so as to enable the Honourable Income-tax Appellate Tribunal to decide this appeal according to the law.
For the above and other grounds and reasons which may be submitted during the course of hearing of this appeal, the Appellant requests that the appeal be allowed as prayed.”
At the outset, the Ld. A.R. of the assessee has stated at bar that as per the instructions of his client, he does not press ground No.1. Ground No.1 is therefore dismissed as not pressed.
Ground No.2 5. Vide ground No.2, the assessee has agitated the confirmation of disallowance of expenditure with respect to commission paid of Rs.82,33,042/- to Karamchand Appliances Pvt. Ltd. (KAPL). The case of the assessee is that the assessee had supplied goods to Icon Household Products Pvt. Ltd. who has been a contract manufacturer for KAPL. The goods were invoiced/billed at a higher rate at the instruction of the KAPL and the difference was paid to the KAPL as commission. The required TDS was also deducted on the said
3 & 1354/M/2012 M/s. Sumitomo Chemical India Pvt. Ltd. commission. The Assessing Officer (hereinafter referred to as the AO), however, disallowed the said commission on the ground that in the A.Y. 2003- 04, such a claim was made by the assessee, however, the KAPL in response to notice under section 133 of the Act had submitted that it did not enter into any financial transactions with the assessee during the financial year relevant to A.Y. 2003-04. Being aggrieved by the above disallowance, the assessee preferred appeal before the CIT(A).
The Ld. CIT(A), however, also confirmed the said disallowance.
Before us, the Ld. A.R. of the assessee has submitted that each year is a different year. For the year under consideration, the KAPL had confirmed the receipt of commission. The AO should have verified or summoned the KAPL to verify the transactions for the year under consideration.
We find force in the contention of the Ld. AR that each year is a different year. The facts relating to the payment of commission cannot be borrowed from the earlier assessment year. The AO is supposed to make necessary enquiries about the payment of commission to KAPL for the year under consideration. We, therefore, restore this issue to the file of the AO with a direction to make the proper inquiries/verification regarding the payment of commission by the assessee to KAPL and to return a definite finding on this issue in accordance with law.
Ground No.3 9. In ground No.3, the assessee has agitated the confirmation of disallowance with respect to commission expenses of Rs.35,00,000/- paid to Sumitomo Corporation India Pvt. Ltd. The AO disallowed the said commission observing that the said Sumitomo Corporation India Pvt. Ltd. was a related party of the assessee and that the agreement relating to the payment of commission was an internal self-created document between the parties so as to divert the income of the assessee to Sumitomo Corporation India Pvt. Ltd. to 4 & 1354/M/2012 M/s. Sumitomo Chemical India Pvt. Ltd. reduce the tax liability. Even the rate of commission was not fixed in the agreement. In the debit notes, there was no mention of the parties to whom the assessee had sold the products.
The Ld. CIT(A) also confirmed the said disallowance made by the AO.
Before us, the Ld. A.R. of the assessee has submitted that the debit notes were submitted to the AO and the commission was paid ranging from 0.3% to 3% on sales to various parties. The rate of commission was not fixed but was agreed in relation to different parties and varied from customer to customer. But it was agreed that the percentage of commission would not exceed 5% of the value of the goods. Even in relation to another party namely Uday Chemicals, the payment of commission at a variable rate has been accepted by the AO.
We find force in the contention of the Ld. A.R. that the commission can be agreed to be paid at variable rates. However, we find that the proper enquiries have not been made as to what services the Sumitomo Corporation India Pvt. Ltd. offered to the assessee and to whom the goods were sold and whether the transaction relating to the payment of commission was genuine or not. Further, whether the claim of the assessee that the Sumitomo Corporation India Pvt. Ltd. was not a related party has not been examined by the AO. In view of this, this issue is restored to the file of the AO to make proper enquiries in this respect and decide the issue afresh in accordance with law.
Ground No.4 13. Vide ground No.4, the assessee has agitated the disallowance with respect to advertising and promotional expenses of Rs.45,00,000/- under section 37(1) of the Act. The brief facts relating to the issue under consideration are that during the year under consideration, the assessee had introduced two new products i.e. Parlle and Gokilaht. These products were used by Godrej Saralee Limited for the purpose of manufacturing Aerosol.
5 & 1354/M/2012 M/s. Sumitomo Chemical India Pvt. Ltd. Since only the Godrej Saralee Limited was the purchaser of the said products, hence under an arrangement, the assessee agreed to part finance the marketing and advertisement cost of Aerosol manufactured by the Godrej Saralee Limited with an intention to increase the consumption of its products used in the manufacture of Aerosol. The AO disallowed the said expenditure observing that the same was not relating to the advertisement expenses of the products of the assessee but of the Godrej Saralee Limited.
The Ld. CIT(A) also confirmed the said disallowance.
Before us, the Ld. A.R. of the assessee has submitted that by way of participating in advertisement of Aerosol, the assessee in fact had promoted the consumption and sale of its own products which were used for the manufacture of Aerosol. It was a business decision based on commercial expediency. We find force in the contention of the Ld. A.R. It is the assessee who has to see the business prospects and to decide the future course of action by way of directly or indirectly advertising the product which is manufactured from the raw material produced by the assessee. It was a commercial decision of the assessee and the cost of expenditure incurred by the assessee was towards business expediency. We, therefore, do not find any justification on the part of the lower authorities in making the disallowance on this issue and the same is ordered to be delayed. This issue is accordingly decided in favour of the assessee.
Ground No.5 16. Vide ground No.5, the assessee has agitated the disallowance of Rs.14,90,000/- on improvements of leasehold premises. The assessee in the return of income had capitalized the payments of Rs.14,90,000/- made on improvements of leasehold premises and claimed depreciation at the rate of 10% on the same. However, during the assessment proceedings, the assessee claimed that the same was revenue expenditure. The AO, however, declined to
The Ld. CIT(A) also confirmed the above finding of the AO.
Before us, the Ld. A.R. of the assessee has relied upon the decision of the Hon’ble Bombay High Court in the case of “CIT vs. Pruthvi Brokers and Shareholders Pvt. Ltd.” (2012) 349 ITR 336 (Bom.). The Hon’ble Bombay High Court in the case of ‘Pruthvi Brokers & Shareholders Pvt. Ltd.’ (supra), while relying upon the various decisions of the Hon’ble Supreme Court and other Hon’ble High Courts, has held that even if a claim is not made before the AO, it can be made before the appellate authorities. The jurisdiction of the appellate authorities to entertain such a claim is not barred. The Hon’ble Bombay High Court while relying upon the decision of the Hon’ble Supreme Court in the case of ‘Jute Corporation of India Limited vs. CIT’ 1991 Supp (2) SCC 744 = (1991) 187 ITR 688 has observed that the power of the Appellate Commissioner is coterminous with that of the Income Tax Officer and an appellate authority while hearing appeal against the order of the subordinate authority, has all the powers which the original authority may have in deciding the questions before it, subject to the restrictions or limitations, if any, prescribed by statutory provisions. In the absence of any statutory provision, the appellate authority is vested with all the plenary powers which the subordinate authority may have in the matter. An assessee is entitled to raise not merely additional legal submissions before the appellate authorities but is also entitled to raise additional claims before them. The appellate authorities have the discretion whether or not to permit such additional claims to be raised. It cannot, however, be said that they have no jurisdiction to consider the same. The appellate authorities have jurisdiction to deal not merely with additional grounds which became available on account of change of circumstances or law, but with additional grounds which were available when the return was filed but could not have been raised at that stage or the grounds 7 & 1354/M/2012 M/s. Sumitomo Chemical India Pvt. Ltd. which became available on account of change of circumstances or law. The words ‘could not have been’ raised must be construed liberally and not strictly. It is open to the assessee to claim a deduction before the appellate authority which could not have been claimed before the AO. The Hon’ble Bombay High Court has further observed that the decision of Hon’ble Supreme Court in the case of ‘Goetze (India) Limited v. CIT’ (2006) 157 Taxman 1, regarding the restriction of making the claim through a revised return was limited to the powers of the Assessing Authority and the said judgment does not impinge on the power or negate the powers of the appellate authorities to entertain such claim by way of additional ground.
In view of the above stated legal position, the order of the Ld. CIT(A) is therefore set aside. However, we find that the genuineness of the expenditure in relation to above claim has not been demonstrated by the assessee before the AO. We, therefore, restore this issue to the file of the AO with a direction to verify the claim of the assessee of expenditure on leasehold improvements and if the same is found to be correct then to allow the same.
In view of our observations made above, the appeal of the assessee is treated as partly allowed for statistical purposes.
Now we take up the appeal of the assessee for A.Y. 2005-06 i.e. ITA No.1354/M/2012. for A.Y. 2005-06 22. The assessee in this appeal has taken three effective grounds of appeal.
Ground No.1 23. Ground No.1 is not pressed by the assessee and the same is dismissed being not pressed.
8 & 1354/M/2012 M/s. Sumitomo Chemical India Pvt. Ltd. Ground No.2 24. Ground No.2 is relating to the disallowance in respect of advertisement and promotional expenses. This ground is identical and the nature of the expenses is also the same as pleaded in ground No.4 of the assessee’s appeal for A.Y. 2004-05. In view of our findings given above, this ground is accordingly allowed in favour of the assessee.
Ground No.3 25. This ground taken by the assessee in this appeal is relating to the commission expenses paid to Sumitomo Corporation India Pvt. Ltd. This ground is identical to ground No.3 of the assessee’s appeal for A.Y. 2004-05. In view of our findings given above, this ground is restored to the file of the AO with same directions as given above in assessee’s appeal for A.Y. 2004-05.
In the result, both the appeals of the assessee are treated as partly allowed for statistical purposes.
Order pronounced in the open court on 03.02.2016.