Four Seasons Wines Ltd, Bengaluru v. Deputy Commissioner of Income Tax Circle-3(1)(2), Bengaluru

ITA 2568/BANG/2017 | 2012-2013
Pronouncement Date: 08-03-2021 | Result: Partly Allowed

Appeal Details

RSA Number 256821114 RSA 2017
Assessee PAN AABCF1204D
Bench Bangalore
Appeal Number ITA 2568/BANG/2017
Duration Of Justice 3 year(s) 3 month(s) 7 day(s)
Appellant Four Seasons Wines Ltd, Bengaluru
Respondent Deputy Commissioner of Income Tax Circle-3(1)(2), Bengaluru
Appeal Type Income Tax Appeal
Pronouncement Date 08-03-2021
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted C
Tribunal Order Date 08-03-2021
Date Of Final Hearing 08-03-2021
Next Hearing Date 08-03-2021
Last Hearing Date 23-04-2019
First Hearing Date 24-12-2020
Assessment Year 2012-2013
Appeal Filed On 01-12-2017
Judgment Text
ITA NOS.2567 & 2568/BANG/2017 FOUR SEASONS WINES LIMITED BANGALORE IN THE INCOME TAX APPELLATE TRIBUNAL CBENCH: BANGALORE BEFORE SHRI N.V. VASUDEVAN VICE PRESIDENTAND SHRI B.R. BASKARAN ACCOUNTANT MEMBER ITA NOS.2567 & 2568/BANG/2017 ASSESSMENTYEAR:2011-12 & 2012-13 FOUR SEASONS WINES LTD. NO.24 UB CITY UB TOWER VITTAL MALLYA ROAD BANGALORE 560 001 PAN NO : AABCF1204D VS. DEPUTY COMMISSIONER OF INCOME-TAX CIRCLE-11(3) BANGALORE APPELLANT RESPONDENT APPELLANT BY : N O N E RESPONDENT BY : SMT. R. PREMI D.R. DATE OF HEARING : 08.03.2021 DATE OF PRONOUNCEMENT : 08.03.2021 O R D E R PER B.R. BASKARAN ACCOUNTANT MEMBER: THE APPEALS FILED BY THE ASSESSEE ARE DIRECTED AGAI NST THE ORDERS PASSED BY THE LD. CIT(A)-3 BENGALURU AND TH EY RELATE TO THE ASSESSMENT YEARS 2011-12 & 2012-13. 2. NONE APPEARED ON BEHALF OF THE ASSESSEE. WE NOT ICE THAT THE REGISTRY HAS SENT NOTICE OF HEARING BY REGISTERED P OST ON AN EARLIER OCCASION AND THE SAME HAS BEEN RETURNED BACK BY THE POSTAL DEPARTMENT WITH THE NOTING LEFT. HENCE THE BENC H HAS DIRECTED THE REVENUE TO SERVE THE NOTICE. LD. CIT(DR) VIDE HIS LETTER DATED 4.3.2021 HAS REPORTED TO THE TRIBUNAL THAT THE NOT ICE HAS BEEN SERVED UPON THE ASSESSEE. UNDER THESE CIRCUMSTANCE S WE ARE ITA NOS.2567 & 2568/BANG/2017 FOUR SEASONS WINES LIMITED BANGALORE PAGE 2 OF 7 CONSTRAINED TO PROCEED TO DISPOSE OF THESE APPEALS EX-PARTE WITHOUT THE PRESENCE OF THE ASSESSEE. 3. SINCE COMMON ISSUES ARE URGED IN THESE APPEALS BOTH THE APPEALS WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. 4. WE HEARD LD. D.R. AND PERUSED THE RECORD. THE A SSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURE AND SALE OF WINES. 5. THE FIRST COMMON ISSUE URGED IN BOTH THE YEARS R ELATE TO DISALLOWANCE OF INTEREST EXPENDITURE U/S 36(1)(3) O F THE INCOME-TAX ACT 1961 ['THE ACT' FOR SHORT]. THE FACTS RELATING TO THE SAME ARE STATED IN BRIEF. THE A.O. NOTICED THAT THE ASSESSE E HAS BORROWED FUNDS FROM BANKS AND OTHER ENTITIES AND PAID INTERE ST THEREON. HE FURTHER NOTICED THAT THE ASSESSEE HAS MADE INVESTME NTS IN OTHER COMPANIES NAMELY WINES SOCIETY OF INDIA PVT. LIMITE D (WSIPL) AND OTHER COMPANIES WITHOUT COLLECTING INTEREST FROM TH EM. HENCE THE A.O. DISALLOWED PROPORTIONATE INTEREST EXPENDITURE OF RS.24 LAKHS IN ASSESSMENT YEAR 2011-12 AND RS.41.04 LAKHS IN ASSES SMENT YEAR 2012-13. IN THE APPELLATE PROCEEDINGS THE LD. CIT (A) NOTICED THAT THE ASSESSEE HAS GIVEN TWO SEPARATE LOAN/INVESTMENT IN M/S. WSIPL AND THE ASSESSEE HAS COLLECTED INTEREST FROM THE ONE OF THE LOANS. ACCORDINGLY HE DELETED INTEREST DISALLOWAN CE RELATING TO THE LOAN ON WHICH INTEREST WAS RECEIVED. THE LD. CIT(A ) NOTICED THAT THE ASSESSEE COULD NOT ESTABLISH COMMERCIAL EXPEDIENCY IN MAKING THE INVESTMENT IN WSIPL. ACCORDINGLY HE CONFIRMED INT EREST DISALLOWANCE IN RESPECT OF REMAINING AMOUNT OF LOAN S IN BOTH THE YEARS UNDER CONSIDERATION. ITA NOS.2567 & 2568/BANG/2017 FOUR SEASONS WINES LIMITED BANGALORE PAGE 3 OF 7 6. BEFORE US NO MATERIAL WAS PLACED BY THE ASSESSE E TO CONTRADICT THE FINDINGS RECORDED BY LD. CIT(A) ON T HIS ISSUE. ACCORDINGLY WE DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER PASSED BY LD. CIT(A) ON THIS ISSUE IN BOTH THE YEAR S UNDER CONSIDERATION. 7. THE NEXT COMMON ISSUE RELATES TO DISALLOWANCE OF ADVERTISEMENT EXPENSES IN BOTH THE YEARS. THE A.O. NOTICED THAT THE ASSESSEE HAS INCURRED HUGE AMOUNT OF EXPENSES O N THESE ADVERTISEMENT EXPENSES. IN ASSESSMENT YEAR 2011-12 THE TURNOVER OF THE ASSESSEE WAS RS.14.91 CRORES WHILE THE ADVER TISEMENT EXPENSES WERE RS.7.09 CRORES WHICH WORKED OUT TO 5 0% OF THE SALES. IN ASSESSMENT YEAR 2012-13 THE ADVERTISEME NT EXPENSES INCURRED BY THE ASSESSEE WORKED OUT TO 40% OF THE T URNOVER. THE A.O. TOOK THE VIEW THAT THE ASSESSEE HAS NOT PROVED THE NEXUS BETWEEN ADVERTISEMENT EXPENSES INCURRED BY IT AND T HE COMMERCIAL EXPEDIENCY IN INCURRING THE SAME. ACCORDINGLY HE T OOK THE VIEW THAT A PORTION OF ADVERTISEMENT EXPENSES NEEDS TO B E DISALLOWED. ACCORDINGLY HE DISALLOWED 25% OF THE ADVERTISEMENT EXPENSES INCURRED BY THE ASSESSEE IN BOTH THE YEARS UNDER CO NSIDERATION WHICH WORKED OUT TO RS.1.77 CRORES AND RS.2.38 CROR ES RESPECTIVELY IN AY 2011-12 AND 2012-13. THE LD. CIT(A) ALSO CON FIRMED THE SAME. 8. WE HEARD LD. D.R. ON THIS ISSUE AND PERUSED THE RECORD. FROM THE ORDERS PASSED BY THE TAX AUTHORITIES WE N OTICE THAT THE ASSESSEE HAS EXPLAINED THE OBJECT BEHIND INCURRING HUGE ADVERTISEMENT EXPENSES. IT WAS EXPLAINED THAT PER PERSON CONSUMPTION OF WINE IN INDIA WAS ONLY 10ML. PER YEA R WHILE THE GLOBAL PER CAPITAL CONSUMPTION OF WINE IS 4.50 LTRS . ACCORDINGLY CONSIDERING THE HUGE OPPORTUNITY THE ASSESSEE HAS INCURRED HUGE ITA NOS.2567 & 2568/BANG/2017 FOUR SEASONS WINES LIMITED BANGALORE PAGE 4 OF 7 ADVERTISEMENT EXPENSES. IT WAS ALSO SUBMITTED THAT THE ASSESSEES MARKET SHARE IS INCREASING EVERY YEAR AND WITHIN A SHORT SPAN OF 4 YEARS IT HAS REACHED 2 ND POSITION IN TERMS OF MARKET SHARE. WE NOTICE THAT THE ABOVE SAID EXPLANATION WAS NOT CONV INCING TO BOTH THE TAX AUTHORITIES. 9. WE NOTICE THAT THE ASSESSEE HAS INCURRED THE ADV ERTISEMENT EXPENDITURE ACCORDING TO ITS WISDOM/STRATEGY FROM T HE POINT OF VIEW OF THE BUSINESSMAN. IT IS A WELL SETTLED PROPOSITI ON OF LAW THAT THE TAX AUTHORITIES CANNOT SIT IN THE ARM CHAIR OF THE BUSINESSMAN AND DECIDE THE MANNER OF CONDUCTING THE BUSINESS OF THE ASSESSEE. WE NOTICE FROM THE ASSESSMENT ORDER THAT IT IS NOT THE CASE OF THE A.O. THAT ADVERTISEMENT EXPENSES INCURRED BY THE ASSESSE E ARE NOT GENUINE/BOGUS. THE AO HAS FORMED THE VIEW THAT THE ADVERTISEMENT EXPENSES ARE HUGE VIS--VIS ITS SALES REVENUE. IN OUR VIEW IT SHOULD NOT BE THE REASON FOR MAKING ESTIMA TED DISALLOWANCE. UNDER THESE SET OF FACTS WE ARE OF T HE VIEW THAT THE A.O. WAS NOT JUSTIFIED IN DISALLOWING PART OF ADVER TISEMENT EXPENDITURE ON ESTIMATED BASIS AND THE LD. CIT(A) W AS NOT JUSTIFIED IN CONFIRMING THE SAME. ACCORDINGLY WE SET ASIDE THE ORDER PASSED BY LD. CIT(A) ON THIS ISSUE IN BOTH THE YEARS UNDER CONSIDERATION AND DIRECT THE A.O. TO DELETE THE DISALLOWANCE IN B OTH THE YEARS UNDER CONSIDERATION. 10. THE ASSESSEE HAS URGED ONE MORE ISSUE IN ASSESS MENT YEAR 2013-14 WHICH RELATES TO DISALLOWANCE OF BUSINESS PROMOTION EXPENSES. WE HEARD LD. D.R. ON THIS ISSUE AND PERU SED THE RECORD. THE A.O. NOTICED THAT THE BUSINESS PROMOTION EXPENS ES OF RS.13.07 LAKHS INCURRED BY THE ASSESSEE WAS IN THE NATURE OF CAPITAL EXPENDITURE AND THE SAME HAS RESULTED IN CREATION O F AN ASSET OF ENDURING NATURE. ACCORDINGLY HE DISALLOWED THE BU SINESS ITA NOS.2567 & 2568/BANG/2017 FOUR SEASONS WINES LIMITED BANGALORE PAGE 5 OF 7 PROMOTION EXPENSES TREATING THE SAME AS CAPITAL EXP ENDITURE. BEFORE LD. CIT(A) THE ASSESSEE FURNISHED BREAKUP D ETAILS OF BUSINESS PROMOTION EXPENSES AS GIVEN BELOW: 11. THE ASSESSEE ALSO FURNISHED ADDITIONAL EVIDENCE S IN SUPPORT OF THE ABOVE EXPENSES. HENCE LD. CIT(A) CALLED FO R A REMAND REPORT FROM A.O. WHEREIN THE A.O. EXPRESSED THE VIEW THAT ITEM NO.1 TO 6 MENTIONED IN THE TABLE AGGREGATING TO RS.5 25 894/- IS REVENUE IN NATURE. WITH REGARD TO THE REMAINING AMOUNT OF RS. 7 82 046/- THE A.O. SUBMITTED AS UNDER: 3. REGARDING THE BUSINES PROMOTION AND OTHERS (ITEM 6) OF RS.7 82 046/- THE FOLLOWING FACTS ARE RELEVANT. THE ASSESSEE COMPANY HAD LAUNCHED FOUR SEASON RANGE ONLY IN 2008-09 AND IN A SHORT SPAN OF 4 YEARS THE COMPANY ACHIEVED CONSIDERABLE MARKET SHARE. PROMOTIONAL EXPENSES HAD BEEN INCURRED FOR THE PURP OSE OF EXPANDING THE EXISTING BUSINESS NOT AS PART OF DAY TO DAY BUSINESS ACTIVITIES. BUSINESS PROMOTION EXPENSES HELPED THE ASSESSEE TO INCREASE THE REVENUE EARNING CAPACITY 12. THE LD. CIT(A) DIRECTED THE A.O. TO DELETE THE ADDITION OF RS.5 25 894/- MENTIONED IN SL.NOS.1 TO 5 OF THE TAB LE (REFERRED ABOVE) SINCE THE A.O. HIMSELF HAS ACCEPTED THE SAM E AS REVENUE IN NATURE. WITH REGARD TO REMAINING AMOUNT OF RS.7 82 046/- THE LD. CIT(A) TOOK THE VIEW THAT 25% OF THE SAME MAY BE TR EATED AS CAPITAL IN NATURE. HOWEVER HE SUSTAINED ADDITION OF RS.5 86 535/- OUT OF SL.NO. PARTICULARS AMOUNT IN RS. 1 IMPORT PASS FEES 78 658 2 TRADE SAMPLING 1 450 3 HOLOGRAMER CHARGES 1 27 963 4 DEMURRAGE CHARGES 3 08 029 5 CASH DISCOUNT 9 794 6 BUSINESS PROMOTION AND OTHERS 7 82 046 ITA NOS.2567 & 2568/BANG/2017 FOUR SEASONS WINES LIMITED BANGALORE PAGE 6 OF 7 THE ABOVE SAID AMOUNT OF RS.7 82 046/- AND DELETED THE BALANCE AMOUNT OF RS.1 95 571/-. AGGRIEVED THE ASSESSEE HA S FILED THIS APPEAL BEFORE US. 13. WE HEARD LD. D.R. AND PERUSED THE RECORD. THE LD. CIT(A) HAS DISCUSSED ABOUT THE DETAILS OF EXPENDITURE OF R S.7 82 046/- AS UNDER: 6.4 A PERUSAL OF THE DETAILS OF THE BUSINESS PROMOT ION EXPENSES SHOWS THAT IT INCLUDES EXPENDITURE ON PURCHASE OF B OTTLE STAND FOR DISPLAY EXPENDITURE ON DISPLAY AND TESTING IN WINE FESTIVALS PRESS TABLE FOR ROOMS PURCHASE OF GLASS CORNER SHOWER C URTAINS SOAP DISPENSER BATHROOM FITTINGS ARTIFICIAL STONES CR OCKERY FLOWER VASE ETC. IN ADDITION TO EXPENDITURE ON VARIOUS ME ETINGS TRAVEL TO VARIOUS PLACES INCLUDING ABROAD FOOD EXPENSES AND TRAVEL EXPENSES OF VARIOUS GUESTS. THUS IT CANNOT BE SAI D THAT THE ENTIRE EXPENDITURE OF RS.7 82 046/- IS REVENUE IN NATURE. A PART OF THE EXPENDITURE RELATES TO PURCHASE OF ASSETS AND ANOTH ER PART OF THE EXPENDITURE WHICH HAS BEEN INCURRED FOR VARIOUS BU SINESS MEETINGS CAN BE SAID TO HAVE BEEN INCURRED FOR BUSI NESS PROMOTION. THE EXPENDITURE ON BUSINESS PROMOTION C AN PARTLY BE CONSIDERED AS OF REVENUE NATURE AND PARTLY CAPITAL IN NATURE. WHILE DISCUSSING THE ISSUE OF EXPENDITURE ON ADVERT ISEMENT 25% OF THE EXPENDITURE HAS BEEN TREATED AS CAPITAL IN NATU RE. SINCE THE APPELLANT IS IN THE INITIAL STAGE OF ITS BUSINESS A ND ADMITS (PARA 5.1) THAT IT WAS INCURRING EXPENDITURE TO MAKE ITS PRESENCE FELT IN THE MARKET AN EXPENDITURE OF 25% OF RS.7 82 046/- IS TREATED AS CAPITAL IN NATURE. SO AN ADDITION OF RS.5 86 535/ - IS SUSTAINED AND DISALLOWANCE OF BALANCE AMOUNT OF RS.1 95 511/- IS DELETED. THUS THE APPELLANT GETS A RELIEF OF RS.7 21 405/-. CONS IDERING THE ABOVE THE GROUND OF THE APPEAL 7 OF THE APPELLANT IS PART LY ALLOWED. A PERUSAL OF THE ABOVE SAID OBSERVATIONS OF LD. CIT (A) WOULD SHOW THE NATURE OF EXPENSES INCURRED BY THE ASSESSEE ARE TOWARDS PURCHASE OF CERTAIN ARTICLES WHICH ARE FOR PROMOTI NG THE BUSINESS OF THE ASSESSEE. IN OUR VIEW THOSE KIND OF ARTICL ES WOULD NOT GIVE RISE TO CREATION OF ASSET OF ENDURING NATURE. ACCO RDINGLY WE ARE OF THE VIEW THAT THE LD. CIT(A) WAS NOT JUSTIFIED IN S USTAINING ADDITION OF PART OF BUSINESS PROMOTION EXPENSES. ACCORDING LY WE SET ASIDE THE ORDER PASSED BY LD. CIT(A) ON THIS ISSUE AND DI RECT THE A.O. TO ITA NOS.2567 & 2568/BANG/2017 FOUR SEASONS WINES LIMITED BANGALORE PAGE 7 OF 7 DELETE THE DISALLOWANCE OF ENTIRE AMOUNT OF BUSINES S PROMOTION EXPENSES. 14. IN THE RESULT BOTH THE APPEALS OF THE ASSESSEE ARE PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 8 TH MAR 2021. SD/- (N.V. VASUDEVAN) VICE PRESIDENT SD/- (B.R. BASKARAN) ACCOUNTANT MEMBER BANGALORE DATED 8 TH MAR 2021. VG/SPS COPY TO: 1. THE APPLICANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR ITAT BANGALORE. 6. GUARD FILE BY ORDER ASST. REGISTRAR ITAT BANGALORE.