DCIT, New Delhi v. M/s. Swastik Snakes PVt. Ltd.,, New Delhi

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES: G NEW DELHI BEFORE SHRI CL SETHI JM AND SHRI SHAMIM YAHYA AM ITA NO.567/DEL/2010 A.Y. 2004-05 DCIT CIRCLE 7(1) VS. M/S SWASTIK SNAKES P.LTD. NEW DELHI 3/16 WEST PATEL NAGAR NEW DELHI (APPELLANT) (RESPOND ENT) APPELLANT BY : SH.PK PRUSTY SR.D.R. RESPONDENT BY : SH. KULBHUSHAN SHARMA C.A. O R D E R PER SHAMIM YAHYA ACCOUNTANT MEMBER THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF LDCIT(A) DATED 4.2.2010 AND PERTAINS TO A.Y. 2004-0 5. 2. THE ISSUE RAISED IS THAT THE LDCIT(A) ERRED IN DELETING FOLLOWING ADDITIONS. (I) TARGET INCENTIVE: RS.1 36 680/- (II) SALESMAN INCENTIVES: RS. 12 276/- (III) 50% OF THE ADDITION MADE ON ACCOUNT OF CO MMISSION AND SUBSIDY. 2 3. THE ASSESSEE COMPANY IN THIS CASE IS ENGAGED IN THE BUSINESS OF MANUFACTURING AND MARKETING OF NAMKEEN AND PAPAD. DURING THE COURSE OF ASSESSMENT THE A.O. OBSERVED THAT THE AS SESSEE COMPANY HAD INCURRED EXPENSES ON SALES PROMOTION ADVERTISING A ND MARKETING AND EXPENSES SHOWN WERE AS UNDER. COMMISSION RS. 8 91 972 TARGET INCENTIVE RS. 2 73 360 SUBSIDY SCHEME RS. 5 57 319 SALESMAN INCENTIVE RS. 24 551 ---------------- TOTAL RS. 17 47 202 ============ 4. AO ASKED THE ASSESEE TO GIVE JUSTIFICATION OF TH E VARIOUS EXPENSES SHOWN. THE ASSESSEE EXPLAINED THAT COMMISSION HAS BEEN PAID AS INCENTIVE TO DEALERS AND STOCKISTS FOR THE UPTAKE O F PRODUCTS AND THE COMMISSION WAS IN THE NATURE OF INCENTIVE PAID. IT WAS FURTHER EXPLAINED THAT THE ASSESEEE IN ORDER TO INCREASE THE SALES EN COURAGES THE DEALERS THAT INSTEAD OF BOOKING THE ORDER AND THEN SUPPLY T HE GOODS TO THE SHOPS SHOULD CARRY THE GOODS ON THREE WHEELERS AT THE SHOP ITSELF AND TAKE THE ORDER AND SUPPLY THEN AND THERE. FOR THIS PURPOSE SUBSIDY HAS BEEN PAID. THE AO DID NOT ACCEPT THE ASSESSEES CO NTENTIONS HE HELD THAT THE ASSESSEE HAS FAILED TO PROVE THAT THE EXPENSES WERE FOR BUSINESS PURPOSE. THE AO PROCEEDED TO DISALLOW 50% OF THESE EXPENDITURE WHICH CAME TO RS. 8 73 600/-. 3 5. THE LDCIT(A) SUMMARIZED THE ASSESSEES CONTENTIO NS BEFORE HIM AS UNDER. 1. THE COMMISSION TARGET INCENTIVE SUBSIDY SCHEM E AND SALESMAN INCENTIVES TOTAL AMOUNTING TO RS. 17 47 202 HAVE B EEN LAID DOWN FOR THE PURPOSE OF BUSINESS. 2. ALL EXPENSES ARE DULY SUPPORTED BY THE BILLS AND VOUCHERS. 3. THE EXPENSES INCURRED ARE DULY FOR THE BUSINESS PURPOSE AND ARE DIRECTLY LINKED TO THE SALES. 4. THE SALES OF THE ASSESSEE COMPANY HAS INCREASED BY INCURRING SUCH EXPENSES. 5. THE NATURE AND QUANTUM OF THE EXPENSES ARE WITH IN THE NORMS PREVALENT IN THE INDUSTRY. 6. THE A.O. CANNOT BE ON THE BOARD OF DIRECTORS DI RECTING THE ASSESEE THE MANNER AND AMOUNT TO BE INCURRED FOR THE PURPOS E OF THE BUSINESS. 7. ACCORDINGLY THE ASSESEE BE ALLOWED FULL EXPENSE S. 6. CONSIDERING THE ABOVE LDCIT(A) OBSERVED THAT SOM E OF THE VOUCHERS HAD NOT CONTAINED ADDRESS TO PARTIES OF WHOM COMMI SSION ON SUBSIDY HAS BEEN PAID. OVERALL KEEPING THE FACTS IN MIND T HE LDCIT(A) DELETED THE ADDITION OF TARGET INCENTIVE AND SALESMAN INCENTIVE FULLY. HOWEVER FOR THE PAYMENTS CLAIMED UNDER THE HEAD COMMISSION AND SUBSIDY HE HELD 4 THAT THE SAME ARE ALLOWED TO THE EXTENT OF 50% OF D ISALLOWANCE MADE BY THE AO. AGAINST THIS ORDER THE REVENUE IS IN APPEAL BEFORE US. 7. WE HAVE HEARD BOTH THE COUNSELS AND PERUSED THE RECORDS. WE FIND THAT IT IS NOT THE CASE OF THE A.O. THAT THESE EXPENSES HAVE NOT BEEN INCURRED. IT IS ALSO NOT THE CASE THAT THE EXPEND ITURE WAS BOGUS OR THEY ARE PERSONAL IN NATURE. AOS VIEW WAS THAT ASSESSE E HAS NOT BEEN ABLE TO JUSTIFY THE EXPENDITURE. THE LDCIT(A) ON THE OTHE R HAND HAS CONSIDERED THE ASSESSEES SUBMISSIONS WHEREIN IT HAS BEEN DULY EXPLAINED THAT ALL THE EXPENSES SUPPORTED BY THE VOUCHERS. EXPENSES W ERE INCURRED FOR THE BUSINESS PURPOSE AND RELATING TO THE SALES. UNDER THESE CIRCUMSTANCES WE FIND THAT THE LDCIT(A) HAS TAKEN A CORRECT VIEW OF THE MATTER AND GRANTED RELIEF TO THE ASSESSEE. IN THIS REGARD WE PLACED RELIANCE ON THE HONBLE APEX COURT DECISION IN THE CASE OF CIT V S. WALCHAND AND CO.P.LTD. 65 ITR P.381. IN THIS CASE IT WAS HELD THAT IN APPLYING THE TEST OF COMMERCIAL EXPEDIENCY FOR DETERMINING WHETHER TH E EXPENDITURE WAS WHOLLY AND EXCLUSIVELY LAID OUT FOR THE PURPOSE OF THE BUSINESS REASONABLENESS OF EXPENDITURE HAS TO BE ADJUDGED F ROM THE POINT OF VIEW OF THE BUSINESS MAN AND NOT OF REVENUE. 8. HENCE IN THE BACKGROUND OF AFORESAID DISCUSSION OF PRECEDENT WE DO NOT FIND ANY INFIRMITY OR ILLEGALITY IN THE ORD ER OF CIT(A) ACCORDINGLY WE CONFIRM THE SAME. 5 9. IN THE RESULT THE APPEAL FILED BY THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 5 TH APRIL 2010. (C.L. SETHI) (SHAMIM YAHYA) JUDICIAL MEMBER ACCOUNTA NT MEMBER DATED: APRIL 2010 *MANGA COPY OF THE ORDER FORWARDED TO: 1. APPELLANT; 2.RESPONDENT; 3.CIT; 4.CI T(A); 5.DR; 6.GUARD FILE BY ORDER DY. REGISTRAR