D.b. Income Tax Appeal v. M/S Gillette India Ltd., Spa-65A, Industrial Area, Bhiwadi

HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH ATJAIPUR D.B. Income Tax Appeal No. 33 / 2016 Principal Commissioner Of Income Tax, Alwar. ----Appellant Versus M/S Gillette India Ltd., SPA-65A, Industrial Area, Bhiwadi. ----Respondent _____________________________________________________ For Appellant(s) : Mrs. Parinitoo Jain with Mr. Mukesh MeenaFor Respondent(s) : Mr. Sanjay Jhanwar with Mr. Prakul Khurana & Ms. Archana _____________________________________________________ HON'BLE MR. JUSTICE K.S. JHAVERI HON'BLE DR. JUSTICE VIRENDRA KUMAR MATHUR Judgment Per Hon’ble Jhaveri, J. 23/05/2017 1.By way of this appeal, the appellant has challenged thejudgment and order of the Tribunal whereby the Tribunal haspartly allowed the appeal preferred by the assessee and dismissedthe appeal preferred by the department. 2.This Court while admitting the appeal along with appealNo.125/2016 and 134/2014 on 04.10.2016 has framed thefollowing substantial questions of law: “(i) Whether the Tribunal was legallyjustified in deleting the addition of Rs.91,83,353/- made on account of inventorieswritten off specifically when neither anydetails were furnished by the company andnor there was any supporting evidence tojustify and establish that the inventorieswere actually destroyed? (ii)Whether the Tribunal was legallyjustified in deleting the addition of Rs.23,44,747/- and allowing deduction u/s 37,on account of advertisement expensesspecifically when the payment was made toa foreign company which was liable todeduction of tax at source in view of section195, the failure of which attracted section40(a)(ia)? (iii)Whether the Tribunal was legallyjustified in deleting the addition of Rs.37,14,84,213/- and allowing deduction u/s37 on account of advertisement expensesand trade incentive expenses specificallywhen the payment was made which wasliable to deduction of tax at source u/s.194C, the failure of which attracted section40(a)(ia) as the details of payment and TDSwere not furnished?” 3.In so far as issue No.(i) is concerned, the Tribunal in itsorder has observed as under: “8.8. The A O has raised a new issue aboutthe claim of double deduction. Such issuewas never raised in earlier years nor anyquery was raised in assessment proceedings.In fact the A O has made these observationsin the assessment order on the basis ofarguments of ld. D/R in course of appellateproceedings for assessment year 2003-04before the ITAT. Hon’ble ITAT in assessmentyear 2003-04 in ITA No. 188 & 265/JP/2007dated 9.8.2010 after considering the saidarguments of ld. D/R held that there is nocase of double deduction and deleted thedisallowance made in respect of theinventories written off. Copy of ITAT order isat. 1.Reliance is placed on following cases: J.C. I. T. Vs. ITC Ltd. 299 ITR (AT) 341(SB) (Cal.): CIT Vs. Alfa Leval (India) Ltd. 295 ITR451 (SC): 8.9. In the present case, theassessee has actually written off theinventory of Rs. 91,83,353/- by identifyingthe damaged / obsolete items. This is alsothe regular practice of the assessee. In anycase since stock are valued at cost or marketprice whichever is lower and these inventoryhas no value, the same is to be allowed tothe assessee in view of the accountingprinciples and the ratio laid down by Hon’bleSupreme Court. CIT Vs. Hotline Teletube andComponents Ltd. 175 Taxman 216 (Del.):Provision for diminution in value of stock isallowable as business loss. 8.10. In view of above, it is contended thatasessee’s claim of inventory written off isfully allowable.” 4.Therefore, the observations made by the Tribunal in the earlier year where appeal was preferred but this question was notadmitted and the same issue is squarely covered by the decisionon issue No.(ii) of appeal No.134/2014 as above. 8.10. In view of above, it is contended thatasessee’s claim of inventory written off isfully allowable.” 4.Therefore, the observations made by the Tribunal in the earlier year where appeal was preferred but this question was notadmitted and the same issue is squarely covered by the decisionon issue No.(ii) of appeal No.134/2014 as above. 5.Regarding issue No.(ii) & (iii), the same are covered by thedecision on issue No.(iv) & (v) of appeal No.134/2014, whereinthe following reasoning was adopted. “6.Regarding issue No.(iv) & (v) counselhas relied upon the decision of the SupremeCourt in the case of Commissioner ofIncome Tax. vs. Alfa Laval (India) Ltd.[2007] 295 ITR 0451 and the decision ofBombay High Court in the case ofCommissioner of Income Tax vs. RetilalBecharlal & Sons and Commissioner ofIncome Tax vs. General Atlantic (P)Ltd. [2016] 384 ITR 0271 (Bom). 6.1Counsel for the appellant hascontended that the expenses made werenot admissible under Section 37 of the Act,where the income was disproportionate tothe turn-over. 6.2In that view of the matter, theTribunal has seriously committed an error inallowing expenses. 6.3However, counsel for the respondenthas taken us to para 6.3 where the Tribunalsummarizing the same observed as under: “6.3 After considering the rival submission,we find that Group M Media India Pvt. Ltd.is an Indian Co. as is evident from thecompany master details placed at PaperBook Page 17. From the same, it is notedthat this company is incorporated on29.11.2001 having registered office atMumbai. Therefore, it is an Indian Co. asdefined u/s 2(26) and is a companyresident in India u/s 6(3). All paymentmadetothiscompanytowardsadvertisement charges is in Indiancurrency. Tax is deducted at source on suchpayment u/s 194C. Sec. 195 is applicablewhen payment is made to a non resident.Admittedly, payment to Group M MediaIndia Pvt. Ltd. is a payment to resident andnot a non resident. Therefore, section 195is not attracted. The AO has not disputedthe genuineness of the payment andtherefore only because there is noagreement for the advertisement work withthis company cannot be viewed adversely.Therefore,thedisallowanceofRs.36,70,04,056/- made by the AO isincorrect, against law and the same isdeleted. So far as expenses on tradeincentive is concerned, we find that similarincentives given as per various schemes inearlier years has been allowed. The AO atPage 2 of the order has admitted that billsand vouchers of expenses, as desired,were produced for verification which wastest checked. The observation of AO thatservices has been received by the assesseeagainst these payment and therefore heshould have deducted tax at source on thevalue of the gift is ill founded in as much asthe payment is not against the services butagainst the sale of goods to the distributorsand therefore TDS provisions are notapplicable. Therefore, the disallowance ofRs.16,17,24,303/- made by the AO on thisaccount is deleted.” 6.4 In our considered view, the view taken by the Tribunal is required to be acceptedon facts.” 6.In that view of the matter, the issues are answered in favourof the assessee and against the department. 7.The appeal stands dismissed. (VIRENDRA KUMAR MATHUR),J. (K.S. JHAVERI),J. Asheesh Kr. Yadav/192