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Income Tax Appellate Tribunal - Hyderabad
Hyderabad Distilleries And ... vs Assessee on 3 June, 2011

IN THE INCOME TAX APPELLATE TRIBUNAL

HYDERABAD BENCH 'A, HYDERABAD

BEFORE SHRI G.C.GUPTA, VICE PRESIDENT AND SHRI AKBER BASHA, ACCOUNTANT MEMBER

ITA No.1356/Hyd/2010 : Assessment year 2006-07

M/s. Hyderabad Distilleries VS DCIT, Cir-2(2), and Wineries Pvt. Ltd., Hyderabad. Hyderabad.

(PAN:AAACH 2679H)

(Appellant) (Respondent)

Appellant: Shri G. Kalyandas

Respondent: Shri V. Srinivas

ORDER

Per AKBER BASHA, AM:-

This appeal filed by the assessee is directed against the order of the CIT (A)-III, Hyderabad dated 31-08-2010 and it pertains to the assessment year 2006-07. We are considering for adjudication only ground No.3 of the grounds of appeal wherein the assessee company contends that disallowance of Rs.2.79 crores towards selling/publicity expenses is arbitrary, just and illegal. The other grounds raised by the assessee are found to be argumentative in nature and they merely support ground No.3. Hence these are not considered for adjudication for which the 2 ITA No.1356 of 2010

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learned counsel for the assessee did not raise any objection at the time of hearing.

2. Briefly stated facts of the case are that the assessee is a company engaged in business of manufacture and sale of Indian made Foreign Liquor, under an agreement with M/s Jagjit Industries Ltd., (JIL in short). For the assessment year under consideration, it has filed the return of income on 18-11-2006 showing income of Rs.43,85,595/-. During scrutiny of the return the assessing officer noticed that during the previous year, the assessee has made sales of Rs.87.35 crores and the entire sales were made to AP Beverage Corporation Limited (APBCL), which in turn sold the same to retail shops in the state of Andhra Pradesh. He found that in the Profit and loss account, the assessee has claimed an amount of Rs.3,14,49,710/- towards 'selling expenses'. He has asked the assessee to furnish the details of such expenses. From such details furnished by the assessee, he noticed that the entire expenditure was incurred at Delhi and such claim pertains to purchase of cloth for banners and purchase of Air bags etc. In respect of such claim of expenditure, the assessee has filed copies of invoices from different parties. The details of expenses claimed by the assessee in respect of 20 parties of Delhi, including the amount claimed towards provision for such expenses, are given by the assessing officer at pages 2 and 3 of the assessment order. It was submitted before the assessing officer that the cloth purchased during the previous year was stitched at Delhi and then the banners were distributed to various shops in Andhra Pradesh. 3 ITA No.1356 of 2010

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For verifying the genuineness of claim of such expenses, during the assessment proceedings, the assessing officer has conducted necessary enquiries through the Investigation Wing of the Department at Delhi. The concerned assessing officer at Delhi has conducted enquiries in case of seven parties at Delhi. His report of such enquiry furnished by him, which was forwarded by the Addl. DIT (Inv.) (New Delhi), was extracted by the assessing officer at page-4 of his order. In the case of the party M/s Makemashi Enterprises Limited, Delhi, as per the above report, the summons issued by the assessing officer, Investigation was served on one Sri Deepak Jain, Auditor of the company. It is stated that as per the Inspector's report, no business activity was carried out from that premises. The said auditor in his reply filed before the assessing officer, Investigation has submitted that during survey conducted in the case of that company on 26-2-2008, the Director of the Company has admitted that they were not making genuine/actual sale and purchases during the assessment year 2006-07. The company was merely issuing bills for accommodating clients charging 2% commission. The said auditor further stated that he was present as witness of such survey proceedings.

3. In the case of the concern M/s. Meenakshi Cloth Merchant, 1176, Chhatta Madan Gopal, Maliwara, Delhi, the assessing officer has issued summons under section 131, but the same could not be served as Mrs. Sunheri Devi Agarwal, the lady occupant of that premises stated that she is not aware of any such 4 ITA No.1356 of 2010

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business entity. The Inspector of Income-tax who was entrusted with the enquiries, after conducting local enquiries, reported that no such firm exists or was carrying on business in that name from that premises. In the case of Kishori Textiles Agencies, 1/114E, Naveen Shahdra, Delhi and many other parties in this line, the assessing officer asked the assessee to furnish proof of receipts of such quantity of cloth banners along with lorry receipts etc. Later, the assessing officer has furnished a copy of the said enquiry report to the assessee. In response to such query from the assessing officer, the assessee has submitted that the transactions shown in those invoices are genuine and it was submitted that that the statement given by the said auditor of M/s Makemashi Enterprises Ltd., is not reliable and the reports furnished by the ITI in respect of 5 parties including Meenakshi Cloth Merchant are not reliable. It has furnished ledger accounts, confirmations in respect of 13 parties including M/s Hari Om Fabrics and M/s Bharat Textiles. After stating that the ITI has made enquiries from persons who have no connection with the persons, who supplied goods, the assessee has asked the assessing officer to allow an opportunity to cross examine those persons, referred to in the ITI's report. However, the assessing officer rejected such contention of the assessee and he noted that when the entire marketing in the case of the assessee was looked after by other concerns and the assessee has separately incurred marketing expenses of Rs.7.81 crores, the claim of such huge expenditure towards sales promotion is not genuine and by stating that the request of the assessee to cross examine those persons referred to 5 ITA No.1356 of 2010

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in the ITI's report, is a device to divert the main issue, the assessing officer rejected such request.

4. After accepting the expenditure shown against M/s. Ganga Ram Nath and the amount shown against M/s Bradbury Spinning and Weaving Mills, in respect of which, the assessee has furnished the copies of income-tax returns filed by the said concern at Mumbai, the assessing officer rejected the claim of such selling expenses shown against the other 18 parties and also the amount claimed towards provision for such expenses. Thus, after excluding a sum of Rs.30,79,696/- towards expenses claimed in respect of both the above parties, the assessing officer held that the balance amount of Rs.2,83,70,014/- has to be disallowed. It is seen that for an amount of Rs.75,75,883/- claimed in respect of 7 parties, mentioned at page-12 of the assessment order, the material allegedly purchased from them, assuming that such claim is correct, then the expenditure on that account partakes the nature of pre-paid expenses. The assessing officer mentioned that the said material could not have been utilized before the end of the accounting year, the same constitutes closing stock in the hands of the assessee and therefore no deduction could be allowed for the same. In such amount, the assessing officer has also considered the sum of Rs.10,50,000/- towards provision for selling expenses, and it was further mentioned though in the ledger account of selling expenses, the assessee has shown purchase of material from M/s Premium International at Rs.9,49,848/- as per ledger account of that party furnished by the assessee, and they 6 ITA No.1356 of 2010

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have sold goods for Rs.4,99,848/- only during financial year 2005-

06. Under these facts and further stating that as per books of that concern, there was no sale to the extent of Rs.4,50,000/- the assessing officer observed that, it shows the assessee obtained a paper invoice from that concern in March, 2006, to claim such expenditure. However, it was stated that the said entire amount of Rs.75,75,883/- has to be disallowed. It was further mentioned without prejudice to the above observations, the last item of Rs.10,50,000/- being a mere claim towards provision for selling expenses, the same is not allowable. The assessing officer further disallowed an amount of Rs.3,80,388/- claimed towards unabsorbed depreciation for assessment year 2005-06. With the both the above disallowances of Rs.2,83,70,014/- and Rs.3,80,388/- made to the returned income, the assessing officer completed the assessment on a total income of Rs.3,31,36,000/- vide order dated 31-12-2008 passed under section 143(3) of the Act. Aggrieved by the order of the assessing officer, the assessee went in appeal before the CIT (A). On appeal, the CIT (A) by elaborately discussing the points at issue, deleted the disallowance to the tune of Rs.4,99,848 and confirmed the balance disallowance of Rs.2,78,70,166/-. Further aggrieved, the assessee is in appeal before us.

5. The learned counsel for the assessee submitted before us by way of written submissions that having regard to the facts and circumstances of the case it was submitted that Authorities below have used the information gathered behind, in denial of 7 ITA No.1356 of 2010

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natural justice and therefore the assessment order requires to be vacated and cancelled. The assessee manufactures Indian Made Foreign Liquor (IMFL) under the Brands owned by M/s Jagatjit Industries Ltd New Delhi. With a view to boost sale of liquor and sustain severe competition from other popular brands manufactured by other big liquor companies namely Mc Dowell & Co., United Beverages, Seagrams, Shawallace & Co, Tilaknagar Distilleries, Gemini Distilleries etc, the assessee company had launched certain schemes and under took publicity campaign in a big way in September 2005 because in the immediate earlier assessment year i.e., 2005-2006 the aggregate gross liquor sales registered a fall of Rs.7 crores and reported at Rs.63.23 crores compared to sales in the earlier assessment year 2004-2005 at Rs.70.11 Crores. On account of effective publicity campaign carried out with the help of sales promoters for which selling expenses were incurred, liquor sales of the assessee during the year under appeal registered at Rs.93.33 crores. It is submitted that the Assessing Officer misconceived the decision/policy of the assessee company and its efforts for launching publicity campaign from September 2005 and negatively viewed and disallowed expenditure incurred on publicity material. The aggregate selling expenses amounting to Rs.3.14 crores were incurred by the company which included purchase of cloth, banners, danglers and their stitching and printing charges, freight etc and other display material for publicity of liquor products manufactured by the assessee company. Purchases were made from the concerns in which neither the assessee nor the Directors have any business interest what so ever. Cloth purchased for the 8 ITA No.1356 of 2010

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above purposes at Delhi was used for stitching banners, danglers, air bags etc., at Delhi itself on which various products of the assessee company were printed and painted with brands and logo of alcoholic products manufactured by the assessee company and the aggregate selling expenses Rs.3.14 crores includes the following as submitted by the assessee-

Particulars Amount (Rs.) i.Banners cloth purchases 2,57,80,493 ii.Banners stitching & Printing 23,08,090 iii.Dangler Boards & printing 12,76,132 iv.Air bags & SS steel utensils 19,78,712 v.National wines freight charges 51,286 vi.Marketing Conference expenses 83,708

3,14,78,421

Less: Deductions 28,712

Total: 3,14,49,709

6. It is submitted that there are 7,463 Retail outlets in Andhra Pradesh who also sell other popular brands manufactured by other leading companies and therefore these retail shops play important role in sale of our liquor products. The assessee company had to make strenuous efforts in advertising the brands manufactured by it with various retail outlets/shops, besides displaying banners at various retail outlets, bars and restaurants at prominent and other places in the State to attract consumers and photographs of retail shops where above publicity material displaying products/logo of the liquor brands manufactured by the assessee company were filed 9 ITA No.1356 of 2010

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before the Assessing Officer. While voluminous details were called from the company from time to time, without losing time, the assessee company furnished the details and filed various documents and rendered at most co-operation in the assessment proceedings and records bare the testimony and in support of purchase of cloth and other material, purchase orders, bills rendered by various parties/creditors along with their addresses, identity, PAN No's, confirmations, transport receipts/challans, stock registers containing receipts and issues of material to various retail outlets through marketing staff was furnished. It is further submitted that the payments were made against purchase of material through account payee cheques, and as required by the Assessing Officer, Bank Certificates for clearance of such cheques, in favor of all the parties who have supplied the material were filed. Company deducted tax at source on stitching printing/painting charges in respect of works rendered by various parties. The learned Assessing Officer caused enquiries through the Income Tax Inspector of New Delhi office in respect of the following seven parties from whom material was purchased by the company.

i) Makamashi Enterprises

ii) Meenakashi Cloth Merchant

iii) Kishori Textiles Agencies

iv) Hariom Fabrics

v) Bharat Textiles

vi) Gangaram Ranath

vii) Bradbury Spinning & Weaving Mills.

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7. The Assessing Officer served a copy of the above enquiry report of the Inspector on 22nd December and further directed that the assessee company should produce the parties from whom material was purchased, before the Income Tax Officer, New Delhi on 26-12-2008. Though only 3 working days were allowed the assessee company produced the parties and the Income Tax Officer, New Delhi declined to concede the request for recording statements of the suppliers on the ground that he had not received any instructions from the Assessing Officer, Hyderabad. This information was specifically brought to the notice of the Assessing Officer through our letter filed on the same date on 26-12-2008. In the above circumstances parties/suppliers filed their Affidavits confirming transactions with the assessee, confirmations of their statement of accounts, identity proof along with Income Tax PAN No's before the learned Assessing Officer. It may be mentioned here that the Assessing Officer before assessment caused enquires through Income Tax Inspector at New Delhi in respect of 7 parties only out of 20 parties who had supplied publicity material to the company. The Inspector served Summons under section 131 of the Act on above parties. In one case served on the concerned person partner of the firm who confirmed the supply of material to the company and the Assessing Officer accepted the same. In another case, Inspector reported that the party shifted to Bombay and the said party subsequently, sent confirmation of supply of material and the Assessing Officer accepted the same. 11 ITA No.1356 of 2010

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In the case of remaining 5 parties, addition was made. It is further submitted that in the case of M/s. Gangaram Ramnath the inspector had contacted one of the partner of the firm and upon enquiry they have confirmed the supply of material and the Assessing Officer accepted the correctness of the transactions of the above firm and allowed the expenditure Rs.20,65,496/-. In the case of supply of materials by an another party M/s. Bradburry Spinning Mills, the Assessing Officer partly accepted the correctness of the transactions based upon filing of their confirmation with PAN No. and the remaining part was allowed by the CIT(A) in appeal proceedings. In the case of other remaining 5 parties though the suppliers had similarly filed confirmations with their PAN Numbers and other documents more fully mentioned in para 6 supra, the Assessing Officer did not consider them and disallowed the expenditure. The Inspector since made some local enquiries with third parties nothing to do with persons who had supplied the material. A specific request was made to the Assessing Officer to arrange the said parties for our cross-examination. Using the above, one sided enquiry report against the assessee company, without providing an opportunity to cross-examine them is highly illegal, unreasonable and unjustified. Lower authorities dislodged the evidence filed on record, arbitrarily and disallowed the expenditure, in total denial of natural justice.

8. It is further submitted that the assessing officer is also not correct to state that expenditure on publicity either in 12 ITA No.1356 of 2010

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Papers or in TV will not be doubted and that expenditure incurred in other modes of publicity would not be genuine. Observation of the Assessing Officer is highly presumptuous and suspicious and the assessing officer appears to have lost sight of the fact that advertisement of liquors either in newspapers or TV channels or in any other media under the control of the government is prohibited. It is submitted that as regards to the other 13 remaining parties who have supplied material and under took printing and stitching contracts, there is no adverse enquiry report of whatsoever nature from the Inspector and all the parties filed their affidavits, confirmations, bills and furnished their identity along with their Income Tax PAN No's and admitted the correctness of supply of material and for payments received through cheques. The lower authorities however disallowed the entire expenditure in respect of other 13 parties also on surmises and presumption and on preponderance of probability and held that all the parties neither have supplied material nor rendered stitching contracts, ignoring clinching evidence filed on record. The aggregate expenditure thus disallowed worked out to Rs.2.79 crores and credible evidence was placed on record in respect of incurrence of expenditure. Whereas the learned Assessing Officer did not place any evidence to disprove the expenditure incurred by the assessee company except relaying upon the Inspectors report in the case of only 5 parties on the basis of enquiries made with outsiders/third parties. Further based on the letter of Deepak Jain except making a bald statement by Assessing Officer that 13 ITA No.1356 of 2010

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material was not supplied by the parties and they have received only Commission, no evidence was placed by the Assessing Officer that the payments received by the parties was withdrawn by them and was paid back to the assessee company. Further tentative suspicion in the mind of the Assessing Officer cannot warrant addition. In the circumstances disallowance of business expenditure aggregating to Rs.2.79 crores on preponderance of probability and on guesswork is highly unwarranted, arbitrary and requires to be allowed and the Assessing Officer seems to have justified the above addition by relying upon the decisions cited by him which have no relevance to the facts of the case. Further the Assessing Officer himself admitted that the decisions relied upon by him are rendered in the contest of cash credit additions under section 68 of the Income Tax Act.

9. In the case of the assessee, the issue is allowance of business expenditure expended, wholly and exclusively for the purpose of business and incurred under commercial expediency. Further having collected the information behind and used the same against the assessee, the lower authorities are not correct in holding that right to cross-examination is not available to the assessee and such right is available to the assessee in penalty and in criminal proceedings. It is stated that under law the assessee has a vested right to cross- examine persons whose statements are relied upon and used against the assessee and denial of right of the assessee for 14 ITA No.1356 of 2010

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cross-examination would amount to impairment of natural justice rendering the assessment order nullity and the lower authorities are under misconception that the aggregate value of publicity material Rs.75,75,883/- was purchased in the month of March 2006 remained in stock and that the above expenditure partakes the character of closing stock/prepaid expenses. The lower authorities did not consider the fact that the publicity material was delivered earlier along with transport bills and that publicity material was used in the accounting year itself. In support of the fact that publicity material delivered to retail outlets much before the end of March 2006, the assessee company produced the Stock Registers where in material received and issued for display were recorded and copies of stock registers was filed on record before the Assessing Officer. The assessee company also placed on record evidence of transport of goods from Delhi to Hyderabad. In the circumstances, the lower authorities are not correct in holding that the above purchases of advertisement material remained with the company and constitute closing stock of the year and those stocks is saleable material to the company. It may also be stated here, that the assessee Company has manufactured several new brands of IMFL like "Aristocrat Black Whisky" which was launched during the year under appeal. Similar few brands like "Aristocrat Premium Whisky", "Aristocrat Whisky" manufactured by the assessee were re-launched. It may also be noted that the assessee company has furnished specimen photographs of different retail shops, bars and restaurants 15 ITA No.1356 of 2010

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where the publicity material was displayed. It may also be stated that retail shop photographs placed before the Assessing Officer disclose the publicity material of other manufacturers brands displayed in the retail shops in bigger way. In the above facts and circumstances the lower authorities were not correct to hold publicity material was not used by the assessee. It is further submitted that Assessing Officer completely ignored the evidence furnished in support of purchase of publicity material and their transactions in the form of purchase order invoices of material purchased, payment through account payee cheques, deduction of tax at source wherever applicable, transport receipts, copies of entries in the stock register, affidavits and confirmation by the suppliers, Income Tax returns, PAN. It is also pertinent to note that in the immediate subsequent assessment year 2007-08, the assessee company had incurred similar expenditure on publicity, advertisement and selling expenditure aggregating to Rs.4.63 crores, as against Rs.3.14 crores in the assessment year under consideration, was allowed upon scrutiny assessment under section 143(3) read with section 144 A of the Act dated 31.12.2008 and it may be noted that the Brand owners M/s Jagatjit Industries Limited had sent glass tumblers at their cost for free distribution, in respect of which the assessee paid transport charges Rs.51,286. However transport bills have been rendered in the name of Jagatjit Industries Limited and payments were made by the assessee company through cheques. Further Jagatjit Industries Limited has conducted Sales Training Workshop at Hyderabad in 16 ITA No.1356 of 2010

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Kakatiya Sheraton and Viceroy Hotels, in respect of which Rs.82,708/- was paid by the assessee company through account payee cheques, where the bills were rendered in the name of Jagatjit Industries Limited. The assessee submitted both the expenses since related to the assessee company for promotion of sales payments made by the assessee company are allowable under law. In the above facts and circumstances, it is submitted by the learned counsel for the assessee that in the matter of allowance of expenditure, failure of service or service of summons, impairment of natural justice and the learned counsel for the assessee drew our attention to the few following decisions rendered by Hon'ble High Courts and Supreme Court.

a] CIT Vs. Orissa Corporation (P) Limited (159 ITR 78) b] Colonizers vs. ACIT [41 ITD 57] -Hyd SB

c] B. Ramakrishnaiah Vs ITO [134 TTJ 600] (Hyd) d] Anis Ahmed and Sons Vs CIT [297 ITR 441]

e] CIT Vs Bedi and Co. (P) Limited [230 ITR 580] f] Rajkumar Jain Vs ACIT [50 ITD 1] (All)

g] Life Insurance Corporation of India Vs CIT 219 ITR 410 [SC]

11. On the other hand, the learned departmental representative submitted that the assessee has an agreement to manufacture and sell products of M/s Jagatjit Industries Ltd, Delhi, (henceforth, JIL) in Andhra Pradesh. Out of the various 17 ITA No.1356 of 2010

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expenses claimed, a sum of Rs.3.14 crores by way of selling expenses and the same was selected for investigation, in view of the evident improbabilities of the claim. The assessee's business activities are confined to the state of Andhra Pradesh. The expenditure is incurred entirely at Delhi, in respect of publicity activity in Andhra Pradesh. The entire expenditure is incurred only in the last six months of the accounting year. Nearly 100% of this expenditure pertained to purchase of cloth, cutting it into banners and danglers, and printing/painting of these banners. Common prudence suggests that this is a low end work, best outsourced to respective locations. Instead, the assessee chose to incur the expenditure at a far off place like Delhi, which had no special advantage either in the purchase of cloth or in printing technology, not to mention additional transportation costs to be incurred. The assessee had 7640 shops/establishments where presumably the publicity expenses were intended. For this, the assessee purchased a staggering 6,47,377 meters of cloth. It is further contended that the following conclusions are to be adopted:

(i) It does not get established that the expenditure really pertains to the assessee;

(ii) The assessee has not been able to satisfactorily discharge the onus of establishing that the expenditure claimed was wholly and exclusively incurred for the business of the assessee relating to the year of account.

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(iii) This responsibility in the ultimate analysis is always on the assessee as held by the Hon'ble AP High Court in the case of Transport Corporation of India reported in 256 ITR 701.

12. The assessing officer did not make a sweeping addition. In two cases, viz. (1) M/s Gangaram Ramnath, and (2) Bradberry Spinning & Weaving Mills, involving an expenditure claim of Rs.20.65 lakhs and Rs.26.8 lakhs respectively, addition was not made having regard to details available. Similarly, CIT (Appeals), in the case of M/s Premium International, deleted addition to the tune of Rs.4.99 lakhs which represented the amount confirmed by the other party out of the total claim of Rs.9.49 lakhs made by the assessee.

13. On the subject of providing opportunity for cross examination by the assessee, it is seen that the enquiries are conducted by ITO (Inv) at Delhi and not the Assessing Officer at Hyderabad. The Assessing Officer had asked the ITO who conducted the enquiry to examine such persons as the assessee may produce. It is seen from para 8.4 on page 19-21 of the order of CIT (Appeals) that in June 2009 the ITO at Delhi asked for production of 15 parties. The assessee could produce only 3 parties. The ITO also issued summons under section 131 of the Act. In 5 cases, notices were returned unserved and in 3 cases, there was no response whatsoever. The summons was presumably served because they were never returned by the 19 ITA No.1356 of 2010

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postal authorities. Only in 3 cases, there was response. The ITO also reported that no request for cross examination was made.

14. In addition to the above, the CIT (Appeals) notices that assessee would be right in insisting on cross examination only in cases where a witness is examined and such witness deposes against the assessee.

15. In the case of Meenakshi Cloth Merchant, no statement is recorded from Smt. Sunehri Devi Agarwal who is the occupant of the property. She merely disclaims knowledge of any such firm operating out of the said address. In the case of Kishori Textiles, Shri L.N. Agarwal had nothing to say against the assessee. He merely stated that he was in possession of the property and had not given it on rent to anyone. In the case of M/s Bharat Textiles, Shri Gopinath merely stated that summons were received by him merely because the addressee premises were owned by him and that such premises have not been let out to M/s Bharat Textiles. In the case of Hari Om Fabrics, Smt. Vinitha Agarwal, resident of the stated premises, furnished an affidavit, copy of which was given to the assessee. She merely stated, as a resident of the premises that no such firm operates out of the said address. In the case of Makemashi Enterprises, there is no statement of Shri Deepak Jain against the assessee before the ITO. The statement relates to a survey conducted by the Department in respect of this address which actually predates the present enquiry. Mr. Deepak Jain, as Auditor of the 20 ITA No.1356 of 2010

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Company, received the summons and replied that the persons concerned, viz. Shri Vishal Jain and Smt. Urmila Jain are out of station. The ITO takes the findings of the survey dated 26-2- 2008 as facts material to the profile of the addressee firm, to reinforce the fact that no genuine business activity was being carried out at such premises. Under the circumstances, nothing turns on the Assessing Officer's alleged refusal to afford cross examination of the above persons. In fact, the onus shifts to the assessee on these facts. Against these ground realities and business probabilities, the assessee's claim does not get established by the mere production of invoice copies, PAN, ledger account copies produced, fact of cheque payments, etc. The addition upheld by the CIT (Appeals) therefore deserves to be sustained.

16. The learned counsel for the assessee submitted that, in rejoinder, the assessee has procured advertisement material from Delhi and was entirely used in Andhra Pradesh evidencing that the material was used by the assessee in Andhra Pradesh. The assessee has administrative office at Delhi as evident from the letter head of the assessee and therefore publicity material was purchased at Delhi through known sources and got the banners, danglers, air bags, T-boards stitched at Delhi," to ensure material quality and competitive rates". Purchases made from parties, in whom neither the assessee company is interested nor directors of the assessee company related to them. Entire expenditure was incurred under business/ 21 ITA No.1356 of 2010

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commercial expediency. In reply to para 4 of the revenue's contention, the learned counsel for the assessee states, extent of quantity of cloth required was purchased for stitching banners, along with danglers, air bags and other materials for delivery to 7460 retail outlets shops located in entire Andhra Pradesh for display purposes. Stock registers and other records maintained established the fact that the publicity material was delivered to the retail outlets. Delivery details with reference to each retail out let containing 129 pages were furnished to the assessing officer. It is submitted that cloth banners and posters had a very short life due to adverse weather conditions and use of same space by competitors who used to put their own material for publicity after destroying material placed by others. Hence the assessee has to put time and again its own publicity material at regular intervals and festive occasions at all 7640 retail outlets. We further state that in all the cases mentioned in the table, the assessee had furnished number of documentary evidence to establish the identity of the suppliers and supply of advertisement material as mentioned in our statement which were placed at pages 67 to 70 of the paper book filed.

17. It is submitted that M/s. Jagatjit Industries Ltd under agreement, not only provide technical know how to the assessee for manufacture of their liquor Brands but also promote sales with marketing support M/s. Jagatjit Industries Ltd., used to make payments on behalf of assessee as and when required and debited the relevant expenses to the assessee's account as was clarified by 22 ITA No.1356 of 2010

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it in its certificate filed before the CIT (A). Accounts of both the assessee and JIL were audited and accepted by Revenue. In the above pursuit advertisement material was requisitioned by Jagatjit Industries Ltd from one party for supply to the assessee and in the case of another party based on purchase order of the assessee invoice, was corrected which do not vitiate the purchase, transactions of the assessee. It is not correct to state that goods were not delivered to assessee company, as the materials were received by the assessee company at Delhi was transferred to Hyderabad. Transportation of material, to Hyderabad, delivery challans and entries in the stock registers bear testimony to the purchase transactions of the assessee. It is further submitted that M/s.NK Mehra & Sons, M/s. The Creations , M/s Vijay Kumar & Co., M/s. SS Enterprises and M/s. Span advertising appeared before the ITO(Inv) and confirmed supply of material to the assessee. We state that evidence of transport of their goods, with delivery challans, stock registers were produced and their copies were filed on record. It is submitted that M/s. Shiva Enterprises and M/s. Technet Info Systems (P) Ltd., have confirmed the transaction and supply of goods in response to notice issued u/s 133(6) of the Income Tax Act. M/s. S.M. Advertising has closed its business due to sealing by Municipal Corporation of Delhi which is confirmed by the report of the Income Tax Inspector. Parties not produced, summons not replied or summons returned are not conclusive factors for drawing adverse inference. The department, apart from issuing notices under section 131 of the Act, did not pursue the matter further. It is submitted that the assessee 23 ITA No.1356 of 2010

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company had received and used material well before the closure of the year. Further the department accepted, in the scrutiny assessment, similar expenditure Rs.4.63 crores pertained to 28 parties in the assessment year 2007-08 wherein many material suppliers are common.

18. We have considered the rival submission and perused the material available on record. We find that, as a general rule, principle of resi judicata or estoppel is not applicable to the income tax proceedings. An assessment of the particular year is final and binding in relation to the assessment year in which the decision is given. Yet, rule of consistency does apply. In our view, there should not be any deviation or variation from the earlier year's decision unless otherwise it emerges that previous decision is wrong on similar issue. In the case under consideration, the assessing officer completed the assessment for the immediate subsequent assessment year 2007-08, under section 143 [3] of the Act, discussing the similar issues at length and by following the observations and in accordance with the directions of the Addl. CIT issued under section 144A of the Act, disallowed only an amount of Rs.15,00,000/- out of the total selling expenses on ad-hoc basis. While passing the order for the assessment year 2007-08, the assessing officer observed in his order that only some of the vendors are different one when compared to the last year alleged purchases. These observations made by the assessing officer shows that the assessee company appears to have incurred the major portion of the expenditure with the same parties 24 ITA No.1356 of 2010

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that of last year. In the case under consideration, the department itself deviated from its own decision of the last year, while taking the decision for the subsequent year that shows that the previous decision taken by the department on the similar and identical issue is incorrect. Moreover, we see merit in the arguments of the learned counsel for the assessee that consequent to the effective publicity campaign, sales in the year under consideration was increased to more than 50% when compared to the immediate succeeding assessment year. We do not see any merit in the contentions of the learned departmental representative that why the assessee company incurred such huge expenditure at Delhi rather than at Hyderabad, as we find that the assessee company has the administrative office at Delhi which is evident from the letter head of the assessee. Therefore, the commercial expediency in purchasing the publicity material at Delhi through known sources to ensure the quality and competitive rates seems to be correct. It is an admitted fact that the parties from whom the purchases were made are neither interested in the assessee company nor directors of the assessee company nor related to them. It appears that the assessee company had furnished number of documentary evidences to establish the identity of the supplies and supply of advertisement material.

19. We also find that the assessee company appears to have established the fact before the assessing officer that the assessee company transported and delivered the goods at Hyderabad by way of delivery challans, stock register which were produced before him. We also find merit in the arguments of the learned counsel for the 25 ITA No.1356 of 2010

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assessee that parties not produced, summon not replied or summons returned are not conclusive factors for drawing adverse inference. It appears that the department apart from issuing notice under section 131 of the Act did not pursue the matter further. The assessee company also appears to have filed copies of the confirmation letters, PAN details and identity of the parties etc., with details of payment to parties through bank account payee cheques before the lower authorities. The revenue did not place any cogent evidence that the parties have not supplied the material and the assessee company did not receive the material at Hyderabad and not distributed to 7460 retail outlets. Further, the Revenue accepted the similar expenditure of Rs.4.63 crores pertained to 28 parties in the immediate subsequent assessment year wherein many material suppliers are appeared to be common. However, we find that the assessee company filed a letter dated 30-12-2009 during the assessment proceedings for the assessment year 2007-08 stating that an amount of Rs.15 lakhs be disallowed out of the total selling expenses and the assessing officer disallowed the similar amount while completing the assessment for that year by following the directions of the Addl. CIT under section 144A of the Act. By applying the same analogy, in our considered opinion, after considering the discrepancies found by the department on enquiries through Investigation Wing at Delhi and after considering the totality of facts and the circumstances of the case, an amount of Rs.25 lakhs out of total selling expenses of Rs.3,14,49,710/- claimed by the assessee requires to be disallowed. We direct accordingly.

26 ITA No.1356 of 2010

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20. In the result, the appeal filed by the assessee is allowed in part.

Order was pronounced in the Court on 03- 06-2011.

sd/- sd/-

(G.C. Gupta) (Akber Basha) Vice President Accountant Member

Dt. 03-06-2011.

Copy forwarded to:

1. M/s. Kalyandas & Co., CAs, 15, Venkateshwara Colony, Hyderabad.

2. DCIT, Cir-2(2), Hyderabad.

3. CIT (A)-III, Hyderabad.

4. CIT, AP, Hyderabad.

5. The DR, ITAT, Hyderabad.