High Court Of Calcutta
Duncans Tea Ltd. vs. CIT
Section : 37(1)
Kalyan Jyoti Sengupta And Kanchan Chakraborty, JJ.
IT Appeal No. 230 Of 2001
July 27, 2010
JUDGMENT
1. This appeal was admitted by an order dated October 8, 2001, on the following substantial question of law :
“Whether the findings of the Tribunal upholding the disallowance of 50 per cent. of the sales promotion expenses incurred in the assessment years 1990-91 (Rs. 10,20,808) and 1991-92 (Rs. 11,43,430) for free distribution of gift articles along with the appellant’s product are based on any material or evidence and/or have been arrived at by ignoring and not considering the relevant material recorded and found by the Commissioner of Income-tax (Appeals) in his appellate orders and/or are otherwise unreasonable, arbitrary and perverse ?”
2. No one appears for the respondent despite service. We, however, got the advantage of assistance of Dr. Pal appearing for the appellant.
3. The short fact is that the appellant has been and still is carrying on purchasing and selling and/or otherwise dealing in tea and tea products. While carrying on such business the appellant adopts various methods of promotion of sale of their products. In doing so, the appellant had adopted a policy to augment the sale and for the growth of their business to woo the customers distributing the gift articles. As such these gift articles, viz., detergent, soaps, ball pens and other gift items were purchased and the cost of such purchase of this gift items are shown in their return as the business expenditure.
4. The Assessing Officer considering the materials placed before him and also having examined the same, had disallowed 50 per cent of the amount claimed for deduction of the cost of such gift articles as business expenditure and 50 per cent was allowed. The appellant being aggrieved by the said decision of the Assessing Officer took this matter to the Commissioner of Income-tax (Appeals). The appellate authority, who examining the judgment and order of the Assessing Officer and going through the evidence, found that the claim for deduction of business expenditure on account of purchase of gift articles was genuine and the entire cost was allowed. Therefore, the first appellate authority deleted the 50 per cent disallowance of the cost of the gift articles.
5. The learned Tribunal by the impugned judgment and order reversed the order of the Commissioner of Income-tax (Appeals) and restored the order of the Assessing Officer and thus the appeal has given rise the aforesaid question of law.
6. Dr. Pal submits that when the evidence and materials has been produced before the Assessing Officer, on appreciation thereof, it was found that had been able to establish the appellant that the gift articles were purchased and there is no allegation that the same were not utilised nor distributed for business promotion. Therefore, the Assessing Officer should have allowed the entire amount to be deductible under the head of business expenditure. Dr. Pal submits that on principle the business expediency of these expenses have been recognised otherwise 50 per cent benefit could not have been given.
7. Therefore, the learned Tribunal erred in law while upholding the judgment and order of the Commissioner of Income-tax (Appeals).
8. He contends that the reasons recorded by the Tribunal that on earlier occasion on the self-same facts and circumstances 50 per cent disallowance of the business expenditure on account of purchase of gift articles was disallowed and the same has been accepted following the decision of the earlier assessment year 1988-89 and having found change in the facts and circumstances of the case the same relief has been granted.
9. Dr. Pal has submitted that in the assessment year 1988-89 the Commissioner of Income-tax (Appeals) has found there was no evidence to show that the gift articles were really purchased and further were utilized. In one word, there was no evidence to substantiate the expenses of the particular amount which was incurred on account of the purchase of the gift articles for utilization of promotion and growth of the business so as to bring the same within the purview of the business expenditure. But in relation to this year, it is an admitted position that the assessee-appellant was able to establish the fact of purchase of these materials and it was also established on evidence that it was utilized by distribution of the same to the customers for business purposes. Therefore, the entire amount claimed by the assessee should have been allowed by not interfering with the judgment and order of the Commissioner of Income-tax (Appeals). He submits that the business expediency rather commercial expediency can only be adjudged by true assessee and not by the Revenue authorities who cannot sit in the arm chair of the trader to perceive the commercial expediency for determining whether the expenditure was wholly and exclusively meted out for the purpose of business of the assessee. The pertinent point is reasonableness of the amount of expenditure, and if has to be adjudged from the viewpoint of the businessman not that of the Income-tax Department. In support of his submission, he has relied on a decision of the Supreme Court in the case of (J.K. Woollen Mfg. v. CIT [1969] 72 ITR 612. The similar principle on the question of testing the business expediency has been reiterated by a fairly recent decision of the Supreme Court in the case of (S.A. Builders Ltd. v. CIT (Appeals) [2007] 288 ITR 1/[2007] 158 Taxman 74.
10. We have considered the submissions and gone through the citations noted above and it appears that the authorities had understood the commercial expediency for incurring the expenses on account of the assessee’s business otherwise fifty per cent. of the expenditure would not have been allowed. Therefore, we think that the ratio decided in these two decisions of the hon’ble apex court has been followed practically though not expressly mentioned therein.
11. When we find that business expediency has been accepted by the authority concerned but the question is to what extent the deduction should be allowed, viz., whether deduction should be allowed wholly or partially as has been decided by the Assessing Officer and the learned Tribunal.
12. It appears that the learned Tribunal while reversing the judgment and order of the Commissioner of Income-tax (Appeals) and restoring that of the Assessing Officer followed the earlier decision of the Tribunal which had affirmed the decision of the Commissioner of Income-tax (Appeals) on the question of disallowance of expenditure.
13. Dr. Pal has rightly pointed out that on earlier occasion for the assessment year 1988-89 the assessee-company could not establish by producing evidence that the gift articles were purchased or the same were utilised for the purpose of promotion and growth of the business. Therefore, the judgment based on fact earlier should not be a binding precedent to be followed by the learned Tribunal. We find considerable force in the submission that reason for disallowance of fifty per cent on earlier occasion was not established by adducing cogent evidence that there has been purchase of the gift articles and the same were utilised for promotion and growth of business so as to bring the deduction under the head of business expenditure.
14. In view of the aforesaid factual position it cannot be said that the facts and circumstances in the subsequent year is similar to that of the earlier year. Admittedly, as correctly pointed out by Dr. Pal the evidence were produced before all the authorities and indeed the Commissioner of Income-tax (Appeals) very carefully and elaborately dealt with the aspect of the evidence and found that there has been sufficient proof that the gift articles were purchased and the same were sent to depots of the appellant at various places and the depot registers are maintained. Payments to the supplier were made by account payee cheque or otherwise. If this evidence is considered then it is established beyond doubt that the gift articles were purchased, and there has been no evidence that the same could not be utilized. Moreover, all the authorities in principle accepted that the same must have been utilized indeed what else could be done about the gift articles apart from utilising the same ?
15. Under those circumstances we think that the assessee has been able to prove the case with preponderance of probability if not beyond reasonable doubt that the gift articles as mentioned in the return were purchased and the same were utilized for promotion and growth of the business, we think that the learned Tribunal was not justified in upsetting the judgment and order of the Commissioner of Income-tax (Appeals) following the earlier precedent of the learned Tribunal. We, accordingly, are of the view that the judgment and order of the learned Tribunal is not sustainable and the same is set aside. Consequently, the judgment and order of the Commissioner of Income-tax (Appeals) is restored.
16. There will, however, be no order as to costs.
[Citation : 344 ITR 442]
