Rajasthan Patrika Private Limited Vs ACIT(ITAT Jaipur)
ITAT Jaipur held that disallowance of marketing and survey expenditure merely because of non-production of the concerned party whose identity is proved is unsustainable in law.
Facts- AO vide order u/s. 143(3) assessed total income at Rs. 2,14,20,940/- by making additions on account of various disallowances including disallowance of Rs. 60,01,635/- on account of Marketing and Survey Expenses out of total expenditure.
In the original assessment proceeding, AO asked the assessee to produce personally certain parties along with their books of accounts, purchase and sale bills and copies of their return of income for A. Y. 2005-06. The assessee could not produce the said persons. Later, the inspector found that the person concerned were not having any connection at the addresses noted in the bills claimed to have been issued by them.
Accordingly, AO concluded that the two parties/concerns to whom the payments were made, was never existing at the address given by the assessee. Based on these findings the AO concluded that the expenses / payments to both of them as bogus and added a sum of Rs. 60,01,635/-.
Conclusion- AO has ignored the fact that the survey has been duly conducted and the relevant report of the survey agency were placed on record, the same is not disputed. None of reader whose name and other details placed on record were verified are contradicted by the revenue in the form of bulky record. The facts that these survey report consists of the fresh order is also not disputed by the revenue. On account of the survey conducted that sales of the city has reported increase trend which is evident from the records and thus merely the party to whom identity is proved but they could not be produced the whole expenditure cannot be disbelieved.
FULL TEXT OF THE ORDER OF ITAT JAIPUR
These are four appeals filed by the assessee which are filed against the respective order of the Commissioner of Income Tax (Appeal)- 2 & 4, Jaipur [ Here in after referred as Ld. CIT(A) ] for the assessment year 2005- 06, 2006-07, 2007-08 & 2008-09 dated 31/12/2019 & 05/02/2019 which in turn arises from the order passed by the ACIT, Circle-06, Jaipur passed under Section 143(3)/254 of the Income tax Act, 1961 (in short ‘the Act’) dated 30/12/2016 & 31/1 2/201 6.
2. Since the issues involved in the assessee’s appeal for all the years are almost identical and the issues are almost common, except the difference in figure of additions disputed, therefore, all these appeals were heard together with the agreement of both the parties and are being disposed off by this consolidated order.
3. At the outset, the ld. AR has submitted that the matter pertaining to M/s Rajasthan Patrika Pvt. Ltd. in ITA no. 230/JPR/2020 may be taken as a lead case for discussions as the issues involved in the lead case are common and inextricably interlinked or in fact interwoven and the facts and circumstances of other cases are exactly identical except the difference in the amount in other assessment year. The ld. DR did not raise any specific objection against taking that case as a lead case. Therefore, for the purpose of the present discussions, the case of ITA No. 230/JPR/2020 is taken as a lead case of each party. Based on the above arguments we have also seen that for all these appeals are similar, facts are similar and arguments were similar and therefore, were heard together and are disposed by taking lead case facts, grounds and arguments from the folder in ITA No. 230/JPR/2020.
4. Before moving towards the facts of the case we would like to mention that the assessee has assailed the appeal in ITA No. 230/JPR/2020 on the following grounds;
“1. On the facts and in the circumstances of the case the Ld. CIT(A) has grossly erred in confirming the disallowance of Marketing and Survey Expenses legitimately claimed by assessee company at Rs. 60,01 ,635/- without appreciating the nature of expenses and the business module of the assessee company, thus the expenses as claimed deserve to be allowed.
1.1 That the ld. CIT(A) has further erred in ignoring the fact that ld. AO has not followed the directions of Hon’ble ITAT and not allowed the opportunity to cross examine the persons whose statements were relied upon for making disallowances, thus the consequent order is against the principle of natural justice and deserves to be held bad in law.
1.2 That the Ld. CIT(A) has further erred in disbelieving the submissions made and evidences adduced in the shape of affidavits furnished by recipients (which remained uncontroverted), invoices, tracking sheets, etc., thus the action of the Ld. CIT(A) being unfair deserves to be hold bad in law and consequent disallowance uphold at Rs. 60,01,635/- deserves to be deleted.
1.3 That the Ld. CIT(A) has further erred in ignoring the fact that the recipient has duly confirmed the transactions and also declared the receipts in their income tax returns which were not doubted thus the disallowances made in the hands of the assessee deserves to be deleted.
2. That the appellant craves the right to add, delete, amend or abandon any of the grounds of appeal either before or at the time of hearing of appeal.”
5. The brief facts of the case as culled out from the records is that in this case the AO vide order u/s 143(3) dated 31.12.2007 assessed total income at Rs. 2,14,20,940/- by making additions on account of various disallowances including disallowance of Rs. 60,01,635/- on account of Marketing and Survey Expenses out of total expenditure of Rs. 2,35,12,583/-. In the original assessment proceeding the ld. AO vide entry sheet dated 24.12.2007 asked the assessee to produce personally the aforesaid parties along with their books of accounts, purchase and sale bills and copies of their return of income for A. Y. 2005-06. The assessee could not produce the said persons and the case was adjourned on 27.12.2007. Simultaneously, summons u/s. 131 of the Act were also issued to the parties and the inspector of the AO went to serve the same. The inspector found that the person concerned were not having any connection at the addresses noted in the bills claimed to have been issued by them. The self-serving statement of the existing residents who were available at the aforesaid premises was taken. The Inspector has also taken the photograph of the place he visited. This information was supplied to the assessee on 27.12.2007. The ld. AO concluded that the two parties/concerns to whom the payments were made, was never existing at the address given by the assessee. Based on these findings the ld. AO concluded that the expenses / payments to both of them as bogus and added a sum of Rs. 60,01,635/-. In appellate proceedings, the ITAT vide order in ITA No. 519/JP/2012 dated 15.6.2015 deleted additions made on account of various disallowances. However, on the issue of disallowance of Marketing and Survey Expenses the coordinate bench has observed as under :
ITA No. 519/JP/2012
4.15 We have heard the rival contentions and peruse the material available on record. As the facts emerge the record and evidence in this behalf has surfaced in piece meal and from time to time as the assessee attempted to fill in the gaps about inferences drawn by the authorities from time to time. Consequently, a cohesive verification of material appears to be not made. Assessee has produced the income tax record of the survey agencies which in support of its version; there exist no reasoning as to why they are being ignored by the ld. AO & CIT(A). There exist conflicting claim about the existence of such survey agencies coupled with on supply of Inspectors report and non-allowing the customary right of cross examining the denying witnesses. Thus assessee has made out a case of violation of principles of natural justice. In the entirety of facts and circumstances we are inclined to set a side the issue relating to Marketing and Survey expenses back to the file of the AO to decide afresh after considering the entire evidence and giving the assessee an opportunity of being heard.
6. As it is evident that the direction in the set aside proceeding for the disputed disallowance was to peruse the material submitted by the assessee company in the form of income tax assessment records of these survey agencies in support of version that the work have been executed, the claim of the assessee that the report of the inspector was not supplied and cross examination of the denying witnesses, in the entirety of these facts the matter was a set a side to decide the issue a fresh. In the light of these direction the ld. AO provided copy of statements of Shri Pushpendra Singh and Shri Hanuman Singh dated 14.02.2012. The ld. AO also directed to furnish evidences to prove the genuineness of the expenses.
7. In persuasion of the direction of the ITAT the ld. AO issued a letter dated 11.11.2016 the same is reproduce as under :
“Therefore, as directed by the Hon’ble ITAT, a copy of statements of Shri Pushpendra Singh and Shri Hanuman Singh dated 14.02.2012 is provided to you ( copy enclosed ). Considering the directions of Hon’ble ITAT, an opportunity is provided again to furnish evidences if any, on this issue to prove the genuineness of the expenses.”
8. In response the AO noted that the assessee filed submission dated 12.2016 crux of the arguments is that survey was conducted for assessing the choice of readers for increasing the readership. Survey was conducted through two independent parties namely M/s. Perfect N Marketing and M/s. Aneu Marketing of Jaipur. They collected information which helped in increasing the sale of newspaper. Payments were made by cheque. The ld. AR further submitted that the report of the inspector submitted by making spot verification of the address appearing in the bill of the service provider, vide letter dated 17.11.2009 it was submitted by M/s. Perfect N Marketing that in the statements recorded by the circle inspector the witness Ganeshkumar has just given his thump impression to the statement without even knowing the contents. Fresh statement of Ganesh Kumar were also submitted with this letter duly verifying the existence of the concerns at the given address and furthermore, copy of insurance policy issued by LIC on 28.05.2000 in the name of proprietor at the same address was also submitted to justify the existence of the concerns to whom the payments towards marketing and survey expenses were made. To strength the argument verification letter of two independent person residing near the premises were submitted wherein they have categorically stated that both the firms to whom the payments were made were in existence at the said address and doing the marketing work.
9. The ld. AO noted that the reply of the assessee is revolving around all the arguments and evidences presented during the course of original assessment proceedings, nothing new has been brought on record. Moreover, the Hon’ble ITAT directed to decide the cash afresh after supplying Inspector’s report and opportunity to cross examine the denying witnesses. Vide letter dated 11.11.2016, copy of Inspector report have been duly provided to the assessee in connection with proceedings of A. Y. 2006-07. The assessee never asked for opportunity to cross examine the said witnesses, in fact it is relying on those statements saying that they had never denied that they conducted marketing survey for assessee company. Vide reply dated 02.12.2016 or 23.12.2016 assessee has not requested for opportunity to cross examine anyone. The ld. AO vide order sheet entry dated 23.12.2016 directed the assessee to produce Shri Ganesh Kumar for verification on 26.12.2016. Instead an affidavit of Abhishek Saxena was filed on plan paper and the said person was also not produced before the ld. AO as claimed by the AO. Based on these facts the ld. AO concluded that assessee has not produced any witness in its support but relying only on the evidences filed earlier. The ld. AO noted that the objective of ITAT in setting a side this issue was to provide opportunity to assessee to cross examination the witness and / or rebut the arguments of the department based on evidence which was not supplied to them. The ld. AO further noted that the report of the inspector was given to assessee and the arguments of the assessee are same as given in original assessment proceedings which were duly considered and after considering the same it was concluded by him that the marketing and survey expenses are not genuine and confirmed the same.
10. Aggrieved from the said order assessee preferred an appeal before the Commissioner of Income Tax, Appeals-2, Jaipur in the second round the relevant findings of the ldl. CIT(A) is recorded at para 2.3 to 2.3.1 the same is reiterated as under:-
“2.3 have perused the facts of the case, the assessment order and the submissions of the appellant. On perusal of overall facts, it is seen that the issue involved in this appeal is outcome of decision of Hon’ble ITAT, Jaipur where issue was set aside for fresh consideration. In A.Y. 2007-08 under identical facts, Hon’ble ITAT, Jaipur set aside the issue for verification. In set aside assessment proceedings, Assessing Officer made the disallowance against which appeal was dismissed by CIT(A)-4, vide appeal no. 451/2018-19 dated 05.2.2019 wherein it was held as under:
“In the present case, it is seen that appellant is a Private Limited Company engaged in the business of printing & publishing of newspaper & periodicals, production of TV serials & documentaries and event management which includes the publishing of flagship product “Rajasthan Patrika”, which is one of the accredited as well as a well-known widely read newspaper across the country having one of largest readers base, The appellant company is also actively engaged in event management and organizing exhibitions & conferences at big levels and is known to people of the country at large. specially the Rajasthan.
4.2 The assessment for the year under consideration was completed u/s 143(3) wherein certain disallowances were made out of various expenses claimed in the Profit & Loss Account. Against the said order, an appeal was preferred before the CIT(A) who had partly allowed the appeal of the appellant, therefore, second appeal was preferred before the Hon’ble ITAT, Jaipur bench, Jaipur, who vide order dated 20.11.2015 deleted the disallowances made out of various expenses except the disallowance made out of Marketing and Survey expenses which is set aside as per directions of Hon’ble ITAT for A. Y. 2005-06, 2006-07 and 2008-09 wherein at para 4.15 of the order following observations have been made:
“4.15 We have heard the rival contentions and perused the material available on record. As the facts emerge the record and evidence in this behalf has surfaced in piece meal and from time to time as the assessee attempted to fill in the gaps about inferences drawn by the authorities from time to time. Consequently a cohesive verification of material appears to be not made. Assessee has produced the income tax record of the survey agencies which in support of its version; there exist no reasoning as to why they are being ignored by Ld. AO &CIT(A). There exist conflicting claims about the existence of such agencies coupled with non-supply of Inspectors report and non: allowing the customary right of cross examining the denying witnesses, Thus assessee has made out a case for violation of principles of natural justice. In the entirety of facts and circumstances we are inclined to set aside the issues relating to Marketing and Survey expenses back to the file of AO to decide afresh after considering the entire evidence and giving the assessee an adequate opportunity of being heard.”
4.3 Accordingly, assessment proceedings were taken up by AO. During the course of assessment proceedings, appellant furnished documentary evidences in support of expenses incurred by it under the head “Marketing and Survey, however, AO again disallowed the entire sum of Rs. 67,73,510/- vide order dated 30/12/2016 on account of marketing and survey expenses. In this regard observation of the AO can be seen in para 8 to 8.4 of AO’s assessment order.
I have perused the written submissions submitted by the Ld. A/R and the order of AO. I have also gone through various judgments cited by the Ld. A/R and those contained in the order of AO. I have also gone through the order of Hon’ble ITAT Jaipur passed in the case of appellant placed at APB page- 78 106. I have gone through the order of AO and CIT(A) in the 1st round of assessment.
6.2 Careful perusal of above, I am of the view that AO has rightly disallowed a sum of Rs. 67,73,51 0/-. The detailed investigation done with respect to all the parties especially the M/s Perfect N marketing & M/s A neu marketing can be seen at the order dated 30-12-2009. Out of all the parties the appellant could only produce 2 stated parties with dubious credential. Even the 2 parties did not maintain any bill books etc as is also observed by the CIT(A) in the 1st round of appellate proceedings. Only new thing which is now produced before the AO is affidavits which remain uncontroverted as per Ld. A/R. However the affidavit cannot override the overwhelming evidences and results gathered by the AO in the original assessment proceedings nor is controverted on facts by the Ld. A/R. In my view the AO has rightly made a disallowance of Rs. 67,73,510/-. On the facts and in the circumstances of the case, appellant’s appeal is dismissed.”
2.3.1 Since, the issue is identical and fact and circumstances are similar and assessee has not made any separate claim but made identical submission for all the years, by following the above decisions, since no new arguments were placed before me, disallowance made by the Assessing Officer on account of survey and marketing expense is hereby upheld. This ground of appeal is dismissed.”
11. The assessee not finding favour from the lower authorities in the set-a side proceeding again filed an appeal against the order of the ld. CIT(A)-2, Jaipur on the grounds raised and reiterated here in above particularly challenging the disallowance of Marketing and Survey Expenditure of Rs. 60,01,635/- contending that the lower authorities have not followed the direction and ignored the other circumstantial evidence placed on record. The ld. AR appearing on behalf of the assessee submitted that in the second round of litigation the ld. CIT(A) has not considered the revised facts and arguments advanced by the assessee and therefore, the ld. AR of the assesses filed his written submission, the same is extracted in below;
“Briefly stated the facts of present appeal are that the assessee appellant is a private limited company engaged in the business of printing & publishing of newspaper & periodicals, production of TV serials & documentaries and event management which includes the publishing of flagship product “Rajasthan Patrika”, which is one of the accredited as well as a well-known widely read newspaper across the country having one of largest readers base. The assessee company is also actively engaged in event management and organizing exhibitions & conferences at big levels and is known to people of the country at large specially of the Rajasthan.
The assessments for the assessment years under appeal were completed u/s 143(3) wherein certain disallowances were made out of various expenses claimed in the Profit & Loss Account. Against the said orders, appeals were preferred before the ld. CIT(A) who had partly allowed the appeals of the assessee, therefore, second appeals were preferred before the Hon’ble ITAT, Jaipur bench, Jaipur, which were decided vide its common order dated 15.06.2015 for A.Y. 2005-06, 2006-07 and 2008-09 in ITA Nos. 519, 520, 521/JP/12 (APB 79-120) wherein the hon’ble bench was pleased to delete the disallowances made out of various expenses except the disallowance made out of Marketing and Survey expenses which was set aside by making specific directions made in para 4.15 of the order, which reads as under (APB 113):
“4.15 We have heard the rival contentions and perused the material available on record. As the facts emerge the record and evidence in this behalf has surfaced in piece meal and from time to time as the assessee attempted to fill in the gaps about inferences drawn by the authorities from time to time. Consequently a cohesive verification of material appears to be not made. Assessee has produced the income tax record of the survey agencies which in support of its version; there exist no reasoning as to why they are being ignored by Ld. AO & CIT(A). There exist conflicting claims about the existence of such agencies coupled with non supply of Inspectors report and non-allowing the customary right of cross examining the denying witnesses. Thus assessee has made out a case for violation of principles of natural justice. In the entirety of facts and circumstances we are inclined to set aside the issues relating to Marketing and Survey expenses back to the file of AO to decide afresh after considering the entire evidence and giving the assessee an adequate opportunity of being heard.”
Similarly, for A.Y. 2007-08, Hon’ble ITAT, vide order dated 20.11.2015 set aside the issue to the file of Assessing Officer following the above common order of Hon’ble ITAT for other three assessment years.
Accordingly, set aside assessment proceedings were taken up by ld. AO. During the course of set aside proceedings, assessee furnished all the documentary evidences in support of expenses incurred by it under the head “Marketing and Survey”, however, ld. AO again by completely ignoring the fact that opportunity for cross examination is to be provided by him as per the specific directions of Hon’ble ITAT and also without appreciating the submission made and evidences adduced in set aside proceedings again repeated the earlier order disallowing the expenses on account of Marketing & Survey for all the Assessment Years i.e. 2005-06 to 2008-09. Aggrieved of such order passed by ld. AO, appellant preferred appeals before ld. CIT(A), who confirmed the order passed by ld. AO solely on the basis of findings in original proceedings and further by observing that cross examination was not allowed as no specific request was made by assessee in this regard even though the same was directed to be allowed in terms of the order of hon’ble ITAT. Aggrieved of the order so passed by ld. CIT(A), assessee has preferred captioned appeals.
With this background, ground wise submission is made as under:
Ground of Appeal No.1 to 1.3:
In all these grounds of appeal for A.Y. 2005-06 to 2008-09, assessee has challenged the action of ld.AO in making disallowance of Marketing & Survey expenses claimed by assessee, details of which is as under:
