Bajaj Consumer Care Limited (Now Known ... vs Assessee

2. The assessee in the present case is a company which carries on the business of manufacturing and trading of ayurvedic medicines and cosmetic products. The return of income for the year under consideration was filed by it on 12.12.2010 declaring a loss of Rs.4,03,64,563. In the assessment completed under section 143(3) vide order dated 31.03.2013 the total income of the assessee was computed by the A.O. at Rs.98,58,30,971 after making various additions/ disallowances. The record of the said assessment came to be examined by the Ld. CIT and on such examination, he found that the travelling and conveyance expenses of Rs.48,76,531 2 ITA.No.114/Hyd/2015 M/s. Bajaj Consumer Care Ltd., Hyderabad

claimed by the assessee under the head "Selling and Distribution Overheads" were wrongly allowed by the A.O. despite the fact that there was no income offered by the assessee on account of any sales and the only income offered was under the head "Royalty Income". The Ld. CIT noted that the operations of the assessee company had stopped during the year under consideration and there being no income from sales, the A.O. ought to have disallowed the expenditure claimed by the assessee on account of travelling and conveyance. Accordingly, a notice under section 263 was issued by the Ld. CIT requiring the assessee to show cause as to why the assessment order passed by the A.O. under section 143(3) should not be revised treating the same as erroneous as well as prejudicial to the interests of the Revenue. In reply, written submissions were filed by the assessee, the gist of which, as given by the Ld. CIT in paragraph No.4 of his order, was as under :

"4. In the written submissions, it is stated that it is incorrect to state that travelling expenses ought to have been disallowed for the reason that the assessee did not have any sales during the year. It is also submitted that more sales of products of the brands owned by the company results into accrual of more income by way of royalty. The travelling expenditure is incurred to promote the brands of the company and also to explore the new markets which in turn would result in more sales of the products of the company's brand and consequently more royalty income. Accordingly, the expenditure has been incurred wholly and exclusively for the purpose of business of the assessee which is allowable under section 37(1) of the Income Tax Act, 1961. The authorised representative stated that the A.O. allowed the expenditure claimed under the head "Travelling and Conveyance" after the verification of the books of accounts and vouchers and requested to drop the proceedings."

3 ITA.No.114/Hyd/2015 M/s. Bajaj Consumer Care Ltd., Hyderabad

3. The Ld. CIT did not find merit in the above submissions made by the assessee. According to him, the assessee company having received only royalty income on the sales made by licensee of assessee's brand of products, the travelling and conveyance expenditure could not be said to have been incurred for the purpose of its business. He held that the claim of the assessee for travelling and conveyance expenditure however was allowed by the A.O. without calling for the relevant details and without examining the correctness of the said claim. Accordingly, the assessment order passed by the A.O. under section 143(3) on this issue was considered erroneous and prejudicial to the interest of the revenue by the Ld. CIT by exercising the powers vested with him under section 263 and setting aside the same, he directed the A.O. to re- frame it on the issue after making proper and sufficient enquiries. Aggrieved by the order of the Ld. CIT passed under section 263, the assessee has preferred this appeal before the Tribunal.

4. We have heard the arguments of both the parties and also perused the relevant material on record. The first contention raised by the Ld. Counsel for the assessee is that the Ld. CIT in his impugned order passed under section 263 has not given a definite finding that the order passed by the A.O. under section 143(3) is erroneous as well as prejudicial to the interest of the revenue. He has contended that in the absence of such finding, the impugned order passed by the Ld. CIT under section 263 is not sustainable as held by the Hon'ble Uttarakhand High Court in the case of CIT vs. McDermott International Inc. (2008) 302 ITR 268. From the perusal of the impugned order of the Ld. CIT, we however find 4 ITA.No.114/Hyd/2015 M/s. Bajaj Consumer Care Ltd., Hyderabad

that there is a specific finding given by the Ld. CIT in paragraph No.6 holding that the order passed by the A.O. under section 143(3) is considered as erroneous and prejudicial to the interest of Revenue. The contention raised by the Ld. Counsel for the assessee on this point relying on the decision of Hon'ble Uttarakhand High Court in the case of CIT vs. McDermott International Inc. (supra), thus is devoid of merit and we reject the same.

5. The second contention raised by the Ld. Counsel for the assessee is that the error in the order passed by the A.O. under section 143(3) as pointed out by the Ld. CIT in the notice issued under section 263 is different from the error on which finally the order passed by the A.O. under section 143(3) has been revised by the Ld. CIT. He has submitted that the order of the A.O. under section 143(3) was held to be erroneous by the Ld. CIT in the notice issued under section 263 on the ground that the expenses claimed by the assessee on travelling and conveyance were wrongly allowed by him whereas the order passed by the A.O. is finally revised by him by his impugned order passed under section 263 on the ground that the claim of the assessee for travelling and conveyance expenses was allowed by him without making proper and adequate enquiries. Relying on the decision of Delhi Bench of ITAT in the case of B.S. Sangwan vs. ITO, Ward-2, Sonipat (2015) 67 SOT 447 (Del.), he has contended that the order passed by the A.O. under section 143(3) is not sustainable as the assessee was not put to notice on the ground on which the order passed by the A.O. under section 143(3) was finally held to be erroneous, thereby, giving no opportunity to the assessee to offer its explanation. After going 5 ITA.No.114/Hyd/2015 M/s. Bajaj Consumer Care Ltd., Hyderabad

through the relevant record available before us, we find it difficult to accept this contention of the Ld. Counsel for the assessee. It is observed that the facts involved in the case of B.S. Sangwan (supra) cited by the Ld. Counsel for the assessee are entirely different inasmuch as errors in the order of the A.O. on five different issues were pointed out by the Ld. CIT in the notice issued under section 263 and when the assessee offered his explanation on these issues, the Ld. CIT set aside the order passed by the A.O. for lack of proper enquiries and directed him to make the assessment afresh after considering the submissions made by the assessee on different issues.

6. In the present case, only one issue was raised by the Ld. CIT in the notice issued under section 263 relating to allowability of assessee's claim by the A.O. wrongly on account of travelling and conveyance expenses and although the copy of notice issued by the Ld. CIT under section 263 is not placed on record before us, the written submissions filed by the assessee in response to the said notice, the gist of which is given by the Ld. CIT in paragraph No.4 of his order, clearly show that it was stated on behalf of the assessee before the Ld. CIT during the course of proceedings under section 263 that the expenditure claimed by it under the head "Travelling and Conveyance" was allowed by the A.O., after verification of the books of accounts and vouchers. It, therefore, cannot be said that the order passed by the A.O. under section 143(3) was revised by the Ld. CIT vide his impugned order under section 263 on the ground which is different from the one given in the notice issued under section 263 and the assessee therefore, had no opportunity to offer its explanation. As a matter of fact, it was contended on behalf of the assessee before the Ld. CIT 6 ITA.No.114/Hyd/2015 M/s. Bajaj Consumer Care Ltd., Hyderabad

that its claim for travelling and conveyance expenses was allowed by the A.O. after the verification of books of accounts and vouchers and the same was specifically rejected by the Ld. CIT after having found the same to be not acceptable on examination of the relevant record. We therefore, find no merit in the present appeal filed by the assessee and upholding the impugned order of the Ld. CIT passed under section 263, we dismiss the same.

7. In the result, appeal of the assessee is dismissed.

Order pronounced in the open Court on 29.04.2015.

Sd/- Sd/- (G.C. GUPTA) (P.M. JAGTAP) VICE PRESIDENT ACCOUNTANT MEMBER

Hyderabad, Dated 29th April 2015

VBP/- Copy to

1. M/s. Bajaj Consumer Care Ltd., (Now known as Bajaj Resources Ltd.,) C/o. M/s. O.P. Bang & Co., Chartered Accountants, 102, 1st Floor, Laxmi Arcade, Vittalwadi 'X' Road, Narayanguda, Hyderabad - 500 029.

2. DCIT, Circle 1(3), Hyderabad.

3. Commissioner of Income Tax-1, 3rd Floor Annexe, Aayakar Bhavan, Basheerbagh, Hyderabad - 500 054.

4. Addl. Commissioner of Income Tax, Range-1, Hyderabad.

5. D.R. ITAT "B" Bench, Hyderabad.

6. Guard File.