Coca Cola India Private Limited Vs the Income Tax… — Writ and Judicial Review | Bombay HC (2007)

Coca Cola India Private Limited Vs the Income Tax… — Writ and Judicial Review | Bombay HC (2007)

 IN THE HIGH COURT OF JUDICATURE AT BOMBAY
 CIVIL APPELLATE JURISDICTION

 WRIT PETITION NO.7459 OF 2006

 Coca Cola India Private Ltd., )
 a Company incorporated under )
 the Companies Act, 1956 and )
 having its registered Office )
 at Plot No.1109-1110, Pirangut )
 Taluka Mulshi, Pune 412 108 ).. Petitioner.
 V/s.
 1. The Income Tax Appellate )
 Tribunal (Pune Branch), )
 represented by the Assistant )
 Registrar having its office )
 at 94, M.G. Road, )
 Pune - 411 001. )
 )
 2. The Joint Commissioner of )
 Income-tax, having his )
 Office at Range 1, Pune ‘A’ )
 Wing, 2nd Floor, PMT )
 Building, Shankar Sheth Road,)
 Swargate, Pune - 411 037. )
 )
 3. The Additional Commissioner )
 of Income-tax having his )
 office at Range 1, Pune, )
 PMT Building, Shankar Sheth )
 Road, Swargate, Pune 411 037 )
 )
 4. The Commissioner of Income- )
 tax - 1, having his office )
 at PMT Building, Shankar )
 Sheth Road, Swargate, )
 Pune 411 037. )
 )
 5. The Union of India, )
 having its office at Aaykar )
 Bhavan, Marine Lines, )
 Mumbai - 400 020. ).. Respondents.

 Mr.S.E. Dastur, senior counsel with Mr.R.
 Murlidhar, Mr.Arun Siwach and Mr.Ameya Gokhale i/by
 Amarchand Mangaldas & S.A. Shroff & Co. for the
 petitioner.

 Mr.A.M. Kotangale for the respondents.

CORAM : DR.S. RADHAKRISHNAN &
 J.P. DEVADHAR, JJ.

RESERVED ON : 23RD JANUARY, 2007.

PRONOUNCED ON : 12TH FEBRUARY, 2007.

JUDGMENT : (Per J.P. Devadhar, J.)

 1. Rule. Rule made returnable forthwith.

 By consent of the parties, the writ petition is
 taken up for final hearing.

 2. Two orders passed by the Income Tax
 Appellate Tribunal (‘Tribunal’ for short) are
 challenged in this petition. Firstly, the
 petitioner challenges the order of the Tribunal
 dated 5th October, 2005 in so far it pertains to

 remanding the issues relating to the disallowance of

 service charges and marketing expenses to the
 assessing officer (‘AO’ for short) without
 considering the specific grounds raised in the
 appeal. Secondly, the petitioner challenges the
 order of the Tribunal dated 7th July, 2006 in

 rejecting the Miscellaneous Application filed by the
 petitioner by stating that the decision to restore
 the matter to the AO for denovo consideration was a
 conscious decision. The assessment year involved
 herein is AY 1997-98.

 3. The petitioner is a 100% subsidiary of
 Coca Cola South Asia India Holding, Hongkong, which
 in turn is a subsidiary of Coca Cola Asia Holding
 Singapore and the ultimate holding company of the
 petitioner is ‘The Coca Cola Company U.S.A. (‘TCCC’
 for short). TCCC is the registered owner in India
 of the trade marks such as Coca Cola, Coke, Fanta
 and Sprite. The petitioner had entered into an
 agreement with TCCC on 1st June, 1993 pursuant to
 which an ordinary gratuitous non exclusive license
 was granted to the petitioner and, accordingly the
 petitioner has been manufacturing and selling non
 alcoholic beverage basis also known as
 ‘concentrates’ and beverages made out of such
 concentrates.

 4. The business activity of the petitioner
 comprises of blending, bottling and distribution of
 non alcoholic beverages. Instead of setting up its
 own factory, the petitioner has entered into
 arrangement with bottlers, fillers, wooden crate
 manufacturers etc. so that the ‘concentrate’ sold
 by the petitioner are used in the manufacture of non
 alcoholic beverages under their strict supervision
 and marketed throughout the country. The petitioner
 had also entered into a service agreement with Coca
 Cola India Inc. U.S.A. (‘CCI Inc.’ for short)

 which has its branch office at Delhi. ‘CCI Inc’ is
 a subsidiary of Coca Cola Holdings India Inc (USA)
 which in turn is the subsidiary of TCCC. As per the
 service agreement, the petitioner was liable to pay
 for the services rendered by CCI Inc. Apart from
 incurring service charges, the petitioner incurred
 huge marketing expenses to boost sales of the non
 alcoholic beverages which ultimately boosts the sale
 of ‘concentrates’.

 5. In its return of income for the
 assessment year 1997-98, the assessee had claimed
 deduction of service charges amounting to
 Rs.46,35,12,031/- and marketing expenses amounting
 to Rs.73,79,03,469/-.

 6. By an assessment order dated 31st March,
 2000 passed under Section 143(3) of the Income Tax
 Act, 1961, the assessing officer inter alia
 disallowed service charges amounting to
 Rs.10,80,04,482/- on the ground that the said
 expenses related to earlier years. Out of the sum
 of Rs.10,80,04,482/- a sum of Rs.3,37,06,017/- under
 invoice No.0004 dated 9th December, 1996 related to
 the period from 1st January, 1996 to 31st March,
 1996 and the balance amount of Rs.7,42,98,465/-
 being 1/4th of the invoice No.0006 dated 7th

 January, 2007 related to the period from 1st
 January, 1996 to 31st December, 1996. Thus, out of
 the service charges amounting to Rs.46,35,12,031/-
 claimed as business expenditure, the AO allowed
 Rs.35,55,07,549/- as business expenditure and the
 balance amount of Rs.10,80,04,482/- was disallowed
 as being prior period expenditure, as more
 particularly set out hereinbelow :-

 Invoice No.0004 dated 9.12.2006
 for the period from 1.1.1996 to
 31.03.1996 :Rs.3,37,06,017
 Invoice No.0006 dated 7.01.1997
 for the period from 1.1.1996 to
 31.12.1996
 (1/4th of the invoice amount of
 Rs.29,71,93,862) :Rs.7,42,98,465
 -------------------
 10,80,04,482
 ===================

 7. As regards the deduction of marketing
 expenses of Rs.73,79,03,469/- claimed as deduction,
 the AO by his order dated 31st March, 2000,
 disallowed a sum of Rs.17,99,74,343/- inter alia on
 the ground that there were differences in the
 amounts allegedly claimed to have been paid by the
 petitioner to various parties and the amount
 confirmed to have been received by those parties.
 The above disallowance included claims which were
 not confirmed by some of the parties by sending
 their reply to the AO. The above disallowance
 included disallowance of expenses incurred in the

 earlier years and ad-hoc disallowance of

 Rs.2,00,00,000/-. Thus, out of the sum of

 Rs.73,79,03,469/- claimed as marketing expenses, the
 AO allowed Rs.55,79,29,126/- and disallowed
 Rs.17,99,74,343/-, the particulars of which are as
 follows :-

 (i) Difference (11 parties) 2,12,04,099

 (ii) No reply (14 parties) 3,90,28,917
 (iii)Earlier years (7 parties) 9,97,41,327
 -----------
 15,99,74,343
 (iv) Ad hoc 2,00,00,000
 -------------
 17,99,74,343
 =============

 8. The petitioner filed an appeal before the
 Commissioner of Income Tax (Appeals) (‘CIT (A)’ for
 short) inter alia challenging the disallowance of
 service charges and marketing expenses made by the
 AO. After making detailed enquiries the CIT (A) by
 his order dated 14th August, 2003 held that the
 following factors were relevant for determining the
 allowability of service charges incurred by the
 petitioner and the nature of service charges
 rendered by CCI Inc. to the petitioner :-

 "(i) CCI Inc. has been rendering
 services not only to the appellant
 company but also to other group
 companies and entities in India in
 so far A.Ys.1997-98 and 1998-99 are
 concerned.

 (ii) CCI Inc. is looking after the India
 operation of TCCC and "India" in the
 scheme of things of TCCC includes
 Maldives.
 (iii) The very genesis of the CCI Inc.
 evidenced from the papers submitted
 to RBI was to provide technical and
 managerial assistance to the
 appellant company as well as to take
 care of the brand image of TCCC in
 India.
 (iv) The services rendered by CCI Inc.
 to the bottlers licensed by TCCC
 could be classified into services
 which are for the purposes of the
 appellant company and the services
 which are for the purposes of the
 business of the bottlers/TCCC.
 While the services to the bottlers
 for purchase of concentrate etc.
 and activities relating to market
 research etc. could be classified
 as services for the purposes of the
 business of the company as it
 directly helps the appellant in
 planning it’s production as
 evidenced by minutes of S&OP (Sales
 and Operation Meetings) submitted
 before me and also in manufacture
 resource planning styled as MRP-II
 Project by the appellant, the
 services rendered in qualify
 upgradation of the bottlers etc.
 are for the purpose of the bottlers
 as well TCCC brand-image. This
 aspect gets further provided by the
 recent episode of toxic residue in
 the soft drinks wherein the bottling
 companies were directly involved and
 therefore the cases have been filed
 before different Courts by the
 bottling unit M/s.Hindustan Coca
 Cola Beverages Ltd. and not by the
 appellant. Merely because the
 bottlers are customers of the
 appellant, running their business or
 getting involved in their qualify of
 product is not for the purpose of
 business of the appellant company
 but for purpose of the business of
 TCCC or the bottler. CCI Inc.

 provided such services to bottlers
 and rightly so as per the
 correspondence and approval from
 RBI, but these services do not have
 direct nexus with the business
 operations of the appellant. The
 decision of Hon. Supreme Court in
 the case of Travancore Titanium Vs.
 CIT (Ker), 60 ITR 277 and Indian
 Aluminium Company Ltd. V.s. CIT,
 84 ITR 735 provide relevant legal
 authority in this regard in the
 facts and circumstances of the
 nature of services rendered by CCI
 Inc. to the appellant and other
 entities in India.

 (v) There are expenses embedded in the
 service charges claimed by the
 appellant and embedded in the
 reimbursed cost of the appellant to
 CCI Inc. which are not allowable in
 nature as per Income tax law. These
 include foreign travel expenses of
 vices of employees for their
 pleasure trips, capital expenditure
 on purchase of soft ware etc.

 (vi) There are expenses on various
 services directly provided to the
 appellant for supply of bases and
 concentrates of the beverages and
 various other aspects which have
 been discussed in detail in the
 appellate order for A.Y.1998-99."

 Accordingly, the CIT (A) held that since
 the services rendered by CCI Inc benefited not only
 the petitioner but also benefited other group
 companies, disallowance has to be made to that
 extent and since the disallowance made by the AO was
 less than 25% of the total service charges claimed,
 the CIT (A) upheld the disallowance made by the AO.

 9. As regards the disallowance of the

 marketing expenses of Rs.17,99,74,343/- made by the
 AO, the CIT (A) partially allowed the appeal and
 held that the disallowance shall be restricted to
 Rs.10,00,000/- computed as below :-

 (i) Difference }

 (ii) No reply } 31,19,919
 (iii)Earlier years 9,11,61,718

 4,42,81,637

 (iv) Ad hoc as in the asstt.order 2,00,00,000
 (v) Capital expenditure on films/
 TV and brand building (bal.fig) 3,37,18,863

 ------------
 10,00,00,000
 ============
 10. Being aggrieved by the aforesaid order

 passed by CIT (A), the petitioner filed an appeal
 before the Tribunal. No appeal was filed by the
 revenue in respect of the service charges allowed by
 the A.O. and confirmed by C.I.T. (A). In the
 appeal, the petitioner specifically raised the
 following legal issues relating to disallowance of
 service charges :-

 (i) Whether there was anything on record
 to show that CCI Inc was rendering
 services to ‘group concerns’
 especially when the Petitioner had
 clearly stated that there were no
 group concerns in India in the
 assessment year 1997-98 ?

 (ii) Whether taking care of the brand
 image of TCCC in India was for the
 business purpose of the Petitioner
 in the light of the undisputed fact
 that (a) TCCC was the owner of the
 brands ; (b) the Petitioner was the
 licensee of the such brands on a
 gratuitous basis ; (c) the
 Petitioner’s business prospects

 depended directly on the said ‘brand
 image’ ?

 (iii)Whether rendering services to the
 Petitioner’s bottlers was in the
 business interest of the Petitioner
 in the light of the undisputed fact
 that (a) the services were n the
 nature of quality control to ensure
 that there is no under-filling or
 over-filling of the bottles, (b) the
 Petitioner’s business interests were
 directly dependent on production by
 the bottlers ; (c) the Petitioner
 was recovering the full cost of such
 services from the bottlers in the
 form of increased sales price of
 concentrate ?

 (iv) Whether expenses embedded in the
 service charges such as foreign
 travel expenses of wives etc are
 allowable as per income-tax law ?"

 11. As regards the disallowance of the
 marketing expenses is concerned, it is pertinent to
 note that both the petitioner as well as the revenue
 had filed appeals against the order of CIT (A).
 According to the petitioner, the CIT (A) erred in
 making disallowance of marketing expenses amounting
 to Rs.10,00,00,000/-. According to the revenue the
 CIT (A) ought to have made disallowance of marketing
 expenses at Rs.13,03,94,446/- as computed below :-

 (i) Difference 94,35,775

 (ii) No reply 95,64,184

 (iii)Earlier years 5,76,75,624
 ------------

 7,66,75,583

 (iv) Ad hoc as in the asstt.order 2,00,00,000

 (v) Capital expenditure on films/
 TV and brand building (bal.fig) 3,37,18,863
 -------------
 13,03,94,446
 =============

 12. Thus, the specific issues raised in the
 appeal filed by the petitioner as well as the
 revenue were, whether the CIT (A) was justified in
 making disallowance of marketing expenses and if so,
 whether :-

 (a) The prior period expenditure ought
 to be Rs.4,11,61,718/- as determined
 by the CIT (A) or should it be
 Rs.5,76,75,624/- as calculated by
 the department (i.e. a difference
 of Rs.1,65,13,906/-) ;

 (b) Whether disallowance of
 Rs.31,19,919/- made by the CIT (A)
 on account of ‘differences / no
 reply’ was justified when the
 payments were made by account-payee
 cheques and constituted a small
 fraction of the total expenditure of
 Rs.73,79,03,469 ?

 (c) If so, whether disallowance on
 account of ‘differences / no reply’
 made by CIT (A) at Rs.31,19,919 as
 determined by the is correct or
 should it be at Rs.1,89,99,955
 (Rs.94,35,775 plus Rs.95,64,184) as
 calculated by the department (i.e.
 a difference of Rs.1,58,80,036) ;

 (d) Whether there is any scope for
 ad-hocism in a quasi-judicial
 proceeding so as to justify the
 ad-hoc disallowance of Rs.2 crores ?

 (e) Whether disallowance of expenditure
 on films/TC and brand buildings made

 on the ground that the same are
 capital expenditure is justifiable ?

 13. By the impugned order dated 5th October,
 2005, the Tribunal, without considering the specific
 grounds raised in the appeal relating to
 disallowance of service charges and marketing
 expenses confirmed by the CIT (A), restored the
 matter to the AO for denovo consideration. The
 Tribunal held that whole of the expenses amounting
 to Rs.73,79,03,469/- claimed as marketing expenses
 and whole of the expenses of Rs.46,35,12,031/-
 claimed as service charges are to be segregated
 first yearwise and then the expenses pertaining or
 relating to the year in question are to be examined
 in detail to determine and ascertain whether all the
 expenses relating to the year under consideration
 has actually been paid out and expended wholly and
 exclusively for the purpose of business.

 14. The petitioner, thereupon filed a
 miscellaneous application stating therein that the
 Tribunal ought not to have remanded the case to the
 file of AO for redetermination without deciding the
 issues specifically raised in the appeal. The
 Tribunal by its order dated 7th July, 2006 held that
 its decision to restore the matter to the AO was a
 conscious decision taken based on the totality of

 the facts and circumstances of the case. The
 Tribunal further held that though the AO is required
 to consider as to whether the entire claim of
 service charges and marketing expenses were incurred
 in the assessment year in question, the
 quantification of inadmissible expenses which may
 ultimately be found to be not having been incurred
 for the purpose of assessee’s business shall be
 restricted to Rs.10,80,04,482/- of the service
 charges and Rs.17,99,74,343/- of the marketing
 expenses. Challenging the aforesaid orders passed
 by the Tribunal, the present petition is filed.

 15. Mr.Dastur, learned senior advocate
 appearing on behalf of the petitioner submitted that
 the Tribunal seriously erred in restoring the matter
 to the file of AO for denovo consideration of the
 entire claim of service charges and marketing
 expenses, instead of adjudicating upon the issues
 specifically raised in the appeal.

 16. Relying upon the decisions in the case of
 Raja Vikramaditya Singh (decd.) V/s. Commissioner
 of Income-Tax [(1988) 169 ITR 55 (M.P.)], Saurashtra
 Packaging Private Limited V/s. Commissioner of
 Income-Tax [(1993) 204 ITR 443 (Guj)], Rajesh
 Babubhai Damania V/s. Commissioner of Income Tax

 [(2001) 251 ITR 541 (Guj.)], Rameshchandra M.
 Luthra V/s. Assistant Commissioner of Income Tax
 [257 ITR 460 (Guj.), Omar Salay Mohamed Sait V/s.
 Commissioner of Income-Tax, Madras [(1959) 37 ITR
 151 (S.C.)], Mr.Dastur submitted that if all the
 basic facts required for the disposal of an appeal
 are on record, then the Tribunal must decide the
 issues raised in the appeal instead of remanding the
 matter back to the lower authorities. In the
 present case the Tribunal has not even considered
 the specific issues raised in the appeal. Relying
 upon the decision of the Apex Court in the case of
 Commissioner of Income-Tax, Bombay North V/s.
 Chandulal Keshavlal & Co. [(1960) 38 ITR 601

 (S.C.)], Mr.Dastur submitted that even if the

 payments made by the petitioner for its business
 enures some benefit to a third party, the petitioner
 is entitled to claim deduction of such expenses and
 in any event, without deciding that issue the
 Tribunal ought not to have remanded the case for
 denovo consideration.

 17. Mr.Dastur further submitted that the

 impugned orders passed by the Tribunal has caused
 grave prejudice to the petitioner because relying
 upon the decision of the Tribunal dated 5th October,
 2005, the AO has passed an assessment order on 31st

 march, 2006 for AY 2003-04, disallowing 100% of the
 marketing expenditure and 100% of the service
 charges. Moreover, even in the present case in the
 light of the impugned orders passed by the Tribunal,
 the AO has called upon the petitioner to produce
 every voucher relating to the entire service charges
 amounting to Rs.46,35,12,031/- and marketing
 expenses amounting to Rs.73,79,03,469/- incurred by
 the petitioner during AY 1997-98. Mr.Dastur
 submitted that the scope of the enquiry in an appeal
 filed before the Tribunal is restricted to the
 specific issues raised in the appeal and it is not
 open to the Tribunal to pass an order which goes
 beyond the scope of the Appeal. Accordingly,
 Mr.Dastur submitted that the impugned orders passed
 by the Tribunal be quashed and set aside and the
 case be remitted to the Tribunal with a direction to
 dispose of the appeal on merits on the basis of the
 material on record.

 18. Mr.Kotangale, learned counsel appearing
 on behalf of the revenue, on the other hand,
 submitted that in the present case, from the
 assessment order dated 31st March, 2000 it is clear
 that the petitioner had not given the basis or
 break-up of the working of the expenses claimed by
 them. In these circumstances, the Tribunal was

 justified in remanding the matter to the AO for
 denovo consideration. Mr.Kotangale submitted that
 by the remand order no prejudice is caused to the
 petitioner, because, as per the order of the
 Tribunal dated 7/7/2006, the disallowance on remand
 is restricted to the disallowance made by the AO in
 the original assessment order and it would be open
 to the petitioner to establish before the AO that
 the amounts claimed by them have been actually spent
 wholly and exclusively for the purpose of business.

 19. Relying upon a full bench judgment of
 this Court in the case of Ahmedabad Electricity
 Company Limited V/s. CIT [199 ITR 351],

 Mr.Kotangale submitted that the basic purpose of an
 appeal in an income tax matter is to ascertain the
 correct tax liability of the assessee and for that
 purpose the appellate Tribunal under Section 254 of
 the Income Tax Act has vide powers to consider the
 entire proceedings and pass such orders thereon as
 it thinks fit. In the present case, in the absence
 of any material facts or break up of the expenses
 given by the petitioner, the Tribunal was justified
 in remanding the matter to the AO for denovo
 consideration. While disposing of the miscellaneous
 application, the Tribunal has clarified that the
 disallowance on remand shall not exceed the

 disallowance made in the original assessment.
 Accordingly, Mr.Kotangale submitted that no
 interference is called for in a writ jurisdiction
 and the petition is liable to be dismissed.

 20. Having considered the rival submissions,
 we are of the opinion that in the facts of the
 present case, the arguments advanced on behalf of
 the petitioner deserves acceptance.

 21. In the present case there were two issues
 before the Tribunal. One relating to the
 disallowance of service charges and another relating
 to disallowance of marketing expenses. The CIT (A)
 had upheld disallowance of service charges amounting
 to Rs.10,80,04,482/- out of the total claim of
 Rs.46,35,12,031/- inter alia on the ground that the
 services rendered benefited the group companies,
 services were rendered to take care of the brand
 image of TCCC in India, services were rendered to
 the bottlers and that the service charges included
 foreign travel expenses of wives which were not
 allowable. In the appeal the petitioner had
 specifically pleaded there were no group concerns in
 India in AY 1997-98 and, therefore, disallowance
 could not be made on that ground. It was pleaded
 that being a licensee of the brands owned by TCCC,

 the petitioners business prospects depended directly

 on the brand image of TCCC, and therefore,
 disallowance could not be made on that ground. It
 was pleaded that rendering services to the bottlers
 was necessary so that the branded goods are bottled
 and marketed as per the standards prescribed and
 that the services rendered to the bottlers
 ultimately boosts the sale of the ‘concentrates’
 and, therefore, the said expenses incurred for the
 business of the petitioner ought to have been
 allowed. It was pleaded that even the foreign
 travel expenses of the wives were incurred in the
 course of business and, therefore, allowable.

 22. Similarly, in respect of disallowance of
 marketing expenses of Rs.10,00,000/- confirmed by
 the C.I.T. (A), the petitioner claims that before
 the Tribunal they were agreeable for confirmation of
 the disallowances made by CIT (A) i.e., prior period
 expenses at Rs.4,11,61,718/- and disallowance of
 Rs.31,19,317/- on account of ‘differences / no
 reply’. Therefore, the issue to be decided by the
 Tribunal was whether the disallowance of prior
 period expenditure should have been Rs.5,76,75,624/-
 as claimed by the revenue [instead of disallowance
 of Rs.4,11,61,718/- confirmed by the CIT (A)] and
 whether the disallowance on account of differences /

 no reply should have been Rs.1,89,99,955/- as
 claimed by the revenue [instead of disallowance of
 Rs.31,19,919/- confirmed by the CIT (A)]. The
 Tribunal was required to decide as to whether the
 said differences / no reply cases deserved to be
 allowed as the payments were made by account payee
 cheques and constituted a small fraction of the
 total expenditure of Rs.73,79,03,469/-. The
 Tribunal was required to decide whether the CIT (A)
 was justified in making the disallowance of
 marketing expenses amounting to Rs.2 crores on
 ad-hoc basis and whether disallowance of the
 expenditure incurred on production of short duration
 advertisement film etc. and brand building capital
 expenditure was in accordance with law.

 23. However, in the impugned order dated 5th
 October, 2005, the Tribunal has not dealt with any
 of the above specific issues raised in the appeal
 and restored the issue to the file of the AO (see
 para 51) with a direction to the AO first to
 ascertain and determine the actual amount of service
 charges which pertain to the year in question and
 then to adjudicate the question of allowability
 thereof as per law. The Tribunal directed the
 petitioner to furnish necessary documents, details,
 particulars, information, books and other evidence

 in support of their entire claim of service charges.
 Similarly, in respect of disallowance of marketing
 expenses, the Tribunal restored the matter to the
 file of AO by holding that the whole of the expenses
 claimed amounting to Rs.73,79,03,469/- are to be
 segregated first yearwise and then the expenses
 pertaining or relating to the year in question are
 to be examined in detail to determine and ascertain
 whether all the expenses related to the year under
 consideration has actually been paid out and
 expended wholly and exclusively for the assessee’s
 business. Thus, the Tribunal on remand, directed
 the A.O. to investigate the entire claim of service
 charges and marketing expenses even though the
 appeal was restricted to the partial disallowance of
 service charges and partial disallowance of
 marketing expenses confirmed by C.I.T. (A). When
 this anomaly was brought to the notice of the
 Tribunal by filing a miscellaneous application, the
 Tribunal disposed of the said miscellaneous
 application by stating that it had taken a conscious
 decision and clarified that on remand, the AO shall
 restrict the disallowance to the amounts disallowed
 to the original assessment.

 24. Section 254(1) of the Income Tax Act,
 1961 requires the Tribunal to give both the parties

 to the appeal an opportunity of being heard and pass
 such orders on the appeals filed before it as it

 thinks fit. The expression "pass such orders
 thereon as it thinks fit" in section 254(1) though
 wide enough to include the power of remand, such
 power can be exercised only if it is necessary to
 decide the issues which are subject matter of the
 appeal. In the present case, none of the issues
 specifically raised in the appeal have been
 considered by the Tribunal before remanding the
 matter to the file of A.O.

 25. By the impugned order, the Tribunal has
 directed the AO to reconsider the entire claim of
 service charges and marketing expenses by first
 segregating the prior period expenses and thereafter
 determine the actual amount pertaining to the year
 under appeal and adjudicate as to whether the
 expenses incurred in the year in question have been
 incurred wholly and exclusively for the purpose of
 business. It is pertinent to note that in para 50
 of its order, the Tribunal has given a categorical
 finding to the effect that out of the disallowance
 of service charges of Rs.10,80,04,482/- confirmed by

 CIT (A), service charges amounting to

 Rs.3,37,06,617/- were incurred in the earlier year
 and that amount is not allowable in the year in

 question. Having quantified the claims which relate
 to earlier years, the Tribunal was not justified in
 remanding the matter to AO to redetermine the
 service charges which are relatable to earlier
 years.

 26. Similarly, whether service charges and
 marketing expenses were incurred wholly and
 exclusively for the purposes of business was not an
 issue raised in the appeal. The specific grounds
 raised in the appeal against the order of CIT (A)
 were, whether the services rendered benefited group
 companies, whether the expenses were incurred to
 take care of TCCC brand image, whether rendering
 service to the bottlers could be a ground for making
 disallowance, whether disallowance of foreign travel
 expenses of the wives was justified, whether
 disallowance of marketing expenses ought to have
 been enhanced as claimed by the revenue, whether
 disallowance could be made on adhoc basis and
 whether expenditure on films / T.V. and brand
 buildings were capital expenditure. The Tribunal
 ought to have adjudicated upon these issues and to
 decide any of these specific issues if it was found
 necessary, the Tribunal could have remanded the

 matter for reconsideration of those issues. As the
 Tribunal has not considered the specific issues

 raised in the appeal, it is difficult to sustain the
 remand order passed by the Tribunal.

 27. Strong reliance was placed by

 Mr.Kotangale, learned counsel appearing on behalf of
 the revenue on the Full Bench decision of this High
 Court in the case of Ahmedabad Electricity Company
 Limited (supra). In our opinion, that decision has
 no bearing on the facts of the present case because
 in that case what is held is that the appellate
 Tribunal has jurisdiction to permit additional
 grounds to be raised before it even though the same
 may not arise from the order of the appellate
 Assistant Commissioner so long as the said grounds
 are in respect of the subject matter of the entire
 tax proceedings. In the present case, even the
 revenue has not filed any appeal or cross-objection
 in respect of service charges and marketing expenses
 allowed by the AO and confirmed by CIT (A). In
 these circumstances, the order passed by the
 Tribunal without considering the issues raised in
 the appeal and in remanding the case to the file of
 AO for reconsideration of the entire claim relating
 to service charges and marketing expenses cannot be
 sustained.

 28. For all the aforesaid reasons, we set

 aside the impugned order passed by the Tribunal
 dated 5th October, 2005 as well as the order passed
 on an miscellaneous application dated 7th July, 2006
 insofar as it pertains to the claim relating to
 service charges and marketing expenses and remit the
 case to the Tribunal for disposal of the appeal in
 accordance with law.

 29. Accordingly, the writ petition succeeds.
 Rule is made absolute in terms of prayer clause (a)
 with no order as to costs.

 (DR.S. RADHAKRISHNAN, J.)

 (J.P. DEVADHAR, J.)