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`Ad expense is not business expense for concentrate co'
Our Bureau
New Delhi
,
Oct. 19
THE genesis of the Bombay High Court stay order of Wednesday lies in an income-tax dispute related to Coca-Cola India Pvt Ltd (CCIL), which makes the concentrate.
This company, according to informed sources, has been a profit-making entity. The I-T department disallowed certain advertising expenditure incurred by the company during the financial year 2001-02 (AY 2002-03). Consequently, it raised a demand for Rs 77 crore (including interest) on the company.
The contention of the I-T Department broadly was that the concentrate manufacturer could not claim the entire advertising expenditure as business expenditure. It was stated that CCIL was not a marketing company, and, therefore, does not have to incur the advertising expenses relating to the beverage (coca-cola).
Sources familiar with the situation said that all the advertising expenses incurred by CCIL are built into the price that the concentrate manufacturer charges from its bottlers. "The price that is charged for the concentrate from every bottler includes the cost of ingredients for the concentrate, selling and advertising expenditure incurred. The same price is charged for all the twenty-odd bottlers, including those controlled by Coca Cola," sources said.
The legal dispute on allowing advertising expenditure as deductible expense for CCIL is likely to be heard by the Income Tax Appellate Tribunal sometime in December, say informed sources.
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