HINDUSTAN UNILIVER LTD ( AS SUCCESSOR TO BON LTD), MUMBAI V. ITO 1(1)(2), MUMBAI

ITA 1144/MUM/2011

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 2095 (ITAT-MUMBAI)
• Duration Of Justice: 5 year(s) 9 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-11-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: H
• Next Hearing Date: 11-08-2016
• Assessment Year: 2004-2005
• Appeal Filed On: 08-02-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: J P JANGID
• Keywords: Business expenditure; Onus to prove; Condonation of delay
• Section: 143(3)

Judgement Text

1 ITA NO. 1144 /MUM/201 1 M/S HINDUSTAN UNILEVER LTD. (AS SUCCESSOR TO M/S BON LTD.) ASSESSMENT YEAR 2004 - 2005 IN THE INCOME TAX APPELLATE TRIBUNAL H BENCH, MUMBAI , , BEFORE SHRI SAKTIJIT DEY, JM AND SHRI MANOJ KUMAR AGGARWAL, AM ./ I.T.A. NO. 1144/MUM/2011 ( / ASSESSMENT YEAR: 2004 - 2005 ) HINDUSTAN UNILEVER LTD (AS SUCCESSOR TO BON LTD) HINDUSTAN LEVER HOUSE 165/166 BACKBAY RECLAMATION MUMBAI 400 0 20. / VS. INCOME TAX OFFICER 1(1)(2) AAYKAR BHAWAN MUMBAI ./ ./ PAN/GIR NO. A ABCB0171H ( / APPELLANT ) : ( / RESPONDENT ) / APPELLANT BY : SHRI PERCY PARDIWALA / SHRI NISHANT THAKKAR / MS. JASMINE AMALSADWALA / RESPONDENT BY : SHRI J.P.JANGID , DR / DATE OF HEARING : 01/11 /2016 / DATE OF PRONOUNCEMENT : 09 /11/2016 2 ITA NO. 1144 /MUM/201 1 M/S HINDUSTAN UNILEVER LTD. (AS SUCCESSOR TO M/S BON LTD.) ASSESSMENT YEAR 2004 - 2005 / O R D E R PER MANOJ KUMAR AGGARWAL (ACCOUNTANT MEMBER) 1. THE CAPTIONED APPEAL OF THE ASSESSEE FOR ASSESSMENT YEAR [AY] 2 004 - 05 CHALLENGES THE ORDER OF C OMMISSIONER OF INCOME TAX (APPEALS) 1 [CIT(A)], MUMBAI DATED 22/01/2009 WHICH CONFIRM S ADDITION U/S 40A (2)(A) AND CERTAIN BUSINESS EXPENDITURE. 2. AS PER REGISTRY NOTING , IT IS OBSERVED THAT THE APPEAL HAS BEEN FILED WI TH A DELAY OF 662 DAYS. THE LD. COUNSEL STATED THAT THE ISSUE IN DISPUTE ORIGINALLY AROSE IN THE CASE OF CONCERN M/S BON LIMITED W HO GOT MERGED WITH M/S HINDUSTAN UNILEVER LIMITED W.E.F. 01/04/2009 VIDE BOMBAY HIGH COURT ORDER DATED 16/04/2010 . AS PER SAID ORDER, HINDUSTAN UNILEVER LTD. WAS TO STEP INTO THE SHOES OF BON LIMITED IN ALL ITS PENDING PROCEEDINGS. THE ORIGINAL APPEAL WAS FILED WITHIN TIME ON 09/04/2009 BY M/S BON LIMITED AS ITA NO. 2271/M/09 BUT THE SAME WAS DISMISSED BY ITAT VIDE ITS ORDER DATED 19/01/2011, BEING NOT MAINTAINABLE AS ASSESSEE WAS NOT IN EXISTENCE AT THE TIME OF HEARING. THEREFORE, A NEW APPEAL WAS FILED IN THE NAME OF M/S HINDUSTAN UNILEVER LTD. VIDE ITA NO. 1144/M/2011 WITHIN 9 DAYS OF RECEIPT OF TRIBUNAL ORDER. FURTH ER, THERE IS ACTUAL DELAY OF ONLY 296 DAYS AND NOT 662 DAYS AS CALCULATED BY REGISTRY. WITH THIS BACKGROUND, THE ASSESSEE HAS REQUESTED FOR CONDONATION OF DELAY BY AN AFFIDAVIT DATED 09/03/2011 AS DELAY WAS ATTRIBUTED TO BONA FIDE IMPRESSION THAT THE NAME OF THE ERSTWHILE ASSESSEE WOULD BE SUBSTITUTED WITH THE NEW ENTITY BY OPERATION OF LAW IN VIEW OF THE ORDER OF HONBLE BOMBAY HIGH COURT . A COPY OF HONBLE BOMBAY HIGH COURT ORDER DATED 16/04/2010 SANCTIONING AMALGAMATION BETWEEN BON LIMITED AND HINDUSTAN UNILEVER LTD. HAS BEEN PLACED BEFORE US. THE LD. DR RAISE D NO SERIOUS OBJECTION S AGAINST THE SAME AND HENCE, UNDER THE CIRCUMSTANCES, WE ARE INCLINED TO CONDONE THE SAME AND PROCEED TO DECIDE THE ISSUE ON MERITS. 3 ITA NO. 1144 /MUM/201 1 M/S HINDUSTAN UNILEVER LTD. (AS SUCCESSOR TO M/S BON LTD.) ASSESSMENT YEAR 2004 - 2005 3. FACTS QUA THE DISPUTE ARE THAT ASSESSEE WAS RESIDENT COMPANY WHO FILED ITS RETURN OF INCOME FOR AY 2004 - 05 DURING OCTOBER, 200 4 DECLARING TOTAL INCOME OF RS. NIL AFTER SETTING OFF OF BROUGHT FORWARD BUSINESS LOSSES FOR AY 2003 - 04. THE BOOK PROFIT DE CLARED U/S 155JB WAS RS. 54.14 L ACS. THE RETURN WAS TAKEN UP FOR SCRUTINY ASSESSMENT U / S 143(3) WHEREIN TOTAL INCOME WAS DETERMINED AT RS. 1,05,62,870/ - V IDE ASSESSING OFFICER [AO] ORDER DATED 28/12/2006 AFTER MAKING CERTAIN DISALLOWANCES . THE ASSESSEE MADE PAYMENTS TO THE TUNE OF RS.2 , 05 , 61 , 370/ - UNDER VARIOUS HEADS FOR GOODS AND SERVICES PROCURED FROM ITS HOLDING COMPANY NAMELY M/S HINDUSTAN LEVER LTD. (HU L) WHICH WAS AN ENTITY COVERED U/S 40A(2)(B). UPON PERUSAL OF THE DETAILS, AO CONCLUDED THAT 20% OF THESE EXPENSES BEING EXCESSIVE AND UNREASONABLE ARE DISALLOWABLE AS PER SECTION 4 0A(2). SIMILAR ADHOC DISALLOWANCE OF 20% WAS MADE UNDER THE HEADS TRADE & PRIMARY EXPENSES, OTHER MISC. EXPENSES & CARTAGE & FREIGHT AS ASSESSEE FAILED TO SUBMIT THE REQUISITE VOUCHERS FOR VERIFICATION ON TEST CHECK BASIS . THUS, DISALLOWANCES WHICH ARE SUBJECT MATTER OF THIS APPEAL WERE MADE IN THE FOLLOWING MANNER: - NO. NATURE OF EXPENDITURE TOTAL AMOUNT (RS.) DISALLOWANCE MADE (%) AMT. OF DISALLOWANCE 1. PAYMENT MADE TO ENTITIES COVERED U/S 40A(2)(B ) 2,05,61,370/ - 20% 41,12,274/ - 2. TRADING & PRIMARY EXPENSES AND OTHER MISC. EXPENSES RS.3,44,995/ - & RS. 1,19,760/ - RESPECTIVELY 20% 92,991/ - 3. CARTAGE & FREIGHT RS. 17,28,000/ - 20% 3,45,600/ - 4. A GGRI E VED, THE ASSESSEE PREFERRED APPEAL BEFORE CIT(A). QUA THE FIRST ISSUE, CIT(A) NOTED THAT THE ASSESSEE GOT LICENSE TO MANUFACTURE AND SELL DALDA FROM ITS HOLDING COMPANY M/S HINDUSTAN UN ILEVER LTD. (HUL) IN SOME STATES OF SOUTH 4 ITA NO. 1144 /MUM/201 1 M/S HINDUSTAN UNILEVER LTD. (AS SUCCESSOR TO M/S BON LTD.) ASSESSMENT YEAR 2004 - 2005 INDIA . AS IT DID NOT HAVE ADEQUATE FACILITIES OF MANUFACTURING, IT GOT MANUFACTURING DONE FROM M/S HUL AND PAID AMOUNTS TO USE TH ESE FACILITIES . THE ASSESSEE CONTENDED THAT PAYMENTS ARE MADE FOR GOODS & SERV I CES PROCURED FROM M /S HUL AND THE PAYMENTS ARE REASONABLE VIS - - VIS PREVAILING MARKET CONDITIONS AND THEREFORE, ADHOC DISALLOWANCE MADE BY AO IS WITHOUT ANY BASIS. CIT(A) NOTED THAT DALDA BEING F AMOUS BRAND, BUT STRAN GELY NO MONEY WAS P AID BY ASSESSEE TO OBTAIN MANUFACTURING/SELLING RIGHTS TO M/S HUL. FURTHER, WHETHER SUCH PAYMENTS WERE REASONABLE KEEPING IN VIEW T HE QUANTITY OF GOODS MANUFACTURED A N D OTHER SERVICES RENDERED IS NOT SUBJECT TO VERIFICATIONS. WITH THIS BACKGROUND, HE AFFIRMED THE ACTION OF AO IN DISALLOWING IMPUGNED ADDITIONS AFT ER PROVIDING FOR AN ALLOWANCE OF RS.2 7,31,452/ - BEING SUM PAID BY ASSESSEE TOWARDS REIMBURSEMENT OF EXCISE DUTY . SIMILARLY, HE AFFIRMED THE ACTION OF AO IN DISALLOWIN G 20% OF OTHER EXPENDITURE T ABULATED ABOVE AT SERIAL NO. 2&3, ON THE GROUND THAT THE AS SES SEE COULD NOT SUBSTANTIATE THE SAME. 5 . AGGRI E VED, TH E ASSESSEE IS IN APPEAL BEFORE US. A PAPER - BOOK CONTAININ G INT ER - ALIA VARIOUS SUBMISSIONS MADE BEFORE AO ALONG - WITH F INAL ACCOUNTS AND TAX A UDIT REPORT OF THE ASSESSEE HAS BEEN PLACED BEFO RE US. QUA 40A(2) DISALLOWANCE, THE L D. COUNSEL FOR ASSESSEE HAS CONTENDED THAT TH E IMPUGNED PAYMENTS WERE REA S ONABLE AND FAIR K EEPING IN VIEW THE PREVAILING MARKET CONDITIONS. AO COULD NOT POINT OUT ANY BASIS ON WHICH ADHOC DISALLOWANCE HAS BEEN MADE. FURTHER, T HE PAYMENT HAS BEEN MADE FROM ONE SUBSIDIARY TO HOLDING COMPANY AND BOTH BEING COMPANY ASSESSEE, FALLS UND E R THE SAME TAX BRACKET AND HENCE TAX NEUTRAL. THE CBDT VIDE CIRCULAR NUMBER 6 - P DATED 06/07/1968 HAS STATED THAT NO DISALLOWANCE IS CALLED FOR U/S 40A(2 ) IN RESPECT OF PAYMENTS MADE TO RELATIVES/SISTER CONCERNS WHERE THERE IS NO ATTEMPT TO EVADE TAXES. RELIANCE HAS BEEN PLACED ON THE FOLLOWING JUDGMENTS OF JURISDICTIONAL BOMBAY HIGH COURT : - 5 ITA NO. 1144 /MUM/201 1 M/S HINDUSTAN UNILEVER LTD. (AS SUCCESSOR TO M/S BON LTD.) ASSESSMENT YEAR 2004 - 2005 ( I ) CIT VS V . S . D EMP O & CO P. LTD 336 ITR 209 ( II ) CIT VS INDO SAUDI SERVICES ( TRAVELS ) P LT D 310 ITR 306 FURTHER, D URING ASSESSMENT PROCEEDINGS BEFORE AO, THE ASSESSEE HAS VIDE ITS REPLY DATED 21/12/2006 HA D CONFIRMED THAT THE PAYMENTS MADE FOR PROCESSING CHARGES, PURCHASE OF RAW MATERIAL AND PURCHASE OF GOODS WERE BASED ON PREVAILING MARKET PRICE OF THE GOODS AND SERVICES AND HAVE BEEN FIXED ONLY AFTER EVALUATING THE COST OF INPUTS ETC. THE PRICES HAVE BEEN FIXED ON THE SAME BASIS AND THE NORMS, WHICH ARE APPLIED FOR PURCHASE OF GOODS/SERVICES FROM THIRD PARTIES. FURTHER , THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF COOKING OILS AND BAKERY FATS AND MANUFACTURING IS CARRIED ONLY THROUGH THIRD PARTIES AGAINST WHICH PROCESSING / OTHER COST HAVE BEEN PAID. THEREFORE, NO INVESTMENT IN FIXED ASSETS HAS BEEN MADE AND THE COMPANY DO ES NOT HAVE ANY EMPLOYEES ON ITS OWN ROL LS . THE LD. DR, ON THE OTHER HAND, PLACE D RELIANCE ON THE VIEW TAKEN BY LOWER AUTHORITIES. 6. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED MATERIAL AVAILABLE ON RECORD. THE MATERIAL FACTS ARE NOT IN DISPUTE. QUA ADDITION U/S 40A(2), THE BIFURCATION OF AM OUNTS PAID ARE AS FOLLOWS: ADMITTEDLY, THE ASSESSEE DO NOT HAVE ANY MANUFACTURING FACILITY AS NO INVESTMENT IN FIXED ASSETS HAVE BEEN MADE BY IT RATHER I T AVAILED MANUFACTURING FACILITY OF ITS HOLDING COMPANY AND PAID RELATED COST S . THE COMPLETE DETAILS OF COST INCURRED SL. NO. PAYMENTS DEBITED TO PROFIT & LOSS ACCOUNT RUPEES 1. PROCESSING COST 71,44,968/ - 2. COMMON COST 21,80,000/ - 3. SERVICE CHARGES 3,36,000/ - 4. EXCISE DUTY REIMBURSED 27,31,452/ - 5. PAYMENT FOR RAW MATERIAL / PACKING MATERIAL / CHEMICALS 81,68,950/ - TOTAL 2,05,61,370/ - 6 ITA NO. 1144 /MUM/201 1 M/S HINDUSTAN UNILEVER LTD. (AS SUCCESSOR TO M/S BON LTD.) ASSESSMENT YEAR 2004 - 2005 ITEM - WISE WERE GIVEN IN VARIOUS SUBMISSIONS TO AO DURING ASSESSMENT PROCEEDINGS. BUT AO FAILED TO POINT OUT ANY DISCREPANCIES IN THE SAME AND MADE ADHOC DISALLOWANCE OF 20% WITHOUT ANY SOUND BASIS. IT APPEARS THAT THE SAME HAS BEEN MADE ON MERE SUSPICION THAT EXCESSIVE PAYMENT HAVE BEEN MADE SO AS TO COMPENSATE FOR THE ROYALTIES. T HE CIT(A) HAS ALREADY PROVIDED RELIEF TO THE EXTENT OF RS.27, 31,452/ - BEING REIMBURSEMENT OF EXCISE DUTY AND HENCE ACCEPTED THE FACTUAL SITUATION. IN SUCH A SCENARIO, WE ARE OF THE CONSIDERED OPINION THAT AN ADHOC DISALLOWANCE CANNOT BE MADE ON MERE SUSPICION RATHER THE AO SHOULD HAVE BROUGHT SOME COGENT MATERIAL IN THE FORM OF COMPARABLES SO AS TO J USTIFY TH AT THE IMPUGNED PAYMENTS ARE EXCESSIVE OR UNREASONABLE . MOREOVER, BOTH ENTITIES BEING IN THE SAME TAX BRACKET, HENCE THE TRANSACTIONS ARE TAX NEUTRAL AND COVERED BY CBDT CIRCULAR RIGHTLY POINTED BY LD. AR. OUR VIEW IS FURTHER FORTIFIED BY FOLLOWING OBSERVATION OF JURISDICTIONAL HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. V.S.DEMPO & CO. (P.) LTD. (SUPRA) : - IN THIS CONNECTION, THE FACT THAT THE ASSESSEE AS WELL AS ITS SUBSIDIARY WHICH IS THE SELLER ARE IN T HE SAME TAX BRACKET AND PAY SAME RATE OF TAX IS A FACT WHICH ASSUMES IMPORTANCE. ADMITTEDLY, IT IS NOT A CASE OF TAX EVASION INASMUCH AS IF THE RATE WOULD HAVE BEEN LESS, THE ASSESSEES PROFIT WOULD HAVE BEEN MORE, BUT THE PROFITS OF THE SELLER WOULD HAVE BEEN LESS AND BOTH BEING TAXABLE AT THE SAME RATE, THERE WOULD BE NO DIFFERENCE IN THE AGGREGATE TAX PAYABLE BY THE ASSESSEE AND ITS SUBSIDIARY. SIMILARLY VIEW HAS BEEN EXPRESSED BY BOMBAY HIGH COURT IN THE CASE OF CIT VS. INDO SAUDI SERV ICES (P) LTD. (SU PRA) . IN VIEW OF THE FACT THAT THAT THERE ARE NO AL LEGATIONS OF TAX EVASION BY REVENUE AND KEEPING IN VIEW THE ABOVE JUDICIAL PRONOUNCEMENTS, WE ARE INCLINED TO DELET E THE IMPUGNED DISALLOWANCE OF 20% MADE U/S 40A(2). HENCE , GROUND NOS. 1 TO 4 OF THE ASSESSEE SUCCEEDS. 7 ITA NO. 1144 /MUM/201 1 M/S HINDUSTAN UNILEVER LTD. (AS SUCCESSOR TO M/S BON LTD.) ASSESSMENT YEAR 2004 - 2005 7. THE SECOND ISSUE IS RELATED WITH ADHOC 20% DISALLOWANCE OF CERTAIN EXPENDITURES FOR WANT OF VERIFICATION OF VOUCHERS ON TEST CHECK BASIS . THE LD. AR HAS DRAWN OUR ATTENTION TO VARIOUS PAGES OF THE PAPER BOOK TO SHOW THAT COMPLETE DET AILS OF EXPENSES WERE MADE AVAILABLE TO AO. BUT SINCE ONE FACTORY AT TRICHY WAS SOLD DURING THE YEAR AND BUSINESS WAS DISCONTINUED, THERE WAS DELAY IN PROCURING THE RELEVANT VOUCHERS AND THE SAME COULD NOT BE PRODUCED IN TIME BEFORE AO, WHICH LED TO THIS D ISALLOWANCE. THERE IS NOTHING ADVERSE IN THAT RESPECT IN TAX AUDIT REPORT. CONSIDERING THE TOTAL TURNOVER OF RS. 14 CRORES ACHIEVED BY THE ASSESSEE, THESE CONSTITUTE A SMALL FRACTION OF TURNOVER AND HENCE, REQUIRED TO BE DELETED. IN THE REGARD, RELIANCE WA S PLACED ON FOLLOWING DECISIONS: - ( I ) CIT VS V ALLBH GLASS WORKS LTD (GUJRAT HIGH COURT) 38 TAXMANN.COM 177 ( II ) PNC CONSTRUCTION CO. LTD. VS DCIT (ITAT AGRA) 37 TAXMANN.COM 361 THE LD. DR ON THE OTHER HAND HAS CONTENDED THAT THE ONUS TO PROVE THE EXPENSES SQUARELY LIED ON THE ASSESSEE AND HE HAS FAILED TO DISCHARGE THE SAME AND HENCE, DISALLOWANCE HAS RIGHTLY BEEN MADE. 8. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED MATERIAL ON RECORD. THE F ACTUAL POSITION IS THAT ALTHOUGH COMPLETE DETAILS WERE MADE AV AILABLE BY THE ASSESSEE BEFORE LOWER AUTHORITIES BUT ADDITIONS WERE MADE FOR W ANT OF VERIFICATION OF VOUCHERS FOR 3 MONTHS ON TEST CHECK BASIS . THERE IS NOTHING ADVERSE ON RECORD WITH RESPECT TO EXPENDITURE IN TAX AUDIT REPORT . GUJRAT HIGH COURT IN CIT VS. VALLBH GLASS WORKS LTD. (SUPRA) HAS HELD THAT WHERE AUDITED ACCOUNTS WERE AVAILABLE WITH REGARD TO THE EXPENSES CLAIMED BY THE ASSESSEE AND THERE W ERE NO ADVERSE COMMENTS BY AUDITOR, NO DISALLOWANCE OF SUCH EXPENSES SHOULD BE MADE UNLESS THERE ARE COGENT REASONS TO QUESTION THE GENUINENESS OF SUCH EXPENDITURE. 8 ITA NO. 1144 /MUM/201 1 M/S HINDUSTAN UNILEVER LTD. (AS SUCCESSOR TO M/S BON LTD.) ASSESSMENT YEAR 2004 - 2005 SIMILARLY, ITAT AGRA BENCH IN PNC CONSTRUCTION LTD. VS. DCIT (SUPRA) HAS TAKEN A VIEW THAT MER E FAILURE TO FILE THE RELEVANT VOUCHERS AS REQUIRED BY THE AO CANNOT BE THE BASIS FOR DISALLOWANCE UNLESS IT IS FOUND THAT THE EXPENDITURES WERE NOT INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. THEREFORE, ON THE FACTS AND CIRCUMSTANCES OF T HE CASE AND JUDICIAL PRONOUNCEMENTS, WE ARE INCLINED TO DELETE THE IMPUGNED ADHOC DISALLOWANCE OF 20%. GROUND NOS. 5 & 6 OF THE ASSESSEE SUCCEEDS. 9. IN NUTSHELL, THE APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 09TH NOVEMBER, 2016 SD/ - SD/. - (SAKTIJIT DEY) (MANOJ KUMAR AGGARWAL) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; DATED : .11.2016 PS: - POOJA K. / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. ( ) / THE CIT(A) 4. / CIT CONCERNED 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI 9 ITA NO. 1144 /MUM/201 1 M/S HINDUSTAN UNILEVER LTD. (AS SUCCESSOR TO M/S BON LTD.) ASSESSMENT YEAR 2004 - 2005 SR. NO. DETAILS DATE INITIALS DESIGNATION 1 DRAFT DICTATION SHEETS ARE ATTACHED YES SR.PS/PS 2 DRAFT DICTATED ON SR.PS/PS 3 DRAFT PLACED BEFORE AUTHOR SR.PS/PS 4 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 5 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 6 APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS/PS 7 ORDER PRONOUNCEMENT ON SR.PS/PS 8 FILE SENT TO THE BENCH CLERK SR.PS/PS 9 DATE ON WHICH THE FILE GOES TO THE HEAD CLERK 10 DATE ON WHICH FILE GOES TO THE AR 11 DATE OF DISPATCH OF ORDER