DCIT, New Delhi V. M/s Tupperware India Pvt. Ltd., New Delhi

ITA 137/DEL/2011

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 74340 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 2 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-03-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: H
• Next Hearing Date: 29-01-2014
• Assessment Year: 2006-2007
• Appeal Filed On: 10-01-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SAMEER SHARMA
• Keywords: Business expenditure; Rule of consistency; Wholly owned subsidiary; Commercial expediency
• Section: 143(3); 194C; 37

Judgement Text

ITA NOS. 137, 2012 & 1977/DEL/2011 & 2608/DEL/2012 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH H NEW DELHI BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER I.T.A. NOS. 137 & 2012/DEL/2011 & 2608/DEL/2012 A.YRS. : 2006-07, 2007-08 &2008-09 A SSTT. COMMISSIONER OF INCOME TAX, CIRCLE 16(1), NEW DELHI VS. M/S T UPPERWARE INDIA PVT LTD., 204-206, TOLSTOY HOUSE, 15, TOLSTOY MARG, NEW DELHI 110 001 (PAN: AAACT 3770D) AND AND AND AND I.T.A. NO. 1977/DEL/2011 A.Y. : 2007-08 M/S TUPPERWARE INDIA PVT LTD., 204-206, TOLSTOY HOUSE, 15, TOLSTOY MARG, NEW DELHI 110 001 (PAN: AAACT 3770D) VS. DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 16(1), NEW DELHI (APPELLANT) (APPELLANT) (APPELLANT) (APPELLANT) (RESPONDENT) (RESPONDENT) (RESPONDENT) (RESPONDENT) ASSESSEE BY : S /SH. RAKESH G UPTA, SR. ADV., ASHWANI TANEJA, ADV. & MR. SOMIL AGGARWAL, CA DEPARTMENT BY : SH. SAMEER SHARMA, SR. D.R. ORDER ORDER ORDER ORDER PER PER PER PER SHAMIM YAHYA: AM SHAMIM YAHYA: AM SHAMIM YAHYA: AM SHAMIM YAHYA: AM THESE APPEALS BY THE REVENUE AND ASSESSEE EMANATE O UT OF ORDERS OF THE LD. CIT(A) FOR THE CONCERNED YEARS. SINCE SOME OF THE ISSUES ARE COMMON AND THE APPEALS WERE HEARD TOGETHE R, THESE ARE BEING CONSOLIDATED AND DISPOSED OF BY THIS COMMON OR DER FOR THE SAKE OF CONVENIENCE. ITA NOS. 137, 2012 & 1977/DEL/2011 & 2608/DEL/2012 2 REVENUE REVENUE REVENUE REVENUE APPEALS APPEALS APPEALS APPEALS 2. ONE COMMON ISSUE RAISED IN THESE APPEALS IS THAT LD. CIT(A) ERRED IN DELETING THE ADDITION OUT OF MOULD EXPENSE S WITHOUT APPRECIATING THAT SUCH EXPENSE OR RENT ON MOULDS REL ATE TO M/S DART INDIA & ITL AND NOT TO THE ASSESSEE COMPANY. 3. SINCE THE FACTS ARE IDENTICAL, WE ARE ADJUDICATI NG THE ISSUE WITH REFERENCE TO THE FACTS AND FIGURES OF THE ASSESSMEN T YEAR 2006-07. 4. THE ASSESSEE COMPANY IS A WHOLLY OWNED SUBSIDIARY OF M/S TUPPEWARE ASIA PACIFIC HOLDINGS PRIVATE LIMITED, MAUR ITIUS WHICH HOLDS 99% EQUITY CAPITAL OF THE ASSESSEE. THE REMAINING 1% WAS HELD BY M/S TUPPERWARE HOME PARTIES INC., USA. THE GROUP AS A WHOLE OWNS A BRAND NAME TUPPERWARE AND CARRIED OUT THE BUSINES S ACTIVITIES THOUGH ITS VARIOUS SUBSIDIARIES IN VARIOUS PARTS OF THE WORLD. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, AO FOUND THAT ASSE SSEE HAS CLAIMED MOULD EXPENSES OF RS. 46,632,929/-. AO FOUN D THAT THESE MOULDS WERE USED BY DART INDIA AND ITL AND THE ASSESS EE HAS CLAIMED RENT PAYMENTS ON THE SAME. ON QUERY IN THIS REGA RD, ASSESSEE SUBMISSION WERE AS UNDER:- 'THE COMPANY HAS BEEN PERMITTED BY THE GOVERNMENT OF INDIA, MINISTRY OF INDUSTRY, DEPARTMENT OF INDUSTRIAL POLICY AND PROMOTION, SECRETARIAT FOR INDUSTRIAL APPROVALS VIDE LETTER NO . FC.II356(96)/6IO(95) DATED APRIL 11, 1996 TO ACT AS A TECHNOLOGY TRANSFER AGENT AND MARKETING COMPANY. ITA NOS. 137, 2012 & 1977/DEL/2011 & 2608/DEL/2012 3 THE COMPANY IS ENGAGED, INTER-ALIA, IN TRADING ACTIVITIES IN RESPECT OF PLASTIC KITCHENWARE PRODUCTS SINCE ITS SET UP OF BUSINESS. IT PURCHASES THE PRODUCTS FROM THE CONTRACT MANUFACTURERS (DART MANUFACTURING INDIA PRIVATE LIMITED AND INNOSOFT TECHNOLOGIES LIMITED). THE PRODUCTS MANUFACTURED HAVE TO MEET THE INTERNATIONAL QUALITY STANDARDS AND SPECIFICATIONS ESTABLISHED BY TUPPERWARE WORLDWIDE WHICH REQUIRE USE OF HIGH QUALITY AND SPECIFIC TYPE OF MOLDS. FURTHER, AS THE DESIGNS OF THE PRODUCTS ARE PATENTED DESIGNS, THE MOLDS USED FOR MANUFACTURE OF SUCH PRODUCTS ARE NOT AVAILABLE IN THE OPEN MARKET. THEREFORE, THE COMPANY HAS TO IMPORT THESE MOLDS FROM OVERSEAS GROUP COMPANIES ON HIRE BASIS AND PROVIDE THE SAME TO THE CONTRACT MANUFACTURERS TO ENABLE THEM TO MANUFACTURE THE PRODUCTS. ONCE THE CONTRACT MANUFACTURER COMPLETES THE ORDER PLACED BY THE COMPANY THE MOLDS ARE RETURNED BACK TO THE COMPANY AND THERE FROM TO THE MOLD OWNER(S), IN CASE, THE PARTICULAR MOLD IS NO LONGER REQUIRED FOR USE IN MANUFACTURE. IN VIEW OF THE ABOVE, THE COMPANY CLAIMS THAT THE MOLD EXPENSES INCURRED BY IT ARE WHOLLY AND EXCLUSIVELY INCURRED FOR THE PURPOSE OF BUSINESS ITA NOS. 137, 2012 & 1977/DEL/2011 & 2608/DEL/2012 4 AND ARE THEREFORE TO BE ALLOWED AS GENUINE BUSINESS EXPENDITURE. DURING THE YEAR UNDER CONSIDERATION, THE COMPANY DEBITED A SUM OF RS. 4,66,32,929/IN ITS BOOKS OF ACCOUNT AS MOLD RENTAL EXPENSES. THE SAID EXPENSES HAVE BEEN PAID TO THE FOLLOWING OVERSEAS ENTITI S ON ACCOUNT OF RENTAL CHARGES FOR THE USE OF MOLDS IN . MANUFACTURE OF THE PRODUCTS. S.NO. MOLD RENTAL S.NO. MOLD RENTAL S.NO. MOLD RENTAL S.NO. MOLD RENTALS PAYMENTS MADE TO AMOUNT (IN INR) S PAYMENTS MADE TO AMOUNT (IN INR) S PAYMENTS MADE TO AMOUNT (IN INR) S PAYMENTS MADE TO AMOUNT (IN INR) 1. DART INDUSTRIES INC., USA 18,353,704 2. TUPPERWARE BELGIUM 6,916,939 3. TUPPERWARE JAPAN 3,651,162 OTHERS (HANDLING, CUSTOMS DUTY, 17,711,124 FREIGHT) TOTAL AMOUNT DEBITED TO P&L A/C TOTAL AMOUNT DEBITED TO P&L A/C TOTAL AMOUNT DEBITED TO P&L A/C TOTAL AMOUNT DEBITED TO P&L A/C 46,632,929 46,632,929 46,632,929 46,632,929 TO SUBSTANTIATE THE CLAIM OF ABOVE PAYMENTS, WE ARE ENCLOSING HEREWITH THE FOLLOWING DOCUMENTS: CERTIFIED TRUE COPY (DULY NOTARISED AND COUNSELARIS ED) AND DULY STAMPED COPY OF THE CERTIFICATES OF PAYMENTS RECEIVED BY THE ABOVE OVERSEAS ENTITIES ALONG WITH INVOICES RAISED ON TUPPERWARE INDIA (ANNEXURE - 1). CERTIFICATES FROM DART MANUFACTURING INDIA PVT. LTD. CERTIFYING THAT ALL PAYMENTS IN RESPECT OF MOLD HAVE BEEN BORNE BY THE TUPPERWARE INDIA PVT. LTD. (REFER ANNEX URE - 11). ITA NOS. 137, 2012 & 1977/DEL/2011 & 2608/DEL/2012 5 AS SUBMITTED ABOVE, IT IS EVIDENT THAT THE EXPENSES HAVE BEEN INCURRED 'WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF BUSINESS' AND ARE THEREFORE OF REVENUE NATURE TO BE ALLOWED IN THE YEAR OF EXPENDITURE ITSELF.' 4.1 HOWEVER, THE AO WAS NOT SATISFIED WITH THE ABOV E SUBMISSIONS. AO HELD THAT THE ASSESSEE HAS WRONGLY BEEN CLAIMING THE RENTAL EXPENSES. THAT IT HAS RESULTED IN LESS PAYMENT OF E XCISE DUTY BY DART INDIA AND ITL AND AT THE SAME TIME IT HAS REDUCED TH E TAXABLE INCOME OF THE ASSESSEE. THAT THEREFORE, THIS ARRANGEMENT A PPEARED TO BE COLORABLE DEVICE TO REDUCE THE TAX LIABILITIES ON PART OF ALL THESE PERSONS AND HENCE, THE PRINCIPLES LAID DOWN IN THE FAMOUS DECISION OF MCDOWELL ARE TO BE APPLIED. AO DISALLOWED THE CLAI M OF RENTAL EXPENSES IN THE HANDS OF THE ASSESSEE ON THE GROUN D THAT THE MOULDS ARE BEING USED IN THE MANUFACTURING BY DART INDIA A ND ITL WHICH ARE RIGHT ENTITIES TO CLAIM THESE EXPENSES. ACCORDINGL Y, AO PROCEEDED TO DISALLOW THE IMPUGNED EXPENSES. THE BASIC CONCLUSIO N DRAWN BY THE AO WERE AS UNDER:- THE PAYMENT OF RENTAL EXPENSES TO FOREIGN CONCERNS ARE LIABILITIES OF DART INDIA AND ITL AND NOT THAT OF A SSESSEE SINCE THEY ARE ACTUAL USERS OF THE MOULDS; SUCH AN ARRANGEMENT HAS RESULTED IN LESS PAYMENT OF EXCISE DUTY BY DART INDIA AND ITL AND AT THE SAME TIME RED UCED THE TAXABLE INCOME OF THE APPELLANT; SINCE THE PROVISIONS OF SECTION 194C OF THE ACT ARE NOT APPLICABLE, THEREFORE, LEASE RENTALS ARE THE LIABIL ITY OF DART INDIA AND ITL. ITA NOS. 137, 2012 & 1977/DEL/2011 & 2608/DEL/2012 6 5. UPON ASSESSEES APPEAL LD. CIT(A) NOTED THAT THE MAIN ISSUE IN THE CASE WAS THAT THE CONTENTION OF THE AO THAT REN TAL PAYMENT FOR THE USE OF MOULD WAS A LIABILITY OF DART INDIA LTD. AND ITL AND HENCE, WAS NOT ALLOWABLE IN THE HANDS OF THE ASSESSEE. 6. LD. CIT(A) NOTED THAT ASSESSEE HAS BEEN GRANTED APPROVAL BY THE MINISTRY TO ACT AS A TECHNOLOGY TRANSFER AGENT AND A LSO TO ENTER INTO A JOINT VENTURE WITH SMALL SCALE UNITS FOR THE MANUFACT URER OF KITCHEN PRODUCTS. THAT THE PAYMENTS OF MOULDS AND RENTALS W AS MADE UNDER THE CONTRACTUAL OBLIGATION WITH THE CONTRACT MANUFAC TURERS. THAT THE CONTRACT MANUFACTURER HAS GIVEN A CERTIFICATE TO TH E EXTENT THAT LIABILITY OF MOULDS RENTS IS TO BE BORNE BY THE ASSESSEE. IN THESE CIRCUMSTANCES, LD. CIT(A) HELD THAT THE EXPENDITURE IN QUESTION IS ALLOWABLE UNDER SECTION 37 OF THE I.T. ACT. 7. LD. CIT(A) FURTHER OBSERVED THAT EVEN IF FOR SAK E OF ARGUMENT IT WAS TO BE PRESUMED THAT THE PAYMENT OF MOULD RENTALS W AS THE LIABILITY OF THE CONTRACT MANUFACTURERS AND SO INCU RRED BY THEM, IN THAT CASE THE CASE OF SUCH MOULD RENTALS WOULD BE PART O F PURCHASES AS IT WOULD INCREASE THE PRODUCTION COST OF THE CONTRACT MANUFACTURER AND ACCORDINGLY, THE PURCHASE PRICE BARGAINED BY THE ASSESSEE WOULD BE INCREASED BY THE SAME AMOUNT OF MOULD RENTAL. THEREF ORE, LD. CIT(A) HELD THAT THE PAYMENT IN QUESTION COULD NOT BE TERMED AS SHAM TRANSACTION TO DEFRAUD THE REVENUE. LD. CIT(A) HE LD THAT MERE FACT THAT ASSESSEE IS NOT A MANUFACTURER OF PRODUCTS AND HENCE, THE PAYMENTS FOR THE MOULD RENTALS IS NOT ALLOWABLE IS N OT CORRECT. THAT THE EXPENDITURE IS TO BE BORNE BY THE ASSESSEE UND ER CONTRACT. THAT IT IS THE BUSINESS ARRANGEMENTS BETWEEN THE ASSESSEE AND THE CONTRACT SUPPLIER. LD. CIT(A) FURTHER HELD THAT THE AO BY PASSING THE ABOVE ITA NOS. 137, 2012 & 1977/DEL/2011 & 2608/DEL/2012 7 ORDER HAS OBSERVED THAT THE METHOD ADOPTED BY THE ASSESSEE HAS RESULTED IN LESSER PAYMENT OF EXCISE BY CONTRACT SUP PLIERS. LD. CIT(A) HELD THAT THIS CANNOT BE A GROUND OF DISALLOWING TH E AMOUNT THE MOULD RENTALS. LD. CIT(A) FURTHER HELD THAT THE ARRANGE MENT BETWEEN THE ASSESSEE AND THE CONTRACT MANUFACTURERS WAS ON PRINC IPAL TO PRINCIPAL BASIS AND THE PAYMENT TO CONTRACT SUPPLIERS WAS OUTS IDE THE SCOPE OF PROVISIONS OF SECTION 194C READ WITH SECTION 40(A)( IA). 8. LD. CIT(A) NOTED THAT IT IS NOT THE FIRST TIME T HAT THE ASSESSEE HAS BEEN MAKING SUCH PAYMENT. THE ASSESSEE HAS BEEN MAK ING SUCH PAYMENTS SINCE ASSESSMENT YEAR 1997-98 AND THE SAME HAS BEEN ALLOWED BY THE AO AS BUSINESS EXPENDITURE U/S. 143( 3) ASSESSMENT. LD. CIT(A) HELD THAT THE RULE OF CONSISTENCY IS TO BE FOLLOWED. THAT A DIFFERENT STAND CAN BE TAKEN ONLY IF THERE IS A CHA NGE IN FACTS AND LEGAL POSITION. ACCORDINGLY, LD. CIT(A) CONCLUDED THAT S EEING FROM ANY ANGLE THE LEAST RENTALS OF MOULDS CANNOT BE DISALLOWED. 9. AGAINST THE ABOVE ORDER THE REVENUE IS IN APPEAL BEFORE US. 10. WE HAVE HEARD BOTH THE COUNSEL AND PERUSED THE RECORDS. LD. DEPARTMENTAL REPRESENTATIVE PLACED RELIANCE UPON THE ORDER OF THE AO. HE REITERATED THAT ASSESSEE HAS ADOPTED A COLORABLE DEVICE. HE SUBMITTED THAT THE NATURE OF TRANSACTION BETWEEN T HE ASSESSEE AND THE CONTRACT MANUFACTURER WAS THAT ALL PURCHASERS AN D SELLER. HENCE, THERE WAS NO QUESTION OF PAYMENT OF MOULDS RENTALS BY THE ASSESSEE WHO IS A PURCHASER. HE FURTHER SUBMITTED THAT IN E XCISE PROCEEDINGS THE MATTER HAS GONE TO THE SETTLEMENT COMMISSION AND E XCISE LIABILITY IN THIS REGARD FASTENED ON THE CONTRACT MANUFACTURE RS. HENCE, HE SUBMITTED THAT THE LD. CITS INFERENCE IN THIS REGA RD IS NOT SUSTAINABLE. LD. COUNSEL OF THE ASSESSEE ON THE OTHER HAND SUPPO RTED THE ORDER OF ITA NOS. 137, 2012 & 1977/DEL/2011 & 2608/DEL/2012 8 THE LD. CIT(A). HE REITERATED THAT USE OF MOULDS A ND THE PAYMENTS OF RENTAL BY THE ASSESSEE WAS A PART OF AGREEMENT WITH THE CONTRACT MANUFACTURER. HE FURTHER PLACED RELIANCE OF THE DE CISION OF THE HONBLE APEX COURT IN EXCEL INDUSTRIES EXCEL INDUSTRIES EXCEL INDUSTRIES EXCEL INDUSTRIES 358 ITR 593. 358 ITR 593. 358 ITR 593. 358 ITR 593. 11. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS AN D PERUSED THE RECORDS. AT THE OUTSET, WE NOTE THAT THE MOULD EXPEN SE IN THIS REGARD WAS BEING INCURRED BY THE ASSESSEE FOR THE ASSTT. Y EAR 1997-98. THE SAME HAS BEEN ALLOWED BY THE AO AS BUSINESS EXPENDI TURE. NO DISALLOWANCE IN THIS REGARD WAS MADE IN THE PRECEDI NG ASSTT. YEAR I.E. 2005-06 ALSO IN 143(3) ASSESSMENT. IN THESE CIRCUMS TANCES, WE FIND THAT THERE IS NO CHANGE IN THE FACTS AND LEGAL PO SITION. IN THIS REGARD, WE FIND THAT HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. CIT VS. CIT VS. CIT VS. DALMIA PROMOTERS DEVELOPERS (P) LTD. 281 ITR 346 DALMIA PROMOTERS DEVELOPERS (P) LTD. 281 ITR 346 DALMIA PROMOTERS DEVELOPERS (P) LTD. 281 ITR 346 DALMIA PROMOTERS DEVELOPERS (P) LTD. 281 ITR 346 , HAS HELD THAT FOR REJECTING THE VIEW TAKEN IN EARLIER ASSESSMENT YEARS, THERE MUST BE MATERIAL CHANGE IN THE FACT, SITUATION OR IN LAW. WE FIND THAT IN THIS CASE THERE IS NO CHANGE IN THE FACTS, SITUATION OR IN LAW. HENCE, THE REVENUE CANNOT BE ALLOWED TO ADOPT A DIFFERENT STAN D. THIS IS ALSO REITERATED BY THE HONBLE APEX COURT DECISION IN EXCEL INDUSTRIES EXCEL INDUSTRIES EXCEL INDUSTRIES EXCEL INDUSTRIES (SUPRA). (SUPRA). (SUPRA). (SUPRA). IN THIS REGARD, IT WAS HELD THAT WHEN IN EARLIER ASSTT. YEARS THE REVENUE ACCEPTED THE ORDER OF THE TRIBUNAL IN FAVOU R OF THE ASSESSEE, THEN REVENUE CANNOT BE ALLOWED TO FLIP FLOP ON THE ISSUE AND IT OUGHT LET THE MATTER REST RATHER THAN SPEND THE TAX PAYER S MONEY IN PURSUING LITIGATION FOR THE SAKE OF IT. 12. EVEN ON MERITS, WE FIND THAT THE EXPENDITURE ON MOULD IS ALLOWABLE IN THE HANDS OF THE ASSESSEE. THE PAYMEN T OF MOULD RENTAL WAS DONE BY THE ASSESSEE UNDER A CONTRACTUAL OBLIGA TION WITH THE CONTRACT MANUFACTURER. IN THIS REGARD, FOLLOWING T ERMS OF CONTRACT IN ITA NOS. 137, 2012 & 1977/DEL/2011 & 2608/DEL/2012 9 THE CONTRACT MANUFACTURING AGREEMENT WITH DART INDIA LTD. CAN BE GAINFULLY REFERRED HERE:- ...THE CONTRACT MANUFACTURER RECOGNISES THAT CERTA IN MOULDS WILL BE IMPORTED BY TUPPERWARE FOR THE SPECIFIC PURPOSE OF MANUFACTURE OF PRODUCTS AND ACCORDINGLY, THE MANUFACTURER SHALL RETURN THE MOULDS TO TUPPERWARE IMMEDIATELY UPON THE MANUFACTURER OF ORDERED QUANTITIES AS STATED IN THE RELEVANT ORDER WITHIN THE TIME SPECIFIED THEREIN. 13. THUS, IT IS CLEAR THAT MOULD RENTALS WAS PAYABLE BY THE ASSESSEE UNDER A CONTRACTUAL OBLIGATION WITH CONTRACT MANUFAC TURER. THE CONTRACT MANUFACTURER HAVE ALSO GIVEN A CERTIFICATE TO THE EXTENT THAT MOULD RENTALS WAS TO BE BORNE BY THE ASSESSEE PURSUA NT TO THE AGREEMENT. HENCE, THE EXPENDITURE IN QUESTION CANN OT BE SAID TO BE NOT ALLOWABLE. 14. THE PRODUCT BEING DEALT BY THE ASSESSEE HAD TO MEET INTERNATIONAL QUALITY AND SPECIFICATION OF TUPPER WARE WORLD WIDE WHICH REQUIRES USE OF HIGH QUALITY AND SPECIFIC TYP E OF MOULDS, AS THE DESIGN OF PRODUCTS ARE PATENT DESIGN. THE MOULDS U SED BY MANUFACTURER OF PRODUCTS ARE NOT AVAILABLE IN THE OP EN MARKET. THEREFORE, THE COMPANY HAD TO IMPORT THESE MOLDS FROM OVERSEAS GROUP COMPANY ON HIRE BASIS AND PROVIDE THE SAME TO CONTRACT MANUFACTURERS TO ENABLE THEM TO MANUFACTURE THE PROD UCTS. ONCE THE CONTRACT MANUFACTURER COMPLETES THE ORDER PLACED BY T HE ASSESSEE, THE MOLDS ARE RETURNED BACK TO THE COMPANY AND THEREF ROM TO THE MOLDS OWNERS IN CASE THE PARTICULAR MOLDS, IS NOT REQ UIRED FOR USE OF MANUFACTURER. WE FIND THAT THE ABOVE CONTRACT AND MOLDS BORROWED ITA NOS. 137, 2012 & 1977/DEL/2011 & 2608/DEL/2012 10 BY THE ASSESSEE CAN BY NO STRETCH OF IMAGINATION BE CONSIDERED AS A COLORABLE DEVICE. IN OUR CONSIDERED OPINION, THE S AME HAS BEEN RIGHTLY ALLOWED BY THE LD. CIT(A) AS REVENUE EXPENSES. 15. WE ALSO AGREE WITH THE LD. CIT(A) THAT EVEN IF FOR THE SAKE OF ARGUMENT, IF IT WAS TO BE PRESUMED THAT THE PAYMENT OF MOULD RENTALS IS THE LIABILITY OF THE CONTRACT MANUFACTURERS AND SO INCURRED BY THEM IN THAT CASE THE COST OF SUCH MOULD RENTALS WOULD BE P ART OF 'PURCHASES' AS IT WOULD INCREASE THE PRODUCTION COST OF THE CON TRACT MANUFACTURER AND ACCORDINGLY, THE PURCHASE PRICE BARGAINED BY TH E APPELLANT WOULD BE INCREASED BY THE SAME AMOUNT OF MOULD RENTAL. THU S, IN THE ABOVE SITUATION THE ASSESSEE WOULD NOT INCUR RENTA L EXPENSES, BUT WILL HAVE TO PAY RESULTANT HIGHER PURCHASE PRICE TO THE CONTRACT MANUFACTURER. THUS THE POSITION IN THE HANDS OF THE ASSESSEE WILL BE THAT THE NET EFFECT ON REVENUE WOULD BE THE SAME. HE NCE, THE SITUATION WOULD BE REVENUE NEUTRAL. 16. ACCORDINGLY, IN THE BACKGROUND OF THE AFORESAID DISCUSSIONS AND PRECEDENTS, WE DO NOT FIND ANY INFIRMITY IN THE ORDE R OF THE LD. CIT(A). ACCORDINGLY, WE UPHOLD THE SAME. 17. ANOTHER ISSUE RAISED IN THE REVENUES APPEAL FO R THE ASSESSMENT YEAR 2008-09 IS THAT ON THE FACTS AND IN THE CIRCUMS TANCES OF THE CASE AND IN LAW THE LD. CIT(A) ERRED IN DIRECTING THAT T HE PROVISIONS WRITTEN BACK OF RS. 65,11,174/- FOR THE ASSESSMENT YEAR 200 5-06 AND OF RS. 72,77,736/- FOR THE ASSESSMENT YEAR 2006-07 MAY BE A LLOWED AS DEDUCTION AFTER VERIFICATION WITHOUT APPRECIATING THAT NO REMAND REPORT WAS CALLED FOR WITHOUT WHICH NO SUCH DIRECT IONS COULD BE GIVEN U/S. 250 OF THE I.T. ACT. ITA NOS. 137, 2012 & 1977/DEL/2011 & 2608/DEL/2012 11 18. THE ASSESSEE HAS SOUGHT ALLOWANCE FOR PROVISION WRITTEN BACK TOWARDS OBSOLETE STOCK WHICH WERE DISALLOWED AND T AXED IN THE EARLIER YEARS. THE GROUND RAISED BEFORE THE LD. CIT(A) I N THIS REGARD AS UNDER: 3. THAT THE LD. AO ERRED ON FACTS AND CIRCUMSTANCE S OF THE CASE, IN NOT GIVING AN ALLOWANCE FOR THE PROVISION OF OBSOLETE STOCK REVERSED DURING THE YEAR UNDER CONSIDERATION, WITHOUT APPRECIATING THE FACT THAT THE SAME HAS ALREADY BEEN DISALLOWED ON CREATION BY THE LD. AO IN EARLIER ASSESSMENT YEARS I.E. IN A.Y. 2005-06 AND A.Y. 2007-08, AND HAS ALREADY BEEN TAXED THEREBY RESULTING IN TAXING THE SAID AMOUNTS TWICE. 19. THE ASSESSEES SUBMISSIONS IN THIS REGARD BEFOR E THE LD. CIT(A) WERE AS UNDER:- YOUR GOODSELF MAY NOTE THAT THE APPELLANT IS IN AP PEAL BEFORE THE HON'BLE INCOME TAX APPELLATE TRIBUNAL (' IT AT') AGAINST THE DISALLOWANCE OF THE OBSOLETE STOCK PROV ISION CREATED IN EARLIER YEARS (AS TABULATED BELOW) WHICH IS PENDING DISPOSAL BY THE ITA T. THE SAID AMOUNT OF DISALLOWA NCE IS INCLUDED IN THE REVERSAL OF STOCK PROVISION AMOUNTIN G TO RS.23,148,730 DURING THE YEAR UNDER CONSIDERATION W HICH HAS BEEN ADJUSTED / REDUCED FROM THE COST OF SALES. THE RECONCILIATION OF THE SAME HAS ALREADY BEEN FILED B EFORE YOUR GOODSELF. ASSESSMENT YEAR AMOUNT (RS.) ITA NOS. 137, 2012 & 1977/DEL/2011 & 2608/DEL/2012 12 AY 2005-06 6,511,174 AY 2007-08 7,277,736 INCASE YOUR GOODSELF GRANTS CLAIM WITH REGARD TO TH E ABOVE DISALLOWANCES IN THE YEAR UNDER CONSIDERATION, THE APPELLANT UNDERTAKES NOT TO PRESS THE ,GROUNDS OF DISALLOWANCE ON PROVISION BASIS BEFORE THE ITA T IN THE RESPECTIVE YEARS (I.E. IN A Y 2005-06 & A Y 2007-08 AS STATED ABOVE IN THE TABL E). THUS, THE APPELLANT REITERATES BEFORE YOUR GOODSELF THAT BENEFIT! CLAIM SHOULD BE GIVEN ON ACCOUNT OF REVERS AL OF THE PROVISION OF OBSOLETE STOCK DURING THE YEAR UNDER CONSIDERATION. SHOULD YOUR GOODSELF REQUIRE ANY OTHER INFORMATION/ CLARIFICATION IN RESPECT OF THE SUBMISSIONS MADE AB OVE, WE SHALL BE PLEASED TO PROVIDE YOU THE SAME.' 20. CONSIDERING THE ABOVE LD. CIT(A) HELD AS UNDER: - THE APPELLANT COMPANY HAS BEEN MAKING PROVISIONS TOWARDS OBSOLETE STOCK AND THESE PROVISIONS WERE CL AIMED AS EXPENDITURE IN EARLIER YEARS. HOWEVER, THE AO HA S NOT ALLOWED THESE PROVISIONS ON THE GROUND THAT PROVISI ONS ARE AD HOC AND CONTINGENT ONES. THE AR PLEADED THAT CER TAIN PROVISIONS AS DETAILED IN WRITTEN SUBMISSIONS WERE W RITTEN BACK AND HENCE THE SAME ARE REQUIRED TO BE TAKEN OU T OF THE INCOME DECLARED FOR THE IMPUGNED ASSESSMENT YEAR S O AS TO AVOID DOUBLE TAXATION OF THE SAME AMOUNT. THER E IS MERIT IN THE CONTENTIONS OF THE AR. IT IS FURTHER SE EN THE ITA NOS. 137, 2012 & 1977/DEL/2011 & 2608/DEL/2012 13 DISALLOWANCE OF PROVISIONS WAS CONTESTED BEFORE THE HON'BLE ITAT FOR EARLIER YEARS. IN THE COURSE OF THESE PROC EEDINGS THE AR STATED THAT IF THE PROVISIONS WRITTEN BACK A ND TAXED AS INCOME DURING THE YEAR ARE REDUCED FROM THE INCO ME OFFERED IT WOULD NOT PRESS THE GROUNDS OF APPEAL ON THE ISSUE BEFORE HON'BLE ITAT. AFTER CAREFUL CONSIDERATION OF THE FACTS OF THE CAS E, THE AO IS HEREBY DIRECTED TO MODIFY THE INCOME AFTER VERIFYING THE CLAIMS OF THE APPELLANT AND ALSO AFTER TAKING AN UND ERTAKING FROM THE APPELLANT THAT IT WOULD NOT PRESS RELEVANT GROUNDS OF APPEAL BEFORE THE HON'BLE ITAT FOR THE EARLIER Y EARS ON THIS ISSUE. 21. AGAINST THE ABOVE ORDER THE REVENUE IS IN APPEA L BEFORE US. 22. THE REVENUES GRIEVANCE IS THAT LD. CIT(A) ERRE D IN GIVING THE DIRECTION AS ABOVE FOR ALLOWANCE OF DEDUCTION AFTER VERIFICATION WITHOUT APPRECIATING THAT NO REMAND REPORT WAS CALLED FOR WI THOUT WHICH NO SUCH ACTION COULD BE GIVEN U/S. 250 OF THE I.T. ACT . 23. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS AND PERUSED THE RECORDS. WE FIND THAT LD. CIT(A) HAS ASKED THE AO TO MAKE SOME FACTUAL VERIFICATION REGARDING THE CORRECTNESS OF C LAIM OF THE ASSESSEE AND ALSO TO TAKE NECESSARY UNDERTAKING FROM THE AS SESSEE TO GRANT ASSESSEE THE DESIRED RELIEF. IN OUR CONSIDERED OP INION, THERE IS NO INFIRMITY IN THE ORDER OF THE LD. CIT(A). ACCORDING LY, WE UPHOLD THE SAME. 24. IN THE RESULT, ALL THE APPEALS FILED BY THE REV ENUE STAND DISMISSED. ITA NOS. 137, 2012 & 1977/DEL/2011 & 2608/DEL/2012 14 ASSESSEES APPEAL (ITA NO. 1977/DEL/2011) ASSESSEES APPEAL (ITA NO. 1977/DEL/2011) ASSESSEES APPEAL (ITA NO. 1977/DEL/2011) ASSESSEES APPEAL (ITA NO. 1977/DEL/2011) 25. THE GROUNDS RAISED IN THE APPEAL READ AS UNDER :- THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE OF THE PROVISION OF OBSOLETE STOCK AMOUNTING TO RS. 7,277,736/- WITHOUT APPRECIATING THAT THE SAME IS IN THE ACCORDANCE WITH CONSISTENT ACCOUNTING POLICY OF VALUING THE INVENTORY AT YEAR END AT COST OR REALIZABLE VALUE WHICHEVER IS LOWER. THE LD. CIT(A) ERRED IN FACTS AND IN LAW IN CONFIRM ING THE DISALLOWANCE OF THE SAID PROVISION FOR OBSOLETE STOCK ON ERRONEOUS ASSUMPTION THAT REVERSAL OF SUCH PROVISION IN SUBSEQUENT YEARS MAKES THE SAME ADHOC AND CONTINGENT IN NATURE. 26. ON THIS ISSUE AO FOUND FROM THE DETAILS FURNIS HED THAT ASSESSEE HAD MADE PROVISION OF OBSOLETE STOCK OF RS. 7,277,7 36/-. AO HELD THAT THE PROVISION OF OBSOLETE STOCK WAS NOT ALLOWABLE A ND ADDED THE SAME TO THE INCOME OF THE ASSESSEE. 27. UPON ASSESSEES APPEAL LD. CIT(A) NOTED THAT SI MILAR ISSUE HAS ARISEN IN ASSESSEES OWN CASE FOR ASSTT. YEAR 2005- 06 AND THE LD. CIT(A) HAD ALLOWED THE SAME IN FAVOR OF THE ASSESSEE . LD. CIT(A) NOTED THAT THE SUBMISSIONS OF THE ASSESSEE ARE SAME IN THI S YEAR ALSO AND HENCE, FOLLOWING HIS APPELLATE ORDER FOR ASSTT. Y EAR 2005-06 AND HOLDING THAT FACTS AND ISSUE ARE IDENTICAL, LD. CIT (A) UPHELD THE ORDER OF THE AO. 28. AGAINST THE ABOVE ORDER THE ASSESSEE IS IN APPE AL BEFORE US. ITA NOS. 137, 2012 & 1977/DEL/2011 & 2608/DEL/2012 15 29. AT THE OUTSET, LD. COUNSEL OF THE ASSESSEE SUBM ITTED THAT FOR ASSTT. YEAR 2005-06 THIS TRIBUNAL IN ASSESSEES OWN CASE IN ITA NO. 5823/DEL/2010 VIDE ORDER DATED 7.6.2013 HAS DECIDED THE IDENTICAL ISSUE IN FAVOR OF THE ASSESSEE. LD. DR COULD NOT CO NTROVERT THE SUBMISSIONS. WE HAVE CAREFULLY CONSIDERED THE SUBM ISSIONS AND PERUSED THE RECORDS. WE FIND THAT THE TRIBUNAL IN THE AFORESAID ORDER HAS HELD AS UNDER:- 9. WE HAVE HEARD THE RIVAL SUBMISSIONS OF BOTH THE PARTIES AND HAVE GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. WE FIND T HAT THE ASSESSEE IS CONTINUOUSLY FOLLOWING THE POLICY OF VALUATION OF C LOSING STOCK ON THE BASIS OF NET REALIZABLE VALUE WHICH IS IN ACCORDANCE WITH ACCOUN TING PRINCIPLE. THE FACT BECOMES CLEAR BY THE TAX AUDIT REPORT PLACED AT PA PER BOOK PAGE 3 WHEREIN IT AT 12(B) THE AUDITORS HAVE WRITTEN THAT THERE IS NO DE VIATION FROM THE METHOD OF VALUATION PRESCRIBED UNDER SECTION 145A OF THE ACT. 12(A) OF THE SAME AUDIT REPORT REFERS TO A-4 ATTACHED WITH SCHEDULE-13 OF A UDITED ACCOUNTS WHICH READS AS UNDER:- INVENTORIES FINISHED GOODS ARE VALUED AT LOWER OF COST AND NET REALIZABLE VALUE. COST IS DETERMINED ON WEIGHTED AVERAGE BASE COST INCLUDES ALL THE INCIDENTAL CHARGES WHICH ARE NECES SARY TO BRING INVENTORIES TO ITS PRESENT LOCATION AND CONDITION. FROM THE ABOVE NOTES TO ACCOUNTS AND TAX AUDIT REPO RT IT CAN BE SAID THAT VALUATION OF INVENTORIES WAS BEING DONE AT LOW ER OF COST OR NET REALIZABLE VALUE AND WAS IN ACCORDANCE WITH PROVISI ONS OF SECTION 145A OF THE ACT. THE CASE LAW RELIED UPON BY THE LD AR I N I.T.A. NO.904/DEL/2004 DECIDED BY THE ITAT DELHI BENCH A DELHI AND FURTHER CONFIRMED BY THE HON'BLE DELHI HIGH COURT IN I.T.A. NO.39/2012 DEALT WITH SUCH A SITUATION WHERE THE FINDINGS OF TRIBUNA L ARE AT PARA 5 WHICH READS AS UNDER:- THE ASSESSEE HAS BEEN CONSISTENTLY FOLLOWING THE M ETHOD OF ACCOUNTING OVER A PERIOD OF TIME. THE ASSESSEE IS I N THE BUSINESS OF PHARMACEUTICAL PRODUCTS WHEREAS STRICT SUPERVISI ON OF THE QUALITY HAS TO BE ENSURED AND THESE PRODUCTS ARE MO STLY SURGICAL NEEDLES AND MEDICAL CONSUMABLE AND IF SUCH FAST MOV ING ITEMS ARE NOT SOLD FOR A CONSIDERABLY LENGTHY PERIOD, IT CAN BE SAFELY ITA NOS. 137, 2012 & 1977/DEL/2011 & 2608/DEL/2012 16 SAID THAT THEY HAVE LOST CONSUMABLE ACCEPTABILITY O VER A PERIOD OF TIME, MAY BE DUE TO ADVENT OF NEW PRODUCTS. AFTE R ALL, AS LONG AS THE ASSESSEE ACTED IN A BONA FIDE MANNER AND HAS APPRECIATED THE BUSINESS REALITIES IN WHICH HE IS P LACED, THE SAME SHOULD BE ACCEPTED. THE ASSESSEE HAS FOOLPROOF METHOD OF IDENTIFICATION OF SLOW MOVING OR DEAD STOCK AND HAS PUT THE REALIZABLE VALUE FOR THE PURPOSE OF VALUING THE SAM E. IN FACT THE PRINCIPLE OF VALUATION IS THE COST OF MARKET VALUE WHICHEVER IS LOWER. THE MARKET VALUE HERE MEANS THE VALUE THAT I S ACCEPTABLE IN THE MARKET. IF AN ITEM HAS BECOME OBSOLETE OR SL OW MOVING IT NATURALLY HAS A LOWER MARKET VALUE WHICH THE ASSESS EE HAS RECOGNIZED. THE ASSESSEE HAS PROPERLY IDENTIFIED SU CH STOCK AND HAS ALSO FOLLOWED IN ACCORDANCE WITH COMMERCIALLY A CCEPTED ACCOUNTING PRINCIPLES OF VALUATION. IN OUR VIEW, TH E LD CIT(A) WAS CORRECT IN LAW AND ON FACTS TO HAVE DELETED THE ADD ITION MADE BY THE ASSESSING OFFICER WHICH WAS BASED NOT TAKING IN TO CONSIDERATION THE HARD REALITIES OF ASSESSEES BUSI NESS. THE ADDITION IN OUR VIEW IS PROPERLY DELETED AND WE DEC LINE TO INTERFERE. 10. THE LD DR HAS MAINLY OBJECTED TO THE RELIANCE OF LD AR ON THE CASE LAW BECAUSE OF THE DIFFERENCE IN ITEMS DEALT BY THE ASS ESSEE AND IN CASE LAW RELIED UPON BY LD AR. THOUGH THERE IS DIFFERENCE IN ITEMS BUT THE PRINCIPLE OF VALUATION OF STOCK REMAINS THE SAME. THE ASSESSEE INSTEAD OF TAKING THE NET REALIZABLE VALUE FOR VALUATION OF CLOSING STOCK TOOK THE COST PRICE OF OBSOLETE ITEM AND CREATED A PROVISION FOR DIFFERENCE IN COST PRICE AN D MARKET VALUE AND DEBITED THE SAME TO P&L ACCOUNT, THE EFFECT OF WHICH IS SAME. T HEREFORE KEEPING IN VIEW THE JUDICIAL PRONOUNCEMENTS RELIED UPON BY THE LD AR AN D ON THE BASIS OF FACTS AND CIRCUMSTANCES OF THE CASE, WE ALLOW THE APPEAL OF A SSESSEE. 30. THUS THE LD. CIT(A) ORDER IN ASSTT. YEAR 2005-0 6 HAS BEEN FOLLOWED BY THE LD. CIT(A) IN THIS YEAR AND THE TR IBUNAL HAS REVERSED THE ORDER OF THE LD. CIT(A) FOR ASSTT. YEAR 2005-06 AND DECIDED THE ISSUE IN FAVOR OF ASSESSEE. RESPECTFULLY FOLLOWING THE PRECEDENT AS ABOVE, WE SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW AND DECIDE THE ISSUE IN FAVOR OF THE ASSESSEE. 31. ANOTHER ISSUE RAISED IN THE ASSESSEES APPEAL R EAD AS UNDER:- ITA NOS. 137, 2012 & 1977/DEL/2011 & 2608/DEL/2012 17 THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) ERRED, IN CONFIRMING THE DISALLOWANCE O F A SUM OF RS. 49,409,120/- LEVIED BY THE CUSTOMS AND CENTRAL E XCISE COMMISSION ON THE CONTRACT MANUFACTURERS AND DISCHARG ED BY THE APPELLANT COMPANY AS CONTRACTUAL OBLIGATION B Y HOLDING THAT THE SAME IS NOT THE LIABILITY OF THE A PPELLANT AND THUS IS NOT ALLOWABLE IN THE HANDS OF THE APPE LLANT. THE LD. CIT(A) ERRED IN FACTS AND IN LAW IN DISALL OWING THE SAID SUM (CONTRACTUAL OBLIGATION), BY HOLDING THAT T HE LIABILITY RAISED AGAINST THE CONTRACT MANUFACTURER S IS NOT ALLOWABLE AS EXPENDITURE IN THE HANDS OF THE APPELL ANT AND MOREOVER, THE SAID LIABILITY IS NOT RELATED TO THE I MPUGNED ASSESSMENT YEAR. 32. ON THIS ISSUE AO NOTED THAT FROM THE DETAILS FU RNISHED BY THE ASSESSEE IT WAS FOUND THAT ASSESSEE HAS CLAIMED THE LIABILITIES OF DART MANUFACTURING INDIA PVT. LTD. (DART INDIA) AND INNOSO FT TECHNOLOGIES LTD. (ITL) WHICH WAS RELATED TO EXCISE DUTY AND INT EREST AMOUNTING TO RS. 4,94,09,120/- LEVIED BY THE CUSTOMS & CENTRAL EX CISE COMMISSION IN VIEW OF THE SETTLEMENT COMMISSION ORDER AND DISCH ARGED BY THE COMPANY AS CONTRACTUAL OBLIGATION TOWARDS CONTRACT M ANUFACTURERS, AO WAS OF THE OPINION THAT THIS SHOULD NOT BE DISAL LOWED. THE ASSESSEE RESPONDED AS UNDER:- THE COMPANY HAD ENTERED INTO A CONTRACT MANUFACTURIN G AGREEMENT WITH DART MANUFACTURING INDIA PVT. LTD. (DAR T INDIA) AND INNOSOFT TECHNOLOGIES LIMITED (ITL) FOR THE MANUFACTURE OF TUPPERWARE PLASTIC TABLEWARE AND KITCHNEWARE PRODUCTS. CERTAIN PRODUCTS OF THE COMPA NY ARE ITA NOS. 137, 2012 & 1977/DEL/2011 & 2608/DEL/2012 18 RESERVED TO BE MANUFACTURED BY SMALL SCALE INDUSTRI ES (SSI) WHICH ARE MANUFACTURED BY ITL, BEING AN SSI. THE D ESIGNS OF THE TUPPERWARE PRODUCTS ARE PATENTED AND THEREFO RE THE MOLDS USED MANUFACTURE THESE PRODUCTS ARE NOT AVAIL ABLE IN THE OPEN MARKET. THESE MOULDES ARE IMPORTED FROM OVERSEAS GROUP COMPANIES ON A HIRE BASIS BY THE COMPANY. THE COMPANY PROVIDES THE MOLDS TO DART IN DIA AND ITL ON A FREE OF COST BASIS AND STIPULATES T HAT THE PRODUCTS MEET THE INTERNATIONAL QUALITY AND STANDARD S ESTABLISHED BY TUPPERWARE. ONCE THE CONTRACT MANUFACTURERS COMPLETE THE ORDER PLACED BY THE COMPAN Y, THE MOLDS ARE RETURNED BACK TO THE MOLD OWNER. THE CENTRAL EXCISE DEPARTMENT IN HYDERABAD ISSUED SHOW CAUSE NOTICE DEMANDING AN ADDITIONAL DEMAND OF EXCISE DUTY ON DART INDIA AND ITL AND ALSO PROPOSED FOR REC OVERY OF INTEREST. DART INDIA AND ITL APPLIED FOR THE SETTLEM ENT OF PROCEEDINGS, INITIATED AGAINST THEM DUTY DEMAND. HOWEVER, THE SETTLEMENT COMMISSION HAS RAISED AN EXC ISE DEMAND INCLUDING INTEREST AMOUNTING RS. 49,409,1207/ - ON DART INDIA AND ITL FOR ADDITIONAL EXCISE DUTY ON THE GOODS MANUFACTURED BY THEM. A COPY OF THE ORDER PASSED BY THE SETTLEMENT COMMISSION IS ENCLOSED HEREWITH FOR YOUR PERUSAL (REFER ANNEXURE VA). THE SAID DEMAND HAS BE EN TAKEN OVER BY THE COMPANY FOR THE REASON THAT EXCISE DUTY PAID BY DART INDIA AND ITL WAS ON THE GOODS MANUFAC TURED BY THEM FOR THE COMPANY AND SHOULD FORM PART OF THE PURCHASE PRICE ADJUSTMENT. THEREFORE, THE PURCHASE PRICE FOR THE COMPANY WOULD INCREASE BY THE AMOUNT OF ITA NOS. 137, 2012 & 1977/DEL/2011 & 2608/DEL/2012 19 ADDITIONAL EXCISE DUTY. IN THIS REGARD, THE COMPAN Y HAS MADE AN ADJUSTMENT OF THE SAID LIABILITY AMOUNTING T O RS. 49,409,1207/- IN THE COST OF SALES TAX PRICE ADJUS TMENT AND CLAIMED TO BE AN ALLOWABLE DEDUCTION. ALSO, THE DOCUMENTATION WITH DART INDIA AND ITL (I.E. DEBIT NO TE, PAYMENT CHALLANS AND OTHER CORRESPONDENCE) IN RESPEC T OF THE EXCISE DEMAND TAKEN OVER BY THE COMPANY ARE ENCL OSED FOR YOUR PERUSAL (REFER ANNEXURE VI). 33. THE ASSESSEES CONTENTION WAS THAT THE DEMAND H AS BEEN TAKEN OVER BY THE COMPANY FOR THE REASONS THAT EXCISE DUTY PAID BY THE DART INDIA AND ITL WAS ON THE GOODS MANUFACTURED BY THE M FOR THE ASSESSEE COMPANY AND SHOULD FORM PART OF THE PURCHAS E PRICE ADJUSTMENT. AO WAS NOT SATISFIED WITH THE ABOVE. HE OBSERVED THAT TO UNDERSTAND THE ACTUAL NATURE OF THE CONTRACT BETWEE N THE ASSESSEE AND THESE COMPANIES, THE CONTRACT MANUFACTURING AGREE MENT BETWEEN TUPPERWARE AND DART INDIA DATED 16.3.2000 AND TUPPER WARE AND ITL DATED 18.1.2001 MAY BE REFERRED. FROM THE SAME IN THE MATTER OF TAXES AND DUTIES THE FOLLOWING PROVISIONS WERE THER E. '6. COSTS AND DUTIES 6.1 COST QUOTATIONS FOR THE PRODUCTS SHALL BE DETERMINED FROM TIME TO LIME WITH MUTUAL AGREEMENT IN WRITING OF THE PARTIES. 6.2 COSTS (OR RAW MATERIAL, AND PARTS (INCLUDING PRODUCTS MANUFACTURED BY THE MANUFACTURER AND USED AS PARTS) AND SUPPLIES INCLUDING ALL SHIPPING AND FORWARDING COSTS AND IMPORT DUTIES THEREOF AND INCOM E AND VAT TAXES IMPOSED THEREON, PURCHASED FROM ITA NOS. 137, 2012 & 1977/DEL/2011 & 2608/DEL/2012 20 TUPPERWARE OR SUPPLIERS AUTHORIZED BY TUPPERWARE, THROUGH DELIVERY AT THE MANUFACTURER'S FACTORY IN IN DIA, AND ALL TRANSPORT COSTS OF THE PRODUCTS' SHALL HE F OR THE ACCOUNT OF AND SHALL BE TREATED AS AN EXPENSE OF TH E MANUFACTURER. 6.3. FOR THE PURPOSE OF SUBSTANTIATING THE COST QUOTATIONS AS PROVIDED BY CLAUSE 6.1, THE MANUFACTURER SHALL AT THE REQUEST OF TUPPERWARE PROVIDE THE BASIS OF SUCH PROFITS AND DUTIES AND PHOTOSTAT COPIES OF INVOICES AND RECEIPTS WITHIN FI FTEEN (15 DAYS) OF SUCH REQUEST. 6.4 IN THE EVENT ANY INVOICE OF A RAW MATERIAL OR SUPPLIES, AS THE CASE MAY HE SUPPLIED BY TUPPERWARE OR ITS ASSOCIATES REMAINS OUTSTANDING WHEN A PAYMEN T IS DUE FROM TUPPERWARE TO MANUFACTURER TUPPERWARE SHALL BE ENTITLED TO DEDUCT FROM SUCH PAYMENT DUE TO MANUFACTURER THE AMOUNT INVOICED BY THE SUPPLIER AND PAY SUCH SUPPLIER DIRECTLY. ........................... 21. PAYMENT OF TAXES MANUFACTURER SHALL PAY ALL TAXES RELATING TO ITS PERFORMANCE OF SERVICES UNDER THIS AGREEMENT, INCLUDING THE MANUFACTURE, ASSEMBLY, SALE AND DELIVERY OF THE PRODUCTS. 34. FROM THE ABOVE, AO OBSERVED THAT IT IS VERY CLEA R THAT THE LIABILITIES OF ALL THE TAXES AND DUTIES WAS THAT OF THE SELLER AND NOT ITA NOS. 137, 2012 & 1977/DEL/2011 & 2608/DEL/2012 21 THAT OF THE ASSESSEE. IN THIS REGARD, AO REFERR ED TO THE DECISION OF THE ORDER OF THE CUSTOM AND EXCISE SETTLEMENT COMMISSI ON DATED 10.11.2006 IN WHICH THESE LIABILITIES OF EXCISE D UTY WAS LEVIED AGAINST THE DART INDIA AND ITL AND NOT AGAINST THE ASSESSE E. THE RELEVANT PORTION READ AS UNDER:- 15. AS REGARD THE IMMUNITY FROM PAYMENT OF INTEREST , WE FIND THAT THE DUTY LIABILITY PERTAINS TO THE PERIO D APRIL, 2000 TO DECEMBER 2004 IN CASE OF M/S DART MANUFACTURING IND IA PVT. LTD, AND APRIL 2002 TO DECEMBER 2004 IN CASE OR M/S INNOSOFT TECHNOLOGIES LTD AS SUCH THEY ENJOYED FINAN CIAL ACCOMMODATION FOR A CONSIDERABLE PERIOD. TAKING NOT E OF THIS, THE BENCH DOES NOT CONSIDER IT APPROPRIATE TO GRANT FULL EXEMPTION FROM PAYMENT OF INTEREST AND CONSEQUENTLY THE BENCH IS OR THE VIEW THAT SIMPLE @ 10% PER ANNUM SHOULD BE PAID FOR THE SAME. HOWEVER, WE GRANT THEM IMMUNITY FROM PENALTY TAKING NOTE OF THE CORPORATION EXTENDED BY THE APPLICANTS. ACCORDINGLY. THE APPLICATIONS ARE FINAL LY SETTLED ON THE FOLLOWING TERMS AND CONDITIONS IN TERMS OF SU B SECTION (7) OF SECTION 32F IBID:- (I) THE DUTY LIABILITY IN RESPECT OF M/S DART MANUFACTURING INDIA LTD., IS SETTLED AT RS. 2,32,99,188/-. OUT OF THIS AMOUNT AN AMOUNT OF RS15,55,087/- HAS BEEN PAID BY THEM. THE REMAINING AMOUNT OF RS. 2,17,4,101/- SHOULD BE PAID BY THE APPLICANT WITHIN 30 DAYS OF RECEIPT OF THIS ORDER AND REPORT COMPLIANCE TO THE BENCH AND TO THE REVENUE. ITA NOS. 137, 2012 & 1977/DEL/2011 & 2608/DEL/2012 22 (II) THE DUTY LIABILITY IN RESPECT OF M/S INNOSOFT TECHNOLOGIES LTD. IS SETTLED AT RS. 62,83,540/-. OUT OF THIS AMOUNT AN AMOUNT OF RS. 2,08,258/-. THE REMAINING AMOUNT OF RS. 60,75,282/- SHOULD BE PAID BY THE APPLICANT WITHIN 30 DAYS OF RECEIPT OF THIS ORDER AND REPORT COMPLIANCE TO THE BENCH AND TO THE REVENUE. (III) THE APPLICANTS SHALL PAY SIMPLE INTEREST @10% PER ANNUM FOR THE PERIOD WHEN THE DUTY BECAME DUE TILL THE DATE OF ACTUAL PAYMENT. THE REVENUE SHALL WORK OUT THE INTEREST AMOUNT PAYABLE AND INTIMATE THE SAME TO THE APPLICANTS WITHIN 15 DAYS FROM THE DATE OF PAYMENT OF BALANCE AMOUNT AND THEREAFTER, THE APPLICANTS SHALL PAY THE SAME WITHIN 15 DAYS FROM THE DATE OF RECEIPT OF INTIMATION FROM REVENUE AND REPORT COMPLIANCE. (IV) IMMUNITY IS GRANTED TO THE MAIN APPLICANTS FRO M PENALTY AND PROSECUTION UNDER THE CENTRAL EXCISE ACT, 1944. ACCORDINGLY, SAME IS ALSO GRANTED TO THE CO-OPERATIONS, NAMELY M/S. TUPPERWARE INDIA PVT. LTD.. HARYANA, SH. M.N. NARAYANAN, FINANCE-CONTROLLER/DIRECTOR OF M/S. DART MANUFACTURING INDIA PVT. LID., SH. VIVEK SOOD, FINANCE DIRECTOR OF M/S TUPPERWARE INDIA PVT. LTD. AND SMT. K. SARASWATHI, EXECUTIVE ITA NOS. 137, 2012 & 1977/DEL/2011 & 2608/DEL/2012 23 DIRECTOR OF M/S INNOSOFT TECHNOLOGIES LIMITED OF THE APPLICANT COMPANIES. 35. CONSIDERING THE ABOVE, AO CONCLUDED AS UNDER:- IT HAS ALSO BEEN FOUND THAT THE ASSESSEE ENTERED I NTO THE DISPUTE OF EXCISE DUTY LIABILITY AS A CO-APPLICANT AND NO LIABILITY WAS FIXED AGAINST IT. IN THE ORDER OF HON 'BLE SETTLEMENT COMMISSION, IT IS CLEAR THAT THE ASSESSEE AS A CO-APPLICANT BAS BEEN GRANTED IMMUNITY FROM THE PENA LTY. IT HAS ALSO BEEN FOUND THAT THE LIABILITIES OF ADDITIO NAL EXCISE DUTIES ARE RELATING TO THE PELIOD FROM APRIL, 2000 T HE DECEMBER, 2004 ON DART INDIA AND FROM AUGUST, 2002 TO DECEMBER, 2004 ON ITL. THERE WAS NO POINT OF CLAIM OF THIS LIABILITY BY THE ASSESSEE AGAINST THE TAXABLE INCOM E OF A Y 2007-08. (EVEN IF THE ASSESSEE CONTENDS THAT IT HAS TAKEN THE LIABILITY SINCE, THESE MANUFACTURERS ARE EXCLUSI VELY SELLING THE GOODS TO IT SO THE LIABILITY IS IN THE NATURE OF ADDITIONAL COST, THE LIABILITY DOES NOT RELATE TO T HIS YEAR SINCE THE SAME PERTAINS TO THE EARLIER YEARS AS SLATED A BOVE. THE ASSESSEE CLAIMS THAT IT HAS TAKEN THIS LIABILITY O N ITS HEAD TO MAINTAIN THE RELATIONSHIP WITH THESE COMPANIES AND TO SAFEGUARD THEM FROM ADDITIONAL BURDEN OF SOME DUTIES AND TAXES, LEVIED AGAINST THEM IN THE COURSE OF BUSINESS . BUT IN THIS PRETEXT, THIS EXPENSE CAN NOT BE ALLOWED TO T HE ASSESSEE AS A REVENUE EXPENSE SINCE IT IS INCURRED AS AN OCCASIONAL EXPENSE TO SAFEGUARD THE LONG TERM INTERE ST OF THE ASSESSEE AND HENCE IT IS NOT OF REVENUE NATURE AND IS NOT ALLOWABLE AGAINST THE TAXABLE INCOME.) ITA NOS. 137, 2012 & 1977/DEL/2011 & 2608/DEL/2012 24 IN THE LIGHT OF ABOVE OBSERVATIONS, THE CLAIM OF RS. 4,94,09,120/-, BEING LIABILITY OF DART. INDIA LT D. AND ITL AS ADDITIONAL EXCISE DUTY AND INTEREST FOR THE PERI OD FROM APRIL, 2000 TO DECEMBER, 2004 IN CASE OF DART INDIA AND FROM AUGUST, 2002 TO DECEMBER, 2004 IN CASE OF ITL. I S HEREBY DISALLOWED AND ADDED TO THE TOTAL INCOME OF T HE ASSESSEE. 36. UPON ASSESSEES APPEAL LD. CIT(A) AFFIRMED TH E ACTION OF THE AO. HE CONCLUDED THAT SEEING FROM ANY ANGLE THE LIABIL ITY OF RS. 4,94,09,120/- BEING THE LIABILITY CREATED AGAINST THE CONTRACT MANUFACTURES IS NOT AN ALLOWABLE EXPENDITURE IN TH E HANDS OF THE ASSESSEE IN THE IMPUGNED ASSESSMENT YEAR. 37. AGAINST THE ABOVE ORDER ASSESSEE IS IN APPEAL B EFORE US. 38. LD. COUNSEL OF THE ASSESSEE CONTENDED THAT TH E CONTRACT ARRANGEMENT WITH THE CONTRACT MANUFACTURERS STANDS AMENDED BY THE CORRESPONDENCE AND THE DEBIT NOTES. HE SUBMITTED THAT THE EXCISE DUTY IS A COST COMPONENT WHICH WAS COMPUTED WRONGLY AND NOW IT HAS BEEN INCREASED. HENCE, IT WAS INCUMBENT UPON THE A SSESSEE TO BEAR THE SAID COST. IN THIS REGARD, HE REFERRED TO THE D ECISION IN THE CASE OF COMMISSIONER OF INCOME-TAX V. SABENA DETERGENTS P. LTD. [2008] 30 3 ITR 320. FURTHERMORE, LD. COUNSEL OF THE ASSESSEE CO NTENDED THAT IT WAS UNDER COMMERCIAL EXPEDIENCY THAT ASSESSEE HAS BO RNE THOSE LIABILITIES. HENCE, HE PLEADED THAT THE ASSESSEE HA S CORRECTLY BORNE THE EXPENDITURE AND NO DISALLOWANCE IN THIS REGARD SHOU LD BE MADE. LD. DR ON THE OTHER HAND RELIED UPON THE ORDERS OF THE A UTHORITIES BELOW. HE REITERATED THAT AS PER THE CONTRACT BETWEEN THE ASSESSEE AND THE ITA NOS. 137, 2012 & 1977/DEL/2011 & 2608/DEL/2012 25 CONTRACT MANUFACTURERS, ALL THE LIABILITIES PERTAINI NG TO TAXES AND DUTIES WERE TO BE BORNE BY THE MANUFACTURES AND NOT BY THE ASSESSEE. 39. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS AND PERUSED THE RECORDS. WE FIND THAT ASSESSEE HAS CLAIMED THE LIAB ILITY OF DART INDIA LTD. AND ITL PERTAINING TO EXCISE DUTY AND INTEREST AMOUNTING TO RS. 4,94,09,120/- LEVIED BY THE CUSTOM AND CENTRAL EXCI SE COMMISSION. THIS HAS BEEN BORNE BY THE ASSESSEE ON THE PLEA TH AT IT HAS CONTRACTUAL OBLIGATION TOWARDS CONTRACT OF MANUFACT URERS IN THIS REGARD. FURTHER, ASSESSEE HAS CLAIMED THAT THE DEMA ND OF EXCISE DUTY RELATED TO COST COMPONENT WHICH WAS COMPUTED WRONGLY, HENCE, ENHANCEMENT THEREOF WAS TO BE BORNE BY THE ASSESSEE AS PRICE ADJUSTMENT. FURTHER IT HAS BEEN CLAIMED THAT IT WAS ON ACCOUNT OF COMMERCIAL EXPEDIENCY THAT ASSESSEE HAD TO BEAR THI S EXPENDITURE LIABILITY. THIS WAS MEANT TO SAFEGUARD THE INTERES T OF THE CONTRACT MANUFACTURERS. 40. HOWEVER, WE NOTE THAT THE PLEA THAT ASSESSEE HA S CONTRACTUAL OBLIGATION TOWARDS THE CONTRACT MANUFACTURERS IN THI S REGARD IS DEVOID OF COGENCY. THE RELEVANT PORTION OF THE AGREEMENT MEN TIONED HEREINABOVE, IT WAS CLEARLY MENTIONED THAT MANUFACTU RER SHALL PAY ALL TAXES RELATING TO ITS PERFORMANCE OF SERVICE UNDER THIS AGREEMENT INCLUDING THE MANUFACTURE ASSEMBLY SALES AND DELIVER Y OF PRODUCTS. THUS, IT WAS CLEAR THAT IT WAS THE CONTRACT MANUFAC TURER WHO WAS TO BEAR ALL THE TAXES RELATING TO THE PERFORMANCE OF TH E SERVICE UNDER THE AGREEMENT. THERE IS NO VARIATION IN THE TERMS OF AG REEMENT AS ITA NOS. 137, 2012 & 1977/DEL/2011 & 2608/DEL/2012 26 MENTIONED ABOVE. LD. COUNSEL OF THE ASSESSEES SUB MISSIONS THAT THE CONTRACT IN THIS REGARD GOT AMENDED BY MEANS OF THE L ETTERS AND THE DEBIT NOTES IS NOT ACCEPTABLE. THERE IS NO PROPER V ARIATION IN THE TERMS OF AGREEMENT. MERELY LETTERS EXCHANGED AND DEBIT ISS UED AFTER MORE THAN 5 YEARS CAN NOT BE ACCEPTED AS BINDING VARIATI ON / CHANGE IN THE FORMAL TERMS OF AGREEMENT RELIED IN THIS REGARD. FUR THERMORE, WE AGREE WITH THE AO THAT EVEN IF THE ASSESSEE HAS CONTENDED THAT IT HAS TAKEN THE LIABILITY SINCE, THESE MANUFACTURERS ARE EXCLUS IVELY SELLING THE GOODS TO IT SO THE LIABILITY IS IN THE NATURE OF AD DITIONAL COST, THE LIABILITY DOES NOT RELATE TO THIS YEAR AND THE SAME PERTAINS TO EARLIER YEARS. HENCE, ASSESSEES CLAIM FOR THE CURRENT YEAR IS UNJU STIFIED. 41. FURTHERMORE, THE ASSESSEES CLAIM IS THAT IT WAS ON ACCOUNT OF COMMERCIAL EXPEDIENCY THAT THE LIABILITY HAS BEEN T AKEN OVER THIS BY THE ASSESSEE TO MAINTAIN THE RELATIONSHIP WITH THES E COMPANIES AND TO SAFEGUARD THEM FROM ADDITIONAL BURDEN OF SOME DUTIES AND TAXES, LEVIED AGAINST THEM. WE FIND THAT THIS PLANK OF AR GUMENT ALSO REMAINS UN-SUBSTANTIATED. ASSESSEE CANNOT BE ALLOWED TO C LAIM SUCH EXPENDITURE AS REVENUE EXPENSES WHICH IS CLAIMED TO HAVE BEEN INCURRED TO SAFEGUARD THE LONG TERM INTEREST OF THE ASSESSEE, WHICH REMAINS UNSUBSTANTIATED. HENCE, WE AGREE WITH THE LD. CIT(A), THIS EXPENDITURE CANNOT BE TREATED TO BE A REVENUE NATUR E AND HENCE, NOT ITA NOS. 137, 2012 & 1977/DEL/2011 & 2608/DEL/2012 27 ALLOWABLE AGAINST THE TAXABLE INCOME. THE CASE LAW RELIED BY THE LD. COUNSEL OF THE ASSESSEE OF SABENA DETERGENTS P LTD. (SUPRA) FROM HONBLE MADRAS HIGH COURT IS NOT APPLICABLE ON THE FACTS OF THE CASE. THAT CASE RELATED TO ADVERTISEMENT EXPENDITURE INCU RRED ON PRODUCTS OF SISTER CONCERN, FOR WHICH ASSESSEE WAS SOLE DIST RIBUTOR AND MARKETING AGENT. HENCE, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD. CIT(A). ACCORDINGLY, WE AFFIRM THE SAME. I N THE RESULT, THIS APPEAL BY THE ASSESSEE STANDS PARTLY ALLOWED. 42. IN THE RESULT, ALL THE THREE APPEALS FILED BY T HE REVENUE STAND DISMISSED AND APPEAL FILED BY THE ASSESSEE STANDS P ARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 14/3/2014. SD/- SD/- [ [[ [RAJPAL YADAV RAJPAL YADAV RAJPAL YADAV RAJPAL YADAV] ]] ] [SHAMIM YAHYA] [SHAMIM YAHYA] [SHAMIM YAHYA] [SHAMIM YAHYA] JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER DATE:- 14/3/2014 SRBHATNAGAR SRBHATNAGAR SRBHATNAGAR SRBHATNAGAR COPY FORWARDED TO: COPY FORWARDED TO: COPY FORWARDED TO: COPY FORWARDED TO: - -- - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT TRUE COPY BY ORDER, ASSISTANT REGISTRAR, ITAT, DELHI BENCHES