KELLOGG INDIA P. LTD, MUMBAI V. ITO WD 10(1)(2), MUMBAI

ITA 19/MUM/2009

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 49052 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 4 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-05-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 18-05-2010
• Assessment Year: 2004-2005
• Appeal Filed On: 02-01-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: USHA S NAIR
• Assessee Lawyers: PARAG VYAS
• Keywords: Depreciation; Additional evidence; Revenue expenditure; Capital expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES A, MUMBAI BEFORE SHRI R.S.SYAL, AM AND SHRI VIJAY PAL RAO, JM ITA NO.7186/MUM/2008 : ASST.YEAR 2004-2005 THE ASSTT.COMMISSIONER OF INCOME-TAX RANGE 10(1) MUMABI. VS. M/S.KELLOGG INDIA PRIVATE LIMITED 501 DELPHI, B WING HIRANANDANI BUSINESS PARK, POWAI MUMBAI 400 076 PAN : AAACK1748A. (APPELLANT) (RESPONDENT) ITA NO.19/MUM/2009 : ASST.YEAR 2004-2005 M/S.KELLOGG INDIA PRIVATE LIMITED 501 DELPHI, B WING HIRANANDANI BUSINESS PARK, POWAI MUMBAI 400 076 VS. THE ASSTT.COMMISSIONER OF INCOME-TAX RANGE 10(1) MUMABI. (APPELLANT) (RESPONDENT) REVENUE BY : SMT.USHA S. NAIR ASSESSEE BY : SHRI PARAG VYAS O R D E R PER R.S.SYAL, AM : THESE TWO CROSS APPEALS ONE BY THE ASSE SSEE AND THE OTHER BY THE REVENUE ARISE OUT OF THE ORDER PASSED BY THE CIT(A) ON 08.10.2008 IN RELATION TO THE ASSESSMENT YEAR 2004-2005. 2. THE APPEAL FILED BY THE ASSESSEE IS TI ME BARRED BY SIX DAYS. THE ASSESSEE SUBMITTED THAT THERE WAS NO DELAY IN SU BMITTING THE APPEAL BECAUSE TH E CIT(A)S ORDER WAS RECEIVED ON 11.02.2008 AND HENCE THE APPEAL WAS PREF ERRED IN TIME. NO SE RIOUS OBJECTION WAS RAISED BY THE LEARNED DEPARTMENTAL REPR ESENTATIVE. IN THE GI VEN CIRCUMSTANCES, WECONDONE THE DELAY AND ADMIT THE APPEAL FILED BY THE ASSESSEE FOR HEARING. 3. THE ONLY GROUND IN THE REVENUES APPEAL IS AGAINST THE GRANTING OF DEDUCTION OF THE PRODUCT DEVELOPMENT EXPENSES TO THE TUNE OF RS.50,79,976. BRIEFLY STATED THE FACTS OF THIS GROUND ARE THAT THE ASSESSEE WAS ENGA GED IN THE BUSINESS OF MANUFACTURING READY TO ITA NOS.7186/MUM/2008 & 19/MUM/2009 M/S.KELLOGG INDIA PRIVATE LIMITED. 2 EAT CEREALS. DEDUCTION OF RS .50.79 LAKHS WAS CLAIMED BY THE ASSESSEE UNDER THE HEAD `PRODUCT DEVELOPMENT EXPENSES . ON BEING CALLED UPON TO JUSTIFY THE DEDUCTION, THE ASSESSEE STATED THAT THIS EXPE NDITURE WAS INCURRED FOR INTRODU CING NEW VARIETIES OF CEREALS AND SUCH EXPENSES WAS REQUIRED TO BE INCURRED EVERY YEAR SO AS TO KEEP PACE WITH THE FAST MOVING AND COMPETITIVE MARKET ENVIRONMENT. THE DETAIL OF SUCH EXPENSES INCLUDED RAW MATERIAL ISSUED AND USED FOR TRIAL RUN, EX PENSES ON POWER CONSUMED , LPG AND FURNACE OIL CONSUMED FOR TRIAL RUNS ETC. FOLLOWING THE VIEW TAKEN IN ASSESSMEN T YEARS 2002-2003 AND 2003-2004, THE ASSESSING OFFICER HE LD SUCH EXPENDITURE TO BE CA PITAL IN NATURE. IN THE FIRST APPEAL, THE LEARNED CIT(A) DIRECT ED TO DELETE THIS ADDITION. 4. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PERUSING THE RELEVANT MATERIAL ON RECORD, IT IS NOTICED THAT THIS ISSUE CAME UP BEFORE THE TR IBUNAL IN ASSESSEES OWN CASE IN EARLIER YEARS INCLUDING ASSESSM ENT YEAR 2002-2003. VIDE ITS ORDER DATED 30.01.2010 IN ITA NO.4335/MUM/2008, THE TRIBUNAL HAS UPHELD THE VIEW OF CIT(A) IN DELETING THIS ADDITION. IN THE ABSENCE OF ANY DISTINGUISHI NG FACTS BROUGHT ON R ECORD BY THE LEARNED DEPARTMENTAL REPRESENTATIVE, RESPECTFULLY FOLLOWING THE PRECEDENT, WE UPHOLD THE IMPUGNED ORDER. 5. GROUNDS NO.1 TO 3 OF ASSESSEES APPEAL ARE AGAINST THE CONFIR MING OF ADDITION OF RS.7,57,989 BEING THE PROPORTIONAT E MODVAT CREDIT ATTRIBUTABLE TO THE CLOSING STOCK. THE ASSESSING OFFICER MADE ADDITION OF RS.7.57 LAKHS TOWARDS UNUTILIZED MODVAT CREDIT BY HOLDING IT TO BE INCLUDIBLE IN THE VALUE OF CLOSING STOCK. NO RELIEF WAS ALLOWED IN THE FIRST APPEAL. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. SECTION 145A WAS INSERTED BY TH E FINANCE (NO.2) ACT, 1998 WI TH EFFECT FROM 1.4.1999. IT PROVIDES THAT THE VALUATION OF PURCHASE AND SA LE OF GOODS AND INVENTORY FOR THE PURPOSES OF DETERMINING THE INCOME CHARGEABLE UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION SHALL BE IN ACCORDANCE WITH THE METHOD OF ACCOUNTING RE GULARLY EMPLOYED BY THE ASSESSEE AND FURTHER ADJUSTED TO INCLUDE THE AMOUN T OF ANY TAX, DUTY, CESS ETC. PAID OR INCURRED BY THE ASSESSEE TO BRING THE GOODS TO THE PLACE OF ITS LOCATIO N AS ON THE DATE OF ITA NOS.7186/MUM/2008 & 19/MUM/2009 M/S.KELLOGG INDIA PRIVATE LIMITED. 3 VALUATION. ACCORDING TO THE PRES CRIPTION OF THIS SECTION, WHIC H IS APPLICABLE TO THE YEAR UNDER CONSIDERATION, THE AMOUNT OF TAX, DUTY, CESS ETC. IS LIABLE TO BE INCLUDED IN THE VALUE OF PURCHASES, SALES, OPENING AN D CLOSING STOCK. IT IS NOT APPR OPRIATE TO INCLUDE THE CLOSING MODVAT IN THE FIGURE OF CLOSING STOCK WITHOUT MODIFYING THE FIGURES OF PURCHASES, SALES AND OPENING STOCK. THE HONBLE JURISDICTIONAL HIGH COURT IN CIT VS. MAHALAXMI GLASS WORKS PVT. LTD. [(200 9) 318 ITR 116 (BOM.)] AND THE HONBLE DELHI HIGH COURT IN CIT VS. MAHAVIR ALLUMINIUM [( 2008) 297 ITR 77 (DEL.)] HAVE HELD TO THIS EXTENT. AS THE AUTHORITIES BELOW HAVE NOT ADJU STED OTHER FIGURES WITH THE AM OUNT OF TAX, DUTY, CESS ETC., WE SET ASIDE THE IMPUGNED ORDER AND RESTORE THE MATTER TO THE FI LE OF A.O. FOR DECIDING IT AFRESH IN ACCORDANCE WITH THE AFORE-NOTED JUDG EMENTS AND THE PROVISIONS OF SECTION 145A. 7. GROUND NO.4 IS AGAINST THE DENIAL OF DEPR ECIATION U/S.32 OF TH E ACT. AT THE VERY OUTSET THE LEARNED COUNSEL FOR THE ASSESSEE CONT ENDED THAT THIS ISSUE HAS BEEN DECIDED BY THE TRIBUNAL AGAINST THE ASSESSEE IN ASSE SSMENT YEAR 2002-2003. IN VIEW OF THIS CONCESSION, WE UPHOLD THE IMPUGNED ORDE R AND DISMISS THIS GROUND OF APPEAL. 8. GROUND NO.5 IS AGAINST THE CONFIRMATIO N OF ADDITION OF RS .14,76,502 BEING EXPENSES INCURRED ON PLASTIC PALL ETS. BRIEFLY STATED THE FACTS OF THIS GROUND ARE THAT THE ASSESSEE CLAIMED DEDUCTION UNDER THE HEAD R EPAIRS AND MAINTENANCE WHICH INCLUDED A SUM OF RS.28.72 LAKHS TOWARDS CERTAIN ITEMS WHICH HAVE BEEN LISTED ON PAGE 8 OF THE ASSESSMENT ORDER. ON BEING CALLED UPON TO EXPL AIN THE JUSTIFICATION FO R SUCH EXPENSES, THE ASSESSEE FURNISHED DETAILS WHICH ALSO INCLUDED THE AMOUNTS SPENT ON PLASTIC PALLETS. THE ASSESSING OFFICER HELD A SUM OF RS.28.72 LAKHS AS CAPITAL IN NATURE ON WHICH DEPRECIATION WAS ALLOWED AT 25% AND THE ADDITION WAS MA DE FOR RS.21.54 LAKHS . THE LEARNED CIT(A), AFTER CONSIDERING THE ASSESSEES CONTENTIONS, HELD THAT THE EXPENDITURE ON PURCHASE OF FLAT PLASTIC AND PLASTIC PALLETS TO TALING RS.14,76,502 WAS CAPITAL AND THE REMAINING AMOUNT AS REVENUE EXPENDITURE. THERE IS NO APPEAL FROM THE SIDE OF THE DEPARTMENT ON THE RELIEF ALLOWED BY THE LEARNED CIT(A) ON THIS IS SUE. THE ASSESSEE IS AGGRIEVED AGAINST THE SUSTENANCE OF ADDITION OF RS.14.76 LAKHS 9. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PERUSING THE RELEVANT MATERIAL ON RECORD IT IS NOTICED THAT THE PALLET IS A FLAT TRANSPORT STRUCTURE THAT SUPPORTS GOODS IN ITS ITA NOS.7186/MUM/2008 & 19/MUM/2009 M/S.KELLOGG INDIA PRIVATE LIMITED. 4 STABLE FASHION WHILE BEING LIFTED THE PALLET AS A STRUCTURAL FOUNDATION WHICH ALLOWS HANDLING AND STORAGE. TH E GOODS ARE PLACED ON PALLET AND ARE THUS TRANSPORTED THROUGH THIS MEDIUM. CERTAIN LITERATURE ABOUT LIFE SPAN HAS BEEN PLACED ON RECORD BY THE LEARNED A.R. AS PER WHICH THE AVERAGE WOODEN PALLET LAST S APPROXIMATELY TWO TRIP S OR JUST UNDER ONE MONTH. AS REGARDS PLASTI C PALLETS, ITS LIFE SPAN HAS BEEN STATED AS LESS THAN ONE YEAR. NO ADVERSE MATERIAL HAS BEEN PLACED ON RECORD BY THE LEARNED DEPARTMENTAL REPRESENTATIVE. IT, THEREFORE, SHOWS THAT THE LIFE SPAN OF PLASTIC BALLET IS NORM ALLY IN THE RANG E OF ONE YEAR. IT IS A MATTER OF RECORD THAT SUCH EXPENDITUR E WAS INCURRED BY THE ASSESSEE IN THE PAST ALSO, AS NOTED BY THE LD. CIT(A), BUT NO DISALLOWAN CE ON THIS COUNT HAS BEEN SHOWN TO HAVE BEEN MADE. TECHNICALLY SPEAKING THIS EXPENDIT URE DOES NOT FALL UNDE R THE HEAD REPAIRS AND MAINTENANCE BUT IS OTHERWISE DEDUCTIBLE U/S.37(1) OF THE ACT. IT IS SETTLED LEGAL POSITION IF THE ASSESSEES CLAI M IS NOT ACCEPTABLE UNDER ON E SECTION BUT IS OTHERWISE ALLOWABLE UNDER ANOTHER SECTION, THERE ARE NO FETTERS ON THE POWERS OF THE TRIBUNAL IN NOT CONSIDERING THE CLAIM UNDER THE APPROPRIATE SECTION. OUR VIEW IS FORTIFIED BY THE JUDGEMENT OF THE HONBLE SUPREME COURT IN CIT VS. MAHALAXMI TE XTILE MILLS LTD. [(1967) 66 ITR 710 (SC)]. WE, THEREFORE, OVERTURN THE IMPUGNED ORDER ON THIS ISSUE AND DIRECT THE GRANTING OF DEDUCT ION ON THIS SCORE. IT IS HOWEVER MADE CLEAR THAT THE DEPRECIATION, IF ANY, ALLOWED BY THE A.O. ON TREATING THIS AMOUNT AS CAPITAL EXPENDITURE, SHOULD BE DISALLOWED SO AS TO MAKE THE DEDUC TION NOT MORE THAN THE ACTUAL EXPENDITURE ON THIS SCORE. 10. GROUNDS NO.6 AND 7 ARE AGAI NST THE CONFIRMATION OF DI SALLOWANCE OF RS.79,91,304 AND RS.45,30,019 IN RESPECT OF ADVERTISEMENT EXPENSES FOR WHICH THE PROVISION WAS MADE IN THE ACCOUNT OF M/S.HINDUSTAN THOMPSON ASSOCIATES (HTA) AND M/S.GROUP M MEDIA INDIA PRIVATE LIMITED. BRIEFLY STATED THE FACTS OF THESE TW O GROUNDS ARE THAT THE ASSESSEE MADE A PROVISION FOR RS.79.91 LAKHS TOWARD S ADVERTISEMENT EXPENSES CLAIMED TO BE PAYABLE TO HTA. THE A.O. NOTED THAT THE ADVE RTISER HTA HAD NOT RAIS ED ANY BILLS FOR THIS SUM. SIMILARLY THE ASSESSEE HAD ALSO CLAI MED DEDUCTION OF RS.45.30 LAKHS TOWARDS PROVISION FOR ADVERTISEMENT EXPENSES PA YABLE TO M/S.GROUP M MEDIA INDIA PRIVATE LIMITED, AS THE BILLS FROM TH IS PARTY WERE ALSO NOT RECEIV ED BY THE ASSESSEE BEFORE THE CLOSE OF THE YEAR. ON BEING CA LLED UPON TO JUSTIFY THE DEDUCTIO N, THE ASSESSEE STATED THAT ITA NOS.7186/MUM/2008 & 19/MUM/2009 M/S.KELLOGG INDIA PRIVATE LIMITED. 5 THE PROVISION WAS MADE AS IT WAS AN ASCERTAINED LIABILITY FOR WHICH THE SERVICES WERE AVAILED BEFORE THE CLOSE OF THE YEAR BUT THE BILLS WERE RAISED IN SUBSEQUENT YEAR. NOT CONVINCED, THE ASSESSING OFFICER MADE ADDI TION OF RS.1,25,21,053 (79,91,304 + 45,30,019). THE LEARNED CIT(A) UPHELD THE ADDI TION DESPITE ASSESSEES ARGUMENT THAT THE BILLS IN QUESTION WERE ALBEIT RAISED IN APR IL 2004 BUT THE ADVERTISEMENTS WERE AIRED IN THE CURRENT YEAR. THE LEARNED FIRST APPELLATE AUTH ORITY REJECTED THIS CONTENTION ON THE GROUND THAT THE ASSESSEE FAILED TO GIVE ANY SUCH EVIDENCE BEFORE HIM. 11. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PERUSING THE RE LEVANT MATERIAL ON RECORD IT IS SEEN THAT THE ASSESSEE FILED WRITT EN SUBMISSION BEFORE THE LEARNED CIT(A) ON 16.09.2008, COPY OF WHICH IS AVA ILABLE AT PAGES 70 TO 86 OF THE PAPER BOOK. ON PAGE 57 PARA 9.3.3, THE ASSESSEE STATED BEFORE THE LEARNED CIT(A) TH AT INVOICES FOR RS.45.30 LAKHS WERE ATTACHED AS ANNEXURE 10 TOWARDS PROVISION MADE. COPY OF ANNEXURE 10 IS AVAILABLE ON PAGE 87 OF THE PAPER BOOK. THIS ANNEXURE CONTAINS THE DETAIL OF EXPENSES IN RESPECT OF WHICH BILLS WERE ISSUED ON 09.03.2004 AND THREE BILLS DATE D 12.03.2004 TOTALING RS.45.29 LAKHS. COPIES OF SUCH BILLS ARE AVAILABLE AT PAGE 88 ONWARDS OF THE PAPER BOOK. ON THE PERUSAL OF SUCH BILLS IT IS SEEN THAT THE ADVE RTISEMENTS WERE AIRED ON BEHALF OF THE ASSESSEE FOR VARIOUS DATES PRIOR TO 31.0 3.2004. AS SUCH WE HOLD THAT THE LEARNED CIT(A) WAS NOT JUSTIFIED IN NOT GRANTI NG DEDUCTION TO THE EXTENT OF RS.4 5.29 LAKHS. COMING TO THE SECOND PART OF DISALLOWANCE, BEING A SUM OF RS.79. 91 LAKHS IN RESPECT OF WHICH ASSESSEE DID NOT FURNISH ANY DETAIL BEFORE THE AUTHORITIES BELOW, THE ASSESSEE HAS NOW FILED ADDITIONAL EVIDENCE BEFORE US IN THE SHAPE OF THE DETAIL S OF SUCH ADVERTISEMEN T EXPENSES PAYABLE TO HTA COUPLED WITH INVOICES OF THE PARTY SHOWI NG DATES OF THE AIRING OF ADVERTISEMENT. THE REASON FOR NOT SUBMITTING SUCH EVIDENCE BEFORE THE AUTHORITIES BELOW WAS STATED TO BE THE SHIFTING OF ASSESSEES PREMISES AT THE MATERIAL TIME AND IN SUCH SHIFTING THE EVIDENCE WAS MISPLACED. IN OUR CONSIDERED OPINION IT WOUL D BE JUST AND FAIR IF THE IMPUGNED ORDER ON THIS SCORE IS SET ASIDE AND THE MA TTER IS RESTORED TO THE FILE OF A.O. IN THE FRESH PROCEEDINGS THE ASSESSING OFFICER WILL CONSIDER THE DEDUCTI BILITY OR OTHERWISE OF THE SAID SUM OF RS.79.91 LAKHS UNDER THE MERCANTILE SYSTEM OF ACCOUNTING AFTER ALLOWING THE ASSESSEE A REASONABLE OPPORTUNITY OF BEIN G HEARD. IN OTHER WORDS, IF THE EXPENDITURE INCURRED PERTAINS TO THE YEAR IN QUES TION THEN THE DEDUCTION SHOULD BE AL LOWED NOTWITHSTANDING THE ITA NOS.7186/MUM/2008 & 19/MUM/2009 M/S.KELLOGG INDIA PRIVATE LIMITED. 6 FACT THAT THE BILLS HAVE BEEN RA ISED IN THIS OR IN THE NEXT YEAR AND VICE VERSA. NEEDLESS TO SAY THE ASSESSEE WILL BE AT LIBERTY TO FILE ANY OTHER EVIDENCE IN SUPPORT OF THIS DEDUCTION. 12. IN THE RESULT, THE APPEAL OF THE REVENU E IS DISMISSED AND THAT OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED ON THIS 20 TH DAY OF MAY, 2011 . SD/- SD / - (VIJAY PAL RAO) (R.S.SYAL) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI : 20 TH MAY, 2011. DEVDAS* COPY TO : 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT CONCERNED 4. THE CIT(A) X, MUMBAI. 5. THE DR/ITAT, MUMBAI. 6. GUARD FILE. TRUE COPY. BY ORDER ASSISTANT REGI STRAR, ITAT, MUMBAI.