ACIT, New Delhi V. M/s Gamma Pizzakraft (P) Ltd., New Delhi

ITA 2123/DEL/2013

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 87124 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 11 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-03-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 11-03-2015
• Assessment Year: misc
• Appeal Filed On: 11-04-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: T VASANTHAN
• Assessee Lawyers: SUR ESH MALIK
• Keywords: Depreciation; Additional depreciation; Royalty expenses; Capital expenditure
• Section: 143(3); 10B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH C NEW DELHI BEFORE SHRI S.V. MEHROTRA : ACCOUNTANT MEMBER AND SHRI C.M. GARG : JUDICIAL MEMBER ITA NO. 2123/DEL/2013 ASSTT. YR: 2009-10 ACIT CIRCLE 12(1), VS. M/S GAMMA PIZZAKRAFT (P) L TD., NEW DELHI. MANSAROVAR, 90, NEHRU PLACE, NEW DELHI. PAN: AACCG 3988 Q ( APPELLANT ) (RESPONDENT) APPELLANT BY : SHRI T. VASANTHAN SR. DR RESPONDENT BY : SHRI SURESH MALIK CA DATE OF HEARING: 11/03/2015. DATE OF ORDER : 23/03/2015. O R D E R PER S.V. MEHROTRA, A.M:- THIS APPEAL, PREFERRED BY THE REVENUE, IS DIRECTED AGAINST CIT(A)S ORDER DATED 21-01-2013 RELATING TO A.Y. 2009-10. 2. THE ASSESSEE FILED ITS RETURN OF INCOME DECLARIN G LOSS OF RS. 77,22,083/-. THE ASSESSMENT WAS COMPLETED AFTER MAK ING FOLLOWING TWO ADDITIONS/ DISALLOWANCES: (I) DISALLOWANCE OF RS. 3,28,374/- ON ACCOUNT OF ADDITI ONAL DEPRECIATION; 2 ITA 2123/DEL/2013 (II) DISALLOWANCE OF RS. 8,12,054/- ON ACCOUNT OF CAPITA LIZATION OF CONTINUING FEES/ ROYALTY EXPENSES @ 25% OUT OF TOT AL EXPENDITURE OF RS. 32,48,219/-. 2.1. THE ASSESSEE PREFERRED APPEAL BEFORE LD. CIT(A ), WHO ALLOWED THE ASESSEES APPEAL. 2.2. BEING AGGRIEVED WITH THE ORDER OF LD. CIT(A), THE DEPARTMENT IS IN APPEAL BEFORE US AND HAS TAKEN FOLLOWING EFFECTIVE GROUNDS OF APPEAL: 1. WHETHER LD. CIT(A) WAS CORRECT ON FACTS AND CIR CUMSTANCES OF THE CASE AND IN LAW IN DELETING THE DISALLOWANCE OF RS. 3,28,374/- MADE BY THE AO ON ACCOUNT OF ADDITIONAL DEPRECIATIO N. 2. WHETHER LD. CIT(A) WAS CORRECT ON FACTS AND CIRC UMSTANCES OF THE CASE AND IN LAW IN DELETING THE DISALLOWANCE OF RS. 8,12,054/- MADE BY THE AO ON ACCOUNT OF CAPITALIZATION OF CO NTINUING FEES/ ROYALTY EXPENSES @ 25% OUT OF TOTAL EXPENDITURE OF RS. 32,48,219/-. 3. AT THE TIME OF HEARING, LD. COUNSEL FOR THE ASSE SSEE SUBMITTED THAT IDENTICAL DISALLOWANCES WERE MADE IN EARLIER YEARS WHICH HAVE BEEN DELETED BY LD. CIT(A) AND AGAINST THE LD. CIT(A)S ORDER, T HE TRIBUNAL DISMISSED THE REVENUES APPEAL. 4. BRIEF FACTS OF THE CASE ARE THAT ASSESSEE COMPAN Y WAS CARRYING ON A FOOD AND BEVERAGE BUSINESS THROUGH RESTAURANT, HOME AND OFFICE DELIVERY, CATERING AND DISPENSING OF PIZZAS, PASTAS, HEALTH F OOD AND OTHER FOOD AND BEVERAGES PRESCRIBED. THE ASSESSEE HAD CLAIMED ADDI TIONAL DEPRECIATION OF RS. 3,28,374/- ON THE GROUND THAT IT WAS ENGAGED IN THE MANUFACTURE OR PRODUCTION OF FOOD ARTICLES WHICH WERE DIFFERENT FROM RAW MATERIAL. THE 3 ITA 2123/DEL/2013 AO DENIED THE ASSESSEES CLAIM. HOWEVER, LD. CIT(A) DELETED THE DISALLOWANCE. 5. HAVING HEARD BOTH THE PARTIES WE FIND THAT LD. C IT(A) FOLLOWING ORDERS FOR AY 2006-07, 2007-08 AND 2008-09, ALLOWED THE AS SESSEES CLAIM. WE FIND THAT ON REVENUES APPEAL FOR AY 2008-09, THE I TAT HAS OBSERVED AS UNDER: 3.3. APROPOS THE ADDITIONAL DEPRECIATION LD. COUNS EL CONTENDS THAT PIZZAS, PASTAS MANUFACTURED BY THE ASSESSEE ARE DIF FERENT COMMERCIAL COMMODITIES THAN THE RAW-MATERIAL USED THEREIN LIKE FLOUR, OIL, YEAST, BABY CORN, VARIOUS VEGETABLES/ NON-VEGETABLES, SPIC ES ETC. IN THIS BEHALF THE ASSESSEE USES FRESH VEGETABLES WHICH ARE CUT DOWN TO PARTICULAR SIZES AFTER SANITIZING. ALL THE VEGETABL ES ARE KEPT IN A CHILLER (1-4 DEGREE CELSIUS). AFTER OPENING THE CANNED PROD UCTS, THESE ARE KEPT IN THE CHILLER. FROZEN PRODUCTS, ON THE OTHER HAND, INVOLVES A 3 DAYS THAWING PROCESS. THE FROZEN TOPPING IS KEPT IN DEEP FREEZER AT THE SAME TEMPERATURE. FROM HERE, PACKETS ARE TAKEN FOR THAWING IN CHILLER (1-4 DEGREE CELSIUS). THE TOPPINGS GET READY TO USE IN 3 DAYS. THE SHELF LIFE OF ALL THE TOPPINGS IS ONLY 4 HOURS. 3.4. ON RECEIVING ORDERS FROM THE CUSTOMER, PIZZAS ARE PREPARED USING DESIRED TOPPINGS AND PUT IN OVENS. A LL VEG AND NON-VEG TOPPINGS, SAUCES AND CHEESE ARE KEPT IN DIF FERENT BINS AT A DEFINED TEMPERATURE AND ARE SERVED ACCORDING T O ORDER. 3.5. LIKEWISE FOR MANUFACTURING OF PASTA, A GENERIC TERM FOR ITALIAN VARIANTS OF NOODLES, FOOD MADE FROM DOUGH O F FLOUR, WATER AND/ OR EGGS THAT IS BOILED. IT IS A TRADITIO NAL ITALIAN PREPARATION MADE UP OF WATER, OIL AND FLOUR AND TAK ES THE NAME OF ITS SHAPE. THE ASSESSEE COMPANY MANUFACTURES TO TYPES OF PASTAS; OVEN BAKED AND SAUTED PASTAS. 3.6. LD. COUNSEL RELIED ON FINANCE (NO. 2), ACT 200 9, BROUGHT ON STATUTE W.E.F. 1-4-2009, A DEFINITION OF THE TER M MANUFACTURING BY INSERTING A NEW CLAUSE (29 BA) T O SECTION 2 AS UNDER: 4 ITA 2123/DEL/2013 (29BA) MANUFACTURE, WITH ITS GRAMMATICAL VARIATIONS, MEANS A CHANGE IN A NON-LIVING PHYSICAL OBJECT OR ARTICLE OR THING, - (A) RESULTING IN TRANSPORTATION OF THE OBJECT OR ARTICLE OR THING INTO A NEW AND DISTINCT OBJECT OR ARTICLE OR THING HAVING A DIFFERENT NAME, CHARACTER AND USE; OR (B) BRINGING INTO EXISTENCE OF A NEW AND DISTINCT OBJECT OR ARTICLE OR THING WITH A DIFFERENT CHEMICA L COMPOSITION OR INTEGRAL STRUCTURE. THE ABOVE AMENDMENT IS CLARIFICATORY IN NATURE. IN VIEW OF THE ABOVE DEFINITION, THE FOOD ITEMS PRODUCED BY THE APPELLANT GET COVERED IN SUB- CLAUSE (A) OF THE CLAUSE (29BA) OF SECTION 2. ACCORDINGLY, THE VARIOUS CATERING ACTIVITIES CARRIE D OUT BY THE APPELLANT INCLUDING MAKING OF PIZZA, PASTA AND OTHER FOOD ITEMS ARE HELD TO BE MANUFACTURING IN NATURE. 8.8. FROM THE MANUFACTURING PROCESS STARTED ABOVE ONE CAN EASILY CONCLUDE THAT THE PROCESS OF MAKING PIZZA AND PASTA BY THE APPELLANT COMPANY IS A STEP-WISE SYSTEMATIC PROCESS, WHICH IS STRICTL Y IN ACCORDANCE WITH THE SPECIFICATION OF THE PROCESSES REQUIRED BY THE LICENSOR AND HENCE THE APPELLANT IS ELIGIBLE FOR CLAIM OF ADDITIONAL DEPRECIATION ACCORDINGLY. 3.7. RELIANCE IS PLACED ON ITAT AHMEDABAD BENCH IN THE CASE OF DEEPKIRAN FOODS (P) LTD. VS. ACIT 155 TTJ 5 7, HOLDING THAT THE ASSESSEE S BUSINESS OF PREPARING FOOD ITE MS LIKE PRATHA, SAMOSA, DHOKLA AMOUNT TO MANUFACTURE AND IN COME WAS ELIGIBLE FOR DEDUCTION U/S 10B. THE ITAT BESIDES RE LYING ON CATENA OF JUDGMENTS DISTINGUISHED THE APPLICABILITY OF RATIO OF DECISION IN THE CASE OF INDIAN HOTELS LTD. VS. ITO & OTHERS 112 TAXMAN 48 (SC) BY FOLLOWING OBSERVATIONS: 5 ITA 2123/DEL/2013 13. ON THE BASIS OF MATERIAL ON RECORD, WE FIND THAT THE ASSESSEE HAS CLAIMED DEDUCTION U/S 10B IN THE PAST ASSESSMENT YEARS AND THE CLAIM OF THE ASSESSEE WAS ALLOWED WHILE FRAMING THE ASSESSMENTS FRAMED U/S 143(3) AND THE ASSESSMENTS HAVE ATTAINED FINALITY. IT WAS SUBMITTED THAT THERE WAS NO CHANGE IN THE FACTS IN THE YEAR UNDER APPEAL AS COMPARED TO THE FACTS OF EARLIER YEARS. THIS FACT HAS NOT BEEN CONTROVERTED BY THE LD. D.R. BY BRINGING ANY CONTRARY MATERIAL ON RECORD. WE FURTHER FIND THAT THE HONBLE J.K. HIGH COURT IN THE CASE OF PANKAJ JAIN (SUPRA) AFTER DISTINGUISHING THE HONBLE APEX COURT IN THE CASE OF INDIAN HOTELS (SUPRA) HAS HELD THE MANUFACTURE OF BREAD TO BE A MANUFACTURING ACTIVITY. THUS, IN VIEW OF THE TOTALITY OF FACTS OF THE CASE, WE HOLD THAT THE ISSUE BEFORE US IS COVERED WITH THE DECISION OF HONBLE J.K. HIGH COURT IN THE CASE OF PANKAJ JAIN PROP AAGAN FOOD INDUSTRIES (SUPRA) IN FAVOUR OF THE ASSESSEE AND WE ARE OF THE VIEW THAT THE ASSESSEE IS AN INDUSTRIAL UNDERTAKING AND THE ACTIVITY OF PRODUCTION OF THE FOODSTUFF IS A MANUFACTURING ACTIVITY (EXCEPT FOR THE ITEMS OUTSOURCED FROM OTHER PARTIES). 3.8. FURTHER RELIANCE IS PLACED ON THE RATIO OF DEC ISION OF HONBLE MADRAS HIGH COURT IN THE CASE OF CIT VS. M. R. GOPAL 58 ITR 598 (MAD.), HOLDING AS UNDER: MANUFACTURE MEANS: ANYTHING MADE FROM RAW MATERIALS BY THE HAND, BY MACHINERY, OR BY ART, AS CLOTHES, IRON UTENSILS, SHOES, MACHINERY ETC.; A MANUAL OCCUPATION OR TRADE TO PRODUCE BY LABOUR ESPECIALLY NOW, ACCORDING TO AN ORGANIZED PLAN AND WITH DIVISION OF LABOUR AND USUALLY WITH MACHINERY. IT SEEMS UNARGUABLE HAVING REGARD TO 6 ITA 2123/DEL/2013 THE MEANING OF MANUFACTURE THAT THE PROCESS EMPLOYED IN CONVERTING BOULDERS INTO SMALL CHIPS OF STONES WITH THE AID OF LABOUR AND MACHINERY IS NOT A MANUFACTURING PROCESS. SURELY LABOUR IS EMPLOYED AND SOMETHING IS CONVERTED INTO SOMETHING ELSE, A PRODUCT WHICH IS OF VALUE AND IS USED, AND IN THAT SENSE THE CHIPS ARE A NEW PRODUCTION AS A RESULT OF A MANUFACTURING PROCESS. 3.9. THUS, THE ASSESSEES ACTIVITY IS OF MANUFACTUR E AND PRODUCTION OF ARTICLE OR THING AND THEREFORE ADDITI ONAL DEPRECIATION IS ALLOWABLE. 4. LD. DR RELIED ON THE ORDER OF ASSESSING OFFICER. 5. WE HAVE HEARD RIVAL SUBMISSIONS AND GONE THROUGH THE ENTIRE MATERIAL AVAILABLE ON RECORD. APROPOS THE IS SUE OF ROYALTY, THE ITAT IN EARLIER YEARS HAS DECIDED THE SAME IN FAVOUR OF THE ASSESSEE. RESPECTFULLY FOLLOWING THE SAME, WE DISMISS GROUND NO. 1 RAISED BY THE REVENUE. 5.1. APROPOS GROUND NO. 1, I.E. ADDITIONAL DEPRECIA TION, IN OUR CONSIDERED OPINION RELEVANT ASPECT OF THE ISSUE STA NDS DECIDED BY THE COORDINATE BENCH OF THE ITAT IN THE CASE OF DEEPKIRAN FOODS (P) LTD. (SUPRA) IN WHICH THE MANUFACTURING O F EATABLES LIKE PARATHA, SAMOSA, DHOKLA HAVE BEEN HELD TO BE A MANUFACTURING PROCESS. IN THIS JUDGMENT THE RATIO O F DECISION OF HONBLE SUPREME COURT IN THE CASE OF INDIAN HOTELS LTD. (SUPRA), RELIED UPON BY THE ASSESSING OFFICER HAS B EEN HAS BEEN CONSIDERED AND HELD TO BE ON DISTINGUISHABLE FACTS. THE ASSESSING OFFICER HAS HELD THAT EATABLES RETAINED T HE CHARACTERISTICS OF ORIGINAL INGREDIENTS. THIS ASSUM PTION HAS BEEN CATEGORICAL DISLODGED BY ITAT AHMEDABAD BENCH BY HOLDING THAT THE RAW MATERIAL BEING IN THE FORM OF WHEAT, POTATO ETC. ARE TOTALLY DIFFERENT WHICH IS A NEW COMMERCI AL COMMODITY CALLED BY VARIOUS NAMES AND DISTINCTLY SOLD IN THE MARKET. RESPECTFULLY FOLLOWING THE SAME WE HOLD THAT THE AS SESSEE IS ENGAGED IN THE ACTIVITIES OF PRODUCTION AND MANUFAC TURE OF 7 ITA 2123/DEL/2013 ARTICLE OR THING AND IS ELIGIBLE FOR ADDITIONAL DEP RECIATION. THIS GROUND OF THE REVENUE IS DISMISSED. 5.1. THE FACTS BEING IDENTICAL IN THE PRESENT ASSES SMENT YEAR, RESPECTFULLY FOLLOWING THE DECISION FOR AY 2008-09, IT IS HELD T HAT SINCE THE ASSESSEE WAS ENGAGED IN THE ACTIVITIES OF PRODUCTION/ MANUFACTUR ING OF AN ARTICLE OR THING, THEREFORE, WAS ELIGIBLE FOR ADDITIONAL DEPRECIATION . THIS GROUND OF REVENUE IS DISMISSED. 6. BRIEF FACTS, APROPOS GROUND NO. 2, ARE THAT DUR ING THE YEAR UNDER CONSIDERATION THE ASSESSEE HAD CLAIMED ROYALTY EXPE NSES/ CONTINUING FEES AMOUNTING TO RS. 32,48,290/-. RELYING ON THE DECISI ONS OF HONBLE SUPREME COURT IN THE CASES OF SSOUTHERN SWITCH GEAR LTD. VS. CIT 232 ITR 359; AND JONAS WOODHEAD AND SONS (INDIA) LTD. VS. CIT 224 ITR 342 (SC), THE AO HELD THAT THESE EXPENSES WERE TO BE CAPITALIZED. HE, ACCORDIN GLY, DISALLOWED 25% OF THE AFORESAID EXPENDITURE BEING CAPITAL EXPENDITURE AND ADDED THE SAME TO THE TOTAL INCOME F THE ASSESSEE. 6.1. IN APPEAL, THE LD. CIT(A) FOLLOWING THE ORDER FOR AYS 2006-07, 2007-08 AND 2008-09, ALLOWED THE CLAIM OF THE ASSESSEE HOLDING THAT THE LICENSE FEE/ ROYALTY PAID BY THE ASSESSEE WAS REVENUE IN NATURE. AGGRIEV ED, THE REVENUE IS IN APPEAL BEFORE US. 7. HAVING HEARD BOTH THE PARTIES WE FIND THAT IN AY 2008-09 THE TRIBUNAL VIDE ITS ORDER DATED 30-4-2014 (SUPRA) HAS DISMISSED THE REVENUES APPEAL BY OBSERVING AS UNDER: 5. WE HAVE HEARD RIVAL SUBMISSIONS AND GONE THROUG H THE ENTIRE MATERIAL AVAILABLE ON RECORD. APROPOS THE IS SUE OF ROYALTY, THE ITAT IN EARLIER YEARS HAS DECIDED THE SAME IN FAVOUR OF THE ASSESSEE. RESPECTFULLY FOLLOWING THE SAME, W E DISMISS GROUND NO. 1 RAISED BY THE REVENUE. 8 ITA 2123/DEL/2013 7.1. SINCE THE FACTS ARE IDENTICAL WITH EARLIER YEA RS, THEREFORE, WE DO NOT FIND ANY REASON TO INTERFERE WITH THE FINDINGS OF LD. CIT(A) ON THIS ISSUE, PARTICULARLY BECAUSE THE ASSESSEE GOT A LIMITED LICENSE TO USE T HE SYSTEM FOR SPECIFIED OUTLET ONLY AND THE ASSESSEE DID NOT HAVE ANY RIGHT TO TRA NSFER THE LICENSE NOR COULD SUB- LICENSE. FURTHER, THE LICENSOR HAD THE RIGHT TO ENT RY TO SAFEGUARD THE SYSTEM LICENSED TO THE ASSESSEE. FURTHER, THE ASSESSEE WAS LIABLE T O PAY A FIXED PERCENTAGE OF ITS SALE AS LICENSE FEE TO THE LICENSOR. THUS, LD. CIT(A), C ONSIDERING THESE FACTS, RIGHTLY OBSERVED THAT ASSESSEE HAD NOT RECEIVED ANY PERMANE NT OR ENDURING BENEFIT THROUGH SUCH LICENSE, WHICH WAS LIMITED TO USE BY THE ASSES SEE IN THE PRESCRIBED MANNER AND LIABLE TO BE RESCINDED BY THE LICENSOR IN CERTA IN CONDITIONS. ACCORDINGLY, WE UPHOLD THE ORDER OF LD. CIT(A) ON THE ISSUE IN QUES TION. GROUND IS DISMISSED. 8. IN THE RESULT, REVENUES APPEAL IS DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON 23/03/2015.. SD/- SD/- (C.M. GARG) ( S.V. MEHROTRA ) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 23/03/2015. *MP* COPY OF ORDER TO: 1. ASSESSEE 2. AO 3. CIT 4. CIT(A) 5. DR, ITAT, NEW DELHI.