ITO, New Delhi V. M/s Inbev India International Pvt. Ltd., New Delhi

ITA 2806/DEL/2013

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 91397 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 2 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-07-2015
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 05-05-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 08-05-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: GAURAV DUDEJA
• Assessee Lawyers: V K JAIN
• Keywords: Business expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH : C : NEW DELHI BEFORE SHRI G.C. GUPTA , VICE PRESIDENT AND SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER ITA NO . 2806 /DEL/201 3 ASSESSMENT YEAR: 2008 - 09 INCOME TAX OFFICER, VS. M/S INBEV INDIA INTERNATIONAL PVT. WARD 11(4), NEW DELHI LTD., F - 2/7, OKHLA INDUSTRIAL A REA, PHASE - 1, NEW DELHI (PAN: AACCV2013K ) (APPELLANT) (RESPONDENT) APPELLANT BY : SH. GAURAV DUDEJA, SR. DR RESPONDENT BY: SH. V.K. JAIN, CA DATE OF HEARING: 05.05.2015 DATE OF PRONOUNCEMENT: 08.07.2015 ORDER PER INTURI RAMA RAO, A.M. : 1. THIS IS AN APPEAL FILED BY THE REVENUE FOR THE ASSESSMENT YEAR 2008 - 09 IMPUGNING THE ORDER OF LEARNED CIT(A), DATED 20.03.2013, RAISING THE FOLLOWING GROUNDS OF APPEAL: I. WHETHER ON THE FACTS AND IN THE CIRCUMS TANCES OF THE CASE AND IN LAW, L D. CIT(A) HAS ERRED IN ALLOWING PRE - OPERATIVE EXPENSES AGAINST THE INCOME FROM OTHER SOURCES. II. THE APPELLANT CRAVES LEAVE TO ADD, ALTER OR AMEND ANY GROUND OF APPEAL RAISED ABOVE AT THE TIME OF HEARING. 2. BRIEFLY STATED THE FACTS OF THE CASE ARE THAT THE RESPONDENT ASSESSEE IS A COMPANY DULY INCORPORATED UNDER THE PROV ISIONS OF COMPANIES ACT, 1956. IT IS ENGAGED IN THE BUSINESS OF MANUFACTURING, TRADING AND SALE OF ALCOHOLIC 2 ITA NO. 2806/DEL/2013 AY: 2008 - 09 BEVERAGES, MAINLY BEER FOR DOMESTIC CONSUMPTION. DURING THE YEAR UNDER CONSIDERATION, THE RESPONDENT ASSESSEE WAS IN PROCESS TO ESTABLISH THE INDUS TRY FOR MANUFACTURING OF BEER. THAT APART, THE RESPONDENT ASSESSEE CLAIMED THAT IT HAD CARRIED ON THEIR TRADING ACTIVITY DURING THE YEAR UNDER CONSIDERATION. THE RETURN FOR THE ASSESSMENT YEAR 2008 - 09 WAS FILED ON 26 TH SEPTEMBER, 2008 DECLARING N IL INCOME AND THE CASE WAS SELECTED FOR SCRUTINY ASSESSMENT UNDER CASS AND THE ASSESSMENT WAS COMPLETED BY INCOME TAX OFFICER, WARD - 11(4), NEW DELHI, UNDER SECTION 143 (3) OF THE INCOME - TAX ACT, 1961 (FOR SHORT THE ACT ) VIDE ORDER DATED 28 TH DECEMBER, 2010 AT A T OTAL INCOME OF RS. 33,88,050/ - . THE ASSESSED INCOME REPRESENTS THE ADDITION OF INTEREST EARNED OF RS. 33,88,051/ - FROM THE BANKS FROM DEPOSITS MADE OUT OF SURPLUS FUNDS. THE ASSESSING OFFICER DOUBTED THE VERACITY OF THE CLAIM MADE BY THE RESPONDENT ASSESSEE COMPANY THAT IT WAS ENGAGED IN THE BUSINESS OF TRADING IN THE ALCOHOLIC BEER AND HENCE THE EXPENSES CLAIMED TO T HE TUNE OF RS. 2,72,89,991/ - WERE DISALLOWED AND THE INTEREST EARNED OF RS. 33,88,051/ - WAS BROUGHT TO TAX UNDER THE HEAD INCOME FROM O THER SOURCES. BEING AGGRIEVED FROM THIS ORDER OF ASSESSMENT, THE RESPONDENT ASSESSEE PREFERRED AN APPEAL BEFORE THE LEARNED CIT(A) - XV, NEW DELHI, WHO VIDE ORDER DATED 20 TH MARCH, 2013, ALLOWED THE APPEAL VIDE PARA 6.2 OF THE ORDER, WHICH READS AS UNDER: 6 .2 ON CAREFUL CONSIDERATION, I FIND THAT THE APPELLANT HAD DEPLOYED ITS SURPLUS FUNDS FOR BANK DEPOSITS ETC., WHICH HAVE BEEN RIGHTLY TAXED BY THE LD. AO UNDER THE HEAD 'INCOME FROM OTHER SOURCES', HOWEVER, I FIND THAT 3 ITA NO. 2806/DEL/2013 AY: 2008 - 09 THE LD. AO DID NOT EXAMINE FURTHER D ETAILS OF VARIOUS EXPENSES CLAIMED UNDER THE HEAD 'BUSINESS' BEFORE REACHING TO THE CONCLUSION THAT ALL SUCH EXPENSES WERE TO BE CAPITALISED BY MAKING AN INCORRECT OBSERVATION THAT THE APPELLANT WAS SETTING UP A MANUFACTURING PLANT. IT IS EVIDENT THAT THE APPELLANT HAS CAREFULLY IDENTIFIED EXPENSES ATTRIBUTABLE TO MANUFACTURING OF BEER THROUGH 3RD PARTY COLLABORATIVE ARRANGEMENT, AND CAPITALISED EXPENSES WORTH RS.52,75,832. THE BALANCE AMOUNT WHICH DID NOT RELATE TO THE COLLABORATION HAS BEEN CLAIMED AS ROU TINE BUSINESS EXPENDITURE OF THE COMPANY. THE AO HAD QUESTIONED VERACITY OF HIGH SEA SALES OF A BEER CONSIGNMENT TO ARRIVE AT THE CONCLUSION THAT THERE WAS NO BUSINESS DURING THE YEAR, BY HOLDING SUCH HIGH SEA SALES AS SHAM. THE LD. AR IN THIS REGARD PROVI DED VARIOUS EVIDENCES IN SUPPORT OF THE HIGH SEA SALES TRANSACTION BY WHICH THE APPELLANT HAD TRADED ONE CONSIGNMENT OF BEER. THE LD. AO WAS OF THE VIEW THAT THIS TRANSACTION WAS INGENUINE AND WAS ONLY TO GIVE SEMBLANCE OF THE BUSINESS OPERATION SO THAT EX PENSES, WHICH IN THE VIEW OF THE AO WERE ONLY FOR SETTING UP OF THE MANUFACTURING PLANT, COULD BE SET OFF AGAINST THE INTEREST INCOME OF THE APPELLANT. ON CAREFUL APPRECIATION OF THE DETAILS FURNISHED BY THE APPELLANT AND THE BASIS FOR ITS ALLOCATION INTO TRUE OPERATIVE EXPENSES AND BUSINESS EXPENSES, I AM SATISFIED WITH THE ACCOUNTING TREATMENT GIVEN BY THE APPELLANT WHEREBY ONLY SUCH EXPENSES WHICH WERE DIRECTLY LINKED TO THE COLLABORATIVE ARRANGEMENT WITH DSPL WERE CAPITALISED AND HELD AS PRE - OPERATIVE E XPENSES WHILE THE OTHER EXPENSES WERE HELD FOR THE BUSINESS PURPOSES OF THE APPELLANT, WHICH MAINLY INCLUDES TRADING OF BEER. THE AO'S EMPHASIS ON QUANTITATIVE DISCREPANCY, WHICH WAS AMICABLY EXPLAINED BY THE APPELLANT IS NOT SUFFICIENT ENOUGH TO TREAT THE SAID TRADING AS SHAM. IN VIEW OF THIS, THERE WAS NO REASON FOR THE AO TO TREAT THE ENTIRE BUSINESS EXPENSES AS CAPITAL IN NATURE. IN VIEW OF THIS, SINCE THE BUSINESS LOSS FOR THE CURRENT YEAR IS ELIGIBLE FOR SET OFF AGAINST INCOME FROM OTHER SOURCES , TH E ADDITION MADE ON THIS GROUND IS DELETED. 7. STATISTICALLY, THE APPEAL IS ALLOWED. 3. AGGRIEVED BY THIS ORDER, THE REVENUE HAD COME UP WITH THE PRESENT APPEAL. 4. LEARNED DR VEHEMENTLY ARGUED THAT THE CLAIM OF THE ASSESSEE COMPANY IS BOGUS, INASMUCH AS, TH E SALES WERE MADE MUCH BEFORE THE PURCHASES AND HE DRAWN OUR ATTENTION TO PAGE NO. 80 OF PAPER BOOK FILED WHEREIN A COPY OF THE 4 ITA NO. 2806/DEL/2013 AY: 2008 - 09 INVOICE IS PLACED . FROM THIS INVOICE, IT IS CLEAR THAT THE INVOICE IS DATED 5 TH FEBRUARY, 2008 AND HE SUBMITTED THAT THE TRANSAC TION OF PURCHASE AND SALE IS SHAM AND THEREFORE THE LOSS RESULTING FROM SUCH TRANSACTION CANNOT BE ALLOWED TO BE SET OFF AGAINST THE INCOME FROM OTHER SOURCES. 5. ON THE OTHER HAND, THE AUTHORIZED REPRESENTATIVE PLACED RELIANCE ON THE ORDER OF LD. CIT(A) AND SUBMITTED THAT THE PURCHASES WERE MADE PRIOR TO THE SALES AND SUBMITTED THAT THE DATE OF DISPATCH OF THE FIRST CONSIGNMENT CONTAINING 504 CASES BY THE VENDOR IS 14.12.2007 AND THE DATE OF SALE BY THE ASSESSEE COMPANY TO HIS CUSTOMER IS 20 TH DECEMBER, 2007 AND IN THE CASE OF SECOND SHIPMENT OF 1296 CASES, THE DATE OF DISPATCH BY SUPPLIER IS 10 TH JANUARY, 2008 WHILE IT WAS SOLD BY THE ASSESSEE TO THE CUSTOMER ON 21 ST JANUARY, 2008 . HE PLACED RELIANCE ON THE ORDER OF CIT(A) AND DRAWN OUR ATTENTION TO PARA 6.2 OF THE CIT(A) S ORDER. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THERE IS NO DISPUTE ABOUT THE TAXABILITY ON THE INTEREST INCOME UNDER THE HEAD INCOME FROM OTHER SOURCES . THE DISPUTE IS ONLY WITH REGARD TO THE SETTING UP O FF BUSINESS LOSSES AGAINST THE INCOME UNDER THE HEAD INCOME FROM OTHER SOU RCES . THE ASSESSING OFFICER HAD NOT DETERMINED THE BUSINESS LOSSES BY HOLDING THAT THE RESPONDENT ASSESSEE COMPANY HAD NOT COMMENCED HIS BUSINESS OPERATIONS AND HE DOUBTED THE TRAD ING ACTIVITIES CARRIED ON BY THE ASSESSEE COMPANY ON THE GROUND THAT THE TRADING ACTIVITY ALLEGEDLY H AD BEEN CARRIED AS A 5 ITA NO. 2806/DEL/2013 AY: 2008 - 09 SHAM SINCE THE SALES WERE MADE PRIOR TO THE PURCHASE OF BEER. FROM THE ORDER OF LEARNED CIT( A), IT IS CLEAR THAT THOUGH HE ACCEPTED IN PRINCIPLE THAT THE RESPONDENT ASSESSEE COMPANY COMMENCED THE BUSINESS OPERATIONS AND ALLOWED THE SET OFF THE LOSS SO INCURRED AGAINST THE INCOME FROM OTHER SOURCES BUT HE FAILED TO EXAMINE THE RELEVANCY OF THE EXP ENDITURE CLAIMED ON THE TRADING ACCOUNT. THEREFORE, WE RESTORE THE MATTER TO THE FILE OF THE ASSESSING OFFICER WITH THE DIRECTION THAT IF THE EXPENDITURE CLAIMED IS DIRECTLY RELATABLE TO THE TRADING ACTIVITY, THE SAME MAY BE ALLOWED AS A BUSINESS LOSS WHIC H CAN BE SET OFF AGAINST THE INCOME FROM OTHER SOURCES. WITH THESE DIRECTIONS, THE APPEAL FILED BY THE REVENUE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 7. IN THE RESULT, THE APPEAL IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. THE DECISION IS PRONOUNCED IN THE OPEN COURT ON 8 T H JULY , 2015. S D / - S D / - ( G.C. GUPTA ) (INTURI RAMA RAO) VICE PRESIDENT ACCOUNTANT MEMBER DATED: 8 T H JULY , 2015. RK/ - COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ASST. REGISTRAR, ITAT, NEW DELHI