M/s. MARICO INDUSTRIES LTD., MUMBAI V. CIT CENT. - III, MUMBAI

ITA 3296/MUM/2006

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 3457 (ITAT-MUMBAI)
• Duration Of Justice: 7 year(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-06-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: J
• Next Hearing Date: 06-02-2013
• Assessment Year: 2001-2002
• Appeal Filed On: 25-05-2006
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S D SRIVASTAVA
• Keywords: Revenue expenditure
• Section: 115JB; 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH J, MUMBAI BEFORE SHRI RAJENDRA SINGH, ACCOUNTANT MEMBER AND SHRI SANJAY GARG , JUDICIAL MEMBER ITA NO. 3296/MUM/2006 ASSESSMENT YEAR : 2001-02 M/S. MARICO INDUSTRIES LTD. RANG SHARDA K.C. MARG, BANDRA MUMBAI-400 050. PAN :AAACM 7493 G VS. ASSTT. COMMISSIONER OF INCOME TAX CENTRAL CIRCLE-35 MUMBAI. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI NITESH JOSHI RESPONDENT BY : SHRI S.D. SRIVASTAVA DATE OF HEARING : 04.06.2013 DATE OF PRONOUNCEMENT : 12.06.2013 O R D E R PER RAJENDRA SINGH, AM: THESE PROCEEDINGS HAVE ARISEN CONSEQUENT TO ORDER O F RECALL PASSED BY THE TRIBUNAL VIDE ORDER DATED 20.5.2011 IN MA NO.61 7/M/2010 PASSED IN RELATION TO ORDER OF THE TRIBUNAL IN ITA NO.3296/M/ 2006. THE TRIBUNAL HAD EARLIER DISPOSED OFF THE APPEAL IN ITA NO.3296/M/20 06 VIDE ORDER DATED 15.3.2007. THE TRIBUNAL IN THE SAID ORDER HAD CONFI RMED THE JURISDICTION OF CIT FOR TAKING ACTION UNDER SECTION 263 BUT HAD OMI TTED TO ADJUDICATE THE GROUNDS RAISED ON MERIT RELATING TO ALLOWABILITY OF INTEREST EXPENDITURE AND ADDITION ON ACCOUNT OF PROVISIONS TO THE BOOK PROFI T. THESE GROUNDS BEING THE GROUND NO.3(C), 3(D) AND 5(C) AND 5(D) WHICH HAD BE EN RAISED BY THE ASSESSEE BEFORE THE TRIBUNAL, WHICH REMAINED UNADJU DICATED ARE REPRODUCED BELOW FOR READY REFERENCE :- ITA NO.3296/M/06 A Y .01-02 2 2. GROUND 3 CIT(A) ERRED IN SETTING ASIDE ASSESSME NT WITH DIRECTION TO ASSESSING OFFICER TO : C) DISALLOW CLAIM OF INTEREST AMOUNTING TO RS.23.39 LACS RELATED TO PURCHASE OF BRAND NAMES AND TRADE MARKS. D) INCLUDE THE PROVISION OF RS.7.19 CRORES CREATED FOR ADVERTISEMENT AND SALES PROMOTION AND DISTRIBUTION EXPENSES WHILE CALCULATI NG BOOK PROFIT UNDER SECTION 115JB OF THE ACT. GROUND NO.5 WHILE PASSING ORDER UNDER SECTION 263 C IT HAD ERRED IN OBSERVING/HOLDING THAT : C) THE PROVISION OF RS.7,19,49,950/- BEING PROVISI ON FOR ADVERTISEMENT, SALES PROMOTION AND DISTRIBUTION EXPENSES IS IN THE NATUR E OF PROVISION FOR UNASCERTAINED LIABILITIES. D) THE INTEREST PAID TO BOMBAY OIL INDUSTRIES WAS CAPITAL IN NATURE. 2. WE FIRST TOOK UP THE DISPUTE RELATING TO DISALLO WANCE OF INTEREST OF RS.23.39 LACS. THE ASSESSEE HAD PURCHASED BRAND NAM E AND TRADE MARKS FROM BOMBAY OIL INDUSTRIES LTD. IN RELATION TO WHIC H THE ASSESSEE HAD PAID INTEREST OF RS.23.39 LACS. THE ASSESSEE CLAIMED INT EREST AS REVENUE EXPENDITURE WHICH HAD BEEN ALLOWED BY THE AO. CIT T HEREAFTER INITIATED PROCEEDINGS UNDER SECTION 253 IN WHICH IT WAS HELD, APPLYING THE PROVISIONS OF EXPLANATION-8 43(1) THAT THE INTEREST PAID FOR DELA Y IN PAYMENT OF PURCHASE CONSIDERATION WAS CAPITAL IN NATURE. THE ASSESSEE H AD CHALLENGED THE ORDER OF CIT BEFORE THE TRIBUNAL WHO CONFIRMED THE JURISDICT ION OF CIT TO TAKE ACTION UNDER SECTION 263 BUT DID NOT ADJUDICATE THE ISSUE OF DISALLOWABILITY OF INTEREST ON MERIT FOR WHICH SPECIFIC GROUND HAD BEEN RAISED BY THE ASSESSEE. AS MENTIONED EARLIER THE ORDER OF THE TRIBUNAL WAS REC ALLED FOR THE LIMITED PURPOSE OF ADJUDICATING THE SAID GROUND WHICH HAD B EEN OMITTED TO BE CONSIDERED. ITA NO.3296/M/06 A Y .01-02 3 2.1 WE HAVE HEARD BOTH PARTIES IN THE MATTER, PERUS ED THE RECORDS, CONSIDERED THE MATTER CAREFULLY. UNDER PROVISIONS O F EXPLANATION-8 TO SECTION 43(1) ANY INTEREST PAYABLE IN CONNECTION WITH ACQUI SITION OF AN ASSET UP TO THE PERIOD TILL THE ASSET IS FIRST PUT TO USE IS REQUIR ED TO BE INCLUDED IN THE ACTUAL COST OF THE ASSET AND INTEREST PAID THEREAFTER HAS TO BE ALLOWED AS REVENUE EXPENDITURE. IN THE PRESENT CASE FROM THE PERUSAL O F ORDER OF CIT IT IS NOT CLEAR AS TO WHETHER INTEREST HAD BEEN PAID TILL THE DATE OF ACQUISITION OF THE ASSET OR THEREAFTER. BOTH THE PARTIES AGREED THAT T HE ISSUE MAY BE RESTORED TO FILE OF AO FOR FRESH DECISION AFTER NECESSARY EXAMI NATION. WE, THEREFORE SET ASIDE THE ORDER OF CIT ON THIS POINT AND RESTORE TH E MATTER BACK TO AO FOR PASSING A FRESH ORDER AFTER NECESSARY EXAMINATION O F THE MATTER AND AFTER HEARING THE ASSESSEE. 3. THE SECOND DISPUTE IS REGARDING ADDITION OF RS.7 ,19,49,950/- BEING PROVISION FOR ADVERTISEMENT, SALES PROMOTION AND DI STRIBUTION OF EXPENSES WHILE COMPUTING BOOK PROFIT UNDER SECTION 115JB. TH E ASSESSEE IN THE RELEVANT ORDER HAD DEBITED AN AMOUNT OF RS.79.82 CR ORES UNDER THE HEAD OF ADVERTISEMENT AND SALE PROMOTION. THE SAID AMOUNT ALSO INCLUDED PROVISION OF RS.12.44 CRORES. AT THE TIME OF FILING OF RETURN FOR THE SAID YEAR, THE ASSESSEE WROTE BACK AN AMOUNT OF RS.7,19,49,950/- O UT OF THE SAID PROVISIONS AND ADDED TO THE TOTAL INCOME IN THE COMPUTATION OF INCOME FILED ALONG WITH RETURN OF INCOME. THE AO IN THE ASSESSMENT ORDER P ASSED WHILE COMPUTING BOOK PROFIT UNDER SECTION 115JB, HAD NOT ADDED THE SUM OF RS.7,19,49,950/-. CIT THEREFORE STARTED PROCEEDINGS UNDER SECTION 263 IN WHICH IT WAS SUBMITTED THAT PROVISION HAD BEEN MADE FOR KNOWN LI ABILITY ON THE BASIS OF INFORMATION AVAILABLE AT THE TIME OF PREPARATION OF ACCOUNT AND SUBSEQUENTLY ITA NO.3296/M/06 A Y .01-02 4 IT WAS FOUND THAT THE AMOUNT PAYABLE WAS LESS AND T HEREFORE BALANCE AMOUNT WAS WRITTEN BACK AND ADDED TO THE TOTAL INCOME. IT WAS ALSO SUBMITTED THAT THE PROVISION HAD BEEN MADE FOR UNASCERTAINED LIABI LITY. THEREFORE THE SAME COULD NOT BE ADDED UNDER SECTION 115JB. CIT DID NOT ACCEPT THE EXPLANATION GIVEN AND OBSERVED THAT AMOUNT WRITTEN OFF BY THE A SSESSEE WAS TOWARDS UNASCERTAINED LIABILITY AND THEREFORE UNDER THE PRO VISIONS OF EXPLANATION (C) OF SECTION 115JB(2) THE PROVISION OF RS.7.19 CRORES WH ICH WAS FOR MEETING LIABILITIES OTHER THAN UNASCERTAINED LIABILITY HAD TO BE ADDED TO THE BOOK PROFIT. CIT THEREFORE DIRECTED THE AO TO INCLUDE RS.7.19 CR ORES IN THE BOOK PROFIT. IN APPEAL THE TRIBUNAL UPHELD THE JURISDICTION OF CIT TO TAKE ACTION UNDER SECTION 263 BUT OMITTED TO ADJUDICATE THE GROUND RAISED BY ASSESSEE ON MERIT REGARDING DIRECTION OF CIT FOR MAKING ADDITION OF R S.7.19 CRORES. THE ORDER WAS THEREFORE RECALLED BY THE TRIBUNAL TO ADJUDICAT E THIS GROUND. 3.1 BEFORE US THE LD. AR FOR THE ASSESSEE SUBMITTED THAT SAME ISSUE HAD ARISEN IN ASSESSEES OWN CASE IN ASSESSMENT YEAR 19 96-97 IN WHICH THE TRIBUNAL VIDE ORDER DATED 7.12.2006 IN ITA NO.2792/M/01 HAD DELETED THE ADDITION MADE BY AUTHORITIES ON ACCOUNT OF PROVISIO NS MADE ON ACCOUNT OF ADVERTISEMENT, SALES PROMOTION AND DISTRIBUTION EXP ENSES. IT WAS THEREFORE ARGUED THAT FOLLOWING THE SAID DECISION THE CLAIM H AD TO BE ALLOWED. HE ALSO PLACED RELIANCE ON THE DECISION OF THE TRIBUNAL DAT ED 2.9.2003 IN ITA NO.3927/M/02 FOR THE ASSESSMENT YEAR 1997-98 IN THE CASE OF M/S. VISHWADEEP EXPORTS PVT. LTD. VS. ACIT (INV.). THE LD. AR FOR THE ASSESSEE ALSO ARGUED THAT CIT WHILE SETTING ASIDE THE ASSESSMENT HAD NO POWER TO GIVE DIRECTION FOR COMPLETING ASSESSMENT IN A PARTICULAR MANNER. RELIANCE FOR THE SAID PROPOSITION WAS PLACED ON THE JUDGMENT OF HON'BLE HIGH COURT OF MADRAS ITA NO.3296/M/06 A Y .01-02 5 IN THE CASE OF CIT VS. SMT. TASNEEM Z. MADRASWALA (324 ITR 67) AND THE DECISION OF THE TRIBUNAL IN THE CASE OF DEVELOPMENT CONSTRUCTION AND ALLIED SERVICES (INDIA) (P) LTD. VS. ITO (132 ITD 118) . THE LD. DR ON THE OTHER HAND SUBMITTED THAT THE ASSESSEE HAD CREATED THE PROVISI ON WITH THE UNDERSTANDING THAT THE WORK AWARDED TO THE PARTIES WOULD BE COMPL ETED WITHIN THE YEAR BUT THE WORK TO THE EXTENT OF RS.7.19 CRORES HAD NOT BE EN EXECUTED DURING THE YEAR AND THEREFORE, NO LIABILITY HAD BEEN INCURRED DURING THE YEAR TO THAT EXTENT WHICH WAS THE REASON FOR WRITING BACK OF THE PROVISION BY THE ASSESSEE. THUS IT WAS CLEAR THAT PROVISION WAS TOWA RDS UNASCERTAINED LIABILITY AND HAD THEREFORE TO BE ADDED TO THE PROFIT UNDER P ROVISIONS TO EXPLANATION (C) TO SECTION 115JB(2) . THE LD. AR FOR THE ASSESS EE IN REPLY COULD NOT CONTROVERT THE SAID CLAIM OF THE LD. DR. 4. WE HAVE PERUSED THE RECORDS AND CONSIDERED THE R IVAL CONTENTIONS CAREFULLY. THE DISPUTE IS REGARDING ADDITION OF RS. 7.19 CRORES TO THE BOOK PROFIT ON ACCOUNT OF PROVISION MADE BY THE ASSESSEE TOWARDS ADVERTISEMENT, SALES PROMOTION AND DISTRIBUTION EXPENSES. THE ASSE SSEE IN THE BOOKS OF ACCOUNT HAD MADE TOTAL PROVISION OF RS.12.44 CRORES ON THIS ACCOUNT BUT AT THE TIME OF FILING OF RETURN OF INCOME THE ASSESSEE WROTE BACK THE PROVISIONS AMOUNTING TO RS.7.19 CRORES AND ADDED TO THE TOTAL INCOME. IN THE ORIGINAL ASSESSMENT MADE BY THE ASSESSING OFFICER, THE SAID AMOUNT HAD NOT BEEN ADDED TO BOOK PROFIT. CIT HOWEVER INITIATED PROCEED INGS UNDER SECTION 263 AND DIRECTED THE SAID AMOUNT TO BE ADDED TO THE BOO K PROFIT AS THE SAID PROVISION WAS NOT FOR ASCERTAINED LIABILITIES. UNDE R THE PROVISIONS OF EXPLANATION (C) OF SECTION 115JB(2), PROVISION FOR MEETING ANY LIABILITY, OTHER THAN ASCERTAINED LIABILITIES IS REQUIRED TO BE ADDE D TO THE BOOK PROFIT. THE ITA NO.3296/M/06 A Y .01-02 6 REASON BEHIND SUCH PROVISION IS THAT WHILE COMPUTIN G TOTAL INCOME, ONLY EXPENDITURE INCURRED TOWARDS ASCERTAINED LIABILITY WHETHER BY WAY OF PROVISION OR OTHERWISE IS ALLOWABLE AS DEDUCTION. THEREFORE, PROVISION HAS BEEN MADE IN SECTION 115JB TO ADD BACK ANY AMOUNT OF PROVISION C REATED FOR LIABILITIES OTHER THAN ASCERTAINED LIABILITIES. 4.1 THE LD. AR SUBMITTED THAT LIABILITY HAD ACTUAL LY BEEN INCURRED BY THE ASSESSEE AND ONLY QUANTIFICATION TO BE MADE, THEREF ORE DIFFERENCE HAD BEEN ADDED BY THE ASSESSEE IN THE COMPUTATION OF INCOME. HOWEVER THE LD. DR POINTED OUT THAT THE LIABILITY WRITTEN BACK THE ASS ESSEE RELATED TO WORK NOT EXECUTED BY THE PARTIES AND THEREFORE LIABILITY TO THAT EXTENT WAS NOT ASCERTAINED. THIS CLAIM OF THE LD. DR WAS NOT CONTR OVERTED BY THE LD. AR APPEARING FOR THE ASSESSEE. THE CLAIM OF THE LD. DR IS ALSO SUPPORTED BY THE FACT THAT THE ASSESSEE ITSELF ADDED A SUM OF RS .7.19 CRORES TO THE TOTAL INCOME BY WRITING BACK PART OF THE PROVISIONS. IN C ASE THE ENTIRE PROVISION MADE BY THE ASSESSEE WAS TOWARDS ASCERTAINED LIABIL ITY THEN IT IS FULLY ALLOWABLE AS DEDUCTION WHILE COMPUTING TOTAL INCOME . SINCE THE ASSESSEE ITSELF FOUND THE ASCERTAINED LIABILITY FOR THE YEAR AT RS. 5.25 CRORES AND ADDED BACK THE BALANCE AMOUNT OF RS.7.19 CRORES, IN THE SAME Y EAR IT CLEARLY SHOWS THAT THE PROVISION TO THAT EXTENT WAS NOT TOWARDS ASCERT AINED LIABILITIES. THE CIT THEREFORE WAS CORRECT IN DIRECTING THE ASSESSING OF FICER TO ADD RS.7.19 CRORES TO THE BOOK PROFIT UNDER THE PROVISIONS OF EXPLANAT ION (C) OF SECTION 115JB(2). 4.2 THE LD. AR FOR THE ASSESSEE HAS PLACED RELIANCE ON THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE IN 1996-97 (SUPRA). HOWEVER ON CAREFUL PERUSAL OF THE ORDER OF THE TRIBUNAL WE FIND THAT T HE ISSUE IN THAT YEAR WAS NOT ITA NO.3296/M/06 A Y .01-02 7 REGARDING ADDITION OF PROVISION TO THE BOOK PROFIT UNDER EXPLANATION (C) OF SECTION 115JB(2). THE ISSUE WAS REGARDING ADDITION UNDER NORMAL PROVISIONS OF THE ACT. THE TRIBUNAL NOTED THAT THE REVENUE AUT HORITIES HAD ACCEPTED THAT THE PROVISIONS HAD BEEN PROPERLY CREATED IN ACCORDA NCE WITH THE PRINCIPLE OF ACCOUNTING AND DIFFERENCES HAD ALREADY BEEN WRITTEN BACK BY THE ASSESSEE IN SUBSEQUENT YEARS AND BROUGHT TO TAX AND THERE WAS T HUS NO LOSS TO THE REVENUE . IT WAS UNDER THESE CIRCUMSTANCES THAT THE TRIBUNAL HAD ALLOWED THE CLAIM OF THE ASSESSEE. THE TRIBUNAL HAD NOT GONE IN TO THE ISSUE AS TO WHETHER ANY PART OF THE PROVISION WAS TOWARDS LIABILITIES O THER THAN ASCERTAINED LIABILITIES AS THE SAID ISSUE WAS NOT BEFORE THE TR IBUNAL. THE DECISION OF THE TRIBUNAL THEREFORE DOES NOT HELP THE CASE OF THE AS SESSEE . RELIANCE HAS ALSO BEEN PLACED ON THE DECISION OF THE TRIBUNAL IN CASE OF M/S. VISHWADEEP EXPORTS PVT. LTD. (SUPRA). THE SAID CASE IS ALSO FOUND TO BE DISTINGU ISHABLE. THE ISSUE IN THAT CASE WAS WHETHER PROVISION WAS MA DE TOWARDS BAD DEBT COULD BE ADDED UNDER EXPLANATION (C) OF SECTION 115 JB(2). THE TRIBUNAL NOTED THAT THE PROVISION HAD BEEN MADE WITH REFERENCE TO SPECIFIC PARTIES WHICH HAD ACTUALLY BECOME BAD AND THEREFORE PROVISION HAD TO BE TREATED AS PROVISION FOR ASCERTAINED LIABILITY. THE TRIBUNAL ALSO OBSERV ED THAT THE PROVISION FOR DOUBTFUL DEBT WAS NOT FOR MAKING ANY LIABILITY BUT WAS TOWARDS DIMINUTION IN THE VALUE OF ASSET AND THEREFORE CLAUSE (C) OF THE EXPLANATION TO SECTION 115JB(2) WAS NOT APPLICABLE. THE FACTS OF THE CASE ARE TOTALLY DIFFERENT AND NOT APPLICABLE TO THE PRESENT CASE. 4.3 THE LD. AR FOR THE ASSESSEE HAS ALSO ARGUED THA T CIT WHILE SETTING ASIDE ASSESSMENT UNDER SECTION 263 IS NOT EMPOWERED TO GIVE DIRECTION TO COMPLETE ASSESSMENTS IN A PARTICULAR MANNER. WE HAV E GONE THROUGH THE ITA NO.3296/M/06 A Y .01-02 8 PROVISIONS OF SECTION 263 CAREFULLY. THE SAID SECTI ON CLEARLY PROVIDES THAT CIT CAN PASS ANY ORDER AS CIRCUMSTANCES OF THE CASE JUS TIFY INCLUDING AN ORDER OF ENHANCING OR MODIFYING ASSESSMENT OR CANCELING ASSE SSMENT AND DIRECTING FRESH ASSESSMENT. IT IS THUS CLEAR THAT CIT UNDER S ECTION 263 IS FULLY EMPOWERED TO DIRECT THE ASSESSING OFFICER TO MAKE A SSESSMENT IN A PARTICULAR MANNER. HOWEVER IN CASE CIT CANCELS THE ASSESSMENT OR DIRECTS THE ASSESSING OFFICER TO MAKE FRESH ASSESSMENT DENOVO THEN CIT WO ULD NOT BE JUSTIFIED IN GIVING DIRECTION TO COMPUTE ASSESSMENT IN A PARTICU LAR MANNER. THE JUDGMENTS RELIED UPON BY THE LD. AR RELATE TO SUCH SITUATIONS. IN CASE OF CIT VS. SMT. TASNEEM Z. MADRASWALA (SUPRA) CIT HAD CANCELLED THE ORDER OF ASSESSMENT AND THEREFORE IT WAS HELD BY THE HIGH CO URT THAT IN SUCH A CASE HE COULD NOT DIRECT THE ASSESSING OFFICER TO COMPLETE ASSESSMENT IN A PARTICULAR MANNER. SIMILARLY IN CASE OF DEVELOPMENT, CONSTRUCTION AND ALLIED SERVICES PVT. LTD. VS. ITO (SUPRA), CIT HAD SET ASIDE THE ASSESSMENT FOR MAKI NG FRESH ASSESSMENT ON THE GROUND THAT ASSESSING OFFICER HAD COMPLETED ASSESSMENT WITHOUT MAKING NECESSARY AND ADEQUATE ENQUIRIES. SI NCE THE ASSESSMENT HAD BEEN SET ASIDE FOR MAKING FRESH ASSESSMENT, THE TRI BUNAL HELD THAT CIT WAS NOT JUSTIFIED IN GIVING SPECIFIC DIRECTION TO ASSES SING OFFICER TO COMPLETE ASSESSMENT IN PARTICULAR MANNER. IN THE PRESENT CAS E CIT HAS NOT SET ASIDE THE ASSESSMENT FOR MAKING FRESH ASSESSMENT NOR HAS CANCELLED THE ASSESSMENT. HE HAS DECIDED THE ISSUE AND DIRECTED T HE ASSESSING OFFICER TO MAKE ADDITIONS / DISALLOWANCE. THEREFORE SAID JUDGM ENTS WILL NOT BE APPLICABLE TO THE FACTS OF THE PRESENT CASE. ITA NO.3296/M/06 A Y .01-02 9 5. IN VIEW OF THE FOREGOING DISCUSSION AND FOR THE REASONS GIVEN EARLIER WE ARE OF THE CONSIDERED VIEW THAT CIT ON THE FACTS OF THE CASE WAS JUSTIFIED IN DIRECTING ASSESSING OFFICER TO MAKE ADDITION OF RS.7.19 CRORES TO THE BOOK PROFIT. ORDER OF CIT IS ACCORDINGLY UPHELD. 6. IN THE RESULT, APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 12.6.2013. SD/- SD/- (SANJAY GARG) JUDICIAL MEMBER (RAJENDRA SINGH) ACCOUNTANT MEMBER MUMBAI, DATED: 12.6. 2013. JV. COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT(A) CONCERNED, MUMBAI THE DR BENCH TRUE COPY BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.