Appeal details
Counselvise Citation
334519914 RSA 2010
Assessee PAN
Bench
Appeal Number
Duration Of Justice
1 year(s) 3 month(s) 25 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
24-08-2011
Appeal Filed By
Assessee
Order Result
Allowed
Bench Allotted
C
Next Hearing Date
11-08-2011
Assessment Year
2006-2007
Appeal Filed On
29-04-2010
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL 'C' BENCH, MUMBAI BEFORE SHRI R.V. EASWAR, PRESIDENT AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER ITA NOS. 3344 & 3345/MUM/2010 (ASSESSMENT YEARS: 2005-06 & 2006-07) M/S. PARLE AGRO PVT. LTD. DCIT, CENTRAL CIRCLE 25 WESTERN EXPRESS HIGHWAY 4TH FLOOR, AAYAKAR BHAVAN CHAKALA, ANDHERI (E) VS. M.K. ROAD, MUMBAI 400020 MUMBAI 400009 PAN - AABCP 8416 G APPELLANT RESPONDENT ITA NOS. 3636 & 3637/MUM/2010 (ASSESSMENT YEARS: 2005-06 & 2006-07) ACIT, CENTRAL CIRCLE 25 M/S. PARLE AGRO PVT. LTD. ROOM NO. 404, 4TH FLOOR WESTERN EXPRESS HIGHWAY AAYAKAR BHAVAN, M.K. ROAD VS. CHAKALA, ANDHERI (E) MUMBAI 400020 MUMBAI 400009 PAN - AABCP 8416 G APPELLANT RESPONDENT ASSESSEE BY: SHRI FIROZE ANDHYARUJINA REVENUE BY: SHRI DEVI SINGH DATE OF HEARING: 11.08.2011 DATE OF PRONOUNCEMENT: 24.08.2011 O R D E R PER B. RAMAKOTAIAH, A.M. THESE ARE CROSS APPEALS BY ASSESSEE AND REVENUE AGA INST THE ORDERS OF THE CIT(A) XXXIX, MUMBAI DATED 02.02.2010 FOR THE R ESPECTIVE ASSESSMENT YEARS. THESE APPEALS ARE CONSIDERED TOGETHER AND DI SPOSED OFF BY THIS COMMON ORDER. ITA NOS. 3344 & 3345/MUM/2010; A.Y. : 2005-06 & 200 6-07 2. ASSESSEE HAS RAISED THE FOLLOWING COMMON GROUND OF APPEAL FOR BOTH THE ASSESSMENT YEARS. ITA 3345, 3346, 3636 & 3637/MUM/2010 M/S. PARLE AGRO PVT. LTD. 2 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) ERRED IN UPHOLDING THE ACTION OF THE ASSESSING OFFICER IN TR EATING ARTWORK CHARGES INCLUDED IN ADVERTISEMENT EXPENSES, AS CAPI TAL EXPENDITURE, IN SPITE OF THE FACT, GIVEN THE AVERAG E LIFESPAN OF SUCH ARTWORK, NO ASSET OF ENDURING NATURE IS ACQUIR ED AND ACCORDINGLY IT CANNOT BE HELD AS INCURRED IN THE CA PITAL FIELD. THE APPELLANT SUBMITS THAT THERE IS NO JUSTIFICATION IN TREATING ART WORK CHARGES AS CAPITAL EXPENDITURE AND PRAYS THAT THE SAME BE ALLOWED AS REVENUE EXPENDITURE. IN A.Y. 2005-06 ASSESSEE HAS RAISED ANOTHER GROUND ALSO AS UNDER: 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) ERRED IN UPHOLDING THE ACTION OF ASSESSING OFFICER FOR DISAL LOWANCE OF PRIOR PERIOD EXPENSES OF RS.10,11,152/-. THE APPELL ANT PRAYS THAT THE DISALLOWANCE MADE FOR PRIOR PERIOD EXPENSE S BE DELETED. 3. WE HAVE BOTH THE LEARNED COUNSEL AND THE LEARNED D. R. AND PERUSED THE RECORDS. 4. REGARDING GROUND NO. 1 IT WAS SUBMITTED THAT THIS I SSUE WAS CONSIDERED THE ITAT IN ASSESSEES OWN CASE FOR ASSE SSMENT YEARS 1998-99 TO 2002-03 AND DECIDED IN FAVOUR OF THE ASSESSEE BY HO LDING AS UNDER: - 8. WE HAVE HEARD THE PARTIES AND CONSIDERED THEIR SUBMISSIONS. SECTION 37(3) IS NO LONGER ON THE STATUTE BOOK. THE DEDUCTIBILITY OF THE IMPUGNED EXPENDITURE HAS THEREFORE TO BE DECIDED IN THE LIGHT OF THE PROVISIONS OF SECTION 37(1) OF THE I-T ACT. IF THE IMPUGNED EXPENSES ARE CAPITAL IN NATURE, THEY WOULD NOT BE ADMISSIBLE FOR DEDUCTION U/S. 37(1). IF THEY ARE HOWEVER IN THE NATURE OF REVENUE EXPENSES HAVING BEEN INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOS E OF THE BUSINESS, THEY WOULD BE ADMISSIBLE FOR DEDUCTION. 9. PERUSAL OF THE ASSESSMENT ORDER SHOWS THAT THE A O HAS DISALLOWED THE EXPENDITURE ON THE GROUND THAT IT WA S INCURRED ON CREATING APPARATUS WHICH HAD BEEN UTILIZED FOR PREP ARATION OF ADVERTISING MATERIALS AND THEREFORE WAS IN THE NATU RE OF CAPITAL EXPENDITURE. THE LD. CIT(A) HAS SIMPLY CONFIRMED TH E ORDER OF THE AO WITHOUT ANY DISCUSSION. NEITHER THE AO NOR THE CIT( A) HAS STATED ABOUT THE LIFE OF THE BROMIDES OR THE FREQUENCY WIT H WHICH THEY ARE PREPARED OR DISCARDED. THE MERE FACT THEY ARE USED FOR PREPARING LABELS AND CARTONS TO BE PASTED ON THE BOTTLES AND THE PRODUCTS DOES NOT ISPO FACTO LEAD TO THE CONCLUSION THAT THE EXPE NDITURE INCURRED ON PREPARING THEM ARE IN THE NATURE OF CAPITAL EXPENDI TURE. IT IS LIKE THE EXPENDITURE INCURRED ON PREPARING A NEGATIVE WITH T HE HELP OF WHICH POSITIVE PRINTS OF PHOTOGRAPHS ARE PREPARED. CAN IT BE SAID THAT THE EXPENSES INCURRED ON PREPARING THE NEGATIVES ARE IN THE NATURE OF ITA 3345, 3346, 3636 & 3637/MUM/2010 M/S. PARLE AGRO PVT. LTD. 3 CAPITAL EXPENDITURE? VARIOUS TESTS HAVE BEEN SUGGES TED TO DECIDE UPON AS TO WHETHER AN ITEM OF EXPENDITURE IS IN THE NATURE OF CAPITAL EXPENDITURE OR NOT. THE TESTS OF ENDURING BENEFIT A ND ONCE AND FOR ALL ARE WELL-KNOWN TESTS. BOTH THE DEPARTMENTAL AU THORITIES HAVE HELD THE IMPUGNED EXPENDITURE TO BE IN THE NATURE O F CAPITAL EXPENDITURE WITHOUT BRINGING ANY COGENT MATERIAL ON RECORD TO SUPPORT THEIR CONCLUSIONS. THEIR ORDERS CANNOT THEREFORE BE SUSTAINED. IT IS CONSIDERED APPROPRIATE TO SET ASIDE THEIR ORDERS AN D RESTORE THE MATTER TO THE FILE OF THE AO WITH THE DIRECTION TO EXAMINE THE DE NOVO AND DECIDE UPON THE ISSUE IN ACCORDANCE WITH LAW AF TER BRINGING RELEVANT MATERIALS ON RECORD TO JUSTIFY HIS DECISIO N. WE ORDER ACCORDINGLY. REASONABLE OPPORTUNITY OF HEARING BE G IVEN TO THE ASSESSEE. GROUND NO. 1 IS TREATED AS ALLOWED FOR ST ATISTICAL PURPOSE. SINCE THE FACTS ARE SIMILAR FOR THESE YEARS ALSO, R ESPECTFULLY FOLLOWING THE ABOVE DECISION OF THE COORDINATE BENCH, WE RESTORE THE MATTER BACK TO THE FILE OF THE A.O. TO DECIDE THE ISSUE IN ACCORDA NCE WITH LAW. GROUND IS CONSIDERED ALLOWED. 5. THE ISSUE IN GROUND NO. 2 IN ITA NO. 3344/MUM/2010 IS WITH REFERENCE TO PRIOR PERIOD EXPENSES OF RS.10,11,152/ -. ASSESSEE CLAIMED THE PRIOR PERIOD EXPENSES IN THE P & L ACCOUNT BELOW TH E LINE AND IN THE RETURN FILED IT MADE A SPECIFIC CLAIM IN THE COMPUTATION O F INCOME AS THE COMPUTATION STARTED FROM NET PROFIT. IN THE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS THE SUBMISSION OF THE ASSESSEE, THAT THEY HAVE MADE DETAILED EXPLANATION WITH REFERENCE TO THE NATURE O F EXPENSES AND ALSO SUPPORTING EVIDENCE BUT, WITHOUT ANY DISCUSSION THE A.O. DID NOT ALLOW THE AMOUNT. HE STARTED THE COMPUTATION WITH NET PROFIT AND MADE ADJUSTMENT TO THAT AMOUNT. ASSESSEE CONTESTED THE SAME BEFORE THE CIT(A) WHO GAVE A FINDING THAT THESE ARE GENUINE EXPENSES MET OUT BY THE ASSESSEE FOR BUSINESS PURPOSE. HE ALSO AGREED THAT IT IS A SETTL ED PRINCIPLE THAT THE EXPENSES WHICH AROSE IN THE ACCOUNTING YEAR RELEVAN T TO THE ASSESSMENT YEAR ONLY CAN BE ALLOWED AS DEDUCTION SINCE ASSESSE E FOLLOWS MERCANTILE SYSTEM OF ACCOUNTING. BY HOLDING THUS, HE CONSIDERE D THAT PRIOR PERIOD EXPENSES CANNOT BE ALLOWED A DEDUCTION. HOWEVER, KE EPING IN THE SPIRIT OF THE DECISION RELIED UPON BY THE ASSESSEE AND ALSO K EEPING IN VIEW THAT BUSINESS EXPENSES HAVE TO BE ALLOWED AS DEDUCTION W HILE COMPUTING THE TOTAL INCOME, HE DIRECTED THE A.O. FOR ALLOWING THE PRIOR PERIOD EXPENSES DISALLOWED IN A.Y. 2006-07 AS DEDUCTION IN A.Y. 200 5-06 IF IT IS INCURRED IN ITA 3345, 3346, 3636 & 3637/MUM/2010 M/S. PARLE AGRO PVT. LTD. 4 THE ACCOUNTING YEAR RELEVANT TO A.Y. 2005-06. ASSES SEE WAS DIRECTED TO PROVIDE NECESSARY DETAILS. THE CIT(A) HOWEVER, DID NOT GIVE ANY DIRECTION FOR ALLOWING THE PRIOR PERIOD EXPENSES DISALLOWED IN TH IS ASSESSMENT YEAR AS A DEDUCTION IN A.Y. 2004-05 SINCE THE APPEAL FOR THAT ASSESSMENT YEAR WAS NOT PENDING BEFORE HIM AND THE ASSESSEE WAS DIRECTED TO APPROACH THE ITAT IN THIS REGARD. 6. THE LEARNED COUNSEL SUBMITTED THAT THERE IS NO DOUB T ABOUT THE EXPENSES BEING BUSINESS EXPENSES AND ALSO NO DOUBT ABOUT THE EXPENDITURE BEING CRYSTALLISED IN THIS YEAR. IT IS THE SUBMISSI ON OF THE LEARNED COUNSEL THAT THE EXPENDITURE SHOULD BE ALLOWED IN THIS YEAR AND IF THAT BEING SO THE EXPENDITURE PERTAINING TO A.Y. 2006-07 DIRECTED TO BE ALLOWED IN THIS YEAR SHOULD BE WITHDRAWN AS THERE CANNOT BE TWO ALLOWANC ES ON TWO DIFFERENT PRINCIPLES. IT WAS HIS SUBMISSION THAT THE EXPENSES HAS CRYSTALLISED DURING THE YEAR AND THE SAME SHOULD BE ALLOWED. 7. THE LEARNED D.R., HOWEVER, RELIED ON THE ORDER OF T HE CIT(A) TO SUBMIT THAT PRIOR PERIOD EXPENSES CANNOT BE ALLOWED IN THI S YEAR AS ASSESSEE MAINTAINED BOOKS ON MERCANTILE SYSTEM OF ACCOUNTING . 8. WE HAVE CONSIDERED THE ISSUE. AS FAR AS PRIOR PERIO D EXPENSES ARE CONCERNED THE ISSUE REVOLVES ON THE FACT WHETHER TH E LIABILITY HAS CRYSTALLISED DURING THE YEAR UNDER CONSIDERATION OR NOT. NEITHER THE A.O. NOR THE CIT(A) DISCUSSED THE NATURE OF PRIOR PERIOD EXPENSES AND E XAMINED WHETHER THE EXPENDITURE HAS CRYSTALLISED DURING THE YEAR OR NOT . THE CIT(A) ALLOWED THE EXPENDITURE CLAIMED IN LATER YEAR AS A DEDUCTION IN THIS YEAR AND AS FAR AS THE EXPENDITURE CLAIM IN THIS YEAR WAS CONCERNED, H E DECLINED TO GIVE ANY DIRECTION STATING THAT THE APPEAL IN EARLIER YEAR W AS NOT PENDING BEFORE HIM. WE ARE OF THE VIEW THAT THE CIT(A) HAS ERRED IN CON SIDERING THE ISSUE ON LEGAL PRINCIPLES ALONE WITHOUT EXAMINING THE NATURE OF EX PENDITURE AND ITS CRYSTALLISATION DURING THE YEAR AS CLAIMED BY ASSES SEE. IN THE COURSE OF BUSINESS THERE CAN BE CERTAIN SITUATIONS WHERE THE AMOUNTS ARE DISPUTED OR THE BILLS HAVE NOT BEEN RECEIVED OR CLAIMS WERE MAD E SUBSEQUENTLY AND IN THOSE CASES THE COMPANY RECORDS THE EXPENDITURE AS PRIOR PERIOD EXPENSES AS PER ACCOUNTING PRINCIPLES AND GUIDE LINES UNDER COMPANY LAW. AS FAR AS ITA 3345, 3346, 3636 & 3637/MUM/2010 M/S. PARLE AGRO PVT. LTD. 5 INCOME TAX MATTERS ARE CONCERNED, THE EXPENDITURE I S ALLOWABLE AS DEDUCTION IN THE YEAR IN WHICH THE EXPENDITURE HAS CRYSTALLIS ED. THEREFORE THE A.O. IS BOUND TO EXAMINE WHETHER THE EXPENDITURES HAVE CRYS TALLISED DURING THE YEAR OR NOT. IT WAS THE SUBMISSION OF THE ASSESSEE BEFORE THE CIT(A) THAT THEY HAVE FURNISHED DETAILS WITH NECESSARY EXPLANATION R ELYING ON VARIOUS CASE LAWS BUT THE A.O. CHOOSE TO IGNORE THE SAME. AS SEE N FROM THE ASSESSMENT ORDER THERE IS NO DISCUSSION ABOUT THE CLAIM OF PRI OR PERIOD EXPENSES NOR ITS DISALLOWANCE. IN FACT THE A.O. STARTED THE COMPUTAT ION FROM NET PROFIT AND NOT FROM THE RETURNED INCOME. SO THIS ISSUE WAS ALL TOGETHER OMITTED BOTH IN THE ORDER AS WELL AS IN THE COMPUTATION. IN THE CAS E OF TOYO ENGG. INDIA LTD. VS. JCIT 5 SOT 616 (MUM) RELIED UPON BY THE LEARNED COUNSEL IT WAS HELD THAT THE PRIOR PERIOD EXPENSES ARE TO BE ALLOWED IN THE YEAR OF CLAIM. WE ARE OF THE OPINION THAT THE ISSUE HAS TO BE DECIDED AFT ER EXAMINING THE FACTS OF THE CLAIM AND NATURE OF EXPENDITURE AND FOR THIS PU RPOSE THE MATTER HAS TO BE RESTORED TO THE A.O. FOR EXAMINATION OF AMOUNT A ND ALLOWABILITY IN THE YEAR UNDER CONSIDERATION. 9. IN VIEW OF THE ABOVE, WE SET ASIDE THE DIRECTIONS O F THE CIT(A) GIVEN IN PARA 10 ENTIRELY AND RESTORE THE MATTER BACK TO THE FILE OF THE A.O. FOR FRESH EXAMINATION. ASSESSEE SHOULD BE GIVEN DUE OPPORTUNI TY BEFORE DECIDING THE ISSUE. GROUND 2 IN AY 2005-06 IS ALLOWED. 10. APPEALS ARE ALLOWED. ITA NOS.3636 & 3637/MUM/2010 : 2005-06 & 2006-07 11. IN THESE APPEALS REVENUE HAS RAISED FOLLOWING TWO G ROUNDS WHICH ARE COMMON FOR BOTH ASSESSMENT YEARS: - 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW, THE LD CIT(A) HAS ERRED IN DELETING THE DEDUCTION MADE ON ACCOUNT OF MISMATCH IN THE PRODUCTION AND CONSUMPTION OF PERFO RMS AND CAPS VIS--VIS CONSUMPTION OF BOTTLES BY MERELY ACC EPTING THE CONTENTION OF THE ASSESSEE THAT THE AO DID NOT CONS IDER THE CONSUMPTION OF BOTTLES APPEARING IN SR.NO. 1 TO 11 IN THE SAID SCHEDULE V OF ACCOUNTS, WITHOUT CONSIDERING THE FIN DINGS OF THE A.O. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) HAS ERRED IN AGREEING WITH THE ASSESSEE THAT THE AO ITA 3345, 3346, 3636 & 3637/MUM/2010 M/S. PARLE AGRO PVT. LTD. 6 FAILED TO CONSIDER THE PRODUCTION OF BOTTLES FROM S R. NO. 1 TO 11 OF SCHEDULE V OF THE ACCOUNTS WITHOUT CONSIDERING THE FACT THAT ALL THE BOTTLES APPEARING AT SR. NO. 1 TO 11 OF SCHEDUL E V WERE ONLY OPENING STOCK OF FINISHED GOODS AND THEREFORE, ATTR IBUTING THE CONSUMPTION OF PERFORMS AND CAPS DURING THE YEAR TO THESE BOTTLES IS NOT ACCEPTABLE. 12. THE BRIEF FACTS ARE THAT THE ASSESSEE FURNISHED SCH EDULE V FORMING PART OF BALANCE SHEET IN WHICH CAPTIVE CONSUMPTION, BREAKAGES, DAMAGES, SAMPLING FREE AND TESTING OF PET PERFORMS. ASSESSEE WAS ASKED TO EXPLAIN AND RECONCILE PET PERFORMS AND PRODUCTION OF BOTTLE S AS WELL AS CAPS CONSUMPTION AND ALSO THE BOTTLE CONSUMPTION. IN REP LY ASSESSEE SUBMITTED THAT THE COMPANY CONSUMED SPECIFIED NUMBER OF PERFO RMS AND CAPS WHICH INCLUDED SPECIFIED QUANTITY PURCHASED FROM OUTSIDE. IT WAS ALSO SUBMITTED THAT CAPS AND PERFORMS WERE EXCLUSIVELY USED FOR TH E PURPOSE OF PACKING FINISHED PRODUCTS AND HENCE THESE WERE DEBITED DIRE CTLY IN PACKING MATERIAL ACCOUNT NOT SATISFIED WITH THE EXPLANATION A.O. HEL D THAT THERE WAS MISMATCH IN THESE TWO ITEMS. AGGRIEVED ASSESSEE APP EALED BEFORE THE CIT(A) AND THE CIT(A) FOLLOWING THE ORDER OF HIS PREDECESS OR FOR A.Y. 2004-05 DELETED THE ADDITION MADE BY THE A.O. HE ALSO HELD THAT THERE WAS NO MATERIAL AVAILABLE WITH THE A.O. TO PROVE ANY UNACC OUNTED PRODUCTION OF FINISHED GOODS OR ANY INFLATION OF EXPENDITURE ON P ACKING MATERIAL SUCH AS PERFORMS AND CAPS AND THE ASSESSEE HAS FURNISHED TH E REASONS FOR HIGHER WASTAGE COMPARED TO EARLIER WITH NECESSARY EVIDENCE . THEREFORE THE CIT(A) DIRECTED THE A.O. TO DELETE THE ADDITION. AGGRIEVED BY THE DIRECTION OF THE CIT(A) REVENUE IS IN APPEAL. 13. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE RELE VANT MATERIAL ON RECORD. 14. AT THE OUTSET IT WAS SUBMITTED THAT SIMILAR ISSUE W AS CONSIDERED BY THE ITAT MUMBAI C BENCH IN ASSESSEES OWN CASE I N ITA NO. 1591/MUM/2009 FOR A.Y. 2004-05 WHEREIN IT WAS HELD AS UNDER: - 3. AFTER HEARING THE RIVAL SUBMISSIONS AND PERUSIN G THE RELEVANT MATERIAL ON RECORD IT IS NOTED THAT THE LEARNED CIT (A) HAS DELETED THE ADDITION BY SPECIFICALLY NOTING THAT THE ASSESSING OFFICER FAILED TO TAKE THE PRODUCTION OF BOTTLES FROM SR. NO. 1 TO 11 OF SCHEDULE V, WHICH FACT COULD NOT BE CONTROVERTED BY THE LEARNED DEPARTMENTAL ITA 3345, 3346, 3636 & 3637/MUM/2010 M/S. PARLE AGRO PVT. LTD. 7 REPRESENTATIVE. THE FURTHER WORKING GIVEN BY THE LE ARNED CIT(A) AND DETERMINING A REASONABLE PERCENTAGE OF WASTAGE HAS ALSO REMAINED UNCHALLENGED BEFORE US. UNDER THESE CIRCUMSTANCES I T IS APPARENT THAT THE ASSESSING OFFICER FAILED TO RECONCILE THE FIGURES PROPERLY. WE, THEREFORE, UPHOLD THE DELETION OF ADDITION. SINCE THE FACTS SIMILAR IN THESE TWO ASSESSMENT YEA RS ALSO, RESPECTFULLY FOLLOWING THE ABOVE DECISION OF THE COORDINATE BENC H WE UPHOLD THE ORDER OF THE CIT(A) DELETING THE ADDITION. GROUNDS OF THE RE VENUE ARE REJECTED. APPEALS DISMISSED. 15. IN THE RESULT, ASSESSEES APPEALS IN ITA NOS. 3344 & 3345/MUM/2010 ARE ALLOWED AND REVENUES APPEALS IN ITA NOS. 3636 & 3637/MUM/2010 ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 24 TH AUGUST 2011. SD/- SD/- (R.V. EASWAR) (B. RAMAKOTAIAH) PRESIDENT ACCOUNTANT MEMBER MUMBAI, DATED: 24 TH AUGUST 2011 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) XXXIX, MUMBAI 4. THE CIT CENTRAL II, MUMBAI CITY 5. THE DR, C BENCH, ITAT, MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI N.P.
