SABMILLER INDIA LTD ( FORMELRLY SKOL BREWERIES LTD), MUMBAI V. CIT 8, MUMBAI

ITA 4170/MUM/2014

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 9120 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 7 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-01-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Assessment Year: 2007-2008
• Appeal Filed On: 06-06-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: ANKIT SHRIMALI; RAJAN VORA HEMAN CHANDRA
• Keywords: Depreciation; Rectification of order; Revised return; Revenue expenditure; Capital expenditure
• Section: 263; 154

Judgement Text

, INCOME-TAX APPELLATE TRIBUNAL -EBENCH MUMBAI , . . , BEFORE S/SHRI RAJENDRA,ACCOUNTANT MEMBER AND C. N. PRASAD,JUDICIAL MEMBER ./ITA/4170/MUM/2014, /ASSESSMENT YEARS: 2007-08 SABMILLER INDIA LIMITED (FORMERLY SKOL BREWERIES LTD.) UNIT NO.301-302,THIRD FLOOR , DYNASTY BUSINESS PARK,BUSINESS WING,ANDHERI KURLA RD.ANDHERI-(E),MUMBAI-59 PAN:AAICS 2238 R VS. CIT-8 MUMBAI. ( /APPELLANT ) ( / RESPONDENT) REVENUE BY:S/ SHRI ANAND MOHAN ASSESSEE BY: S/SHRI RAJAN VORA/ HEMAN CHANDRA AND ANKIT SHRIMA LI / DATE OF HEARING: 16.11.2016 / DATE OF PRONOUNCEMENT:06/01/2017 ,1961 254(1) ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) PER RAJENDRA, AM - CHALLENGING THE ORDER DATED 28.3.14, OF THE CIT -8 , PASSED U/S. 263 OF THE ACT THE ASSESSEE HAS FILED THE PRESENT APPEAL. ASSESSEE COMPANY, ENGAGE D IN THE BUSINESS OF MANUFACTURING AND SALE OF BEER,FILED ITS RETURN OF INCOME ON 31.10.07 DECLARING TOTAL INCOME AT RS.NIL. THE ASSESSING OFFICER COMPLETED THE ASSESSMENT U/S. 143 (3) R.W.S. 144C (13) OF THE ACT ON 29.7.2011 . 2. THE CIT FOUND THAT WHILE COMPLETING THE ASSESSMENT THE AO HAD DISALLOWED A SUM OF RS.38.35CRORES U/S.40(A)(I)R.W.S.9,195 AND 200 OF T HE ACT WHICH WAS THE DEPRECIATION CLAIMED ON PAYMENT MADE BY THE ASSESSEE TO ITS AE FOR ACQUI RING INTELLECTUAL PROPERTY AND TRADE MARK, THAT THE ASSESSEE HAD CAPITALISED BOTH THE INTANGIB LE ASSETS IN ITS BOOKS OF ACCOUNT, THAT WHILE DISALLOWING THE DEPRECIATION THE AO HAD NOT TAKEN I NTO ACCOUNT THE FOREIGN EXCHANGE LOSS OF RS.5.74 CRORES PERTAINING TO ACQUISITION OF TRADE M ARK AND LICENCES. HE HELD THAT THE AO SHOULD HAVE CONSIDERED A SUM OF RS.5,47,40,081/- BE ING FOREIGN EXCHANGE LOSS WHILE MAKING DISALLOWANCE U/S. 40(A)(I),THAT THE IMPUGNED LOSS W AS PART AND PARCEL OF ACQUIRING TRADE MARK/BRAND. HE FURTHER FOUND THAT THE ASSESSEE HAD BEEN COLLECTING SALES TAX FROM ITS CUSTOMERS BY RAISING DEBIT NOTES THAT IT WAS TREATI NG THE DEBIT NOTES AS CONTINGENCY DEPOSITS, THAT IT HAD COLLECTED SALES TAX FROM ITS CUSTOMERS FROM THE PERIOD FROM 1996-97 TO 1999-2000, AMOUNTING TO RS.58.98 LAKHS, THAT THE AMOUNT IN QUE STION WAS NEITHER PAID TO THE GOVERNMENT NOT WAS REFUNDED TO THE CUSTOMERS FROM WHOM IT WAS COLLECTED. HE OBSERVED THAT IT HAD NOT OFFERED THE AMOUNT AS INCOME THOUGH SAME WAS TAXABL E AS REVENUE RECEIPT .HE REFERRED TO THE 4170-SABMILLER 2 ORDER OF THE HONBLE MADRAS HIGH COURT DELIVERED IN THE CASE OF SOUTHERN EXPRESS (242ITR107).HE ALSO FOUND THAT AS SUM OF RS.132.12 CRORES WAS SHOWN AS AN EXPENSE BY THE ASSESSEE ON ACCOUNT OF CONSUMPTION OF CONTAINERS IN THE BOOKS OF ACCOUNT THAT IN THE COMPUTATION OF INCOME THE EXPENDITURE UNDER THE SAM E HEAD WAS SHOWN AT RS.176.05 CRORES, THAT THE DIFFERENCE IN QUANTUM IN CLAIM RESULTED IN EXCESS CLAIM OF EXPENDITURE OF RS.43. 93CRORES.CONSIDEIRNG THE ABOVE, THE CIT HELD THAT T HE ORDER PASSED BY THE AO WAS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE. HE ISSU ED A NOTICE U/S. 263 OF THE ACT TO THE ASSESSEE ASKING IT TO SHOW CAUSE AS TO WHY THE ASSE SSMENT ORDER SHOULD NOT BE SET ASIDE/ CANCELLED. 3. VIDE ITS LETTERS DT.31.1.14 AND 23.3.14,THE ASSESSE E FILED DETAILED SUBMISSION TO THE NOTICE . AFTER CONSIDERING THE SAME, THE CIT HELD THAT THE A SSESSEE HAD PURCHASED BRANDS/TRADE MARK AND INTELLECTUAL PROPERTY FOR RS.167.95CRORES IN TH E AY 2007-08, THAT IN THE APPELLATE PROCEEDINGS THE TRIBUNAL HAD HELD THAT PROVISIONS O F SECTION 40(A)(I)WERE NOT APPLICABLE ON DEPRECIATION CLAIMED BY THE ASSESSEE ON THE AMOUNT S PAID TO ITS AE AS IT WAS CAPITALISED, THAT ALTERNATIVELY THE ASSESSEE HAD SUBMITTED THAT THE E XCHANGE LOSS WAS RS.5.47CRORES, THAT THE DEPRECIATION CLAIMED WAS ONLY RS.1.33CRORES.THE CIT DIRECTED THE AO THAT FOREX LAWS RELATING TO THE AMOUNT OF RS.153 CRORES SHOULD BE C APITALISED AND DEPRECIATION THEREON COMPUTED BY THE ASSESSEE AT RS.1.33 CRORES WOULD H AVE TO BE DISALLOWED. WITH REGARD TO SALES TAX COLLECTED FROM THE CUSTOME RS THE ASSESSEE ARGUED THAT THERE WAS DISPUTE ON THE ISSUE WITH THE GOVERNMENT AUTHORITIE S, THAT THE MATTER WAS FINALLY SETTLED BY THE HON'BLE SUPREME COURT WHICH AFFIRMED THE LEVY OF T AX ON VALUE OF PACKING MATERIAL RANGING FROM 3% TO 3.5%, THAT AFTER THE MATTER WAS FINALLY SETTLED THE AMOUNT LYING AS CONTINGENCY DEPOSIT WAS TO BE UTILISED IN PAYMENT OF SALES TAX AND THE BALANCE WAS TO BE REFUNDED TO THE CUSTOMERS, THAT THE COMPANY WAS UNABLE TO IDENTIFY OR LOCATE THE CUSTOMERS TO REFUND THE SALES TAX COLLECTED , THAT IT HAD OFFERED THE DISPUTED AM OUNT AS INCOME, THAT IT HAD FILED A RECTIFICATION APPLICATION BEFORE THE AO STATING THA T A REVISED RETURN WAS FILED VOLUNTARILY OFFERING THE AMOUNT OF RS.58.98 LAKHS,THAT THE SAM E WAS NOT CONSIDERED BY THE AO WHILE PASSING THE ORDER. THE CIT DIRECTED THE AO TO PASS A SUITABLE RECTIFICATION ORDER AND TO CONSIDER THE DISPUTED AMOUNT FOR COMPUTING THE INCO ME OF THE ASSESSEE.HE FURTHER OBSERVED THAT THE ASSESSEE HAD VOLUNTARILY OFFERED THE INCO ME, THEREFORE, THERE WAS NO NEED TO CONSIDER FURTHER ADDITION. WITH REGARD TO DISCREPANCY IN THE AMOUNT SHOWN AGAINST THE CONSUMPTION OF CONTAINERS IN THE BOOKS OF ACCOUNTS AND IN THE COM PUTATION OF INCOME FILED WITH THE RETURN THE CIT OBSERVED THAT THE ASSESSEE HAD SUCCESSFULL Y EXPLAINED DISCREPANCY, IT WAS ARGUED THAT 4170-SABMILLER 3 IT WAS FOLLOWING A METHOD OF ACCOUNTING POLICY IN T HE BOOKS AND HAD TREATED PART OF CONSUMPTION AS CAPITAL EXPENDITURE AND OTHER PART A S REVENUE EXPENDITURE, THAT THE AMOUNT OF RS.132.12 CRORES WAS DEBITED TO P&L ACCOUNT, THAT T HE BALANCE CONSUMPTION AMOUNT WAS CAPITALISED ON WHICH DEPRECIATION OF RS.20.09 CRORE S WAS CLAIMED, THAT FOLLOWING THE EARLIER PRACTISE THE ENTIRE CONSUMPTION EXPENDITURE OF CONT AINERS (RS.176.05 CRORES.) WAS CLAIMED AS REVENUE EXPENDITURE . THE CIT DIRECTED THE AO TO V ERIFY THE CLAIM MADE BY THE ASSESSEE. 4. DURING THE COURSE OF HEARING BEFORE US THE AUTHORIZ ED REPRESENTATIVE (AR) OF THE ASSESSEE CONTENDED THAT ORDER PASSED BY AO WAS NEITHER ERRON EOUS NOR PREJUDICIAL TO THE INTEREST OF THE REVENUE, THAT HE HAD MADE PROPER ENQUIRIES AND EXAM INED THE ACCOUNTS DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THAT IT COULD NOT BE HELD T HAT THERE WAS NO APPLICATION OF MIND BY THE AO,THAT THE CIT HAD WRONGLY INVOKED THE PROVISIONS OF SECTION 263 OF THE ACT. HE REFERRED TO THE CASES OF DEVELOPMENT BANK LTD. (323ITR206) AND GABRIEL INDIA LTD. (203ITR108).WITH REGARD TO DISALLOWANCE OF DEPRECIATION ON FOREIGN E XCHANGE LOSS U/S. 40A(A) (IA) OF THE ACT, THE AR ARGUED THAT AO HAD DISALLOWED THE CLAIM AND HAD CONSIDERED THE ISSUE OF DEPRECIA - TION ON FOREIGN EXCHANGE LOSS AND OTHER COSTS CAPIT ALISED U/S.43A OF THE ACT, THAT THE TRIBUNAL HAD DELETED THE DISALLOWANCE AND HAD HELD THAT CLAI M FOR DEPRECIATION WAS NOT IN RESPECT OF EXPENDITURE INCURRED,THAT IT WAS ALLOWABLE ON AN A SSET WHICH WAS ELIGIBLE FOR DEDUCTION ON DEPRECIATION,THAT THE CIT WAS NOT AUTHORISED TO GIV E DIRECTION CONTRARY TO DIRECTION OF THE ACT, THAT THE DIRECTION TO DISALLOW THE AMOUNT OF DEPREC IATION OF RS.1.33 CRORES ON FOREX LOSS CAPITALISED WAS NOT AS PER THE PROVISIONS OF LAW.HE REFERRED TO ORDER OF THE TRIBUNAL DELIVERED FOR AY 2008-09 IN ITS OWN CASE. ABOUT THE ADDITION OF SALES TAX COLLECTED (RS.58.98 LAKHS) THE AR STATED THAT THE AO HAD PASSED RECTIFICATION ORDER ON 31.3.16 U/S. 154 OF T HE ACT, THAT THE AMOUNT OFFERED TO TAX BY THE ASSESSEE HAD ALREADY BEEN CONSIDERED BY THE AO, TH AT THERE WAS NO JUSTIFICATION FOR PASSING ANY ORDER INCLUDING THE DIRECTION OF INITIATING PEN ALTY PROCEEDINGS U/S. 271(1) (C ) OF THE ACT. WITH REGARD TO DIRECTION OF CIT ABOUT EXCESS CLAIM OF CONSUMPTION OF CONTAINERS, THE AR ARGUED THAT THE CIT HAD GIVEN DIRECTION TO MERELY V ERIFY AMOUNTS OF TOTAL DEBITS IN THE P&L ACCOUNT THAT HAD BEEN ADDED BACK TO THE INCOME OF T HE ASSESSEE, THAT THE ORDER PASSED BY THE AO WAS NOT ERRONEOUS OR PREJUDICIAL TO THE INTEREST OF THE REVENUE.HE ALSO REFERRED TO THE CASE OF DISH TV INDIA LTD. (157 ITD 1096). THE DEPARTMENTAL REPRESENTATIVE(DR)SUPPORTED THE RE VISIONARY-ORDER OF THE CIT. 4170-SABMILLER 4 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US. WE FIND THAT WHILE COMPLETING THE ASSESSMENT THE AO HAD CALLED FOR EXP LANATION ABOUT THE ISSUE RAISED BY THE CIT IN HIS REVISIONARY ORDER, THAT AFTER BEING SATI SFIED AND AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE THE AO HAD PASSED AN ORDER.THUS, THERE WAS NO LACK OF ENQUIRY ON PART OF THE AO AND HE HAD TAKEN AN INFORMED DECISION.THEREFORE, I T CANNOT BE SAID THAT NO PROPER ENQUIRY WAS MADE.WE FIND THAT THE ISSUE OF DISALLOWANCE OF DEPRECIATION WAS DISCUSSED AND DELIBERA - TED UPON BY THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE YEAR UNDER CONSIDERATION. THEREFORE, THE CONSEQUENTIAL DISALLOWANCE WITH RESPECT TO FORE X LOSS CAPITALISED CANNOT BE UPHELD. AS PER THE SETTLED PRINCIPLE OF TAXATION ONCE FOREX LOSS B EING CAPITALISED ,THEN NO DISALLOWANCE U/S. 40(A) (IA) CAN BE MADE.IN THE CASE UNDER CONSIDERAT ION THE AO HAD TAKEN ONE OF THE POSSIBLE VIEWS AND THE VIEW TAKEN BY HIM IS NOT AGAINST THE PROVISIONS OF LAW.THEREFORE, HIS ORDER WOULD NOT FALL UNDER THE CATEGORY OF AN ERRONEOUS O RDER. AS FAR AS CONTINGENT SALES TAX DEPOSIT ARE CONCERNED, IT IS FOUND THAT THE AO HAD PASSED A RECTIFICATION ORDER AND TAXED THE DISPUTED AMOUNT. BY THAT TIME THE ORDER OF CIT WAS PASSED.TH US THERE WAS NO JUSTIFICATION FOR THE CIT TO DIRECT THE AO TO INITIATE PENALTY PROCEEDINGS.IT IS FOUND THAT THE CIT HAD FURTHER DIRECTED THE AO TO MAKE FURTHER VERIFICATION OF CONSUMPTION OF CONTAINERS.WE HAVE PERUSED PAGES 294 ,302,303,305 AND 306 OF THE PB. WE FIND THAT ASSESS EE HAD FILED ALL NECESSARY DETAILS BEFORE THE AO DURING ASSESSMENT PROCEEDINGS AND HE HAD PAS SED THE ORDER AFTER CONSIDERING THE AVAILABLE MATERIAL. IN THESE CIRCUMSTANCES,WE ARE O F THE OPINION THAT, THE ORDER PASSED BY THE AO WAS NEITHER ERRONEOUS NOR PREJUDICIAL TO THE INT EREST OF REVENUE . CONSIDERING THE PECULIAR FACTS AND CIRCUMSTANCES OF THE CASE, WE HOLD THAT T HE CIT WAS NOT JUSTIFIED IN INVOKING THE PROVISIONS OF SECTION 263 OF THE ACT. EFFECTIVE GRO UND OF APPEAL IS ALLOWED IN FAVOUR OF THE ASSESSEE. AS A RESULT,APPEAL FILED BY THE ASSESSEE STANDS ALL OWED. . ORDER PRONOUNCED IN THE OPEN COURT ON 06 TH JANUARY, 2017. , 2017 SD/- SD/- ( . . / C.N. PRASAD ) ( / RAJENDRA ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; DATED : 06.01.2017. JV.SR.PS. / COPY OF THE ORDER FORWARDED TO : 1. APPELLANT / 2. RESPONDENT / 3. THE CONCERNED CIT(A)/ , 4. THE CONCERNED CIT / 5. DR E BENCH, ITAT, MUMBAI / , , . . . 6. GUARD FILE/ 4170-SABMILLER 5 //TRUE COPY// / BY ORDER, / DY./ASST. REGISTRAR , /ITAT, MUMBAI.