DCIT CIR 6(3), MUMBAI V. GRAVISS FOODS P.LTD, MUMBAI

ITA 4863/MUM/2014

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 4259 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 6 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-02-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: G
• Assessment Year: 2010-2011
• Appeal Filed On: 23-07-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: BHARTI M SINGH
• Keywords: Capital asset; Revenue expenditure; Capital expenditure
• Section: 142(1); 115JB; 37(1); 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL G BENCH, MUM BAI BEFORE SHRI C. N. PRASAD, JM AND SHRI RAJESH KUMAR, AM ./ I.T.A. NO 4863/MUM/2014 ( / ASSESSMENT YEAR: 2010-11) DY. COMMISSIONER OF INCOME-TAX, CIRCLE-6(3), ROOM NO.522, 5 TH FLOOR AAYAKAR BHAVAN, M.K. ROAD, MUMBAI-400 020. / VS. M/S. GRAVISS FOODS PVT LTD. 254-C, INDIAN OIL BUILDING, DR. A.B. ROAD, WORLI, MUMBAI-400 025. ./ ./PAN/GIR NO. AABCM 6895P ( /APPELLANT ) : ( / RESPONDENT ) / APPELLANT BY : MS. BHARTI M SINGH / RESPONDENT BY : SHRI JITENDRA JAIN / DATE OF HEARING : 04/02/2016 !'# / DATE OF PRONOUNCEMENT : 10/02/2016 $% / O R D E R PER RAJESH KUMAR, A. M: THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER DATED 09.05.2014 OF COMMISSIONER OF INCOME TAX (APPEALS)-12, MUMBAI (HE REINAFTER CALLED AS THE CIT(A)) FOR ASSESSMENT YEAR 2010-11. THE ASSESSEE H AS RAISED THE FOLLOWING GROUNDS OF APPEAL: 2 ITA NO. 4863/MUM/2014 (A.Y. 2010-11) DCIT VS. M/S. GRAVISS FOODS PVT. LTD. 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE DISALLOWANCE OF RS.1,87,16,047/-, H ELD AS PRE-OPERATING EXPENSE FOR A MAWA PROJECT A NEW PROJECT UNCONNEC TED WITH EXISTING BUSINESS AS CAPITAL IN NATURE AND NOT DEDUCTIBLE U/ S 37(1) OF THE ACT. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN CONSIDERING THE EXPENDITURE OF RS. 1,87,16,047/- INCURRED BY THE ASSESSEE ON THE MAWA PROJECT AS EXPENDITURE INCURRED FOR EXP ANSION OF THE EXISTING BUSINESS OF THE ASSESSEE WHEN IT WAS TOTALLY A NEW BUSINESS UNCONNECTED WITH THE EXISTING BUSINESS. 2. THE COMMON ISSUE RAISED IN THE GROUND NO. 1&2 RE LATES TO DELETION OF DISALLOWANCE OF RS.1,87,16,047/- ON ACCOUNT OF PRE- OPERATING EXPENSE FOR A MAWA PROJECT. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E FILED ITS RETURN OF INCOME ON 15.10.2010 DECLARING TOTAL LOSS OF RS.68,35,565/- W HICH WAS REVISED ON 07.03.2012 DECLARING A LOSS OF RS.50,63,639/- WHICH WAS NECES SITATED TO DECLARE THE INTEREST INCOME OF RS.17,71,926/-. THE BOOK PROFIT U/S 115JB OF THE ACT WAS RS.1,42,90,338/-. THE CASE OF THE ASSESSEE SELECTED FOR SCRUTINY AND STATUTORY NOTICES U/S 142(1) AND 143(2) WERE DULY ISSUED AND SERVED ON THE ASSESSEE. THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF MANUFACTURI NG AND MARKETING OF ICE- CREAMS. DURING THE COURSE OF ASSESSMENT AO FOUND TH AT A SUM OF RS. 1,87,16,047/- 3 ITA NO. 4863/MUM/2014 (A.Y. 2010-11) DCIT VS. M/S. GRAVISS FOODS PVT. LTD. WERE CHARGED TO PROFIT AND LOSS ACCOUNT AND THE LD. AO CAME TO THE CONCLUSION THAT THE ASSESSEE HAD ENTERED INTO A NEW FIELD OF BUSINE SS OF PRODUCING AND SUPPLYING OF KHOA WHICH IS ENTIRELY DIFFERENT FROM THE BUSINES S ACTIVITY CARRIED ON BY THE ASSESSEE AND THUS THE ISSUED THE SHOW CAUSE NOTICE TO THE ASSESSEE AS WHY THE EXPENDITURE OF RS. 1,87,16,047/- SHOULD NOT BE DISA LLOWED AS BEING PRE-OPERATING AND PRE-OPENING EXPENDITURE OF CAPITAL IN NATURE RE LATING TO MAWA PROJECT. THE LD. AO FRAMED THE ASSESSMENT AT RS.1,36,52,408/- UN DER THE NORMAL PROVISIONS OF THE ACT AND RS.3,30,06,385/- U/S 115JB OF THE ACT B Y DISALLOWING THE EXPENDITURE OF RS. 1,87,16,047/- VIDE ORDER DATED 10.09.2012 B Y REJECTING THE SUBMISSIONS OF THE ASSESSEE VIDE ORDER DATED 07.03.2012 ON THE GRO UND THAT THE EXPENDITURE WAS NOT INCURRED FOR DAY TODAY RUNNING OF THE BUSINESS ACTIVITY AND WAS INCURRED IN CONNECTION WITH STARTING A NEW PROJECT MAWA AND THE EXPENDITURE WERE INCURRED FOR SETTING A NEW FACTORY AT AMRITSAR AND THUS NOT FOR THE EXPANSION AND EXTENSION OF BUSINESS BUT ALTOGETHER NEW BUSINESS. THE LD. CIT(A ) ALLOWED THE APPEAL OF THE ASSESSEE BY FOLLOWING THE ORDER OF HIS PREDECESSOR IN THE ASSESSMENT YEAR 2009-10 BY HOLDING THAT A SIMILAR ISSUE CAME UP IN ASSESSME NT YEAR 2009-10 WHICH WAS DECIDED IN FAVOUR OF THE ASSESSEE. 4. LD. AR, AT THE OUTSET, POINTED OUT THAT THE ISSU E IN THE PRESENT APPEAL IS COVERED IN FAVOUR OF THE ASSESSEE BY ITS OWN ORDER IN ITA NO.1051/MUM/2013 4 ITA NO. 4863/MUM/2014 (A.Y. 2010-11) DCIT VS. M/S. GRAVISS FOODS PVT. LTD. (A.Y. 2009-10) DATED 28.8.2015 AND THEREFORE PRAYED THAT THE APPEAL OF THE DEPARTMENT BE DISMISSED. LD. DR WAS IN AGREEMENT WI TH THE ARGUMENTS ADVANCED BY THE LD. AR ON THIS ISSUE. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. IN THE CASE BEFORE US THE ISSUE IS WHETHER THE EXPENSE S INCURRED BY THE ASSESEE IN CONNECTION WITH LAUNCHING A NEW PRODUCT MAWA WERE ADMISSIBLE U/S 37 OF THE ACT. WE FIND FROM THE ITA NO. 1051/MUM/2013 (A.Y.20 09-2010) THAT A IDENTICAL ISSUE WAS DECIDED IN FAVOUR OF THE ASSESSEE BY THE CO-ORDINATE BENCH WHERE IN THE SUM OF RS.1,27,20,969/-WAS HELD TO BE PRE-OPERATING EXPENSES BY THE AO. THE RELEVANT PARAS (7-13) ARE EXTRACTED AS UNDER:- 7. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE ORDE RS OF THE REVENUE AUTHORITIES AS WELL AS THE PRECEDENTS CITED BY THE LD REPRESENTATIVES OF BOTH THE PARTIES. AFTER HEARING BOTH THE PARTIES AND PERUSAL OF THE ORDERS OF THE REVENUE AUTHORITIES AS WELL AS THE RELEVANT MATERIAL PLACED BEFORE US, OUR ADJUDICATION IS GIVE N IN THE FOLLOWING PARAS. 8. NATURE OF EXPENDITURE: WE FIND THAT THE EXPENDITURE IN QUESTION UNDISPUTEDLY IS OF REVENUE NATURE. THE SAME IS EVID ENT FROM THE NATURE OF NOMINAL ACCOUNTS THEY ARE ACCOUNTED IN THE RECORDS OF THE ASSESSEE. BY NO STRETCH OF IMAGINATION THE EXPENDITURE INCURRED ON ACCOUNTS OF SALARIES, WAGES, MARKETING EXPENDITURE, PROFESSIONAL FEE, TRA VELLING ETC FALLS IN THE CAPITAL FIELDS BUT FOR THE ALLEGED PREOPERATIVE NAT URE OF THE CLAIM. THEREFORE, WE HAVE NO DOUBT TO TREAT THE IMPUGNED E XPENDITURE AS ALLOWABLE REVENUE BUT FOR THE ALLEGATION OF THE AO. NO EXPENDITURE INCURRED ON ACQUISITION OF THE CAPITAL ASSETS SUCH AS PLANT AND MACHINERY, LAND AND BUILDING, TECHNICAL KNOW-HOW ETC., IS INCL UDED IN THE EXPENDITURE CLAIMED BY THE ASSESSEE. 5 ITA NO. 4863/MUM/2014 (A.Y. 2010-11) DCIT VS. M/S. GRAVISS FOODS PVT. LTD. 9. NEW PRODUCT VS NEW BUSINESS : MEMORANDUM OF ASSOCIATION OF THE ASSESSEE PROVIDES FOR THE FOLLOWING MAIN OBJECT OF THE BUSINESS OF THE ASSESSEE AND THE SAME READS AS UNDER: TO PRODUCE OR CAUSE TO BE PRODUCED, BUY, PROCESS, GRADE, PACK, STORE AND SELL MILK PRODUCTS AND ICE-CREAM 9.1. FROM THE ABOVE IT IS EVIDENT THAT THE ASSESSEE IS ENGAGED IN THE MANUFACTURE OF THE DAIRY/MILK PRODUCTS, ICE CREAMS ETC. ACCORDINGLY, THE MANUFACTURE OF PRODUCT OF THE ASSESSEE DOES NOT STO P WITH THE ICE-CREAMS ONLY. ASSESSEE MANUFACTURES THE ICE-CREAMS FOR THE BASKIN ROBBINS FOR MAKING AND MARKETING IN INDIA. THE MILK IS AN IMPOR TANT RAW MATERIAL FOR THE MANUFACTURE OF THE ICE-CREAMS. THE EXPRESSION ' MILK PRODUCT' IS A GENERIC EXPRESSION AND IN OUR OPINION, THE SAID EXP RESSION COVERS ALL KINDS OF MILK PRODUCTS. ICE CREAMS ARE MADE UP OF THE MIL K OR THE CREAM. BOTH THE MILK AND THE CREAM ARE THE DAIRY PRODUCTS. 9.2. IN THE CONTEXT OF ICE-CREAMS, A MILK-PRODUCT THE CREAM IS A DAIRY PRODUCT COMPOSED OF THE HIGHER-BUTTERFAT LAYER SKIM MED FROM THE TOP OF MILK BEFORE HOMOGENIZATION. CREAM BEING OF THE LESS DENSE, THE SAME IS GATHERED ON THE TOP OF THE DENSE MILK. THEREFORE, I T IS NOT PROPER FOR LD DR TO ARGUE THAT THE ICE-CREAMS OF THE BASKIN ROBBINS BRANDS ARE NOT THE MILK PRODUCTS. 10. NOW WHAT IS THE NATURE OF THE 'MAWA'? IS IT A MILK PRODUCT OR NOT AND IF FAILS IN THE SCOPE OF THE ASSESSEE'S BUSINES S OF NOT. THE UNDISPUTED FACTS INCLUDE THAT THE 'MAWA' IS MADE UP OF THE MIL K PRODUCT AND THEREFORE, IT IS A DAIRY PRODUCT AND THEY SAME IS COVERED WITH IN THE SCOPE OF THE DECLARED BUSINESS OF THE ASSESSEE. WE HAVE CONSIDER ED THE LD DRS ARGUMENT IS THE PREOPERATIVE EXPENDITURE INCURRED B EFORE A NEW PRODUCT IS LAUNCHED CONSTITUTES A NEW BUSINESS AND REJECT THE SAME. 11. INTERLACING OF THE ACCOUNTS, MANAGEMENT AND CONTROL : IT IS A SETTLED PROPOSITION IN LAW THAT SO LONG AS THERE EX ISTS THE INTERLACING OF THE CONTROL & MANAGEMENT, INTERLACING OF THE ACCOUNTS E TC, NO NEW BUSINESS IS SAID TO HAVE BEEN SET UP. IN THE INSTANT CASE, NONE OF THESE TESTS ARE CLEARED. AO HAS NOT MADE OUT THAT THE MAWA DIVISION IS ENTIR ELY SEPARATE FROM THE POINTS OF THE ABOVE AND IT IS UNCONNECTED TO THE 'I CE-CREAM DIVISIONS. ACTUALLY, BOTH THESE DIVISIONS ARE UNDER THE SAME M ANAGEMENT-CONTROL AND ARE FINANCIALLY INTERCONNECTED. IN THAT SENSE, THE CIT(A) HAS NOT APPLIED HIS MIND TO THE SAID SETTLED LEGAL PROPOSITIONS. 6 ITA NO. 4863/MUM/2014 (A.Y. 2010-11) DCIT VS. M/S. GRAVISS FOODS PVT. LTD. 12. ABORTED EXPENDITURE: FURTHER, IT IS A DECIDED ISSUES LEGALLY THAT THE CAPITAL EXPENDITURE INCURRED ON THE 'CAPITAL ASSETS ' OF A ABORTED PROJECT IS NOT AN ALLOWABLE EXPENDITURE. HOWEVER, THE 'REVENUE EXPENDITURE' SUCH AS THE SALARIES, WAGES, TRAVELLING, RENT ETC OF AN ABO RTED PROJECT IS AN ALLOWABLE EXPENDITURE. 13. THEREFORE, THE ICE-CREAM AND THE MAWA FALL IN T HE GENUS OF THE DAIRY/MILK PRODUCTS AND THEY ARE COVERED BY THE NAT URE OF DECLARED BUSINESS OF THE ASSESSEE. AS SUCH, THE IMPUGNED EXP ENDITURE CLAIMED BY THE ASSESSEE DOES NOT INCLUDE ANY EXPENDITURE OF CAPITA L NATURE. THE 'CONTROL AND MANAGEMENT, ACCOUNTS, CEOS FOR BOTH THE DAIRY/M ILK PRODUCTS IS ONE AND THE SAME. AD HAS NOT MADE OUT THE ABSENCE OF IN TERLACING OF THE ABOVE. UNDER THE FACTUAL MATRIX OF THE CASE, WE FIND THE C LAIM OF THE ASSESSEE IS ALLOWABLE. ACCORDINGLY, THE AO IS DIRECTED TO DELET E THE ADDITION. THE ORDER OF THE CIT (A) IS THUS, AFFIRMED. WE, THEREFORE, FOLLOWING THE DECISION OF THE CO-ORD INATE BENCH DISMISS THE APPEAL THE REVENUE. 7. IN THE RESULT, THE REVENUES APPEAL IS DISMISSED . ORDER PRONOUNCED IN THE OPEN COURT ON 10TH FEBRUARY , 2016 SD/- SD/- (C.N. PRASAD) (RAJESH KUMAR) &' $ / JUDICIAL MEMBER $ / ACCOUNTANT MEMBER ( ) MUMBAI; *$ DATED :10.02.2016 PS. ASHWINI 7 ITA NO. 4863/MUM/2014 (A.Y. 2010-11) DCIT VS. M/S. GRAVISS FOODS PVT. LTD. / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. + ( ) / THE CIT(A) 4. + / CIT CONCERNED 5. ./0 ''12 , 12# , ( ) / DR, ITAT, MUMBAI 6. 045 6 / GUARD FILE / BY ORDER, / !'# (DY./ASSTT. REGISTRAR) #$ %, ( ) / ITAT, MUMBAI.