Appeal details
Counselvise Citation
[2014] 140 COUNSELVISE.COM (IT) 75250 (ITAT-MUMBAI)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
2 year(s) 6 month(s) 21 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
08-01-2014
Appeal Filed By
Department
Order Result
Dismissed
Bench Allotted
J
Next Hearing Date
21-11-2013
Assessment Year
2002-2003
Appeal Filed On
17-06-2011
Judgement Text
` IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH J, MUMBAI . . , ! ' #'' '$ , % ! & BEFORE SHRI P.M. JAGTAP, ACCOUNTANT MEMBER AND SHRI VIVEK VARMA, JUDICIAL MEMBER . : 4875 / / 2011 A.Y. 2002-03 ITA NO. : 4875/MUM/2011 (ASSESSMENT YEAR: 2002-03) ASST. COMMISSIONER OF INCOME TAX CIR. 4(2), ROOM NO 642, 6 TH FLOOR, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI -400 020 VS M/S J B MANGARAM FOODS PVT LTD, 3A, METRO CHAMBERS, 6971 TRINITY STREET GAYWADI, MUMBAI -400 002 PAN: AAACJ 6157 R (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI SURENDRA KUMAR RESPONDENT BY : SHRI RAJEEV MUNHET /DATE OF HEARING : 02-01-2014 / DATE OF PRONOUNCEMENT : 08-01-2014 * O R D E R #'' '$ , : PER VIVEK VARMA, JM: THE INSTANT APPEAL IS FILED BY THE DEPARTMENT, AGAINST THE ORDER OF CIT(A) 10, MUMBAI, DATED 31.03.2011, WHEREIN, THE DEPARTMEN T HAS RAISED THE FOLLOWING GROUNDS: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION ON ACCOUNT OF CONVERSION CHARGES AND FUEL REIMBURSEMENT EXPENSES AMOUNTING TO R S. 53,82,289/-. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE OF RS. 29,8 74/- TOWARDS BANK CHARGES. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE IMPUGNED ORDER OF THE LD. CIT(A) IS CONTRARY TO LAW TO BE SET ASIDE AND THAT OF THE ASSESSING OFFICER BE RESTORED. M/S J B MANGARA M FOODS PVT LTD ITA NO. 4875/MUM/2011 2 2. THE FACTS OF THE CASE ARE THAT THE INSTANT APPEAL IS IN THE SECOND ROUND, AFTER ITAT HAD RESTORED THE CASE TO THE FILE OF THE AO. 3. IN THE INSTANT PROCEEDINGS, THE AO CALLED FOR THE DETA ILS WITH REGARD TO METHOD OF ACCOUNTING, INCOME RECOGNITION AND B OOK ENTRIES WITH REGARD TO JOB WORK PERFORMED BY THE ASSESSEE. ACC ORDING TO THE AO, SEVERAL OPPORTUNITIES WERE PROVIDED TO THE ASSESSEE BUT THE DETAILS WERE NOT PRODUCED. THE AO, ACCORDINGLY, FRAMED THE ASS ESSMENT MAKING THE FOLLOWING ADDITIONS: DISALLOWANCE OF CONVERSION CHARGES 50,00,000 DISALLOWANCE OF FUEL REIMBURSEMENT 3,82,289 DISALLOWANCE OF BANK CHARGES 29,874 54,12,163 4. AGGRIEVED, THE ASSESSEE APPROACHED THE CIT(A), BEFORE WHOM IT WAS SUBMITTED, 2.2.6 THE AR SUBMITTED THAT THE ASSESSEE IS A CON TRACT PACKER FOR THE BRITANNIA INDUSTRIES LIMITED (BIL), WHICH SUPPLIES INGREDIENTS AND PACKING MATERIAL TO THE ASSESSEE FOR CONVERSION INTO BISCUITS. IN THIS CONNECTION , BIL PAYS ADVANCE TO THE ASSESSEE TO ENSURE A SMOOTH AVAILABILITY OF FUNDS AND THE ASSESSEE MAINTAINS REVOLVING ACCOUNT. THE ASSESSEE SUBMITTED TH AT THE RECEIPTS INCLUDING ADVANCES FROM THE BIL ARE NOT THE INCOME RECEIPTS AN D THE AD IS WRONG BY HOLDING IT TO SO MERELY DEPENDING ON THE TDS CERTIFICATE S. IT WAS FURTHER SUBMITTED THAT THE TOTAL TAXABLE RECEIPTS FOR THE YEA R IS ONLY RS. 10,33,46,970 AS AGAINST THE FIGURE MENTIONED IN THE TDS CERTIFICATES. AS REGARDS ADVANCE OF RS. 50,00,000 RECEIVED AGAINST THE CONVERSION CHARGES, TH E ASSESSEE SUBMITTED THAT AS AND WHEN THE BILLS ARE RAISED BY THE ASSESSEE-VIS-A-VIS J OB CONTRACTS EXECUTED FOR THE BIL, THE SAME ARE SHOWN AS CHARGEA BLE RECEIPTS OF THE YEAR. THEREFORE THE RECEIVING OF ADVANCES FROM BIL IS NOT T HE BASIS FOR RECOGNIZING THE INCOME. IT WAS CLARIFIED THAT !3LL MAKES THE ADVANCES A FTER THE EFFECTING THE TDS AS PER THE PROVISIONS OF SECTION 194C R.W. CIRCULAR NO. 681 DATED 8-3-99. 2.2.1. THE AR SUBMITTED THAT THE ENTRIES RELATED INCO ME ACCOUNTING APPEARING IN THE CONVERSION ACCOUNT OF BIL, WAS EXPLAINED TO THE AD A T THE TIME OF HEARING. THE TONNAGE PRODUCED DURING THE YEAR WAS BILLED TO BIL AS P ER THE CONVERSION AGREEMENT AND WHICH MATCHES WITH THE EXCISE RECORDS A ND THE BILL RAISED. AFTER REVIEWING THE LEDGER ACCOUNT PRODUCED AT THE TIME OF HEARING, THERE WAS NO OBJECTION OR FURTHER REQUIREMENT FROM THE AD. THE COM PANIES ARE STATUTORILY REQUIRED TO FOLLOW THE MERCANTILE SYSTEM OF ACCOUNTING, WHICH HAS BEEN FOLLOWED BY THE ASSESSEE. THE REVENUE IS RECOGNIZED THE TIME B ILLING AND NOT ON RECEIPT BASIS. THE BILL AMOUNT RECOGNIZED AS REVENUE HAS ALSO BE EN CONFIRMED BY THE BIL, THE CONTRACT COMPANY. THIS PRACTICE OF ACCOUNTIN G HAS BEEN FOLLOWED BY THE ASSESSEE SINCE LAST 20 YEAR I.E. SINCE INCEPTION AND IS A S PER THE ACCOUNTING NORMS AND STANDARDS PRACTICED IN THE COUNTRY. FURTHER IF THE ADVANCE OF RS. 50,00,000 IS TAXED, THIS WILL RESULT IN DOUBLE TAXATION, AS ADVANCE IN THE FIRST YEAR AND BILLING IN THE SUBSEQUENT YEAR. THEREFORE, IT W AS CLAIMED THAT THE ADDITION MAY BE DELETED. 2.2.2. THE AR FURTHER SUBMITTED REGARDING THE ADDITIO N OF RS. 3,82,289 BEING REIMBURSEMENT OF FUEL CHARGES, IT WAS CLAIMED THAT THIS IS NOT INCOME OF THE APPELLANT AS IT IS MERE REIMBURSEMENT ON ACCOUNT OF FUE L THOUGH THE SAID AMOUNT WAS SUBJECTED TO TDS AS PER THE PROVISIONS OF SECTION 194C OF THE ACT R.W. CIRCULAR 715 DATED 8-8-95. 2.2.3 SINCE THE APPELLANT HAS FURNISHED THE DETAILS AND EXTRACT OF LEDGER ACCOUNT PERTAINING TO INCOME, ADVANCES AND EXCISE REIMBURSEMENT WHICH WERE ALSO SUBMITTED BEFORE THE AC DURING THE COURSE OF ASSESSM ENT PROCEEDINGS THEREFORE, M/S J B MANGARA M FOODS PVT LTD ITA NO. 4875/MUM/2011 3 IT WAS FELT THAT THE ISSUE MAY BE REFERRED TO AC FOR H IS COMMENTS ON EXAMINATION AS REGARDS TO VERIFY THE METHOD OF ACCOUN TING OF THE ASSESSEE, INCOME RECOGNITION AND THE MAN OF BOOK ENTRIES REGARDIN G THE ADVANCE RECEIVED JOB WORK DONE. 2.2.4 IN THE REMAND REPORT DATED 28 MARCH 2011, TH E AC STATED REGARDING METHOD OF ACCOUNTING AS UNDER PARA1[A] OF SCHEDULE 1.8 (NOTES TO ACCOUNTS] TO THE B ALANCE SHEET IS SPECIFICALLY MENTION AS UNDER: THE ASSESSEE FOLLOWS ACCRUAL SYSTEM OF ACCOUNTING AS REQUIRED UNDER SECTION 209(3) (B) OF COMPANIES ACT 1956. BIL PAYS THE ASSESSEE ADVANCES AGAINST CONVERSION CH ARGES, WHICH ARE CREDITED IN BOOKS OF THE ASSESSEE IN BIL CONVERSION ADV ANCE ACCOUNT. THE ADVANCE SO RECEIVED IS RECOGNIZED AS INCOME AS AND WHE N THE SERVICES ARE RENDERED AND ADJUSTED AGAINST THE CONVERSION BILLS OF T HE MONTH AND THE SAME IS DEBITED IN THE BOOKS OF THE ASSESSEE IN BIL CONVERSIO N INCOME ACCOUNT. THE ASSESSEE PAYS THE EXCISE DUTY ON THE GOODS MANUF ACTURED, WHICH IS SUBSEQUENTLY REIMBURSED TO THE ASSESSEE BY BIL. THE EXCISE DUTY REIMBURSEMENT AND PAYMENT ACCOUNTS ARE RUNNING ACCOUN TS IN THE BOOKS OF THE ASSESSEE. 2.2.5 IN THE REJOINDER TO THE REMAND REPORT, THE AR SUBMITTED THAT THE AO HAS CLEARLY ACCEPTED THE METHOD OF ACCOUNTING THAT THE APPELLANT FOLLOWS ACCRUAL METHOD OF ACCOUNTING AND THE ADVANCES RECEIVED FROM THE BIL ARE ADJUSTED AGAINST THE ON ACCOUNT OF ADVANCE RECEIVED FROM BIL MAY BE DELETED. 2.3. I HAVE CONSIDERED THE FACTS AND PERUSED THE MA TERIAL ON RECORD. IT IS SEEN THAT THE HONBLE ITAT MUMBAI VIDE PARA 6 OF ITS ORDER HAS DIRE CTED TO VERIFY THE METHOD OF ACCOUNTING OF THE ASSESSEE, INCOME RECOGNITIO N. THE MANNER OF BOOK ENTRIES REGARDING THE ADVANCES RECEIVED VIS-A-VIS THE JO B OF WORK DONE ETC. WHICH ARE THE BASIC DETAILS WHICH ARE REQUIRED FOR DECIDIN G THE ISSUE. IT IS SEEN FROM THE REMAND REPORT OF THE AC THAT THE APPELLANT FOLLOWS MERCANTILE SYSTEM OF ACCOUNTING. THE ADVANCES ARE RECEIVED FROM BIL AND AS AND WHEN JOB WORK IS COMPLETED THE INCOME IS BOOKED IN CONVERSION ACCOUNT. I T IS SEEN FROM THE THAT THE BILL AMOUNT ARE RECOGNIZED AS THE TAXABLE RECEIPT WH ICH ARE SHOWN AT RS. 10, 33, 46, 970 AND THE INCOME ACCOUNT AND RS.50 ,00,000 RELATES TO ADVANCE RECEIVED AGAINST CONVERSION CHARGES. IN THE LIGH T OF THESE FACTS, I AM OF THE CONSIDERED OPINION THAT THE CONVERSION CHARGES REC EIVED AS ADVANCE CANNOT BE FAXED IN VIEW OF THE INCOME RECOGNITION METHOD FOLLOWE D BY THE APPELLANT FOR THE LAST SO MANY YEARS, THEREFORE, THE ADDITION MADE BY THE AO ON ACCOUNT OF ADVANCE RECEIVED OF RS. 50 IAKHS IS DELETED. AS REGAR D THE ADDITION OF RS. 3,82,289, I FIND THAT SAME IS RELATES TO REIMBURSEMENT OF FUEL CHARGES, HENCE IT CANNOT BE TREATED AS INCOME OF THE APPELLANT AS IT IS MERE REIMBURSEMENT ON ACCOUNT OF FUEL WHICH WAS ALSO SUBJECTED TO TDS AS PER THE PROVISIONS OF SECTION 194C OF THE ACT. IN OF THESE FACTS, THIS ADDITION OF RS. 3, 82,289 IS ALSO DELETED. THIS GROUND OF APPEAL IS THEREFORE ALLOWED. 5. ON THE ISSUE OF DISALLOWANCE OF BANK CHARGES, THE ASS ESSEE SUBMITTED, 3.1 THE AO HAS DISALLOWED THE CLAIM OF BANK CHARGE AS THE ASSESSEE FAILED TO PRODUCE BOOKS OF ACCOUNTS BEFORE HIM MADE THESE DISALLO WANCE WERE MADE IN THE ORIGINAL ORDER U/S 143(3) 147 DATED 24-3-2006 WAS ALS O CONFIRMED BY THE CIT (A) IV, MUMBAI VIDE ORDER DATED 4-9-2006. 3.2. THE AR STATED TO THE APPELLANT HAS INCURRED BANK CHARGES OF RS. 29,874 ON ISSUANCE OF DEMAND DRAFT FAVORING M/S. INTERNATIONAL BA KERY PRODUCTS TOWARDS ADVANCE IN ORDER TO NEGOTIATE AND ACQUIRE BISCUIT BRAND FOR AND ON BEHALF OF BIL. THE ASSESSEE HAS INCURRED THE EXPENDITURE AS A BUSINES S STRATEGY FOR ENSURING ADDITIONAL ORDERS FOR MANUFACTURING BISCUITS OP BEHALF O F BIL UNDER NEW BRANDS. 3.3. I HAVE CONSIDERED THE FACTS. I FIND THAT THE E XPENDITURE WAS INCURRED FOR THE PURPOSE OF BUSINESS THEREFORE THE ADDITION MADE BENEF IT Y THE AO IS DELETED. 6. THE CIT(A), THUS DELETED THE IMPUGNED ADDITIONS. 7. AGAINST THIS ORDER, THE DEPARTMENT IS IN APPEAL BEFORE THE ITAT. M/S J B MANGARA M FOODS PVT LTD ITA NO. 4875/MUM/2011 4 8. BEFORE US, THE DR ARGUED VEHEMENTLY ON THE POINTS R AISED BY THE AO IN THE ASSESSMENT PROCEEDINGS AND RELIED HIS ARGUMENT S ON THOSE POINTS. 9. THE AR, ON THE OTHER HAND SUBMITTED THAT THE ASSES SEE IS A 100% SUBSIDIARY TO BRITANNIA INDUSTRIES LTD (BIL), WHO SUST AIN THE MANUFACTURING FACILITY OF THE ASSESSEE BY THE SUPPLY OF INGR EDIENTS AND PACKAGING MATERIALS TO THE ASSESSEE FOR MAKING OF BISCUITS. HE ALSO SUBMITTED THAT THE ASSESSEE IS NOT AUTHORIZED TO UNDER TAKE ANY OTHER MANUFACTURE EITHER FOR SELF OR FOR ANYBODY. AND BECAUSE OF THIS REASON, THE ASSESSEE IS PAID JOB CHARGES. 10. TO PROVE ITS POINT, THE ASSESSEE SUBMITTED THE REQU IRED DOCUMENTS ALONG WITH EXCISE RECORDS BEFORE THE CIT(A), WHO REMANDED THE SAME TO THE AO AND CALLED FOR THE REPORT/COMMENTS OF THE AO ON THOSE DOCUMENTS. 11. IN THE REMAND REPORT AS RECEIVED FROM THE AO, IT WA S NOTICED BY THE CIT(A) THAT THE AO ACCEPTED THE METHOD OF ACCOUNTIN G, BASED ON ACCRUAL BASIS. ACCORDING TO THIS METHOD OF ACCOUNTING, THE ADVANCES RECEIVED BY THE ASSESSEE GETS ADJUSTED AGAINST THE CO NVERSION BILLS, RAISED ON BIL IN THE CONVERSION ACCOUNT. THE CIT(A) ALSO T OOK NOTE OF THE FACT THAT THE ASSESSEE HAD BEEN FOLLOWING METHOD FOR MANY YEARS. ACCORDINGLY HE DELETED THE ADDITION OF RS. 50,00,000/-. THE CIT(A) ON THE ISSUE OF REIMBURSEMENT OF FUEL CHARGES OF RS. 3,82,289/- CAME TO THE CONCLUSION THAT SINCE IT WAS ONLY THE REIMBURSEMENT OF FUEL CHARGES BY THE BIL TO THE ASSESSEE, IT DID NOT HAVE TH E CHARACTER OF THE INCOME, NOR WAS THERE ANY INCOME, EMBEDDED IN THE RECEIPT S FROM BIL. ACCORDINGLY, HE DELETED THE ADDITION OF RS. 3,82,289/-. 12. ON THE ISSUE OF DISALLOWANCE OF RS. 29,874/- PAID ON B ANK CHARGES, THE AO DISALLOWED THE AMOUNT FOR WANT OF DETAILS. IN THE DETAILS PRODUCED BEFORE THE CIT(A), WHICH WERE REMANDED TO THE AO FOR HIS COMMENTS, THE CIT(A) CAME TO THE CONCLUSION THAT THE EXPENSE M/S J B MANGARA M FOODS PVT LTD ITA NO. 4875/MUM/2011 5 PERTAINED TOWARDS THE ISSUANCE OF DEMAND DRAFTS IN FAVO UR OF INTERNATIONAL BAKERY TO NEGOTIATE THE ACQUISITION OF THE B RAND, FOR AND ON BEHALF OF BIL. THE CIT(A) HELD THAT THE BANK CHARGES WE RE ONLY AND PURELY INCURRED FOR THE PURPOSES OF BUSINESS, AS A PART OF BUSINESS STRATEGY. 13. ON TAKING NOTE OF THE ABOVE ARGUMENTS, AS EMANATING FROM THE ORDERS OF THE REVENUE AUTHORITIES BEFORE US, WE DO NOT FIN D ANY REASON TO DISTURB THE FINDINGS AND REASONS, AS ADOPTED BY THE C IT(A) TO DELETE THE ADDITIONS MADE BY THE AO. 14. WE, THEREFORE, SUSTAIN THE ORDER OF THE CIT(A) AND DIRE CT THE AO TO DELETE THE ADDITIONS MADE AGGREGATING TO RS. 54,12,163/-. 15. IN THE RESULT, THE GROUNDS AS FILED BY THE DEPARTME NT ARE REJECTED AND CONSEQUENTIALLY, THE APPEAL FILED BY THE DEPARTMENT IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 8 TH JANUARY, 2014. SD/- SD/- ( . . ) ( #'' '$ ) ! ! (P.M. JAGTAP) (VIVEK VARMA) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATE: 8 TH JANUARY, 2014 / COPY TO:- 1) / THE APPELLANT. 2) / THE RESPONDENT. 3) ! !' ( ) - 10 MUMBAI / THE CIT (A)-10, MUMBAI. 4) ! !' CITY -4, MUMBAI / THE CIT, CITY-4, MUMBAI, 5) $%& ' () , ! ' , *+, / THE D.R. J BENCH, MUMBAI. 6) &- . COPY TO GUARD FILE. !/)0 / BY ORDER 1 / 2 +( ! ' , *+, DY. / ASSTT. REGISTRAR I.T.A.T., MUMBAI *452 . .
