ACIT CIR 4(2), MUMBAI V. J.B. MANGARAM FOODS P./ TD, MUMBAI

ITA 4876/MUM/2011

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 3726 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 8 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-03-2016
• Appeal Filed By: Department
• Bench Allotted: J
• Next Hearing Date: 30-06-2015
• Assessment Year: 2003-2004
• Appeal Filed On: 17-06-2011
• Court: TRIBUNAL
• Department Lawyers: K MOHANDA S
• Assessee Lawyers: RAJEEV MUNHET AR
• Keywords: Wholly owned subsidiary; Bad and doubtful debts
• Section: 143(3)

Judgement Text

, , J, IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES J, MUMBAI , , , BEFORE SHRI SANJAY GARG, JUDICIAL MEMBER, AND SHRI ASHWANI TANEJA, ACCOUNTANT MEMBER ITA NO.4876/MUM/2011 ASSESSMENT YEAR: 2003-04 A CIT, CIR 4(2), R.NO.642, 6 TH FLOOR, AAYAKAR BHAVAN, M.K. RD MUMBAI- 400020 / VS. J.B. MANGARAM FOODS P. LTD. , 3A METRO CHAMBERS, 6971 TRINTY STREET GAYWADI MUMBAI-400002 (ASSES SEE ) (REVENUE) P.A. NO . AAACJ6157R REVENUE BY SHRI K.MOHANDAS CIT (DR) RESPONDENT BY SHRI RAJEEV MUNHET (AR) $ % & '( / DATE OF HEARING : 17/02/2016 & '( / DATE OF ORDER: 11/03/2016 / O R D E R PER ASHWANI TANEJA (ACCOUNTANT MEMBER): THIS APPEAL HAS BEEN FILED BY THE REVENUE AGAINST T HE ORDER OF LD. COMMISSIONER OF INCOME TAX (APPEALS), MUMBAI- 10 {(IN SHORT CIT(A)}, ORDER DATED 31.03.2011 PAS SED AGAINST JB. MANGARAM FOODS P. LTD. 2 ASSESSMENT ORDER U/S 143(3) READ WITH SECTION 254 OF THE INCOME TAX ACT 1961, DATED 30.12.2009 FOR THE ASSES SMENT YEAR 2003-04 ON THE FOLLOWING GROUNDS: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING TH E ADDITION ON ACCOUNT OF CONVERSION CHARGES AND FUEL REIMBURSEMENT EXPENSES AMOUNTING TO RS. 5 1,40,580/ ' '2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING TH E DISALLOWANCE OF RS.79, 198/- IN RESPECT OF PROVISIO NS MADE FOR SLOW OR NON MOVING INVENTORY. '3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING TH E DISALLOWANCE IN RESPECT OF PROVISIONS OF DOUBTFUL ADVANCES OF RS.7,66,697/-. 4.ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE IMPUGNED ORDER OF THE LD.CIT(A) IS CONTRARY TO LAW TO BE SET ASIDE AND THAT OF THE ASSESSING OFFICER B E RESTORED.' 2. DURING THE COURSE OF HEARING, ARGUMENTS WERE MADE B Y SHRI RAJEEV MUNHET, AUTHORISED REPRESENTATIVE (AR) ON BEHALF OF THE ASSESSEE AND BY SHRI K.MOHANDAS, DEPARTMENTA L REPRESENTATIVE (DR) ON BEHALF OF THE REVENUE. 3. GROUND NO.1: IN THIS GROUND, THE REVENUE HAS CHALLENGED THE ACTION OF LD. CIT(A) IN DELETING THE ADDITION O N ACCOUNT OF CONVERSION CHARGES AND FUEL REIMBURSEMENT EXPENSES AMOUNTING TO RS.51,40,580/-. ON THE BASIS OF SUBMIS SIONS AND EVIDENCES BROUGHT BEFORE US BY BOTH THE PARTIES , IT IS JB. MANGARAM FOODS P. LTD. 3 NOTED THAT THE IMPUGNED ASSESSMENT ORDER WAS FRAMED IN PURSUANCE TO EARLIER ORDER OF THE TRIBUNAL DATED 15 TH JANUARY, 2009. IT IS NOTED THAT THE SAID ORDER OF THE TRIBUN AL WAS CONSOLIDATED ORDER FOR ASSESSMENT YEARS 2002-03 AND 2003-04 WHEREIN THIS ISSUE WAS SENT BACK TO THE AO, FOR DE NOVO ADJUDICATION. IN PURSUANCE TO THE SAME, THE AO PASS ED FRESH ASSESSMENT ORDER FOR A.Y. 2002-03, WHEREIN HE REPEA TED DISALLOWANCE, WHICH WAS SUBSEQUENTLY DELETED BY THE LD. CIT(A). 3.1. THE MATTER REACHED BEFORE THE TRIBUNAL WHEREIN VID E ORDER DATED 08.01.2014 (ITA NO.4875/MUM/2011), THE TRIBUNAL CONFIRMED THE ORDER OF THE LD. CIT(A) AND THUS UPHELD THE CLAIM OF THE ASSESSEE. IN THESE CIRCUMST ANCES, IT WAS ARGUED BY THE LD. COUNSEL THAT THIS ISSUE, AS O N DATE, STANDS COVERED WITH THE AFORESAID ORDER OF THE TRIB UNAL. 3.2. WE HAVE GONE THROUGH THE FACTS OF THE CASE. LD. DR DID NOT DISPUTE THE FACT THAT THE ISSUE INVOLVED IN ASS ESSMENT YEARS 2002-03 & 2003-04 ARE IDENTICAL AND THERE IS NO CHANGE IN FACTS. IT IS NOTED THAT THE TRIBUNAL IN THE AFOR ESAID ORDER HELD AS UNDER: 8. BEFORE US, THE DR ARGUED VEHEMENTLY ON THE POIN TS RAISED BY THE AO IN THE ASSESSMENT PROCEEDINGS AND RELIED HIS ARGUMENTS ON THOSE POINTS. 9. THE AR, ON THE OTHER HAND SUBMITTED THAT THE ASS ESSEE IS A 100% SUBSIDIARY TO BRITANNIA INDUSTRIES LTD (B IL), WHO SUSTAIN THE MANUFACTURING FACILITY OF THE ASSESSEE BY THE JB. MANGARAM FOODS P. LTD. 4 SUPPLY OF INGREDIENTS AND PACKAGING MATERIALS TO TH E ASSESSEE FOR MAKING OF BISCUITS. HE ALSO SUBMITTED THAT THE ASSESSEE IS NOT AUTHORIZED TO UNDERTAKE ANY OTH ER MANUFACTURE EITHER FOR SELF OR FOR ANYBODY. AND BEC AUSE OF THIS REASON, THE ASSESSEE IS PAID JOB CHARGES. 10. TO PROVE ITS POINT, THE ASSESSEE SUBMITTED THE REQUIRED 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, I T WAS NOTICED BY THE CIT(A) THAT THE AO ACCEPTED THE METH OD OF ACCOUNTING, BASED ON ACCRUAL BASIS. ACCORDING TO TH IS METHOD OF ACCOUNTING, THE ADVANCES RECEIVED BY THE ASSESSEE GETS ADJUSTED AGAINST THE CONVERSION BILLS , RAISED ON BIL IN THE CONVERSION ACCOUNT. THE CIT(A) ALSO T OOK NOTE OF THE FACT THAT THE ASSESSEE HAD BEEN FOLLOWING ME THOD FOR MANY YEARS. ACCORDINGLY HE DELETED THE ADDITION OF RS. 50,00,000/-. THE CIT(A) ON THE ISSUE OF REIMBURSEME NT OF FUEL CHARGES OF RS. 3,82,289/- CAME TO THE CONCLUSI ON THAT SINCE IT WAS ONLY THE REIMBURSEMENT OF FUEL CHARGES BY THE BIL TO THE ASSESSEE, IT DID NOT HAVE THE CHARACTER OF THE INCOME, NOR WAS THERE ANY INCOME, EMBEDDED IN THE RECEIPTS FROM BIL. ACCORDINGLY, HE DELETED THE ADDI TION OF RS. 3,82,289/-. 12. ON THE ISSUE OF DISALLOWANCE OF RS. 29,874/- PA ID ON BANK 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 ) JB. MANGARAM FOODS P. LTD. 5 CAME TO THE CONCLUSION THAT THE EXPENSE M/S J B MANGARAM FOODS PVT LTD ITA NO. 4875/MUM/2011 5 PERTAINED TOWARDS THE ISSUANCE OF DEMAND DRAFTS IN FAVOUR OF INTERNATIONAL BAKERY TO NEGOTIATE THE ACQ UISITION OF THE BRAND, FOR AND ON BEHALF OF BIL. THE CIT(A) HELD THAT THE BANK CHARGES WERE ONLY AND PURELY INCURRED FOR THE PURPOSES OF BUSINESS, AS A PART OF BUSINESS STRATEG Y. 13. ON TAKING NOTE OF THE ABOVE ARGUMENTS, AS EMANA TING FROM THE ORDERS OF THE REVENUE AUTHORITIES BEFORE U S, WE DO NOT FIND ANY REASON TO DISTURB THE FINDINGS AND REA SONS, AS ADOPTED BY THE CIT(A) TO DELETE THE ADDITIONS MADE BY THE AO. 14. WE, THEREFORE, SUSTAIN THE ORDER OF THE CIT (A) AND DIRECT THE AO TO DELETE THE ADDITIONS MADE AGGREGAT ING TO RS. 54,12,163/-. 15. IN THE RESULT, THE GROUNDS AS FILED BY THE DEPA RTMENT ARE REJECTED AND CONSEQUENTIALLY, THE APPEAL FILED BY THE DEPARTMENT IS DISMISSED. ORDER PRONOUNCED IN THE OP EN COURT ON 8TH JANUARY, 2014. 3.3. IT IS FURTHER NOTED BY US THAT IN THE YEAR BEFORE US, LD. CIT(A) HAS TAKEN INTO ACCOUNT THE REMAND REPORT OF THE AO WHEREIN IT HAS BEEN STATED BY THE AO THAT ASSESSEE HAS DULY ACCOUNTED FOR ITS INCOME AND EXPENSES AND METHOD OF ACCOUNTING FOLLOWED BY THE ASSESSEE HAS BEEN ACCEPT ED BY THE AO. THE RELEVANT PORTION OF THE ORDER OF LD. CIT(A) IS REPRODUCED BELOW: JB. MANGARAM FOODS P. LTD. 6 2.3. I HAVE CONSIDERED THE FACTS AND PERUSED THE M ATERIAL ON RECORD. IT IS SEEN THAT THE HONBLE ITAT MUMBAI VIDE PARA 6 OF ITS ORDER HAS DIRECTED TO VERIFY THE METH OD OF ACCOUNTING OF THE ASSESSEE, INCOME RECOGNITION, THE MANNER OF BOOK ENTRIES REGARDING THE ADVANCES RECEI VED VIS--VIS THE JOB OF WORK DONE ETC. WHICH ARE THE B ASIC DETAILS WHICH ARE REQUIRED FOR DECIDING THE ISSUE. IT IS SEEN FROM THE REMAND REPORT OF THE AO THAT THE APPE LLANT FOLLOWS MERCANTILE SYSTEM OF ACCOUNTING. THE ADVANC ES ARE RECEIVED FROM BIL AND AS AND WHEN JOB WORKED IS COMPLETED THE INCOME IS BOOKED IN CONVERSION ACCOUN T. IT IS SEEN FROM THAT THE BILL AMOUNT ARE RECOGNIZED AS TH E TAXABLE RECEIPT WHICH ARE SHOWN AT RS.10,79,21,670/ - AND THE INCOME ACCOUNT OF RS.51,40,580/- RELATES TO ADV ANCE RECEIVED AGAINST CONVERSION CHARGES. IN THE LIGHT O F THESE FACTS, I AM OF THE CONSIDERED OPINION THAT THE CONV ERSION CHARGES RECEIVE AS ADVANCE CANNOT BE TAXED IN VIEW OF THE INCOME RECOGNITION METHOD FOLLOWED BY THE APPELLANT FOR THE LAST SOME ANY YEARS, THEREFORE, THE ADDITION MA DE BY THE AO ON ACCOUNT OF ADVANCE RECEIVED OF RS.51,40,5 80/- IS DELETED. THIS GROUND OF APPEAL IS THEREFORE ALLO WED. 3.4. IT IS NOTED BY US THAT FINDING RECORDED BY THE LD. CIT(A) ARE BASED ON PROPER FACTS AND EVIDENCES, AND THESE ARE BASED UPON THE REMAND REPORT OF THE AO. THUS, WE DO NOT F IND ANYTHING WRONG IN THE ORDER OF LD. CIT(A) AND UPHOL D THE SAME AND DISMISS THE GROUND NO 1 RAISED BY THE REVENUE. JB. MANGARAM FOODS P. LTD. 7 4. GROUND NO.2: IN THIS GROUND THE REVENUE HAS CHALLENGED THE ACTION OF LD. CIT(A) IN DELETING DISALLOWANCE O F RS.79,198/- IN RESPECT OF PROVISIONS MADE FOR SLOW OR NON-MOVIN G INVENTORY. THE AO HAS DISALLOWED THE CLAIM ON THE G ROUND THAT ASSESSEE DID NOT OFFER ANY SUBMISSIONS FOR THIS ISS UE, ON THE OBSERVATIONS MADE IN THE ORIGINAL ASSESSMENT ORDER. 4.1. IT HAS BEEN SUBMITTED BY THE LD. COUNSEL, REITERAT ING THE SUBMISSIONS OF THE ASSESSEE AS WERE MADE BEFORE THE LD. CIT(A), THAT THE INVENTORY OF STORE AND SPARES PART IS CHECKED PERIODICALLY FOR OBSOLESCENCE, TECHNICAL COMPATIBIL ITY QUALITY AND QUANTITY TO ENSURE THAT ALL ITEMS IN THE INVENT ORY ARE FIT FOR THE PURPOSE FOR WHICH THESE WERE KEPT IN THE STORES . THOSE ITEMS WHICH ARE FOUND UNFIT FOR USE DUE ARE EITHER WRITTEN OFF OR REDUCED TO THE ACTUAL MARKET VALUE. AFTER ANALYZ ING THE FACTS AND CIRCUMSTANCES OF THE CASE, LD. CIT(A) DEL ETED DISALLOWANCE MADE BY THE AO, AND OBSERVED AS UNDER: 3.3. I HAVE CONSIDERED THE FACTS, IT IS SEEN THAT IN THE BUSINESS OF APPELLANT THERE IS ALWAYS SOME OBSOLETE STOCK ON ACCOUNT OF STORES, WHICH IS NOT USABLE. FURTHER THE APPELLANT HAS SHOWN SALE OF SCRAP IN THE NEXT YEAR AND THE AMOUNT WRITTEN OFF IS LESS THAN 3% OF INVENTORY WHI CH APPEARS TO BE REASONABLE; HENCE DISALLOWANCE MADE B Y THE AO IS THEREFORE DELETED. 4.2. THE LD. DR DID NOT MAKE ANY SERIOUS ARGUMENT TO AS SAIL THE FINDINGS OF THE LD. CIT(A) ON THIS ISSUE. NOTHI NG WRONG HAS JB. MANGARAM FOODS P. LTD. 8 BEEN POINTED OUT IN THE ORDER OF LD. CIT(A) ON THIS ISSUE. THUS, IN ABSENCE OF ANY SERIOUS OPPOSITION, WE UPHOLD THE ORDER OF LD. CIT(A) ON THIS ISSUE AND DISMISS THE GROUND RAI SED BY THE REVENUE. 5. GROUND NO.3: IN THIS GROUND THE REVENUE HAS CHALLENGED THE ACTION OF LD. CIT(A) IN DELETING THE DISALLOWAN CE IN RESPECT OF PROVISION OF DOUBTFUL ADVANCES OF RS.7,66,697/- AGAINST DUES FROM MPSEB. IT IS NOTED FROM THE FACTS BROUGHT BEFORE US THAT ASSESSEE HAS WRITTEN OFF A SUM OF RS.7,66,697/ - ON ACCOUNT OF AMOUNTS DUE FROM ITS DEBTOR WHICH WAS SH OWN AS INCOME IN THE EARLIER YEARS. THE LD. COUNSEL OF THE ASSESSEE PLACED RELIANCE UPON THE JUDGMENT OF HONBLE SUPREM E COURT IN THE CASE OF TRF LTD. V. CIT 323 ITR 397. DURING THE COURSE OF HEARING LD. COUNSEL OF THE ASSESSEE WAS ASKED TO SHOW THAT THIS AMOUNT HAS BEEN ACTUALLY WRITTEN OFF AS BAD DE BT, MERE CREATING A PROVISION WILL NOT BE SUFFICIENT, AND CL AIM OF BAD DEBTS CANNOT BE ALLOWED UNDER SECTION 36(1) (VII) U NLESS THE AMOUNT IS ACTUALLY WRITTEN OFF IN THE BOOKS OF ACCO UNT AS BAD DEBTS, WHICH IS ONE OF THE MANDATORY CONDITIONS FOR CLAIMING DEDUCTION UNDER THIS SECTION. BUT LD. COUNSEL WAS N OT ABLE TO SHOW REQUISITE DETAILS IN THIS REGARD. THEREFORE, W E SEND THIS ISSUE BACK TO THE FILE OF AO. THE ASSESSEE SHALL SH OW THAT AMOUNT HAS BEEN ACTUALLY WRITTEN OFF IN THE BOOKS O F ACCOUNTS AS BAD DEBT. IF THE AMOUNT HAS BEEN WRITTEN OFF, TH E CLAIM SHOULD BE ALLOWED TO THE ASSESSEE IN VIEW OF THE JU DGMENT OF HONBLE SUPREME COURT IN THE CASE OF TRF LTD., (SUP RA). IN CASE ONLY PROVISION HAS BEEN CREATED AND AMOUNT HAS NOT JB. MANGARAM FOODS P. LTD. 9 BEEN ACTUALLY WRITTEN OFF, THEN THE ASSESSEE WOULD NOT BE ELIGIBLE TO CLAIM THE BENEFIT. THE AO SHALL GIVE AD EQUATE OPPORTUNITY TO THE ASSESSEE BEFORE DECIDING THIS GR OUND AFRESH. THUS, GROUND NO.3 IS ALLOWED FOR STATISTICAL PURPOS ES. 6. GROUND NOS. 4 & 5 ARE GENERAL, AND DO NOT REQUIRE ANY SPECIFIC ADJUDICATION, AND THEREFORE DISMISSED. 7. IN THE RESULT, THE APPEAL OF THE REVENUE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 11.03. 2016. SD/- (SANJAY GARG ) SD/- (ASHWANI TANEJA) ! / JUDICIAL MEMBER ' ! / ACCOUNTANT MEMBER $ % MUMBAI; * DATED : 11/ 03 /2016 CTX? P.S/. .. #$%&'(')% / COPY OF THE ORDER FORWARDED TO : 1. , -. / THE APPELLANT 2. /0-. / THE RESPONDENT. 3. 1' 1 $ 2 ( , ) / THE CIT, MUMBAI. 4. 1' 1 $ 2 / CIT(A)- , MUMBAI 5. 56 / 78 , 1' ,( 78'9 , $ % / DR, ITAT, MUMBAI 6. : ; % / GUARD FILE. / BY ORDER, 0 5, / //TRUE COPY// / (DY./ASSTT. REGISTRAR) , $ % / ITAT, MUMBAI