M/s Biore India Ltd, V. The A C I T 5 (1),

ITA 501/IND/2008

• Counselvise Citation: [2011] 119 COUNSELVISE.COM (IT) 7185 (ITAT-INDORE)
• Duration Of Justice: 3 year(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-12-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 07-12-2010
• Assessment Year: 2004-2005
• Appeal Filed On: 15-12-2008
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ARUN DEWAN
• Assessee Lawyers: MANISH VAIDYA CAS
• Keywords: Depreciation

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL , INDORE BENCH, INDORE BEFORE SHRI JOGINDER SINGH, J.M. AND SHRI R.C.SHARM A, A.M. PAN NO. : AABCM8126D I.T.A.NO. 501 & 502 / IND /20 0 8 A.Y. : 2004 - 05 & 2005 - 06 BIORE INDIA LIMITED, ACIT, 5 TH MILEST ONE, VS 5(1), MANDLESHWAR ROAD, KASRAWAD, DISTT. KHARGONE INDORE APPELLANT RESPONDENT APPELLANT BY : SHRI AJAY TULSIYAN AND SHRI MANISH VAIDYA, CAS RESPONDENT BY : SHRI ARUN DEWAN, SR. DR DATE OF HEARING : 03.11.2011 DATE OF PRONOUNCEMENT : 29 . 1 2 .2011 O R D E R PER R. C. SHARMA, A.M. THESE ARE THE APPEALS FILED BY THE ASSESSEE AGAINST THE ORDER OF CIT(A)-II, INDORE, DATED 04.09.2008 FOR TH E ASSESSMENT YEARS 2004-05 & 2005-06. -: 2: - 2 2. FOLLOWING GROUNDS HAVE BEEN TAKEN BY THE ASSESSEE I N ASSESSMENT YEAR 2004-05 :- 1. THAT THE LD. CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE OF DEPRECIATION OF RS. 14,62,500/- ON PATENT RIGHTS OF BRAND NAME/TRADEMARK MADE BY THE ASSESSING OFFICER. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE ADDITION IS WRONG AND THE SAME REQUIRE TO BE DELETED. 2. THAT THE LD. CIT(A) ERRED IN CONFIRMING DISALLOWANC E OF RS. 58,500/- MADE OUT OF CAR AND VEHICLE EXPENSES (INCLUDING DEPRECIATION THEREON) FOR ALLEG ED PERSONAL USE BY THE DIRECTORS AND EMPLOYEES. THAT ON FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE DISALLOWANCE IN THE CASE OF A COMPANY OF 1/10 TH OF SUCH EXPENSES IS WRONG AND THE SAME REQUIRES TO BE DELETED. 3. THAT THE LD. CIT(A) ERRED IN CONFIRMING DISALLOWANC E OF RS. 17,000/- MADE OUT OF TELEPHONE EXPENSES FOR ALLEGED PERSONAL USE BY THE DIRECTORS AND EMPLOYEES. THAT ON THE FACTS AND IN THE -: 3: - 3 CIRCUMSTANCES OF THE CASE OF THE CASE THE DISALLOWANCE OF SUCH EXPENSES IS WRONG AND THE SAME REQUIRES TO BE DELETED. 4. THAT THE LD. CIT(A) ERRED IN CONFIRMING DISALLOWANC E OF RS. 25,000/- ON ACCOUNT OF GENERAL & TRAVELLING EXPENSES & STAFF WELFARE EXPENSES. THAT ON THE FACT S AND IN THE CIRCUMSTANCES OF THE CASE , SUCH DISALLOWANCE IS WRONG AND THE SAME REQUIRES TO BE DELETED. 3. FOLLOWING GROUNDS HAVE BEEN TAKEN BY THE ASSESSEE I N ASSESSMENT YEAR 2005-06 :- 1. THAT THE LD. CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE OF DEPRECIATION OF RS. 25,59,375/- ON PATENT RIGHTS OF BRAND NAME/TRADEMARK MADE BY THE ASSESSING OFFICER. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE ADDITION IS WRONG AND THE SAME REQUIRE TO BE DELETED. 2. THAT THE LD. CIT(A) ERRED IN CONFIRMING DISALLOWANC E OF RS. 63,500/- MADE OUT OF CAR AND VEHICLE EXPENSES (INCLUDING DEPRECIATION THEREON) FOR ALLEG ED -: 4: - 4 PERSONAL USE BY THE DIRECTORS AND EMPLOYEES. THAT ON FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE DISALLOWANCE IN THE CASE OF A COMPANY OF 1/10 TH OF SUCH EXPENSES IS WRONG AND THE SAME REQUIRES TO BE DELETED. 3. THAT THE LD. CIT(A) ERRED IN CONFIRMING DISALLOWANC E OF RS. 19,500/- MADE OUT OF TELEPHONE EXPENSES FOR ALLEGED PERSONAL USE BY THE DIRECTORS AND EMPLOYEES. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE OF THE CASE THE DISALLOWANCE OF SUCH EXPENSES IS WRONG AND THE SAME REQUIRES TO BE DELETED. 4. THAT THE LD. CIT(A) ERRED IN CONFIRMING DISALLOWANC E OF RS. 25,000/- ON ACCOUNT OF GENERAL & TRAVELLING EXPENSES & STAFF WELFARE EXPENSES. THAT ON THE FACT S AND IN THE CIRCUMSTANCES OF THE CASE , SUCH DISALLOWANCE IS WRONG AND THE SAME REQUIRES TO BE DELETED. -: 5: - 5 4. FACTS OF THE CASE ARE THAT THE ASSESSEE COMPANY IS ENGAGED IN PROCURING RAW COTTON AND CONVERTING IT I NTO LINT COTTON. THE COMPANY HAS SOLD COTTON, COTTON SEED A ND YARN DURING THE YEAR. FOR PROMOTING GROWTH OF ORGANIC CO TTON THE COMPANY IS SUPPLYING VARIOUS INPUTS TO THE FARMERS. THEREFORE, THE COMPANY ALSO PURCHASES INPUTS SUCH AS SEEDS, DI PEL, NEEM CAKE, ORGANIC COMPOST, KRISHI RAKSHAK, RACK PHOSPHATE, ECO NEEM, PRESS MUD ETC. AND SELL THE SA ME TO VARIOUS FARMERS. 5. DURING THE COURSE OF SCRUTINY ASSESSMENT, THE ASSESSING OFFICER FOUND THAT THE ASSESSEE HAS CLAIM ED DEPRECIATION ON THE PATENT RIGHTS OF MAIKAAL/BIORE . FROM THE RECORD, WE FOUND THAT MAIKAAL FIBERS LIMITED AND R EMEAG OF SWITZERLAND CO-INITIATED THE DEVELOPMENT OF ORGANIC COTTON IN MADHYA PRADESH IN THE YEAR 1992. REMEAG WORKED AT T HE MARKET DEVELOPMENT IN EUROPE, MAIKAAL FIBERS LIMITE D WORKED AT THE VILLAGES FOR THE DEVELOPMENT OF THE CONCEPT OF ORGANIC COTTON WITH THE FARMERS. THE ORGANIC COTTON PURCHAS ED FROM THE CONTRACT/PARTNER FARMERS WAS CONVERTED INTO YAR NS IN THE SPINNING MILL OF MAIKAAL FIBERS LIMITED. THE YARN B EING MADE -: 6: - 6 WAS GIVEN THE BRAND NAME MAIKAAL/BIORE AND WERE B EING USED BY MAIKAAL FIBERS LIMITED. FROM THIS YEAR THE BRAND WERE CARRIED OVER TO THE GARMENTS THAT WERE MADE FR OM THIS YARN. BOTH THE NAMES BIORE/MAIKAAL BECAME A STRON G BRAND FOR ECOLOGICALLY AND SOCIALLY PRODUCED GARMENTS. LA TER ON MAIKAAL BIORE INDIA CAME INTO EXISTENCE AND STARTED ORGANIC COTTON PROJECT. IN THE YEAR 2002 IT BECAME NECESSAR Y FOR MAIKAAL BIORE INDIA TO ACQUIRE AND OWN ALL THESE BR ANDS SO THAT IT WAS NOT UNDER ANY COMPULSION TO GET SPUN TH E YARN AT MAIKAAL FIBERS LIMITED. IT WAS ALSO REQUIRED TO STO P MAIKAAL FIBERS LIMITED FROM USING THESE BRANDS. THIS WAS AL SO NECESSARY FOR ELIMINATING COMPETITION IN ORGANIC CO TTON/YARN. THE ONLY WAY TO SECURE THE BRANDS WAS TO BUY IT FRO M THEM AND THIS WAS DONE THROUGH THE PURCHASE OF BRAND RIG HTS. AFTER PURCHASE OF BRAND RIGHTS THE ASSESSEE CLAIMED DEPRE CIATION THEREON. 6. THE ASSESSING OFFICER DID NOT AGREE WITH THE ASSESS EES CONTENTION AND OBSERVED THAT REMEAG AND MAIKAAL FIB ERS LIMITED DEVELOPED THE ABOVE SAID BRAND FOR THEIR OR GANIC COTTON YARNS. IN THIS PROCESS REMEAG IS THE ONE, I N FACT -: 7: - 7 MARKETING THE ORGANICALLY SPUN COTTON YARN IN THE N AME OF MAIKAAL/BIORE IN EUROPEAN UNION. IN THE WHOLE PRO CESS REMEAG OUTSOURCERS ITS COTTON PRODUCTION TO THE IND IAN CONCERN CALLED MAIKAAL FIBERS LIMITED, MAIKAAL FIBE RS LIMITED AFTER GINNING THE ORGANICALLY PRODUCED COTTON SEND THE PRESSED COTTON TO A YARNING UNIT SITUATED AT KOLHAPUR. THER E THE YARN IS SPUN AND IT IS EXPORTED TO EUROPEAN UNION. REMEA G IS THE PARTY WHICH IMPORTS SUCH ORGANICALLY SPUN COTTON YA RN FROM KOLHAPUR UNIT AND MARKETS THE SAME THING IN EUROPEA N UNION. HE FURTHER STATED THAT IT IS NOT KNOWN AS TO HOW MAIKAAL FIBERS BENEFITTED OUT OF THE BRAND NAME IS A QUESTION MARK BECAUSE MAIKAAL FIBERS NOWHERE DIRECTLY RELATE D WITH MARKETING OF ORGANICALLY PRODUCED COTTON YARN. 7. AS PER ASSESSING OFFICER, THERE WAS NO DEAL ON THE PART OF THE ASSESSEE TO PURCHASE THE TRADE MARK. HE ALSO STATED THAT THE ASSESSEE HAD NOT SHOWN AS TO HOW THE ASSES SEE HAS BEEN BENEFITTED BY THIS TRADEMARK. HE, THEREFORE, H ELD THAT PURCHASING OF TRADEMARK IS AN ARRANGED AFFAIRS JUST TO REDUCE THE TAX LIABILITY. ACCORDINGLY, IN BOTH THE YEARS, THE ASSESSING OFFICER DISALLOWED THE ASSESSEES CLAIM OF DEPRECIA TION AND THE -: 8: - 8 ACTION OF THE ASSESSING OFFICER WAS CONFIRMED BY TH E LD.CIT(A) AGAINST WHICH THE ASSESSEE IS IN APPEAL BEFORE US. 8. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND HAVE GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW AN D VARIOUS DOCUMENTS PLACED ON RECORD WITH REGARD TO AGREEMENT FOR TRANSFER OF BRAND RELATED RIGHTS, ITS REGISTRATION WITH TRADE MARK AUTHORITIES, COPIES OF SEARCH REPORT ETC. FROM THE RECORD, WE FOUND THAT THE ASSESSEE BIORE INDIA LIMITED IS A SERVICE AND TRADING COMPANY, WHICH SUPPORTS FARMERS TO GROW THEIR CROPS FOLLOWING ORGANIC & BIODYNAMIC PRINCIPLES OF AGRICULTURE. THE ASSESSEE COMPANY PROCURES THESE CROPS, PROCESSE S AND SELLS THEM. THE COTTON IS DIRECTLY PURCHASED FROM T HE REGISTERED FARMERS AND IT IS GINNED AND SOLD TO SPI NNING MILLS. THE ASSESSEE COMPANY IS ENGAGED IN PROCURING ORGANI C COTTON AND SUPPLYING THE SAME TO SPINNING MILLS UNDER THE BRAND NAME BIORE. BIORE IS A STRONG BRAND NAME IN EU ROPE AND IS ESTABLISHED AND RECOGNIZED FOR ORGANIC COTTON AND O THER ORGANIC AGRO PRODUCTS. THEREFORE, BIORE ORGANIC C OTTON COMMANDS PREMIUM IN THE MARKET AS THE YARN SPUN FRO M COTTON SUPPLIED UNDER THIS TRADE NAME, IS ALSO SOLD WITH THE -: 9: - 9 SAME BRAND NAME AND THE GARMENTS MANUFACTURED BY TH E SAID YARN ALSO CARRY THE SAME BRAND NAME. 9. THE ASSESSEE COMPANY GETS A PREMIUM FROM SPINNING MILLS FOR SUPPLYING THIS BRANDED COTTON. THIS BRAND WAS EARLIER USED BY M/S. MAIKAAL FIBERS LIMITED (MFL), WHICH CO ULD BE USED ONLY ON PRODUCTS MADE FROM THE SAME BRAND COTT ON. TO PREVENT MIS-USE OF THIS BRAND IN INDIA AND ALSO TO ELIMINATE COMPETITION, THE ASSESSEE COMPANY PURCHASED THIS BR AND FROM MFL. AFTER PURCHASE OF BRAND, THE ASSESSEE COMPANY HAS A MONOPOLY OVER SUPPLY OF ORGANIC COTTON UNDER THIS B RAND IN ENTIRE INDIA. AS PER THE AGREEMENT, AFTER PURCHASE OF BRAND NAME BY THE ASSESSEE MFL CANNOT USE THIS BRAND NAME . FROM THE RECORD, WE ALSO FOUND THAT MAIKAAL FIBERS LIMIT ED AND REMEAG OF SWITZERLAND COMPANY INITIATED THE ORGANIC COTTON IN MADHYA PRADESH IN THE YEAR 1992. REMEI WORKED AT THE MARKET DEVELOPMENT IN EUROPE, MAIKAAL FIBERS LIMITE D WORKED IN THE VILLAGES FOR THE DEVELOPMENT OF THE CONCEPT WITH THE FARMERS; THE ORGANIC COTTON PURCHASED FROM THE CONTRACT/PARTNER FARMERS WAS CONVERTED INTO YARNS I N THE SPINNING MILL OF MAIKAAL FIBERS. MAIKAAL FIBERS LIM ITED IN DUE -: 10: - 10 COURSE OF TIME GOT THE BIORE BRAND REGISTERED IN ITS NAME UNDER DIFFERENT CATEGORIES. WHEN THE ORGANIC COTTON PROJECT WAS HANDED OVER TO MAIKAAL BIORE INDIA LIMITED ( TH E ASSESSEES ERSTWHILE NAME) IN THE YEAR 2002, IT WAS NECESSARY THAT MAIKAAL FIBERS LIMITED RELINQUISHED ALL ITS CL AIMS TO THE ABOVE BRANDS SINCE THE ORGANIC COTTON WAS NOW PRODU CED WITH THE FARMERS BY MAIKAAL BIORE INDIA AND WAS NOT TO B E SPUN AT MAIKAAL FIBERS LIMITED. THE ASSESSEE HAS PURCHASED THE BRAND RIGHTS, WHICH IS EVIDENT FROM THE AGREEMENT B ETWEEN MAIKAAL FIBERS AND BIORE INDIA LIMITED REGARDING TR ANSFER OF BRAND RELATED RIGHTS, THE COPIES OF SEARCH REPORTS SHOWING THAT MFL IS THE PROPRIETOR OF THIS BRAND IN CERTAIN CATE GORY, COPIES OF LETTERS GIVEN BY MFL WITHDRAWING THEIR RIGHTS OV ER THIS BRAND, WHICH WERE ADDRESSED TO THE REGISTRAR OF TRADEMARKS. WE ALSO FOUND THAT TO SUBS TANTIATE ITS CLAIM OF PURCHASE OF THE BRAND, THE ASSESSEE CO MPANY HAD ALSO OBTAINED A NEW SEARCH REPORTS AND FILED BEFORE THE ASSESSING OFFICER SHOWING THAT THE ASSESSEE COMPANY IS THE PROPRIETOR OF THE BRAND. COPY OF ADVERTISEMENT IN T HE TRADEMARK JANNAT ISSUED BY THE REGISTRAR OF TRADEMA RK WAS -: 11: - 11 ALSO PLACED BEFORE THE ASSESSING OFFICER AND ALSO P LACED IN THE PAPER BOOK. WE HAD ALSO VERIFIED THE COPY OF TRADEM ARK DULY REGISTERED IN THE NAME OF THE ASSESSEE COMPANY. COP Y OF THE SEARCH REPORTS ESTABLISHED THE PRESENCE OF BRAND NA ME IN ASSESSEES FAVOUR. WE HAD VERIFIED ALL THESE DOCUME NTS, WHICH ARE PLACED ON RECORD, WHICH CONCLUSIVELY PROVE THAT THE ASSESSEE HAS PURCHASED TRADEMARK BIORE FROM MAIK AAL FIBERS LIMITED (MFL). WE FOUND THAT THESE TRADE MAR KS WERE EARLIER OWNED BY MFL AND AFTER BUYING BY THE ASSESS EE, THESE WERE TRANSFERRED IN THE NAME OF ASSESSEE COMPANY UN DER SOME CATEGORY. ALL THESE DOCUMENTS WERE AVAILABLE BEFORE THE ASSESSING OFFICER, BUT HE FAILED TO APPRECIATE THE SAME IN CORRECT PERSPECTIVE. WHENEVER THE ASSESSING OFFICER WANTS TO TREAT A TRANSACTION AS SHAM, ONUS CAST ON HIM TO SH OW THAT PAYMENT WAS MADE FOR THE PURPOSE OTHER THAN THE ONE PURPORTED. ALL THE CORRESPONDENCES WERE DOCUMENTED AND SAME ALSO FIND PLACE IN THE RECORD. THE OBJECT OF T HE ASSESSEE IS TO STOP THE COMPETITION IN FUTURE FROM MFL, WHER E THE TRADEMARK WAS PURCHASED. THE DOCUMENTS PLACED ON RE CORD CLEARLY PROVED THAT MFL WAS THE SOLE OWNER OF THE T RADEMARK -: 12: - 12 BIORE AND AFTER ITS PURCHASE, THE ASSESSEE COMPAN Y GOT MONOPOLY OVER SUPPLY OF ORGANIC COTTON UNDER THIS B RAND NAME IN INDIA. WE HAVE DULY VERIFIED THEIR REGISTRA TION OF THE BRAND WHICH HAVE ALSO BEEN TRANSFERRED IN THE NAMES OF THE ASSESSEE. THE PURCHASE OF BRAND BY THE ASSESSEE HAD ALSO RESULTED IN TO INCREASE IN ITS TURNOVER FORM RS. 56 9.25 LAKHS TO RS. 1234.38 LAKHS. NOT ONLY THE TURNOVER OF THE ASS ESSEE HAS INCREASED DUE TO MONOPOLY OVER THIS BRAND, BUT THE PROFIT BEFORE DEPRECIATION HAS ALSO INCREASED FROM RS. 13. 53 LAKHS TO RS. 43.97 LAKHS. NOT ONLY IN THIS YEAR BUT IN THE S UBSEQUENT YEAR ALSO PROFIT OF THE ASSESSEE COMPANY HAS INCREA SED CONSIDERABLY. IN VIEW OF THIS DOCUMENTARY EVIDENCE AND THE RESULTANT FINANCIAL FIGURE OF THE ASSESSEE IN THE F ORM OF INCREASED TURNOVER AND PROFIT DULY ESTABLISH THE GE NUINENESS OF THE PURCHASES, WHICH RESULTED INTO HEAVY INCREAS E IN ITS SALES AND PROFIT. WE, THEREFORE, DO NOT FIND ANY JU STIFICATION ON THE PART OF LOWER AUTHORITIES TO DECLINE CLAIM OF DEPRECIATION ON PURCHASE OF SUCH BRAND NAME. ACCORDINGLY, THE AS SESSING OFFICER IS DIRECTED TO DELETE THE DISALLOWANCE OF C LAIM OF -: 13: - 13 DEPRECIATION ON SUCH BRAND NAME/TRADE MARK IN BOTH THE YEARS UNDER CONSIDERATION. WE DIRECT ACCORDINGLY. 10. THE ASSESSING OFFICER HAS ALSO, DISALLOWED PART OF CAR AND VEHICLE EXPENSES AND TELEPHONE EXPENSES ON THE PLEA THAT THESE FACILITIES ARE ALSO USED BY THE DIRECTORS AND EMPLOYEES OF THE COMPANY FOR THEIR PERSONAL PURPOSE. IN VIEW OF THE DECISION OF GUJARAT HIGH COURT IN THE CASE OF SAYAJI IRON, 2 53 ITR 749, WE DO NOT FIND ANY JUSTIFICATION FOR DISALLOWANCE O F TELEPHONE AND CAR EXPENSES ON THE PLEA OF USE BY THE DIRECTOR AND EMPLOYEES, IN SO FAR AS THE ASSESSEE IS A CORPORATE ENTITY, NO DISALLOWANCE CAN BE MADE IN ITS HANDS. IT IS NOT TH E CASE OF THE ASSESSING OFFICER THAT THE EXPENSES WERE NOT VERIFI ABLE. ONLY ALLEGATION OF THE ASSESSING OFFICER WAS THAT THE PE RSONAL USE OF DIRECTORS AND EMPLOYEES CANNOT BE RULED OUT. 11. THE ASSESSING OFFICER HAS ALSO MADE DISALLOWANCE OU T OF GENERAL AND TRAVELLING EXPENSES AND STAFF WELFAR E EXPENSES ON THE PLEA THAT VOUCHERS WERE SELF-MADE AND THE EX PENSES WERE NOT VERIFIABLE. FOR CLAIMING ANY EXPENDITURE, ONUS IS ON THE ASSESSEE TO SHOW THAT EXPENDITURE HAVE ACTUALLY BEEN INCURRED FOR THE PURPOSE OF BUSINESS AND THE SAME I S FULLY -: 14: - 14 SUPPORTED BY BILLS AND VOUCHERS. IN CASE OF FAILURE OF ASSESSEE TO SUBSTANTIATE ITS CLAIM OF EXPENSES BY PRODUCING NECESSARY BILLS AND VOUCHERS, THE ASSESSING OFFICER CAN DISAL LOW PART OF SUCH EXPENSES. IN THE INSTANT CASE, NEITHER BEFORE THE CIT(A) NOR BEFORE US, THE ASSESSEE COULD SUBSTANTIATE THE INCURRING OF EXPENDITURE BY PRODUCING NECESSARY BILLS AND VOUCHE RS. ACCORDINGLY, WE CONFIRM THE ACTION OF LOWER AUTHORI TIES FOR DISALLOWANCE OF THESE EXPENDITURE IN BOTH THE YEARS UNDER CONSIDERATION. 12. IN THE RESULT, BOTH THE APPEALS OF THE ASSESSEE ARE ALLOWED IN PART. THIS ORDER HAS BEEN PRONOUNCED IN THE OPEN COURT ON 29 TH DECEMBER, 2011. (JOGINDER SINGH) ( R.C.SHARMA) JUDI CIAL MEMBER ACCOUNTANT MEMBER DATED : 29 TH DECEMBER, 2011. CPU* 2228