ACIT CENT. CIR. - 25, MUMBAI V. M/s. PARLE BISCUITS P. LTD., MUMBAI

ITA 5540/MUM/2006

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 54979 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 9 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-08-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: J
• Next Hearing Date: 27-07-2011
• Assessment Year: 1998-1999
• Appeal Filed On: 20-10-2006
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: D S SUNDER SINGH
• Assessee Lawyers: P J PARDIWALLA
• Keywords: Capital asset; Cost of acquisition; Deemed dividend; Set aside; Liquidation; Capital Gains
• Section: 37; 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL 'J' BENCH, MUMBAI BEFORE SHRI R.S. PADVEKAR, JUDICIAL MEMBER AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER ITA NOS. 5318 & 5319/MUM/2006 & 447/MUM/2009 (ASSESSMENT YEARS: 1998-99, 1999-2000 & 2004-05) M/S. PARLE BISCUITS PVT. LTD. ACIT, CENTRAL CIRCLE - 25 NIRLON HOUSE, 254-DR. A.B. ROAD AAYAKAR BHAVAN, M.K . ROAD MUMBAI 400025 VS. MUMBAI 400020 PAN - AAACP0485 D APPELLANT RESPONDENT ITA NOS. 5540 & 5541/MUM/2006 & 683/MUM/2009 (ASSESSMENT YEARS: 1998-99, 1999-2000 & 2004-05) ACIT, CENTRAL CIRCLE - 25 M/S. PARLE BISCUITS PVT. LTD. AAYAKAR BHAVAN, M.K. ROAD NIRLON HOUSE, 254-DR. A.B . ROAD MUMBAI 400020 VS. MUMBAI 400025 PAN - AAACP0485 D APPELLANT RESPONDENT ASSESSEE BY: SHRI P.J. PARDIWALLA & NITESH JOSHI REVENUE BY: SHRI D.S. SUNDER SINGH DATE OF HEARING: 27.07.2011 DATE OF PRONOUNCEMENT: 19.08.2011 O R D E R PER BENCH THESE ARE APPEALS BY ASSESSEE AND REVENUE AGAINST T HE ORDERS OF THE CIT(A) IN THE RESPECTIVE ASSESSMENT YEARS. SINCE CO MMON ISSUES ARE INVOLVED THESE APPEALS ARE TAKEN TOGETHER AND CONSIDERED. 2. WE HAVE HEARD SHRI P.J. PARDIWALLA, THE LEARNED COU NSEL FOR THE ASSESSEE AND SHRI D.S. SUNDER SINGH, THE LEARNED CI T D.R IN DETAIL. ITA NO. 5318/MUM/2006 & ITA NO.5540/MUM/2006: A.Y. 1998-99 3. IN THESE CROSS APPEALS THE GROUNDS STATED BY THE AS SESSEE AND REVENUE ARE AS UNDER: - ITA 5318 & 5319/M/06 & 447/M/09 ITA 5540 & 5541/M/06 & 683/M/09 M/S. PARLE BISCUITS PVT. LTD. 2 ASSESSEES APPEAL 1. THE LEARNED CIT(A) ERRED IN CONFIRMING THE ADDIT ION MADE BY THE ASSESSING OFFICER (A.O) FOR DEPOSITS WRITTEN OFF RS.2,63,750. 2.1 THE LEARNED CIT(A) ERRED IN NOT DELETING THE AD DITION MADE BY THE AO FOR ALLEGED EXCESS CONSUMPTION OF RAW MATERIAL O F RS.1,32,51,851. 2.2 THE LEARNED CIT(A) ERRED IN CONFIRMING THE ACTI ON OF THE AO IN APPLYING THE INPUT/OUTPUT FORMULAE OF 108.19 : 100 FOR COMPUTING ALLEGED EXCESS/SHORT CONSUMPTION OF RAW M ATERIALS AT THE APPELLANTS CONTRACT MANUFACTURING UNITS (CMUS ) AS AGAINST THE FORMULAE OF 110.607 : 100 AS CONTENDED BY THE APPELLANT. HE ERRED IN NOT APPRECIATING THE SUBMISSIONS MADE BY THE APPELLANT IN THIS CONNECTION. 2.3 WITHOUT PREJUDICE TO THE ABOVE, THE LEARNED CIT (A), WHILE CONFIRMING THE ACTION OF THE AO IN APPLYING THE INP UT/OUTPUT FORMULAE OF 108.19 : 100 FOR THE APPELLANTS CMUS, ERRED IN NOT DIRECTING THE AO TO MAKE THE ADJUSTMENTS TO THE AMO UNT OF PRODUCTION OF THE CMUS IN COMPUTATION OF EXCESS/SH ORT CONSUMPTION OF THE CMUS. 3. THE LEARNED CIT(A) ERRED IN CONFIRMING THE ACTIO N OF THE AO IN DISALLOWING LONG TERM CAPITAL LOSS OF RS.35,58,718 ON REDEMPTION OF PREFERENCE SHARES. REVENUES APPEAL 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(A) ERRED IN DIRECTING THE A.O. TO ALLOW ADJ USTMENT FOR EMPTY BAGS OF MAIDA WHILE WORKING OUT THE RATIO OF CONSUMPTION OF RAW MATERIAL AND PRODUCTION WITHOUT APPRECIATING THAT: A) THE MAIDA BAGS COME IN NET WEIGHT AND NOT AS GR OSS WEIGHT AS MADE OUT TO BE BY THE ASSESSEE BEFORE CIT(A). THE A.O. HAS ALREADY ALLOWED ADJUSTMENT OF 25% ON ACCOUNT OF PRE-PRODUCTION AND POSTPRODUCTION WASTAGES. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) ERRED IN DIRECTING THE A.O. TO ALLOW ALL ADJUSTMENTS THAT HAVE BEEN ALLOWED IN RESPECT OF OWN FACTORY TO CMUS ALSO WITHOUT APPRECIATING THE FACT THAT THE EXCESS CONSU MPTION OF RAW MATERIAL IS WORKED OUT ON THE TOTAL PRODUCTION ON T HE DIFFERENT BRANDS OF BISCUITS IRRESPECTIVE OF PRODUCTION IN OW N FACTORY OR BY CMUS, AND DEDUCTION WAS ALLOWED IN THE SAME PROPOSI TION IN ALL THE BRANDS OF BISCUITS IGNORING THE FACT THAT PRE-P RODUCTION AND POT PRODUCTION WASTAGES ARE NOT INCLUDED IN THE PRO DUCTION OF BISCUITS BY CMUS. THEREFORE, QUESTION OF TAKING IN PUT OUTPUT RATIO AT 110.607:100 DOES NOT ARISE. ITA 5318 & 5319/M/06 & 447/M/09 ITA 5540 & 5541/M/06 & 683/M/09 M/S. PARLE BISCUITS PVT. LTD. 3 4. AS CAN BE SEEN FROM THE GROUNDS, GROUND NO. 2 IN AS SESSEES APPEAL IS ON THE SAME ISSUE AS THAT OF GROUNDS IN REVENUES A PPEAL. THESE ARE CONSIDERED APPROPRIATELY. 5. GROUND NO. 1 IN ASSESSEES APPEAL IS AGAINST DISALL OWANCE OF DEPOSIT WRITTEN OFF ` 2,63,750/-. DURING THE YEAR ASSESSEE WRITTEN OFF CE RTAIN DEPOSITS LYING WITH MAHARASHTRA STATE ELECTRICITY BOARD AGGR EGATING TO ` 2,63,750/-. THE AMOUNT WRITTEN OFF WAS CLAIMED AS A DEDUCTION U NDER SECTION 36(1)(VII) RWS 36(2) OR AS ALTERNATIVE UNDER SECTION 28 OR 37 OF THE I.T. ACT. THE DEPOSITS WITH MSEB, LONAVALA RELATES TO LAND, BUILD ING AND PLANT & MACHINERY, WHICH HAVE BEEN SOLD IN FINANCIAL YEAR 1 996-97 (A.Y. 1997-98) AND SINCE THESE ASSETS WERE NOT WITH THE ASSESSEE T HE DEPOSITS WERE NOT RECOVERABLE AND WERE WRITTEN OFF. THE DCIT DISALLOW ED THE CLAIM ON THE REASON THAT THE DEPOSIT WITH THE GOVERNMENT UNDERTA KING CANNOT BE WRITTEN OFF AND ASSESSEE HAS NOT MADE ANY ATTEMPT TO RECOVE R THE AMOUNT. BEFORE THE CIT(A) IT WAS SUBMITTED THAT THE DEPOSITS RELAT E TO ASSETS WHICH HAD BEEN DISPOSED OFF IN EARLIER YEAR AND AS ASSESSEE W AS NOT IN A POSITION TO OBTAIN REFUND, THE SAME WAS WRITTEN OFF. IT WAS THE CONTENTION THAT THE SAME IS ALLOWABLE UNDER SECTION 28/37(1) BEING A LOSS AR ISING OUT OF AND INCIDENTAL TO BUSINESS. THE CIT(A) REJECTED THE CONTENTIONS ST ATING THAT THE AMOUNT COULD NOT BE ALLOWED AS A BAD DEBT AS THE CONDITION S UNDER SECTION 36(2) WERE NOT SATISFIED. REGARDING THE CLAIM UNDER SECTI ON 28/37 AS THE ASSESSEE TRANSFERRED THE BUSINESS IN CONNECTION WITH WHICH T HE DEPOSITS WERE CLAIMED THE AMOUNT CANNOT BE ALLOWED AS A LOSS INCIDENTAL T O THE BUSINESS. 6. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND EXAMINI NG THE ISSUE WE ARE OF THE OPINION THAT THE AMOUNT CANNOT BE ALLOWE D AS A DEDUCTION. IT IS ADMITTED THAT THE AMOUNT CANNOT BE ALLOWED AS BAD D EBT AS ASSESSEE HAS NOT FULFILLED THE CONDITIONS UNDER SECTION 36(2). W ITH REFERENCE TO THE CLAIM UNDER SECTION 28/37(1) IT CAN BE CONSIDERED AS A LO SS ARISING IN THE COURSE OF BUSINESS BUT THIS LOSS HAS NOT ARISING DURING THE Y EAR. AS THE UNITS WAS TRANSFERRED IN F.Y. 1996-97 RELEVANT TO A.Y. 1997-9 8 THE DEPOSITS MADE WITH REFERENCE TO THE SAID UNIT COULD HAVE BEEN CLAIMED IN THE YEAR IN WHICH THE SAME WAS SOLD OFF. SINCE THE UNIT WAS ALREADY SOLD IN AN EARLIER YEAR AND ITA 5318 & 5319/M/06 & 447/M/09 ITA 5540 & 5541/M/06 & 683/M/09 M/S. PARLE BISCUITS PVT. LTD. 4 SINCE THE ASSESSEE HAS NOT MADE ANY ADJUSTMENT WITH REFERENCE TO THE DEPOSITS IN THAT YEAR, THE SAME CANNOT BE ALLOWED D URING YEAR UNDER CONSIDERATION. FOR THIS REASON, WE UPHOLD THE ORDER OF THE LOWER AUTHORITIES IN NOT ALLOWING THE AMOUNT. ACCORDINGLY THE GROUND IS REJECTED. 7. GROUND NO. 2 IN ASSESSEES APPEAL AND GROUND NOS. 1 & 2 IN REVENUES APPEAL RELATE TO ADDITION OF ` 1,32,51,851/- MADE BY THE A.O. ON ACCOUNT OF EXCESS CONSUMPTION OF RAW MATERIAL. 8. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESSE E COMPANY IS IN THE BUSINESS OF MANUFACTURING OF BISCUITS. THE SAME ARE MANUFACTURED UNDER THE BRAND NAMES OF PARLE-G, KRACKJACK, MONACO, NIMK IN, ETC. BESIDES HAVING ITS OWN MANUFACTURING UNIT AT BAHADURGARH (H ARYANA) AND AT NEEMRANA (RAJASTHAN), IT ALSO GETS THE MANUFACTURIN G DONE THROUGH ITS VARIOUS CONTRACT MANUFACTURING UNITS (CMUS) WHICH M ANUFACTURE PARLE-G AND CREAM BISCUITS. 9. THE ASSESSING OFFICER DURING THE COURSE OF ASSESSME NT PROCEEDINGS NOTED THAT IN THE EARLIER YEAR AN ADDITION FOR THE DIFFERENCE BETWEEN THE ACTUAL CONSUMPTION OF RAW MATERIALS IN THE MANUFACT URE OF THE PRODUCTS AND THE STANDARD CONSUMPTION AS PER THE STANDARD IN PUT-OUTPUT FORMULA HAS BEEN MADE WHEREVER THERE HAS BEEN EXCESS CONSUM PTION. 10. HE NOTED THE FIRST ADDITION WAS MADE IN A.Y. 1988-8 9. IN THAT YEAR, THE ASSESSEE WAS ASKED TO GIVE THE INPUT-OUTPUT RATIO O F THE RAW MATERIAL CONSUMED AND THE FINISHED PRODUCT MANUFACTURED. ASS ESSEE SUBMITTED THE INPUT-OUTPUT RATIO AS 108.19 : 100 WHICH MEANS 108. 19 KG OF RAW MATERIAL TO BE CONSUMED FOR PRODUCING 100 KG OF BISCUITS. TH IS INPUT-OUTPUT RATIO WAS BASED ON SCIENTIFIC CALCULATIONS FOR IDEAL COND ITION. THE ASSESSING OFFICER FOUND THAT THE ACTUAL CONSUMPTION OF RAW MA TERIAL WAS MORE THAN WHAT SHOULD HAVE BEEN CONSUMED AS PER THE FORMULA. HE THEREFORE, ADDED THE VALUE OF EXCESS RAW MATERIAL CONSUMED AS INCOME . SIMILAR ADDITION WAS MADE IN A.Y. 1989-90 ALSO. THE MATTER WENT IN APPEA L BEFORE THE CIT(A) AND IT WAS CONTENDED BEFORE THE CIT(A) THAT THE INPUT- OUTPUT RATIO OF 108.19:100 DID NOT TAKE INTO CONSIDERATION THE VARIOUS WASTAGE S IN THE CONSUMPTION OF RAW MATERIAL AS WELL AS EXCESS WEIGHT IN THE FINISH ED PRODUCT. IT WAS ITA 5318 & 5319/M/06 & 447/M/09 ITA 5540 & 5541/M/06 & 683/M/09 M/S. PARLE BISCUITS PVT. LTD. 5 SUBMITTED THAT THE CONSUMPTION OF MAIDA WAS ACCOUNT ED FOR IN THE BOOKS ALONG WITH THE WEIGHT OF BAGS WHICH WAS ROUGHLY 1 K G. THEREFORE, THE ACTUAL CONSUMPTION OF MAIDA WOULD BE LESS THAN WHAT HAS BE EN SHOWN IN THE ACCOUNTS. SIMILARLY, THERE WERE WASTAGES ON ACCOUNT OF UNFINISHED/BURNT BISCUITS WHICH WERE ALSO NOT TAKEN INTO ACCOUNT FOR MAKING THE DISALLOWANCE ON THE BASIS OF INPUT-OUTPUT RATIO. IN RESPECT OF T HE FINISHED PRODUCT IT WAS SUBMITTED THAT THE ACTUAL WEIGHT OF THE BISCUITS IN THE PACKETS WERE GENERALLY MORE THAN THE PRINTED WEIGHT AND AS SUCH THE ACTUAL PRODUCTION WAS MORE THAN THE PRODUCTION RECORDED IN THE BOOKS OF ACCOUNT. THE CIT(A) ACCEPTED THE SUBMISSION OF THE AR AND SET ASIDE THE ORDER WITH A DIRECTION TO THE ASSESSING OFFICER TO RECOMPUTE THE AMOUNT OF EXCESS CONSUMPTION AFTER TAKING INTO ACCOUNT THE SUBMISSION MADE BY TH E ASSESSEE IN THIS REGARD. EFFECT TO THIS ORDER WAS GIVEN BY THE ASSES SING OFFICER VIDE ORDER DATED 10.05.1996 IN WHICH THE ASSESSING OFFICER HAS CONSIDERED IN DETAIL THE SUBMISSION MADE BY THE ASSESSEE AND HAS ALLOWED REL IEF ON ACCOUNT OF WASTAGES AS CONTENDED BY THE ASSESSEE. 11. IN THE ORIGINAL ORDER IN THE A.Y. 1989-90 AN ADDITI ON OF ` 49,20,000/- WAS MADE BY THE ASSESSING OFFICER. THIS ADDITION WA S REDUCED TO ` 22,72,270/- AFTER GIVING EFFECT TO THE ORDER OF THE CIT(A). IN GIVING EFFECT TO THE ORDER OF THE CIT(A), ADDITION OF ` 22,72,270/- WAS MADE ON ACCOUNT OF EXCESS CONSUMPTION OF SUGAR WITHOUT SETTING OFF OF SHORT CONSUMPTION OF MAIDA AND VANASPATI. ON FURTHER APPEAL, THE CIT(A) HELD THAT SET OFF FOR SHORT CONSUMPTION SHOULD BE ALLOWED AND ONLY NET EX CESS CONSUMPTION AFTER ALLOWING RELIEF OF 25% ON IT FOR OTHER FACTORS SHOU LD BE ADDED TO INCOME. ACCORDINGLY, THE ADDITION OF ` 22,72,270/- WAS FURTHER REDUCED TO ` 5,22,385/-. 12. IN ALL SUBSEQUENT YEARS ADDITIONS WERE BEING MADE O N THE BASIS OF THE DECISION GIVEN BY THE CIT(A) IN A.Y. 1989-90. HOWEV ER, IN THE YEAR UNDER CONSIDERATION FOLLOWING THE SAME PRINCIPLE THERE WA S A SHORT CONSUMPTION OF RAW MATERIAL TO THE TUNE OF ` 1,11,21,729/- INSTEAD OF EXCESS CONSUMPTION AS WAS BEING WORKED OUT IN ALL EARLIER YEARS AND AS SU CH IT WAS SUBMITTED THAT NO ADDITION WAS TO BE MADE. THE ASSESSING OFFICER H AS, HOWEVER, DEPARTED ITA 5318 & 5319/M/06 & 447/M/09 ITA 5540 & 5541/M/06 & 683/M/09 M/S. PARLE BISCUITS PVT. LTD. 6 FROM THE METHOD OF WORKING OUT THE EXCESS CONSUMPTI ON IN EARLIER YEAR AND DID NOT ALLOW FOLLOWING ADJUSTMENT. I) IN RESPECT OF PRODUCTION FROM OWN FACTORY OF THE AS SESSEE, THE ASSESSING OFFICER DID NOT ACCEPT THE CONTENTION OF THE ASSESSEE FOR ALLOWING WASTAGE OF 1 KG MAIDA IN EACH BAG OF MAIDA CONSUMED. II) THE DIFFERENCE BETWEEN THE DECLARED WEIGHT OF BISCU ITS AND THE ACTUAL WEIGHT OF BISCUIT PACKETS IN RESPECT OF CRAC KJACK, MONACO AND NIMKIN BISCUITS WERE TAKEN ON THE SAME PROPORTI ON AS IN THE CASE OF PARLE-G IGNORING THE LABORATORY REPORTS OF EXCESS WEIGHT IN BISCUIT PACKETS SUBMITTED BY THE ASSESSEE. III) NO ADJUSTMENT MADE BY THE ASSESSING OFFICER IN RESP ECT OF BISCUITS PRODUCED BY CONTRACT MANUFACTURER. THE ASSESSING OFFICER ACCORDINGLY MADE AN ADDITION OF RS.1,57,84,868 TO THE TOTAL INCOME OF THE ASSESSEE ON ACCOUNT OF EXCESS C ONSUMPTION OF RAW MATERIALS. 13. IN APPEAL, IT WAS SUBMITTED BY THE ASSESSEE THAT W HEN MAIDA BAGS ARE EMPTIED SOME MAIDA IS LEFT OVER IN THE BAG AND DO N OT GO THROUGH THE PRODUCTION PROCESS. IT WAS SUBMITTED THAT NEARLY 1 KG OF MAIDA IS LEFT OVER IN EACH BAG WHICH SHOULD BE DEDUCTED FROM THE AMOUNT O F CONSUMPTION OF RAW MATERIAL FOR WORKING OUT THE EXCESS CONSUMPTION. IT WAS SUBMITTED THAT SUCH ADJUSTMENT HAS BEEN ALLOWED IN A.Y. 1989-90 AN D IN ALL SUBSEQUENT YEARS. 14. AS REGARDS THE ADJUSTMENT FOR EXCESS WEIGHT OF BISC UITS FOR OTHER BRANDS I.E., OTHER THAN PARLE-G IT WAS SUBMITTED TH AT USUALLY THE ACTUAL WEIGHT OF BISCUITS IN PACKETS IS MORE THAN THE PRIN TED WEIGHT. THEREFORE, THE ACTUAL PRODUCTION IS MORE TO THIS EXTENT AND THIS S HOULD BE TAKEN INTO ACCOUNT FOR WORKING OUT THE AMOUNT OF EXCESS CONSUM PTION. THE ORDER OF THE CIT(A) FOR A.Y. 1989-90 WAS BROUGHT TO HIS NOTICE W HERE ON THE BASIS OF THE DIRECTION OF THE CIT(A), THE ASSESSING OFFICER WEIG HED THE SAMPLE PACKETS OF PARLE-G TO VERIFY THE CLAIM AND FOUND THAT THE WEIG HT OF BISCUITS WAS ACTUALLY MORE THAN THE PRINTED WEIGHT AND ACCORDINGLY HAD AL LOWED THE ADJUSTMENT FOR EXCESS CONSUMPTION. HOWEVER, DURING THE YEAR UN DER CONSIDERATION THE ASSESSING OFFICER HAS NOT GIVEN SIMILAR RELIEF IN C ASE OF OTHER BRANDS IN THE SAME PROPORTION IN WHICH IT WAS ALLOWED IN PARLE-G. ITA 5318 & 5319/M/06 & 447/M/09 ITA 5540 & 5541/M/06 & 683/M/09 M/S. PARLE BISCUITS PVT. LTD. 7 15. AS FAR AS ADJUSTMENT IN RESPECT OF BISCUITS PRODUCE D BY CONTRACT MANUFACTURERS, IT WAS SUBMITTED THAT THE ASSESSEE B ESIDES MANUFACTURING BISCUITS IN HIS OWN FACTORY ALSO GETS THE BISCUITS MANUFACTURED THROUGH CONTRACTOR. ACCORDING TO THE ASSESSING OFFICER WHIL E THE INPUT-OUTPUT RATIO FOR PRODUCTION IN RESPECT OF THE ASSESSEES OWN FAC TORY IS 108.19:100, THE SAME IN RESPECT OF CMUS IT IS 110.607:100. IT WAS S UBMITTED BEFORE THE ASSESSING OFFICER THAT CMUS WERE IN THE NATURE OF S UB-CONTRACTOR WHO WERE GIVEN RAW MATERIAL AGAINST WHICH FIXED AMOUNT OF BI SCUITS WERE RECEIVED AS FINISHED PRODUCT. THE CMUS ARE PAID ONLY THE PROCES SING CHARGES AND ANY WASTAGE, ETC., IN THE PROCESS OF MANUFACTURING IS O N ACCOUNT OF CMUS. THEREFORE, THE INPUT-OUTPUT RATIO FOR THE CMUS HAS TO BE HIGHER THAN THE INPUT-OUTPUT RATIO IN RESPECT OF OWN FACTORY. SINCE NO WASTAGE HAS BEEN ALLOWED IN RESPECT OF CMUS, THE ASSESSING OFFICER S HOULD HAVE ACCEPTED THE RATIO OF 110.607:100. IT WAS FURTHER SUBMITTED THAT THE ASSESSING OFFICER HAS NO EVIDENCE ON RECORD TO DOUBT THE GENUINENESS OF T HE INPUT-OUTPUT RATIO IN RESPECT OF CMUS IN THE BOOKS OF ACCOUNT. FURTHER IF THE INPUT-OUTPUT RATIO OF 108.190:100 IS APPLIED TO THE CMUS, THE WASTAGE AS ALLOWED IN RESPECT OF OWN FACTORY SHOULD ALSO BE ALLOWED IN RESPECT OF PR ODUCTION FROM CMUS. HOWEVER, AS THE CMUS WERE ON CONTRACT BASIS, THE DE TAILED FIGURES OF WASTAGE ARE NOT AVAILABLE WITH THE ASSESSEE AND THE REFORE, EXACT AMOUNT OF ADJUSTMENT FOR DIFFERENT KINDS OF WASTAGE AS HAS BE EN DONE IN RESPECT OF THE OWN FACTORY INPUT-OUTPUT RATIO SHALL NOT BE POSSIBL E IN THE CASE OF CMUS. 16. BASED ON THE VARIOUS ARGUMENTS ADVANCED BY THE LEAR NED COUNSEL FOR THE ASSESSEE, THE CIT(A) REJECTED THE CONTENTION OF THE ASSESSEE FOR ALLOWING WASTAGE OF 1 KG OF MAIDA IN EACH BAG OF MAIDA CONSU MED. HE NOTED THAT DURING THE A.Y. 1989-90 THE ASSESSING OFFICER WHILE GIVING EFFECT TO THE ORDER OF THE CIT(A) HAD ONLY MADE ADJUSTMENT IN RESPECT O F WEIGHT OF EMPTY BAG AND NOT ON ACCOUNT OF LEFT OVER MAIDA. IN ALL SUBSE QUENT YEARS ALSO ADJUSTMENT FOR THE WEIGHT OF EMPTY BAG WHICH WAS FO UND TO BE NEARLY 1 KG HAS BEEN ALLOWED. HE ACCORDINGLY DIRECTED THE ASSES SING OFFICER TO ALLOW ADJUSTMENT FOR EMPTY BAGS OF MAIDA AS HAS BEEN DONE IN A.Y. 1989-90 AND ALL SUBSEQUENT YEARS, IF IT HAS NOT ALREADY BEEN AD JUSTED IN THE ORDER PASSED. ITA 5318 & 5319/M/06 & 447/M/09 ITA 5540 & 5541/M/06 & 683/M/09 M/S. PARLE BISCUITS PVT. LTD. 8 17. AS FAR AS THE ADJUSTMENT FOR EXCESS WEIGHT OF BISCU ITS IN PACKETS FOR THE BRANDS NAMELY, CRACKJACK, NIMKIN AND MONACO, TH E CIT(A) IN THE PRESENCE OF THE ASSESSING OFFICER HAD VERIFIED THE SAMPLE PACKETS, THE RESULTS OF THE WEIGHTS OF WHICH ARE AS UNDER: (WEIGHT IN GMS.) MONACO KRACKJACK NIMKIN DECLARED WEIGHT ON PACKET (NET WT. OF BISCUITS 75 75 75 WT. OF EMPTY PACKET (I.E., WRAPPER WT.) 1.4 1.5 1.2 WT OF SAMPLE (PACKED) PACKETS (I.E. WT WITH WRAPPER) 1 81 81.5 84 2 80.6 83 82.1 3 83.4 82.1 82.8 4 83.3 83.5 83.2 5 82.6 84.7 83 6 82.8 82.8 83.2 7 83.2 83.8 82 8 83.2 84.8 85.4 9 84.3 85 83.5 10 83.2 81.8 82.4 18. ON THE BASIS OF THE ABOVE, HE NOTED THAT AFTER REDU CING THE WEIGHT OF EMPTY PACKETS, ACTUAL WEIGHT OF BISCUITS EXCEEDS TH E DECLARED WEIGHT. HE ACCORDINGLY DIRECTED THE ASSESSING OFFICER TO ALLOW ADJUSTMENT FOR THE EXCESS WEIGHT OF BISCUITS ON THE BASIS OF THESE RESULTS. H E FURTHER DIRECTED THE ASSESSING OFFICER TO GET THE PACKETS WEIGHED AGAIN IN CASE HE REQUIRES THE SAME AND ALLOW ADJUSTMENT ACCORDINGLY. 19. AS FAR AS THE BISCUITS PRODUCED BY THE CONTRACT MAN UFACTURERS, HE AGREED WITH THE CONTENTION OF THE LEARNED COUNSEL F OR THE ASSESSEE THAT IF THE INPUT-OUTPUT RATIO OF THE OWN FACTORY IS APPLIED TO THE CMUS ALSO THEN ADJUSTMENTS WHICH HAVE BEEN ALLOWED IN RESPECT OF O WN FACTORY SHOULD ALSO BE ALLOWED IN RESPECT OF CMUS. SINCE THE FIGURES OF EXACT WASTAGE ARE NOT AVAILABLE, HE DIRECTED THE ASSESSING OFFICER TO ALL OW THE WASTAGE IN THE SAME PROPORTION IN WHICH IT HAS BEEN ALLOWED IN RESPECT OF PARLE-G PRODUCTION IN OWN FACTORY. HE NOTED THAT THE ASSESSEE HAS WORKED OUT THE FIGURE OF EXCESS/SHORT CONSUMPTION AFTER TAKING INTO ACCOUNT THE ADJUSTMENTS ITA 5318 & 5319/M/06 & 447/M/09 ITA 5540 & 5541/M/06 & 683/M/09 M/S. PARLE BISCUITS PVT. LTD. 9 ALLOWED IN THIS ORDER. AS PER THIS CALCULATION THER E IS SHORT CONSUMPTION INSTEAD OF EXCESS CONSUMPTION FOR WHICH NO ADDITION IS TO BE MADE. THE CALCULATION AS GIVEN BY THE ASSESSEE BEFORE THE CIT (A) IS AS UNDER: MANUFACTURED BY BAHADURGARH FACTORY PARLE G (23,69,802) MOANCO 7,31,118 KRACKJACK 16,60,185 NIMKIN 12,74,776 CMUS (PARLE G) ANNAKUT BISCUITS CO PVT. LTD. (45,74,745) RISHI BAKERS PVT. LTD. (45,22,482) SWATI BISCUITS MFG CO LTD. (66,05,774) TRIAD FOODS P LTD. 1,56,638 TOTAL EXCESS/(SHORT) CONSUMPTION (1,42,50,015) 20. HE ACCORDINGLY DIRECTED THE ASSESSING OFFICER TO V ERIFY THESE FIGURES SUBJECT TO THE CONDITION THAT NO ADJUSTMENT IN RESP ECT OF LEFT OVER MAIDA IN THE BAGS IS TO BE MADE AND ALLOW RELIEF. BOTH THE P ARTIES ARE IN APPEAL ON THE ABOVE ORDER OF CIT(A). 21. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE WHICH IS IN THE BUSINESS OF MANUFACTURING OF BISCUI TS, MANUFACTURES THE SAME AT ITS OWN FACTORY AND ALSO THROUGH VARIOUS CM US. THE ASSESSING OFFICER WHILE COMPLETING THE ASSESSMENT ADOPTED THE STANDARD FORMULA OF INPUT-OUTPUT RATIO OF 108.19:100 AND ACCORDINGLY CA LCULATED THE EXCESS CONSUMPTION OF RAW MATERIAL TO THE TUNE OF ` 1,32,51,851/- AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. HE SUBMITTED THAT WHI LE MAKING THE ADDITION ON ACCOUNT OF EXCESS CONSUMPTION OF RAW MATERIAL TH E ASSESSING OFFICER HAS NEITHER REJECTED THE BOOKS OF ACCOUNT NOR MADE AN A LLEGATION OF SUPPRESSED PRODUCTION. HE SUBMITTED THAT FULL DETAILS OF PURCH ASES WERE FILED AND IT HAS NOT BEEN PROVED BY THE ASSESSING OFFICER THAT SUCH PURCHASES ARE NOT GENUINE. THERE IS ALSO NO CASE OF THE ASSESSING OFF ICER THAT THE ASSESSEE SOLD ITS GOODS OUTSIDE THE BOOKS OF ACCOUNT. HE SUBMITTE D THAT THE ASSESSEE HAS MAINTAINED ALL THE BOOKS STATUTORILY REQUIRED WHICH ARE DULY AUDITED AS PER ITA 5318 & 5319/M/06 & 447/M/09 ITA 5540 & 5541/M/06 & 683/M/09 M/S. PARLE BISCUITS PVT. LTD. 10 THE COMPANIES ACT AND INCOME-TAX ACT. THE ASSESSEE S ACCOUNTS COST-WISE ALSO WERE AUDITED. THE BOOKS OF ACCOUNT WERE AUDITE D AND VERIFIED BY THE EXCISE DEPARTMENT. IN ABSENCE OF ANY PRIMARY MATERI AL TO REJECT ASSESSEES BOOKS OF ACCOUNT THE ASSESSING OFFICER CANNOT MAKE THE ADDITION. REFERRING TO THE CONSOLIDATED ORDER OF THE TRIBUNAL FOR THE A .YS. 1989-90, 1991-92 AND 1994-95 TO 1996-97, A COPY OF WHICH IS PLACED AT PA PER BOOK PAGES 166 TO 174, THE LEARNED COUNSEL FOR THE ASSESSEE REFERRED TO PARA 11 OF THE ORDER AND SUBMITTED THAT THE TRIBUNAL WHILE ACCEPTING THE GROUNDS OF THE ASSESSEE HAS HELD THAT NO ADDITION CAN BE MADE ON ACCOUNT OF EXCESS CONSUMPTION. 22. REFERRING TO THE DECISION OF THE HONBLE BOMBAY HIG H COURT IN THE CASE OF R.B. BANSILAL ABIRCHAND SPINNING & WEAVING MILLS VS. CIT REPORTED 75 ITR 260, HE SUBMITTED THAT THE ASSESSING OFFICER S RIGHT UNDER THE PROVISO TO SECTION 13 (INCOME-TAX ACT, 1922) ARISES ONLY IF A FINDING IS RECORDED AS TO THE UNACCEPTABILITY OF THE METHOD AN D IRREGULARITY OF THE ACCOUNTS KEPT. IN THE ABSENCE OF SUCH A FINDING REC ORDED BY THE AUTHORITY THE RESULTS CANNOT BE IGNORED OR BRUSHED ASIDE. THE MERE FACT THAT THE PERCENTAGE OF DEAD LOSS OF COTTON IS HIGH IN A PART ICULAR YEAR CANNOT LEAD TO AN INFERENCE THAT THERE HAS BEEN SUPPRESSION OF THE PRODUCTION IN THE SPINNING MILL. ACCORDINGLY IT WAS HELD THAT THE ADD ITION OF ` 50,000/- TO THE TOTAL INCOME OF THE ASSESSEE ON ACCOUNT OF ALLEGED UNDERSTATED PRODUCTION OF THE YARN AND SOFT WASTE WAS NOT JUSTIFIED. 23. REFERRING TO THE DECISION OF THE J & K HIGH COURT I N THE CASE OF INTERNATIONAL FOREST CO. VS. CIT 101 ITR 721, HE SU BMITTED THAT THE HONBLE HIGH COURT IN THE SAID DECISION HAS HELD THAT MERE LOW YIELD OF OUT-TURN SAWN TIMBER OR THE MANIFESTATION OF MEAGRE GROSS PR OFIT, WHICH WERE THE SHEET ANCHORS OF THE ORDERS OF THE INCOME-TAX AUTHO RITIES AND TRIBUNAL COULD NOT BE TAKEN AS INDICATION OF SUPPRESSION OF SALES ON THE PART OF THE ASSESSEE. 23.1 REFERRING TO THE DECISION OF THE HONBLE PATNA HIGH COURT IN THE CASE OF MOTIPUR SUGAR FACTORY VS. CIT REPORTED 95 ITR 40 1, HE SUBMITTED THAT THE HONBLE HIGH COURT IN THE SAID DECISION HAS HELD TH AT WHEN THE ENTIRE MANUFACTURING PROCESS OF SUGAR WAS SUBJECTED TO THE SUPERVISION AND ITA 5318 & 5319/M/06 & 447/M/09 ITA 5540 & 5541/M/06 & 683/M/09 M/S. PARLE BISCUITS PVT. LTD. 11 CHECKING OF THE CENTRAL EXCISE OFFICERS POSTED AT T HE FACTORY AND THE ACCOUNTS OF THE ASSESSEE ARE AUDITED BY A REPUTED F IRM OF CHARTERED ACCOUNTANTS, THE TRIBUNAL WAS WRONG IN DRAWING AN A DVERSE INFERENCE AND IN REJECTING THE ASSESSEES ACCOUNTS AND SUSTAINING TH E ADDITION. 23.2 REFERRING TO THE DECISION OF THE HONBLE KERALA HIG H COURT IN THE CASE OF ST. TERESAS OIL MILLS VS. STATE OF KERALA REPOR TED IN 76 ITR 365, HE SUBMITTED THAT DISPARITY IN CONSUMPTION OF ELECTRIC ITY WOULD NOT JUSTIFY THE REJECTION OF ACCOUNTS IN ABSENCE OF ANY OTHER SUPPO RTING CIRCUMSTANCES BECAUSE SUCH VARIATION COULD BE DUE TO VARIOUS FACT ORS OUTSIDE THE CONTROL OF THE ASSESSEE. 24. HE SUBMITTED THAT IN THE INSTANT CASE, THE DEPARTME NT HAS ESTABLISHED NOTHING EXCEPT EXCESS CONSUMPTION. REFE RRING TO PAPER BOOK, HE SUBMITTED THAT A DETAILED REPLY WAS GIVEN TO THE ASSESSING OFFICER. HOWEVER, THE ASSESSING OFFICER HAS NOT CARRIED OUT ANY ENQUIRY WITH ANY OF THE SUPPLIERS TO PROVE THAT THE PURCHASES ARE BOGUS . REFERRING TO PAPER BOOK HE SUBMITTED THAT A NOTE ON COMPUTATION OF QUA NTITY AND VALUE OF RAW MATERIAL, UNIT-WISE PRODUCTION FIGURES, NOTE ON YIE LD OF BISCUITS, HANDING LOSS AND OPERATIONAL LOSS, ETC., WAS GIVEN TO THE A SSESSING OFFICER. HE SUBMITTED THAT A NOTE ON WHY A STANDARD OR THEORET ICAL FORMULA CANNOT BE APPLIED TO WORK OUT THE CONSUMPTION OF RAW MATERIAL WAS GIVEN TO THE ASSESSING OFFICER. THEREFORE, WITHOUT CONSIDERING A LL THESE FACTUAL ASPECTS, THE ASSESSING OFFICER CANNOT MAKE AN ADDITION ON AC COUNT OF EXCESS CONSUMPTION OF RAW MATERIAL. HE SUBMITTED THAT SINC E THE TRIBUNAL HAS ALREADY DELETED SUCH EXCESS CONSUMPTION TO THE EXTE NT SUSTAINED BY THE CIT(A) FOR THE A.YS. 1989-90, 1991-92 AND 1994-95 T O 1996-97,, NO ADDITION IS CALLED FOR ON THIS ISSUE. 25. THE LEARNED DR, ON THE OTHER HAND, WHILE SUPPORTING THE ORDER OF THE CIT(A) DREW THE ATTENTION OF THE BENCH THE CIT(A)S ORDER AND SUBMITTED THAT THE ASSESSEE HAS NOWHERE EXPLAINED AS TO WHY THERE WAS SHORT PRODUCTION. HE SUBMITTED THAT IF THE ACCOUNTS ARE CORRECT THERE CANNOT BE ANY SHORT CONSUMPTION. THE ASSESSEE HAD NOT PRODUCED ANY EVID ENCE AS TO WHETHER IT IS THE GROSS WEIGHT OR NET WEIGHT. THE WASTAGE AS S UBMITTED BY THE ASSESSEE ITA 5318 & 5319/M/06 & 447/M/09 ITA 5540 & 5541/M/06 & 683/M/09 M/S. PARLE BISCUITS PVT. LTD. 12 HAS ALREADY BEEN TAKEN CARE OF BY THE STANDARD FORM ULA. HE SUBMITTED THAT THE ASSESSING OFFICER AND THE CIT(A) HAVE NOT DISCU SSED THE ISSUE OF 108.19:100 IN A SCIENTIFIC MANNER. THE VARIOUS DECI SIONS RELIED ON BY THE LEARNED COUNSEL FOR THE ASSESSEE ARE DISTINGUISHABL E AND NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE. THEREFORE, HE SUBMIT TED THAT THE MATTER MAY BE SET ASIDE TO THE ASSESSING OFFICER. 26. THE LEARNED COUNSEL FOR THE ASSESSEE, IN HIS REJOIN DER, SUBMITTED THAT NOT A SINGLE WORD ABOUT THE ORDER OF THE ITAT FOR T HE EARLIER YEAR HAS BEEN MENTIONED. HE SUBMITTED THAT IT IS NOT KNOWN WHO DE VISED THE FORMULA OF INPUT-OUTPUT RATIO OF 108.19:100 IN THE A.Y. 1989-9 0. IN ANY CASE THE SAME HAS ALREADY BEEN DELETED BY THE TRIBUNAL. HE SUBMIT TED THAT IN CASE OF GOOD QUALITY OF RAW MATERIAL LIKE MAIDA AND SUGAR THERE WILL BE LESS CONSUMPTION. THERE IS NO DISPUTE REGARDING THE WEIGHT OF THE MAI DA BAG BEING 100 KG. HOWEVER, THE DISPUTE IS ONLY REGARDING THE MAIDA TH AT REMAINS IN THE BAG. HE SUBMITTED THAT THERE IS BOUND TO BE SOME LOSS IN THE PROCESS. HE ACCORDINGLY SUBMITTED THAT NO ADDITION IS CALLED FO R. 27. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS MADE BY BO TH THE SIDES, PERUSED THE ORDERS OF THE ASSESSING OFFICER AND THE CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDERED THE VARIOUS DECISIONS CITED BEFORE US. THERE IS NO DISPUTE TO T HE FACT THAT THE ASSESSEE IS MANUFACTURING BISCUITS THROUGH ITS OWN FACTORY AS W ELL AS THROUGH CMUS. AS FAR AS THE MANUFACTURING OF BISCUITS THROUGH OWN FA CTORY IS CONCERNED, THE BOOKS OF ACCOUNT OF THE ASSESSEE ARE NOT REJECTED B Y THE ASSESSING OFFICER. THE ACCOUNTS OF THE ASSESSEE ARE AUDITED AND NO MAT ERIAL HAS BEEN BROUGHT ON RECORD BY THE ASSESSING OFFICER THAT THERE IS SA LE OF GOODS OUTSIDE THE BOOKS OF ACCOUNT. FURTHER WE ALSO FIND MERIT IN THE SUBMISSION OF THE LEARNED COUNSEL FOR THE ASSESSEE THAT WHEN THE DETA ILS OF THE PURCHASES ARE SUBMITTED BEFORE THE ASSESSING OFFICER NOTHING HAS BEEN DONE TO PROVE THAT ANY OF THE PURCHASES ARE BOGUS. WE FURTHER FIND THE TRIBUNAL IN ASSESSEES OWN CASE IN THE CONSOLIDATED ORDER FOR THE A.YS. 19 89-90, 1990-91 AND 1994-95 TO 1996-97 VIDE ORDER DATED 21ST DECEMBER, 2006 AT PARA 11 OF THE ITA 5318 & 5319/M/06 & 447/M/09 ITA 5540 & 5541/M/06 & 683/M/09 M/S. PARLE BISCUITS PVT. LTD. 13 ORDER HAS DISCUSSED THE ISSUE AND DELETED THE ADDIT ION SUSTAINED BY THE CIT(A) ON ACCOUNT OF EXCESS CONSUMPTION BY HOLDING AS UNDER: WE HEARD THE RIVAL SUBMISSIONS AND GONE THROUGH TH E ORDERS OF THE REVENUE AUTHORITIES. WE ARE OF THE VIEW THAT THE AP PEAL BY THE ASSESSEE ON THIS ISSUE IS TO BE ACCEPTED. IT IS TRU E THAT THE ASSESSEE COULD NOT EXPLAIN WHY THE SISTER CONCERNS CONSUMPT ION OF RAW MATERIAL IS COMPARATIVELY LESS. BUT AT THE SAME TIM E IT IS TO BE NOTED THAT THE ASSESSEES ACCOUNTS ARE AUDITED, BOOK RESU LTS ARE NOT REJECTED AND THERE IS NO CASE FOR THE REVENUE THAT THERE IS SALE OUTSIDE THE BOOKS. REVENUE ITSELF IS INDIRECTLY ACCEPTING A SSESSEES CONTENTION THAT THERE CANNOT BE STANDARD FORMULA FOR USAGE OF RAW MATERIALS. IN SOME ITEMS THERE IS EXCESS USE AND IN SOME ITEMS TH ERE IS LESS. THE RAW MATERIALS WHICH ARE SHOWN AS USED LESS, THE REV ENUE ITSELF ALLOWED SET OFF AGAINST EXCESS USE SHOWN IN SOME OT HER ITEMS, WHICH INDIRECTLY ACCEPTS ASSESSEES CONTENTION THAT THERE CANNOT BE ANY STANDARD FORMULA. SECONDLY IT IS DIFFICULT TO REJEC T ASSESSEES CONTENTION THAT THE OUTPUT DEPENDS ON THE QUALITY O F RAW MATERIAL. IT MAY DEPEND ON VARIOUS FACTORS. UNDER THESE CIRCUMST ANCES, WE ARE OF THE VIEW THAT THE APPEAL BY THE ASSESSEE ON THIS GR OUND IS TO BE ALLOWED. IT IS ALLOWED. 28. THE CIT(A) VIDE PARA 8.7 HAS STATED THAT THE ISSUE FOR THE CURRENT YEAR WAS IDENTICAL TO THE ISSUE DECIDED BY THE CIT(A) FO R A.Y. 2002-03. THEREFORE, HE DID NOT FIND ANY REASON TO DEPART FROM THE ORDER OF THE CIT(A) FROM A.Y. 2002-03. IN A.Y. 2002-03 THIS ISSUE WAS CONSIDERED BY THE ITAT C BENCH IN ITA NO. 1412/MUM/2006 AND IN ITA NO. 1411/MUM/20 06 DATED 31.08.2010 WHEREIN ON SIMILAR FACTS IT WAS HELD AS UNDER: - 24 SINCE THE FACTS OF THE PRESENT CASE ON ACCOUNT OF MANUFACTURING OF BISCUITS THROUGH OWN FACTORY ARE I DENTICAL TO THE FACTS IN THE PRECEDING ASSESSMENT YEARS, THEREFORE, RESPECTFULLY FOLLOWING THE DECISION OF THE TRIBUNAL IN ASSESSEE S OWN CASE AND IN ABSENCE OF ANY CONTRARY MATERIAL BROUGHT TO OUR NOT ICE, WE ARE OF THE VIEW THAT THE BOOK RESULTS OF THE ASSESSEE, SO FAR AS MANUFACTURING OF BISCUITS THROUGH OWN FACTORY IS CONCERNED HAS TO BE ALLOWED AND NO ADJUSTMENT IS CALLED FOR. RESPECTFULLY FOLLOWING THE SAME, AS THE FACTS ARE I DENTICAL, WE DIRECT THE A.O. TO ACCEPT THE BOOK RESULTS OF THE ASSESSEE AS FAR A S MANUFACTURING OF BISCUITS THROUGH OWN FACTORY IS CONCERNED. 29. AS REGARDS THE ISSUE RELATING TO THE MANUFACTURING OF BISCUITS THROUGH CMUS IS CONCERNED, WE FIND THE ASSESSING OFFICER NO TED THAT THE INPUT- OUTPUT RATIO IN THE CMUS ARE SHOWN BY THE ASSESSEE AT 110.60:100 AS ITA 5318 & 5319/M/06 & 447/M/09 ITA 5540 & 5541/M/06 & 683/M/09 M/S. PARLE BISCUITS PVT. LTD. 14 AGAINST 108.19:100 IN CASE OF OWN FACTORY. WE FIND THE ASSESSING OFFICER REJECTED THE VARIOUS SUBMISSIONS GIVEN BY THE ASSES SEE AND APPLIED THE RATIO OF 108.19:100 FOR THE CMUS ALSO. WE FIND THE CIT(A) DIRECTED THE ASSESSING OFFICER TO MAKE THE SAME ADJUSTMENTS TO THE CMUS WH ICH ARE APPLICABLE TO OWN FACTORY. BASED ON THE FIGURES GIVEN BY THE ASSE SSEE, HE DIRECTED THE ASSESSING OFFICER TO VERIFY THESE FIGURES SUBJECT T O THE CONDITION THAT NO ADJUSTMENT IN THE CASE OF LEFT OVER MAIDA IS TO BE MADE. 30. IN A.Y. 2002-03 THE MATTER WAS RESTORED BACK TO THE A.O. FOR EXAMINATION OF ASSESSEES CONTENTION THAT IF THE IN PUT-OUTPUT RATIO OF 108.19 : 100 FOR THE CMUS IS APPLIED THE NECESSARY ADJUSTM ENTS WHICH ARE ALLOWED TO THE OWN MANUFACTURING UNIT SHOULD ALSO BE ALLOWE D TO THE CMUS. FURTHER THE MATTER WAS SET ASIDE TO THE FILE OF THE A.O. TO MAKE NECESSARY VERIFICATION AND GIVE PROPER RELIEF TO THE ASSESSEE. HOWEVER, AS SEEN FROM THE FACTS OF THIS YEAR, THERE WAS NO EXCESS CONSUMPTION AS FAR AS CMU S ARE CONCERNED. THE A.O. ARRIVED AT THE EXCESS CONSUMPTION IN OWN UNITS AT ` 1,91,79,273/- AND SHORT CONSUMPTION TO THE EXTENT OF ` 15,10,138/- FROM THE CMUS. THE NET EXCESS CONSUMPTION WAS WORKED OUT AT ` 1,76,69,135/-. FURTHER ALLOWING A DEDUCTION OF 25% AS PER THE DIRECTIONS OF THE CIT(A ) IN EARLIER YEARS, THE NET ADDITION WAS ARRIVED AT A SUM OF ` 1,32,51,851/-. AS CAN BE SEEN FROM THE ABOVE FACTS (THE WORKING OF THE A.O. IN PAGE 12 OF THE ORDER) THERE IS NO EXCESS CONSUMPTION AS FAR AS CMUS ARE CONCERNED. WE ARE OF THE OPINION THAT THERE IS NO NEED TO SET ASIDE THE ISSUE BACK T O THE A.O. AS THE A.O. HAS NOT QUANTIFIED ANY EXCESS CONSUMPTION AS FAR AS THE CONTRACT MANUFACTURING UNITS ARE CONCERNED. AS THE EXCESS CO NSUMPTION IN THE CASE OF OWN UNITS WAS DELETED, WE ARE OF THE OPINION THA T THE ISSUE IN CASE OF CMUS NEED NOT BE SET ASIDE AS IN LAST YEAR, AS ON THE FACTS NO ADDITION CAN BE MADE BY THE A.O AS THERE WAS NO EXCESS CONSUMPTI ON WORKED OUT ON AOS METHOD ON THESE UNITS. IN VIEW OF THIS, WE DIR ECT THE A.O. TO ACCEPT THE BOOK RESULTS. 31. AS FAR AS GROUND NO. 1 AND 2 BY REVENUE IS CONCERN ED, IN VIEW OF OUR FINDING IN THE PRECEDING PARAGRAPH ACCEPTING THE BO OK RESULTS OF THE ASSESSEE FOR PRODUCTION THROUGH OWN FACTORY, WE DO NOT FIND ANY INFIRMITY IN ITA 5318 & 5319/M/06 & 447/M/09 ITA 5540 & 5541/M/06 & 683/M/09 M/S. PARLE BISCUITS PVT. LTD. 15 THE ORDER OF THE CIT(A) IN DIRECTING THE ASSESSING OFFICER TO ALLOW ADJUSTMENT FOR EMPTY BAGS OF MAIDA WHILE WORKING OUT THE RATIO OF CONSUMPTION OF RAW MATERIAL AND PRODUCTION. THE GROUND NO. 1 AND 2 OF REVENUE ARE ACCORDINGLY DISMISSED. 32. GROUND NO. 3 IN ASSESSEE APPEAL PERTAIN TO THE DISA LLOWANCE OF LONG TERM CAPITAL LOSS OF ` 35,58,718/- ON ACCOUNT OF REDEMPTION OF PREFERENCE SHARES. 33. THE FACTS IN BRIEF ARE THAT ASSESSEE CLAIMED CAPITA L LOSS OF ` 35,58,718/- ON ACCOUNT OF REDEMPTION OF PREFERENCE SHARES. THE TOTAL CONSIDERATION RECEIVED BY ASSESSEE ON REDEMPTION OF PREFERENCE SHARES HAS TWO CATEGORIES. THE PREFERENCE SHARES ARE OF SFR LT D. AND HIMACHAL FUTURISTICS COMMUNICATIONS LTD. BOTH THESE PREFEREN CE SHARES WERE ALLOTTED TO THE ASSESSEE COMPANY IN THE MONTH OF JULY 1995 A T A FACE VALUE OF ` 1,000/- AND WERE REDEEMED IN JULY 1997 AT A VALUE O F ` 1,000/-, I.E. SAME VALUE. IN THE NOTES ATTACHED TO THE STATEMENT OF IN COME ASSESSEE STATED THAT REDEMPTION OF PREFERENCE SHARES AMOUNTS TO TRANSFER WITHIN THE MEANING OF SECTION 2(47) RELYING ON THE DECISION OF THE HON'BL E SUPREME COURT IN THE CASE OF ANARKALI SARABHAI VS. CIT 224 ITR 422. ASSE SSEE CLAIMED INDEXATION BENEFIT ON COST OF ACQUISITION OF ` 2 CRORES THEREBY ARRIVING AT THE COST OF ACQUISITION AT ` 2,35,58,718/-. THE RESULTANT DIFFERENCE WAS CLAIMED AS CAPITAL LOSS ON REDEMPTION OF PREFERENCE SHARES. TH E A.O. DID NOT AGREE WITH THE ABOVE AND STATED THAT THE RECEIPT OF MONEY ON R EDEMPTION HAS TO BE TREATED AS DIVIDEND WITHIN THE MEANING OF SECTION 2 (22)(D) RELYING ON THE JUDGEMENT OF THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS. G. NARASIMHAM & OTHERS 236 ITR 327. HE HELD THAT SINCE THE AMOUNT WAS TO BE COVERED WITHIN THE PROVISIONS OF SECTION 2(22)(D ) THE QUESTION OF CLAIMING CAPITAL LOSS DOES NOT ARISE AND SINCE REDEMPTION HA S TAKEN PLACE AFTER 30.06.1997 THE DIVIDEND WAS NOT TAXABLE AS SUCH. TH EREFORE LONG TERM CAPITAL LOSS PERTAINING TO REDEMPTION OF PREFERENCE SHARES AT ` 35,58,718/- WAS DISALLOWED. ASSESSEE CONTESTED THE SAME BEFORE THE CIT(A). THE CIT(A) VIDE PARA 9.2 CONSIDERED THAT SIMILAR ISSUE HAD COM E UP IN A.Y. 1998-99 BEFORE THE CIT(A) IN THE CASE OF ASSESSEES HOLDING COMPANY PARLE PRODUCTS ITA 5318 & 5319/M/06 & 447/M/09 ITA 5540 & 5541/M/06 & 683/M/09 M/S. PARLE BISCUITS PVT. LTD. 16 PVT. LTD. IN WHICH THE ISSUE WAS DECIDED AGAINST TH E ASSESSEE. FOLLOWING THE SAME, ON IDENTICAL FACTS THE GROUND WAS REJECTED. T HERE IS NO DISCUSSION ABOUT THE ISSUES CONTESTED BY ASSESSEE IN THE ORDER OF CIT(A).. 34. THE LEARNED COUNSEL FOR THE ASSESSEE PLACED ON RECO RD THE ORDER OF THE CIT(A) IN THE CASE OF PARLE PRODUCTS PVT. LTD. FOR A.Y. 1998-99 WHEREIN THE LOSS IN THAT YEAR WAS ONLY ` 41,200/- BUT MOST OF THE DISCUSSION OF THE CIT(A) PERTAIN TO SALE OF 12% PREFERENTIAL SHARES WHICH AR E SOLD THROUGH A BROKER IN THE MARKET FOR WHICH LOSS OF ` 25,54,923/- WAS CLAIMED BUT DISALLOWED. HE REFERRED TO THE FINDING OF THE CIT(A) IN PARA 10.5 AND SUBMITTED THAT THIS ISSUE WAS NOT DISCUSSED BY THE CIT(A) ON CONTENTION S BUT REJECTED ONLY ON THE REASON THAT THE NATURE OF PREFERENCE SHARES ARE NOT ON RECORD. IT WAS FURTHER SUBMITTED THAT THE APPEAL OF A.Y. 1998-99 I N PARLE PRODUCT PVT. LTD. ON THIS ISSUE WAS STILL PENDING BUT THE ISSUE CAN B E DECIDED ON MERITS AS THERE IS NO DISCUSSION ON THE CONTENTIONS RAISED BY THE ASSESSEE. THE LEARNED COUNSEL SUBMITTED THAT: - (A) REDEMPTION OF PREFERENCE SHARES OF INDIAN LEAD LTD. IS COVERED BY EXCEPTION (I) TO SECTION 2(22) SINCE PREFERENCE SHARES ARE NON PARTICIPATING. THIS EXCEPTION STATES THAT A DISTRIB UTION MADE UNDER CLAUSE (D) OF SECTION 2(22) IN RESPECT OF SHA RE ISSUED FOR FULL CASH CONSIDERATION WHERE THE HOLDER OF THE SHA RE IS NOT ENTITLED IN THE EVENT OF LIQUIDATION TO PARTICIPATE IN THE SURPLUS ASSETS, WILL NOT BE INCLUDED AS DIVIDEND. THE PREFE RENCE SHARES ARE NOT ENTITLED TO PARTICIPATE IN SURPLUS INCOME / ASSETS UNLESS THEY ARE PARTICIPATING PREFERENCE SHARES. THE SHA RES ISSUED BY THESE COMPANIES ARE NOT PARTICIPATING PREFERENCE SH ARES. REFERENCE IN THIS CONNECTION MAY BE MADE TO SCHEDUL E 5 PAGE 14 OF ANNUAL ACCOUNTS (PAGE 16 OF COMPILATION) WHERE T HE SHARES ARE DESCRIBED AS 12.5% REDEEMABLE CUMULATIVE PREFE RENCE SHARES. IF THE SHARES WERE PARTICIPATING PREFERENC E SHARES ARE WORD PARTICIPATING WOULD HAVE BEEN SPECIFICALLY M ENTIONED AND THE SHARES WOULD HAVE BEEN DESCRIBED AS SUCH IN THE SCHEDULE JUST AS THE SHARES HAVE BEEN SPECIFICALLY DESCRIBED AS CUMULATIVE AND REDEEMABLE IN THE PRESENT CASE. HENCE AS THE SHARES ARE NOT PARTICIPATING PREFERENCE SHARES THE EXCEPTION (I) TO SECTION 2(22)(D) WILL APPLY AND THE AMOUNT W ILL NOT BE TAXABLE AS DEEMED DIVIDEND U/S 2(22)(D) BUT AS CAPI TAL GAINS UNDER SECTION 45. (B) THAT SEC. 2(22)(D) REFERS TO ANY DISTRIBUTION TO THE SHAREHOLDERS BY A COMPANY ON THE REDUCTION OF ITS CAPITAL . ITA 5318 & 5319/M/06 & 447/M/09 ITA 5540 & 5541/M/06 & 683/M/09 M/S. PARLE BISCUITS PVT. LTD. 17 SEC 80(3) OF THE COMPANIES ACT, 1956 PROVIDES THAT REDEMPTION OF PREFERENCE SHARES UNDER THE SECTION SHALL NOT BE TAKEN AS REDUCING THE AMOUNT OF ITS SHARE CAPITAL. ACCORDING LY SECTION 2(22)(D) WHICH DEALS WITH REDUCTION OF CAPITAL DOES NOT APPLY TO REDEMPTION OF PREFERENCE SHARES SINCE REDEMPTION OF SUCH SHAR ES IS NOT A REDUCTION OF CAPITAL IN VIEW OF SPECIFIC PROVISIONS OF SECTION 80(3) OF THE COMPANIES ACT. (C) RELIANCE IS ALSO PLACED ON THE DECISIONS OF THE SUPREME COURT IN THE CASE OF (I) ANARKALI SARABHAI (224 ITR 422) (II) KARTIKEYA SARABHAI (229 ITR 163) 35. THE LEARNED D.R., HOWEVER, SUBMITTED THAT REDEMPTIO N OF PREFERENCE SHARES DOES NOT YIELD TO CAPITAL LOSS AND ASSESSEE CLAIMED ONLY INDEXATION LOSS AS CAPITAL LOSS. IT WAS FURTHER SUBMITTED THAT A.O. TREATED THE AMOUNT AS DEEMED DIVIDEND, THEREFORE, THE QUESTION OF ALLO WING THE LOSS DOES NOT ARISE. 36. IN REPLY THE LEARNED COUNSEL SUBMITTED THAT IF THE ENTIRE AMOUNT IS TREATED AS DEEMED DIVIDEND THEN THE WHOLE OF CONSID ERATION RECEIVED CONSEQUENT TO REDEMPTION WOULD GOT EXEMPTED AS DIVI DEND AND WAS NOT TAXABLE AND SINCE ASSESSEE HAS REDEEMED THE SHARES THE LOSS WOULD GO UP BY SAME AMOUNT, IF THE CONTENTIONS OF REVENUE THAT IT IS DEEMED DIVIDEND ARE TO BE ACCEPTED. HE RELIED ON THE DECISION OF THE HO N'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. SURAT COTTON SPINNING AND WE AVING MILLS PVT. LTD. 202 ITR 932. IT WAS SUBMITTED THAT ASSESSEE WAS CLAIMIN G ONLY CAPITAL LOSS CONSEQUENT TO REDEMPTION WHICH SHOULD BE ALLOWED. 37. WE HAVE CONSIDERED THE ISSUE. AS FAR AS REDEEMING P REFERENCE SHARES ARE CONCERNED, THE HON'BLE SUPREME COURT IN THE CAS E OF ANARKALI SARABHAI VS. CIT 224 ITR 422 HAS EXAMINED THE PROVISIONS OF SECTION 77 OF THE COMPANIES ACT, SECTION 80 OF THAT ACT AND ALSO DEFI NITION OF TRANSFER UNDER SECTION 2(47) OF IT ACT AND HAS HELD THAT THE DIFFE RENCE BETWEEN THE SUM RECEIVED BY THE ASSESSEE ON REDEMPTION OF SHARES AN D THE SUM EARLIER PAID BY FOR PURCHASING THEM WAS TAXABLE AS CAPITAL GAIN. THE DECISION OF THE HON'BLE SUPREME COURT IS AS UNDER: - WHEN A PREFERENCE SHARE IS REDEEMED BY A COMPANY, WHAT THE SHAREHOLDER DOES IN EFFECT IS TO SELL THE HARE TO T HE COMPANY. THE ITA 5318 & 5319/M/06 & 447/M/09 ITA 5540 & 5541/M/06 & 683/M/09 M/S. PARLE BISCUITS PVT. LTD. 18 COMPANY REDEEMS ITS PREFERENCE SHARES ONLY BY PAYIN G THE PREFERENCE SHAREHOLDERS THE VALUE OF THE SHARES AND TAKING BACK THE PREFERENCE SHARES. IN EFFECT, THE COMPANY BUYS BACK THE PREFERENCE SHARES FROM THE SHAREHOLDERS. IF REDEMPTION OF PREF ERENCE SHARES DID NOT AMOUNT TO SALE, IT WOULD NOT HAVE BEEN NECESSAR Y, IN SECTION 77 OF THE COMPANIES ACT, 1956, TO SPECIFICALLY PROVIDE TH AT THE RESTRICTION IMPOSED UPON A COMPANY IN RESPECT OF BUYING ITS OWN SHARES WILL NOT APPLY TO REDEMPTION OF SHARES ISSUED UNDER SECTION 80 OF THAT ACT. THE REDEMPTION OF PREFERENCE SHARES BY A COMPANY, T HEREFORE, IS A SALE AND SQUARELY COMES WITHIN THE PHRASE SALE, EX CHANGE OR RELINQUISHMENT OF AN ASSET IN SECTION 2(47)(I) OF THE INCOME-TAX ACT, 1961. THE DEFINITION OF TRANSFER IN SECTION 2(47) OF TH E INCOME-TAX ACT, 1961, IS NOT AN EXHAUSTIVE DEFINITION. SUB-CLAUSE ( I) OF CLAUSE (47) OF SECTION 2 SPEAKS OF SALE, EXCHANGE OR RELINQUISHME NT OF THE ASSET AND IMPLIES PARTING WITH ANY CAPITAL ASSET FOR GAIN WHICH WILL BE TAXABLE UNDER SECTION 45 OF THE ACT. WHEN PREFERENC E SHARES ARE REDEEMED BY THE COMPANY, THE SHAREHOLDER HAS TO ABA NDON OR SURRENDER THE SHARES, IN ORDER TO GET THE AMOUNT OF MONEY IN LIEU THEREOF. THERE IS, THEREFORE, ALSO A RELINQUISHMENT WHICH BRINGS THE TRANSACTION WITHIN THE MEANING OF SECTION 2(47)(I) OF THE INCOME-TAX ACT. THE APPELLANT HAD PURCHASED PREFERENCE SHARES IN A COMPANY AT LESS THAN THEIR FACE VALUE AND HELD THEM AS CAPITAL ASSE TS. THE COMPANY REDEEMED THEM AT THEIR FACE VALUE: HELD ACCORDINGLY, THAT THE DIFFERENCE BETWEEN THE S UM RECEIVED BY THE APPELLANT ON REDEMPTION OF THE SHARES AND THE SUM E ARLIER PAID BY HER FOR PURCHASING THEM, WAS TAXABLE AS CAPITAL GAI NS. 38. SIMILAR ISSUE WAS ALSO CONSIDERED BY HON'BLE SUPREM E COURT IN THE CASE OF KARTIKEYA SARABHAI VS. CIT 228 ITR 163 WHER E THERE IS REDUCTION IN FACE VALUE OF SHARES, THE DEFINITION OF TRANSFER WE RE DISCUSSED AND HELD AS UNDER: - SECTION 2(47) OF THE INCOME-TAX ACT, 1961, DEFINES TRANSFER IN RELATION TO A CAPITAL ASSET. IT IS AN INCLUSIVE DEF INITION WHCH, INTER ALIA, PROVIDES THAT RELINQUISHMENT OF AN ASSET OR EXTINGU ISHMENT OF ANY RIGHT THEREIN AMOUNTS TO A TRANSFER OF A CAPITAL AS SET. IT IS NOT NECESSARY FOR A CAPITAL GAIN TO ARISE, THAT THERE M UST BE A SALE OF A CAPITAL ASSET. SALE IS ONLY ONE OF THE MODES OF TRA NSFER ENVISAGED BY SECTION 2(47) OF THE ACT. RELINQUISHMENT OF THE ASS ET OR EXTINGUISHMENT OF ANY RIGHT IN IT, WHICH MAY NOT AM OUNT TO A SALE, CAN ALSO BE CONSIDERED AS A TRANSFER AND ANY PROFIT OR GAIN WHICH ARISES FROM THE TRANSFER OF A CAPITAL ASSIST IS LIA BLE TO BE TAXED UNDER SECTION 45. A COMPANY, UNDER SECTION 100(1)(C) OF T HE COMPANIES ACT, 1956, HAS A RIGHT TO REDUCE THE SHARE CAPITAL AND O NE OF THE MODES ITA 5318 & 5319/M/06 & 447/M/09 ITA 5540 & 5541/M/06 & 683/M/09 M/S. PARLE BISCUITS PVT. LTD. 19 WHICH CAN BE ADOPTED IS TO REDUCE THE FACE VALUE OF THE PREFERENCE SHARES. SECTION 87(2)(C) OF THE COMPANIES ACT, INTE R ALIA, PROVIDES THAT WHERE THE HOLDER OF ANY PREFERENCE SHARE HAS A RIG HT TO VOTE ON ANY RESOLUTION IN ACCORDANCE WITH THE PROVISIONS OF THI S SUB-SECTION, HIS VOTING RIGHT ON A POLL, AS THE HOLDER OF SUCH SHARE S, SHALL, SUBJECT TO THE PROVISIONS OF SECTION 89 AND SUB-SECTION (2) OF SECTION 92, BE IN THE SAME PROPORTION AS THE CAPITAL PAID UP IN RESPE CT OF THE PREFERENCE SHARE BEARS TO THE TOTAL PAID-UP EQUITY CAPITAL OF THE COMPANY. HENCE, WHEN AS A RESULT OF THE REDUCING OF THE FACE VALUE OF THE SHARE, THE SHARE CAPITAL IS REDUCED, THE RIGHT OF T HE PREFERENCE SHAREHOLDER TO THE DIVIDEND ON HIS SHARE CAPITAL AN D THE RIGHT TO SHARE I THE DISTRIBUTION OF THE NET ASSETS UPON LIQ UIDATION IS EXTINGUISHED PROPORTIONATELY TO THE EXTENT OF REDUC TION IN THE CAPITAL. SUCH REDUCTION OF THE RIGHT IN THE CAPITAL ASSET WO ULD CLEARLY AMOUNT TO A TRANSFER WITHIN THE MEANING OF THAT EXPRESSION IN SECTION 2(47) OF THE INCOME-TAX ACT, 1961. 39. CONSEQUENTLY, THE REDEEMING OF PREFERENCE SHARES HA S TO BE CONSIDERED AS A TRANSFER UNDER THE MEANING OF SECTI ON 2(47). THEREFORE COMPUTATION OF CAPITAL LOSS HAS TO BE CONSIDERED ON THIS TRANSACTION. ASSESSEE HAS WORKED THE COST OF ACQUISITION AS PER THE PROVISIONS OF SECTION 48 AND SINCE SHARES WAS HELD FOR MORE THAN ONE YEAR AND BEING A LONG TERM CAPITAL ASSET, INDEXED COST OF ACQUISITION HAS BEEN CLAIMED AS AGAINST THE SALE CONSIDERATION RECEIVED. ON THE FACTS OF THE CA SE, ASSESSEE PURCHASED PREFERENCE SHARES AT A COST OF ` 2 CRORES AND THE SAME WAS REDEEMED AT FACE VALUE AND ASSESSEE RECEIVED ONLY ` 2 CRORES. HOWEVER, BY VIRTUE OF MODE OF COMPUTATION PRESCRIBED UNDER SECTION 48 OF THE I.T. ACT ASSESSEES SALE CONSIDERATION BEING ` 2 CRORES AND INDEXED COST OF ACQUISITION BEING ` 2,35,58,718/- BEING THE DEDUCTION ALLOWABLE UNDER SECTION 48, THE NET LOSS OF ` 35,58,718/- HAS BEEN COMPUTED. THIS AMOUNT IS AN AL LOWABLE LONG TERM CAPITAL LOSS. 40. THE A.O., HOWEVER, EXAMINED THE ISSUE OF SECTION 2( 22)(D). PROVISIONS OF SECTION OF SECTION 2(22)(D) ARE AS UNDER: - 2(22) . (D) ANY DISTRIBUTION TO ITS SHAREHOLDERS BY A COMPANY ON THE REDUCTION OF ITS CAPITAL, TO THE EXTENT TO WHICH TH E COMPANY POSSESSES ACCUMULATED PROFITS WHICH AROSE AFTER THE END OF THE PREVIOUS YEAR ENDING NEXT BEFORE THE 1ST DAY OF APR IL, 1933, WHETHER SUCH ACCUMULATED PROFITS HAVE BEEN CAPITALI SED OR NOT ; ITA 5318 & 5319/M/06 & 447/M/09 ITA 5540 & 5541/M/06 & 683/M/09 M/S. PARLE BISCUITS PVT. LTD. 20 41. AS CAN BE SEEN BY THE ABOVE PROVISION, THERE SHOULD BE A REDUCTION OF ITS CAPITAL AND DISTRIBUTION TO THE SHAREHOLDERS OU T OF THE ACCUMULATED PROFITS. SECTION 80(3) OF THE COMPANIES ACT STATES THAT THE REDEMPTION OF PREFERENCE SHARES UNDER THIS SECTION BY A COMPANY S HALL NOT BE TAKEN AS REDUCING THE AMOUNT OF ITS AUTHORISED SHARE CAPITAL . BY VIRTUE OF SECTION 80(3) REDEMPTION OF PREFERENCE SHARES CANNOT BE CON SIDERED AS REDUCTION OF AUTHORISED SHARE CAPITAL, THEREFORE, TREATING THEM AS DEEMED DIVIDEND DOES NOT ARISE, AS THE PROVISIONS OF SECTION 2(22)(D) CA N ONLY BE INVOKED ONLY WHEN THERE IS DISTRIBUTION OF ACCUMULATED PROFITS BY WAY OF REDUCTION OF SHARE CAPITAL. ON THE FACTS OF THE CASE, ASSESSEE HAS PUR CHASED THE PREFERENTIAL SHARES AT A COST OF ` 2 CRORES AND THEY WERE REDEEMED AT THE SAME PRICE O F ` 2 CRORES. THEREFORE THE QUESTION OF INVOKING DEEMED D IVIDEND PROVISION ON THIS TRANSACTION DOES NOT ARISE, EVENTHOUGH THE REDEMPTI ON OF SHARES ARE TO BE MADE OUT OF THE PROFITS OF THE COMPANY BY VIRTUE OF SECTION 80(1) OF THE COMPANIES ACT. HOWEVER, SINCE IT CANNOT BE TREATED AS REDUCTION OF AUTHORISED SHARE CAPITAL BY VIRTUE OF SECTION 80(3) OF THE COMPANIES ACT, THE AMOUNT RECEIVED BY ASSESSEE ON REDEMPTION OF PREFER ENCE SHARES CANNOT BE TREATED AS DEEMED DIVIDEND. THE A.O. RELIED ON THE PRINCIPLES ESTABLISHED BY THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS. G. NARASIMHAM & OTHERS 236 ITR 327. IN FACT THIS CASE SUPPORTS THE ABOVE O PINION ALSO EVENTHOUGH IT WAS GIVEN IN A DIFFERENT CONTEXT. THE FACTS OF THAT CASE WERE THAT ASSESSEE WAS A SHAREHOLDER IN A PRIVATE COMPANY. ASSESSEE HE LD 70 SHARES IN THE COMPANY WITH FACE VALUE OF ` 1,000/- EACH. DURING THE ACCOUNTING PERIOD RELEVANT TO A.Y. 1963-64 THE COMPANY PASSED A RESOL UTION TO REDUCE ITS CAPITAL AND THE PROCEDURE PRESCRIBED UNDER THE COMP ANIES ACT WAS UNDERGONE. AFTER OBTAINING THE ORDERS FROM THE COUR T REDUCTION WAS GIVEN EFFECT AND ON 26.05.1962. SUBSEQUENTLY THE FACE VAL UE OF SHARES IN THE COMPANY WAS REDUCED FROM ` 1,000/- TO ` 210/-. THERE WAS A PRO-RATA DISTRIBUTION OF SOME PROPERTIES OF THE COMPANY AND PAYMENT OF MONEY TO THE SHAREHOLDERS INCLUDING THE ASSESSEE. IN THE INCOME TAX PROCEEDINGS CONNECTED WITH THE PROPERTY/AMOUNTS SO RECEIVED BY THE ASSESSEE ON REDUCTION OF SHARE CAPITAL IN THE SAID COMPANY, THE TRIBUNAL WAS REQUIRED TO CONSIDER WHETHER ANY CAPITAL GAINS ACCRUED TO THE A SSESSEE. THE TRIBUNAL ITA 5318 & 5319/M/06 & 447/M/09 ITA 5540 & 5541/M/06 & 683/M/09 M/S. PARLE BISCUITS PVT. LTD. 21 HELD THAT NO CAPITAL GAIN ACCRUED TO THE ASSESSEE. THE HON'BLE HIGH COURT HELD THAT A SUM OF ` 64,517/- MUST BE TAKEN TO HAVE COME OUT OF THE ACCUMULATED PROFITS AND TREATED AS DIVIDEND FOR ALL PURPOSE AND ON APPEAL THE HON'BLE SUPREME COURT CONFIRMED THE DECISION OF THE HON'BLE MADRAS HIGH COURT AND HELD THAT: - (II) THAT THE ASSESSEE IN THE PRESENT CASE HAD BEE N PAID NOT MERELY CASH BUT HAD ALSO BEEN GIVEN A PROPERTY FOR THE RED UCTION IN THE VALUE OF HIS SHARES FROM ` 1,000 TO ` 210. OUT OF THE TOTAL AMOUNTS SO RECEIVED INCLUDING THE VALUE OF THE PROPERTY SO REC EIVED, THE PORTION ATTRIBUTABLE TO ACCUMULATED PROFITS HAD TO BE DELET ED. ONLY THE BALANCE AMOUNT COULD BE TREATED AS A CAPITAL RECEIP T. THEREAFTER LOOKING TO THE COST OF ACQUISITION OF THAT PORTION OF THE SHARE WHICH HAD BEEN DIMINISHED, CAPITAL GAINS WOULD HAVE TO BE DETERMINED. THE TRIBUNAL, WHILE COMPUTING CAPITAL GAINS, WOULD HAVE TO DECIDE HOW THIS PROPERTY SHOULD BE VALUED FOR THE PURPOSE OF D ECIDING WHAT THE ASSESSEE HAD RECEIVED ON REDUCTION IN THE VALUE OF HIS SHARES, AND WHETHER ANY CAPITAL GAINS HAD ACCRUED TO THE ASSESS EE OR NOT. THIS QUESTION WAS NOT REQUIRED TO BE CONSIDERED BY THE T RIBUNAL BECAUSE THE TRIBUNAL CAME TO THE CONCLUSION THAT THERE BEIN G NO TRANSFER OF ANY CAPITAL ASSET, THE QUESTION OF CAPITAL GAINS DI D NOT ARISE. BUT THE QUESTION WOULD NOW HAVE TO BE CONSIDERED AND DECIDE D BY THE TRIBUNAL WHEN THE MATTER WENT BACK BEFORE IT FOR TH E DETERMINATION OF CAPITAL GAINS. 42. IT WAS FURTHER HELD THAT THUS THE AMOUNT DISTRIBUTE D BY A COMPANY ON REDUCTION OF ITS SHARE CAPITAL HAS TWO COMPONENTS, I.E. DISTRIBUTION ATTRIBUTABLE TO ACCUMULATED PROFITS AND DISTRIBUTIO N ATTRIBUTABLE TO CAPITAL (EXCEPT CAPITALISED PROFITS). TO THE EXTENT OF ACCU MULATED PROFITS WHETHER SUCH ACCUMULATED PROFITS ARE CAPITALISED OR NOT, TH E RETURN TO THE SHAREHOLDER ON REDUCTION OF SHARE CAPITAL IS A RETU RN OF SUCH ACCUMULATED PROFITS. THIS PART OF IT IS TAXABLE AS DIVIDEND. TH E BALANCE MAY BE SUBJECT TO TAX AS CAPITAL GAIN, IF THEY ACCRUE. 43. ADOPTING THE SAME PRINCIPLES HERE, SINCE THERE IS NO REDUCTION OF SHARE CAPITAL IN THE GIVEN CASE, CONSEQUENT TO SEC TION 80(3) OF THE COMPANIES ACT WHICH STATES THAT REDEMPTION OF PREFE RENCE SHARES UNDER THIS SECTION SHALL NOT BE TAKEN AS REDUCING THE AMOUNT O F ITS AUTHORISED SHARE CAPITAL, THAT PART OF THE AMOUNT RECEIVED BY ASSESS EE AS FACE VALUE, EVENTHOUGH PAID OUT OF ACCUMULATED PROFIT, DOES NOT FALL WITHIN THE DEFINITION OF DEEMED DIVIDEND, THEREFORE, CANNOT BE TREATED AS DEEMED ITA 5318 & 5319/M/06 & 447/M/09 ITA 5540 & 5541/M/06 & 683/M/09 M/S. PARLE BISCUITS PVT. LTD. 22 DIVIDEND. SO THE AMOUNT RECEIVED ON REDEMPTION OF P REFERENCE SHARE HAS TO BE CONSIDERED AS CONSIDERATION RECEIVED ON TRANSFER IN WORKING OUT THE CAPITAL GAIN, WHICH ASSESSEE DID. 44. EVEN FOR THE PURPOSE OF ARGUMENT, IT IS CONSIDERED AS DEEMED DIVIDEND, ASSESSEE WOULD BE ELIGIBLE FOR A HIGHER L OSS AS THE SALE CONSIDERATION RECEIVED WOULD BECOME NIL, AFTER CONS IDERING THAT THE AMOUNT RECEIVED ON REDEMPTION AS DEEMED DIVIDEND IT GETS E XEMPTED, AS ACCEPTED BY THE A.O., UNDER SECTION 10(34). SIMILAR ISSUE WAS C ONSIDERED BY THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. SURAT COTT ON SPINNING AND WEAVING MILLS PVT. LTD. 202 ITR 932 WHERE THE A.O. TREATED THE SUM RECEIVED ON REDEMPTION OF PREFERENCE SHARES AS DIVIDEND UNDE R SECTION 2(22) AND ALSO TREATED THE SAME AS CONSIDERATION RECEIVED WHILE WO RKING OUT THE CAPITAL GAINS. THE HON'BLE BOMBAY HIGH COURT EXAMINED THE I SSUE AND HELD AS UNDER: - SECTION 2(22) DEALS WITH VARIOUS TYPES OF CASES AN D CREATES A FICTION BY WHICH CERTAIN RECEIPTS OR PARTS THEREOF ARE TREA TED AS DIVIDEND FOR THE PURPOSE OF LEVY OF INCOME-TAX. A DEEMING PROVIS ION IS INTENDED TO ENLARGE THE MEANING OF A PARTICULAR WORD WHICH INCL UDES MATTERS WHICH OTHERWISE MAY OR MAY NOT FALL WITHIN THE PROV ISION. IT SHOULD BE, THEREFORE, BE EXTENDED TO THE CONSEQUENCES AND INCI DENTS WHICH SHALL INVARIABLY FOLLOW. IN OTHER WORDS, THE CONSEQUENCES AND INCIDENTS FLOWING FROM A LEGAL FICTION SHOULD ALSO BE DEEMED TO BE REAL. THE VERY SAME INCOME OR THE VERY SAME RECEIPT CANNOT BE ASSE SSED TWICE UNDER TWO DIFFERENT HEADS OF INCOME. DIVIDEND, WHICH IS INCOME FROM OTHER SOURCES AND CAPITAL GAINS ARE TWO DIFFERENT HEADS UNDER WHICH THE INCOME FALLS TO BE CHARGED. THAT BEING SO, ONCE A P ARTICULAR RECEIPT HAS BEEN TREATED AS DIVIDEND, IT CANNOT BE TREATED AS I NCOME UNDER ANY OTHER HEAD. THE DUTY OF THE INCOME-TAX OFFICER IS T O FIND OUT THE APPROPRIATE HEAD UNDER WHICH THE RECEIPT IN QUESTIO N CAN BE ASSESSED. ONCE HE ASSESSES A PARTICULAR RECEIPT UNDER A PARTI CULAR HEAD OF INCOME, THAT AMOUNT IS NO MORE AVAILABLE TO HIM FOR ASSESSMENT UNDER ANOTHER HEAD. THE REVENUE CANNOT APPROBATE AND REPR OBATE. IT CANNOT BE PERMITTED TO TREAT A PART OR THE WHOLE OF THE CO NSIDERATION AS DIVIDEND AND TO ASSESS THE SAME AS SUCH AND ALSO T SAY THAT THIS WILL ITA 5318 & 5319/M/06 & 447/M/09 ITA 5540 & 5541/M/06 & 683/M/09 M/S. PARLE BISCUITS PVT. LTD. 23 NOT HAVE THE EFFECT OF REDUCING THE AMOUNT OF CONSI DERATION FOR THE PURPOSE OF COMPUTATION OF CAPITAL GAIN. REDEMPTION OF PREFERENCE SHARES AMOUNTS TO TRANSFE R WITHIN THE MEANING OF SECTION 2(47). SECTION 45 WILL APPLY TO SUCH A TRANSFER AND THE CAPITAL GAIN OR LOSS WILL HAVE TO BE COMPUTED. FROM A BARE READING OF SECTION 2(22) AND SECTIONS 45 AND 48, IT IS CLEA R THAT FOR THE PURPOSE OF FINDING OUT THE PROFITS OR GAINS ARISING FROM THE TRANSFER OF A CAPITAL ASSET, IT IS NECESSARY TO KNOW THE COST O F ACQUISITION OF THE ASSET AND THE FULL VALUE OF THE CONSIDERATION FOR W HICH THE TRANSFER IS MADE. IT IS THE DIFFERENCE BETWEEN THE TWO WHICH IS TERMED AS PROFITS AND GAINS ARISING FROM THE TRANSFER SUBJECT, HOWEVE R, TO SPECIFIC PROVISIONS, IF ANY, CONTAINED IN ANY OTHER SECTION OF THE ACT. SECTION 48 DEALS WITH THE MODE OF COMPUTATION OF CAPITAL GA INS. IT SAYS THAT CAPITAL GAIN HAS TO BE COMPUTED BY DEDUCTING FROM T HE FULL VALUE OF THE CONSIDERATION RECEIVED OR ACCRUING AS A RESULT OF THE TRANSFER OF THE CAPITAL ASSETS, THE COST OF ACQUISITION AND THE COST OF IMPROVEMENT THEREOF AND OTHER EXPENSES MENTIONED THEREIN. IN VI EW OF THE PROVISIONS OF SECTION 46(1), THE LEGISLATURE WAS RE QUIRED TO MAKE A SPECIFIC PROVISION IN SUB-SECTION (2) TO MAKE THE S HAREHOLDER WHO RECEIVES ANY ASSET ON LIQUIDATION OF A COMPANY LIAB LE TO CAPITAL GAINS. AS IN SUCH A CASE, UNDER SECTION 2(22)(C) OF THE AC T, A PART OF THE RECEIPT MAY BE HELD TO BE DIVIDEND, WITH A VIEW TO AVOID ANY AMBIGUITY. THE LEGISLATURE THOUGHT IT FIT TO MAKE I T CLEAR THAT THE CONSIDERATION FOR THE PURPOSE OF COMPUTATION OF CAP ITAL GAINS SHALL BE AMOUNT RECEIVED BY THE ASSESSEE AS REDUCED BY THE A MOUNT ASSESSED AS DIVIDEND UNDER SECTION 2(22)(C). THIS P ROVISION MAKES THE POSITION ABUNDANTLY CLEAR THAT IN A CASE WHERE A PART OF THE CONSIDERATION HAS BEEN ASSESSED AS DIVIDEND IT IS O NLY THE BALANCE AMOUNT LEFT WITH THE ASSESSEE WHICH CAN BE SAID TO BE A CONSIDERATION FOR THE TRANSFER AND CAPITAL GAIN HAS TO BE COMPUTED UNDER SECTION 48 OF THE ACT TAKING SUCH BALANCE AMO UNT ONLY AS THE CONSIDERATION FOR TRANSFER. 45. IN VIEW OF THE ABOVE PRINCIPLE LAID DOWN, ASSESSEE WOULD BECOME ELIGIBLE FOR CAPITAL LOSS OF ` 2,35 ,58,718/-, IF THE ISSUE OF DEEMED DIVIDEND AS WAS DONE BY THE A.O., WERE TO BE ACCEPTED. 46. WE ARE OF THE OPINION THAT THE REDEMPTION OF PREFER ENCE SHARES AT FACE VALUE WITHOUT ANY PREMIUM OR DISCOUNT DOES NOT RESU LT IN ANY AMOUNT TO BE CONSIDERED AS DEEMED DIVIDEND AND ASSESSEES CLAIM OF LOSS BY WAY OF COMPUTATION PRESCRIBED BY THE ACT IS CORRECT. THE L OSS OF ` 35,58,718/- IS CONSEQUENTLY ALLOWABLE AS LONG TERM CAPITAL LOSS. T HEREFORE THE A.O. IS DIRECTED TO ALLOW THE SAME AS CLAIMED. ASSESSEES G ROUND ON THIS IS ALLOWED. ITA 5318 & 5319/M/06 & 447/M/09 ITA 5540 & 5541/M/06 & 683/M/09 M/S. PARLE BISCUITS PVT. LTD. 24 47. ASSESSEE APPEAL IS PARTLY ALLOWED WHEREAS REVENUE A PPEAL IS DISMISSED. ITA NO. 5319/MUM/2006 & ITA NO. 5541/MUM/2006. AY 1 999-00 48. IN THIS ASSESSMENT YEAR THE FOLLOWING GROUNDS WERE RAISED BY ASSESSEE AND REVENUE: - ASSESSEES APPEAL 1.1 THE LEARNED CIT(A) ERRED IN NOT DELETING THE AD DITION MADE BY THE ASSESSING OFFICER (AO) FOR ALLEGED EXCESS CONSUMP TION OF RAW MATERIALS OF RS.74,12,408. 1.2 THE LEARNED CIT(A) ERRED IN CONFIRMING THE ACTI ON OF THE AO IN APPLYING THE INPUT/OUTPUT FORMULAE OF 108.19 : 100 FOR COMPUTING ALLEGED EXCESS/SHORT CONSUMPTION OF RAW M ATERIALS AT THE APPELLANTS CONTRACT MANUFACTURING UNITS (CMUS ) AS AGAINST THE FORMULAE OF 110.607 : 100 AS CONTENDED BY THE APPELLANT. HE ERRED IN NOT APPRECIATING THE SUBMISSIONS MADE BY THE APPELLANT IN THIS CONNECTION. 1.3 WITHOUT PREJUDICE TO THE ABOVE, THE LEARNED CIT (A), WHILE CONFIRMING THE ACTION OF THE AO IN APPLYING THE INP UT/OUTPUT FORMULAE OF 108.19 : 100 FOR THE APPELLANTS CMUS, ERRED IN NOT DIRECTING THE AO TO MAKE THE ADJUSTMENTS TO THE AMO UNT OF PRODUCTION OF THE CMUS IN COMPUTATION OF EXCESS/SH ORT CONSUMPTION OF THE CMUS. 2. THE LEARNED CIT(A) ERRED IN CONFIRMING THE ACTIO N OF THE AO IN DISALLOWING LONG TERM CAPITAL LOSS OF RS.15,08,196 ON REDEMPTION OF PREFERENCE SHARES. REVENUES APPEAL 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(A) ERRED IN DIRECTING THE A.O. TO ALLOW ADJ USTMENT FOR EMPTY BAGS OF MAIDA WHILE WORKING OUT THE RATIO OF CONSUMPTION OF RAW MATERIAL AND PRODUCTION WITHOUT APPRECIATING THAT: A) THE MAIDA BAGS COME IN NET WEIGHT AND NOT AS GR OSS WEIGHT AS MADE OUT TO BE BY THE ASSESSEE BEFORE CIT(A). THE A.O. HAS ALREADY ALLOWED ADJUSTMENT OF 25% ON ACCOUNT OF PRE-PRODUCTION AND POSTPRODUCTION WASTAGES. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) ERRED IN DIRECTING THE A.O. TO ALLOW ALL ADJUSTMENTS THAT HAVE BEEN ALLOWED IN RESPECT OF OWN FACTORY TO CMUS ALSO WITHOUT APPRECIATING THE FACT THAT THE EXCESS CONSU MPTION OF RAW MATERIAL IS WORKED OUT ON THE TOTAL PRODUCTION ON T HE DIFFERENT BRANDS OF BISCUITS IRRESPECTIVE OF PRODUCTION IN OW N FACTORY OR BY ITA 5318 & 5319/M/06 & 447/M/09 ITA 5540 & 5541/M/06 & 683/M/09 M/S. PARLE BISCUITS PVT. LTD. 25 CMUS, AND DEDUCTION WAS ALLOWED IN THE SAME PROPOSI TION IN ALL THE BRANDS OF BISCUITS IGNORING THE FACT THAT PRE-P RODUCTION AND POT PRODUCTION WASTAGES ARE NOT INCLUDED IN THE PRO DUCTION OF BISCUITS BY CMUS. THEREFORE, QUESTION OF TAKING IN PUT OUTPUT RATIO AT 110.607:100 DOES NOT ARISE. 49. GROUND NO. 1.1 TO 1.3 IN ASSESSEES APPEAL AND GRO UND NOS. 1 & 2 IN REVENUES APPEAL RELATE TO ADDITION OF ` 74,12,408/- MADE BY THE A.O. ON ACCOUNT OF EXCESS CONSUMPTION OF RAW MATERIAL. THE FACTS ARE SIMILAR TO A.Y. 1998-99. THE A.O. MADE AN ADDITION OF ` 74,12,408/- ON ACCOUNT OF EXCESS CONSUMPTION OF RAW MATERIAL. SINCE THE FACTS ARE SI MILAR TO A.Y. 1998-99, FOR THE DETAILED REASONS GIVEN THEREIN, VIDE PARAS 27 T O 31 ABOVE, THE GROUNDS OF ASSESSEE ARE ALLOWED AND THE GROUNDS OF THE REVENUE ARE REJECTED. 50. GROUND NO. 2 IN ASSESSEES APPEAL IS WITH REFERENCE DISALLOWANCE OF LONG TERM CAPITAL LOSS OF ` 15,08,196/- ON REDEMPTION OF PREFERENTIAL SHARES. 51. THE FACTS ARE THAT IN THE STATEMENT OF CAPITAL GAIN S ASSESSEE HAS SHOWN LOSS OF ` 15,08,196/- ON ACCOUNT OF REDEMPTION OF 13.5% L&T F INANCE LTD. PREFERENCE SHARES AT FACE VALUE. IN THE NOTES ATTACHED WITH THE STATEMENT OF INCOME, ASSESSEE HAD STATED THAT THE R EDEMPTION OF PREFERENCE SHARES AMOUNTS TO TRANSFER WITHIN THE MEANING OF SE CTION 2(47) AND IT HAS RELIED UPON THE DECISION OF THE HON'BLE SUPREME COU RT IN THE CASE OF ANARKALI SARABHAI VS. CIT 224 ITR 422. 52. THIS GROUND IS SIMILAR TO THE GROUND RAISED BY ASSE SSEE IN A.Y. 1998- 99. FOR THE REASONS MENTIONED ABOVE FOR A.Y. 1998-9 9, VIDE PARAS 37 TO 46, THIS GROUND OF ASSESSEE IS ALLOWED. ITA NO. 447/MUM/2009 & ITA NO. 683/MUM/2009: A.Y. 2 004-05 53. THE GROUNDS RAISED BY ASSESSEE AND REVENUE IN THIS ASSESSMENT YEAR ARE AS UNDER: - ASSESSEES APPEAL 1 THE LEARNED CIT(A) ERRED IN NOT DELETING THE ADDI TION MADE BY THE ASSESSING OFFICER (AO) FOR ALLEGED EXCESS CONSUMP TION OF RAW MATERIAL OF RS.32.08,452. 2 THE LEARNED CIT(A) ERRED IN NOT DIRECTING THE AO TO FOLLOW THE ORDER OF THE INCOME-TAX APPELLATE TRIBUNAL IN THE A PPELLANTS OWN CASE FOR THE ASSESSMENT YEARS 1989-90, 1991-92, 199 4-95, ITA 5318 & 5319/M/06 & 447/M/09 ITA 5540 & 5541/M/06 & 683/M/09 M/S. PARLE BISCUITS PVT. LTD. 26 1995-96 AND 1996-97 IN RESPECT OF THE ADDITION FOR ALLEGED EXCESS CONSUMPTION OF RAW MATERIALS MADE IN THE CAS E OF THE CONTRACT MANUFACTURING UNITS (CMUS) OF THE APPEL LANT. HE FURTHER ERRED IN CONFIRMING THE ACTION OF THE A O IN APPLYING THE INPUT/OUTPUT FORMULAE OF 108.19 : 100 FOR COMPU TING ALLEGED EXCESS/SHORT CONSUMPTION OF RAW MATERIALS AT THE AP PELLANTS CMUS AS AGAINST THE FORMULAE OF 110.607 : 100 AS C ONTENDED BY THE APPELLANT. HE ERRED IN NOT APPRECIATING THE SUBMISSIONS MADE BY THE APPELLANT IN ITS PROPER PERSPECTIVE. REVENUES APPEAL 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(A) ERRED IN DIRECTING THE A.O. TO RECOMPUTE THE EXCESS/ SHORT CONSUMPTION ON THE BASIS OF DIRECTIONS GIVEN BY HIS PREDECESSOR IN ASSESSEES OWN CASE FOR A.Y. 02-03, WITHOUT CONSIDERING THE MERITS OF THE CASE 54. THE ONLY ISSUE IN THESE CROSS APPEALS RELATE TO ADD ITION OF ` 32,08,452/- MADE THE A.O. ON ACCOUNT OF EXCESS CONS UMPTION OF RAW MATERIAL. THE FACTS ARE SIMILAR TO A.Y. 1998-99. S INCE THE FACTS ARE SIMILAR TO A.Y. 1998-99, FOR THE REASONS THEREIN, VIDE PARAS 2 7 TO 31, THE GROUND OF ASSESSEE ARE ALLOWED AND THE GROUND OF THE REVENUE IS REJECTED. 55. IN THE RESULT, APPEAL IN ITA NO. 5318/MUM/2006 IS P ARTLY ALLOWED, ITA NO. 5319/MUM/2006 & ITA NO. 447/MUM/2009 ARE AL LOWED, ITA NOS.5540 & 5541/MUM/2006 AND ITA NO. 682/MUM/2008 A RE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 19 TH AUGUST 2011. SD/- SD/- (R.S. PADVEKAR) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED: 19 TH AUGUST 2011 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) CENTRAL IV, MUMBAI 4. THE CIT CENTRAL II, MUMBAI CITY 5. THE DR, J BENCH, ITAT, MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI N.P.