PARLE PRODUCTS P.LTD, MUMBAI V. DCIT RG 9(2), MUMBAI

ITA 6189/MUM/2012

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 79098 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 8 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-06-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 13-03-2014
• Assessment Year: 2006-2007
• Appeal Filed On: 09-10-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Audit objection; Earning of tax free income; Tangible material; Difference of opinion; Change of opinion; Revenue expenditure
• Section: 143(3); 14A; 37(1); 147; 148

Judgement Text

C IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, MUMBAI BEFORE SHRI D. KARUNAKARA RAO, AM AND SHRI AMIT SHUKLA, JM ./I.T.A. NO.6189/M/2012 (AY: 2006 - 2007 ) ./I.T.A. NO.1879/M/2013 (AY: 2004 - 200 5 ) PARLE PRODUCTS PVT LTD., NORTH LEVEL CROSSING, VILE PARLE (EAST), MUMBAI 400 057. / VS. THE DCIT, RANGE 9(2), R.NO.218, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI 400 020. ( / APPELLANT) .. ( / RESPONDENT ) ./I.T.A. NO.1765/M/2013 (AY: 2004 - 2005) THE DCIT, RANGE 9(2), R.NO.218, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI 400 020. / VS. PARLE PRODUCTS PVT LTD., NORTH LEVEL CROSSING, VILE PARLE (EAST), MUMBAI 400 057. ./ PAN : AAACP0486A ( / APPELLANT) .. ( / RESPONDENT ) / ASSESSEE BY : SHRI GIRISH DAVE / REVENUE BY : SHRI SANJEEV JAIN, DR / DATE OF HEARING : 09 .6.2014 / DATE OF PRONOUNCEMENT : 09 .6.2014 / O R D E R PER D. KARUNAKARA RAO, AM: THERE ARE THREE APPEALS UNDER CONSIDERATION INVOLVING 2004 - 05 AND 2006 - 07. THERE ARE TWO CROSS APPEALS FOR THE AY 2004 - 05. SINCE, THE ISSUES RAISED IN ALL THESE APPEALS ARE INTERCONNECTED, THEREFORE, FOR THE SAKE OF CONVENIENCE, THEY ARE CLUBBED, HEARD COMBINEDLY AND DISPOSED OF IN THIS CONSOLIDATED ORDER. APPEAL WISE ADJUDICATION IS GIVEN IN THE FOLLOWING PARAGRAPHS. 2. FIRSTLY WE SHALL TAKE UP ITA NO.1879 /M/2013 , WHICH IS FILED BY THE ASSESSEE ON 8.3.2013 AGAINST THE ORDER OF THE CIT (A) - 20, MUMBAI DATED 4.12.2012 FOR THE ASSESSMENT YEAR 2004 - 2005. 2 3. IN THIS APPEAL, ASSESSEE RAISED THE LEGAL ISSUE QUESTIONING THE VALIDITY OF THE REASSESSMENT MADE BY THE AO ON 22.12.2011 . BRIEFLY STATED RELEVANT FACTS IN THIS REGARD ARE THAT THE ASSESSEE FILED THE RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION ON 30.10.2004. REGULAR ASSESSMENT WAS COMPLETED U/S 143(3) OF THE ACT ON 26.12.2006. AO ISS UED NOTICE U/S 1 48 ON 28.3.2011 AND SUPPLIED COPY OF THE REASONS FOR REOPENING VIDE LETTER DATED 1.11.2011. REASSESSMENT WAS COMPLETED U/S 148 R.W.S. 143(3) OF THE ACT ON 22.12.2011. THUS, THIS IS THE CASE OF MAKING REASSESSMENT AFTER EXPIRY OF 4 YEARS. THEREFORE, THE PROVISIONS OF THE PROVISO TO SECTION 147 APPLIED. THE CORE ISSUE TO BE EXAMINED IN THIS CASE IS THE RELEVANCE OF ASSESSEES FAILURES TO DISCLOSE FULLY AND TRULY ALL THE MATERIAL FACTS NECESSARY FOR THE ASSESSMENT. I N THE LIGHT OF THESE CORE ISSUE , LD CO UNSEL FOR THE ASSESSEE BROUGHT OUR ATTENTION TO THE REASONS SPECIFIED IN THE LETTER DATED 1.11.2011 (SUPRA) AT PAGE 70 OF THE PAPER BOOK AND READ OUT THE REASONS RECORDED FOR REOPENING, WHICH IS AS UNDER: 1. ASSESSEE DEBITED RS. 9495.28 LACS ON ACCOUNT OF PUBLICITY AND SALES PROMOTION IN P & L A/C. HOWEVER, IT WAS NOTICED FROM THE DETAILS OF PUBLICITY AND SALES PROMOTION EXPENSES THAT EXPENSES OF RS. 1,44,74,125/ - IS ON ACCOUNT OF MARKET RESEARCH EXPENSES INCURRED ON BISCUITS AND CONFECTIONARY PRODUCT. B EING CAPITAL EXPENSES, MARKET RESEARCH EXPENSES ARE NOT ALLOWABLE AS REVENUE EXPENSES AS IT WAS INCURRED FOR MAKING STRONG THE SALE BASE OF THE PRODUCT FOR FUTURE SALES. 2. ASSESSEE HAS EARNED THE INTEREST AND DIVIDEND INCOME OF RS. 5,63,69,709/ - WHICH DOE S NOT FORM PART OF TOTAL INCOME (AS WAS SHOWN IN CALCULATION SHEET). IT WAS FURTHER REVEALED THAT A LOAN OF RS. 689.32 LACS WAS OUTSTANDING DURING THE YEAR ON WHICH INTEREST OF RS. 28.71 LACS WAS PAID BY THE ASSESSEE. 3. IT WAS ALSO REVEALED FROM THE BALA NCE SHEET THAT ASSESSEES TOTAL INVESTMENT WAS RS. 4821.05 LACS AND IN EXEMPTED BONDS WAS 4215.45 LACS. 4. THUS THE PERCENTAGE OF EXEMPTED BONDS COMES TO 87.43%. THEREFORE, INTEREST PAID TO THE EXTENT OF 87.43% WHICH COMES TO RS. 25.10 LACS IS DISALLOWABL E U/S 14A AND BROUGHT TO TAX. 4. REFERRING TO THE FIRST REASON, LD COUNSEL MENTIONED THAT THE AO NOTICED FROM THE DETAILS OF PUBLICITY AND SALES PROMOTION EXPENSES , WHICH ARE AVAILABLE ON THE RECORDS OF THE AO, THESE DETAILS WERE FURNISHED TO HIM BY TH E ASSESSEE DURING THE REGULAR ASSESSMENT. LD COUNSEL BROUGHT OUR ATTENTION TO PAGE 38 OF THE PAPER BOOK, WHICH IS THE LETTER WRITTEN BY THE AO TO THE ASSESSEE - COMPANY ON 4.9.2006 DURING THE REGULAR ASSESSMENT AND BROUGHT OUR ATTENTION TO ITEM NO.7 OF THE SAID LETTER (PAGE 39 OF THE PAPER BOOK) AND MENTIONED THAT THE AO CALLED FOR THE DETAILS OF PUBLICITY AND SALES PROMOTION, FREIGHT, DEFERRED REVENUE EXPENSES WRITTEN OFF, FREIGHT OUTWARD RATES AND TAXES. IN RESPONSE TO THE SAID ENQUIRY, ASSESSEE FURNISHE D DETAILS ALONG WITH A COVERING LETTER DATED 9.10.2006 AND ITEM NO.3 IS RELEVANT. RELEVANT ANNEXURES GIVING PUBLICITY EXPENSES, MARKETING RESEARCH 3 EXPENSES DETAILS (PAGE 46 AND 46 OF THE PB) RELATING TO BISCUITS AND CONFECTIONARY TOTALING TO RS. 1,44,74,1 25/ - WERE FURNISHED. AFTER DETAILED EXAMINATION OF THE RELEVANT DETAILS, ASSESSING OFFICER ALLOWED THE CLAIM OF THE ASSESSEE IN THE REGULAR ASSESSMENT TREATING THE SAME AS REVENUE EXPENDITURE. AOS DECISION TO REOPEN THE ASSESSMENT ON THIS GROUND FOR T REATING THE SAME AS CAPITAL EXPENSES AMOUNTS TO CHANGE OF OPINION WITHOUT HAVING ANY TANGIBLE MATERIAL IN HIS POSSESSION TO DEMONSTRATE THE SAID EXPENSES ARE CAPITAL IN NATURE. AS SUCH ALL THE MATERIAL FACTS NECESSARY FOR REGULAR ASSESSMENT WERE FULLY AND TRULY DISCLOSED BY THE ASSESSEE DURING THE REGULAR ASSESSMENT. IN SUCH CASES, THE ASSUMPTION OF JURISDICTION BY THE AO U/S 147 / 148 OF THE ACT IS LEGALLY INVALID. THEREFORE, ON THIS GROUND, THE ASSESSMENT DONE BY THE AO SHOULD BE INVALID. REFERRING TO THE OTHER REASONS WHICH REVOLVE AROUND THE APPLICABILITY OF PRO VISIONS OF SECTION 14A OF THE ACT IN RESPECT OF THE INVESTMENT IN THE EXEMPTED ASSETS, LD COUNSEL FOR THE ASSESSEE MENTIONED THAT THIS ALSO A CASE WHERE THE ASSESSING OFFICER TO CUP A DEBATABLE ISSUE WITHOUT HAVING ANY TANGIBLE MATERIAL IN HIS POSSESSION. THE ASSESSEES RESPONSIBILITY OF DISCLOSING FULLY AND TRULY ALL THE MATERIAL FACTS RELEVANT FOR THE ISSUE WERE DISCLOSED DURING THE REGULAR ASSESSMENT. THE DETAILS OF INVESTMENT IN EXEMPTED ASSETS AND OTHER DETAILS WERE DEMONSTRATED BEFORE US BY BRINGING OUR ATTENTION TO PAGE NOS. 1, 3, 13, 16 ONWARDS. 5. ON THE OTHER HAND, LD DR RELIED ON THE ORDERS OF THE REASSESSMENT AND THE DECISIONS OF THE HONBLE SUPREME COURT IN THE CASE OF HONDA SIEL POWER PRODUCTS LTD VS. DCIT [2012] 20 TAXMANN.COM 5 (SC). DUR ING THE REBUTTAL TIME, LD COUNSEL MENTIONED THAT THE SAID DECISION IS RELEVANT ONLY WHEN THERE IS A FAILURE ON PART OF THE ASSESSEE TO DISCLOSE FULLY AND TRULY THE MATERIAL FACTS, WHEREAS IN THE PRESENT CASE, THERE IS NO SUCH FAILURE. 6. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE ORDERS OF THE REVENUE AUTHORITIES AS WELL AS THE RELEVANT MATERIAL PLACED BEFORE US. WE HAVE ALSO GONE THROUGH THE REASONS RECORDED BY THE AO FOR ASSUMING THE JURISDICTION AND THE DETAILS DISCLOSED BY THE ASSESSEE IN THE REGUL AR ASSESSMENT. ON PERUSAL OF THE SAME, WE FIND THAT ASSESSING OFFICER ASSUMED JURISDICTION ON COUPLE OF ISSUES. ON HEARING THE PARTIES AND PERUSING THE PAPERS, WE FIND THAT THESE ISSUES ARE EITHER EXAMINED IN DETAILED BY SPECIFIC QUERIES OR ASSESSING OFF ICER PREFERRED TO TAKE ANOTHER OPINION BASING ON THE SUBSEQUENT DEVELOPMENT. IN OUR OPINION, SUCH REOPENING OF 4 ASSESSMENT IS UNSUSTAINABLE IN LAW WHEN THERE IS NO TANGIBLE MATERIAL TO DEMONSTRATE THAT THE CERTAIN EXPENSES ARE CAPITAL IN NATURE (FIRST ISSU E) OR THE DISALLOWANCE U/S 14A IS NECESSARY T H R O U G H THE REASSESSMENT. THEREFORE, WE ARE OF THE OPINION THAT THE LEGAL ISSUE RAISED BY THE ASSESSEE IN GROUND NO.1 IS ALLOWED. 7. CONSIDERING THE ABOVE DECISION ON GROUND NO.1, WHICH IS ALLOWED IN FAVOUR OF THE AS SESSEE, THE OTHER ISSUES RAISED ON MERITS NEED NOT BE ADJUDICATED AS IT MAY T U R N O U T T O B E A N A CADEMIC EXERCISE. 8. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED. ./I.T.A. NO.1765/M/2013 (AY: 2004 - 2005) (BY REVENUE) 9. THIS APPEAL FILED BY THE REVENUE ON 5.3.2013 IS AGAINST THE ORDER OF THE CIT (A) - 20, MUMBAI DATED 4.12.2012 FOR THE ASSESSMENT YEAR 2004 - 2005. 10. IN THIS APPEAL, REVENUE RAISED THE FOLLOWING EFFECTIVE GROUND WHICH READS AS UNDER: 1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT (A) IS CORRECT IN DELETING THE DISALLOWANCE OF RS. 2,51,00,000/ - MADE U/S 14A R.W.R 8D WHILE THE ASSESSEE HAS EARNED EXEMPT INCOME. 11. THIS APPEAL IS THE CROSS APPEAL TO APPEAL ITA NO.1879/M/2013 , WHICH IS FILED BY THE ASSESSEE. WHILE ADJUDICATING THE ASSESSEES APPEAL IN THE ABOVE PARAGRAPHS OF THIS ORDER, WE HAVE QUASHED THE REOPENING OF THE ASSESSMENT . EX CONSEQUENTI , THE GROUND RAISED BY THE REVENUE IN THIS APPEAL DOES NOT SURVIVE. ACCORDINGLY, THE SOLITARY GROUND RAISED BY THE REVENUE IS DISMISSED. 12. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED. ./I.T.A. NO.6189/M/2012 (AY: 2006 - 2007) (BY ASSESSE E) 13. THIS APPEAL FILED BY THE ASSESSEE ON 9.10.2012 IS AGAINST THE ORDER OF THE CIT (A) - 20, MUMBAI DATED 25.7.2012 FOR THE ASSESSMENT YEAR 2006 - 2007. 14. IN THIS APPEAL, ASSESSEE RAISED THE FOLLOWING GROUNDS, WHICH READ AS UNDER: 1. THE CIT (A) ERRED IN CONFIRMING THE REOPENING OF THE ASSESSMENT UNDER SECTION 147 OF THE ACT. HE ERRED IN OBSERVING THAT THE TERM FAILURE ON THE PART OF THE ASSESSEE IS NOT RESTRICTED TO ONLY INCOME TAX RETURN AND THE FINANCIAL STATEMENTS BUT EXTENDS ALS O TO THE ASSESSMENT PROCEEDINGS. THE APPELLANT WAS UNDER OBLIGATION U/S 5 143(2) TO FURNISH DETAILS OF IRRECOVERABLE DEBTS AND ADVANCES WHICH IT FAILED TO DO SO. 2. THE LD CIT (A) ERRED IN NOT CONSIDERING WITHOUT PREJUDICE GROUND RAISED BY THE APPELLANT THE ASSESSMENT CANNOT BE REOPENED ON THE BASIS OF AUDIT OBJECTION. 3. THE LD CIT (A) ERRED IN CONFIRMING THE DISALLOWANCE OF RS. 32,37,000/ - MADE IN RESPECT OF THE IRRECOVERABLE DEBTS AND ADVANCES WRITTEN OFF ON THE BASIS THAT NO SPECIFIC PROVISIONS OF THE IT A PROVIDES FOR ALLOWABILITY OF TRADING LOSSES. 15. AT THE OUTSET, LD COUSNEL FOR THE ASSESSEE MENTIONED THAT THIS IS ALSO A CASE OF REASSESSMENT MADE U/S 147 OF THE ACT AND THE SAME IS UNSUSTAINABLE IN LAW AS THERE IS NO FAILURE ON THE PART OF THE ASSESS EE TO DISCLOSE FULLY AND TRULY ALL THE MATERIAL FACTS NECESSARY FOR MAKING REGULAR ASSESSMENT. LD COUNSEL FURTHER MENTIONED THAT THE ONLY ISSUE THAT IS TAKEN UP FOR REASSESSMENT RELATES TO THE DISALLOWANCE OF RS. 32,37,000/ - ON ACCOUNT OF IRRECOVERABLE DEBTS / ADVANCES WRITTEN OFF. IN THIS REGARD, LD COUNSEL BROUGHT OUR ATTENTION TO PAGE 64 AND 65 OF THE PAPER BOOK AND MENTIONED THAT THE VERY ISSUE WAS TAKEN UP FOR SCRUTINY BEFORE THE REASSESSMENT WAS INITIATED. ASSESSEE HAS CLARIFIED THE MATERIAL VIDE LETTER DATED 3.9.2009 (REASSESSMENT WAS COMPLETED ON 22.12.2011). AO HAS NOT MADE ANY ADDITION ON THIS ACCOUNT WHI LE MAKING ASSESSMENT. THE REASONS RECORDED WERE PLACED AT PAGE 69 OF THE PAPER BOOK AND THE SAME READS AS UNDER: THE ASSESSEE HAS DEBITED RS. 32,37,000/ - IN HIS PROFITS AND LOSS ACCOUNT ON ACCOUNT OF IRRECOVERABLE DEBTS / ADVANCES WRITTEN OFF. IN VIEW OF PROVISIONS U/S 37(1) THE EXPENDITURE OF RS. 32,37,000/ - IS OF CAPITAL NATURE. HENCE, THE SAME SHOULD HAVE BEEN TAXED. 16. THE FACT ABOUT THE DISCLOSURE OF THE DEBTS / ADVANCES WRITTEN OFF ARE DEMONSTRATED BY BRINGING OUR ATTENTION TO PAGE 1 AND ITEM NO.9(B) OF THE NOTICE TO THE ACCOUNTS FURNISHED ALONG WITH THE RETURN OF INCOME (PAGE 4 AND 5 OF THE PB). IT IS CLEAR FROM THE SAID ITEM NO.9(B) THAT ASSESSEE CLAIMED THEM AS EXPENSES FOLLOWING THE JUDGMENT OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF ECHJAY FORGING PVT LTD (251 ITR 15) (BOM). IT IS SUBMITTED THAT THIS IS THE CASE WHERE ASSESSMENT WAS REOPENED WITHIN 4 YEARS. EVENTUALLY, IT IS THE CASE OF THE ASSESSEE WHEN THE DETAILS ARE AVAILABLE ON RECORD AND WHEN THERE IS NO TANGIBLE MATERIAL IN THE POSSESSION OF THE ASSESSING OFFICER, THE AO CANNOT ASSUME JURISDICTION U/S 147 OF THE ACT. THIS IS AN UNDISPUTED FACT THAT T HE AO MADE A CLAIM IN THE RETURN OF INCOME THAT HE HAD 6 RELIED ON THE JUDGMENT OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF ECHJAY FORGING PVT LTD (SUPRA). 17. ON THE OTHER HAND, LD DR FAIRLY RELIED ON THE ORDERS OF THE REVENUE AUTHORITIES . 18. WE HAVE H EARD BOTH THE PARTIES AND PERUSED THE ORDERS OF THE REVENUE AUTHORITIES AS WELL AS THE RELEVANT MATERIAL PLACED BEFORE US. ADMITTEDLY, IT IS A CASE WHERE THE REGULAR ASSESSMENT WAS COMPLETED U/S 143(3) OF THE ACT AFTER EXAMINING THE CLAIM OF THE ASSESSEE WITH REGARD TO THE IRRECOVERABLE DEBTS / ADVANCES WRITTEN OFF. RELEVANT INFORMATION IS AVAILABLE ON RECORD. ASSESSEE RELIED ON THE JUDGMENT OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF ECHJAY FORGING PVT LTD (SUPRA) WHILE MAKING A CLAIM. ASSESSING OF FICER IS AWARE OF ALL THESE FACTS. IT IS NOT THE CASE OF THE AO THAT THE JURISDICTIONAL HIGH COURT JUDGMENT IS NOT APPLICABLE TO THE FACTS OF THE CASE. THIS IS AN UNDISPUTED FACT THAT THE AO DOES NOT HAVE ANY TANGIBLE MATERIAL IN HIS POSSESSION WHICH WOR KS OUT AS A LIVEWIRE FOR FORMING A BELIEF THAT THERE IS A CONCEALMENT OF INCOME FOR THE YEAR UNDER CONSIDERATION. CONSIDERING ALL THE FACTS AND FIGURES PLACED BEFORE US, WE ARE OF THE OPINION THAT THE NOTICE ISSUED BY THE AO AND THE REASSESSMENT MADE THER EON IS UNSUSTAINABLE IN LAW. ACCORDINGLY, THE LEGAL GROUND RAISED BY THE ASSESSEE IS ALLOWED. 19. CONSIDERING THE ABOVE DECISION ON GROUND NO.1, WHICH IS ALLOWED IN FAVOUR OF THE ASSESSEE, THE OTHER ISSUES RAISED ON MERITS NEED NOT BE ADJUDICATED AS IT MA Y AMOUNT TO ACADEMIC EXERCISE. 20. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 9 TH JUNE, 2014. S D / - S D / - ( AMIT SHUKLA ) (D. KARUNAKARA RAO ) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; 9 .06.2014 . . ./ OKK , SR. PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - 7 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE . //TRUE COPY// / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI