M/s. Empee Breweries Limited, Thiruvallur V. DCIT, CHENNAI

ITA 888/CHNY/2009

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 4695 (ITAT-CHENNAI)
• Duration Of Justice: 2 year(s) 1 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-07-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 27-06-2011
• Assessment Year: 2004-2005
• Appeal Filed On: 02-06-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P B SEKARAN
• Assessee Lawyers: B K MANJUNATH
• Keywords: Depreciation; Business expenditure
• Section: 143(3); 32; 263; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHENNAI BENCH B : CHENNAI [BEFORE DR. O.K. NARAYANAN, VICE-PRESIDENT AND SHRI HARI OM MARATHA, JUDICIAL MEMBER] I.T.A NO.888/MDS/2009 ASSESSMENT YEAR : 2004-05 M/S EMPEE BREWERIES LTD 788/2 KUTHAMBAKKAM THIRUMAZHISAI P.O THIRUVALLUR DIST 602 107 VS THE DY. CIT COMPANY CIRCLE II(1) CHENNAI [PAN AAACE9764A ] (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI B.K.MANJUNATH, FCA RESPONDENT BY : SHRI P.B.SEKARAN, CIT/DR O R D E R PER HARI OM MARATHA, JUDICIAL MEMBER: THIS APPEAL OF THE ASSESSEE, FOR ASSESSMENT YE AR 2004-05, IS DIRECTED AGAINST THE ORDER OF THE LD. CIT, CHENNAI- I, DATED 31.3.2009, PASSED U/S 263 OF THE ACT. 2. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT THE ASSESSMENT IN THIS CASE WAS COMPLETED ON 30.11.2006 U/S 143(3) ON A TOTAL LOSS OF ` 1,53,20,009/-. SUBSEQUENTLY, THE LD. CIT CALLED FOR THE RECORDS OF THIS ASSESSMENT ORDER AND ISSUED NOTICE U/S 263 TO THE A SSESSEE ON 20.2.2009 BECAUSE HE WAS OF THE OPINION THAT NOT ON LY THE ORDER WAS ITA 888/09 :- 2 -: ERRONEOUS BUT ALSO WAS PREJUDICIAL TO THE INTERESTS OF THE REVENUE FOR THE FOLLOWING REASONS: (I) THE ASSESSEE HAS STATED IN THE ANNUAL ACCOUNT S THAT IT HAS REQUESTED ITS HOLDING COMPANY MCDOWELL ALCOBEV LIMI TED NOT TO CHARGE INTEREST ON THE AMOUNTS DUE TO IT AND IT HAS ALSO BEEN REPORTED THAT THE LATTER COMPANY HAS AGRE ED FOR THE SAME IN THE BOARD MEETING HELD ON 27.1.2004 . THE A.O. HAS NOT ASCERTAINED THE EFFECTIVE DATE FRO M WHICH THE INTEREST WAS NOT CHARGED AND WHETHER THE INTEREST CHARGED IN THE ACCOUNTS FOR THE EARLIER YE ARS HAD ALSO BEEN WRITTEN OFF. II) THE ASSESSEE HAS CLAIMED PAYMENT OF ` 5,58,23,719 WHICH WAS CLAIMED TO BE SERVICES CHARGES TO UNITED BREWERIES LIMITED AND INERTIA LIMITED WHICH ARE GRO UP COMPANIES OF THE ASSESSEE. THE A.O. HAS ALLOWED THE SAME WITHOUT EXAMINING THE AGREEMENTS AND THE ARMS LENGTH NATURE OF THE TRANSACTIONS. A.O. OUGHT TO HAVE NOTED THAT THE INERTIA LIMITED HAS BEEN REFERR ED TO BIFR FOR COMPLETE EROSION OF ITS NET WORTH. III) THE A.O. HAS ADDED DEPRECIATION CLAIMED ON INTANGIBLE ASSETS BEING TRADE MARKS AND LICENCES MERELY STATIN G 'I AM OF THE VIEW THAT ASSESEE'S EXPLANATION IS NOT ACCEPTABLE' WITHOUT EXAMINING THE AGREEMENTS, DATES OF ACQUISITION OF THE INTANGIBLE ASSETS, ACTUAL PAYMENTS, IF ANY, MADE FOR THE SAME, METHOD OF VALUATION OF THESE TRADE MARK AND LICENCES ETC. HE FAILED TO CONDUCT FULL FLEDGED ENQUIRY ON THESE TRANSACTIONS. IV) THE ASSESSEE COMPANY CLAIMED TO HAVE FILED A PETITION BEFORE THE MADRAS HIGH COURT FOR MERGER OF THE COMPANY WITH ITS HOLDING COMPANY WITH EFFECT FROM 1 ST JULY 2002. A.O. FAILED TO EXAMINE THE PETITION AND ITS STATUS. IF THE MERGER HAD ACTUALLY TAKEN PL ACE AND APPROVED WITH EFFECT FROM 1 ST JULY 2002, THE DETERMINATION AND ALLOWANCE OF LOSSES IN THIS CASE WOULD BE INCORRECT AS THE INCOME/LOSS SHOULD BE CONSIDERED ONLY IN THE CASE OF THE AMALGAMATED COMPANY. 3. THE ASSESSEE REPLIED TO THIS NOTICE VIDE LETTER DAT ED 24.3.2009 IN THE FORM OF WRITTEN SUBMISSION. AFTER CONSIDERING THE WRITTEN ITA 888/09 :- 3 -: SUBMISSION, THE LD. CIT HAS REVISED THE ASSESSMENT ORDER BY SETTING ASIDE IT WITH A DIRECTION THAT THE ASSESSING OFFICE R SHALL PASS A FRESH ASSESSMENT ORDER AFTER CONSIDERING THE OBSERVATIONS MADE IN THE BODY OF THE ORDER PASSED U/S 263. NOW, THE ASSESSEE IS AGGRIEVED AND HAS FILED THIS APPEAL BY RAISING FOLLOWING GROUNDS: 1. THE LEARNED COMMISSIONER OF INCOME TAX ERRED IN PASSING AN ORDER UNDER THE CAPTION 'ORDER UNDER SEC TION 263 OF THE INCOME TAX ACT' WITHOUT OBSERVING THE PROVIS IONS CONTAINED UNDER THE SAID SECTION. 2. THE COMMISSIONER OF INCOME TAX HAS ERRONEOUSLY CONCLUDED THAT AN ORDER UNDER SECTION 263 CAN ALSO BE PASSED TO DIRECT THE ASSESSING OFFICERS WORKING UND ER HIS JURISDICTION TO HAVE A RELOOK OR RE-EXAMINE CERTAIN TRANSACTIONS OF THE COMPANY WHICH ARE OF A ROUTINE NATURE. 3. THE LEARNED COMMISSIONER OF INCOME TAX OUGHT TO HAVE SEEN THAT THE PROVISIONS OF SECTION 263 CAN BE INVO KED ONLY IN CERTAIN EXCEPTIONAL CIRCUMSTANCES TO REVISE A CONCL UDED ASSESSMENT AND THE SAME CANNOT BE INVOKED IN A ROUT INE MANNER TO GIVE NORMAL DIRECTIONS FOR THE PURPOSE OF COMPLETING AN ASSESSMENT. 4. THE LEARNED CIT OUGHT TO HAVE SEEN THAT BEFORE THE PROVISIONS OF SECTION 263 CAN BE INVOKED, HE HAS TO BE CONVINCED THERE EXISTS AN ERROR IN THE ORDER ALREAD Y PASSED BY THE ASSESSING OFFICER AND THAT ERROR HAS CAUSED A P REJUDICE TO THE INTEREST OF THE REVENUE. 5. BOTH THE SHOW CAUSE NOTICES ISSUED (AS ALSO TH E SUPPLEMENTARY SHOW CAUSE NOTICE DATED: 13.03.2009) TOGETHER WITH THE FINAL ORDER PASSED UNDER SECTION 263 ARE TOTALLY AT VARIANCE, BOTH WITH THE CONTENTS OF THE SECTION AS WELL AS AGAINST THE JUDICIAL PRONOUNCEMENTS AND AS SUCH, THE WHOLE ORDER NEEDS TO BE QUASHED. 6. WITHOUT PREJUDICE TO THE ABOVE AND IN THE ALTERN ATIVE, THE APPELLANT COMPANY SUBMITS THAT THE DIRECTIONS W HICH ARE CONTAINED IN THE ORDER ARE OF SUCH A ROUTINE NATUR E WHICH COULD NOT BE SAID TO HAVE BEEN OVERLOOKED BY THE AS SESSING OFFICER AT THE TIME OF COMPLETION OF REGULAR ASSESS MENT AND IN THE CIRCUMSTANCES OF THE TO ASKING THE ASSESSING OF FICER TO REDO AN ASSESSMENT ONLY TO GAIN A PRACTICE OF COMPL ETING AN ASSESSMENT AND NOT TO REDO AN ASSESSMENT IN LINE WI TH THE ITA 888/09 :- 4 -: PROVISIONS OF SECTION 263 WHICH COULD ARISE ONLY IN EXCEPTIONAL CASES. 7. THE LEARNED COMMISSIONER OF INCOME TAX ERRED IN OBSERVING 'WITH REGARD TO THE INTEREST CHARGED IN T HE PROFIT AND LOSS ACCOUNT', THE 'COPY OF THE ACCOUNTS SHOWING TH E TRANSACTIONS WITH THE HOLDING COMPANY HAVE NOT BEEN FILED' AND AS SUCH HE IS ENTITLED TO SET ASIDE AN ORDER OF ASSESSMENT UNDER SECTION 263 OF THE INCOME-TAX ACT WITH THE FO LLOWING DIRECTION:- I THEREFORE, SET ASIDE THE ISSUE TO THE A.O WHO SHALL CALL FOR THE ASSESSEES ACCOUNT COPY. AND IF CONFIRMED THAT INTEREST HAS BEEN CHARGED AS CLAIMED IN THE ASSESSEES RETURN, HE SHALL ACCEPT THE CLAIM OF THE ASSESSEE, OTHERWISE MAKE NECESSARY MODIFICATIONS. 8. THE LEARNED COMMISSIONER OF INCOME TAX ERRED WITH REGARD TO 'SERVICE CHARGES PAID TO UNITED BREWERIES LIMITED AND INERTIA LTD.,' BY OBSERVING THAT THE AO HAS NO T VERIFIED AS TO WHETHER THE 'ASSESSEE HAS ACTUALLY MANUFACTURED THE NUMBER OF BEER CASES FOR WHICH PAYMENT IS CLAIMED' AND ERRED IN OBSERVING FURTHER UNDER THE GUISE OF DIRECTION A S UNDER:- 'I THEREFORE SET ASIDE THE ISSUE TO THE AO TO CALL FOR THE AGREEMENTS AND DETERMINE THE ACTUAL QUANTUM OF CASES MANUFACTURED WITH REFERENCE TO THE AMOUNT PAID. IF THE AGREEMENT IS FOR TRANSFER OF KNOW HOW OR BRAND USE, THOUGH CAMOUFLAGED AS SERVICE CHARGES, THE AO SHALL ALLOW ONLY SUCH ALLOWANCE AS ADMISSIBLE FOR ACQUISITION OF INTANGIBLE ASSET.' 9. THE LEARNED COMMISSIONER OF INCOME TAX ERRED IN MAKING A UNIQUE OBSERVATION WITH REGARD TO THE ISSUE OF 'D ISALLOWANCE OF DEPRECIATION ON INTANGIBLE RIGHTS' THAT THOUGH T HE ASSESSEE HAS NOT CONTESTED THE DISALLOWANCE THEREOF, THE AO, SHOULD NEVERTHELESS EXAMINE AND PASS AN ORDER 'GIVING A FI NDING ON THE NATURE OF THE INTANGIBLE ASSET CREATED IN THE B OOKS BY THE ASSESSEE'. 10. THE DIRECTIONS OF THE CIT PURPORTED TO HAVE BE EN ISSUED UNDER SECTION 263 AS EXTRACTED ABOVE ARE PRIMA FACI E ILLEGAL AND CONTRARY TO THE PROVISIONS OF THE ACT AND AS SU CH THE ORDER DESERVES TO BE ANNULLED WITH COSTS ORDERED TO THE ASSESSEE. 11. THE THE APPELLANT CRAVES LEAVE TO , ADD TO, AL TER OR RESCIND ANY OF THE GROUNDS HEREIN RAISED ABOVE. ITA 888/09 :- 5 -: 4. WE HAVE HEARD BOTH SIDES IN DETAIL. WE HAVE ALSO PERUSED CAREFULLY THE ENTIRE EVIDENCES AVAILABLE ON RECORD. IT IS TRITE THAT AN ORDER CAN BE REVISED ONLY AND ONLY IF TWIN CONDITIO NS OF ERROR IN THE ORDER AND PREJUDICE CAUSED TO THE REVENUE CO-EXI ST. THE SUBJECT OF REVISION UNDER SECTION 263 HAS BEEN VASTLY EXA MINED AND ANALYSED BY VARIOUS COURTS INCLUDING THAT OF HONBLE APEX CO URT. THE REVISIONAL POWER CONFERRED ON THE CIT VIDE SECTION 263 IS OF V IDE AMPLITUDE. IT ENABLES THE CIT TO CALL FOR AND EXAMINE THE RECORDS OF ANY PROCEEDING UNDER THE ACT. IT EMPOWERS THE CIT TO MAKE OR CAUS E TO BE MADE SUCH AN ENQUIRY AS HE DEEMS NECESSARY IN ORDER TO F IND OUT IF ANY ORDER PASSED BY ASSESSING OFFICER IS ERRONEOUS IN S O FAR AS IT IS PREJUDICIAL TO THE INTEREST OF THE REVENUE. THE ON LY LIMITATION ON HIS POWERS IS THAT HE MUST HAVE SOME MATERIAL(S) WHICH WOULD ENABLE HIM TO FORM A PRIMA FACIE OPINION THAT THE ORDER PASSED BY THE OFFICER IS ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INT EREST OF THE REVENUE. ONCE HE COMES TO THE ABOVE CONCLUSIONS ON THE BASIS OF THE MATERIAL THAT THE ORDER OF THE ASSESSING OFFICER IS ERRONEOU S AND ALSO PREJUDICIAL TO THE INTERESTS OF THE REVENUE, THE CIT IS EMPOWER ED TO PASS AN ORDER AS THE CIRCUMSTANCES OF THE CASE MAY WARRANT. HE MAY PASS AN ORDER ENHANCING THE ASSESSMENT OR HE MAY MODIFY THE ASSESSMENT. HE IS ALSO EMPOWERED TO CANCEL THE ASSESSMENT AND D IRECT TO FRAME A ITA 888/09 :- 6 -: FRESH ASSESSMENT. HE IS EMPOWERED TO TAKE RECOURSE TO ANY OF THE THREE COURSES INDICATED IN SECTION 263. SO, IT IS CLEAR THAT THE CIT DOES NOT HAVE UNFETTERED AND UNCHEQURED DISCRETION TO RE VISE AN ORDER. THE CIT IS REQUIRED TO EXERCISE REVISIONAL POWER WI THIN THE BOUNDS OF THE LAW AND HAS TO SATISFY THE NEED OF FAIRNESS IN ADMINISTRATIVE ACTION AND FAIR PLAY WITH DUE RESPECT TO THE PRINCIPLE OF AUDI ALTERAM PARTEM AS ENVISAGED IN THE CONSTITUTION OF INDIA AS WELL I N SECTION 263. AS ORDER CAN BE TREATED AS ERRONEOUS IF IT WAS PASSE D IN UTTER IGNORANCE OR IN VIOLATION OF ANY LAW; OR PASSED WITHOUT TAKIN G INTO CONSIDERATION ALL THE RELEVANT FACTS OR BY TAKING INTO CONSIDERAT ION IRRELEVANT FACTS. THE PREJUDICE THAT IT CONTEMPLATED UNDER SECTION 263 IS THE PREJUDICE TO THE INCOME TAX ADMINISTRATION AS A WHOLE. THE R EVISION HAS TO BE DONE FOR THE PURPOSE OF SETTING RIGHT DISTORTIONS A ND PREJUDICES CAUSED TO THE REVENUE IN THE ABOVE CONTEXT. THE FUNDAMENT AL PRINCIPLES WHICH EMERGE FROM THE SEVERAL CASES REGARDING THE P OWERS OF THE CIT UNDER SECTION 263 MAY BE SUMMARIZED BELOW: (I) THE CIT MUST RECORD SATISFACTION THAT THE ORDE R OF THE ASSESSING OFFICER IS ERRONEOUS AND PREJUDICIAL TO T HE INTERESTS OF THE REVENUE. BOTH THE CONDITIONS MUS T BE FULFILLED. (II) SECTION 263 CANNOT BE INVOKED TO CORRECT EAC H AND EVERY TYPE OF MISTAKE OR ERROR COMMITTED BY THE ITA 888/09 :- 7 -: ASSESSING OFFICER AND IT IS ONLY WHEN AN ORDER IS ERRONEOUS, THAT THE SECTION WILL BE ATTRACTED. (III) AN INCORRECT ASSUMPTION OF FACTS OR AN INCORR ECT APPLICATION OF LAW WILL SUFFICE FOR THE REQUIREME NT OR ORDER BEING ERRONEOUS. (IV) IF THE ORDER IS PASSED WITHOUT APPLICATION OF MIND, SUCH ORDER WILL FALL UNDER THE CATEGORY OF ERRONEOUS ORD ER. (V) EVERY LOSS OF REVENUE CANNOT BE TREATED AS PREJUDICIAL TO THE INTEREST OF THE REVENUE AND IF THE ASSESSING OF FICER HAS ADOPTED ONE OF THE COURSES PERMISSIBLE UNDER LA W OR WHERE TWO VIEWS ARE POSSIBLE AND THE ASSESSING OFFICER HAS TAKEN ONE VIEW UNDER WITH WHICH THE CIT DOES NOT AGREE, IT CANNOT BE TREATED AS AN ERRONEOU S ORDER, UNLESS THE VIEW TAKEN BY THE ASSESSING OFFIC ER IS UNSUSTAINABLE UNDER THE LAW. (VI) IF WHILE MAKING THE ASSESSMENT, THE ASSE SSING OFFICER EXAMINES THE ACCOUNTS, MAKES ENQUIRIES, APPLIES HIS MIND TO THE FACTS AND CIRCUMSTANCES OF THE CASE AND DETERMINES THE INCOME, THE CIT, WHILE EXERCISING HI S POWER UNDER SECTION 263, IS NOT PERMITTED TO SUBSTI TUTE HIS ESTIMATE OF INCOME IN PLACE OF THE INCOME ESTIM ATED BY THE ASSESSING OFFICER. (VII) THE ASSESSING OFFICER EXERCISE QUASI-JUDICIA L POWER VESTED IN HIM AND IF HE EXERCISE SUCH POWER IN ITA 888/09 :- 8 -: ACCORDANCE WITH LAW AND ARRIVES AS A CONCLUSION, SU CH CONCLUSION CANNOT BE TERMED TO BE ERRONEOUS SIMPLY BECAUSE THE CIT DOES NOT FEEL SATISFIED WITH THE CONCLUSION. (VIII) THE CIT, BEFORE EXERCISING HIS JURISDICTION UNDER SECTION 263, MUST HAVE MATERIAL ON RECORD TO ARRIVE AT A SATISFACTION. (IX) IF THE ASSESSING OFFICER HAS MADE ENQU IRIES DURING THE COURSE OF ASSESSMENT PROCEEDINGS ON THE RELEVANT ISSUES AND THE ASSESSEE HAS GIVEN DETAILED EXPLANAT ION BE A LETTER IN WRITING AND THE ASSESSING OFFICER AL LOWED THE CLAIM ON BEING SATISFIED WITH THE EXPLANATION O F THE ASSESSEE, THE DECISION OF THE ASSESSING OFFICER CAN NOT BE HELD TO BE ERRONEOUS SIMPLY BECAUSE IN HIS ORDER HE DOES NOT MAKE AN ELABORATE DISCUSSION IN THAT REGAR D . 5. WITH REGARD TO THE FIRST ISSUE RELATING TO INTEREST CHARGED TO PROFIT & LOSS ACCOUNT, THE CASE OF THE ASSESSEE IS THAT IT HAS BORROWED FUNDS FROM MCDOWELL ALCOBEV PVT. LTD (FORMERLY MCDO WELL ALCOBEV LTD) ON WHICH INTEREST WAS PAID IN THE EARLIER YEAR S. BUT DURING THE FINANCIAL YEAR 2003-04, NO INTEREST WAS DEBITED/PAI D OR CLAIMED AS EXPENDITURE IN THE ACCOUNTS AS THE SAME WAS WAIVED BY M/S MCDOWELL ALCOBEV PVT LTD ON THE REQUEST OF THE ASSESSEE-COMP ANY. THE ASSESSEE HAD APPENDED A NOTE TO THE ACCOUNTS ON THI S ISSUE STATING ITA 888/09 :- 9 -: THEREIN THAT IN VIEW OF THE WEAKENED FINANCIAL CON DITIONS AND THE IMPENDING MERGER OF THE COMPANY WITH ITS HOLDING C OMPANY, MCDOWELL ALCOBEV PRIVATE LTD, THE BOARD OF DIRECTOR S OF THE COMPANY REQUESTED THE HOLDING COMPANY NOT TO CHARGE INTERES T ON MONIES BORROWED FROM THEM. THE BOARD OF DIRECTORS OF THE HOLDING COMPANY AT THEIR MEETING HELD ON 27.1.2004, ACCORDED APPROV AL TO THE REQUEST MADE BY THE ASSESSEE-COMPANY. IN SCHEDULE 17 WHICH IS REGARDING INTEREST AND FINANCE CHARGES, THE INTEREST ON FIXED LOAN FOR THE YEAR ENDED 31.3.2004 IS NIL. THE CONTENTION OF THE LD. CIT THAT THE ASSESSING OFFICER HAS NOT ASCERTAINED THE EFFECTIVE DATE FROM WHICH THE INTEREST WAS NOT CHARGED AND WHETHER THE INTEREST C HARGED IN THE ACCOUNTS FOR THE EARLIER YEARS HAD ALSO BEEN WRITTE N OFF. THE LD. CIT HAS GIVEN FURTHER DIRECTION TO THE ASSESSING OFFICE R TO CARRY OUT VERIFICATION REGARDING THIS FACT. 6. THE LD. CIT/DR SHRI P.B.SEKARAN HAS INITIALLY RE LIED ON THE ORDER OF THE LD. CIT IN THIS REGARD. 7. AFTER CONSIDERING THE RIVAL SUBMISSIONS, WE FIND WI TH REFERENCE TO PAGES 6 & 7 OF THE PAPER BOOK, NO INTEREST HAD BEEN CHARGED FOR THE YEAR ENDED 31.3.2004. WHEN THE ASSESSEE HAS NOT CH ARGED INTEREST TO PROFIT & LOSS ACCOUNT, THERE IS NO QUESTION OF CREE PING ANY ERROR IN THE ASSESSMENT ORDER IN QUESTION. HENCE, THIS ISSUE CA NNOT BE TREATED AS ITA 888/09 :- 10 - : A GROUND LEADING TO REVISION OF THE ASSESSMENT ORDE R AS THERE IS NEITHER ANY ERROR NOR ANY RELATABLE LOSS TO THE REV ENUE. 8. THE SECOND ISSUE RAKED BY THE LD. CIT IS REGARDING AMALGAMATION OF THE ASSESSEE-COMPANY WITH ITS HOLDI NG COMPANY. THE FACTS APROPOS THIS ISSUE ARE THAT THE ASSESSEE HAD SUBMITTED A PETITION FOR AMALGAMATION WITH MCDOWELL ALCOBEV PV T LTD.(FORMERLY MCDOWELL ALCOBEV LTD) AS APPROVED BY ITS BOARD OF D IRECTORS IN THE HIGH COURT OF JUDICATURE IN CHENNAI AND THE SAME WA S PENDING ADMISSION AND IN THE NOTES TO ACCOUNTS IN THE BALAN CE SHEET, FOLLOWING NARRATION WAS GIVEN: PURSUANT TO THE APPROVAL BY THE BOARD OF DIRECTORS AT ITS MEETING HELD ON 28.1.2004, AND APPROVAL BY THE BOAR D OF DIRECTORS OF MCDOWELL ALCOBEV PRIVATE LTD (FORMERLY MCDOWELL ALCOBEV LIMITED) AT ITS MEETING HELD ON 27 TH JANUARY 2004, THE COMPANY HAS FILED A PETITION IN T HE HON'BLE HIGH COURT OF JUDICATURE AT CHENNAI FOR MER GER OF THE COMPANY, WITH THE HOLDING COMPANY MCDOWELL ALCOBEV PRIVATE LTD (FORMERLY MCDOWELL ALCOBEV LTD) WITH EFFECT FROM 1 ST JULY 2002 WHICH IS PENDING ADMISSION Y THE COURT. CONSEQUENTLY, NO EFFECT OF THE MERGER/OPERATIONS HAS BEEN GIVEN IN PREPARING THE ACCOUNTS OF THE COMPANY. 9. IN THIS REGARD, THE LD. CIT HAS GIVEN DIRECTION TO THE ASSESSING OFFICER TO CARRY OUT FURTHER INVESTIGATION REGARDIN G THE CLAIM OF THE ASSESSEE-COMPANY. AGAIN, KEEPING IN VIEW THE EXPLA NATION OF THE ASSESSEE, INCORPORATED HEREIN ABOVE, WHICH COULD NO T BE FOUND TO BE FALSE EITHER BY THE ASSESSING OFFICER OR BY THE LD. CIT, THE REASONING GIVEN BY THE LD. CIT IN HIS REVISIONAL ORDER CANNOT SATISFY THE TEST LAID ITA 888/09 :- 11 - : DOWN U/S 263 AS DISCUSSED IN THE ABOVE PORTION OF T HIS ORDER. HENCE, THIS ISSUE CANNOT BE A GROUND TO REVISE THE ASSESSM ENT ORDER AS THERE IS NO ERROR IN IT. 10. THE THIRD ISSUE WHICH HAS BEEN MADE THE BASIS FOR R EVISING THE ORDER IS REGARDING CLAIM OF DEPRECIATION ON INTANGI BLE RIGHTS. THE ASSESSEE-COMPANY HAS CLAIMED DEPRECIATION ON TRADE MARKS AND LICENCES AMOUNTING TO ` 4,15,13,720/- BEING DEPRECIATION @ 25% ON OPENING WDV OF ` 16,60,54,881/- AS ON 1.4.2003 ON THE GROUND THAT TRADE MARKES AND LICENCES ARE INTANGIBLE ASSETS. T HE ASSESSEE HAS CLAIMED THIS DEPRECIATION AS PER PART B (INTANGIBLE ASSETS) OF APPENDIX 1 OF THE INCOME-TAX RULES READ WITH RULE 5 AND SECT ION 32 OF THE INCOME-TAX ACT. THE ASSESSING OFFICER HAS NOT ALLO WED THE CLAIM MADE AND DISALLOWED THE DEPRECIATION. IN THAT VIEW OF T HE MATTER, THE ABOVE FACTS REMAINED UNCONTROVERTED BY THE REVENUE, HOW T HIS CAN BE MADE A GROUND TO REVISE THE ASSESSMENT ORDER IN QUESTION WHEN THE ASSESSING OFFICER HIMSELF HAS NOT ALLOWED THIS CLAI M OF DEPRECIATION ON INTANGIBLE ASSETS. WHEN THE ASSESSING OFFICER HA S NOT ALLOWED THE CLAIM OF DEPRECIATION ON INTANGIBLE ASSETS, THERE C ANNOT BE ANY PREJUDICE CAUSED TO THE INTERESTS OF THE REVENUE. NO PREJUDICE COULD BE SHOWN BY THE LD.DR IN THIS REGARD BEFORE US DURI NG THE HEARING. HENCE, THERE IS NO QUESTION OF ANY FURTHER VERIFICA TION ON THIS ISSUE. ITA 888/09 :- 12 - : 11. THE NEXT ISSUE IS REGARDING SERVICE CHARGES PAID TO UNITED BREWERIES LTD AND INERTIA INDUSTRIES LTD. THE ASS ESSEE-COMPANY HAD BOTTLING ARRANGEMENTS WITH UNITED BREWERIES LTD AND INERTIA INDUSTRIES LTD ENABLING IT TO BOTTLE AND SELL THEIR BRANDS OF BEERS IN TAMIL NADU. AS PER THIS ARRANGEMENT ENTERED INTO WITH THEM IT H AD PAID SERVICE CHARGES AMOUNTING TO ` 5,58,23,719/- TOWARDS ROYALTY, FREIGHT, MARKETING EXPENSES AND FOR MAKING AVAILABLE THE KNO W HOW FOR MANUFACTURING OF THE BRANDS OF BEER BELONGING TO TH E AFOREMENTIONED COMPANIES. THESE SERVICE CHARGES WERE SAID TO HAVE BEEN PAID AS PER THE ARRANGEMENT ENTERED INTO BEFORE THE ASSESSEE-CO MPANY BECAME A GROUP COMPANY. IT WAS ARGUED BY THE LD.AR THAT SIM ILAR EXPENDITURE HAD BEEN ALLOWED IN THE ASSESSMENT YEAR 2003-04 AS ITS BUSINESS EXPENDITURE INCURRED FOR CARRYING OF THE DAY-TO-DAY EXPENSES HOLDING IT TO BE REVENUE IN NATURE. THE LD. CIT HAS CONCLU DED THAT VERIFICATION OF A TRANSACTION WITH THE GROUP COMPANY IS AT ARMS LENGTH AND IS NOT A STATUTORY REQUIREMENT U/S 40A(2) OF THE ACT. IT WA S ARGUED THAT AS PER THE PROVISIONS OF SECTION 40A(2) WHAT IS REQUIRED O F THE ASSESSING OFFICER IS TO FORM AN OPINION THAT AN EXPENDITURE I S NOT EXCESSIVE OR UNREASONABLE. THE DISCRETION TO DECIDE THIS ISSUE IS VESTED WITH THE ASSESSING OFFICER AND HE HAS EXERCISED THE SAME IN FAVOUR OF THE ASSESSEE. THUS, IT CANNOT BE SAID THAT AN ERROR H AS CREPT INTO THE ASSESSMENT ORDER CAUSING PREJUDICE TO THE REVENUE. ITA 888/09 :- 13 - : 12. AFTER HEARING BOTH SIDES AND IN VIEW OF THE LD. C ITS ORDER, WE FIND THAT THE ASSESSEE-COMPANY HAS PROVED THAT THE ASSUMPTION OF JURISDICTION BY THE LD. CIT ON ALL THE ABOVE ISSUES IS NOT ACCORDING TO LAW BECAUSE EVEN PRIMA-FACIE, WE CANNOT FIND ANY ER ROR IN THE ASSESSMENT ORDER IN RELATION TO ANY OF THE GROUNDS PROPOSED/TAKEN BY THE LD. CIT. IN VIEW OF THE AFOREMENTIONED LEGAL P OSITION, WHEN THE TWIN CONDITIONS ARE NOT FOUND TO CO-EXIST, AN ORDER CANNOT BE REVISED U/S 263 OF THE ACT. WE, THEREFORE, SET ASIDE THE O RDER OF THE LD. CIT AND RESTORE THAT OF THE ASSESSING OFFICER. 13. IN THE RESULT, THE APPEAL IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 11.7.2011. SD/- SD/- (DR. O.K. NARAYANAN) VICE-PRESIDENT (HARI OM MARATHA) JUDICIAL MEMBER DATED: 11 TH JULY, 2011 RD COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR