ACIT CEN. CIR. - 25, MUMBAI vs. M/S. PARLE PRODUCTS P. LTD., MUMBAI

This group of eight appeals were initially adjudicated by the Tribunal vide consolidated order dated 22-01-2018 in all appeals. However, the order was recalled qua certain grounds of appeal as mentioned in order dated 13-05-2019 in MA No(s) 518 to 515/M/2018.

Allowing the expenditure incurred on celebrities for brand promotion being capital expenditure. 2007-08 4 & 5 4. Deleting the addition u/s 41(1) of ITA No.6714/M/11 Rs.496/- on account of deferred sales tax written off.

Therefore, all the appeals, qua the above grounds were heard afresh.

The Ld.AR of the assessee at the outset submits that all the grounds of appeal in the appeals under consideration, for which the order was recalled, are covered in favour of the assessee and against the revenue by various orders of the Tribunal either in assessee’s own case, in assessee’s group case or by the orders of the Superior Courts.

The ground No. 1(b) in this appeal for our consideration is deletion of addition of Rs.36,55,041/- made on account of alleged suppressed production resulting in suppressed sale of confectionery.

Facts relating to this issue are identical to the facts on which similar disallowance was made by the Assessing Officer in respect of production and sale of biscuits at Mumbai Unit which was the subject matter of dispute in ground no.1, herein before. The Assessing Officer noticing that the average yield of confectionary in CMUs is 98.90% inferred that the assessee has suppressed production resulting in suppression of sales. Accordingly, he worked out the quantum of suppressed sales at ? 6.33 crore and added back to the income of the assessee. While deciding assessee's appeal, learned Commissioner (Appeals) followed the decision of the Tribunal in assessee's own case for the assessment year 1996-97 and deleted the addition made by the Assessing Officer.

We have considered rival submissions and perused the material on record. Undisputedly, identical issue came up for consideration before the Tribunal in assessment year 1996-97 and while deciding the issue in the order cited supra, the Tribunal deleted the addition made by the Assessing Officer. Since, the relevant observations of the Tribunal has already been reproduced herein above, there is no need to reproduce them again. Pertinently, while deciding identical issue in the assessment year 1998-99 also, the Tribunal following its earlier decision deleted the addition. Facts being identical, respectfully following the decisions of the Tribunal, as referred to above, we uphold the order of learned Commissioner (Appeals) on the issue. Ground raised

In the result, appeal of the revenue is dismissed.

In the result, the corresponding ground No. 3 of appeal filed by the revenue is dismissed. (AY 2003-04) 9. In this appeal by the revenue the ground No. 2 relates to deleting the addition of Rs. 5,16,221/- on account of suppressed production resulting in suppressed sale of confectionary. We have noted that this ground of appeal is identical to the ground No. 2 of appeal of the revenue for AY 2002-03, which we have dismissed by following the order of Tribunal in AY 1997-98 dated 09th August 2019, therefore , this ground of appeal is dismissed with similar directions.

Here it is necessary to take note of the following cases on this issue.

In CIT vs. Berger Paints (India) Ltd.[No.2](Cal.][supra], it has been held(page 504 head note]: "Held,[i) that if according to the revenue laws the assessee is entitled to treat a sum as a revenue expenditure, then that legal right of the assessee is not estopped by the treatment given by the assessee to it in its own books of account. Advertisement expenses are normally to be treated as revenue expenditure. The Tribunal was justified in law in allowing a sum of Rs.8,29,723/- as revenue expenditure.........."

In CIT vs. Sakthi Soyas Ltd. (supra), it has been held[page 195 head note): ".....(ii) That in respect of the project launching expenses amounting to Rs.16,41,125/- also the assessee had spent the money mainly for advertisement through visual and print media and also for designing and printing lea/lets, brochures, etc. and hence these expenses were also in the nature of business expenditure entitled for deduction in computing the assessee's income,"

In CIT vs. Bhor Industries Ltd.[supra], it has been observed and held [page 185):

In ACIT vs. Ashima Syntex Ltd.(2009) 310 ITR(AT) l(Ahmedabad) (SB) the Special Bench of the Tribunal while considering the decision of Hon'ble Supreme Court in Madras Industrial Corp Ltd. vs. C1T (1997] 225 ITR 802 observed and held asunder (page-15): ".....This judgment relied upon by the Id. Departmental Representative itself clarifies that though the taxpayer may have written off the expenditure in its books of account over a period say of five years, it must be allowed in its entirety in the year in which it was incurred, if it is revenue expenditure, and if it is wholly and exclusively incurred for the purposes of business. In the case under consideration, there is nothing to suggest that with this expenditure, any asset, tangible or intangible, has been created. There is no evidence on record regarding accrual of any specific revenue in the years under consideration or subsequently over a defined period with the incurring of the said expenditure. The Assessing Officer himself admitted the portion of expenditure debited in the profit and loss account as revenue expenditure. In these circumstances, we do not find any justification to interfere with the findings of the Id. Commissioner of Income tax (Appeals)."

In CIT vs. Jai Parabolic Springs Ltd., (2008) 306 ITR 42 (Del) it has been observed and held as under- "The assessee filed a return of income declaring a net loss at Rs. 4,40,36,000/- for the assessment year 1990-91. The loss was computed at USD 4,27,63,353, inter alia, by making several 8 additions and disallowances. The assessee incurred an expenditure of Rs. 19,48,125/- as expenditure on account of customer introduction charges which were debited as "deferred revenue expenses" in the balance-sheet. The expenditure was written off over a period of five years starting from the assessment year 1990-91 and accordingly the assessee claimed reduction of Rs, 3,89,625 in the return. The claim was allowed by the Assessing Officer. In appeal before the Commissioner (Appeals), the assessee claimed an additional ground that the entire deferred revenue expenses were deductible in the assessment year in appeal. The appeal was allowed. The Tribunal restored the matter to the Assessing Officer. The Assessing Officer allowed only a reduction of Rs. 3,89,625 and disallowed the claim of Rs. 15,58,500 on the ground that this was not claimed by the assessee in its return of income in the assessment year 1990-91. The Commissioner (Appeals) held that the Assessing Officer erred in disallowing the expenditure on the sole ground that no claim for deduction of the amount was made in the return of income. This order was confirmed by the Tribunal On appeal: Held, dismissing the appeal, that there was no prohibition on the powers of the Tribunal to entertain an additional ground which according to the Tribunal arose in the matter and for the just decision of the case. There was no infirmity in the order of the Tribunal"

In Silicon Interfaces Private Limited, 1TA No.7434/M/03, A.Y. 2001-02 dated 30.6.2005, the Tribunal while relying on the decision of the Tribunal in Amar Raja Batteries Ltd. vs. AC1T, 272 1TR 1 [AT]; 91 1TD 280 and the ratio of decision of Kedarnath Jute Manufacturing Co. Ltd. vs. C1T 82 1TR 363 (SC) holding that the books of accounts do not determine the allowability or otherwise expenditure, agreeing with the view taken by the Co-ordinate Bench of the Tribunal and deleted the disallowance made by the AO.

Applying the ratio of aforesaid legal position to the facts of the present case we are of the view that making of an entry or absence of an 9 entry does not determine the allowability or otherwise of the item of expenditure and the same can not be considered to be a factor adverse, if the expenditure is otherwise of allowable nature. It is not the case of the revenue that the expenditure incurred by the assessee on publicity and brand advertising are not revenue in nature or have not been incurred wholly and exclusively for the purpose of business. There is nothing to suggest that with this expenditure, any asset tangible or intangible, has been created. There is no law under the Act to say that the revenue expenditure is deferred revenue expenditure. The A.O himself admitted the portion of expenditure debited in the P&L Account as revenue expenditure. This being so, we are of the view that the expenditure incurred by the assessee on publicity and brand advertising are allowable as revenue expenditure. Accordingly, we are inclined to uphold the finding of the Id. CIT(A) in deleting the disallowance made by the AO. The ground taken by the revenue is, therefore, rejected.”

Facts of the appeal under consideration are stated to be undisputedly identical. Therefore, consistent with the earlier view taken by the Tribunal in assessee’s group case in Parle Biscuits Private Ltd (supra), we do not find any merit in the ground raised by the Revenue. The same is rejected.

In the result, the ground No. 2 &5 of the appeal filed by the revenue are dismissed.

Upon careful consideration we find that the income lax law providing for capital expenditure liable for depreciation is contained under section 32 of the IT. Act. As per the provisions of law ownership the property is sine quo non for depreciation. Hence since the assessee does not have ownership it cannot be treated as capital expenditure in the hands of the assessing liable for deprecation. The submission of the assessee that the said construction enables the assessee to carry on his business more efficiently and profitably and hence the same should be allowed under section 37 of the I.T. Act has considerable cogency. In this regard we are in agreement with the submission of the learned Counsel of the assessee that the benefit from the said expenditure may be of some enduring benefit but, the said expenditure was necessary for the business to the carried on more efficiently and profitably. Hence on the touchstone of following case laws the assessee deserves to succeed. CIT v. Empire Jute 124 ITR I (SC) CIT v. Assam Bengal Cement 27 ITR 34 ISC) Alembic Chemical Works Co. Ltd. v. CIT 177 ITR 377 (SC)

In the result, ground no. 4 of the appeal filed by revenue is dismissed.

First issue/ Ground No. 4 relates to deletion of addition of Rs.4,96,28,000 made u/s 41(1) on account of deferred sales tax written off. Upon hearing parties from both the sides, we find that this issue is covered in favour of the assessee by the order of the Tribunal for AY 2004-05 in vide order dated 13-03-2019, the relevant portion of which, we have already quoted above, while deciding the appeal of revenue for AY 2009-10(supra). The facts and circumstances for this assessment year are similar. Therefore, following the precedent, we reject the ground No.4 raised by the revenue.

Ground No. 5 relates to expenses on celebrities for publicity and sales promotion. The ld. AR for the assessee submits that this issue is also covered in favour of the assessee and against the revenue by the decision of Tribunal in assessee’s subsidiary’s case in CIT Vs Parle Biscuits Pvt Ltd. in for AY 2003-04. On the other hand the ld. DR supported the order of the AO.

We have considered the rival contentions of the parties and perused the record. We have noted that this ground of appeal

The first issue in this appeal that remained to be adjudicated upon is Ground No. 4, which relates to appeal for deletion of addition of Rs.4,96,28,000/- made u/s 41(1) on account of deferred sales tax written off. Upon hearing parties from both the sides, we find that this issue is covered in favour of the assessee by the order of the Tribunal for AY 2004-05 in vide order dated 13-03- 2019, the relevant portion of which, we have already quoted above, while taking the grounds of appeal for AY 2009-10 and 2008-09. The facts and circumstances for this assessment year are stated to be identical. Therefore, following the precedent, we reject the ground No4 raised by the revenue.

The other issue in this appeal that remained to be adjudicated is Ground No. 5, which relates deletion of disallowance made on account of expenditure on celebrities for publicity and sales promotion. Upon hearing parties from both the sides, we find that this issue is also covered in favour of the assessee by the order of the Tribunal for AY 2004-05 in vide order dated 13-03-2019, in assessee’s group case. We have noted that by following the aforesaid order we have granted relief to the assessee in appeal for AY 2003-04 and in AY 2008-09 and dismissed the similar grounds of appeal.

In the result, Ground No. 4&5 of the appeal of revenue is dismissed.

The first issue which left from adjudication is Ground No.4, which relates to deletion of addition under section 41(1) on account of write 14 back of sales tax deferral loan. We have seen that this ground of appeal is identical to the ground No. 4 of appeal for AY 2006-07, which we have dismissed by following the order of Tribunal in appeal for AY 2004-5 in ITA No. 445/Mum/2009. Therefore, in view of the consistence order of the Tribunal this ground of appeal No.4 is dismissed with similar direction.

On the hand the ld. DR for the revenue supported the order of the assessing officer.

We have considered the rival submissions of the parties and have perused the order of the lower authorities. During the relevant period the assessee earned exempt income of Rs. 13,25,76,769/- on account of interest on tax free bonds and Rs.5,86,05,674/- as dividend income. The assessee made suo moto disallowance of Rs. 2,18,000/-. The assessee has paid Portfolio Management Services (PMS) of Rs. 79,94,781/- for managing the investment. The assessing officer issued show caused notice to the assessee for making disallowance under section 14A rws Rule 8D. The assessee filed its reply. In the reply the assessee stated that the dividend and interest income were directly credited to the bank account of the assessee. The assessee has not incurred any other expenses except the payments made to the PMS and accordingly no disallowance under section 14A can be made. The reply of the assessee was not accepted by the AO. The AO invoked the provisions of Rule 8D and made disallowance of Rs.46,72,378/-, which consist of Rs. 2,18,000/- on account of Demat charges as direct expenses and Rs. 44,54,378/- being .5% of average value of investments, no interest disallowance was made. The AO further concluded that the assessee while computing taxable income has already disallowed Rs. 2,18,000/-, therefore, the disallowance under section14A was restricted to Rs. 44,54278/-.

On appeal before CIT(A), the assessee stated that the assessee has not incurred any other expenses, except of Demat Charges of Rs.2,18,000/- for making investment in the shares, which is already disallowed by the assessee. No expenses can be attributed on estimated as per Rule 8D. The assessee also relied on a number of decisions of Tribunal and High Courts as recorded by ld CIT(A) in para 9.4 of his order. The assessee specifically relied on the decision of Hon’ble Bombay High Court in Godrej & Boyce (ITA No. 626/2010), wherein it was held that the Rule 8D is applicable from AY 2008-09 and the expenses which have direct and indirect proximity with the earning the exempt income to be disallowed. The assessee also submitted that if the direct and indirect expenses are considered for disallowances, it would be Rs. 7,68,000/- only and that the assessee has already disallowed Rs. 2,18,000/-. The ld CIT(A) after considering he submission of the assessee concluded that the provision of Rule 8D is not applicable for the year under consideration, in view of the decision of Hon’ble Bombay High Court in Godrej & Boyce Ltd. (supra). It was further held that disallowance can be made on a reasonable basis. The assessee has already offered Rs. 2,18,000/- as suo-moto disallowance related to Demat Charges attributable for earning tax free income. The ld. CIT(A) after relying upon the decision in assessee’s subsidiary case of M/s Parle Biscuits Ltd. for Assessment Year 2006-07 which was a subject matter before DRP, wherein DRP directed the Assessing Officer to allow only direct and indirect expenses which have proximity with the earning of exempt income. The ld CIT(A) further noted that the assessee has already added Rs. 2,18,000/- being suo-moto disallowance while computing taxable income. The indirect expenses consist salary of Accounts manager which is Rs. 3,25,229/-. The assessee has attributed that the Accounts manager has devoted 20% of his time in the investments activity hence, only 20% of his salary can be reasonably linked to the earning of exempt income. Further, the assessee has also suo-moto offered Rs. 50,000/- as other administrative expenses such as telephone, e-mail charges and any other charges.

In the result, the ground No. 4& 5 of the appeal of the revenue is dismissed.

The sole issue in this revenue’s appeal that remained to be adjudicated is Ground No.4, which relates to deletion of addition of Rs.99,846/- made on account of bogus purchases.

The ld.AR of the assessee, at the outset submits that the assessing officer has made addition merely because the assessee- company could not produce the party before him for confirmation and the name of the concerned party was appearing in the list of parties of hawala traders prepared by the investigation wing of the Sales tax department of State Government. The said hawala dealers were allegedly indulging in the practice of providing the bogus purchase bills. The assessee has contended that the transaction was genuine and submitted evidences such as copy of the invoices, invoice number, inward register number, ledger account, payment of invoices by cheque, etc. The Ld. AR further submits that the issue is covered in favour of the assessee by the decision of jurisdiction High Court in the case of CIT Vs Nikunj Eximp Enterprises (P) Ltd (2015) 372 ITR 619 (Bom), wherein it has been held that since sale supported the purchases made by the assessee and the payments were also made through banks, 19 the purchase could not be rejected as bogus merely because the suppliers had not appeared before the assessing officer. Also that, Special Leave Petition filed by the department against the judgement of the jurisdictional High Court has been dismissed by the Hon’ble Apex Court vide order dated 30th August, 2013 in SLP (Civil)

The Ld. DR, on the other hand the ld. DR for the revenue supported the order of the assessing officer. The ld. DR for the revenue submits that the investigation wing of the Income-tax department made full flagged investigation on the information received from the sales tax department of State Government and came to the conclusion that these firms were fictitious and was providing the bogus bills without actual delivery of goods. The assessee is one of the beneficiaries of such bogus entry.

We have considered the rival submissions and perused the material placed on record. During the assessing officer noted that information is received from the investigation wing that some of the hawala traders are indulging in providing bogus bills without delivery of goods. The assessee is also one of the beneficiaries who has availed such bogus entries. The assessee has shown purchase from Lakshmi Trading Company of Rs. 99,846/-. Accordingly, the assessee was asked to substantiate the purchases shown from Lakshmi Trading Company. The assessee was also asked to produce the party and to furnish the transaction date, challan No., and inward and outward register number along with documentary evidence. The assessee in its reply stated that they try to contact M/s Lakshmi Trading Company on the telephone number provided on the bills. However, they were told that the telephone number is wrong, accordingly the assessee are unable to produce the said party. The reply of assessee was not accepted by assessing officer the assessing officer on the basis of report of Sales tax authority concluded that the said party admitted before Sales tax authority about indulging in providing bogus bills.

On appeal before ld. CIT(A) the assessee submitted that the transaction with Lakshmi Trading Co were genuine. The assessee furnished all the detail required by assessing officer to prove the genuineness of transaction, transaction date, bills/ invoices, delivery challan, in outward and inward entry evidencing the delivery of goods and the payments through cheques. The learned CIT (A) after considering the contention of assessee concluded that the assessee produced relevant documents about the transaction. The payments were made through account payee cheques. The bank statement reflects that payment was made to the said party. The assessee is a reputed company and having turnover in several hundred Crores, whereas the amount in dispute is below the ₹ 1 lakh only. The assessee has shown income of more than Rs. 46 crore. It was further concluded that it is not convincing that the assessee would procure such bogus bill of Rs.99,846/- only. The learned CIT(A) also concluded that the selling party, after collection of VAT may not have deposited it with the Government Treasury, which may leads to treat the said party as hawala traders. It was concluded by ld CIT(A) that the assessing officer has not made any consequential enquiries; whether any money has been received back by the assessee or not. We have noted that the assessing officer has not rejected the books of account of the assessee.

In the result, the ground No. 4 of appeal filed by the revenue is dismissed.

In the result, all the appeals filed by the revenue are dismissed.