SABMILLER INDIA LTD ( FORMELRLY SKOL BREWERIES LTD),MUMBAI vs. CIT 8, MUMBAI

Order u/s.254(1)of the Income-tax Act,1961(Act) लेखा लेखा सद�य लेखा लेखा सद�य सद�य राजे�� सद�य राजे�� राजे�� केकेकेके अनुसार राजे�� अनुसार अनुसार PER RAJENDRA, AM- अनुसार Challenging the order dated 28.3.14, of the CIT-8, passed u/s. 263 of the Act the assessee has filed the present appeal. Assessee company, engaged in the business of manufacturing and sale of beer,filed its return of income on 31.10.07 declaring total income at Rs.Nil. The Assessing Officer completed the assessment u/s. 143(3) r.w.s. 144C (13) of the Act on 29.7.2011 . 2.The CIT found that while completing the assessment the AO had disallowed a sum of Rs.38.35crores u/s.40(a)(i)r.w.s.9,195 and 200 of the Act which was the depreciation claimed on payment made by the assessee to its AE for acquiring intellectual property and trade mark, that the assessee had capitalised both the intangible assets in its books of account, that while disallowing the depreciation the AO had not taken into account the foreign exchange loss of Rs.5.74 crores pertaining to acquisition of trade mark and licences. He held that the AO should have considered a sum of Rs.5,47,40,081/- being foreign exchange loss while making disallowance u/s. 40(a)(i),that the impugned loss was part and parcel of acquiring trade mark/brand. He further found that the assessee had been collecting sales tax from its customers by raising debit notes that it was treating the debit notes as contingency deposits, that it had collected sales tax from its customers from the period from 1996-97 to 1999-2000, amounting to Rs.58.98 lakhs, that the amount in question was neither paid to the government not was refunded to the customers from whom it was collected. He observed that it had not offered the amount as income though same was taxable as revenue receipt .He referred to the

4170-SABMiller order of the Hon’ble Madras High Court delivered in the case of Southern Express (242ITR107).He also found that as sum of Rs.132.12 crores was shown as an expense by the assessee on account of consumption of containers in the books of account that in the computation of income the expenditure under the same head was shown at Rs.176.05 crores, that the difference in quantum in claim resulted in excess claim of expenditure of Rs.43. 93crores.Consideirng the above, the CIT held that the order passed by the AO was erroneous and prejudicial to the interest of Revenue. He issued a notice u/s. 263 of the Act to the assessee asking it to show cause as to why the assessment order should not be set aside/ cancelled.

3.Vide its letters dt.31.1.14 and 23.3.14,the assessee filed detailed submission to the notice . After considering the same, the CIT held that the assessee had purchased brands/trade mark and intellectual property for Rs.167.95crores in the AY 2007-08, that in the appellate proceedings the Tribunal had held that provisions of section 40(a)(i)were not applicable on depreciation claimed by the assessee on the amounts paid to its AE as it was capitalised, that alternatively the assessee had submitted that the exchange loss was Rs.5.47crores, that the depreciation claimed was only Rs.1.33crores.The CIT directed the AO that Forex laws relating to the amount of Rs.153 crores should be capitalised and depreciation thereon computed by the assessee at Rs.1.33 crores would have to be disallowed. With regard to sales tax collected from the customers the assessee argued that there was dispute on the issue with the Government authorities, that the matter was finally settled by the Hon'ble Supreme Court which affirmed the levy of tax on value of packing material ranging from 3% to 3.5%, that after the matter was finally settled the amount lying as contingency deposit was to be utilised in payment of sales tax and the balance was to be refunded to the customers, that the company was unable to identify or locate the customers to refund the sales tax collected , that it had offered the disputed amount as income, that it had filed a rectification application before the AO stating that a revised return was filed voluntarily offering the amount of Rs.58.98 lakhs,that the same was not considered by the AO while passing the order. The CIT directed the AO to pass a suitable rectification order and to consider the disputed amount for computing the income of the assessee.He further observed that the assessee had voluntarily offered the income, therefore, there was no need to consider further addition. With regard to discrepancy in the amount shown against the consumption of containers in the books of accounts and in the computation of income filed with the return the CIT observed that the assessee had successfully explained discrepancy, it was argued that 2

4170-SABMiller it was following a method of accounting policy in the books and had treated part of consumption as capital expenditure and other part as revenue expenditure, that the amount of Rs.132.12 crores was debited to P&L account, that the balance consumption amount was capitalised on which depreciation of Rs.20.09 crores was claimed, that following the earlier practise the entire consumption expenditure of containers (Rs.176.05 crores.) was claimed as revenue expenditure . The CIT directed the AO to verify the claim made by the assessee.

4.During the course of hearing before us the Authorized Representative (AR) of the assessee contended that order passed by AO was neither erroneous nor prejudicial to the interest of the revenue, that he had made proper enquiries and examined the accounts during the course of assessment proceedings, that it could not be held that there was no application of mind by the AO,that the CIT had wrongly invoked the provisions of section 263 of the Act. He referred to the cases of Development Bank Ltd. (323ITR206) and Gabriel India Ltd. (203ITR108).With regard to disallowance of depreciation on foreign exchange loss u/s. 40A(a) (ia) of the Act, the AR argued that AO had disallowed the claim and had considered the issue of deprecia - tion on foreign exchange loss and other costs capitalised u/s.43A of the Act, that the Tribunal had deleted the disallowance and had held that claim for depreciation was not in respect of expenditure incurred,that it was allowable on an asset which was eligible for deduction on depreciation,that the CIT was not authorised to give direction contrary to direction of the Act, that the direction to disallow the amount of depreciation of Rs.1.33 crores on forex loss capitalised was not as per the provisions of law.He referred to order of the Tribunal delivered for AY 2008-09 in its own case. About the addition of sales tax collected (Rs.58.98 lakhs) the AR stated that the AO had passed rectification order on 31.3.16 u/s. 154 of the Act, that the amount offered to tax by the assessee had already been considered by the AO, that there was no justification for passing any order including the direction of initiating penalty proceedings u/s. 271(1) (c ) of the Act. With regard to direction of CIT about excess claim of consumption of containers, the AR argued that the CIT had given direction to merely verify amounts of total debits in the P&L account that had been added back to the income of the assessee, that the order passed by the AO was not erroneous or prejudicial to the interest of the revenue.He also referred to the case of Dish TV India Ltd. (157 ITD 1096). The Departmental Representative(DR)supported the revisionary-order of the CIT.

4170-SABMiller 5.We have heard the rival submissions and perused the material before us. We find that while completing the assessment the AO had called for explanation about the issue raised by the CIT in his revisionary order, that after being satisfied and after considering the submission of the assessee the AO had passed an order.Thus, there was no lack of enquiry on part of the AO and he had taken an informed decision.Therefore, it cannot be said that no proper enquiry was made.We find that the issue of disallowance of depreciation was discussed and delibera - ted upon by the Tribunal in assessee’s own case for the year under consideration. Therefore, the consequential disallowance with respect to forex loss capitalised cannot be upheld. As per the settled principle of taxation once forex loss being capitalised ,then no disallowance u/s. 40(a) (ia) can be made.In the case under consideration the AO had taken one of the possible views and the view taken by him is not against the provisions of law.Therefore, his order would not fall under the category of an erroneous order. As far as contingent sales tax deposit are concerned, it is found that the AO had passed a rectification order and taxed the disputed amount. By that time the order of CIT was passed.Thus there was no justification for the CIT to direct the AO to initiate penalty proceedings.It is found that the CIT had further directed the AO to make further verification of consumption of containers.We have perused pages 294 ,302,303,305 and 306 of the PB. We find that assessee had filed all necessary details before the AO during assessment proceedings and he had passed the order after considering the available material. In these circumstances,we are of the opinion that, the order passed by the AO was neither erroneous nor prejudicial to the interest of revenue . Considering the peculiar facts and circumstances of the case, we hold that the CIT was not justified in invoking the provisions of section 263 of the Act. Effective Ground of appeal is allowed in favour of the assessee. As a result,appeal filed by the assessee stands allowed. िनधा�रती �ारा दािखल क� गई अपील मंजूर क� जाती है. Order pronounced in the open court on 06th January, 2017. आदेश क� घोषणा खुले �यायालय म� �दनांक 06 जनवरी, 2017 को क� गई । Sd/- Sd/- (सी. एन. �साद / C.N. Prasad ) (राजे�� / Rajendra) �याियक सद�य / JUDICIAL MEMBER लेखा लेखा सद�य सद�य / ACCOUNTANT MEMBER लेखा लेखा सद�य सद�य मुंबई Mumbai; �दनांकDated : 06.01.2017. Jv.Sr.PS. आदेश क� क� �ितिलिप �ितिलिप अ�ेिषत अ�ेिषत/Copy of the Order forwarded to : आदेश आदेश आदेश क� क� �ितिलिप �ितिलिप अ�ेिषत अ�ेिषत 1.Appellant /अपीलाथ�

2. Respondent /��यथ� 3.The concerned CIT(A)/संब� अपीलीय आयकर आयु�, 4.The concerned CIT /संब� आयकर आयु� 5.DR “E ” Bench, ITAT, Mumbai /िवभागीय �ितिनिध, खंडपीठ,आ.अ.�याया.मुंबई 6.Guard File/गाड� फाईल 4

4170-SABMiller