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Income Tax Appellate Tribunal, “G” BENCH, MUMBAI
Before: SHRI C. N. PRASAD, JM & SHRI RAJESH KUMAR, AM
आदेश / O R D E R PER RAJESH KUMAR, A. M: This appeal by the revenue is directed against the order dated 09.05.2014 of Commissioner of Income Tax (Appeals)-12, Mumbai (Hereinafter called as the CIT(A)) for assessment year 2010-11. The assessee has raised the following grounds of appeal:
(A.Y. 2010-11) DCIT Vs. M/s. Graviss Foods Pvt. Ltd. 1. “On the facts and circumstances of the case and in law, the ld. CIT(A) erred in deleting the disallowance of Rs.1,87,16,047/-, held as pre-operating expense for a “Mawa project” a new project unconnected with existing business as capital in nature and not deductible u/s 37(1) of the Act.”
“On the facts and circumstances of the case and in law, the ld. CIT(A) erred in considering the expenditure of Rs. 1,87,16,047/- incurred by the assessee on the MAWA project as expenditure incurred for expansion of the existing business of the assessee when it was totally a new business unconnected with the existing business.”
2. The common issue raised in the ground no. 1&2 relates to deletion of disallowance of Rs.1,87,16,047/- on account of pre-operating expense for a “Mawa Project”.
The brief facts of the case are that the assessee filed its return of income on 15.10.2010 declaring total loss of Rs.68,35,565/- which was revised on 07.03.2012 declaring a loss of Rs.50,63,639/- which was necessitated to declare the interest income of Rs.17,71,926/-. The book profit u/s 115JB of the Act was Rs.1,42,90,338/-. The case of the assessee selected for scrutiny and statutory notices u/s 142(1) and 143(2) were duly issued and served on the assessee. The assessee was engaged in the business of manufacturing and marketing of Ice- creams. During the course of assessment AO found that a sum of Rs. 1,87,16,047/-
(A.Y. 2010-11) DCIT Vs. M/s. Graviss Foods Pvt. Ltd. were charged to profit and loss account and the ld. AO came to the conclusion that the assessee had entered into a new field of business of producing and supplying of ‘khoa’ which is entirely different from the business activity carried on by the assessee and thus the issued the show cause notice to the assessee as why the expenditure of Rs. 1,87,16,047/- should not be disallowed as being pre-operating and pre-opening expenditure of capital in nature relating to “Mawa Project”. The ld. AO framed the assessment at Rs.1,36,52,408/- under the normal provisions of the Act and Rs.3,30,06,385/- u/s 115JB of the Act by disallowing the expenditure of Rs. 1,87,16,047/- vide order dated 10.09.2012 by rejecting the submissions of the assessee vide order dated 07.03.2012 on the ground that the expenditure was not incurred for day today running of the business activity and was incurred in connection with starting a new project Mawa and the expenditure were incurred for setting a new factory at Amritsar and thus not for the expansion and extension of business but altogether new business. The ld. CIT(A) allowed the appeal of the assessee by following the order of his predecessor in the assessment year 2009-10 by holding that a similar issue came up in assessment year 2009-10 which was decided in favour of the assessee.
ld. AR, at the outset, pointed out that the issue in the present appeal is covered in favour of the assessee by its own order in ITA No.1051/Mum/2013
(A.Y. 2010-11) DCIT Vs. M/s. Graviss Foods Pvt. Ltd. (A.Y. 2009-10) dated 28.8.2015 and therefore prayed that the appeal of the department be dismissed. Ld. DR was in agreement with the arguments advanced by the ld. AR on this issue.
We have heard the rival submissions and perused the material on record. In the case before us the issue is whether the expenses incurred by the assesee in connection with launching a new product “Mawa” were admissible u/s 37 of the Act. We find from the (A.Y.2009-2010) that a identical issue was decided in favour of the assessee by the co-ordinate bench where in the sum of Rs.1,27,20,969/-was held to be pre-operating expenses by the AO. The relevant paras (7-13) are extracted as under:-
We have heard both the parties and perused the orders of the 7. Revenue Authorities as well as the precedents cited by the Ld Representatives of both the parties. After hearing both the parties and perusal of the orders of the Revenue Authorities as well as the relevant material placed before us, our adjudication is given in the following paras.
Nature of Expenditure: we find that the expenditure in question undisputedly is of revenue nature. The same is evident from the nature of nominal accounts they are accounted in the records of the assessee. By no stretch of imagination the expenditure incurred on accounts of salaries, wages, marketing expenditure, professional fee, travelling etc falls in the capital fields but for the alleged preoperative nature of the claim. Therefore, we have no doubt to treat the impugned expenditure as allowable revenue but for the allegation of the AO. No expenditure incurred on acquisition of the capital assets such as plant and machinery, land and building, technical know-how etc., is included in the expenditure claimed by the assessee.
(A.Y. 2010-11) DCIT Vs. M/s. Graviss Foods Pvt. Ltd. 9. New product vs New business: Memorandum of Association of the assessee provides for the following main object of the business of the assessee and the same reads as under:
“…to produce or cause to be produced, buy, process, grade, pack, store and sell milk products and ice-cream” 9.1. From the above it is evident that the assessee is engaged in the manufacture of the dairy/milk products, ice creams etc. Accordingly, the manufacture of product of the assessee does not stop with the ice-creams only. Assessee manufactures the ice-creams for the Baskin Robbins for making and marketing in India. The milk is an important raw material for the manufacture of the ice-creams. The expression 'milk product' is a generic expression and in our opinion, the said expression covers all kinds of milk products. Ice creams are made up of the milk or the cream. Both the milk and the cream are the dairy products.
9.2. In the context of ice-creams, a milk-product the Cream is a dairy product composed of the higher-butterfat layer skimmed from the top of milk before homogenization. Cream being of the less dense, the same is gathered on the top of the dense milk. Therefore, it is not proper for Ld DR to argue that the ice-creams of the Baskin Robbins Brands are not the milk products.
Now what is the nature of the 'Mawa'? Is it a milk product or not and if fails in the scope of the assessee's business of not. The undisputed facts include that the 'Mawa' is made up of the milk product and therefore, it is a dairy product and they same is covered within the scope of the declared business of the assessee. We have considered the Ld DRs argument is the preoperative expenditure incurred before a new product is launched constitutes a new business and reject the same.
Interlacing of the accounts, management and control: It is a settled proposition in law that so long as there exists the interlacing of the control & management, interlacing of the accounts etc, no new business is said to have been set up. In the instant case, none of these tests are cleared. AO has not made out that the Mawa division is entirely separate from the points of the above and it is unconnected to the 'ice-cream divisions. Actually, both these divisions are under the same management-control and are financially interconnected. In that sense, the CIT(A) has not applied his mind to the said settled legal propositions.
(A.Y. 2010-11) DCIT Vs. M/s. Graviss Foods Pvt. Ltd.
Aborted Expenditure: Further, it is a decided issues legally that the capital expenditure incurred on the 'capital assets' of a aborted project is not an allowable expenditure. However, the 'revenue expenditure' such as the salaries, wages, travelling, rent etc of an aborted project is an allowable expenditure.
Therefore, the ice-cream and the Mawa fall in the genus of the dairy/milk products and they are covered by the nature of declared business of the assessee. As such, the impugned expenditure claimed by the assessee does not include any expenditure of capital nature. The 'control and management, accounts, CEOs for both the dairy/milk products is one and the same. AD has not made out the absence of interlacing of the above. Under the factual matrix of the case, we find the claim of the assessee is allowable. Accordingly, the AO is directed to delete the addition. The order of the CIT (A) is thus, affirmed.
We, therefore, following the decision of the co-ordinate bench dismiss the appeal the revenue.
In the result, the Revenue’s appeal is dismissed. Order pronounced in the open court on 10th February, 2016