BALL BEVERAGE PACKAGING (INDIA) PVT LTD,NEW DELHI vs. ACIT CIRCLE-4(1), NEW DELHI

The assessee has taken the following grounds of appeal :-

First, we take up Revenue’s appeal being ITA No.6680/Del/2019.

Apropos issue of addition made on account of disallowances of Infrastructure development expenses to Rs.12,24,32,850/- which were considered by AO as Capital Expenditure : On this issue, AO noticed from the agreement of infrastructure development that the assessee has taken the property on the lease of 99 years, which was as good as ownership and expenses incurred on the development of this property should be capitalized. Accordingly, AO held expenditure of Rs.13,60,36,499/- as capital nature and its claim in profit and loss account was disallowed. AO further held that on capitalization of Rs.13,60,36,499/-, depreciation was allowed at the rate of 10% being land and building expenses. Accordingly, AO disallowed Rs.12,24,32,850/- after giving the benefit of depreciation @ 10%.

Against this order, assessee appealed before the ld. CIT (A). Ld. CIT (A) observed from the agreement of Infrastructure Development produced during appellate proceedings that assessee company entered into a separate infrastructure development agreement with Sri City Pvt. Ltd. to maintain common facilities and amenities outside the owned property of the assessee company. The AO took the property as owned by the assessee company but this is not the case here. He also observed

Against the aforesaid order, Revenue is in appeal before us. We have heard both the parties and perused the records.

The ld. DR for the Revenue relied upon the order of the Assessing Officer. 9. Ld. Counsel for the assessee submitted written submissions and his submission with respect to this ground is as under :- “(i) The facts in brief are that appellant company entered into the infrastructure development agreement with M/s Sri City (P) Limited on 27th November, 2017 (kindly see pages 77 to 86 of PB) to provide and maintenance of common facilities and amenities outside the leased property of Assessee Company used for its business/ factory. Such facilities are common and shared among other owners located in the DTZ (Domestic Tariff Zone) including the assessee company. In consideration of aforesaid common facilities and amenities, assessee company paid Rs.13,36,15,059/- to M/s Sri City (P) Limited. Refer 5 & 6680/Del./2019 clause 3.1 of aforesaid agreement place at page no.79 of paper book and debited to profit and loss account. (ii) It is most respectfully submitted that in the aforesaid agreement it was clearly mentioned that the assessee company shall get "Right to Access and Use" of the said common facilities and amenities. Agreement placed at page no.78 Clause C of the paper book. (iii) It is further submitted that under identical circumstances and with regards to the same developer, Hon’ble ITAT Mumbai in the case of Kellogg India (P) Ltd. vs. ACIT reported in 186 ITD 10 has decided the issue in favour of assessee and has held that “consideration paid for maintenance of common area will be revenue expenditure". Thus, the aforesaid issue is a covered issue and as such, it is prayed that the said expenditure be allowed as Revenue expenditure. Therefore, the finding of AO at page 3 of the order, that the said expenditure needs to be capitalized is misplaced in law and is based on misappreciation of facts. iv) Reliance is also placed on following case laws: • Empire Jute Co.vs CIT(SC) reported in 124 ITR 1. • L.H. Sugar Factory & Oil Mills (P.) Ltd. vs CIT (SC) reported in 125 ITR 293. v) Reliance is placed on the order of learned CIT (A) at page 3.

Upon careful consideration, we find that AO has erred in taking the property as ownership property of the assessee. Ld. CIT (A) has given a finding of fact that from the agreement of Infrastructure Development produced, assessee company entered into a separate infrastructure development agreement with Sri City Pvt. Ltd. to maintain common facilities and amenities outside the owned property of the assessee decision of Hon'ble Supreme Court in the case of L.H. Sugar Factory and Oil Mills Pvt. Ltd. (125 ITR 293) has followed its decision in the case of Lakshmiji Sugar Mill Co. Pvt. Ltd.. It is quite germane and supported the case of the assessee. Furthermore, Hon’ble Apex Court has observed that in a case where the advantage consists merely in facilitating the assessee's business operation or enabling management to conduct business in a more efficient manner, leaving the fixed capital untouched, then such expenditure would be on revenue account, even though the advantage may endure for an indefinite time. Furthermore, as submitted by ld. Counsel of the assessee, similar issue was decided in favour of the assessee in the case of Kellogg India (P) Ltd. vs. ACIT 186 ITD 10.

Apropos issue of addition on account of disallowance made u/s 40(a)(i) of the Income-tax Act, 1961 (for short 'the Act') of the Foreign Remittance (TDS u/s 195 not made) amounting to Rs.7,75,31,468/- : On this issue, during the course of assessment proceedings, AO noticed that various foreign outward remittances have been made by the assessee in respect of various heads like training charges, engineering services, installation charges, reimbursement of services etc. AO also noticed that certain payments have been noticed on which TDS not made. Vide note sheet entry dated 27.11.2017, the assessee was asked to submit copy of 15CA, 15CB and the invoice with the justification for TDS not made. The assessee has submitted copy of some invoices but not submitted/produced the Form 15CA and form 15CB. In these circumstances, the issue of applicability of TDS under the provisions of section 195 of the Act, could not be examined. When the assessee company was making TDS on the similar payments as per the details furnished by itself, then there appeared to be no reason for not making TDS on certain payments. AO held that the company was liable to make TDS which it failed to do and accordingly, it was being treated as assessee in default for not making TDS u/s 195 of the Act. As such, AO held that the payments made to foreign entities are liable to be disallowed. Accordingly, an amount of Rs.7,75,31,468/- (5,83,49,656 + 1,91,81,812) was disallowed u/s 40(a)(i) r.w.s. 195 of the Act and added back to the Income.

Assessee appealed before the ld. CIT (A) against the above order.

Against the aforesaid order, Revenue is in appeal before us. We have heard both the parties and perused the records.

The ld. DR for the Revenue relied upon the order of the Assessing Officer.

Ld. Counsel for the assessee submitted written submissions on this issue which reads as under :-

Upon careful consideration, we note that ld. CIT (A) has categorically found that the AO has not examined the applicability on TDS provisions based on the information available on record. He noted that the provisions of section 40(a)(i) of the Act requires to disallow the expenses on account of non-deduction of TDS on which tax is deductible at source under Chapter XVII-B. Ld. CIT (A) rightly observed that such provisions do not empower to disallow the expenses on non-availability of Form 15CA and CB. Accordingly, we find that ld. CIT (A) has taken a correct view in the matter. Moreover, ld. Counsel of the assessee placed reliance on the decision of Hon’ble Apex Court in the case of GE India Technology vs. CIT 327 ITR 456 which also supports the case of the assessee. Accordingly, we uphold the order of the ld. CIT (A) on this issue. foreign currency fluctuation amounting to Rs.6,18,30,027/- : AO notice that the assessee company has debited loss of Rs.13,03,12,998/- on account of foreign currency fluctuation. He further observed that foreign currency fluctuation has been divided in two categories, i.e. one is Revenue and the other is Capex. "Checking remarks for section 43A" were also mentioned in this chart. AO noticed that out of total 20 entries, 17 entries were categorized in Revenue and 12 entries were categorized in Capex. AO noticed that it means 9 entries were made in both Revenue and Capex in respect of a single transaction. He further observed that at certain places, there was gain whereas at certain places it was loss.

Against this order, assessee appealed before the ld. CIT (A). From the careful perusal of foreign currency fluctuation chart, ld. CIT (A) observed that the alleged addition of Rs. 6,18,30,027/- pertained to amount debited under the ledger account number 78707 and 78912. He further observed that from the perusal of each journal entry of ledger statement of aforesaid ledger account number, it was found that such ledger account was debited with the amount Rs.5,38,49,611 and Rs.79,80,416 respectively and credited with the ledger account number The net impact of foreign exchange fluctuation of Rs.6,18,30,027/- was NIL under the profit and loss statement. He further noticed that from the further perusal of audited financial statement and computation of income for the instant assessment year, assessee company debited foreign currency fluctuation expenses aggregate of Rs.8,61,36,000/- in the profit and loss account out of which assessee company itself disallowed the amount of Rs.5,95,19,000/- in consequent to the provision of section 43A of the Act and the assessee company claimed the net amount of Rs.2,66,17,000/- in the return of income. Therefore, it is unjustifiable to disallow the amount of Rs.6,18,30,027/- in excess of amount claimed under the return of income. In view of the above, ld. CIT (A) deleted the amount of Rs.6,18,30,027/- towards section 43A of the Act.

Against the aforesaid order, Revenue is in appeal before us. We have heard both the parties and perused the records.

The ld. DR for the Revenue relied upon the order of the Assessing Officer.

Ld. Counsel for the assessee submitted written submissions on this issue which reads as under :-

Upon careful consideration, we note that AO has erred in appreciating the facts and figures in this case. Ld. CIT (A) duly examined the issue and has found that the net impact of foreign exchange fluctuation of Rs.6,18,30,027/- was NIL under the profit and loss statement. This finding of ld. CIT (A) has not been disputed by the and we uphold the same.

Apropos Revenue’s Ground No.4 and assessee’s Ground No.1 & 2 on the issue of reducing the addition made on account of other expenses amounting to Rs.21,68,000/- to Rs.10,84,000/- particularly when the expenses are not fully verifiable : On this issue, AO observed that the amounts claimed under these expenses were neither fully vouched nor fully verifiable so it could not be said that expenses were wholly exclusively for business purposes. AO held that in order to cover up the leakage of Revenue on this account, it is considered appropriate that @2% of these expenses are to be disallowed. He held that this amount of addition is fair and reasonable, particularly in view of the order of the Hon'ble ITAT Delhi Bench in the case of Comet Handicraft Vs ACIT (2008) 114 TIJ 124 (Del. ITAT). Accordingly, AO disallowed 2% of Rs.10,84,00,000/- (expenses claimed under various eight heads mentioned above) i.e. Rs.21,68,000/- and added to the total income of the assessee.

Against this order, assessee appealed before the ld. CIT (A). On perusal of assessment order, Ld. CIT (A) observed that AO has pointed discrepancies in some expense invoices and disallowed the amount at the estimated rate of 2% of total expenses. It was brought to the notice of ld. CIT (A) that assessee company duly furnished most of the invoices

Upon careful consideration, we note that AO has made ad hoc disallowance of 2% of the total expenses without mentioning any specific defects. Ld. CIT (A) has appreciated that there was very little discrepancies to such expenses. However, he also sustained addition of 1% of total expenses. We note that assessee is a corporate entity and ad hoc disallowance of expenditure without pointing out any specific defect is not permissible. Hence, we set aside the orders of the authorities below and decide the issue in favour of the assessee. Accordingly, assessee’s grounds on this issue are allowed and the ground of Revenue on this issue is dismissed.

Apropos on the issue of addition on account of disallowance of legal expenses amounting to Rs.11,56,765/- which was related to plant (Capital Expenditure) : AO noticed that assessee has claimed Rs.197.61 lakhs on account of legal expenses in Profit and Loss Account. Assessee has submitted its details on 06.11.2017. On perusal of the details, AO noticed that assessee has paid Rs.90,47,068/- to Khaitan & Co. From disallowed Rs.11,56,765/- which was also related to the plant and the assessee was asked why the balance amount of Rs.11,56,765/- should not be disallowed. Assessee could not justify the claim by submitting any satisfactory reply. Therefore, AO disallowed Rs.11,56,765/- and added back to the income of the assessee.

Assessee appealed before the ld. CIT (A) against the above said order. Ld. CIT (A) observed that the amount of Rs.11,56,765/- charged towards drafting agreements, resolutions and rendering legal consultancy services relating to plant which was purely professional services in nature. On applying the ratio of judgment in the case of CIT vs. United Breweries Ltd. 36 DTR 80, ld. CIT (A) deleted the disallowance of Rs.11,56,765/- treating professional fee as capital expenditure.

The ld. DR for the Revenue relied upon the order of the Assessing Officer.

Ld. Counsel for the assessee submitted written submissions on this issue which reads as under :-

Upon careful consideration, we find that AO has erred in disallowing of Rs.11,56,765/- being legal expenses on account of plant acquisition. Ld. CIT (A) has given a finding that the amount of Rs.11,56,765/- was charged towards drafting agreements, resolutions and rendering legal consultancy services relating to plant which is purely professional services in nature. Ld. CIT (A) has rightly applied the judgment of CIT vs. United Breweries Ltd. 36 DTR 80. Hence, we find that the ld. CIT (A) has passed a reasonable order which does not require any interference on our part.