Karnataka High Court
The Commissioner Of Income Tax vs M/S Brindavan Beverages (Pvt) Ltd on 6 October, 2010
Bench: K.L.Manjunath, B.Manohar
TWVV 1 _ IN THE HIGH COURT OF KARNATAKA AT BANGALORE DATED THIS THE 06TH DAY or OCTOBER. 2010 PRESENT THE HON'BLE MRJUSTICE K.L.MANJUNETt': Q ~. AND . TI-IE I-ION'BLE MR.JUST1eEA»B...MAz§ioTi;§T§'F" ITA.No.430 01+' ::«zoo?_iL_i * 'iv 9 'V 9' BETWEEN: 9 2 V' 1. The Commissioner of Income--Tax_,' C.R.B-uilding, ' ' ' Queens Road, Bangalore. 2. The Deputy '€.omm§:ssioner of income--TaX Assessments. 9' ' ' Speeial7Range-4, C.R.}3ui1ding, V " »-- " Queens Roar'3,VV V. Bangalore. " ~ V A?PELLAN'1'S 9' A I3. Indrakumar, Adv.) M / S.B':--'€n.d.avan" Beverages (P) Ltd.. _ i\.¥_Q.44/ 1; Kodigehalli Gate, 9' " p '*-Beilary Road. Bangal"ere--1. RESPONDENT
A.Shankar and Sri M.Lava, Advs.) =!=** This I.T.A. is filed under Section. 260A of the income Tax Act, 1961 arising out of order dated 25.2.2004 passed in ITA No.861/Bang/1996 for the assessment year 1993-94 praying we Wgm that his Hon'ble Court may be pleased to {1} formulate the substantial questions of law stated therein; {ii} allow the appeal and set aside the orders passed by the Income TaX..AppeIlate Tribunal, Bangalore, in ITA No.861 /Bang/1996 d.t,2;5..2;-f»3{)O-£1 confirming the order of the Appellate Commissioner and the order passed by the Deputy Commissioner_of-lnconie Taxa Assessments, Special Range--4.~, Bangal_o.r.e,__etc._--" "
This appeal coming on for Heaiing;'tlié*s J., delivered the following:-- g 5 The revenue has come up;iinuthisluappealllchallehging the concurrent findings of the Commissioner of Income Tax by the Income Tax Appellate. No.861/BANG/96 dated is-3 pertaining to the assessment year 1993-94.! » _ V2. ffjhe facts leading to this case are as hereunder:
assessee isthe company registered under the provisions of 1956. The assessee is engaged in the business of vihanufacturing of soft beverages. For the :'"v4."'assesus_rnent ll year 1993-94, the assessee filed the return of i_ncolmc--A"ldeclaring loss. On 30.03.1993, the premises of the 3 'assessee as well as its Directors was searched and certain it "incriminate documents were seized during the course of search.
6/ The matter was taken up for assessment. The Assessingflfficer noticed that the books of accounts of the assess.ee¥~co1np.any disclosed that it had received an approximate ambuntiofl lakhs as 'Security Deposit' from seine» of 'Lethejtldvistltibtitolrs towards wooden crates and bottles. 'Tho-ugglh there s--e"verVa'l._ distributors to the assessee--con1pany; t1*1e_"vrey=eniie' has' entertained a doubt in regard,-to distributors on the ground that they are all 4l1'ictitios1,1s iipersons 'and also on the ground that somepof .1_;herz:i'llare'~rc1ati:yes of Directors of the assessee~compariy..__ .__t__hem'---'ar:e_' retired employees of the assessee--con1p_any'and ,some._:of them_ are employees. Based on the Same,?._the amouritoflakhs s received under the head 'S'eg,j4ul1*ityl" was treated as income of the passesseelv *.Simila1'ly:,i the Assessing Officer has deleted the IA'~.expendit11_re~A.claimed by the appellant under the head 'bottle to Rs.3.98,012/-- and also a sum of .Rs.4,37'25"i'..1 /--*w.1g§aww=&s-claimed as depreciation on account of it 'd.a'ne:ag_e caused to the wooden crates and cost of repairs. Accordingly, these depreciation were not accepted and they were mtrieated to be the capital expenditure and the same was "disallowed. An order of assessment came to be passed on 07.03.1996.
3. Aggrieved by the order of assessment, the assesseefiled an appeal before the Commissioner of Income Tax short, CITIAJI allowed the claim of the assessee'V_A'_:m.VV to, addition of Rs.90 lakhs under theghihead' towards bottles and wooden crates and so alsoithe 'ar1i'o1int"g claimed under the bottle breakage's»ai1d darfzalglecausedfllto the I Wooden crates in a sum. 'sofa Accordingly, the appeal filed by the assessee by order dated 21.06.1996. Being:..a'gg1-ieved thevt".erd_e_r,i'ef the cm 1, the revenue filed Income Tax Appellate Tribunal appeal also came to be dismissed '-orderd"dated.:25;O2.2004. Aggrieved by the Concurrent findings of [A] and ITAT, the present appeal by theVV"'"r"e\VIenue raising the following three stxbstantialvqnestions of law:
:WheVther the Appellate Authorities were correct in AA that the finding of the Assessing Officer that a _ of Rs.90,00, 000/ -- cannot be treated as the income ofddthe assessee despite the finding recorded that the distributors were fictitious and the deposits were mere book entries as admitted by Sri S.N.Ladhani the Director of the assessee on mere coryectures and ('V and the learned Counsel Mr.Shankar for surmises and consequently recorded a perverse finding? '
2. Whether the Appellate Authorities were ~ holding that a sum of Rs.3,98,012/~ the be assessee towards "Bottle breakageillonv an g_ that the same was an allowcibglei'-.deduction*~ as bottles usually break while:uJashing',~filling there being any cogent evidence consequently, recorded a perverse j'in_ding?'W "
3. Whether the jazlere correct in holding that sumflof ~ llgtoiwards wooden crates repo,irsii_v_ is " an allowable deduction on the assumption'::..tl:iat manufactured out of jungle c'h.ea-p wood and therefore require frequent repairs A:_:witho_tlt«. there being any evidence to support"-s_Vuc'vhV a__ cE.aim.~~iiland consequently recorded a peroerse V 'We ~,heard the learned Senior Counsel Mr.Indra l the assessee;
" The contention of the revenue is that the findings of «--.faeitsVin:iegard to rejection of the claim of the assessee in a sum it lakhs under the head 'Security Deposit' towards bottle 67"
_ 5 _ from eight distributors passed by the Assessing Officer has been erroneously reversed by the CYI' (A) and further con4firiii.e_d~i.vby ITAT. According to him, the assessee has got distributors and all of them have V qfurnish.ed'"' the 'V'$e'c.uri.ty" "
Deposit' towards bottles and wooden'»._cra._tes§' T.heA.re-veiliue has accepted the returns filed by<the_q assaesseeVirrviregardm deposit made by most of distributors' e2rcept"eight distributors on the ground that those not at all doing any business and__that kins of the Directors of the of them are retired employees and'. sigfqg of are' ernployees. Therefore, the amount in the 'Security Deposit' towards botties is fictitious" and that the findings of the __Assess.i}ng Officer"is._ybased on facts and therefore the CITIA} and r1ot'«--.have reversed the well reasoned order of the Assessing""C5fficery§".ln the circumstances, he requests the Court if to allow theappeal so far as substantial question No.1 is if " V . ' '''coriee1_*iied;'' regard to substantial question No.2 is concerned' he 'contends that when no material is placed to show that really if " " "there was breakage of bottles, the deduction claimed under the H said head in a sum of Rs.3,98,012/-- has been wrongly clairned by the assessee. Therefore, the CITU-\) and ETA"? have cornrnitted an error in not considering the order passed by the As--s'e*ssi1'ig' Officer. Similarly, he contends that _the "":i!'1}:l'etio'ii.p -of Rs.4,37,571/~» in respect of damage cause~:1' the_Wo:odeii::"crates and repairs has also been wrongly set' asidev:"byv...the..3 authorities even though the assessee in regard to the repairs of to be taken into account under the,headv,Ca.pitalV-.t 'not as revenue expenditure. the Court to answer the flaw in favour of the revenue, ' ...
7. Per lcpontra,' lea1'n:ed_:T'Counsel for the respondent Mr.Shan~lr.ar conte,nds.vthat Assessing Officer did not record a findm'g- vvith regard distributors. who have deposited Security Deposit, that they did not have any Atiransactifoni with the assessee during the relevant ~-t«3.fjv»~'«._assessment'3~ year. According to him, they are the major if distri.bu'tors of the assessee and those distributors are assessed and the books of accounts maintained by the assessee tV""i».__4'4§;v0uld disclose the total supply of beverages to these eight 6/ distributors which also disclose the total turnover madeby the assessee from those eight distributors and consideringthertotal turnover from these eight distributors, the "
lakhs paid as Security Deposit could' lnot hflaige the Assessing Officer. He further that,ir1.res'p;ec-tjlofu explanation called for by the'«._:r'evenue,~.. tlieifasdsesseel has' furnished in detail the ,.-nature"'oi"g_:tra'nsaction'wbetiveen the assessee and those 'it has also been brought to the notice of all those eight distributors are' and vvhether the amount of Rs.9O has been reflected in the books._0f 'eight distributors could have been cross-ciieckedllor by the Assessing Officer or by the __departn{1ent.in orlderfito find out whether they have paid Rs.9O as Deposit or not. Without verifying the books of aclcounts distributors. only on the ground that V some of thern'are relatives of Directors of the assessee--company some'oi" them are retired employees of the company and them are employees of the company, the Assessing Officer could not have added Rs.90 lakhs as an income of the assesses during the relevant assessment year. He further contends that if a distribution is given to the relatives of the <2"
Directors of the assessee~company or to the retired employees or to the employees, it is not for the revenue to contend ..tl1at-.tl*iere was no real transaction between the assessee and eight distributors, which could have been cross_~fchee'ked'* A' ~ the Assessing Officer by looking into the busi'ne'ssl the assessee and also that of eight«..distributors. flnlilieflabsence: * of non~verification of books tlibse eight distributors, who are also;:..as-sesseesvlthe Inclorne Tax Act. the findings of thegV_Assessing_ considered as perverse and not of records. In the circumstance-Silhe that CIT[A] as well as ITAT are held be
8. lle_vlastl1ay~ con.te'nde=_ that Rs.90 lakhs paid as Secursity it VD.epos'it'is;g_a.g question offact and the same cannot be considered 'as: 'questiotri* law and that when both the Appellate Authorities.havetzconcurrently held that the Security Deposits are made by those eight distributors, the same cannot be by the revenue as a question of law. He further ____"e'ontends that in regard to bottle breakage is concerned, the very g tttsanie Assessing Officer for the previous year has accepted the same as allowable deduction. Therefore, the findings of the CV __ .._ CIT[A] and ITAT cannot be reversed by this Court without there being any valid reason. He also contends that in regard:'tol'eost of repairs to wooden crates are concerned, it is-'ta d'ay[f'to-iiay~--. expenditure incurred by an assessee who'--:i_n.d'u]g"ed an manufacturing of beverages. Accord'ing"to--t' him,-.they" "file revenue expenditure incurred everyday and the isVa'1'n:e...cVan_not beg' treated as a capital expenditure as and the wooden crates are damaged, it J--requiites which the assessee cannot circumstances, he requests holding the substantial questio;ns o1"law':."_raised the revenue against the appellant,
9. HaVing.__heard' learned Counsel for the parties and vphavingjpperused passed by the CIT(A) and ITAT, we are gjofh tlieppopvinoonpvzthat the substantial questions of law raised in this V'a.ppeal«V"_'are~:;.t'o. be answered against the revenue for the .following reasons:
" 'Tar as substantial question No.1 is concerned, .'_p1ad'1Vnitted1y, pursuant to an enquiry made by the revenue, a udreplly was sent by the assessee on 24.05.1994, wherein it is it it x stated those eight distributors are not benamis of the assessee <3' _. M and the business of each distributor is an independententity controlled by its Proprietors / Partners and the income--<ea-rriegd those distributors are absolutely enjoyed by .the Proprietors/Partners. He further st_ates__that deposit collected from the dealers crates held by them, credit facility"enjoye'd and ot:he*r_:evq1,1ipmen'ti . it like bottle coolers, ice boxes, V€hlQ1t§:Sv,3;.1'}~Ql othe1"-sales_;promo1:ing assets held by them.
11. From the above, it clear assessee has made a categorical state-ii1eritL_-.jthatA the incojine learned by those eight distributorsllllareiivfenjoyed_:b'5r_' themllllonly and the quantum of deposit would vary' upon the actual business of each of the distrii;5utor-. again on 24.01.1996, the assessee "Viias the det'ai'ls of income tax returns filed by those "_fI"hese facts are not in dispute. If the eight distributorsyare considered as benamis of the assessee by the revenue; all fairness, it was for the revenue to find out vzthetheij. really those eight distributors have done the business their individual name and whether the assessee has supplied ullthe beverages to those eight distributors and if it is supplied, what is the total quantity of beverages supplied by the assessee 6/ M12.
and the total turnover in that particular year, in order _.to find out Whether those eight distributors could pay a' Deposit of Rs.90 lakhs as contended by the assess-ce are assessed to tax and in the books pofaccoun"ts" .eig.tf1tu distributors, the amount of £25.90 laig_hs::'is.. head Security Deposit towardssbottleshand wooden vcrates, case of the revenue cannot be atllailg the revenue had considered these order collecting information from those regard to their business, then havetltaceepted the arguments advanced by: Cpunsel Mr.Indra Kumar.
Admittedly, " than 100 distributors to the assessee--con'ip_any. V°T_hle,'reve_nue accepted the Security Deposit _ in respect of all th-eydistributors except these eight distributors accoun:t.Aof_the1r closeness to the company. But there is no prchibitiori the law that an assessee--company cannot give its distribi.%'ti'on:"'either to the relatives of the Directors or to its it retired enipioyees or to its employees. If the company is of the 4"op;nion..dAthat those persons are capable of doing business and aregetung better turnover to an assessee, it is always open for the company to give distribution to any person of its choice. Therefore, this Court cannot accept the arguments advanced by CV _13W the learned Counsel for the appellant and in view ___of the concurrent findings of CIT(A} and ITAT, we have no_.reaso'n.vv to interfere with the said findings and according question whether there is a deposit of the head Security Deposit towards bottles and of fact and not a question of lavf. this stage, 1Jfeaifue.dVVcounse1 * appearing for the assessee that llforlithle stibsequent years, the deposit of has been accepted by the revenue. revenue for the subsequent to consider the first substantial really the revenue has acceptedilithe. of "those 8 distributors with the assessee--coihpany, then ityixiould only improve the case of the _ V assesseef in bottle breakage is concerned, whenever the the business by the assesseewcompany, in l the usual fireanand tear either while transporting or washing or filling, thevbottles are bound to break and the bottle breakage A ehargesl.~'are treated as allowable deduction for the earlier years also for the later years of the assesseewcompany and " .. «therefore without assigning any reason, the Assessing Officer <°»/ ..]_4....
could not have added an amount of Rs.3,98,012/-- under the said head. In the circumstances, the said question isvaispeheld against the revenue.
13. So far as the last substantial question .. cost of repairs to wooden crates has tp be..tai§:ei1bun'd'er' the thread capital asset or revenue expenditure is3_cOncerne'd; the régpairs', cannot be treated as a capital assetsince as and when these a wooden crates are br0ken"'whi1_e using .the. said crates in the business of the assesseefiompanjr, rre.pa'irs_.7~ are bound to happen. Ali these"'repairs afre--V.V*treat:ed."'as....15eVenue expenditure and cannot b'e§rtreate'd _as_' capital expenditure. In the circumstances; theVVsaidV_<ji:.es'ti0n is also answered against the revenue. _ 1'e_su1t,a the------appea1 is dismissed. Sd/-
Judge Sd/-.
Fudge