Income Tax Appellate Tribunal - Mumbai
General Mills India P. Ld, Mumbai vs Addl Cit 10(2), Mumbai on 14 June, 2017
IN THE INCOME TAX APPELLATE TRIBUNAL "G" BENCH, MUMBAI
BEFORE SRI MAHAVIR SINGH, JM AND SRI RAJESH KUMAR, AM
ITA No. 3730/Mum/2011
(A.Y:2004-05)
General Mills India Pvt. Ltd. Addl. Commissioner of Income Tax,
902 Ventura Hiranandani Circle 10(2)
Business Park, Hiranandani Vs. Aayakar Bhavan, MK Marg
Gardens, Powai Mumbai-20
Mumbai-400 076
Appellant .. Respondent
PAN No. AAACG1773B
Assessee by .. S/Shri JD Mistry & Jitendra
Suvagia, AR
Revenue by .. Shri Vidisha Kalra, CIT DR
Date of hearing .. 22-03-2017
Date of pronouncement .. 14-06-2017
ORDER
PER MAHAVIR SINGH, JM:
This appeal by the assessee is arising out of the order of CIT(A)-21, Mumbai, in appeal No. CIT(A)-VI/Addl.CIT10(2)/Tr.195/07-08, CIT(A) X/IT/451/2006-07, CIT(A) 21/IT/44/2009-10 dated 11-02-2011. The Assessment was framed by Addl. CIT Circle-10(2), Mumbai for the A.Y. 2004-05 vide order dated 15-12-2006 under section 143(3) of the Income Tax Act, 1961 (hereinafter 'the Act').
2. The first two inter-connected issues i.e. write off non-compete fees and write off goodwill are as regards to disallowance of non-compete fee and goodwill by AO and confirmed by CIT(A). For this assessee has raised following grounds: -
"Write off Non-compete fees
1. The learned CIT(A) has erred in upholding the disallowance of write off of non-compete fees of Rs.13,70,50,000/-.ITA No.3730/Mum/2011
General Mills India P vt. Ltd. AY: 04-05
2. Without prejudice to the above, the CIT(A) should have directed to grant depreciation on the same.
Write off of goodwill
3. The learned CIT(A) had erred in upholding the disallowance of write off of goodwill of Rs. 15,15,12,500/-.
4. Without prejudice to the above, the CIT(A) should have directed to grant depreciation on the same."
3. At the outset, the learned Counsel for the assessee filed a petition dated 10-03-2017, whereby it was requested for admission of additional evidences. The relevant additional evidences filled by assessee reads as under: -
"1.2 During the course of proceedings before the AO and CIT(A), the appellant submitted the non-compete agreement and Shareholder's agreement, stating the terms for the joint venture. However, the agreements pertaining to the termination of the said joint venture could not be submitted during the said proceedings as the same could not be traced by the then staff of the Appellant.
1.3 In order to decide the issue in this ground, it is crucial to appreciate the status of the joint venture at the relevant time. Therefore, in order to substantiate the fact of termination of the joint venture and the terms, we would like to submit the following:
a) Copy of share sale and purchase agreement relating to Godrej Pillsbury Limited dated 30 September 2001.
b) Copy of settlement and release agreement dated 30 September 2001.Page 2 of 14 ITA No.3730/Mum/2011
General Mills India P vt. Ltd. AY: 04-05 2.2 During the course of proceedings before the AO and CIT(A),the appellant submitted the relevant extracts of the Business sale and purchase agreement entered into between Godrej Pillsobury Private Limited and Selviac Nederland BV. However, the complete agreement could not be submitted.
2.3 Therefore, in order to substantiate the generational / existence of goodwill, we would like to submit the complete copy of Business Sale and Purchase agreement entered into between Godrej Foods Limited and Godrej Pillsbury Private Limited and Selviac Nederland BV dated 19 February 1996.
2.4 The above documents are essential and vital for deciding the dispute regarding the disallowance made in goodwill and dispensing substantial justice to the appellant. Hence, the appellant prays that the same be admitted and taken on record."
4. In view of the above, the learned Counsel for the assessee only requested that in case this evidences are admitted, the matter has to go back to the file of the AO for deciding the issue afresh. On the other hand, the learned CIT DR Miss Vidisha Kalra however strongly objected the admission of additional evidences for the reason that the reasons given by assessee are very casual and general in nature. She referred to Para 1.2 of assessee letter dated 10-03-2017 and argued that whatever the efforts made and which was the staff involved in the process has not been elaborated. According to her, there is no contemporary evidence / documents in the case to substantiate the claim of the assessee before the Tribunal. The learned Counsel for the assessee, in respect to learned CIT DR objection stated that the AO himself in Para 1.16 at Page 12 and 13 of assessment order squarely disallowed on the basis that the assessee failed to Page 3 of 14 ITA No.3730/Mum/2011 General Mills India P vt. Ltd. AY: 04-05 provide any evidences that said non-compete fee agreement is still subsisting as on 01-04-2003. According to the learned Counsel, this is the agreement which is produce before Tribunal for the first time.
5. We have gone through the facts of the case and the evidences produce before us i.e. the copy of shares sale and purchase agreement relating to Godrej Pillsbury limited dated 30th September 2001 and consequently as regards to the disallowance of write off of goodwill. The copy of settlement and release agreement dated 30th September 2001 was also perused. According to us, these are vital documents to be considered for deciding the issue, since the issue has not been examined by the lower authorities. In view of the above discussion and facts of the case we admitted the additional evidences and remand the matter back to the file of the AO for fresh adjudication after considering these agreements on both the issues. On these two inter connected issues the orders of lower authorities are set aside and the matter is remanded back to the file of the AO.
6. The next issue in the appeal of the assessee is as regards as to the order of CIT(A) confirming the disallowance of software expenses of Rs. 16,92,750/-.
7. We have heard the rival contentions and gone through the facts and circumstances of the case. Facts of the case are that the assessee claimed total software expenses at Rs.20.72 lakhs. The AO during the assessment proceedings noted that out of the above expenses on account of software, a sum of Rs. 57,750/- paid to Kankei Relationship Marketing Services (P) Ltd. The bill is dated 31-03-2003, hence, cannot be allowed in this year. In respect to payment of Rs. 9,03,000/- to Thirdware Solutiosn Limited the AO held that the same was for purchase of new software which includes migration cost to better software including new module and fixed asset module, which is capital in nature. In respect of another payment of Rs. 1,16,100/-to Sify Limited, the AO held that the same pertains to upgrading of services from 64K to 256K port charges and therefore cannot be equated to normal repairs and hence, held the same to be capital in nature. Accordingly, AO disallowed the total payment of Rs. 10,42,200/-. Aggrieved assessee preferred the appeal before CIT(A), who allowed the payment of Rs. 1,16,100/- to Sify Limited as Revenue expenditure Page 4 of 14 ITA No.3730/Mum/2011 General Mills India P vt. Ltd. AY: 04-05 but disallowed the payment of Rs. 9,03,000/- to Thridware Solutions Limited and Rs. 57,750/- to Kankei Relationship Marketing Services (P) Ltd. by observing in Para 5.3 as under: -
"5.3 1 have considered the facts of the case. In respect of payment of Rs. 57,750/ the bill was dated 31-03-2003 and it was pertaining to AY 2003-04. The disallowance made by the AO 1s upheld, since the same was prior period expenses. In respect of payment of Rs.9,03,000/-, as per the details mentioned on page 18 of the assessment order, the expenditure in respect of software expenses, migration cost, implementation of software etc., the entire expenditure was pertaining to software and its implementation or migration. Therefore, the expenditure was admittedly capital expenditure since the appellant obtained benefit of enduring nature by purchase of such software."
Aggrieved, now assessee is in second appeal before Tribunal.
8. We have heard the rival contentions and gone through the facts and circumstances of the case. We find that the CIT(A) as well as AO both authorities admitted that the expenditure is in respect of software expenses i.e. migration cost and implementation of software and this entire expenditure pertains to implementation of migration of software. We find that the said software expenditure was incurred for obtaining licenses for the use of the aforesaid software and since all this software are essentially in the nature of application software, the expenditure incurred is revenue in nature as the same only facilitates the day to day operations of the assessee. In the given facts of the case since the software expenditure does not result in enduring benefit as the life of the application software is invariably short and the same is bound to become technically obsolete very fast, it should be allowed under section 37 of the Act as a revenue expenditure and not treated as capital expenditure as held by the AO and CIT(A). In support of the assessee's proposition the learned counsel for the Page 5 of 14 ITA No.3730/Mum/2011 General Mills India P vt. Ltd. AY: 04-05 assessee relied on a number of judicial decisions of the Tribunal including the following decision of the co-ordinate bench of this Tribunal in the following cases :
"(i) IBM India Ltd. v. CIT [2007] 105 ITD 1 (Bang.).
(ii) Software & Silicon Systems India (P.) Ltd. v. ITO [IT Appeal No.44/Bang./2006].
The learned counsel for the assessee also relied on the decision of the Special Bench of the Delhi Tribunal in the case of Amway India Enterprises v. Dy. CIT [2008] 111 ITD 112."
In view of the above, we are of the view that this expenditure is Revenue in nature and hence liable to be allowed excluding the amount of Rs. 57,750/- which pertains to earlier year. This issue of the assessee's appeal is partly allowed.
9. The next inter-connected issue regarding disallowance of interview expenses, legal fee and another legal fee (others) and management consultancy fee amounting to Rs. 6,58,915/-, 9.30 lakhs Rs.6,88,708/- and Rs.37,31,685/- respectively confirmed by CIT(A). These issues are raised by way of ground No. 6 to 9 as under: -
Disallowance of interview expenses
6. The learned CIT(A) has erred in upholding the disallowance of interview expenses of Rs.
6,58,915/-
Disallowance of legal fees
7. The learned CIT(A) has erred in upholding the disallowance of legal fees of Rs 9,30,000.
Disallowance of legal fees (others)
8. The learned CIT(A) has erred in upholding the disallowance of legal fees (others) of Rs 6,88, 708.
Page 6 of 14 ITA No.3730/Mum/2011General Mills India P vt. Ltd. AY: 04-05 Disallowance of management consultancy fees
9. The learned CIT(A) has erred in upholding the disallowance of management consultancy fees of Rs 37,31,685 paid to General Mills Marketing Inc."
10. At the outset, the learned Counsel for the assessee filed additional evidences on account of interview expenses, legal fee paid and management consultancy fee and also legal fee (others), and requested that these evidences are vital for adjudication of the issue because these could not be produced before the lower authorities due to loss of files and documents in July 2005 floods but now gathered these from other parties and now produced before Tribunal. As these evidences are vital and significant bearing on the issues and hence, are really required for adjudication of the issues. Accordingly, we admit these evidences and remand the matter back to the file of the AO for all these issues. Accordingly, these issues of assessee's appeal are allowed for statistical purposes.
11. The next issue in this appeal of assessee is against the order of CIT(A) confirming the action of the AO in upholding the disallowance of settlement award paid to co-brokers M/s Sitashree Food Products Private Limited. For this assessee has raised following ground:-
"10. The learned CIT(A) has erred in upholding the disallowance of settlement award of Rs 1,60,14,908 paid to the Appellant's co-packers M/s Sitashree Food Products Private Limited."
12. Briefly stated facts are that the assessee during the year under consideration claimed settlement of dispute in lieu of arbitration award at Rs. 1,60,14,908/-. The AO on perusal of chart of written off amounts notice the following items: -
a) Extraordinary expenses written off Rs. l,10,00,000
b) Debtors written off Rs. 12,50,056
c) SFPL Wan Settlement Rs. 1,00,000
d) Travel & Legal Expenses Rs. 6,02,777 Page 7 of 14 ITA No.3730/Mum/2011 General Mills India P vt. Ltd. AY: 04-05
e) R.M. & P.M. settlement Rs. 10,55,848
f) loss on sale of asset Rs. 20,06,227 Rs. 1 60, 14,908 Finally, after going through the arbitration award dated 11th August 2004 disallowed the claim has not pertaining to assessment year under consideration i.e. AY 2004-05 by observing in Para 11.9 which reads as under: -
"11.9 is per the minutes dated 11.08.2004. it was decided to prepare award in terms of Minutes dated 03.03.2004 as varied by Minutes dated 30.07.2004. And thus Award was passed by the Ld. Arbitrators on 11.08.2004. Since the Award is passed on 11.08.2004 the question of allowability of Rs 1.60 crore does not pertain to A.Y.2004-05. Details and nature of such expenses was also not furnished by assessee. So, the said provision of said sum of Ps. 1.60 crore is disallowed in A.Y.2004-05"
Aggrieved preferred the appeal before CIT(A).
14. The CIT(A) also confirmed the action of the AO vide Para 12.13 as under: -
12.3 1 have considered the facts of the case. The appellant was in the business of manufacturing of flour and other food products. M/s Sitashree Food Products Ltd., was its co-packers to whom the appellant provided Plant & Machinery, loans and other facilities. The dispute arose between two parties. A Minutes of Meeting was held between the appellant and M/s. Sitashree Foods on 3 March, 2004. As per Minutes, the appellant was to pay to M/s. Sitashree Foods a sum of Rs. 1.10 crore by way of bankers cheque/draft payable at Indore, as and by way of full and final settlement of all outstanding amounts due and claimed by way of final settlement. As per clause (2) of Minutes, M/S. Sitashree Foods was to refund to appellant, the outstanding loans, towards Page 8 of 14 ITA No.3730/Mum/2011 General Mills India P vt. Ltd. AY: 04-05 construction of and working capital and Sitashree was also required to return Plant & Machinery to the appellant. As per clause (7) of the Minutes, MIs.
Sitashree Foods and appellant will complete all the requirements and. formalities on or before 31 .03.2004 or such other dates as the party may mutually decide. in the event of any of the requirements/ formalities, not being completed by such date, either party may approach the Arbitrator to recommend the Arbitration proceedings. An appropriate consent order being sought from the Arbitration Tribunal in terms of these minutes. During appellate proceedings, the appellant has filed copy of the Minutes of Meeting held on 3 March, 2004, consisting three pages only. The entire terms' and conditions of the said meeting have not. been furnished. The appellant also filed copy of Arbitration Award of the Tribunal Comprising of-
(i) The Hon'ble Mr. Justice. SP. Bharucha (Presiding Arbitrator) (Former Chief Justice of India)
(ii) The Hon'ble Mr. Justice C S Dharmadhikari (Retd) (iii') Mr. Ashok Modi The Award given was as under:-
AWARD "Learned Counsel tender the Minutes of the tiny held between the parties and their advacates on 3rd March, 2004. They also tender a copy of similar Minutes of 30" July, 2004, the original of which is already on record. They also tender two receipts, one signed on behalf of' the Claimant and the other on behalf of the Respondent. Learned Counsel pray for Tan award in terms of' Page 9 of 14 ITA No.3730/Mum/2011 General Mills India P vt. Ltd. AY: 04-05 the Minutes of 3rd March, 2004 as varied by the Minutes of 30th July,.2004, read -with the two receipts.
The two Minutes and the two receipts are taken on record.
There shall be an award in terms of the Minutes of 3rd March, 2004 as varied by the Minutes of 30 July, 2004, read with the two receipts.
There shall be no order as to costs.
Signed in duplicate at Mumbai on 11th August 2004.
From the above Award, i1 is believed that the Minutes of 3rd March 2004, were further modified by Minutes dated 3r6 July, 2004. Thus the terms of the Minutes of 3d March 2004, did not become final in itself. The terms and conditions became enforceable only on grant of Award dated 11.08.2004. In the facts and circumstances, any liability on account of this Award was enforceable in the previous year 2004-05, pertaining to A.Y. 2005-06 and not in the year under consideration. In the facts and circumstances, the AO was justified in holding that the liability for expenses/ if any had crystalized on account of Minutes dated 3.03.2004, which was further modified by Minutes dated 30.07.2004 and had been legalized by Award dated 11.0-8.'200-1 and thus, the claim pertaining to A.Y.2004-05. The disallowance made by the AO is, therefore, upheld. This ground of appeal is, therefore, dismissed."
Aggrieved, now assessee is in second appeal before Tribunal.
13. We have heard the rival contentions and gone through the facts and circumstances of the case. We find from the facts of the case that the Arbitral Page 10 of 14 ITA No.3730/Mum/2011 General Mills India P vt. Ltd. AY: 04-05 Tribunal vide its minutes of meeting held on 03rd March 2004 and settlement award by confirming the consent terms arrived at between assessee and Sitashree Foods Ltd. agreed to the award to complete the formalities on or before 31st March 2004 and this is vide clause 7 which reads as under: -
"7. Sitashree and GMPL will compete all the above requirements and formalities on or before 31st March 2004 or such other dates as the parties may mutually decide. In the event of any of the above requirements/formalities not being completed by such date either party may approach the arbitrators to recommence the arbitration proceedings. Appropriate consent order be sought from the Arbitral Tribunal terms of the Minutes."
14. Subsequently, a confirmation order was passed by recording minutes dated 11th August 2004 and the Minutes reads as under: -
"Minutes Learned Counsel tender the Minutes of the meeting held between the parties and their advocates on 3rd march 2004. They also tender a copy of similar Minutes of 30th July, 2004, the original of which is already on record. They also tender two receipts, one signed on behalf of the Claimant and the other on behalf of the Respondent. Learned Counsel pray for an award in terms of the Minutes of 3rd March, 2004 as varied by the Minutes of 30th July,2004, read with the two receipts.
There shall be an award in terms of the Minutes of 3rd March, 2004 as varied by the Minutes of 30th July 2004, read with the two receipts. There shall be no order as to costs.
It is agreed that the papers of the arbitration proceedings shall now be destroyed by the Arbitrators.."Page 11 of 14 ITA No.3730/Mum/2011
General Mills India P vt. Ltd. AY: 04-05
15. From the above, it is clear that the arbitral award became final only on 11- 08-2014 because the minutes of 3rd March 2004 was varied by the minutes of the 30th July 2004 and the relevant minutes reads as under: -
"1. These terms shall come into operation upon and only after the Respondent visits the factory of the Claimant, inspects the machinery mentioned hereinafter and finds it in the same condition as it was in March, 2004, when the Respondent had inspected the machinery. The decision on the above shall be solely that of the Respondent and shall be final and binding. In the event that the Respondent finds that the machinery is not in the same condition as it was in March, 2004, these terms shall not come into operation
2. Clause 3 of the terms dated 3d March, 2004 except its provision therein relating to silos and payment thereto, shall stands modified to the following extent:
a) The provision in clause 3 relating to silos and payment thereto shall continue to operate.
b) The provision in clause 3 relating to care while removal of machinery and no liability for loss or damage shall continue to operate.
c) The Claimant shall return to the Respondent the machinery and equipment listed in Annexure A hereto.
d) The Claimant shall pay to the Respondent, in addition to the amount mentioned in the Consent Terms dated 3" March, 2004 a sum of Rs 37 lakhs on account of the machinery belonging to the Respondent (other than silos) which is retained by the claimant.Page 12 of 14 ITA No.3730/Mum/2011
General Mills India P vt. Ltd. AY: 04-05 The Claimant shall be entitled to retain all the machinery and equipment other than those mentioned in Annexure A hereto.
For the purpose aforesaid, the Respondent shall visit Claimant's factory on 5th August, 2004. The Claimant shall inspect the machinery described in the Annexure A. If the machinery is found to be in the same state as they were in March 2004, the Respondent shall confirm the same in writing. Thereupon, these terms shall become operative. The Claimant shall immediately give and the Respondent shall receive delivery of the machinery described in the Annexure A hereto immediately after inspection. Against the delivery, the Respondent shall make payment of a net sum of Rs 8,33,300 in full and final settlement of all the payment obligations of both the parties under the terms dated 3rd March, 2004 and the present terms. Dated 30th July, 2004."
From the above, consent our i.e. Minutes of 3rd March 2004 was modified by minutes of 3rd July 2004 and hence the award was not final as on 03-03-2004 but it became final only on 11`-08-2004. Therefore, this has become final and enforceable in the financial year 2004-05 relevant to AY 2005-06. Hence, this award cannot be said to have become final in AY 2004-05 i.e. the year under consideration. Accordingly, we confirm the order of CIT(A) and this issue of assessee's appeal is dismissed.
16. In the result, the appeal of assessee is partly allowed for statistical purposes.
Order pronounced in the open court on 14-06-2017.
Sd/- Sd/-
(RAJESH KUMAR) (MAHAVIR SINGH)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Mumbai, Dated: 14-06-2017
Sudip Sarkar /Sr.PS
Page 13 of 14
ITA No.3730/Mum/2011
General Mills India P vt. Ltd. AY: 04-05
Copy of the Order forwarded to:
1. The Appellant
2. The Respondent.
3. The CIT (A), Mumbai.
4. CIT
5. DR, ITAT, Mumbai
6. Guard file.
BY ORDER,
//True Copy// Assistant Registrar
ITAT, MUMBAI
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