Income Tax Appellate Tribunal - West Bengal
Britannia Industries Ltd. vs Deputy Commissioner Of Income-Tax on 27 November, 1998
ORDER
S. C. Tiwari, A.M.
1. Ground of appeal No. 1 in this appeal filed by the assessee is directed against the disallowance of a sum of Rs. 1 lakh sustained by the learned CIT(A) on the ground of beverages, etc. provided to the visitors. The facts of the case, in brief, are that as per tax audit report the total amount of expenditure on entertainment was estimated at Rs. 10,83,749. The AO found that this did not include payment of Rs. 1,03,650 made to the clubs. Further the AO found that the auditors had pointed out that the amount of entertainment expenditure did not include expenditure on tea, coffee, etc. to visitors at the office/factory premises of the assessee-company because the same was not ascertainable. The AO requested the assessee-company to furnish details of such expenses. The assessee-company, however, did not file the details but made an estimate of Rs. 19,687 in this behalf. In these circumstances, the learned AO estimated the expenditure on tea, coffee, etc. to the visitors and estimated the same at Rs. 5 lakhs. The total disallowance on account of entertainment expenses was, therefore, made for Rs. 16,87,399.
2. Aggrieved by the assessment order, the assessee filed appeal before the learned CIT(A)-XI, Calcutta. The learned CIT(A) held that the amount of Rs. 19,687 estimated by the assessee-company was on the lower side. At the same time, the AO had also not explained the basis of the figure of Rs. 5 lakhs. He, therefore, reduced the disallowance made by the AO in this behalf to Rs. 1 lakh from Rs. 5 lakhs.
3. During the course of hearing before us the learned counsel for the assessee pointed out that a similar matter came to be heard by the Tribunal, C Bench, Calcutta, in the case of the assessee for the asst. yr. 1987-88 and by its order dt. 28th August, 1997, in ITA No. 2709 (Cal) of 1992 the Tribunal reduced the disallowance to a sum of Rs. 30,000 from Rs. 50,000 estimated by the learned CIT(A).
4. On our further query, the learned counsel for the assessee pointed out that expenditure on beverages, etc. had been debited in the assessee's accounts under several heads and at several places and, therefore, it was not possible to have an accurate working of expenditure disallowable in this behalf. He, however, stated that the disallowance of Rs. 30,000 estimated by the Tribunal for the asst. yr. 1987-88 was fair and reasonable and the same should be followed during this year.
5. The learned Departmental Representative argued that the learned CIT(A) had already been quite considerate in reducing the estimate to Rs. 1 lakh from Rs. 5 lakhs estimated by the AO and the same should be sustained.
6. We have carefully considered the rival submissions. In the order for the asst. yr. 1987-88 the Tribunal took note of the fact that in the assessment orders for the asst. yrs. 1985-86 and 1986-87 the disallowance had been made for sums of Rs. 19,687 and Rs. 19,588 only. On that basis the Tribunal reduced the disallowance sustained by the learned CIT(A) at Rs. 50,000 to a sum of Rs. 30,000. We are not aware of the position obtaining in the asst. yr. 1988-89. Having regard to the past history of the case, we hold that it would be reasonable to estimate the disallowance for the asst. yr. 1989-90 at Rs. 50,000. We direct accordingly.
7. Grounds of appeal Nos. 2 and 3 are directed against the authorities below including the amount of sales-tax in "total turnover" for the purpose of computing the deduction under s. 80HHC of the Act. The assessee claimed deduction under s. 80HHC at Rs. 1,36,36,523. The AO noticed that this amount had been worked out on the basis of total sales figure net of sales-tax. The AO, therefore, asked the assessee-company to explain as to why the sales-tax should not be included in the sales figure because it represented trading receipt of the assessee-company as held by the Hon'ble Supreme Court in the case of Sinclair Murray & Co. (P) Ltd. vs. CIT (1974) 97 ITR 615 (SC). The AO, therefore, reduced the assessee's claim of deduction accordingly.
8. During the course of hearing before the learned CIT(A)-XI, Calcutta, the assessee disputed the action of the AO in this behalf on the basis of Guidance Note on Tax Audit under s. 44AB of the IT Act, 1961, issued by the Institute of Chartered Accountants of India. The learned counsel also stated that in the case of Challapalli Sugars Ltd. vs. CIT (1975) 98 ITR 167 (SC) the Hon'ble Supreme Court had relied upon similar Guidance Notes issued by the Institute of Chartered Accountants of India. The learned CIT(A), however, held that in view of the Supreme Court judgment in the case of Sinclair Murray Ltd. vs. CIT (supra) and Chowringhee Sales Bureau Ltd. vs. CIT, reliance placed by the assessee on the Guidance Notes was not correct. He, therefore, rejected the assessee's grounds of appeal in this behalf.
9. During the course of hearing before us the assessee placed reliance on para 3.3 of "Guidance Note on Tax Audit under s. 44AB of the Income-tax Act". This para 3.3 is as reproduced below :
"In the Statement on Auditing Practices issued by the Institute the following note appears under the heading "Sales" (Para 11.1 at p. 55 of 3rd Edn. 1983) "Sales include sales of all products manufactured by the company including by-products. It is customary to show sales of scrap, etc. under the heading "Miscellaneous income". It is important to remember that no adjustment should be made in the sales account which does not relate the sales. Similarly, adjustments in respect of sales-tax and/or excise duty should not normally be made in the sales account. Trade discount is a valid deduction from sales but not commission allowed to third parties on sales to customers." It is clear from the above definition that if sales-tax and excise duty are included in the sale price and thus, in the sales account, no adjustment in respect thereof should be made for considering the quantum of sales. Trade discount can be deducted from sales but not the commission allowed to third parties. If, however, the excise duty and/or sales-tax recovered are credited separately to excise duty or sales-tax account being separate accounts and payments to the authorities are debited in the same account, they would not be included in the sales. But, sales of scrap shown separately under the heading "Miscellaneous income" will have to be included in sales for the purpose of this section".
The learned counsel for the assessee further argued that in view of the judgment of the Hon'ble Supreme Court in the case of Challapalli Sugars Ltd. (supra), this para has to be treated as representing the correct position.
10. The learned Departmental Representative argued that the distinction drawn in para 3.3 of the Institute's Guidance Note was really not material. It did not make difference as to where in the books of account of the assessee sales-tax was debited. The judgments of the Hon'ble Supreme Court were quite clear that sales-tax is to be treated as an integral part of the trading receipts of the assessee.
11. We have carefully considered the rival submissions. It is seen by us that the "Guidance Note" relied upon by the learned counsel of the assessee has been issued by the Institution of Chartered Accountants of India in relation to provisions of s. 44AB of the Act. The Institute has also not taken note of the judgment of the Hon'ble Supreme Court in the case of Chowringhee Sales Bureau (P) Ltd. vs. CIT (supra), Sinclair Murray & Co. (P) Ltd. vs. CIT (supra) and so on. It is seen that the Hon'ble Supreme Court have reiterated this position in their judgments in the case of Jonnalla Narsimharao & Co. vs. CIT (1993) 200 ITR 588 (SC) and the case of CIT vs. T. Naggi Reddy (1993) 202 ITR 253 (SC). It is now settled position that sales-tax collected by an assessee from the customers constitutes business receipts. This aspect of the matter has not been considered or referred to in para 3.3 of the Guidance Note as submitted before us by the learned counsel of the assessee. It is also seen that Guidance Note was issued by the Institute in relation to the tax audit of the books of account. It appears that for that reason the Institute emphasised the treatment as given in the books of account of the assessee and held that if sales-tax and excise duty are included in the sale price, no adjustment in respect thereof should be made for considering the quantum of sales. If, however, the excise duty and/or sales-tax recovered are credited separately to excise duty or sales-tax account being separate accounts, they would not be included in the sales. Thus, the matter was left depending upon the treatment given in the books of account or the entries passed in the books of account. It is settled legal position that entries made in the books of account of an assessee cannot be conclusive of the matter as held by the Hon'ble Supreme Court in the case of Kedarnath Jute Mills Ltd. vs. CIT (1971) 82 ITR 363 (SC) and Sutlej Cotton Mills Ltd. vs. CIT (1979) 116 ITR 1 (SC). While the emphasis placed on the entries in the books of account for the purpose of whether the same should be subjected to tax audit or not may make some sense, it is difficult to accept the position that the computation of "total turnover" for the purpose of substantive deduction from the total income, such as under s. 80HHC should be a matter only of the entries made by an assessee in its books of account. We are, therefore, of the considered opinion that the Guidance Note (supra) relied upon by the learned counsel of the assessee cannot be imported for the purpose of the concept of total turnover as envisaged in the provisions of s. 80HHC.
12. In view of the discussions in the foregoing paragraphs, we are of the view that as it is a settled legal position now by a series of Supreme Court judgments which have been followed by the different High Courts in plethora of judgments that the indirect taxes collected by an assessee on its sales would constitute an integral part of their trading receipts, the authorities below have rightly included sales-tax as part of the total turnover. We may mention here that the view being taken by us in this behalf is the same as held by the Tribunal, Mumbai Bench 'A' in the case of Pond's (India) Ltd. vs. Dy. CIT (1997) 59 TTJ (Mumbai) 560 : (1998) 64 ITD 33 (Mumbai). In that case the earlier decision of the Tribunal, Calcutta Bench in the case of Chloride India Ltd. vs. Dy. CIT (1995) 53 ITD 180 (Cal) was not followed in view of the definition of "total turnover" as laid down by Expln. (ba) to s. 80HHC(4A) inserted by the Finance (No. 2) Act, 1991, with retrospective effect from 1st April, 1987.
13. In view of the discussions in the foregoing paragraphs, grounds of appeal Nos. 2 and 3 in this appeal are rejected.
14. In the result, this appeal is partly allowed.