Income Tax Appellate Tribunal - Kolkata
Dcit, Circle-1, Siliguri,, Siliguri vs Cosmos Beverages (P) Ltd.,, Siliguri on 25 September, 2019
IN THE INCOME TAX APPELLATE TRIBUNAL "B", BENCH KOLKATA BEFORE SHRI S.S.GODARA, JM &DR. A.L.SAINI, AM आयकरअपीलसं./ITA Nos.923&924/Kol/2017 ( नधारणवष / Assessment Years:2012-13 & 2014-15) DCIT, Circle-1, Siliguri Vs. Cosmos Beverages (P) Ltd.
1st Floor, Kapil Centre, 2nd Mile, Sevoke Road, Siliguri.
थायीले खासं . /जीआइआरसं . /PAN/GIR No.: AADCC 5493 M (Assessee) .. (Revenue) Assessee by : Shri Robin Choudhury, Addl. CIT (DR) Respondent by : Shri A. K. Tibrewal, FCA सुनवाईक तार ख/ Date of Hearing : 23/07/2019 घोषणाक तार ख/Date of Pronouncement : 25/09/2019 आदे श / O R D E R Per Dr. A. L. Saini:
The captioned two appeals filed by the Revenue, pertaining to assessment years2012-13 and 2014-15 respectively, are directed against the common orders passed by the Commissioner of Income Tax (Appeals)-Siliguri, which in turn arise out of separate assessment orders passed by the Assessing Officer u/s 143(3) of the Income Tax Act, 1961 (in short the 'Act').
2. Since these appeals relate to the same assessee, different assessment years, identical and common issues are involved therefore these have been clubbed and heard together and a consolidated order is being passed for the sake of convenience and brevity. The revenue's appeal in I.T.A. No. 923/Kol/2017, for A.Y. 2012-13, is taken as a lead case.
Cosmos Beverages (P) Ltd.
I TA No s.9 2 3 &9 2 4 / Ko l /2 0 1 7 A s se s smen t Yea r s: 2 0 1 2 - 1 3 & 2 0 1 4 - 1 5
3. Grounds of appeal raised by the Revenue in I.T.A. No. 923/Kol/2017, for A.Y. 2012-13, are as follows:
1. Whether on the facts and in the circumstances of the case, the ld. CIT(A) was justified by deleting the addition made by the A.O. in contrary to facts and records as discussed in assessment order as well as in the remand report.
a) Reliance is placed on the ratio of following judgment:
i) Kachwala Gems 158 Taxman 71 (SC)
ii) CIT(IV), Nagpur vs. R Babulal Poddar (2014) 45 Taxman.com 223(SC)
2. Whether, on the facts and in the circumstances of the case, the ld. CIT(A) was justified by deleting the addition made by the A.O. despite the fact that no opportunity of being heard was given to A.O. by the ld. CIT(A) to defend the case even after the submission of the remand report.
3. Whether the facts and circumstances of the case the ld. CIT(A) was justified to accept the plea of the assessee without considering the reasons for rejection the books of accounts by the A.O.
4. Whether on the facts and circumstances of the case, the ld. CIT(A) was justified to accept the argument of the assessee that original bills and vouchers were kept at Siliguri Office of the company which is in contrary to report of the Departmental Inspector. Even the same bills and vouchers were not produced during the course of scrutiny proceedings.
3. Brief facts qua the issue are that the assessee filed its return of income for A.Y. 2012-13 on 18.03.2013, declaring loss to the tune of Rs. 1,57,14,490/-. The assessee's case was selected for scrutiny and assessment was framed by the A.O. on 30.03.2015. The assessee company is engaged in the bottling of liquor of United Spirits Ltd. and is allegedly receiving the retention charges as per agreement. There is also some manufacturing activity of Cosmos Beverages (P) Ltd. producing their own in house brand 'Big Boss', when USL lines of production is not working using the same infrastructure. The main brands manufactured / bottled are: Directors special, McDowells (produce of USL) and Big Boss (Inhouse Brand). The total sales are booked in the name of Cosmos (as per audited accounts) including the bottled products of USL. All expenses are booked by Cosmos including purchases, sales, labor, wages rates and taxes etc. The branded and reputed products of USL are sold by Cosmos through their own invoices. The AO noted that all sales and purchases of the manufacturing and bottling activities of COSMOS are recorded as sales in the assessee company's Pa g e | 2 Cosmos Beverages (P) Ltd.
I TA No s.9 2 3 &9 2 4 / Ko l /2 0 1 7 A s se s smen t Yea r s: 2 0 1 2 - 1 3 & 2 0 1 4 - 1 5 books of account henceraised many doubts. For this purpose during the course of assessment proceedings the terms and conditions of agreement between USL(United Spirits Pvt. Ltd) and Cosmos were examined by AO.The relevant portion of the agreement is reproduced below:
I) Terms and conditions of the agreement of Cosmos Beverages Pvt. Ltd. with United Spirits Pvt. Ltd.
COSMOS shall receive the sale proceeds for the IMFL invoiced by them. From the sale proceeds so received COSMOS shall be entitled to deduct the aggregate of the following:
a) Cost of RS/ENA: The cost of RS/ENA shall be the landed cost required theoretically for a case including the excise allowable wastage in transit, storage and manufacture of IMFL;
b) Cost of Blending Material: The cost of the Blending Material including Special Spirits, shall be the actual landed cost as may be specified by USL from time to time;
c) Cost of Packaging Material: The cost of packaging material including bottles, containers, caps, labels, monocartons, pouches, outer cartons, adhesives, BOPP tape, strapping material, container sealing clips, gum tape and such other packaging materials as may be specified by USL from time to time shall be the actual landed cost as specified by USL;
d) Taxes, Duties, Cess and Fees: All taxes, duties, cess and fees shall be as applicable/notified by statutory authorities from time to time and as agreed to by USL.
e) Freight & other expenses: All outwards freight, escort charges, cash and other discounts, commission to sales promoters,. bond fees and Label Registration Fees;
f) Agreed Retention: Agreed Retention towards Excise License Fees, fees for all licenses, Consents and Permissions for uninterrupted operations of the Bottling Plant, Investment in infrastructure, Plant and Machinery, Labour, Power, Fuel, Staff Establishment, Loading, Unloading, Direct Wages, Repairs and Maintenance, Insurance, Overheads at the Bottling Plant and other incidental expenses at rates agreed between both parties and reviewed periodically. The above items of cost will be approved in writing by USL. Such approval will be on Pa g e | 3 Cosmos Beverages (P) Ltd.
I TA No s.9 2 3 &9 2 4 / Ko l /2 0 1 7 A s se s smen t Yea r s: 2 0 1 2 - 1 3 & 2 0 1 4 - 1 5 monthly/quarterly basis. After deducting the amounts mentioned above, the balance shall be sent to USL. It is made clear that this excess amount belongs only to USL and no part can be dealt or withheld for any reason whatsoever by COSMOS. The above basis of appointment shall constitute the mutual consideration of the contracting parties for the performance under this Agreement.
4. Thereafter, the Assessing Officer examined the books of accounts of the assessee and he noted manydiscrepancy in bottling charges and other expenses. He also noticed that the assessee prepared self-made internal vouchers and some of the expenses like mobile set expenses and other expenses, the bills thereof were not produced by the assessee. The assessee has failed to explain the utility of the vehicle in the business, therefore the Assessing Officer noticed that the assessee's accounts are complex and it is difficult to work out the net income of the assessee. The Assessing Officer also noted that no separate accounts for manufacturing and bottling activity are maintained by the assessee. Therefore, the Assessing Officer in order to make the reasoned assessment, deputed an Inspector of Income Tax to conduct enquiry about the nature of business and method of accounting in place of Cosmos Beverages Pvt. Ltd. The Inspector submitted report to the Assessing Officer and having gone through the report of the Inspector, the Assessing Officer noticed that the assessee's accounts are complex and there is no control on purchases and sale of USL products. The Assessing Officer also noted that no original invoices / vouchers were produced at the time of hearing nor original invoices were produced before the Inspectors during the course of enquiry proceedings at the factory premises of the assessee. Besides, the Assessing Officer also noticed other irregularities in the books of accounts of the assessee.
5. The Assessing Officer based on the reasons mentioned above did not rely on the books of accounts of the assessee and therefore he rejected the books of accounts of the assessee and determined the profit of the assessee observing the following:
" 6. Determination of Net Profit:
Once the books of account of assessee are rejected, then, profit has to be estimated on the basis of proper material available. Nevertheless, the Assessing Pa g e | 4 Cosmos Beverages (P) Ltd.
I TA No s.9 2 3 &9 2 4 / Ko l /2 0 1 7 A s se s smen t Yea r s: 2 0 1 2 - 1 3 & 2 0 1 4 - 1 5 Officer is not entitled to make a pure guess and make an assessment with reference to any evidence or any material at all. There must be something more than mere suspicion to support an assessment under section 143(3) of the Act. Although the words "Best of the Judgement" are used in Section 144 alone, the only difference between the assessment under Section 143(3) where books are found to be unreliable and an assessment under Section 144 is that the Act has contemplated a more summary method when the Assessing Officer is acting under Section 144 and that on account of deliberate default of the assesses. [Gunda Subahiya v/s. CIT (1939) 7 ITR21 Mad-FB.].
In view thereof, I proceed to complete the assessment after taking into account the materials available in records and take every effort that the determination of N.P and calculation of tax thereon has nexus to the facts and circumstances of the case and comparison is made to the Key Financial ratios of United Spirits Limited, whose products are manufactured and sold by the assesses. As discussed in Para 3, the bottling charges has been received by the assessee and has been debited as other expense is taken as an exclusive income of the assessee independent of the income generated from the manufacturing of its own as well as USL products.
For determination of the Net Profit the key financial ratios of United Spirits limited is taken as a bench mark as its financial ratios relates most closely to the assessee company. Though, estimation and guesswork is an inherent properly of best judgment assessment, still adequate preventive measures have been reasonably taken to avoid wild guess work. The Net Profit is calculated @ 4.44% of the Gross Turnover, which is the audited Net Profit of USL for the year ending March, 2012.
Pa g e | 5 Cosmos Beverages (P) Ltd.
I TA No s.9 2 3 &9 2 4 / Ko l /2 0 1 7 A s se s smen t Yea r s: 2 0 1 2 - 1 3 & 2 0 1 4 - 1 5 Assessed u/s 143(3) of the Income Tax Act, 1961 on a total income of Rs. 2,12,15,029/-. All expenses including depreciation and amortization expenses are deemed to have been allowed while determining the assessed income. Allowed credit of prepaid taxes."
Therefore, the Assessing Officer made the addition at Rs. 2,12,15,029/-.
6. Aggrieved by the order of the Assessing Officer, the assessee carried the matter in appeal before the ld. CIT(A) who has partly deleted the addition made by the Assessing Officer, observing the following:
"It is seen that retention money has been paid by USL Ltd. to the assessee at the rate of Rs. 34/- per bottle. For the whole year, the assessee has credited Rs. 93,95,855/- as retention charges (94,80,900 - 85,045 being stock damages) which the assessee is getting from M/s USL Ltd. The agreement with USL can be effectively illustrated with following example:
Assuming that only one bottle of liquor is sold during the year-
Pa g e | 6 Cosmos Beverages (P) Ltd.
I TA No s.9 2 3 &9 2 4 / Ko l /2 0 1 7 A s se s smen t Yea r s: 2 0 1 2 - 1 3 & 2 0 1 4 - 1 5 The whole agreement is structured in such a way that Cosmos receives only net retention charge and net surplus is taken away in the form of ITMA(Income from Tie Up Mfg Act). Out of the Rs 34/-, bottle fee received by the Assessee, the assessee has to meet depreciation, finance cost, employee benefit expenses and labour wage expenses. Therefore, the profitability of the COSMOS would depend on the rate at which it receives the bottling charges, number of bottle sold by COSMOS and the overheads that is depreciation, employee expenses, finance cost etc. to be borne by the assessee. The assessee would be earning a profit if
(a) it is able to make high volume of sales and/or
(b) Its bottling rate increases and / or
(c) its overhead expenses is low.
In the instant case, the assessee is incurring a loss since its overhead expenses are higher compared to its retention fees. The main reason for loss for the assessee is because the assessee has incurred depreciation expenses on Rs. 1.5 crores and finance cost of Rs. 42.51/ - Lakhs in addition to some other expenses as against retention fee received on Rs.94.8 lakhs. The fact of crediting the retention charges on the credit side of profit and loss account and debiting the bottling charges of Rs. 94.8 Lakhs to the Profit & Loss Account is an accounting jugglery to show that assessee is an owner manufacturer since as per West Bengal State Excise Act. The purchase, production and sale has to be in the name of the Assessee only. It cannot be done in the name of USL. In view of the above discussion, and the submission of the assesseewe are of the opinion that the AO has not understood the accounting system of the assessee and has reached an erroneous conclusionI am of the view that the books of accounts of the Assessee are reliable and therefore, the AO has, wrongly rejected the books of accounts, and therefore, all the additions made consequent to the rejection of books of accounts is hereby deleted. However, the Assessing Officer has pointed out that many self made internal vouchers had been produced which are not supported by the original vouchers. This would call for ad hoc disallowances. Inclusion of bogus expense through self-made vouchers cannot be ruled out. Considering the scale of business of the assessee and presence of self-made vouchers, we are of the opinion that Rs. 5 lakhs may be disallowed on an estimated basis on account of self-made internal vouchers.
The Assessing Officer has pointed out that Honda City has been purchased and depreciation has been claimed. Personal user of the car cannot be ruled out. The Assessing Officer is directed to disallow Twenty five per cent (25%) of the motor car expenses and depreciation of motor car for personal use.
The Assessing Officer has observed that the sale tax authorities have determined undisclosed sales of Rs. 10,67,734/-. The ld. A/R has stated that this determination was disputed by the assessee and the sales tax appeal authorities have decided this issue in favour of the assessee. The Assessing Officer is directed to verify this contention of the assessee and allow appropriate relief if the contention is found to be correct.
Further since the assessee has got substantial relief therefore it has not pressed technical grounds and therefore the same are dismissed. This adjudication takes care of all the grounds raised by the assessee. In view of the above, the appeal is partly allowed.
Assessment year 2014-15 Fact of the case for this assessment year is identical to the A.Y. 2012-13. Grounds of appeal are also similar. Following order for A.Y. 2012-13, the rejection of books of accounts by the Assessing Officer is held to be not tenable and consequent additions are being deleted. Similarly, addition of Rs. 5 lakhs may be made by the Assessing Officer on Pa g e | 7 Cosmos Beverages (P) Ltd.
I TA No s.9 2 3 &9 2 4 / Ko l /2 0 1 7 A s se s smen t Yea r s: 2 0 1 2 - 1 3 & 2 0 1 4 - 1 5 account of self-made vouchers and disallowance of 25% of the expenses on motor car and 25% of depreciation on motor car may be made.
Fact of the case for this assessment year is identical to the A.Y. 2012-13. Grounds of appeal are also similar. Following order for A.Y 2012-13, the rejection of books of accounts by the Assessing Officer is held to be not tenable and consequent additions are being deleted. Similarly, addition of Rs. 5 lakhs may be made by the Assessing Officer on account of self-made vouchers and disallowance of 25% of the expenses on motor car and 25% of depreciation on motor car may be made following my order for A.Y. 2012-13. In the result, appeal for A.Y. 2014-15 is partly allowed".
7. After going through the reasoning and conclusion reached by the ld. CIT(A), we note that there is no infirmity in the order passed by the ld. CIT(A). We note that the Assessing Officer could not understand the accounting system of the assessee and therefore he wrongly rejected the books of accounts of the assessee which is not tenable. That being so, we decline to interfere in the order passed by the ld. CIT(A), his order on this issue, is hereby upheld and the grounds of appeal raised by the revenue are dismissed.
8. In the result, both appeals filed by the Revenue( ITA No.923/kol/2017 and 924/kol/2017) are dismissed.
Order pronounced in the Court on 25.09.2019
Sd/- Sd/-
(S.S.GODARA) (A.L.SAINI)
या यकसद य / JUDICIAL MEMBER लेखासद य / ACCOUNTANT MEMBER
दनांक/ Date: 25/09/2019
(SB, Sr.PS)
Copy of the order forwarded to:
1. DCIT, Circle-1, Siliguri
2. Cosmos Beverages (P) Ltd
3. C.I.T(A)- 4. C.I.T.- Kolkata.
5. CIT(DR), Kolkata Benches, Kolkata.
6. Guard File.
True copy
By Order
Assistant Registrar
ITAT, Kolkata Benches
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Cosmos Beverages (P) Ltd.
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A s se s smen t Yea r s: 2 0 1 2 - 1 3 & 2 0 1 4 - 1 5
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