Income Tax Appellate Tribunal - Mumbai
Procter & Gamble Distribution Co., ... vs Assessee on 21 July, 2011
IN THE INCOME TAX APPELLATE TRIBUNAL
MUMBAI BENCHES, 'F', MUMBAI
BEFORE S/SHRI D.K. AGARWAL (JM) AND J.SUDHAK AR REDDY(A.M )
ITA No.3596/M um/2003
(Assessment Year:1997-98)
Procter & Gam ble Joint Commissioner of
Distribution Com pany Incom e Tax, Spl. Rg.5,
Limited, Mumbai.
(since merged with Procter V/s
& Gam ble Home Products
Limited),
P&G Plaza,
Cardinal Gracias Road,
Chakala,
Andheri (East),
Mumbai-400099.
P AN: AAACP4046L
APPELLAN T RESPONDENT
ITA No.3661/M um/2003
(Assessment Year:1997-98)
Dy. Commissioner of M/s Procter & Gamble
Incom e Tax, Distri bution Co. Ltd.,
Circle 7(1), Tiecicon House,
452, Aayakar Bhavan, V/s Dr.E.Moses Road,
M K Marg, Mumbai-400025.
Mumbai-400020 P AN: AAACP4046L
APPELLAN T RESPONDENT
Date of hearing : 21.7.2011
Date of pronouncement : 29.7.2011
Assessee by : S/Shri Yogesh A.Thar and Haresh G.Buch
Revenue by : Shri Subachan Ram
O R D E R
PER D.K. AGAR WAL (JM) These cross-appeals by the assessee and Revenue are directed agai nst the orders dated 26.2.2003 read with order under section 154 dated 28.3.2003 passed by the Learned 2 IT A No .3596 and 3661/M um /2003 Ass es sm ent Ye ar:19 97-98 Commissioner of Income Tax (A) for the assessment year 1997-98. Both these appeals are disposed of by this comm on order for the sake of convenience.
2. Briefly stated facts of the case are that the assessee company is engaged in the marketing, selling and distri bution of consum er products including detergent, toilets soaps, toiletries etc. The assessee com pany was formed as a joint venture between P & G Group and Godrej Group in 1993. This joint venture was terminated in July 1996 and the shareholdi ngs, as well as, the managem ent was taken over by P and G Group of Companies. The return was filed declaring total income of Rs.1,28,96,220/-. Subsequentl y, the said return was revised declaring the income of Rs.6,60,07,130/- as the income under provision of section 115JA was more than the total income as determined by the assessee under the normal provisions of the Act. However, the assessment after making various disallowances was completed at an income of Rs.29,38,01,950/- vide order dated 30.3.2000 passed under section 143(3) of the Incom e Tax Act, 1961 (in short the Act). On appeal, the learned Commissioner of Income Tax (A) partly allowed the appeal.
3 IT A No .3596 and 3661/M um /2003 Ass es sm ent Ye ar:19 97-98
3. Being aggrieved by the orders of the l earned Commissioner of Income Tax (A), t he assessee and Revenue both are in appeal before us.
ITA No.3596/Mum/2003(by assessee)
4. Ground No.I (1) is against the sustenance of disallowance of Rs.7.25 crores on account of Non Competition Fee.
5. At the time of hearing, the learned Counsel for the assessee fairl y submits that this issue is covered against the assessee and in favour of the Revenue by the decision of the Special Bench of the Tribunal in Tecumseh India Pvt. Ltd Vs Addl.CIT (2010-TIOL-408-ITAT-DEL-SB). He further submits that the Tribunal in the case of M/s.Procter & Gamble Home Products Ltd. V/s JCIT (2011-TIOL-16-ITAT-MUM) has also decided the similar issue against the assessee following the decision of the Speci al Bench of the Tribunal (supra). He, therefore, submits that the ground taken b y the assessee may be decided accordingly.
6. On the other hand, the learned D.R. while relying on the order of the AO and l earned Commissioner of Incom e Tax (A) also relied on the decision of the Special Bench of 4 IT A No .3596 and 3661/M um /2003 Ass es sm ent Ye ar:19 97-98 the Tribunal in M/s.Procter & Gamble Home Products Ltd. (in short M/s PGHPL) (supra) and submits that following the decision of the Tribunal, the issue may be decided against the assessee and in favour of the Revenue.
7. Having carefully heard the submissions of the rival parties and perusing the material available on record we find merits in the plea of the parties that the issue is squarel y covered against the assessee and in favour of the Revenue by recent decision of the Special Bench of the Tribunal in Tecumseh India (P.) Ltd. V/s Addl.CIT (supra) since reported in (2010) 127 ITD 1 (Delhi)(SB) and also by the decision in the case of M/s PGHPL (supra). In the case of M/s PGHPL, the Tri bunal following the decision of the Special Bench of the Tribunal (supra) vide paragraph 2.4.2 of the order has held as under :
"2.4.2 W e have perused the records and considered the matter carefully. In the case of Tecumseh, USA, a leading Global compressor manufacturer, the assessee had purchased the compressor related operations of W hirlpool India, a leading refrigerator manufacturer in India, for Indi an com pressor m arket. The assessee had paid the price of Rs.52.5 crores whi ch included a sum of Rs.2.65 crores to be paid as non-com pete fees. The issue was whether non compete fees which was in force for 5 years, could be allowed as revenue expenditure. The Special Bench after detailed examinati on hel d that the expenditure was capital in nature. It placed reliance on the judgment of Hon'ble Supreme Court in CIT Vs Coal Shipment Pvt. Ltd. (82 ITR 902) i n which it was held that payment to ward off completion in business to a rival dealer would constitute capital expenditure if the object 5 IT A No .3596 and 3661/M um /2003 Ass es sm ent Ye ar:19 97-98 of making that pa yment was to derive an advantage by eliminating com petition over som e length of time. The Special Bench also observed that non com pete period of five years had been considered as sufficient to give enduring benefits in case of Assam Bengal Cem ent Co. Ltd. (27 ITR 34). In that case, the assessee who was a manufacturer of Cement had paid protection fees to the lessor of quarries for lime stone, on annual payment of Rs.5000/- for the whole period of lease and another sum of Rs.35000/- p.a. as a further protection fees for five years for similar undertaking in respect of the whole district. The issue was whether the paym ent could be allowed as revenue expenditure. Hon'ble Suprem e Court observed that the fact that the payment was recurring was immaterial. It was the nature of asset acqui red which was m ateri al. The asset required was the right to carry on the business unfettered by any competition which was not a part of working of the business but went on to appreciate the whole of the capital asset and make it more profit yielding. The expenditure was thus hold as capital in nature by the Hon'ble Supreme Court. The Learned AR has not brought on record any distinguishing feature from the facts of Tecumseh (I) (P) Ltd. (supra). Therefore respectfully following the decision of Special Bench in case of Tecumseh (I) (P) Ltd. (supra), we uphold the order of CIT(A) confirming the disallowance as capital expenditure."
In the absence of any disti nguishi ng features brought on record by the learned counsel for the assessee, we respectfull y following the above decisions uphold the order of the leaned Commissioner of income Tax (A) confirming the disallowance as capital expenditure and accordingly, ground No.I (1) taken by the assessee is rejected.
8. Ground No.I (2,3 and 4) are against the sustenance of disallowance of amortization of Trade Licence Fee of Rs.25 6 IT A No .3596 and 3661/M um /2003 Ass es sm ent Ye ar:19 97-98 lakhs or i n t he alternative, the deduction under section 35A be allowed as claimed.
9. Brief facts of the above issues are that the AO from the details of miscellaneous expenses filed by the assessee noted that the com pany has shown expenses of Rs.25 lakhs claimed to be paid as Licence Fee. On being asked to explain, it was interalia submitted by the assessee that the Licence Fees have been paid f or use of the Trade Mark of the products licensed from Godrej and Boyce Ltd. durin g the peri od April 1996 to June 1996 which expenditure is related to business and is not in any way capital in nature nor has it given an enduring benefit to the assessee company. Therefore, the Licence Fee which has been expended wholly and exclusively f or the business should be allowed under section 37(1) of the Act. However, the AO after considering the assessee's reply and the Trade Mark Licence Agreement observed that in the assessm ent years 1994-95 t o 1996-97, the claim of the assessee of Licenc e Fees was examined and it was held therein that it was not an allowable claim being the expenditure in the nature of capital. Alternativel y, it was held therein that Licence Fee paid is for the use of Trade Mark and is therefore covered by the section 35A of the Act, since, this expenditure incurred 7 IT A No .3596 and 3661/M um /2003 Ass es sm ent Ye ar:19 97-98 on acquisition of patent rights, trade marks by the assessee, expenditure to the extent of 1/14 t h of th e expenditure can only be allowed as per section 35A of the Act. Therefore, following the findings recorded in th e assessment order for Assessment years 1994-95 to 1996-97, the AO disallowed the claim of the assessee of Rs.25 lakhs. On appeal, the learned Commissioner of Income Tax (A) following the appellate order for the assessm ent year 1996- 97 upheld t he disal lowance m ade by the AO.
10. At the tim e of hearing, the learned counsel for the assessee submits that this issue is covered in f avour of the assessee by the decision of the Tribunal in assessee's own case in Procter & Gam ble Distribution Company Limited V/s DCIT in ITA No.846/ Mum/2003 (AY-1994-95) order dated 9.5.2008, wherein the Tribunal after examining the issu e has del eted the similar disallowance made by the AO. He has also placed on record the copy of the said order of the Tribunal.
11. On the other hand, the learned D.R. supports the order of the AO and the learned Commissioner of Income Tax (A).
12. Having carefully heard the submissions of the rival parties and perusing the material available on record we find 8 IT A No .3596 and 3661/M um /2003 Ass es sm ent Ye ar:19 97-98 merit in the pl ea of the learned counsel for the assessee that the issue is squarely covered in favour of the assessee and against the Revenue by the decision of the Tribunal in assessee's own case (supra), wherein the Tribunal has held vide paragraph 9 at pages 6 and of its order as under :
"9........W e find that the paym ents are staggered over the period of seven years. The rights granted to PGG are non-exclusive ri ghts to use the trademarks. In a sense, the assessee paying the installment as he uses them, which shows that it is in the nature of Revenue only. Accordingly, the same is allowed"
Respectfull y following the sam e and a keeping in view the rule of Consistency, we are of the view that the expenditure claimed by the assessee are revenue in nature and accordingly the disallowance of Rs.25 lakhs made by the AO and sustained by the learned Commissioner of Income tax (A) is deleted. Ground No. I (2 and 3) taken by the assessee are therefore allowed while Ground No.I(4) which is an alternative ground is rejected.
13. Ground No.II ( 1 and 2) are against the sustenance of addition of Rs.20,39,899/- paid, on account of advertisement expenses in foreign currency to Asia Today Limited.
14. Brief facts of the above issue are that from the details filed by the assessee, it was noted by the AO that the assessee com pany has remitted total Rs.61,12,561/- in 9 IT A No .3596 and 3661/M um /2003 Ass es sm ent Ye ar:19 97-98 foreign currenc y to forei gn telecasting companies during the year under consideration. Out of this, Rs.14,21,220/- was estim ated to Asi a Today Ltd., Hong Kong and Rs.47,01,341/- to Star T.V., Singapore. The AO further noted that the assessee has filed details of TDS from remittances to Asia Today Ltd. and Star T.V. in foreign currency. The AO further noted that the assessee has deducted tax at source under section 195 of the Act @ 55% of the 10% of remittance after May 1996 as per the provisions of Circular No.742 issued by the CBDT on 2.5.1996. But on the remittances made upto May 1996 of Rs.20,39,899/- to foreign telecasting companies, the assessee has neither deducted tax at source nor paid to the Central Government. The assessee was asked to expl ain. It was interalia submitted by the assessee that no part of the services in connection with the said advertising were rendered by Asia Today Ltd. in India, the sai d fee cannot be deemed to accrue or arise to Asia Today Ltd. in India. However, the AO was of the view that the assessee company is giving advertisements to Asia Today Ltd. to telecast on Zee T.V. Advertisement revenue is earned by forei gn company which is doi ng the telecasting for Zee T.V. The income is deemed to accrue/arise to Asia Today Ltd. in Indi a. Therefore the assessee was required to deduct tax at source under section 10 IT A No .3596 and 3661/M um /2003 Ass es sm ent Ye ar:19 97-98
195. The assessee has failed to do so. The AO disallowed the deducti on under section 40(a)(i) and made the addition of Rs.20,39,899/- to the total income of the assessee. On appeal, the learned Commissioner of Incom e Tax (A) following the appellate orders for the earlier years upheld the disallowance made by the AO.
15. At the tim e of hearing, the learned counsel for the assessee submits that the Tribunal in the assessee's appeals (supra) in the earlier years on the similar facts and circumstances of the case has restored the issue to file of the AO, therefore, following the same, the issue may be restored to the file of the AO.
16. On the other hand, the learned D.R. supports the order of the AO and the learned Commissioner of Income Tax (A).
17. Having carefully heard the submissions of the rival parties and perusing the material available on record we find merit in the pl ea of the learned counsel for the assessee that on the similar issue, the Tri bunal in the earlier years has restored back the matter to the file of the AO vide finding recorded in paragraph 13, pages 7 and 8 of its order dated 9.5.2008 (supra) as under :
"13. Ld.A.R. for assessee m entioned that the similar paym ents were made to M/s Asia Today Ltd. and issue 11 IT A No .3596 and 3661/M um /2003 Ass es sm ent Ye ar:19 97-98 came up before the Hon'ble Tribunal in the case of M/s PGHHPL vide ITA No.5153/M/98 for AY 1995-96 and 5687 & 5688/M/99 for AY 1994-95 & 1996-97. I n these appeals, on this issue, the Hon' ble ITAT has referred the issue to the files of the AO f or the reason that the AO failed to pass a speaking order as to how the provisions of section 40(a) are applicable. The Tribunal held that the place of happenings are outside India and the paym ents have been m ade outside India. Following the above, AR for assessee fairly requested that the matter may be sent to the AO for fresh adjudication at the end of the AO. Ld. CIT-DR relied on the order of the CIT(A) in this regard and argued that the decision of Tribunal, Mumbai G- Bench, in the case of M/s Satellite Television Asia Region Ltd. vide ITA No.5066/M/2004 for the AY 2000-01 is applicable and he argued that the paym ent of advertisement expenses to Asia Today Ltd. without deduction of tax under section 40(a) is rightl y disallowed by the AO. Accordingly, we restore this issue to the file of the AO for examining afresh after affording reasonable opportunity to the assessee of being heard. He shall also examine the revenue's argument relying on the decision in the case of Satellite Television Asia Region Ltd (supra). Accordingly, this ground is set aside."
In the absence of any distinguishing feature brought on record by the Revenue, we respectfully following the order of the Tribunal (supra) set aside the orders passed by the Revenue authorities on this account and restore the issue to the file of the AO for examination afresh in the light of the directions given by the Tribunal in the said order (supra) and according to law after providing reasonable opportunity of being heard to the assessee. The Ground No.II ( 1 and 2) are therefore partly allowed for statisti cal purposes.
12 IT A No .3596 and 3661/M um /2003 Ass es sm ent Ye ar:19 97-98
18. Ground No.III (1 and 2) are against the sustenance of disallowance of Rs.12,26,40,000/- paid on termination of Joint Venture Agreem ent and other agreements.
19. Brief facts of the above issue are that from the Profit and Loss Account, the AO noted that the assessee com pany has spent an amount of Rs.12,26,40,000/- pai d to Godrej Soaps Ltd. on termination of Joint Venture as revenue expenditure. The assessee was asked to file full particulars of paym ents, method of working of the am ount payable, cop y of the agreement and in case any valuation was got done to assess the am ount payable, to file copy of such reports and also to justif y the claim of deduction of Rs.12,26,40,000/-. In response, the assessee company has submitted as under
(Paragraph 10.1 to 10.7, pages 12 to 14 of Assessment Order):
"10.1 "During the year under consideration the joint venture with Godrej family was terminated as per the terms of the Termination of JV agreem ent, a cop y of which has already been submitted to you in Assessment year 1996-97. The said sum of Rs.12,26,40, 000/- has been paid as per the terms of the said agreement as follows :
Rs.11,26,40,000/- is towards termination of Manufacturing agreem ent which was a part of the Joint Venture Agreement and Rs.1,00,00,000/- is toward s termination of all other agreements related to the Joint Venture Agreement. As is clear from the agreem ent this paym ent is towards termination of existing agreements 13 IT A No .3596 and 3661/M um /2003 Ass es sm ent Ye ar:19 97-98 which expenditure is required by commercial expediency and is not of an enduring nature or is not bringing into existence any capital assets and hence the same is claimed as revenue expenditure in the Return of Incom e."
10.2 The assessee was again given another th opportunity vide letter dated 7 January, 2000 to explain why these expenses should not be treated as capital expenditure since the payments were made on termination of Joint Venture Agreem ent. 10.3 In response to the above, the assessee again filed written reply dated 14 t h January, 2000 and submitted as under :
"As has already been stated the assessee com pany has paid to Godrej Soaps Ltd. (GSL) Rs.11,26,40,000/- towards termination of Manufacturing Agreement which was a part of the Joint Venture Agreement and Rs.1,00,00,000/- i s towards termination of all other agreem ents related to the Joint Venture Agreement. In anticipation of the orders expected as per the Manufacturing Agreem ent GSL had invested capital to be able to meet the orders which is sunk cost of GSL on account of the termination of the agreement. Thus thi s is expenditure required by commercial expediency and is not of an enduring nature or is not bringing into existence any capital asset. On the contrary this is compensation for the loss on account of earl y termination of the agreem ent. Hence the same cannot be treated as capital expenditure"
10.4 The assessee has not furnished details regarding method/basis of working of am ount payable or any valuation which was got done to assess the amount payable. The assessee was again given an opportunity vide note sheet entry dated 20.1.2000 to furnish the basis f or working out the figure of compensation of Rs.11.264 crores and Rs.1 crore for termination of agreem ents and also to furnish reasons which resulted into termination of Joint Venture.
10.5 In response to the above, assessee vide its letter dated 25 t h January, 2000 submitted as under:
14 IT A No .3596 and 3661/M um /2003 Ass es sm ent Ye ar:19 97-98 "Your good self has desired to know the reasons for the termination of the JV. In this respect we would like to state that it was a business and commercial agreement to terminate the JV. The am ount of Rs.11.264 crores paid to Godrej Soap Ltd. towards termination of the Manufacturing Agreement between the two companies and Rs.1 crore paid towards annulment/termination or causing the annulment/termination of the other Joint Venture Agreements and all other agreements is an am ount negotiated between the two parties."
10.6 The assessee was once again given an opportunity vide note sheet entry dated 7.3.2000 to furnish the details on the basis of which am ount of compensation of Rs.11.264 crores was determined and circumstances and reasons which resulted into termination of Joint Venture. The assessee was also asked to explain how it was commercially expedient to terminate the agreem ent and to make the paym ent to Godrej Soaps Ltd.
10.7 In response to the above, the assessee vide its letter dated 13 t h March, 2000 submitted as under :
"This refers to the inf orm ation submitted by us on January, 25, 2000 and January 31, 2000 and the subsequent hearing wherein your good self has requested us to explain specifically as to the allowbility of the deductions claimed by us in respect of the following payments :
i) a sum of Rs.11.264 crores to Godrej Soaps Ltd (GSL) for a premature termination of the Manufacturing Agreement, and
ii) a sum of Rs. 1 crores to GSL for termination of all other Joi nt Venture Agreem ents.
As requested, we explain in respect of the above as follows :
Re: termination of Manufacturi ng Agreem ent :
The assessee company had entered into Joint Venture Agreement (JVA) in January 1993 by which t he assessee company agreed to purchase 80,000 metric tones of toilet soaps per annum from April, 1993 from GSL on a 15 IT A No .3596 and 3661/M um /2003 Ass es sm ent Ye ar:19 97-98 principal basis. By this JVA GSL also agreed to terminate its manufacturing agreements with third parties for manufacture of toilet soaps. This Manufacturing Agreement was for a period of 10 yea rs.
However, with the termination of the JVA in Jul y, 1996 as well as changes in the market conditions in the toilet soaps market, the said Manufacturing Agreement was also terminated. Consequently GSL was put to a loss of sales and profits and was also unable to use such manufacturing capacity for others on account of the product and quality specifications imposed by the assessee company as well as the termination of the third party m anufacturing agreements by GSL as a part of the JVA.
W e submit that the paym ent of such com pensation for early termination of the Manufacturing Agreement being a business expenditure is fully deductible as revenu e expenditure. In this respect reliance is placed on the following decisions in this regard :
i. Karamchand Thapar & Bros. Pvt.Ltd. V/s CI T (80 ITR 167) ii. CIT V/s Oberoi Hotels (I ndia) Pvt. Ltd (209 ITR 732 (Cal)) iii. CIT V/s Ashok Leland Ltd. (86 ITR 549 -SC) iv. G.Scamm el and Nephew Ltd V/s Rowles (HM Inspector of taxes 8 ITR Suppl.41-CA) It has been held in the decision in Ashok Leyland's case (86 ITR 549) by the Apex Court that the com pensation paid to the managing agents for the termination of the managing agency in view of the change in the busi ness activity of the aseseee was clearl y of a revenue nature and therefore an allowable deduction under section 37(1) of the Income tax Act.
Similarl y, in G Scammel's case, the expenditure i ncurred for termi nation of disadvantageous trading relationship and the related litigation expenses have been held to be of a revenue nature and therefore allowable as deductions.
16 IT A No .3596 and 3661/M um /2003 Ass es sm ent Ye ar:19 97-98 In the case of the assessee com pany , as is evident from the cop y of the Termination of JV Agreement which is enclosed and marked as Annexure I, the com pensation was paid to GSL for its loss of sales and profits which had resulted from the termination of the said Manufacturing Agreement as a result of the termination of a disadvantageous trading rel ationshi p, which i n turn had arisen due to the changes in the toilet soaps market in India. Due to the early termination of th e Manufacturing capacity for any other custom er also. As such, you will appreciate that the payment of Rs.11.264 crores to GSL was a business expenditure of revenue nature and is accordingly allowabl e full y as deduction as claimed.
Re : termination of ot her agreem ents of JVA:
This amount was paid to GSL to compensate for the loss on account of premature termination of all other agreem ents which formed a part of JVA. W e submit that paym ent of compensation for early termination of the other agreement of JVA being a business expenditure is fully deductible as revenue expenditure. In this respect we place reliance on the submissions made above regarding the paym ent for termination of Manufacturing Agreem ent "
However, the AO did not accept the assessee's explanation.
He observed that the assessee has not furnished any basis on which odd figure of Rs.11.264 crores has been worked out f or termination of Manufacturing agreement and Rs. 1 crore to be paid towards termination of other Joint Venture Agreements. The AO after considering the certain clause of the agreement incl uding Clause 19 of the Agreem ent which reads as under :
17 IT A No .3596 and 3661/M um /2003 Ass es sm ent Ye ar:19 97-98 "INDEMNIFICATION
19. In the event of the expiration or termination of this Agreement, none of the parti es shall be liable to the other parties for an y loss of anticipated sales or prospective profits or because of expenditures related to the performance of this Agreement."
distinguished the decisions relied on by the assessee and interalia observed as under :
"10.14 The assessee has claimed deduction of Rs.12.264 crores paid as compensation for termination of Joint Venture Agreement. But inspite of so m an y opportunities given, the assessee com pany has not furnished any details regarding the method or basis on which an odd figure of Rs.11.264 crores was worked out as compensation for so called termination of manufacturing agreem ent and Rs.one crore towards termination of other agreements entered under Joint Venture. The assessee has also not furnished any details as to now it was comm ercially expedient for the assessee to terminate the Joint Venture. Even, during the course of assessment proceeding of earlier AY 1996-97, the assessee did not furnish any correspondence or minutes of meetings held before the termination of the Joint Venture as to why the Joint Venture was terminated and how the amounts payable were determined. It is not known for whom it was comm ercially expedient to terminate the Joint Venture. W hether it was terminated at the instance of Godrej Famil y or at the instance of P&G Group....."
The AO after considering the sales, positi on of shareholdi ngs of the com pany bef ore and after termination of the Joint Venture Agreem ent and other relevant m aterial has finally held that the payments for terminati on of agreem ents was capital expenditure vide finding recorded as under (Page 23 of AO):
18 IT A No .3596 and 3661/M um /2003 Ass es sm ent Ye ar:19 97-98 "It is pertinent to not e that agreem ent at Sr.No.2,3,5,6,9 and 10 are the agreem ents which were not entered exclusively between the assessee company (PGG) and GSL. It is not understandable as to how it was the liability of the assessee company to compensate the GSL for termi nation of these agreements wherein the assessee com pany was not a party. This itself shows that the paym ent was not m ade for commercial expediency of the assessee company. It may also be mentioned here that as per Clause 3.3 (a) of Joint Venture Agreement quoted above, equity shares were allotted to PGFE of Rs.100/- each at a premi um of Rs.457.50 per share at the time of entering into Joint Venture. But at the time of termination of agreement, the family m embers of Godrej Group transferred the shares to the companies of P&G Group @ 230/- per share only. It is also pertinent to note that GSL has been showing huge losses carry forward in its Incom e Tax return and even after receiving payments from the assessee company, GSL was not liable to pay an y income tax. Thus, it leads to irresistible conclusion that paym ents were made for termination of Joint Venture between two groups and on convenient understanding, the payments were shown to be made to GSL which will not be liable to pay any incom e tax. Thus, it was onl y camaflouging that the paym ent has been shown to be made for termination of manufacturing agreement of Rs.11.264 crores and only Rs. One crore for all the agreem ents entered under Joint Venture Agreement.
Thus, the payment was rel ated to the change of ownership and management of the company exclusivel y to P&G Group. Thus, it cannot be said that the payment has been made for any termination of trading agreement but it was made for restructuring of the company and hence, was capital expenditure."
20. On appeal, the learned Commissioner of Income Tax (A) while agreeing with t he views of the AO held that the entire paym ent of Rs.12,26,40,000/- was not incurred by the appellant wholly and exclusively f or the purposes of its business as required by the provisions of section 37 (1) of 19 IT A No .3596 and 3661/M um /2003 Ass es sm ent Ye ar:19 97-98 the Act and accordingly he confirmed the disallowance made by the AO.
21. At the tim e of hearing, the learned counsel for the assessee very fairly submits that the identical issue has been decided by the Tribunal against the assessee in the case of M/s.Procter & Gamble Home Products Ltd. V/s JCIT (2011- TIOL-16-ITAT-MUM). He further submits that now the assessee has f iled extract of Board Resolution dated Jul y 23,1996, Extract of Article published in Business India Magazine for the period July,15 to 28,1996, extract from the book "Global CEO" published in the year 2001 by A.V. Vedpuriswar, Management Author and Manufacturin g Agreement for Toilet Soaps dated 22 Jan. 1993 between PGG and GSL appearing at pages 1 to 20 of the additional paper book along with the copy of the applicati on for admission of the additional evidence on the ground that the said additional document are required t o be brought on record to the notice of the Bench to render assistance to the Tribunal in deciding the issue raised in the said grounds, the same being essential to decide the issue in just and fair manner, therefore, it may be admitted. He further submits that the compensation of Rs.12,26,40,000/- paid to the GSL 20 IT A No .3596 and 3661/M um /2003 Ass es sm ent Ye ar:19 97-98 for terminati on of manufacturing agreement is allowable in view of the following reasons :
"1. Manufacturing Arrangement was disadvantageous.
Submitted Extracts from "Business India" Edition of Jul y 1997, stating that
i) P&G had no control over costs under the agreem ent as it was Cost + fixed margin contract.
There were no Cost caps or incentives for Cost eff iciencies in the JV Agreement.
ii) Costs were increasing and market shares was reducing.
iii) Sales were falling behind targets resulting in Idle capacity resulting in hi gher overheads.
iv) Pursuant to JV, GSL had enhanced its manufacturing facilities resulting in burden of high Interest and Depreciation since 50% of capacity remained unutilized.
v) Godrej's processing costs were well above the market rates by as much as Rs.10,000 per tone.
vi) The JV was 'adversely affecting the brands of GSL.
Summary chart based on financials showi ng that after termination of JV, Operati ng cost s as a % to sales reduced to 57% in FY 1996-97 as against 89% i n FY 1995-96 and in FY 1994-95 is as under :
21 IT A No .3596 and 3661/M um /2003 Ass es sm ent Ye ar:19 97-98 Proctor and Gamble Distribution Company Limited Previous year 1996-97 Assessment year 1997-98 (Rs.in crore) Particulars Financi al Year 1996-97 1995-96 1994-95 a. Sales 175.08 364.55 351.49 b.Purchase cost 100.12 316.43 315.05 c.Purchase 57.18% 86.80% 89.62% Cost as % of Sal es d.Profit before 22.85 (34.05) 15.4 tax (Year under appeal) Quantity purchased was lower in Year 1994 (46,000 tonnes) and Year 1995 (38,000 tonnes), as against Annual Commitments of 80,000 tones.
2. W hether termination affected Profit making apparatus of the Company
i) Appellant continued selling its major soap brand 'Camay' even after terminati on of JV, therefore the Profit making apparatus was not affected.
3. Compensation was given for loss of sales and profits and idle capacity of GSL resulting from termination
i) Although original agreement did not envisage such compensation, an agreem ent can always be modif ied by consent of both parties. Hence, to the extent the confined agreement was not acted upon, it was overridden by new termination agreem ent.
ii) In any case, Clause 19 of JV agreement applied and in cases of terminati on menti oned in paragraph 14 of the JV Agreem ent and this is not such a termination.
22 IT A No .3596 and 3661/M um /2003 Ass es sm ent Ye ar:19 97-98
iii) Merely since the Assessee is not contractuall y bound, com pensation cannot be disallowed. Voluntary paym ents without legal claim are allowable if commercial expediency is established.
Motor Industries Company Ltd. (223 ITR 112) (KAR) Glaxo Laborat ories (I) P.Ltd. (114 ITR 110) (Bom )..."
22. Further the learned counsel for the assessee whil e referring to the same decisions which were relied on in the case of M/s PGHPL (supra) and the extract of the Articles published in the magazine also relied on the decision of the Hon'ble Supreme Court in Senairam Doongarm all V/s Commissioner of Income Tax (1961) 42 ITR 392 (SC) for the proposition that the quality of the payment that is decisive of the character of the payment and not the method of the paym ent of its measure, and makes it fall withi n capital or revenue. He, therefore, submits that the paym ents on termination of the Manufacturing Agreement pursuant to the terminati on of the Joint Venture Agreem ent be allowed to the assessee.
23. On the other hand, the learned D.R. while strongl y opposing to the admission of additional evidence submits that the additional evidence was filed b y the assessee in view of the observations of the Tribunal in the case of M/s PGHPL (supra), therefore, the same should not be admitted.
23 IT A No .3596 and 3661/M um /2003 Ass es sm ent Ye ar:19 97-98 The learned D.R. f urther submits that in view of the findings recorded by the AO, the learned Commissioner of Incom e Tax (A) and the Tribunal in the case of M/s PGHPL (supra), the learned Commissioner of Income Tax (A) was fully justified in rej ecting the claim of the assessee and theref ore the disallowance made by the AO be upheld.
24. W e have carefully considered the submissions of the rival parties and perused the material available on record. W e find that the facts are not in dispute inasmuch as it is also not in dispute that there was an "indemnification" clause in the said Agreement which reads as under :
"INDEMNIFICATION
19. In the event of the expiration or termination of this Agreement, none of the parti es shall be liable to the other parties for an y loss of anticipated sales or prospective profits or because of expenditures related to the performance of this Agreement."
25. As regards the admission of additional evidence, we find that there is no dispute that the extract of Board Resolution and Articles published in the magazines are for the rel evant assessment year but the same were not filed before the AO as observed by the AO in paragraph 10.14 of the assessment order. Now the assessee is filing the sam e as an additi onal evidence, in view of the observations of the 24 IT A No .3596 and 3661/M um /2003 Ass es sm ent Ye ar:19 97-98 Tribunal in the case of M/s PGHPL (supra), wherein it has been held in Paragraph 2.5.5 that "There is also no m aterial produced to show that there were any difficulties between the two parties regarding the working of the manuf acturing agreem ent". However, keeping in view that the above additional evidence is for the relevant assessment year which according to the learned counsel for the assessee goes to the very root of the matter, we admit the same.
26. We further find that on the similar facts and circumstances of the case, the Tribunal in the case of M/s PGHPL (supra), has considered the above issue in detail and af ter considering all the decisions relied on b y the learned counsel for the assessee has held vide paragraphs 2.5.4 to 2.5.13 as under :
"2.5.4 W e have perused the records and consi dered the rival contentions carefully. The dispute is regarding the nature of expenditure incurred by the assessee by way of paym ent of Rs.7 crores to GSL towards termination of manufacturing agreement for manufacture of detergent bar. The sai d manufacturing agreement had been originally entered into between PGI & GSL under the provisions of clause 9.3 of the joint venture agreement (JVA) between P&G group and the Godrej group. In terms of the said agreement PGI had purchased the laundry and cleaning powder business from GSL and had entered into manufacturing agreement for manufacturing and designi ng of detergent bar. The said business was later transf erred by PGI to the assessee w.e.f. 1.11.93.
As per the agreement the assessee had agreed to bu y from GSL 1800 tons bar of detergent per m onth at the agreed price. The agreement was in force till 31.3.97. The JV Agreement between the two groups was however 25 IT A No .3596 and 3661/M um /2003 Ass es sm ent Ye ar:19 97-98 terminated on 23.7.96. Under the provisions of clause 14.6 of the JVA, in case of termination of JVA, all agreem ents emanating from the JVA were to autom atically cease. The case of the assessee however is that the m anufacturing agreement was prem aturel y terminated on 30.7.96 to remove com mercial constraints and the paym ent of Rs.7 crores had been made to GSL to compensate for loss of sale and profit and loss of capacity utilization. It has also been submitted that the agreem ent terminated was for manufacture of Trilo brand and it was one of many such agreem ents by the assessee for manufacture of different products. The termination did not therefore have any impact on the profit earning apparatus and the advantage derived from the assessee was only in the revenue field. It has been pointed out that after the termination, sales and profit both had improved. Accordingly it has been urged that the expenditure should be allowed as revenue expenditure.
2.5.5 In our view for deciding the nature of expenditure, it is first necessarily to ascertain the real purpose of payment. It is clear from the reading of the clause 14.6 of JVA that in case of termination of the JVA, all other agreem ents entered into under the provisions of JVA would autom atically cease to exist. There is no dispute that the m anufacturing agreement had been entered into under the provisions of the clause 9.3 of the JVA. There is also no dispute that the JVA had been terminated by both the parties on 23.7.96 and therefore on the said date t he manufacturing agreement had ceased to exist. There was thus no need to enter into a separate termination agreement. The termination agreem ent dated 30.7.96 was only a formality. There is also no material produced to show that there were any difficulties between the two parties regarding the working of the manufacturing agreem ent. Merely because the GP rate in the subsequent period had improved, it cannot be the basis to concl ude that the manufacturing agreement had been terminated because of any commercial constraints when no such material has been pl aced on record. It has been submitted that sale and profit had improved after the termination. But we find from the details given at page 37 of the paper book that sales of soap and detergent had fallen down to Rs.284 crore in F.Y.1996-97 com pared to Rs.299 crore in F.Y.1995-96. GP rate in respect of soap and detergent is not given. No 26 IT A No .3596 and 3661/M um /2003 Ass es sm ent Ye ar:19 97-98 such plea was raised before l ower authorities and therefore cannot be entertained at this stage as it will require going into fresh facts. Moreover the manufacturing agreem ent was not terminated because of any constraints i n the working of the manufacturing agreem ent but because of the termination of the JVA as on the termination of J.V. the manufacturi ng agreement autom atically ceased to exist. Therefore in our vi ew the paym ent made by the assessee was for termination of the JVA. The argument of the assessee that payment was made for loss of sale or profit by GSL cannot be accepted as clause 19 of J.V.A clearl y provided that in case of termination of J.V.A., no liability would be cast on an y party towards the other party f or loss of anticipated sale or prospective profits. 2.5.6 Having concluded that the pa ym ent had been made for termination of JVA, the other issue to be addressed is whet her the paym ent can be considered as revenue expenditure in case of the assessee. A careful perusal of the JVA shows that it was not a mere trading agreem ent. It provided for creati on of joint venture company between P&G group and Godrej group namely PGG in which the PG group was to hold 51% equity. PGG had been formed for m anufacture of synthetic detergent bar and to m arket, sale and distribute toilet soap. The JVA also provided for different manufacturing agreem ents between GSL and different entities of P & G group for manufacture of different products. Further the JVA was for an unlimited period and could be terminated only i n case of insolvency and bankruptcy and liquidation of eit her of the party and for breach of any terms and conditions of the JVA. Admittedly none of the terms and conditions of the JVA had been violated by either of the parties. Thus the JVA provided for a long term busi ness framework and profit earni ng apparatus of the P & G group. W ith the termination of the JVA, the JV com pany as well as other manufacturing agreements autom atically ceased to exist. The termination of JVA was thus obviousl y a part of restructuring and reorganization of the profit earning apparatus of the P&G group. Therefore the termination had impact on the profit earning apparatus of the group and the payment was therefore in relation to change in profit earning apparatus of the P&G group and not for termination of manufacturing agreem ent which had already ceased to exist.
27 IT A No .3596 and 3661/M um /2003 Ass es sm ent Ye ar:19 97-98 2.5.7 W e have now to consider the nature of the said expenditure. It is a settled legal position that in case an expenditure is incurred for better working of the existing profit earning apparatus, it will be revenue in nature but in case the expenditure rel ates to any change in the profit earning apparatus the expenditure would be capital in nature. The said view is supported by the judgment of Hon'ble Suprem e Court in case of Empire Jute Co. (124 ITR 1). W e have already held that the paym ent in this case was in relation to restructuring and reorganization of business frame work and profit earning apparatus of the P & G group. The payment was not wholly and exclusively f or terminati on of manufacturing agreement between the assessee and the GSL. Therefore in our view the expenditure has to be treated as capital in nature. The Learned AR for the assessee has argued that the m anuf acturing agreem ent was like one of several agencies taken during the course of business and therefore expenditure on termination of one agenc y has to be treated as revenue in nature. W e are unable to accept the argument. Firstly this is not a case of termination of one of several agencies. The JVA as we have discussed earlier provided for long term business framework and profit earning apparatus of the P & G group. Secondly, paym ent made f or cancellation of an agency can be considered as revenue expenditure only when it does not affect the trading or profit earning structure of the business. In the present case we have already held that the termination of JVA had an impact on the profit earning apparatus as JVA was a pivot to the business structure. W e therefore hold that the expenditure was capital in nature.
2.5.8 The Learned AR for the assessee has placed reliance on several judgm ents in support of the case that the expenditure was revenue in nature. W e have gone through the said judgm ents and in our view all the judgm ents are distinguishable and not applicable to the facts of the present case. In case of CIT Vs Ashok Leyland Ltd. (86 ITR 549) on which reliance has been placed, the assessee was originally im porting and assembling motor cars, parts etc. manufactured by Austin of England. The assessee had appointed CB Ltd. as m anaging agent for Austin cars. W ith government allowing setting up of autom obile industry in Indi a, the assessee in 1954 took up manufacturing of Leyland comm ercial vehicle and stopped manufacturing of Austin 28 IT A No .3596 and 3661/M um /2003 Ass es sm ent Ye ar:19 97-98 cars. In 1955 the assessee terminated the managing agency on payment of Rs.2.5 lacs. The issue was nature of expenditure on account of the said paym ent and it was held as revenue expenditure. It is obvious that the termination of managing agency di d not have anything to do with the stoppage of manufacturing of Austin car which had already been stopped nor did it have anything to do with the manufacture of Leyland commerci al vehicle. After the assessee stopped manufacturing Austin cars, the managi ng agency had becom e redundant. Thus the termination of managing agencies did not relate to the profit earning apparatus of the assessee and by termination the assessee could onl y gain advantage in the revenue field by wa y of saving of unnecessary expenditure. The case of the assessee is different as in this case payment was for termination of JVA which had impact on the profit earning apparatus. 2.5.9 In case of W estern India Oil Distributing Co. India Vs CIT (77 ITR 140) the assessee had an agreement for 10 years for obtaining aggregate loan of Rs.10 lacs. The assessee had agreed to pay interest @ 6% per annum on Rs.10 lacs whether or not the finance was t aken. The assessee was also required to pay commission on import of goods, whether finance was taken or not, even after expiry of agreement. Subsequently the assessee revoked the agreement in a consent decree on payment of Rs.3 lacs i n five equal installments. The issue was the nature of expenditure incurred. Obvi ously, the agreement was only in connections with obtaining finance required for the purpose of business and any payment in connection with the finance, for the worki ng of business is a revenue expenditure. The termination of agreem ent did not have any impact on the profit earning apparatus. The Hon'ble High Court hel d that paym ent had been made only to remove difficulty in the smooth running of business. The case is obviously distinguishable as the payment did not relate to the profit earning apparatus. 2.5.10 In case of CIT Vs Motor Industries Co. Ltd. (223 ITR 112), the assessee was manuf acture and distributor of automobile parts. The assessee had an agreement with the sole distributor which expired on 9.2.72. The assessee entered into a fresh agreement with the sole distributor on 18.3.72 as per which the distributorship was restricted to certai n areas. The agreem ent wa s limited to five years till 9.2.77 wit hout any right of 29 IT A No .3596 and 3661/M um /2003 Ass es sm ent Ye ar:19 97-98 renewal to the distributor. Instead of renewing the agreem ent in 1977, the assessee decided to take on the remaining territory from the distri butor on paym ent of Rs.99 lacs over a period of three years and the issue was whether the expenditure could be allowed as revenue expenditure. The Hon'ble High Court observed that strictly speaking the dist ri butor did not have any legal claim as the agreement had expired and there was no provision for renewal. The payment had been made for smooth transition from marketing through a distributor to m arketing by the com pany itself. The payment did not relate to any assets or any augmentation of any profit making apparatus. It was only to get rid of a comm ercially disadvantageous busi ness agreement and thus held as revenue expenditure. The case is obviousl y distinguishable. In the present case the JVA as pointed out earlier was a long term asset and constituted the profit earning apparatus in case of the assessee. 2.5.11 In case of CIT Vs Peci o Electronic & Electrical Ltd. (107 CTR 240), the assessee had contract for manufacture of goods with M/s. Vulcan Industries since November 1971. In 1975 the assessee stopped lifting goods from that party and paid compensation of Rs.4,03,000/- for breach of contract. The High Court held that the paym ent had been made for premature termination of a trade agreement which was creating an onerous burden on the assessee. The termination onl y avoid future commercial inconvenience and therefore the expenditure was held allowable as revenue expenditure. In the present case as we have pointed out earlier the paym ent had been made for termination of JVA which was not a mere trade agreem ent. It provided f or long term business framework and profit earning apparatus for the P & G group and therefore the t ermination did aff ect the profit earning apparatus.
2.5.12 In case of CIT Vs Gl axo Laboratories (India) Pvt. Ltd. (114 ITR 110), the assessee had an agreement for the purpose of distributi on of products. The agreem ent could be terminated by either part y at one month's notice. The agreement obviously did not have anything to do with the profit earning apparatus as it only related to the sale and distributi on of the products and it could be terminated any time after one month's notice. The expenditure for termination was held to be allowable as revenue expenditure. The case is obviousl y 30 IT A No .3596 and 3661/M um /2003 Ass es sm ent Ye ar:19 97-98 distinguishable from the present case in our view of the discussion made earlier.
2.5.13 In view of the foregoing discussion and for the reasons given earlier we see no inf irmity in the orders of the authorities below holding the expenditure as capital expenditure. The order of CIT (A) is accordingly upheld."
27. As regards the decision of the Hon' ble Suprem e Court in Senairam Doongarmall (supra), we are of the view that there is no quarrel on the rati o of the pri nciple laid down by their Lordships. However, keeping in view the decision of the Tribunal in M/s PGHPL (supra), indemnification clause No.19 of the agreem ent (supra), we are of the view that the said decision relied on by the learned counsel for the assessee is distinguishable and not applicable to the facts of the present case.
28. In the absence of any other distinguishing feature brought on record by the learned counsel for the assessee, keeping in view indemnification clause No.19 of the Agreement (supra) and in the absence of any docum entary evidence in support of the Article published in the magazines, we respectfully following the order of the Tribunal (supra) hold that the expenditure of Rs.12,26,40,000/- is in the nature of capital expenditure not allowable as revenue expenditure under section 37(1) of the Act. Accordingly, we are inclined to uphold the order of 31 IT A No .3596 and 3661/M um /2003 Ass es sm ent Ye ar:19 97-98 the l earned Commissioner of Income Tax (A) in confirming the disallowance made by the AO. The Ground III (1 and 2) taken by the assessee are therefore rejected.
29. Ground No.IV (1 and 2) are against the disallowance of write back of provisi ons for excise duty by the AO.
30. At the time of hearing, the learned counsel for the assessee very fairly submits that the learned Commissioner of Incom e Tax (A) has granted relief to the assessee. However, the ground was taken out of abundant caution as at the time of filing of the appeal to the Tribunal, the appeal for the earlier years were pending before the Tribunal. Since the Tribunal has allowed t he claim of the assessee in favour of the assessee for the relevant assessment years, therefore, he does not want to press above grounds which were not objected to by the learned D.R.
31. That being so, we are of the view that since due relief has been granted by the Tribunal in the relevant assessment years, the grounds raised by the assessee are theref ore rejected being not pressed and accordingly same are decided against the assessee.
32 IT A No .3596 and 3661/M um /2003 Ass es sm ent Ye ar:19 97-98 ITA No.3661/Mum/2003 (by Revenue)
32. Ground No.1 is against the del etion of disallowance of provisions for leave encashment of Rs.11,99,828/-.
33. Brief facts of the above issue are that the AO observed that the assessee company has made provision for accrued leave of Rs.11,99,828/-. The AO after relying on the various decisions held that the provision for accrued leav e encashm ent of Rs.11,99,828/- is not allowable and henc e he rejected t he claim of the assessee. On appeal, the learned Commissioner of Income Tax (A) following the decision of the Hon'ble Supreme Court in the case of Bharat Earth Movers Ltd. V/s CIT (245 ITR 428), wherein it has held that the provisions made for leave encashm ent is not the contingent liability and the sam e is allowable expenditure, deleted the disallowance of Rs.11,99,828/- made by the AO.
34. At the time of hearing, the learned D.R. supports the order of the AO.
35. On the other hand, the learned counsel for the assessee submits that this issue is covered in f avour of the assessee by t he decision of the Tribunal in assessee's own case for the assessment years 1995-96 and 1996-97 33 IT A No .3596 and 3661/M um /2003 Ass es sm ent Ye ar:19 97-98 (supra), wherein the assessee has allowed the similar claim to the assessee.
36. Having carefully heard the submissions of the rival parties and perusing the material available on record we find merit in the pl ea of the learned counsel for the assessee that the Tribunal in assessee's own case (supra) following the decision of the Hon'ble Apex Court in Bharat Earth Movers Ltd. (supra) has allowed the claim of the assessee vide paragraph 22 of the order. In the absence of any distinguishing feature brought on record by the Revenue, we respectfull y following the sam e uphold the order of the learned Commissioner of Income Tax (A) in allowing the claim of the assessee. The ground No.1 taken by the Revenue is, therefore, rejected.
37. Ground No.2 is against the deletion of Obsolete Material W ritten Off of Rs. 73,42,784/-
38. Brief facts of the above issue are that from the details of miscellaneous expenses, the AO noted that the amount of Rs.73,42,784/- has been debited on account of Obsolete Material W ritten Off. In response to show cause notice as to why the same should not be added to the income of the assessee, the assessee furnished the reply interalia stating 34 IT A No .3596 and 3661/M um /2003 Ass es sm ent Ye ar:19 97-98 that the expenditure incurred under the head Obsolete Material W ritten Off consists of raw materi al and packing material which has become obsolet e and hence cannot be used after that date. However, the AO was of the view that in the absence of any details of such expenses, the assessee has not discharged its onus and hence he rejected the claim of the assessee.
39. On appeal, the learned Commissioner of Income Tax (A) following the appellate order for the earlier years deleted the disallowance made by the AO.
40. At the time of the hearing, the learned D.R. supports the order of the AO.
41. On the other hand, the learned counsel for the assessee submits that this issue is also covered in favour of the assessee by the decision of the Tribunal in the assessee's own case (supra), wherein similar disallowance has been deleted by the Tribunal. The reliance was also placed on the decision of the Tribunal in DCIT V/s Bardm a of India Ltd. i n ITA No. 3428/Mum/2003 (AY-1997-98).
42. Having carefully heard the submissions of the rival parties and perusing the material available on record we find merit in the plea of the learned counsel for the 35 IT A No .3596 and 3661/M um /2003 Ass es sm ent Ye ar:19 97-98 assessee that the Tri bunal in assessee's own case vide paragraph 26 of the order (supra) has accepted the claim of the assessee following the decision of the Tribunal in Bardma of India Ltd. (supra), wherein it has been held that "the old models of machines becom e outdated due to latest technology developm ent and fast changing environment in the field of electronic products and, therefore, not saleble and the spare parts relating to such obsolete m achines do not have any market value and there is no market equipment." Respectfully following the same and keeping in view the rule of consistency, we uphold the order of the learned Commissioner of Income Tax (A) in deleting the disallowance made by the AO. The Ground No.2 taken b y the revenue is, therefore, rejected.
43. Ground No.3 is against the deletion of addition of Rs.2,50,000/- made by the AO under section 37(2A) of the Act.
44. Brief facts of the above issue are that the AO observed that the assessee has cl aimed welfare expenses of Rs.57,14,811/-. The AO was of the view that all the expenses cannot be allowed. The AO in view of the finding recorded in the earlier year i.e. for the assessment year 1996-97 estimated Rs.5,00,000/- as expenditure i ncurred in 36 IT A No .3596 and 3661/M um /2003 Ass es sm ent Ye ar:19 97-98 the nature of entertainment. The AO after giving statutory deduction of Rs.2,50,000/- m ade the disallowance of Rs.2,50,000/- and added the same to the incom e of the assessee. On appeal, the learned Commissioner of Incom e Tax (A) following the appellate orders for the assessment years 1994-95 to 1996-97, where in he has deleted the similar disallowance, deleted the disallowance m ade by the AO.
45. At the time of hearing, the learned D.R. supports the order of the AO.
46. On the other hand, the l earned counsel of the assessee while relying on the order of the learned Commissioner of Incom e Tax (A) submits that this issue is also covered in favour of the assessee by the order of the Tribunal for the assessment year 1996-97 in ITA No.861/Mum/2003 order dated 9.5.2008 (supra). He, therefore, submits that following the same the order passed by the learned Commissioner of Income Tax (A) in deleting the disallowance be upheld.
47. Having carefully heard the submissions of the rival parties and perusing the material available on record we find merit i n the plea of the learned counsel for the assessee 37 IT A No .3596 and 3661/M um /2003 Ass es sm ent Ye ar:19 97-98 that the Tribunal on the similar facts and circumstance of the case has upheld the order of the learned Commissioner of the Incom e Tax (A) deleting the disallowance m ade by the AO vide paragraph 28 of the order (supra). Following the same and keeping in view the rule of consistency, we decline to int erfere with the order of the learned Commissioner of Incom e Tax (A). The Ground No.3 taken by the Revenue is therefore rejected.
48. Ground No.4 is against the deletion of disallowance of write back of provision of Rs.18,14,08,561/-.
49. Brief facts of the above issue are that it was noted by the AO that the assessee com pany has written back the provision of contractual liability of Rs.18, 14,08,561/- for the assessment years 1994-95 (Rs.5,24,83,620/-), 1995-96 (Rs.6,40,35,941/-) and 1996-97 (Rs.6,48,89,000/-) and off ered the am ount as income. The assessee had claimed these amounts as deduction on account of contractual liability in the earlier assessment years. The claim of the assessee was not accepted b y the departm ent and these am ounts were disallowed and added back to the income of the assessee as there was no existing liability. The assessee has contested this in appeals before the learned Commissioner of Incom e Tax (A) which are pending.
38 IT A No .3596 and 3661/M um /2003 Ass es sm ent Ye ar:19 97-98 Therefore, the AO did not disturb the assessee's claim and added the same on protective basis with this observations that in case, the disallowance/addi tions made in earlier assessment years are uphel d, this amount will be allowed as deduction by rectifying this order. On appeal, the learned Commissioner of Income Tax (A) while observing that the said amount was subjected to the disallowance in the said relevant assessment years, directed the AO to reduce the am ount of Rs.18,14,08,561/- from the incom e of the assessee.
50. At the time of hearing, the learned D.R.supports the order of the AO.
51. On the other hand, the learned counsel for the assessee submits that since the provisions has been allowed in the relevant assessment years, theref ore, in view of the assessee's own case for the assessment year 1996-97, the order passed by the learned Commissioner of Income Tax (A) be upheld.
52. Having carefully heard the submissions of the rival parties and perusing the material available on record we are of the view that the learned Commissioner of Income Tax (A) has allowed the claim of the assesseee on the ground that 39 IT A No .3596 and 3661/M um /2003 Ass es sm ent Ye ar:19 97-98 the said amount has been subjected to disallowance in the relevant assessment years and taxing the sam e in the year under consi derati on will be subjected to double addition. In the absence of any contrary material against the finding of learned Commissioner of Income Tax (A), we are inclined to uphold the order of the learned Commissioner of Incom e Tax (A) in accepting the claim of the assessee and accordingl y the ground No.4 taken by the Revenue is rejected.
53. In the result, the assessee's appeal is partl y allowed for statistical purposes and the Revenue's appeal stands dismissed.
Order pronounced in the open court on 29 t h Jul y, 2011.
Sd sd
(J.SUDH AK AR REDDY) (D.K. AG AR WAL)
ACCOUNTAN T M EMBER JUDICI AL MEM BER
Mumbai, Dated 29th July, 2011
SRL:
Cop y to:
1. Appellant
2. Respondent
3. CIT Concerned
4. CIT(A) concerned
5. DR concerned Bench
6. Guard file.
BY ORDER
True copy
ASSTT. REGISTRAR,
ITAT, MUMBAI