Income Tax Appellate Tribunal - Mumbai
Parle Products P.Ltd, Mumbai vs Addl Cit Rg 9(2), Mumbai on 12 March, 2019
IN THE INCOME TAX APPELLATE TRIBUNAL "C" BENCH, MUMBAI
BEFORE SHRI SHAMIM YAHYA, AM AND RAVISH SOOD, JM
ITA No.4902/M um/2006
(Assessment Year 2001-02)
ITA No.445/M um/2009
(Assessment Year 2004-05)
ITA No.446/M um/2009
(Assessment Year 2005-06)
ITA No.6734/M um/2011
(Assessment Year 2006-07)
ITA No.6735/M um/2011
(Assessment Year 2007-08)
ITA No.6737/M um/2011
(Assessment Year 2008-09)
ITA No.6190/M um/2012
(Assessment Year 2009-10)
M/s. Parle Products Pvt. Ltd., Vs. ACIT CEN CIR-25
V.S. Khandekar Marg Aayakar Bhavan
North Level Crossing Mumbai-400020
Vile Parle (E)
Mumbai - 400057
PAN/GIR No.AAACP0486A
Appellant) .. Respondent)
Appellant by : Shri Ketan Ved
Respondent by : Shri Abi Rama Karitikyan
Date of Hearing : 18.12.2018
Date of Pronouncement : 13.03.2019
ORDER
Per Bench:
The above Income tax appeals where adjudicated by the ITAT vide order dated 22/01/2018.
2. Subsequently vide order dated 30/07/2018 ITAT noted that certain ground was not adjudicated. Accordingly, the ITAT recalled the order for considering the second ground as under:
2I TA N o s. 4 4 5 /M u m/ 2 0 0 9 a n d o t he r a p pe a l s Pa r le P ro d uc t s P v t. Lt d.
4. From the record we found that in the respective appeals so filed, assessee has raised following Ground No.2 in all the years under consideration.
"2. The learned Commissioner (Appeals) erred in confirming the action of assessing officer in reducing 90% of the gross interest received while computing the 'profits of the businesses under clause (baa) of the Explanation to section 80HHC of the Income-tax Act.
He erred in not directing the assessing officer to reduce 90% of the net interest received while computing the deduction under section 80HHC.
5. Since the above ground was not decided in all the years under consideration, we recall our order with a limited issue on deciding Ground No.2 in all the years under consideration.
3. Subsequently vide order dated 10/10/2018, the ITAT modified its earlier recall order as under:
Through these Corrigendum applications it was pointed out that in the order passed by the Tribunal dated 30/07/2018 disposing the various miscellaneous petitions filed by the assessee, the Tribunal have recalled Ground No.2 in all the years by inadvertently stating that ground No.2 in all years pertain to computation of deduction u/s.80HHC, in so far as this ground was not disposed while deciding the appeal on merit vide order dated 22/01/2018.
2. It was pointed out that Ground No.2 for each year did not pertain to computation of deduction u/s.80HHC, however, different issues were raised in Ground No.2 in different years which reads as under: -
Assessment ITA No. MA No. Issue raised in the 2nd Year (Original appeal) ground of appeal 2001-02 4902/Mum/2006 184/Mum/2018 "2. The learned Commissioner(Appeals) erred in confirming the action of assessing officer in reducing 90% of the gross interest received while computing the 'profits of the businesses under clause (baa) of the Explanation to section 80HHC of the Income-
tax Act.
He erred in not directing the assessing 3 I TA N o s. 4 4 5 /M u m/ 2 0 0 9 a n d o t he r a p pe a l s Pa r le P ro d uc t s P v t. Lt d.
officer to reduce 90% of the net interest received while computing the deduction under section 80HHC."
2004-05 445/Mum/2009 185/Mum/2018 "2. The learned Commissioner (Appeals) erred in confirming an addition of Rs. 7,22,61,702 representing write back of sales tax loan under section 41(1) of the Act....."
2005-06 446/Mum/2009 186/Mum/2018 "2. The learned
Commissioner (Appeals)
erred in confirming an
addition of Rs.
4,94,55,511 representing
write back of sales tax
loan under section 41(1)
of the Act....."
2006-07 6734/Mum/2011 187/Mum/2018 "2. The learned
Commissioner(Appeals)
erred in confirming the
disallowance of Rs.
48,21,000 made by the
assessing officer on
construction of viewing
gallery in the Contract
Manufacturing Units on
the basis that the said
expenditure is capital in
nature."
2007-08 6735/Mum/2011 188/Mum/2018 "2. The learned
Commissioner
(Appeals) erred in
confirming the
disallowance of Rs.
20,00,000 made by the
assessing officer on
construction of viewing
gallery in the Contract
Manufacturing Units on
the basis that the said
expenditure is capital in
nature."
2008-09 6737/Mum/2011 189/Mum/2018 "2. The learned CIT(A) erred in confirming the 4 I TA N o s. 4 4 5 /M u m/ 2 0 0 9 a n d o t he r a p pe a l s Pa r le P ro d uc t s P v t. Lt d.
disallowance of Rs.
17,15,283 made by the assessing officer on construction of viewing gallery in the Contract Manufacturing Units on the basis that the said expenditure is capital in nature."
2009-10 6190/Mum/2012 190/Mum/2018 "2. The learned CIT(A) erred in confirming the disallowance of Rs.
23,63,092 made by the assessing officer on construction of viewing gallery in the Contract Manufacturing Units on the basis that the said expenditure is capital in nature."
3. Accordingly, we rectify our order dated 30/07/2018 with a limited issue of deciding ground No.2 as stated above. We direct accordingly.
4. Pursuant to the above recall, we have heard the above appeals on the grounds recalled as above. Upon hearing both the counsel and perused the record, we deal with the issues as recalled above as under:
(i) 4902/Mum/2006, A.Y. 2001-02:-
2nd ground of appeal as above, regarding reduction of 90% gross interest while computing the "profits of the business under clause (baa) of the Explanation to section 80HHC It transpires that this issue is covered in favour of the assessee by the decision of Hon'ble Apex court in the case of ACG Associated Capsuled Pvt. ltd vs CIT 18 taxmann.com 137.
(Head notes only) "Explanation (baa) to section 80HHC states that "profits of the business" means the profits of the business as computed under the head "Profits and Gains of Business or Profession" as reduced by the receipts of the nature mentioned in clauses (1) and (2) of the Explanation (baa). Thus, profits of the business of an 5 I TA N o s. 4 4 5 /M u m/ 2 0 0 9 a n d o t he r a p pe a l s Pa r le P ro d uc t s P v t. Lt d.
assessee will have to be first computed under the head "Profits and Gains of Business or Profession" in accordance with provisions of Section 28 to 44D of the Act. In the computation of such profits of business, all receipts of income which are chargeable as profits and gains of business under Section 28 of the Act will have to be included. Similarly, in computation of such profits of business, different expenses which are allowable under Sections 30 to 44D have to be allowed as expenses. After including such receipts of income and after deducting such expenses, the total of the net receipts are profits of the business of the assessee computed under the head "Profits and Gains of Business or Profession" from which deductions are to made under clauses (1) and (2) of Explanation (baa). [Para 9 ].
Under Clause (1) of Explanation (baa), ninety per cent of any receipts by way of brokerage, commission, interest, rent, charges or any other receipt of a similar nature included in any such profits are to be deducted from the profits of the business as computed under the head "Profits and Gains of Business or Profession". The expression "included any such profits" in clause (1) of the Explanation (baa) would mean only such receipts by way of brokerage, commission, interest, rent, charges or any other receipt which are included in the profits of the business as computed under the head "Profits and Gains of Business or Profession". Therefore, if any quantum of the receipts by way of brokerage, commission, interest, rent, charges or any other receipt of a similar nature is allowed as expenses under Sections 30 to 44D of the Act and is not included in the profits of business as computed under the head "Profits and Gains of Business or Profession", ninety per cent of such quantum of receipts cannot be reduced under Clause (1) of Explanation (baa) from the profits of the business. In other words, only ninety per cent of the net amount of any receipt of the nature mentioned in clause (1) which is actually included in the profits of the assessee is to be deducted from the profits of the assessee for determining "profits of the business" of the assessee under Explanation (baa) to Section 80HHC [ Para 10] Explanation (baa) has to be construed on its own language and as per the plain natural meaning of the words used in Explanation (baa), the words "receipts by way of brokerage, commission, interest, rent, charges or any other receipt of a similar nature included in such profits" will not only refer to the nature of receipts but also the quantum of receipts included in the profits of the business as computed under the head "Profits and Gains of Business or Profession" referred to in the first part of the Explanation (baa). Accordingly, if any quantum of any receipt of the nature mentioned in clause (1) of Explanation (baa) has not been included in the profits of business of an assessee as computed under the head "Profits and Gains of Business or Profession", ninety per cent of such quantum of the receipt cannot be deducted under Explanation (baa) to Section 80HHC. [Para 11] 6 I TA N o s. 4 4 5 /M u m/ 2 0 0 9 a n d o t he r a p pe a l s Pa r le P ro d uc t s P v t. Lt d.
Therefore, if the rent or interest is a receipt chargeable as profits and gains of business and chargeable to tax under Section 28 of the Act, and if any quantum of the rent or interest of the assessee is allowable as an expense in accordance with Sections 30 to 44D of the Act and is not to be included in the profits of the business of the assessee as computed under the head "Profits and Gains of Business or Profession", ninety per cent of such quantum of the receipt of rent or interest will not be deducted under clause (1) of Explanation (baa) to Section 80HHC. In other words, ninety per cent of not the gross rent or gross interest but only the net interest or net rent, which has been included in the profits of business of the assessee as computed under the head "Profits and Gains of Business or Profession", is to be deducted under clause (1) of Explanation (baa) to Section 80HHC for determining the profits of the business. [Para 12] In the result, the appeal is allowed and the impugned order of the High Court is to be set aside. The matter is remanded to the Assessing Officer to work out the deduction from rent and interest in accordance with this judgment . [Para 17]"
Respectfully following the above we decide the issue in favour of assessee.
(ii) 445/Mum/2009, A.Y.2004-05 446/Mum/2009, A.Y.2005-06 2nd ground of appeal as above, regarding addition representing write back of sales tax loan under section 41(1) of the Act.
It transpired that this issue is covered in favour of the assessee by the decision of Hon'ble Apex Court in the case of CIT Vs Balkrishna Industries 88 taxman.com 273 (head notes only) "The High Court took into consideration the provisions of section 41 and the conditions which are required to be satisfied for bringing a particular receipt as 'income' within the ambit thereof and found that those conditions are not satisfied in the present case. The High Court also repelled the contention of the revenue that the assessee obtained the benefit of reduction of sales tax liability under section 43B as per the CBDT Circular No. 496, dated 25-9-1987. The relevant portion of the discussion in this behalf reads as under-
There was premature payment of Sales Tax already collected. Its remittance to the Government is not covered by section 43. Therefore, section 43B has no application. Insofar as applicability of section 41(1)(a), there also the applicability is to be considered in the light of the liability. It is a loss, expenditure or trading liability. In this case, the scheme under which the Sales Tax liability was deferred enables the assessee to remit the Sales Tax collected from the customers or consumers to the 7 I TA N o s. 4 4 5 /M u m/ 2 0 0 9 a n d o t he r a p pe a l s Pa r le P ro d uc t s P v t. Lt d.
Government not immediately but as agreed after 7 to 12 years. If the amount is not to be immediately paid to the Government upon collection but can be remitted later on in terms of the Scheme, then the exercise undertaken by the Government of Maharashtra in terms of the amendment made to the Bombay Sales Tax Act, may relieve the assessee of his obligation, but that is not by way of obtaining remission. The worth of the amount which has to be remitted after 7 to 12 years has been determined prematurely. That has been done by find out its NPV. If that is the value of the money that the State Government would be entitled to receive after the end of 7 to 12 years, then, ingredients of sub-section (1) of section 41 cannot be said to be fulfilled. The obligation to remit to the Government the Sales Tax amount already recovered and collected from the customers is in no way wiped out or diluted. The obligation remains. All that has happened is an option was given to the assessee to approach the SICOM and request it to consider the application of the assessee of premature payment and discharge of the liability by finding out its NPV. If that was a permissible exercise and in terms of the settled law, then, we do not see how the assessee can be said to have been benefited and as claimed by the revenue is not that the assessee having paid Rs. 3.37 crores has obtained for himself anything in terms of section 41(1), but the assessee is deemed to have received the sum of Rs. 4.14 crores, which is the difference between the original amount to be remitted with the payment made. This cannot be termed as deemed payment and by the State to the assessee. The Tribunal has found that the first requirement of section 41(1) is that the allowance or deduction is made in respect of the loss, expenditure or a trading liability incurred by the assessee and the other requirement is the assessee has subsequently obtained any amount in respect of such loss and expenditure or obtained a benefit in respect of such trading liability by way of a remission or cessation thereof. As rightly noted by the Tribunal, the Sales Tax collected by the assessee during the relevant year amounting to Rs. 7,52,01,378 was treated by the State Government as loan liability payable after 12 years in 6 annual/equal instalments. Subsequently and pursuant to the amendment made to the 4th proviso to section 38 of the Bombay Sales Tax Act, 1959, the assessee accepted the offer of SICOM, the implementing agency of the State Government, paid an amount of Rs. 3,37,13,393 to SICOM, which, according to the assessee, represented the NPV of the future sum as determined and prescribed by the SICOM. In other words, what the assessee was required to pay after 12 years in 6 equal instalments was paid by the assessee prematurely in terms of the net present value (NPV) of the same. That the State may have received a higher sum after the period of 12 years and in instalments. However, the statutory arrangement and vide section 38, 4th proviso does not amount to remission or cessation of the assessee's liability assuming the same to be a trading one. Rather that obtains a payment to the State prematurely and in terms of the correct value of the debt due to it. There is no evidence to show that there has been any remission or cessation of the liability by the State Government." [Para 9] 8 I TA N o s. 4 4 5 /M u m/ 2 0 0 9 a n d o t he r a p pe a l s Pa r le P ro d uc t s P v t. Lt d.
The aforesaid approach of the High Court is without any blemish, inasmuch as all the requirements of section 41(1) could not be fulfilled in this case. [Para 10]"
Respectfully following the above we decide the issue in favour of assessee.
(iii) 6734/Mum/2011, A.Y.2006-07 Issue of view gallery expenditure 6735/Mum/2011, A.Y. 2007-08 in contract manufacturing units 6737/Mum/2011, A.Y.2008-09 6190/Mum/2012, A.Y.2009-10 Since the issue is common we adjudicate the same with reference to facts and figures from A.Y. 2006-07.
On this issue the A.O found that assessee has incurred huge expenditure amounting to Rs.48.21 Lacs on construction of a viewing gallery in contract manufacturing units, AO rejected the assesses's claim that the same should be allowed as deduction from income , upon assessee's appeal Ld. CIT(A) noted that the assessee submission as under:
"8.1 In course of assessment proceedings, it was found that the appellant has incurred expenses amounting to Rs.48.21 Lacs on construction of a viewing gallery in the CMU's. The appellant had claimed the said expenditure as deduction in its return of income. The appellant submitted that the said expenditure has not resulted in the creation of asset belonging to the company and is in the nature of advertisement/sales promotion since it promotes the company's products by allowing visitors to observe the process of manufacture of biscuits. Therefore the expenses is in the nature of sales promotion expenses and hence allowable as deduction under section 37(1) of the ITA.
8.2 The appellant further argued that even if it is presumed that the expenditure results in some enduring benefit the same would be deductible in the current year if the advantage is not in the capital field and merely enables the assessee to carry on his business more efficiently or profitably. The appellant has placed reliance on the following decisions:
*CIT v. Empire Jute 124 ITR 1 (SC) * CIT v. Assam Bengal Cement 27 ITR 34 (SC) * Alembic Chemical Works Co. Ltd. v. CIT 177 ITR 377 (SC) 8.3 The appellant further relies on the following decisions wherein it was held that the expenses on advertisement are deductible in the year in which it is incurred:
*Amar Raja Batteries v. ACIT, 272 ITR 17, (ITAT Hyderabad Bench * Core Health Care Ltd., 78 ITD 1 (ITAT Ahmedabad TM Bench) * Silicon Interfaces Pvt.Ltd. v ITO, ITA No. 7434/Mum/03, (ITAT Mumbai Bench) * CIT v. V Berger Paints(India)., 254 ITR 503, (Calcutta High Court) 9 I TA N o s. 4 4 5 /M u m/ 2 0 0 9 a n d o t he r a p pe a l s Pa r le P ro d uc t s P v t. Lt d.
* Glaxo Smith Kline Consumer Healthcare Ltd. V. ACIT, 112 TT] 94 (ITAT Chandigarh Bench).
However, the Ld. CIT(A) was not convinced. He held that the same was--- capital expenditure liable for deprecation He held as under:
8.4 I have considered the submission of the appellant and not inclined to accept its contentions. It is common occurrence that various groups, persons visit well known industrial concerns, factory premises like that of the appellant as part of educational programmes. They see the whole manufacturing process as part of the industrial visit. If the appellant's logic is accepted, then even the plant & machinery, housed in the premises would be treated as advertisement in nature as such visits lead to some sort of its advertisement and publicity. It is also not clear how a viewing gallery in the contract manufacturing unit (CMU) enables the appellant to carry out the business more efficiency or profitably. Looking at the nature, quantum of expenditure and the enduring benefit it generates, it will be fair and reasonable to treat the same as capital in nature. The action of the Assessing Officer is, therefore, upheld on this point. The appellant would be entitled to depreciation at appropriate rate."
5. Against above order assessee is in appeal before us.
6. We have heard both the counsel and perused the records. Ld. Counsel of the assessee contended that assessee hs constructed viewing galleries in the contract manufacturing units. He submitted that assessee has no ownership rights upon the said construction. Hence learned Counsel of the assessee submitted that the said expenditure cannot be said to be capital expenditure in the hands of the assessee liable for deprecation. He submitted that since the assessee has constructed the viewing galleries for the promotion of business and for smooth conduct of the functioning of the contract manufacturing unit and proper supervision thereof the same should be allowed as revenue expenditure. Per Contra Ld. DR relied upon the orders of the Ld. CIT(A).
7. Upon careful consideration we find that the income tax law providing for capital expenditure liable for depreciation is contained under section 32 of the I.T. Act. As per the 10 I TA N o s. 4 4 5 /M u m/ 2 0 0 9 a n d o t he r a p pe a l s Pa r le P ro d uc t s P v t. Lt d.
provisions of law ownership the property is sine quo non for depreciation. Hence since the assessee does not have ownership it cannot be treated as capital expenditure in the hands of the assessing liable for deprecation. The submission of the assessee that the said construction enables the assessee to carry on his business more efficiently and profitably and hence the same should be allowed under section 37 of the I.T.Act has considerable cogency. In this regard we are in agreement with the submission of the learned Counsel of the assessee that the benefit from the said expenditure may be of some enduring benefit but, the said expenditure was necessary for the business to the carried on more efficiently and profitably. Hence on the touchstone of following case laws the assessee deserves to succeed.
CIT v. Empire Jute 124 ITR 1 (SC) CIT v. Assam Bengal Cement 27 ITR 34 ISC) Alembic Chemical Works Co. Ltd. v. CIT 177 ITR 377 (SC)
9. Accordingly we set aside the orders of authorities below and decide the issue in favour of assesse. Hence all the grounds as considered above are decided in favour assessee. The overall decision of the appeals have to be read in conjunction with the ITAT order passed earlier.
Order pronounced in the open court on 12th March, 2019.
Sd/- Sd/-
(Ravish Sood) (Shamim Yahya)
Judicial Member Accountant Member
Mumbai; Dated : 12.03.2019
Thirumalesh, Sr. PS
11
I TA N o s. 4 4 5 /M u m/ 2 0 0 9 a n d o t he r a p pe a l s
Pa r le P ro d uc t s P v t. Lt d.
Copy of the Order forwarded to :
1. The Appellant
2. The Respondent
3. The CIT(A)
4. CIT - concerned
5. DR, ITAT, Mumbai
6. Guard File
BY ORDER,
(Dy./Asstt. Registrar)
ITAT, Mumbai