Income Tax Appellate Tribunal - Kolkata
Keventer Agro Ltd., Kolkata vs Department Of Income Tax on 30 June, 2014
आयकर अपीलीय अधीकरण, Ûयायपीठ - "B" कोलकाता,
IN THE INCOME TAX APPELLATE TRIBUNAL "B" BENCH: KOLKATA
(सम¢)Before ौी महावीर िसंह, Ûयायीक सदःय एवं/and ौी शामीम याह
याहया,
या लेखा सदःय)
[Before Shri Mahavir Singh, JM & Shri Shamim Yahya, AM]
आयकर अपील संÉया / I.T.A No.1663 /Kol/2011
िनधॉरण वषॅ/Assessment Year: 2000-01
&
आयकर अपील संÉया / I.T.A No.1664/Kol/2011
िनधॉरण वषॅ/Assessment Year: 2003-04
&
आयकर अपील संÉया / I.T.A No.1665/Kol/2011
िनधॉरण वषॅ/Assessment Year: 2005-06
Joint Commissioner of Income-tax (OSD), Vs. M/s. Keventer Agro Ltd.
Circle-4, Kolkata. (PAN: AABCK1716D)
(अपीलाथȸ/Appellant) (ू×यथȸ/Respondent)
Date of hearing: 18.06.2014
Date of pronouncement: 30.06.2014
For the Appellant: Shri D. J. Mehta, JCIT, Sr. DR
For the Respondent: Shri S. K. Tulsiyan, Advocate
आदे श/ORDER
Per Shri Mahavir Singh, JM :
All these appeals by revenue are arising out of separate orders of CIT(A)-XIX, Kolkata in Appeal Nos 508,509,510/CIT(A)-XIX/ITO,Wd4(4)/Kol/08-09 dated 01.09.2011, 02.09.2011 and 05.09.2011. Assessments were framed by ITO, Ward-4(4), Kolkata u/s. 147/ 143(3) of the Income-tax Act, 1961 (hereinafter referred to as "the Act") for Assessment Years 2000-01, 2003-04 and 2005-06 vide his separate orders dated 31.03.2006 (for AY 2000-01 & 2003-04) and 26.12.2007 (for AY 2005-06).
2. The first issue in the appeal of revenue being ITA No. 1663/Kol/2011 for AY 2000-01 is against the order of CIT(A) deleting the addition made by AO on account of unaccounted receipt from National Dairy Development Board (In short NDDB). For this, revenue has raised following ground no.1:
"1. That on the facts and circumstances of the case, Ld. CIT(A) erred in directing the A.O. to delete the addition of Rs.12,32,996/- on account of unaccounted receipts from National Dairy Development Board without appreciating the fact that the AO made such 2 ITA Nos.1663 to 1665/K/2011 M/s. Keventer Agro Ltd. AY 2000-01, 2003-04 & 2005-06 addition on the basis of materials on record and explanation offered by the assessee company."
3. Briefly stated facts are that the assessee company is engaged in the business of manufacturing and selling of fruit juice under the trade name of Frooti and also mineral water under the trade name of 'Bailley' both as licencee/franchisee of Parle Agro (P) Ltd., Mumbai. The assessee company also carries out packing of Dhara oil at its factory premises situated at Fateabad, P.O. Barasat, North 24 Parganas, West Bengal on behalf of Dhara Vegetable Oil & Food Co. Ltd. Barasat. The assessee company is also running a milk dairy at Barasat, Kolkata under the name and style of Metro Dairy Ltd. in term of joint venture with W.B. State Cooperative Milk Producers Federation Ltd. (in Short WBSCMPFL). In the relevant assessment year, assessment was framed by the AO u/s. 143(3) of the Act after verifying the books of account, bank statements and other documents. Subsequently, the AO issued notice u/s. 148 of the Act and assessment was framed u/s. 147 read with section 143(3) of the Act. As regards to this issue of unaccounted receipts added by AO, the facts are that the assessee company carries on activities of packaging of Dhara Oil on behalf of Dhara Vegetable Oil & Food Co. Ltd. The assessee during the relevant assessment year credited its P&L Account with a sum of Rs.1,20,27,912/- by way of packaging charges as per Schedule 11 of the audited accounts received/receivable from NDDB in respect of packaging activity carried on by them on their behalf. The assessee claimed TDS and filed TDS certificates, during the course of assessment proceedings, wherein th figure of receipts is at Rs.1,32,60,908/-. The assessee before the AO claimed that the assessee company has credited a sum of Rs.1,20,27,912/- in its audited P&L Account under the head packaging charges. After considering the packaging charges relating to opening and closing stock of packaged milk, which practise was consistently followed by assessee, it was explained that the following two amounts do not form part of packaging charges receipt in the sum of Rs.1,20,27,912/- as credited in the P&L Account under Schedule 11 due to the reasons as under:
i) A sum of Rs.7,22,107/- being the amount of packaging charges already booked and offered for taxation in the year ending 31.03.1999 relevant to AY 1999-
2000. The assessee also filed evidence in the shape of statement forming part of paper book. Even the statement was filed before us at page 27 and at page 28 of assessee's paper book. The assessee has reconciled the figure of Rs.7,22,171/-.
ii) The assessee also explained the sum of Rs.4,62,597/- being the amount received from NDDB but reflected the same in its audited account for the year under appeal as part of other income as is evident from the statement forming part 3 ITA Nos.1663 to 1665/K/2011 M/s. Keventer Agro Ltd. AY 2000-01, 2003-04 & 2005-06 of paper book at pages 27 to 31. But the AO was not convinced by the details and he made addition.
4. Aggrieved, assessee preferred appeal before CIT(A). Before CIT(A) assessee made same submissions as mad before the AO. The CIT(A) after going through the submissions decided the issue vide para 12 of his order on the basis of the above submissions and the relevant para reads as under:
"(12) I have considered the submission of the appellant and perused the assessment order. I have also gone through the P & L A/c, statement of details of TDS certificates and correspondíng income submitted before the AO, details of month-wise packing charges for F.Y. 1998-99 and 1999-2000 and details of other income/misellaneous income. All these details and documents were also produced before the AO. As mentioned above, during the assessment proceedings it was observed by the AO that there was difference of Rs.12,32,996/- between the receipts from NDDB as per TDS certificates vis-
a-vis the P & L A/c. On being questioned, the appellant company filed explanatìon before the AO along with various statement and details in support of its explanation. However, it is observed that the AO rejected the explanation of the appellant company by merely stating "that as per TDS certificates issued by NDDB it is seen that total of Rs.1,32,60,998/- has been credited in the accounts of the assessee for the contract job undertaken (packing charges) during the period from 1/4/99 to 31/3/2000 against which TDS of Rs.2,91,739/- had been deducted. Assessee's reply is not convincing. Assessee followed the mercantile accounting system. So total credit of contract charges should be taken into account this year unde consideration. Hence, the difference of receipts of Rs.12,32,996/- is added to the income". On careful consideration of the facts and perusal of the statement and details furnished before the AO, I am of the opinion that the AO was not justified in making addition of Rs.12,32,996/-. It appears that eíther the AO did not understand the submission and details filed by the appellant company or did not try to understand the same. I am of the opinion that an addition to the total income cannot be made by simply stating that the reply of the assessee is not convincing. The A0 has not given any reason in support of his aforesaid statement/conclusion. Once, an explanatîon and supporting statements/details were filed before the AO, the onus was on the AO to state as to why the explanation furnished by the appellant was not correct or could not be accepted. However, the AO has not done so. On the other hand on verification of details and statement along with explanation of the appellant, its contention is found to be correct that sum of Rs.7,22,171/- on account of packing charges was atready booked and offered for taxation in A.Y. 1999-2000 as the bill of the saîd amount was raised in the month of March, 1999 and as on 31/3/1999 that sum was receivable. The amount was received in AY. 2000-01 on which tax was also deducted but it was already offered by the appellant for tax in A.Y. 1999-2000. The contention of the appellant that sum of Rs.4,62,597/- received from NDDB is credited as part of 'Other income/ Miscellaneous income' is also found to be correct. On perusal of details of miscellaneous íncome it is observed that the receipts from NDDB were shown as 'Decapping Packing charges', 'Decapping Finished Goods', and differential amount for rate revision. Further, there was adjustment of Rs.48,222/- on account of closing stock as explained by the appellant. Thus, if all the three amounts are taken together i.e. Rs.7,22,171/-, Rs.4,62,597/- and Rs.48,222/-, there was no understatement of receipts of Rs.12,32,996/- from NDDB as observed by the AO. In view of above, the AO is directed to delete the addition of Rs.12,32,996/-. The ground no. 5 is allowed."
Aggrieved, revenue is in appeal before us.
4 ITA Nos.1663 to 1665/K/2011M/s. Keventer Agro Ltd. AY 2000-01, 2003-04 & 2005-06
5. We have heard rival submissions and gone through facts and circumstances of the case. We find that the assessee is able to explain by filing details of packaging charges received to the sum of Rs.1,20,27,912/- and why the difference kept in. The assessee has reconciled the figure of Rs.7,22,171/- being the amount of packaging charges already booked in the Ay 1999-2000 and it has been verified by the AO as well as CIT(A). The second figure of Rs.4,62,597/- being the amount received from NDDB was reflected under the head "other incomes" as is evident from the statement forming part of assessee's paper book appearing at pages 27 to 31. From the above reconciliation it is clear that the assessee is able to explain why difference between the receipts as noted in TDS certificate and receipt declared by assessee arose. Accordingly, this amount of Rs.12,32,996/- has rightly been deleted by CIT(A) and we confirm the same. This ground of appeal of revenue is dismissed.
6. The next issue in the appeals of revenue i.e. ground no.2 for AY 2000-01 and ground no. 6 for AY 2003-04 as against the order of CIT(A) directing the AO to delete the addition made by AO on account of disallowance of interest on borrowed money. Since grounds are identical, except variance in amount, and facts are common, we dispose of this ground of appeals for both the years together by reproducing following ground no. 2 from AY 2000-01 and also by taking facts from this assessment year.
"2. That on the facts and circumstances of the case, Ld. CIT(A) erred in law in directing the AO to delete the addition of Rs.34,13,652/- on account of interest on borrowed money without considering the ract that the assessee company is substantially interested in Metro Dairy Ltd. holding 34.55% of total share capital of Metro Dairy Ltd., secondly the assessee company was incurring huge losses for the last several years and thirdly it is not established that the assesed invested the sum in Metro Dairy out of own fund where it itself a sick company with borrowed capital of Rs.9,84,20,725/-."
7. Briefly stated facts are that the AO, during the course of reassessment proceedings, noticed from Schedule 5 of the Balance Sheet that the assesee has invested a sum of Rs.2,10,48,250/- in shares of Metro Dairy Ltd. wherein assessee holds 34.55% of share capital in Metro Dairy Ltd. According to AO, the assessee is substantially interested in Metro Dairy Ltd. but no interest income from such huge investment was declared in the return of income. As against this investment, assessee made large borrowings on which interest of Rs.1,59,62,095/- has been paid . According to AO, the loan funds have been invested in the shares of Metro Dairy Ltd. and accordingly, he disallowed the proportionate interest by observing as under:
"Total amount of borrowed capital was Rs.9,84,20,725/-. Investment made in Metro Diary Rs.2,10,48,250/- and total interest paid on borrowed capital was 5 ITA Nos.1663 to 1665/K/2011 M/s. Keventer Agro Ltd. AY 2000-01, 2003-04 & 2005-06 Rs.1,59,62,095/-. So proportionate interest paid for non business purpose is Rs.1,59,62,095/- X 2,10,48,250/9,84,20,725/- = Rs.34,13,652/-. This is disallowed."
Aggrieved, assessee preferrd appeal before CIT(A), who after considering the submissions of the assessee deleted the addition vide para 15 and 15.3 as under:
"(15) I have considered the submission of the appellant and perused the assessment order. I have also gone through the joint venture agreement as well as various judicial pronouncements relied upon by the appellant company. During the course of assessment proceedings it was observed by the AO that the appellant company had made investment in Metro Dairy Ltd., in which it is having substantial interest. That, the investment was made from the borrowed capital and the appellant had not shown any return from its investment in the said company. That, the line of business of the appellant company and other company were different. Under the circumstances, the AO disallowed proportionate amount of interest paid by the appellan which comes to Rs.34,13,652/-. On the other hand it was claimed by the appellant that it had invested the money in Metro Dairy Ltd.
as per joint venture agreement amongst appellant, W.B. State Co-operative Milk Producers Federation Ltd and National Dairy Development Board. It is contended by the appellant that the investment was made by the appellant company for business purpose and hence, no disallowance of interest was cailed for. In earlier years no such disallowance was made by the AO and that the appellant company was having its own funds more than the amount of investment in Metro Dairy Ltd. On perusal of the joint venture agreement it is observed that National Dairy Development Board, W.B. Co- operative Milk Producerš Federation Ltd and the appellant i.e. Keventer Agro Ltd., entered into an agreement, as promoters to set up jointly a new dairy in West Bengal as Third Metro Dairy under a joint sector company. Accordingly, the percentage of capital was agreed amongst the three venturers and appellant company made investment of Rs.2.10 crores in F.Y.1993-94 relevant to A.Y.1994-95. On careful consideration of facts and in law, I am of the opinion that the AO was not justified in disallowing payment of interest on proportionate basis merely for the reason that the appetlant company had not shown returns from the investment or that the appellant company was making losses. The AO has held that the ¡nvestment in Metro Dairy Ltd. had been made out of the borrowed capital. However, he has not brought any material on record to support his statement/conclusion, specifically, when the investment was made by the appellant company in the F.Y.1993-94 relevant to A.Y.1994-95 and from A.Y.1994-95 to A.Y.1999- 2000, no such disallowance of interestwas made by the AO. The AO has not considered that the appellant company was having ¡ts own non-interest bearing funds, more thaitamount invested in Metro Dairy Ltd.
15.3. In the case of appellant, the facts are similar and that it lhad entered into an agreement with National Dairy Development Board and West Bengal Cooperative Milk Producers Federation Ltd. to set up a joint venture company for the production of milk. That, the company contributed the capital as per agreement and it was for the appellant's business. In view of the facts of the case and the principles laid down by the Hon'ble jurisdictional High Court in the cases of Rajiva Lochan Kanoria and Kejriwal Enterprises (supra), it is to be held that the AO was not justified in making the disallowance of proportionate amount of interest on account of appellant's making investment in joint venture company, Metro Dairy Ltd.
Aggrieved, revenue is in appeal before us.
6 ITA Nos.1663 to 1665/K/2011M/s. Keventer Agro Ltd. AY 2000-01, 2003-04 & 2005-06
8. We have heard rival submissions and gone through facts and circumstances of the case. We find that the total borrowed funds of the assessee was at Rs.9,84,20,725/- out of which it made investment of Rs.2,10,48,250/- in acquiring shares of Metro Dairy Ltd. The AO made disalloance of proportionate interest on the above investment for the reason that the assessee's total shareholding in Metro Dairy Ltd. was 34.35% of the total share capital. He found that the assessee has not derived any income on such investment in Metro Dairy Ltd. He, therefore, disallowed proportionate interest amounting to Rs.34,13,652/-. On the other hand, it was argued that the investment made in Metro Dairy Ltd. was not in connection with assessee's business and, therefore, interest was not admissible u/s. 36(1)(iii) of the Act. Before us Ld. counsel for the assessee pointed out that the assessee itself was engaged in manufacturing and trading of fruit joice, packaging of edible oils but Metro Dairy Ltd. was engaged in different line of business i.e. in manufacturing of milk products from milk powder. It was explained by the assessee that the investment in shares of Metro Dairy Ltd. was made by the assessee during FY 1993- 94 relevant to AY 1994-95. But revenue from AY 1994-95 to 1999-2000 has not questioned the investment of that which was for business purpose and no disallowance of interest was made in those years. The assessee also claimed that its own funds were sufficient to cover the investment made by it in Metro Dairy Ltd. Ld. counsel for the assessee stated that interest free funds available in the shape of capital reserves and loans are more that the interest paid on this investment. We find that the assessee company contributed a sum of Rs.2,10,48,250/- by way of its shares in the joint venture. The assessee company under the name of Metro Dairy Ltd. produces milk in joint venture with WBSCMPFL and NDDB. The joint venture is a business enterprise and investment by assessee in the same is wholly and exclusively for the purpose of business. The assessee company filed copy of joint venture agreement amongst assessee, WBSCMPFL and NDDB before the AO, before CIT(A) and even now before us. Once the investment is made in a joint venture and all the monies borrowed were used wholly and exclusively for the purpose of business, no interest can be disallowed. This issue is covered by the decision of Hon'ble Calcutta High Court in the case of CIT Vs. Rajib Lochan Kanoria 208 ITR 616 (Cal). Even this issue is covered by the decision of Hon'ble Bombay High Court in the case of CIT Vs. Reliance Utilities & Powers Ltd. 313 ITR 340 (Bom.) wherein it is held that if there is interest free funds available to assessee to meet its investments and at the same time the assessee has raised loans it can be presumed that investments were from interest free funds available. Even otherwise, for the purpose of consistency, the assessee has made this investment from AY 1994-95 to 1999-2000 no 7 ITA Nos.1663 to 1665/K/2011 M/s. Keventer Agro Ltd. AY 2000-01, 2003-04 & 2005-06 such interest was allowed by AO and accepted this fact. In term of the above, we are of the considered view that the CIT(A) has rightly deleted the disallowance and we confirm the same. The ground of revenue's appeal in both the years is dismissed.
9. The first issue in the appeal of revenue in ITA No.1664/K/2011 for AY2003-04 is against the order of CIT(A) deleting the expenses under the head Scoobi Doo Promotion expenses aded by AO. For this, revenue has raised following ground no. 1:
"1. That on the facts and circumstances of the case, Ld. CIT(A) erred in law in directing the AO to delete the addition of Rs.49,44,199/- under the head 'Scooby Doo Promotion expenses' without appreciating the fact that no services in exchange of payment of such amount made to Parley Agro Pvt. Ltd. was received by the assessee company."
10. We have heard rival submissions and gone through facts and circumstances of the case. Facts relating to the case are that the assessee is engaged in the business of manufacturing and selling of fruit juice and mineral water as a licencee of Parley Agro Pvt. Ltd., Mumbai, who is brand owner of the trademark "Frooti" under the name of Frooti & Bailley. Parley Agro Ltd. introduced the consumer promotion scheme under the name of Scoobi Doo, which is a device of trademark of Cartoon Net work of Warner Brothers, USA. The purpose of the scheme was to promote sales to Frooti in Indian market. Under this scheme the licensees/Franchisees were required to provide free Sticker and Tatoos to buyers of "Frooti" inviting them to enter into a Lucky Draw scheme with prizes like T.V. Watches etc. including a Family trip to Australia. In view of this scheme, Parley Agro Ltd. incurred expenses, which were required to be shared by licensees/Franchisees. Under the scheme, assessee incurred expenses of Rs.49,44,199/-. The AO disallowed the expenditure on the basis that the assessee company did not furnish copy of any agreement entered into by it with Parley Agro Pvt. Ltd. in relation to promotional scheme. It was alleged that no bills evidencing such expenditure or any other expenses were produced. No evidence of advertisement in TV or print media in respect of assessee's promotion of contribution was furnished. It was further alleged that no services were rendered by the assessee company to Parley Agro Pvt. Ltd. in exchange of this payment. Accordingly, expenditure was disallowed. Aggrieved, assessee preferred appeal before CIT(A), who allowed the claim of assessee vide para 6 of the appellate order, which reads as under:
"(6) I have considered the submission of the appetlant and perused the assessment order.
I have also gone through the tetter dt. 15/11/2002 ìssued by Parle Agro (P) Ltd sent to appellant being Note on Scooby Doo, copy of letter dt. 24/9/2002 issued by Parle to its Franchisees on Modalities of consumer offer on Frooti 200 ml., details of expenses made on account of Scooby Doo, details of sales during the Scooby Doo period and calculation of Scoobi Doo promotion and details of payments of Rs.49,44,199/- to Parle Agro Pvt. Ltd. On careful consideration of the facts and on perusal of several documents and 8 ITA Nos.1663 to 1665/K/2011 M/s. Keventer Agro Ltd. AY 2000-01, 2003-04 & 2005-06 details as produced before the AO in the course of assessment proceedings, I am of the opinion that the AO was not justifìed in disallowing sum of Rs.49,44,199/-. It is observed from the assessment order that it is not the case of the AO that the expenditure incurred by the appellant company was not genuine or it was not incurred for the purpose of ìts business. The AO's contention, that the appellant could not produce any agreement to explain detaíl terms and condition of Scooby Doo scheme, is not correct, because in the course of assessment proceedings the appellant filed copies of letter dt. 24/9/2002 and 15/11/2002 issued by Parle to its franchisees. It is observed that the name of the appellant company is appearing in the said letters as one of the franchisees. Further, the terms and conditions of the scheme and the basis of payment to be made by each franchisees, including the appellant, to Parle Agro is clearly rnentioned in these letters. There was no independent and separate agreerments between Parle Agro Pvt. Ltd and its franchisees, including the appellant for Scooby Doo Scheme. The agreement was between the principal i.e., Parle gro Pvt. Ltd. and Time Warner Entertainment Co. USA for promotion scheme of Frooti and that total expenditure was to be borne by the each franchisees proportionately. It appears that the AO had not gone through the scheme and basis of payment. In the course of assessment proceedings the appellant company also filed the details of sales made duríng Scooby Doo promotion períod and the calculation of payment made to the Parle. As per letter issued by Parle to the appellant it was required to make payment for scheme @ Rs.19/- per case having 27 packs of 200 ml. Frooti juice. During the year under appeal, the appellant dispatched 287156 cases of 200 ml. Frooti-mango drink, out of that 26935 cases remained in closing stock. Thus, net dispatch to the distríbutors was 260221 cases. At the rate of Rs.19/- per case, the appellant- paid sum of Rs.49,44,199/- to Parle under Scooby Doo Promotion Scheme. The appellant company paid sum of Rs.14,73,734/- in the year under appeal and the balance amount of Rs.34,70,465/- was paid to Parle in the next fínancial year. Thus, it cannot be said that the details were not furnished by the appellant. The AO has also mentioned in the order that Parle Agro has not rendered any services the appellant in exchange of payment made by the appellant. I find no merit in the said observation of the AO, because there was no agreement with Parle for rendering any services to the appellant under Scooby Doo Scheme. The whole scheme was to promote sale of Frooti- mango juice and appellant had made payment to Parle as per agreement between Parle and Time Warner, USA. Parle also provided the promotional material to the appellant. In the assessment order the AO has further mentioned in the ledger account there is no mention of supply of stickers and tattoos etc. by Parle to the appellant. I do not agree with the observation of the AO because it is not known as to how there would be mention of supply of stickers and tattoos to the appellant in the ledger account. It is a common phenomenon that in todays corporate world, a lot importance is given on advertisement to promote sale of their brands and products. The expenditure on such advertisement is either borne by the principai in its books of account and in turn the princìpal recovers the expenditure from its franchisees by increasing cost of its brand and product as in the case of Coca-cola or the principal recovered the expenditure directly from its franchisees on proportionate basis as done in the case of appellant. In view of above, I am of the considered opinion that the appellant company had made payment of Rs.49,44,199/- to Parle on account of Scooby Doo promotion scheme, wholly and exclusively for the purpose of its business and that the claim made by the appellant is genuine and allowabie to him in the year under appeal. The AO is directed to delete disallowance of Rs.49,44,199/-. The ground nos. 2, 3 and 4 are allowed."
Aggrieved, revenue came in appeal before us.
11. We find that the assessee has submittd the brochure of promotional scheme brought out by Parley Agro Pvt. Ltd. and assessee participated in the promotional scheme and incurred its share of expenses as allotted to it. It was explained by the assessee before the AO that it did 9 ITA Nos.1663 to 1665/K/2011 M/s. Keventer Agro Ltd. AY 2000-01, 2003-04 & 2005-06 not receive any bill from Parley Agro Pvt. Ltd. but remittd Rs.19/- per tray of Frooti Mango drink containing 27 tetrapacks of the said juice. The assessee submitted complete breakup of Rs.49,44,199/- paid/payable to Parley Agro Pvt Ltd. It was claimed by the assessee that it was under compulsion to participate in the scheme as a prudent businessman and accordingly, paid its share of expenses. It was the objection of the revenue that no services in exchange of payment to Parley Agro Pvt. Ltd. was received by the assessee company but it seems that the objection of the revenue is unjustified in view of the fact that the advertisement in the form of Scoobi Doo animation film was shown in Television and All India display of such film was intended for increase of the sale of "Frooti". This being a promotional scheme assessee received huge success in business and this being a business itself, assessee's expenses are also business expenses. We are of the view that the CIT(A) has rightly deleted the disallowance and we confirm the same. This ground of revenue's appeal is dismissed.
12. The next issue i.e. ground no.2 in the appeal of revenue for AY 2003-04 is against the order of CIT(A) deleting the addition made by AO on account of increase in closing stock of stores and spares. For this, revenue has raised following ground no.2:
"2. That on the facts and circumstances of the case, Ld. CIT(A) erred in law in directing the AO to delete the addition of Rs.17,772/- on account of increase in closing stock of stores & spares etc. without considering the fact that the aO has made such addition after propr verification."
13. We have heard rival submissions and gone through facts and circumstances of the case. We find that AO during the course of assessment proceedings made addition of Rs.17,772/- on account of increase in closing stock of stores and spares. The AO observed as under:
"As per schedule-6 attached to the Balance Sheet it is seen that Closing Stock of stores, spares etc. has been increased than Opening Stock of it by an amount of Rs.17,772/- but such increase has not been reflected in the P/L A/c and as a result, income of Rs.17,772/- has not been shown during this year. So this is added to the income of this year."
The assessee filed reconciliation statement before CIT(A) who after considering the submission of the assessee deleted the addition. The relevant reconciliation reads as under:
"Opening Stock of Stores as on 01.04.2002 Rs.48,19,274
Add: Total Purchases during the F.Y. 2002-03 Rs.45,12,396
Rs.93,31,670
Less: Stores consumed debited to P&L a/c Rs.44,94,623
Closing Stock as on 31.03.03 Rs.48,37,047"
We find from the above reconciliation that the increase in the value of stock from Rs.48,19,274/- to Rs.48,37,047/- i.e. Rs.17,772/- was properly accounted by the assessee and in 10 ITA Nos.1663 to 1665/K/2011 M/s. Keventer Agro Ltd. AY 2000-01, 2003-04 & 2005-06 view of this, CIT(A) has rightly deleted the addition and we confirm the same. This ground of revenue's appeal is dismissed.
14. The next issue i.e. ground no. 3 in the appeal of revenue for AY 2003-04 is against the order of CIT(A) deleting the addition on unaccounted receipts from Dhara Vegetable Oil & Food Co. Ltd. For this, revenue has raised following ground no.3:
"That on the facts and circumstances of the case, Ld. CIT(A) erred in law in directing the AO to delete the addition of Rs.1,00,883/- on account of unaccounted receipts from Dhara Vegetable Oil & Food Co. Ltd. without appreciating the fact that the AO made such addition on the basis of materials available on record and explanation offered by the assessee company before the AO."
15. The AO during the course of assessment proceedings noted that during the FY 2002-03 the assessee raised total packaging bill charges of Rs.87,21,314/- on Dhara Vegetable Oil & Food Co. Ltd. as per intimation furnished by him to the Company. However, the AO from the assessee's P&L Account noticed that the packaging charges are shown as Rs.86,20,511/- thus there was a difference of Rs.1,00,883/-. The assessee before the AO filed reconcilialtion of difference and explained the discrepancy that the difference was on account of adjustment and its opening and closing stock of packaging charges. But the AO was not convinced and he made addition. Aggrieved, assessee preferred appeal before CIT(A) and CIT(A) after taking reconciliation deleted the addition. Aggrieved, revenue is now in appeal before us.
16. We find that as per TDS certificate issued to assessee by Dhara Vegetable Oil & Food Co. Ltd. the total bill of packaging charges amounting to Rs.87,11,115/- and not Rs.87,21,394/- as noted by the AO in the assessment order. The assessee explained before us that the gross bill of Rs.87,11,115/-, it reversed the packaging charges of the earlier years attributable to under despatch packing material and added the packaging charges relating to under despatch ;acking material and the current year and there was discrepancy. We find that the assessee has determined the income chargeable under the head Profit and Gains of business in accordance with the method of accounting regularly employed by the assessee and also reconcile the discrepancy in the packaging charges vis-à-vis closing stock. Once the assessee explained the same, the addition cannot be made. Accordingly, we confirm the order of CIT(A) deleting the addition and this issue of revenue's appeal is dismissed.
17. The next issue i.e. ground no. 4 in the appeal of revenue for AY 2003-04 is against the order of CIT(A) deleting the addition of amount received by assessee from Metro Dairy Ltd. for considering the fact that Metro Dairy Ltd. made deduction on account of TDS at Rs.9722/-
11 ITA Nos.1663 to 1665/K/2011M/s. Keventer Agro Ltd. AY 2000-01, 2003-04 & 2005-06 on the bill of Rs.4,62,911/- and the assessee has taken credit of the same. For this, revenue has raised following ground no.4:
"4. That on the facts and circumstances of the case, Ld. CIT(A) erred in law in directing the AO to delete the addition of Rs.4,26,576/- received by the assesee from Metro Dairy without considering the fact that Metro Dairy made TDS of Rs.9,722/- on a bill of Rs.4,62,911/- and the assessee has taken credit of the same."
18. We have heard rival submissions and gone through facts and circumstances of the case. We find that the AO noted that the assessee received a total amount of Rs.4,62,911/- from Metro Dairy Ltd. as contractual receipt but assessee explained that it received an amount of Rs.4,53,030/- from Metro Dairy Ltd. during the assessment year under consideration on account of reimbursement of expenses incurred by it on their behalf. In addition to the above, it has received a sum of Rs.36,335/- from Metro Dairy Ltd., which was included in the miscellaneous income. The AO found that out of the total contractual receipt of Rs.4,62,911/-, Metro Dairy Ltd. deducted TDS of Rs.9722/-, accordingly, he added a sum of Rs.4,26,576/-. Aggrieved, assesee preferred appeal before CIT(A), who deleted the addition by observing that the assessee was running and managing Metro Dairy Ltd. as a joint venture project. As several employees of the assessee rendered services to Metro Dairy Ltd. the remuneration paid to such employees was reimbursed by the said company. The assessee further explained that it was incurring expenses for running a common cantene as well as rendering security services on behalf of Metro Dairy Ltd. On this account it has incurred expenses which was reimbursed by Metro Dairy Ltd. to the tune of Rs.4,62,911/- and a sum of Rs.36,335/- represented amount on account of PF and ESI of the employees. Accordingly, assessee filed statement and filed evidence before the CIT(A). In view of the above facts, CIT(A) deleted the addition. Aggrieved, revenue came in appeal before us.
19. We find that the AO failed to correctly appreciate the submissions made by assessee in regard to real nature of receipt of the assessee. It is a fact that assessee has received a sum of Rs.4,62,911/- on account of reimbursement of expenses incurred by assessee on a joint venture project carried on with Metro Dairy Ltd. Since this amount represented reimbursement of expenses it was not in the nature of income in the hands of the assessee. CIT(A) has rightly deleted the same and we confirm the same. This issue of revenue's appeal is also dismissed.
20. The next issue i.e. ground no. 5 in the appeal of revenue for AY 2003-04 and ground no. 1 for AY 2005-06 is as regards to the order of CIT(A) in deleting the addition made by AO on account of obsolete stores. Since grounds are identical, except variance in amount, and facts 12 ITA Nos.1663 to 1665/K/2011 M/s. Keventer Agro Ltd. AY 2000-01, 2003-04 & 2005-06 are common, we dispose of this ground of appeals for both the years together by reproducing following ground no. 5 from AY 2003-04 and also by taking facts from this assessment year.
"5. That on the facts and circumstances of the case, Ld. CIT(A) erred in law in directing the AO to delete the addition of Rs.2,95,705/- on account of obsolete stores without considering the fact that it is the practice of the assessee to create a provision for obsolete stores and deduct the same from closing stock in order to reduce the income."
21. We have heard rival submissions and gone through facts and circumstances of the case. The AO during the course of assessment proceedings noted from the details of closing stock of stores and spares that provision for obsolete spares and stores have been made at Rs.2,95,705/- as on 31.03.2003. According to him, by making the provision the value of stock as well as income of the assessee has been reduced by this amount. Accordingly, he added back the sum of Rs.2,95,705/- under the head closing stock of stores and spares. Aggrieved, assessee preferred appeal before CIT(A), who deleted the addition by stating that AO wrongly picked up the figure of Rs.2,95,705/- and the correct figure should have been at Rs.1,47,853/-. Before CIT(A) assessee claimed that writing off of obsolete stores and spares is a regular and admissible practice in the manufacturing concern and it is a business expenditure. CIT(A) deleted on this premise. Aggrieved, revenue came in appeal before us.
22. We find that the assessee filed a letter before AO dated 27.03.2006, which was referred to by the AO in the assessment order along with en closures shown consumption of stores and spares. It appears from this letter that the correct figure of stores and spares written off is Rs.2,95,705/- as taken by the AO in the assessment order. From the details of closing stock as on 31.03.2003 has shown in the statement enclosed with the assessee's letter it is noticed that the total of the various items of closing stock of stores and spares was at Rs.51,32,752/- from which obsolence amounting to Rs.2,5,705/- was deducted. From the statement it is clear that this amount shown by the assessee as provision for obsolence rather it is a deduction claimed on account of obsolete stores and spares written off. This being an usual practice in the manufacturing industry to write off obsolete stores annually and therefore, claim as deduction from the closing stock is fully justified. We confirm the order of CIT(A) and this issue of revenue's appeals for both the years is dismissed.
23. The next issue i.e. ground no. 7 in the appeal of revenue for AY 2003-04 and ground no. 2 for AY 2005-06 is against the order of CIT(A) deleting the addition made by AO on account of remission of sales tax. Since grounds are identical, except variance in amount, and facts are common, we dispose of this ground of appeals for both the years together by 13 ITA Nos.1663 to 1665/K/2011 M/s. Keventer Agro Ltd. AY 2000-01, 2003-04 & 2005-06 reproducing following ground no. 7 from AY 2003-04 and also by taking facts from this assessment year.
"7. That on the facts and circumstances of the case, Ld. CIT(A) erred in law in directing the AO to delete the addition of Rs.31,32,665/- on account of remission of sales tax since the Supreme Court in the case of Sahaney Steel & Press Works Ltd. Vs. CIT pronounced that remission of sales tax is revenue receipt."
24. Briefly stated facts are that the assessee claimed out of total sales tax payable of Rs.79,36,913/- a sum of Rs.31,32,665/- as sales tax remission. The assessee claimed on the basis of sales tax assessment order granting remission. The AO noted from the West Bengal sales Tax Assessment Order dated 30.06.2005 for the year ending 31.03.2003 that on a total of West Bengal Sales Tax at Rs.58,73,206/-, a sum of Rs.29,14,838/- was allowed as remission. Similarly, against Central Sales Tax assessment order dated 30.06.2005 a further remission of Rs.2,17,827/- was claimed. The assessee filed necessary eligibility certificate for remission of sales tax u/s. 41 of the West Bengal Sales Tax Act, 1994 along with terms and conditions for such incentive under the West Bengal Incentive Scheme, 1993 vide letter dated 30.01.2006. According to AO, this remission of sales tax on sale of finished goods for a period of 9 years from the date of commencement of production is nothing but operational subsidies and supplementary trade receipts. Accordingly, assessee preferred appeal before CIT(A), who after considering the scheme of West Bengal Incentive Scheme, 1993 and 1999 treated the remission as capital receipt by observing in para 33 as under:
"(33) I have considered the submission of the appellant and perused the assessment order. I have also gone through the West Bengal Incentive Scheme, 1993/1999. The relevant provisions of these schemes along with the relevant provisions of West Bengal Sales Tax have already been discussed above. In the assessment order, the AO had made an addition of Rs.31,32,665/- on account of Sales Tax remission enjoyed by the appellant- company under the West Bengal Incentive Scheme, 1993/1999. The AO treated the receipt of Rs.31,32,665/- as Revenue Receipt relying on the decision of Hon'ble Supreme Court in the case of Sahney Steel & Press Works Ltd. vs. CIT reported in 228 ITR 253 (SC). In the year under appeal, it is contended by the appellant that the sum of Rs.31,32,665/- was already included in the sales credìted by the appellant company in its Profit & Loss A/c and hence, the addition made by the AO tantamount to double addition (ground no.12). Without prejudice to the above contention, through additional grounds of appeal, it was contended by the appellant company that though the amount enjoyed by it on account of sales-tax remisston, has been erroneously credited in the P & L A/c for the year under appeal, but the AO should have deducted the amount of sales-tax remission from the total receipts of the appellant company, because, the sales-tax remission enjoyed by the appellant company was a capítal receipt and not the revenue receipt. It is argued by the appellant that the Government of West Bengal formulated the incentive scheme of the year 1993 and 1999 with the intention to allow incentive for the promotion of industries in the state of West Bengal. The said incentives were allowed by the State Government in various forms including by way of sales- tax remisston. In the case of appellant company it enjoyed the sales-tax remission under the West Bengal Incentìve Scheme, 1993/1999 ìn relation to its expansion projects of fruit juices, located at Barasat in North 24- 14 ITA Nos.1663 to 1665/K/2011
M/s. Keventer Agro Ltd. AY 2000-01, 2003-04 & 2005-06 Prganas in the State of West Bengal as well as setting up of new industrial project i.e., mineral water project etc. The appellant company had made substantial investment in fixed capital assets as per the schemes and also obtained registration as well as the eligibility certificates. It was also argued by the appellant that ts industrial units are located in Barasat in North 24-Parganas, West Bengal, which, as per the ìncentíve scheme falls under locations classifíed under Group B. Hence, the appellant company had received incentive/subsídy in the form of sales-tax remissíon as per the scheme notified for group-B locations. That, the íncentive was not allowed to carry out trade or business activity and hence even as per the principles laid down by the Hon'ble Suprerne Court ín the case of Sahney Steel & Press Works Ltd. (supra), the receipt on account of sales-tax remission would be a capital receipt. On careful consideration of the facts and on going through the relevant provisions of West Bengal Inentive Scheme, the contention of the appellant company is found to be correct that the subsidy/incentive allowed by the West Bengal Government in the form of sales-tax remission was not for specific purpose of carrying out its business activities or trade after commencement of production. In the case of Sahney Steel & Press Works Ltd. (Suptra), it is held by the Hon'ble Supreme Court that if payments in the nature of subsidy from public funds are made to the assessee to assist him in carrying on its trade or business, they are trade receipts. The character of the subsidy in the hands of recipient -- whether revenue or capital -- will have to be determined, having regard to the purpose for which the subsidy is given. The source of the fund is quite immaterial. However, if the purpose is to help the assessee to set up its business or complete a project, the moneys must be treated as having been received for capital purposes. But, if moneys are given to the assessee for assisting him in carrying out the business operation and the money is given only after and conditional upon commencement of production, such subsidies must be treated as assistance for the purpose of the trade. In the case of appellant, it had received subsidy/incentive under the West Bengal Incentive Scheme, 1993/1999 in the form of sale-tax remission. On perusal of scheme, it is apparent that the incentive was allowed to the appellant company for expansion of its existing unit of its fruit juices and setting up of new unit of mineral water. The sole objective of the scheme formulated by the State Government was to allow incentive to the entrepreneurs to establish the new industries or expand the existing industries in backward areas for overall economic development of the State of West Bengal. On going through the West Bengal Incentive Scheme, it is observed that the subsidy was not allowed to assist the appellant company in carrying on its trade or business or carrying out the business operation. The unit which was expanded by the appellant as well as the new industry set up by the appellant company, both are located in Vill. Fateabad, P.O. Barasat, North 24-Parganas in the State of West Bengal. As per the Incentive Scheme, 1993/1999, the appellant's units fall under Group-B of classification of areas. Accordingly, the appellant company had received incentive in the form of sales-tax remission specified for group-B location. Since, the incentive has not been allowed to the appellant-company for its business or trade, hence, even as per the decision of Hon'ble Supreme Court in the case of Sahaney Steel & Press Works Ltd., the amount enjoyed by the appellant on account of sales tax remission, would be capital in nature."
Aggrieved, revenue came in appeals before us.
25. Before us Ld. Sr. DR reiterated only one argument that this remission of sales tax is only a trading receipt being linked to production/operational subsidies. On the other hand, the Ld. counsel for the assessee relied on the order of CIT(A).
15 ITA Nos.1663 to 1665/K/2011M/s. Keventer Agro Ltd. AY 2000-01, 2003-04 & 2005-06
26. We have heard rival submissiobns and gone through facts and circumstances of the case. We find that the CIT(A) has considered the legal aspect as to whether the sales tax remission was a revenue or capital receipt in the hands of the assessee. He found that the salex tax remission given under West Bengal Incentive Scheme 1993 and 1999 was not for assisting the assessee in carrying out its business operation but incurred the promotion of industries in the State of West Bengal and consequently, following the decision of Hon'ble Supreme Court in the case of Sahaney Steel & Press Works Ltd. Vs. CIT 228 ITR 253 holding the sales tax remission as capital receipt. Ld. counsel also drew our attention to the fact that the sales tax remission under West Bengal Incentive Scheme, 1993/1999 was revenue or capital has already been examined and decided by ITAT, Kolkata Bench in the following appeals:
"1. In the case of ITO, Ward-1(3) Kol Vs. M/s. Duro Plast India Pvt. Ltd. in ITA No. 1983, 1984, 1985/Kol/2008 dated 16.01.2009 for Asstt. Years 1999-2000 to 2001-02.
2. In the case of DCIT, Cir-12, Kol Vs. M/s. Teesta Agro Industries Ltd. in ITA No. 1237/Kol/2010, ITA No. 1053/Kol/2010 & ITA No. 1753/Kol/2010 dated 07.01.2011 for Asstt. Years 2003-04, 2006-07 & 2007-08 respectively."
We find that the West Bengal Incentive Scheme 1993 and 1999 categorically encouraged the promotion of industries in the State of West Bengal and in such circumstances the issue is clearly covered by the decision of Hon'ble Supreme Court in the case of Sahaney Steel & Press Works Ltd., supra. The issue is also covered by the Tribunal's decision as noted above. Accordingly, we confirm the order of CIT(A) and this issue of revenue's appeals for both the years is dismissed.
27. In the result, all the appeals of revenue are dismissed.
28. Order is pronounced in the open court on 30.06.2014.
Sd/- Sd/-
शामीम याहया,
याहया लेखा सदःय महावीर िसंह, Ûयायीक सदःय
(Shamim Yahya ) (Mahavir Singh)
Accountant Member Judicial Member
Dated : 30th June, 2014
वǐरƵ िनǔज सिचव Jd.(Sr.P.S.)
16 ITA Nos.1663 to 1665/K/2011
M/s. Keventer Agro Ltd. AY 2000-01, 2003-04 & 2005-06
आदे श कȧ ूितिलǒप अमेǒषतः- Copy of the order forwarded to:
1. अपीलाथȸ/APPELLANT - JCIT(OSD), Circle-4, Kolkata.
2 ू×यथȸ/ Respondent -M/s. Keventer Agro Ltd., 2, Clive Ghat Street, 4th floor,
Kolkata-700 001..
3. आयकर किमशनर (अपील)/ The CIT(A), Kolkata
4. आयकर किमशनर/ CIT Kolkata
5. ǒवभािगय ूितनीधी / DR, Kolkata Benches, Kolkata
स×याǒपत ूित/True Copy, आदे शानुसार/ By order,
सहायक पंजीकार/Asstt. Registrar.