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ITA No.6821/Mum2004 and other appeals M/s. Parle Products Pvt. Ltd.,

4. Facts in brief are that the assessee is engaged in the business of manufacturing biscuits and confectioneries of different varieties. It also gets some of the items manufactured on contract basis from various Contract, Manufacturing, Units (CMUs) located all over the country. Ten of the CMUs were manufacturing biscuits and 5 of the CMUs were manufacturing confectioneries. The technical knowhow as well as the raw material for the CMUs is provided by the assessee and the manufacturing in the CMU is conducted under the direct supervision of employees of the assessee. From the details filed, the Ld. A.O. observed that the yield for this manufacture was 82.677% in assessee's own unit whereas the average yield in the CMUs was 91.277%. After considering the explanations given by the assessee, the Ld. A.O. noted that while most of the CMUs were manufacturing biscuits identifiable by the trade name 'Parle-G', the assessee's own manufacturing unit produced both Parle-G biscuits and other biscuits. No separate registers was being maintained in the assessee's manufacturing unit which could lead to the determination of the yield in the manufacture of Parle-G biscuits and other biscuits separately. He also noted that some of the CMUs were also manufacturing biscuits other than Parle-G and their yield was almost the same as those of the other CMUs exclusively producing Parle-G. Therefore, in the opinion of the Ld. A.O., the assessee's books of accounts were not reliable. Similarly, there was a difference in yield in the confectionery manufactured by the assessee in its own unit and the ITA No.6821/Mum2004 and other appeals M/s. Parle Products Pvt. Ltd., manufacturing results of the CMUs. Accordingly, AO rejected the book results and made addition on account of suppression of production.

6. By the impugned order CIT(A) allowed part relief to the assessee after having the observation as under:-

"There are no changes in the basic facts and contentions of the case the year under consideration as compared to the earlier A.Y. 1996-97. The assessee has reiterated the same submissions as were made in the earlier A.Y.1996-97 to the A.O. and during appellate proceedings. The assessee has prepared a statement showing "Without prejudice"

the computation of the amount to be disallowed on the same basis as determined by the CIT(A) for the A.Y. 1996-97. In this statement part A gives the disallowance made by the A.O. and part B gives the disallowance on the basis made by the CIT(A) for the A.Y. 1996-97. The yield of CMUs in the production of biscuits (primarily Parle-G brand) was 91.28% whereas the yield of Parle-G biscuits in assessee's own manufacturing units has been determined at 87.61% i.e. a difference of 3.67%. It is clarified that for the purpose of working out the consumption of raw material the yield of Parle-G production in the assessee's unit, the input/output on the basis of batch has been adopted by applying a standard input/output batch size, as had been done for A.Y. 1996-97 and formed the basis of the decision of my learned predecessor. Therefore, the consumption is an assumed figure and may not be the actual consumption. The suppressed production has been worked out by applying shortfall of 3.67% to the consumption of raw materials for Parle-G biscuits in assessee's own unit. The value of suppressed production is worked out at 2,35,74,949/- On this basis the addition made by the A.O. of Rs 9,76,45,993/- is reduced to Rs 2,35,74,949/- and assessee is entitled to relief of Rs 7,40,71,044/-."

ITA No.6821/Mum2004 and other appeals M/s. Parle Products Pvt. Ltd.,

16. Precise observation of the Tribunal in the case of Parle Biscuits Pvt.

Ltd., is as under:-

32. Ground No. 3 in assessee appeal pertain to the disallowance of long term capital loss of Rs.35,58,718/- on account of redemption of preference shares.

33. The facts in brief are that assessee claimed capital loss of Rs.35,58,718/- on account of redemption of preference shares. The total consideration received by assessee on redemption of preference shares has two categories. The preference shares are of SFR Ltd. and Himachal Futuristics Communications Ltd. Both these preference shares were allotted to the assessee company in the month of July 1995 at a face value of Rs.1,000/- and were redeemed in July 1997 at a value of Rs.1,000/-, i.e. same value. In the notes attached to the statement of Income assessee stated that redemption of preference shares amounts to transfer within the meaning of section 2(47) relying on the decision of the Hon'ble Supreme Court in the case of Anarkali Sarabhai vs. CIT 224 ITR 422. Assessee claimed indexation benefit on cost of acquisition of Rs.2 crores thereby arriving at the cost of acquisition at Rs.2,35,58,718/-. The resultant difference was claimed as capital loss on redemption of preference shares. The A.O. did not agree with the above and stated that the receipt of money on redemption has to be treated as dividend within the meaning of section 2(22)(d) relying on the judgment of the Hon'ble Supreme Court in the case of CIT vs. G. Narasimham & Others 236 ITR 327. He held that since the amount was to be covered within the provisions of section 2(22)(d) the question of claiming capital loss does not arise and since redemption has taken place after 30.06.1997 the dividend was not taxable as such. Therefore long term capital loss pertaining to redemption of preference shares at Rs35,58,718/- was disallowed. Assessee contested the same before the CIT(A). The CIT(A) vide para 9.2 considered that similar issue had come up in A.Y. 1998-99 before the CIT(A) in the case of assessee's holding company Parle Products Pvt.

27. By the impugned order, CIT(A) deleted the disallowance by following the order of his predecessor in the A.Y.1996-97. We found that issue has been decided by the Tribunal in assessee's favour in the A.Y.1996-97.

The precise observation of the Tribunal was as under:-

61. In ground no.3, the assessee has challenged the disallowance of depreciation of Rs. 14,18,541 on certain plant and machinery.

62. Brief facts are, during the assessment proceedings, the Assessing Officer for verifying the claim of depreciation on plant and machinery called for necessary details. He found that the assessee had shown addition to the plant and machinery for an amount of Rs.1,13,48,325 on which depreciation of Rs. 14,18,541 was claimed. From the details submitted, he found that the particular machine was actually imported by Parle Biscuits Ltd., a subsidiary of assessee in January 1991, since, it wanted to go into manufacturing of chocolate and other permitted items. However, as Parle Biscuits Ltd., could not finalise the idea of manufacturing of chocolate the machine was not used and lying idle until they were sold to Parle Products Ltd. on 26th February 1996. To verify the authenticity of assessee's claim, the Assessing Officer made a physical enquiry by visiting the factory premises of the assessee on 15th March 1999. In the course of physical enquiry, when the assessee was called upon to produce the documentary evidence in respect of installation of machinery in the factory premises and its use, as alleged by the Assessing Officer/ no documentary evidence was produced to substantiate the claim that such machineries were directly brought into the factory premises from the Dock in January 1991. He further observed, the assessee could not substantiate its claim that machinery was transferred to one of the contract manufacturing units through documentary evidence. In respect of another machinery viz. Verso Flour Machine, the assessee could not furnish documentary evidence to demonstrate installation and use of machinery. Therefore, he ITA No.6821/Mum2004 and other appeals M/s. Parle Products Pvt. Ltd., disallowed assessee's claim of depreciation for an amount of Rs.