9911796707
TMI Blog2014 (6) TMI 985X X X X Extracts X X X X X X X X Extracts X X X X ..... the same. This ground of appeal of revenue is dismissed. Disallowance of interest on borrowed money - Held that:- We find that the assessee company contributed a sum of 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 (1994 (2) TMI 42 - CALCUTTA High Court ). Even this issue is covered by the decision of Hon’ble Bombay High Court in the case of CIT Vs. Reliance Utilities 19/- per tray of Frooti Mango drink containing 27 tetra packs of the said juice. The assessee submitted complete breakup of 49,44,199/- paid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ds of the assessee. CIT(A) has rightly deleted the same and we confirm the same. Addition on account of obsolete stores - Held that:- 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 51,32,752/- from which obsolence amounting to 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. Addition on account of remission of sales tax - Held that:- The sales 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 [1997 (9) TMI 3 - SUPREME ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ₹ 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 the figure of receipts is at ₹ 1,32,60,908/-. The assessee before the AO claimed that the assessee company has credited a sum of ₹ 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 ₹ 1,20,27,912/- as credited in the P&L Account under Schedule 11 due to the reasons as under: i) A sum of ₹ 7,22,107/- being the amount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o 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 ₹ 12,32,996/-. It appears that either 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 explanation 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 ₹ 7,22,171/- on account of packing charges was already booked and offered for taxation in A.Y. 1999-2000 as the bill of the said amount was raised in the month of March, 1999 and as on 31/3/1999 that sum was receivable. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owing 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 ₹ 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 ₹ 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 ₹ 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 larg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccordingly, the percentage of capital was agreed amongst the three venturers and appellant company made investment of ₹ 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 appellant company had not shown returns from the investment or that the appellant company was making losses. The AO has held that the ¡investment 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.19992000, no such disallowance of interest was made by the AO. The AO has not considered that the appellant company was having its 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 had entered into an agreement with National Dairy Development Board and West Bengal Cooperative Milk Producers Federat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. 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 appellant and perused the assessment order. I have also gone through the letter dt. 15/11/2002 issued 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 ₹ 49,44,199/- to Parle Agro Pvt. Ltd. On careful consideration of the facts and on perusal of several documents and details as produced before the AO in the course of assessment proceedings, I am of the opinion that the AO was not justified in disallowing sum of ₹ 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 its business. The AO's contention, that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 today's 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 principal in its books of account and in turn the principal 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 ₹ 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 allowable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... "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 ₹ 17,772/- but such increase has not been reflected in the P/L A/c and as a result, income of ₹ 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 ₹ 48,19,274/- to ₹ 48,37,047/- i.e. ₹ 17,772/- was properly accounted by the assessee and in 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) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 ₹ 9722/- on the bill of ₹ 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 ₹ 4,26,576/- received by the assesee from Metro Dairy without considering the fact that Metro Dairy made TDS of ₹ 9,722/- on a bill of ₹ 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 ₹ 4,62,911/- from Metro Dairy Ltd. as contractual receipt but assessee explained that it received an amount of ₹ 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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 ₹ 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 ₹ 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 ₹ 2,95,705/- and the correct figure should have been at ₹ 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 27.03.200 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ₹ 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 receip ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... receipt. On careful consideration of the facts and ongoing through the relevant provisions of West Bengal Incentive 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. (Supra), 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 com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te 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. Accordin ..... X X X X Extracts X X X X X X X X Extracts X X X X
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