AI Drafter 
TaxTMI 
TaxTMI 
TaxTMI 
2014 (3) TMI 725
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....r 2006-07. 4. The assessee company is a wholly owned subsidiary of M/s Tuppeware Asia Pacific Holdings Private Limited, Mauritius which holds 99% equity capital of the assessee. The remaining 1% was held by M/s Tupperware Home Parties Inc., USA. The group as a whole owns a brand name "Tupperware" and carried out the business activities though its various subsidiaries in various parts of the world. During the course of assessment proceedings, AO found that assessee has claimed mould expenses of Rs. 46,632,929/-. AO found that these moulds were used by Dart India and ITL and the assessee has claimed rent payments on the same. On query in this regard, assessee submission were as under:- "The Company has been permitted by the Government of India, Ministry of Industry, Department of Industrial Policy and Promotion, Secretariat for Industrial Approvals vide letter no. FC.II356(96)/6IO(95) dated April 11, 1996 to act as a technology transfer agent and marketing company. The Company is engaged, inter-alia, in trading activities in respect of plastic kitchenware products since its set up of business. It purchases the products from the contract manufacturers (Dart Manufacturing Indi....
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....ssessee has wrongly been claiming the rental expenses. That it has resulted in less payment of excise duty by Dart India and ITL and at the same time it has reduced the taxable income of the assessee. That therefore, this arrangement appeared to be colorable device to reduce the tax liabilities on part of all these persons and hence, the principles laid down in the famous decision of McDowell are to be applied. AO disallowed the claim of rental expenses in the hands of the assessee on the ground that the moulds are being used in the manufacturing by Dart India and ITL which are right entities to claim these expenses. Accordingly, AO proceeded to disallow the impugned expenses. The basic conclusion drawn by the AO were as under:- "The payment of rental expenses to foreign concerns are liabilities of Dart India and ITL and not that of assessee since they are actual users of the moulds; Such an arrangement has resulted in less payment of excise duty by Dart India and ITL and at the same time reduced the taxable income of the appellant; Since the provisions of section 194C of the Act are not applicable, therefore, lease rentals are the liability of Dart India and ITL." 5. U....
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....sessment year 1997-98 and the same has been allowed by the AO as business expenditure u/s. 143(3) assessment. Ld. CIT(A) held that the rule of consistency is to be followed. That a different stand can be taken only if there is a change in facts and legal position. Accordingly, Ld. CIT(A) concluded that seeing from any angle the least rentals of moulds cannot be disallowed. 9. Against the above order the Revenue is in appeal before us. 10. We have heard both the counsel and perused the records. Ld. Departmental Representative placed reliance upon the order of the AO. He reiterated that assessee has adopted a colorable device. He submitted that the nature of transaction between the assessee and the contract manufacturer was that all purchasers and seller. Hence, there was no question of payment of moulds rentals by the assessee who is a purchaser. He further submitted that in excise proceedings the matter has gone to the Settlement Commission and excise liability in this regard fastened on the contract manufacturers. Hence, he submitted that the Ld. CIT's inference in this regard is not sustainable. Ld. Counsel of the assessee on the other hand supported the order of the Ld....
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....ven a certificate to the extent that mould rentals was to be borne by the assessee pursuant to the agreement. Hence, the expenditure in question cannot be said to be not allowable. 14. The product being dealt by the assessee had to meet international quality and specification of Tupperware world wide which requires use of high quality and specific type of moulds, as the design of products are patent design. The moulds used by manufacturer of products are not available in the open market. Therefore, the company had to import these molds from overseas group company on hire basis and provide the same to contract manufacturers to enable them to manufacture the products. Once the contract manufacturer completes the order placed by the assessee, the molds are returned back to the company and therefrom to the molds owners in case the particular molds, is not required for use of manufacturer. We find that the above contract and molds borrowed by the assessee can by no stretch of imagination be considered as a colorable device. In our considered opinion, the same has been rightly allowed by the Ld. CIT(A) as Revenue expenses. 15. We also agree with the Ld. CIT(A) that even if for the ....
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..... The said amount of disallowance is included in the reversal of stock provision amounting to RS.23,148,730 during the year under consideration which has been adjusted / reduced from the cost of sales. The reconciliation of the same has already been filed before your goodself. Assessment Year Amount (Rs.) AY 2005-06 6,511,174 AY 2007-08 7,277,736 Incase your goodself grants claim with regard to the above disallowances in the year under consideration, the appellant undertakes not to press the ,grounds of disallowance on provision basis before the ITA T in the respective years (i.e. in A Y 2005-06 & A Y 2007-08 as stated above in the table). Thus, the appellant reiterates before your goodself that benefit! claim should be given on account of reversal of the provision of obsolete stock during the year under consideration. Should your goodself require any other information/ clarification in respect of the submissions made above, we shall be pleased to provide you the same." 20. Considering the above Ld. CIT(A) held as under:- "The appellant company has been making provisions towards obsolete stock and these provisions were claimed as expenditure in earl....
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....law in confirming the disallowance of the said provision for obsolete stock on erroneous assumption that reversal of such provision in subsequent years makes the same adhoc and contingent in nature." 26. On this issue AO found from the details furnished that assessee had made provision of obsolete stock of Rs. 7,277,736/-. AO held that the provision of obsolete stock was not allowable and added the same to the income of the assessee. 27. Upon assessee's appeal Ld. CIT(A) noted that similar issue has arisen in assessee's own case for asstt. year 2005-06 and the Ld. CIT(A) had allowed the same in favor of the assessee. Ld. CIT(A) noted that the submissions of the assessee are same in this year also and hence, following his appellate order for asstt. year 2005-06 and holding that facts and issue are identical, Ld. CIT(A) upheld the order of the AO. 28. Against the above order the Assessee is in appeal before us. 29. At the outset, Ld. Counsel of the assessee submitted that for asstt. year 2005-06 this Tribunal in assessee's own case in ITA No. 5823/Del/2010 vide order dated 7.6.2013 has decided the identical issue in favor of the assessee. Ld. DR could not cont....
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.... the cost of market value whichever is lower. The market value here means the value that is acceptable in the market. If an item has become obsolete or slow moving it naturally has a lower market value which the assessee has recognized. The assessee has properly identified such stock and has also followed in accordance with commercially accepted accounting principles of valuation. In our view, the Ld CIT(A) was correct in law and on facts to have deleted the addition made by the Assessing Officer which was based not taking into consideration the hard realities of assessee's business. The addition in our view is properly deleted and we decline to interfere." 10. The Ld DR has mainly objected to the reliance of Ld AR on the case law because of the difference in items dealt by the assessee and in case law relied upon by Ld AR. Though there is difference in items but the principle of valuation of stock remains the same. The assessee instead of taking the net realizable value for valuation of closing stock took the cost price of obsolete item and created a provision for difference in cost price and market value and debited the same to P&L Account, the effect of which is same. The....
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.... not available in the open market. These mouldes are imported from overseas group companies on a 'hire basis' by the company. The company provides the molds to Dart India and ITL on a 'free of cost basis' and stipulates that the products meet the international quality and standards established by Tupperware. Once the contract manufacturers complete the order placed by the Company, the molds are returned back to the mold owner. The Central Excise Department in Hyderabad issued show cause notice demanding an additional demand of excise duty on Dart India and ITL and also proposed for recovery of interest. Dart India and ITL applied for the settlement of proceedings, initiated against them duty demand. However, the Settlement Commission has raised an excise demand including interest amounting Rs. 49,409,1207/- on Dart India and ITL for additional excise duty on the goods manufactured by them. A copy of the order passed by the Settlement Commission is enclosed herewith for your perusal (refer Annexure VA). The said demand has been taken over by the Company for the reason that excise duty paid by Dart India and ITL was on the goods manufactured by them for the Company....
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....r the amount invoiced by the supplier and pay such supplier directly. ........................... 21. Payment of taxes Manufacturer shall pay all taxes relating to its performance of services under this agreement, including the manufacture, assembly, sale and delivery of the products." 34. From the above, AO observed that it is very clear that the liabilities of all the taxes and duties was that of the seller and not that of the assessee. In this regard, AO referred to the decision of the order of the Custom and Excise Settlement Commission dated 10.11.2006 in which these liabilities of excise duty was levied against the Dart India and ITL and not against the assessee. The relevant portion read as under:- "15. As regard the immunity from payment of interest, we find that the duty liability pertains to the period April, 2000 to December 2004 in case of M/s Dart Manufacturing India Pvt. Ltd, and April 2002 to December 2004 in case or M/s Innosoft Technologies Ltd as such they enjoyed financial accommodation for a considerable period. Taking note of this, the Bench does not consider it appropriate to grant full exemption from payment of interest and consequently the Ben....
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.... from August, 2002 to December, 2004 on ITL. There was no point of claim of this liability by the assessee against the taxable income of A Y 2007-08. (Even if the assessee contends that it has taken the liability since, these manufacturers are exclusively selling the goods to it so the liability is in the nature of additional cost, the liability does not relate to this year since the same pertains to the earlier years as slated above. The assessee claims that it has taken this liability on its head to maintain the relationship with these companies and to safeguard them from additional burden of some duties and taxes, levied against them in the course of business. But in this pretext, this expense can not be allowed to the assessee as a revenue expense since it is incurred as an occasional expense to safeguard the long term interest of the assessee and hence it is not of revenue nature and is not allowable against the taxable income.) In the light of above observations, the claim of Rs. 4,94,09,120/-, being liability of Dart. India Ltd. and ITL as additional excise duty and interest for the period from April, 2000 to December, 2004 in case of Dart India and from August, 2002 to D....
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....in this regard is devoid of cogency. The relevant portion of the agreement mentioned hereinabove, it was clearly mentioned that "manufacturer shall pay all taxes relating to its performance of service under this agreement including the manufacture assembly sales and delivery of products". Thus, it was clear that it was the contract manufacturer who was to bear all the taxes relating to the performance of the service under the agreement. There is no variation in the terms of agreement as mentioned above. Ld. Counsel of the assessee's submissions that the contract in this regard got amended by means of the letters and the debit notes is not acceptable. There is no proper variation in the terms of agreement. Merely letters exchanged and debit issued after more than 5 years cannot be accepted as binding variation / change in the formal terms of agreement relied in this regard. Furthermore, we agree with the AO that even if the assessee has contended that it has taken the liability since, these manufacturers are exclusively selling the goods to it so the liability is in the nature of additional cost, the liability does not relate to this year and the same pertains to earlier years. ....