TaxTMI 
TaxTMI 
2014 (11) TMI 217
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....Private Limited and M/s. Ahaar International Limited. Ground No.-4 The learned CIT(A) has erred in upholding the disallowance of conversion charges of Rs. 11,46,827/- paid by the Appellant to its co-packer M/s. Sitashree Food Products Pvt. Ltd. Ground No. 5- The learned CIT(A) has erred in upholding the disallowance of provision for leave encashment of Rs. 7,84,269/-." 2. The assessee company is engaged in the business of production, marketing, sales and distribution of food products. In first ground the assessee has challenged the disallowance of management consultancy fees of Rs. 3,31,77,130/- paid to General Mills Marketing Inc. During the course of the assessment proceedings the assessing officer noted that under the head operating expenses, the assessee has debited a sum of Rs. 3,31,77,130/- as management service fees. In response to the show cause notice, the assessee filed details of invoices and amount of money paid. On further notice, the assessee submitted that the payment was made in pursuance of agreement with M/s. General Mills Marketing Inc. USA (GMM) which was entered on 24.04.2003 as "management service agreement." The copy of the agreement was also filed u....
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.... evidences go to the root of the issue, therefore, the same should be admitted and matter can be examined by the AO. 5. On the other hand Ld. DR submitted that during the course of the assessment proceedings as well as before the first appellate proceedings, no evidences of services and business expediency was proved by the assessee. How the assessee has deducted the TDS on part of the payment has also not been made clear, therefore, order of the Ld.CIT(A) should be confirmed. In any case if the additional evidences are to be admitted then the matter should be restored to the file of the AO for de novo adjudication. 6. After considering the rival submissions and also on the perusal of the record, it is seen that assessee has made the payment to GMM, in pursuance of management service agreement dated 24.04.2003, in terms of which the GMM would be providing services like financial, human resources, information, legal services etc. to the assessee company. The invoices have also been raised which has been placed in the paper book. The payment is not in dispute. Only case of the department is that the assessee could not prove the rendering of services and the business expediency.....
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.... result Ground No. 2 is treated as allowed as indicated above. 10. In Ground No. 3&4 the assessee has challenged the disallowance of depreciation of Rs. 49,27,407/-, being depreciation claim on plant and machinery given to the co-packers and disallowance of conversion charges of Rs. 11,46,827/- paid by the assessee to one of the co-packer. The brief facts qua the issues involved are that, the assessee had appointed co-packers for the work of processing/packing of its product. As per the agreement with them the assessee has been providing copackers either finances or plant and machineries equipment etc to be used by them for the doing the task given by the assessee company. The assessing officer noted that the assessee company had terminated its agreement with the two co-packers namely, M/s. Sitashree Food Products Private Limited and M/s. Ahaar International Limited prior to A.Y. 2003-04. Still the assessee was claiming depreciation and processing charges paid to these two parties in previous year under consideration. In response to the show cause notice, the assessee submitted that machinery lying with the co-packers were owned by the assessee and ready for use, hence assessee ....
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....ITR 613, CIT Vs. G.N. Agarwal reported in (1996) 217 ITR 250, and CIT Vs. G.R. Shipping Ltd. In these judgments the Hon'ble High Court have held that the word "use" in the section 32 should be understood in a wide sense so as to include passive as well as active user. If the assets has been used earlier and continued to be the asset of the assessee which is ready for use, then depreciation has to be allowed. Regarding processing/conversion charges, he submitted that the assessee had business dealing with these parties and the said payment made to one of the co-packers was in relation to the work done prior to the termination of the agreement. There is no dispute that the payment has been made to the co-packers for the processing /conversion charges. The only dispute is that during the year the agreement stood terminated, which cannot be the reason for disallowance when amount was payable in the terms of the agreement prior to the date of termination. 13. On the other hand the Ld. DR strongly relied upon the order of the Ld.CIT(A) and submitted that, once the agreement already stands terminated then there is no business dealing with the said parties and therefore it cannot be hel....
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....is called for and accordingly the addition stands deleted. In the result Ground No. 3 & 4 is treated as allowed. 16. In Ground No. 5 the assessee has challenged the disallowance of provision for leave encashment of Rs. 7,84,269/-. The assessing officer noted that assessee has claimed an amount of Rs. 7,84,269/- on account of provision for leave encashment and such a claim has been rejected by him on the ground that actuarial valuation report has not been filed in support of the claim for provision. This has been confirmed by the Ld.CIT(A) on sane ground. 17. Before us learned senior counsel submitted that the assessee had duly pointed out before the authorities below that leave encashment benefits have been provided on the basis of 15 days salary for each employee at current encashable basic salary. This has been given in the notes to the financial accounts for the year ending 31st March 2003. On the other hand Ld. DR submitted that there is no actual payment and it was un- ascertain liability and therefore it has rightly been disallowed. 18. After considering the rival submissions and on perusal of the record, we find that the only reason for disallowance is that, assesse....