TaxTMI 
TaxTMI 
2013 (12) TMI 1554
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....e third party. The deduction from the stock & its quantum would be considered taking in view all relevant facts as and when assessee choses to return the stock. Therefore it will not be proper to pass judgement regarding any future assessment year as that assessment year is an independent assessment year. 3. The Hon'ble CIT(A) has erred in holding that M/s. Marriott International Inc. USA was not assessable in India contrary to the belief of the DDIT (International Taxation)-4(1), Mumbai on whose order the Assessing Officer had relied. 4. The Hon'ble CIT(A) has erred in allowing the argument of the assessee that the Indo-US DTAA exempts the assessee from deducting tax at source as the payment made to M/s. Marriott International Inc. is not towards "fees for included services" and for royalty even though the assessee had itself clubbed one half of the payment under the head "Royalties & deed rent" and the other half of the payment was for services in the nature of included services as exhibited by the agreement between the assessee and M/s Marriott International Inc. as per the pragraphs no. 2.01, 2.02 & 2.03 of the agreement dated 05.02.1998.....
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.... of the appellant company without affecting the business profitability of the assessee company in any manner. e) Whenever appellant transfers the stock of iron-ore to these two concerns, the corresponding loss needs to be given effect in the capital account without disturbing the business profits. The appellant objects to the above observations made by the learned CIT(A). 4. Without prejudice to the above, the learned CIT(A) erred in not directing the assessing officer to correspondingly adjust the opening stock of ROM and screened fines for the current assessment year 2006-07 i.e. 1 April 2005, in consequence to making an adjustment to the closing stock as on 31 March 2006. 5. Without prejudice to the above, the learned CIT(A) erred in not directing the assessing officer to correspondingly adjust the opening stock of ROM and screened fines for the subsequent assessment year 2007-08 i.e. 1 April 2006, in consequence to making an adjustment to the closing stock as on 31 March 2006." In the A.Y.2007-08, the assessee has taken following effective ground of appeal:- "1. The learned CIT(A) erred in not directing the....
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.... held anywhere in the order that Marriott International was not assessable in India. Therefore, this ground, in our opinion, does not arise out of the order of CIT(A). We have gone through the order of CIT(A) but we did not find any such finding being given by the CIT(A). In view of this fact, we dismiss the ground taken by the Revenue as not arising out of the order of CIT(A) in both the assessment years. 5. Ground no. 4 in assessment year 2006-07 and ground no. 3 in assessment year 2007-08 relate to the finding of CIT(A) that the payment made to Marriott International are not towards "fees for included services" and are for royalty and thus Assessee was liable to deduct tax at source while making payment to Marriott. Since the issue involved is common in both the years, we therefore deciding this issue after considering the facts relating to the assessment year 2006-07. 5.1 The brief facts relating to this ground for A.Y 2006-07 are that the AO disallowed marketing service fee of Rs. 58,50,487/- and reimbursement of expenses of Rs. 58,52,133/- paid to Marriott International invoking provisions of Sec. 40(a)(ia). Erstwhile M/s. Palm Hotels (India) Ltd. (now ama....
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....er rendering of the services has come to an end. Thus, it was contended that in Assessee"s case rendering of international sales and marketing services to the Assessee does not make available any technical knowledge, experience, skill etc. to the Assessee nor does it involve transfer of any technical plan and design and hence the services does not fall under the definition of "fees for technical services" as provided under Indo-US DTAA. In respect of reimbursement of expenses of Rs. 58,51,427/- to Marriott International, in addition to the above submission it was submitted that they were merely reimbursement of the cost and it does not have any income or profit element and therefore no tax can be deducted u/s 195. CIT(A) going through the submissions of the Assessee noted that the payment made by the Assessee were not chargeable to tax. Therefore, he directed the AO to delete the disallowance made u/s 40(a)(ia). 5.2 Before us, the ld. DR relied on the order of the AO while the ld. AR reiterated the submissions made before the CIT(A). 5.3 We have heard the rival submissions and carefully considered the same. We noted that two types of payments have been made by t....
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....2.1998 was not placed by the Revenue before us so as to stress part of the ground relating to paragraph 2.01, 2.02 & 2.03 of the agreement dt. 5.2.1998 entered into between the Assessee and Marriott International. In view of this, we dismiss ground no. 4 in assessment year 2006-07 and ground no. 3 in assessment year 2007-08 taken by the Revenue. 6. The only issue involved in ground nos. 1 to 4 is the valuation of the closing stock of ROM and screened fines. The brief facts relating to this issue are that there had been a survey in the case of the Assessee conducted on 7.12.2005. The AO noted that the Assessee has valued certain stock as per the Hon'ble High Court"s order dt. 14.3.1990. When inquired by the AO, the Assessee submitted that though the Court"s order is passed in 1990 there was no intention of the Assessee not to implement the Court"s order. The delay of 18 years in implementing the Court"s order is that the two groups in the litigation had to implement various directions of the Court on the issues adjudicated by the Court. The Assessee submitted that he has valued the closing stock as per the net realizable value at the close of financial year. A ce....
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....d on the decision of the Pune Bench of the Tribunal in the case of Shankar Ssk Ltd. vs. DCIT (63 TTJ 158) in which the Tribunal has observed that since the Assessee has been consistently and regularly following the practice of valuing the closing stock of Bagasse at nil value and crediting its sales proceedings to the Profit & Loss account as and when Bagasse is sold, there is no justification for making any addition. Reliance was also placed on the various decisions for the proposition of law that the stock has to be valued at cost or market value, whichever is less. After considering the submission of the Assessee, the CIT(A) dismissed the ground taken by the Assessee and confirmed the order of AO on this issue by observing as under : "5.4. Entire submission of the appellant and its reliance on various judicial pronouncements is based on the premise that rate fixed by the Hon"ble High Court is the market price for that quantity of stock of iron ore. What is material here is to analyse this premise of the appellant. The price fixed by the Honourable High Court cannot be termed as market price as market price is fixed by market forces depending upon the Demand- Supply quot....
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....th the market price, as the court was dividing assets and liabilities and not deciding the manner in which business had to be carried out. Further for allowing the liability u/s 37, following conditions must be fulfilled: a) Expenditure not specified in sec. 30 to 36. b) Not being in the nature of capital expenditure c) Not being in the nature of personal expenses. d) Should be expended wholly and exclusively for the purposes of the business of the assessee. e) Expenditure what is "paid out" or "paid away" is something which is gone away irretrievably. These provisions regarding allowability of expenditure also gets supported by the decisions in the cases of J.K. Cotton Mfrs. Ltd. vs. CIT (SC) 101 ITR 221 and CIT vs. Indian Molasses Co. (P) Ltd. (SC) 78 ITR 474. f) A mere liability to satisfy an obligation is not expenditure; a mere forbearance to realise a claim is not expenditure- CIT vs. National Bank Ltd. (SC) 62 ITR 638. 5.5. In view of the above discussion, in my opinion, the appellant had incorrectly valued its stock, by not valuing the stock at cost or market value, whichever is lower. In ....
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....ion during the course of the hearing that the Assessee was allotted as per para 87(a) of the Hon'ble High Court order aggregate quantity of 3,34,127 MT consisting of ROM - Nil, Lumpy Ore - 93,387 MT and Fines - 2,40,740 MT, how the Assessee can value the ROM at the price at which the Assessee has to sell it to M/s. Salitho Ores Ltd. In this regard, a clarification was submitted by the Assessee as promised vide letter dt. 2.11.2013 that the Company has stock of ROM which is available for conversion. The Company from the beginning intended to supply the quantity of 93,387 MT of Lumpy from the available quantity of ROM after conversion and therefore the said earmarked stock of ROM has been valued at the price as stipulated by the Hon'ble High Court. The Assessee has consistently valued the inventories of these items for the last so many years at the same value and Department has also accepted the same. However, under protest and without prejudice to the legal submissions in Assessee"s letter dt. 23.2.2006, in order to buy peace and in order to avoid protracted litigation, based on the discussion the Assessee had with the Addl. CIT as well as CIT the Assessee agreed to revise v....
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....e year under consideration. In this regard, reliance was placed on the following decisions : CIT vs. Ahmedabad New Cotton Mills Co. Ltd., [1929] 4 ITC 245 (PC) CIT vs. Bengal Jute Mills Co. Ltd., (1992) 107 CTR (Cal) 34 Radheshyam Agrawal & Co. vs. CIT, 220 ITR 564 (MP) CIT vs. Mahavir Aluminium Ltd., 297 ITR 77 (Del) 6.2 The ld. DR, on the other hand, relied on the order of the authorities below. His contention was that it is not a case of valuing the stock at market value or net realizable value. It is a case where the Assessee as per the family arrangement got the consent decree from the Hon'ble High Court and Assessee himself specified the particular value at which the stock had to be transferred to the other parties belonging to one part of the larger family. The market value is the price at which the willing buyer is ready to buy and the willing seller is ready to sell. The stock has been valued by the Assessee at a price which is neither the cost nor the market value. The Assessee has not complied with the order of the Hon'ble High Court for the last over 23 years and there is no intention to comply with the order of the ....
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....own liabilities and losses even though the amount cannot be determined with certainty and represents only a best estimate in the light of available information. (ii) Substance over form - The accounting treatment and presentation in financial statements of transactions and events should be governed by their substance and not merely by the legal form; (iii) Materiality - Financial statements should disclose all materials items, the knowledge of which might influence the decisions of the user of the financial statements." 6.3.1 On the basis of paragraph 4, the accounting policies selected by the Assessee must be based on prudency, substance over form and materiality. This paragraph recognizes prudency to be one of the major considerations for applying the accounting policies. This requires that provision should be made for all known liabilities and losses even though the amount cannot be determined with certainty and represents only a best estimate in the light of the available information. Thus, it recognizes "anticipate all the losses but do not provide for the profit until and unless they are realized". Valuing the closing stock at cost or market value,....
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....nto the account, as no prudent trader would care to show increased profit before its actual realisation. This is the theory underlying the rule that the closing stock is to be valued at cost or market price whichever the lower is, and it is now generally accepted as an established rule of commercial practice and accountancy. As profit for income-tax purposes are to be computed in conformity with the ordinary principles of commercial accounting, unless of course, such principles have been superseded or modified by legislative enactments, unrealised profits in the shape of appreciated, value of goods remaining unsold at the end of an accounting year and carried over to the following year's account in a business that is continuing are not brought into the charge as a matter of practice, though, as already stated, loss due to a fall in price below cost is allowed even if such loss has not been actually realised. As truly observed by one of the learned judges in Whimster and Co. v. Commissioners of Inland Revenue [1926] 12 TC 813,827. 'Under this law (Revenue law) the profits are the profits realised in the course of the year. What seems an exception is recognised where a trade....
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.... Ltd., 188 ITR 44. In that decision, the AO noted that the system of valuation of the stock in trade at cost was not correct as the cost was not properly determined. If the market value of the stock in trade, in our opinion, has not been correctly determined, it cannot be said that the accounts of the Assessee are correct or complete. 6.3.4 We noted that the Panaji Bench of the Hon'ble Bombay High Court in Company Petition no. 1 of 1983 in the case of Anil Vasudeva Salgaoncar & Ors. Vs. V.M. Salgaoncar & Ors. in respect of selling of the ROM lump ores and fines has in para 87 and 88 of its order dt. 14.3.1990 on a compromise decree held as under: "87.(a) Ordered and Decreed that the following quantities of iron ore shall be allotted to the group of Petitioners No. 1, 2 & 3: VMSB SALLITHO (Respondent no. 8) (Respondent no. 29) R.O.M. - 2,71,233 m.t. Lumpy Ore 93,387 1,02,991 Fines 240,740 -- (b) Out of the above quantities, the quantity of ore belonging to Respondent No.29 will continue to remain with Respondent No.29, the shareholding of which has been ordered to be transferred to the grou....
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....ner: Sr. No Particulars Location Quantity Tons Rate Amount Rs. Ps. 1. R.O.M (Less: rejection & tailings)-Rs.156.22+Rs.7.86 Vagus Plot 600,629 164.08 98,551,206.32 2. CHIPS (Less: rejection & tailings)-Rs.156.22+Rs.7.86 -do- 93,387* 38.66*** 3,610,243.94 -do- 191,321** 53.35*** 10,207,869.81 -do- 362,880 164.08 59,541,350.40 3. SCREENED FINES-Rs.156.22+Rs.7.86+Rs.58.22+Rs.19.64 -do- 388,729 241.94 94,049,094.26 -do- 79,840* 38.66*** 3,086,531.06 4. Iron ore lying at Hospte/Yeshwant Nagar 18,450 16,593,467.79 5. SCREENED FINES a) Loaned to M/s. Salgaocar Min. Ind. Ltd.-Rs.156.22+Rs.7.86+Rs.58.22+Rs.19.64 -do- 49,159 241.94 11,893,528.46 b) Loaned to M/s. Salgaocar Min. Ind. Ltd.-Rs.156.22+Rs.7.86+Rs.58.22+Rs.19.64 -do- 29,880 241.94 7,229,167.20 c) Loaned to others -Rs.156.22+Rs.7.86+Rs.58.22+Rs.19.64 -do- 10,052 241.94 2,431,980.88 6. LUMPY &nbs....
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.... ore (93387 tons) but the Assessee has valued the ROM - 93387 tons @ Rs. 38.66. The Assessee is not having the stock in respect of the lumpy ore to the extent of 93387 tons. The stock of lumpy ore is only 2303 tons which has also been loaned by the Assessee to others although at Berth no. 9 the Assessee has shown lumpy ore of 4000 which was valued at Rs. 299.44. We have also noted from para 87(d) of the Hon'ble Bombay High Court order that the Assessee was having in his possession the following categories of iron ore :- ROM - 63300 tons Lumpy ore - 32200 tons Fines - 16600 tons As per para 88 of the order of the Hon'ble Bombay High Court, Assessee has to sell and deliver ROM measuring 299880 MT to M/s. Salitho Ores Ltd. at a price of Rs. 1,60,00,000/-. In note no. 10(b) to the Schedule XXIII we noted that the Assessee has already sold 108559 MT of ROM to M/s. Salitho Ores Ltd. and the balance quantity of 191321 MT has to be sold by the Assessee to the said company. Thus, the Assessee as on the date of the High Court order was not having 299880 MT of ROM and Assessee was having only 63300 MT of ROM. The balance quantity of ROM has to be sold by the Assessee and d....
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....rt was towards the division of the assets and liabilities belonging to the undivided family and it is indisputably for making equitable family settlement. The assets of the family are divided among the various family members. Even the stock of iron ore at that time was also divided. The liability arising due to the order of the Hon'ble Bombay High Court, in our opinion, cannot be a business liability as the price realized by the Assessee can also not be the market price but the price put by the Hon'ble Bombay High Court is for the purpose of settling the dispute mutually among the family members and distribute the various assets and liabilities by putting certain value to them. It cannot be regarded to be sale at the open market. If any loss is incurred by the Assessee, that cannot be regarded to have been incurred during the course of the business. 7. Now coming to the alternate plea of the assessee that opening stock of the impugned assessment year should also be re-valued on the basis at which the closing stock has been re-valued so as to ascertain the real profit chargeable to tax for the year under consideration. We have carefully considered the rival submissions in....
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.... issue relating to ground no.4 before the CIT(A) with the direction that the CIT(A) will decide this issue after considering the submissions made by both the parties in accordance with the law and case laws as may be cited by both the parties. Our aforesaid view is duly supported by the decision of the M.P High Court in the case of CIT vs Tollaram Hassomal, 298 ITR 22 (MP). 9. We accordingly dismiss the ground no. 1 to 3 and allow ground no.4 statistically. 10. Ground No. 5 relate to the direction to be given to the assessing officer to take the opening stock of ROM and screened fines for the assessment year 2007-08 in consequence of making an adjustment to the closing stock as on 31.3.2006. 11. We heard the rival submissions and carefully considered the same. We agree with the ld. Sr. Counsel that the value of the closing stock of the impugned assessment year will become the value of the opening stock of the succeeding assessment year. Since the appeal before us relate to the assessment year 2006-07 our jurisdiction are limited to give the finding in respect of the ground of appeal relating to the impugned assessment year we cannot decide the grievance of the assessee rel....