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TaxTMI 
TaxTMI 
TaxTMI 
2018 (1) TMI 1077
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....ee and revenue are common in all the years under consideration, therefore all the appeals were heard together and are being decided by this consolidated order. 3. Ground taken by the assessee in A.Y.1998-99 reads as under:- The appellant objects to the order dated 12 July 2004 passed by the Commissioner of Income-tax (Appeals) Central Circle -V, Mumbai ["Commissioner (Appeals)"] for the aforesaid assessment year on the following among other grounds: 1 The learned Commissioner (Appeals) erred in confirming the action of Assessing Officer in rejecting the book results of the appellant. He erred in holding that the books of accounts cannot be said to be complete. He erred in observing in para 3,.4 of his order that the assessing officer has not specifically invoked the provisions of section 145 of the Act but the manner in which the appellant's income has been estimated is indicative of the same. He further erred in observing in para 3,4 of his order that in this context, as pointed out earlier, the Id. A.O. has brought out that the books of accounts of the appellant are not complete in as much as these do not enable the determination of the profits of the classes of prod....
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....ciation on such Machinery. d. Allowing relief of Rs. 8,52,050/- on account of foreign travel expenses. II. The Appellant craves to leave toad, to amend and/or to alter any of the grounds of appeal, if need be. III. The appellant, therefore, prays that on the grounds stated as above, the order of the CIT(A) - C-V, Mumbai may p^ set aside and that of the Assessing Officer restored. 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....
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....ption 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/-." 7. Against above order, both assessee and revenue are in further appeal before us. 8. We have heard rival contentions. Assessee has raised ground with regard to reduction of books of accounts, addition on account of alleged separate suppressed production resulting in suppressed sales of biscuits. The AO has dealt with these issues the order at para 2 & 3, the CIT(A) has dealt with the issues at para 3 to 5. 9. At the outset, learned AR placed on record the order of the Tribunal in assessee's own case for the A.Y.1996-97 wherein exactly similar issue was decided by the Tribunal in assessee's favour. The precise observation of the Tribunal was as under:- 45. Ground no.8 raised by the Revenue corresponding to ground no.5 raised by the assessee are on the issue of addition made with regard to suppressed production resulting in suppressed sales of biscuits. 46. Brief facts are, during the assessm....
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....ence in consumption, the assessee submitted that the difference in consumption of coco vita oil was on account of clerical mistake and the actual consumption was 1860 MTs. Thus, on the basis of difference found in the percentage of yield as per tax audit report and the statements filed by the assessee as well as the information obtained from the contract manufacturing units regarding percentage of yield, the Assessing Officer called upon the assessee to submit further details and also the standard formula applicable for consumption and production. In response, the assessee submitted, itemwise details of consumption and production cannot be filed as it was manufacturing various items and the details submitted before the Assessing Officer were as per books of account. The assessee also submitted, quantity of itemwise ingredients for various items of confectionary was taken as a whole and no separate records were available. To explain reason for difference in percentage of yield between its manufacturing unit at Mumbai and the contract manufacturing units assessee submitted, its unit at Mumbai was manufacturing various items of biscuits and confectionary for many years while the contr....
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....bmitted, the difference in coco vita oil was on account of typographical error. It was submitted, the quantity of other raw material though specifically not mentioned in the printed account but the value was shown. Reiterating the stand taken before the Assessing Officer, it was submitted that contract manufacturing units were manufacturing less number of brands as compared to Mumbai unit. It was submitted, the standard formula of manufacturing cannot be applied due to various factors including wastage in the manufacturing process. In this context, the assessee submitted the different variety of biscuits and confectionary manufactured by contract manufacturing units. The assessee furnishing a statement of reconciliation of sales submitted that the Assessing Officer did not consider the sales from depots and the outstandings available at different units and depots. In this context, the assessee specifically pointed out all discrepancies in figures taken by the Assessing Officer. The assessee also furnished copies of excise record to substantiate the production as recorded in the books of account. It was submitted, since, the assessment year 1992-93 the percentage of yield shown by t....
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....ed at 88% which leaves a gap of 2% which is unexplained. The learned Commissioner (Appeals) observed, taking into account consumption of raw materials at 37,498 MTs, the production @ 2% shall work out to 750 MTs which valued at Rs. 36,205 per MT will work out to Rs. 2,71,53,750. Therefore, he sustained the addition to the extent of Rs. 3 crore while deleting the balance addition of Rs. 9,10,44,000. 49. Learned Departmental Representative extensively referring to the observations of the Assessing Officer in the assessment order submitted that the assessee was supplying all the raw materials to the contract manufacturing units. He submitted, as per the tax audit report yield of the Mumbai unit of the assessee worked out to 92.55%. Whereas, as per the statements filed before the Assessing Officer by the assessee, percentage of yield worked out to 84.50%. He submitted, in the reconciliation statement also, discrepancy was found which was again revised by the assessee. He submitted, as per the reconciliation statement, the discrepancy was found in consumption of vanaspati, sugar, maida, coco vita oil. He submitted, as per the information obtained from contract manufacturing units, per....
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.... which was subsequently corrected in the revised statement. He submitted, the raw materials shown as "Others" since was not a principal item was not shown in the tax audit report. Learned Authorised Representative submitted, if at all there is any mistake / discrepancy it is in the statement furnished and not in the audit report or books of account. He submitted, books of account can be rejected if conditions of section 145(3) of the Act are fulfilled. Learned Authorised Representative submitted, only if the conditions of sub-section 3 of section 145 are satisfied, the Assessing Officer can make a best judgment assessment. He submitted, the Assessing Officer has not pointed out a single instance of sales outside the books. The purchases made by the assessee have not been doubted. The production of biscuit and confectionary are fully supported by and as per Central Excise records. He submitted, all excise registers were produced before the Assessing Officer and nothing adverse was found. Reiterating the stand taken before the Departmental Authorities, learned Authorised Representative submitted/ the reason for low yield is due to the factors explained before the Departmental Authori....
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....e statement and revised statement showing consumption of different raw material and manufacture furnished by the assessee, the yield works out to 84%. He has also referred to the information obtained from contract manufacturing units to conclude that the average yield of contract manufacturing units work out to 91.55%. In this context, the Assessing Officer has also referred to the standard formula applicable and the physical enquiry conducted by him at the factory premises/ wherein, it was found that the manufacturing of products at Mumbai unit is through sophisticated machinery. In the course of assessment proceedings, the assessee has explained comparative lesser yield qua contract manufacturing units due to the following reasons:- i) Variety of biscuits manufactured at Mumbai unit compared to few variety of biscuits manufactured in contract manufacturing units; ii) In case of contract manufacturing units, due to similar size of production and type of machinery used biscuit fall on the belt and tray which are manually picked up and sorted and identified for re- use or waste. Whereas, in case of Mumbai unit production being faster it is difficult to have such control and also....
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....xplanation that the figure of 1059 MTs shown in the original statement was due to a mistake is believable. As far as the allegation of the Assessing Officer that the raw material "others" were not shown in the audit report, we are of the view that non- mentioning of the said item in the Annexure to the audit report may be for the reason that as per Form no.3CD, only primary raw materials are required to be shown. Therefore, non-mentioning of raw material "others" in the Annexure to the audit report cannot be considered to be very serious lapse so as to infer suppression of sales and unreliability of books of account. It is a matter of record that the goods produced by the assessee are excisable goods and subject to scrutiny and regulatory measures of Central Excise authorities. It is also a fact on record that the assessee has maintained all Central Excise registers with regard to consumption of raw materials, production of biscuits and confectionary which have been verified by the Central Excise authorities periodically and the authenticity of the entries made in the said registers have not been questioned by them. It is also a fact on record that the Central Excise registers were....
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....as been shown by the assessee as under:- A.Y. Percentage 1992-93 83.11% 1993-94 83.32% 1994-95 82.27% 1995-96 81.65% 54. Thus, compared to the yield of Mumbai unit in the preceding assessment years as noted above, the assessee has shown a higher yield for the Mumbai unit in the impugned assessment year. Therefore, on over all consideration of facts and circumstances of the case, we are of the considered opinion that rejection of books of account and addition made on estimate basis alleging suppression of sale is not in accordance with law. Therefore, even a part of addition made by the Assessing Officer cannot be sustained. Accordingly, we delete the addition made by the Assessing Officer fully. Ground no.8 of the Department is dismissed and grounds no. 4&5 raised by the assessee are allowed. 10. We have gone through the orders of the authorities below as well as the order of Tribunal, and found that facts and circumstances during the year under consideration are same, respectfully following the order of the Tribunal in assessee's own case, grounds raised by the assessee are allowed whereas grounds raised by revenue are dismissed. 11. Learned DR fairly ag....
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....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 Rs. 35,58,718/- 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. Ltd. in which the issue was decided against the assessee. Following the same, on identical....
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....pany on the reduction of its capital.... Sec 80(3) of the Companies Act, 1956 provides that redemption of Preference shares under the section shall not be taken as reducing the amount of its share capital. Accordingly section 2(22)(d) which deals with reduction of capital does not apply to redemption of Preference shares since redemption of such shares is not a reduction of capital in view of specific provisions of section 80(3) of the Companies Act. (c) Reliance is also placed on the decisions of the Supreme Court in the case of (i) Anarkali Sarabhai (224 ITR 422) (ii) Kartikeya Sarabhai (229 ITR 163)" 35. The learned D.R., however, submitted that redemption of preference shares does not yield to capital loss and assessee claimed only indexation loss as capital loss. It was further submitted that A.O. treated the amount as deemed dividend, therefore, the question of allowing the loss does not arise. 36. In reply the learned counsel submitted that if the entire amount is treated as deemed dividend then the whole of consideration received consequent to redemption would got exempted as dividend and was not taxable and since assessee has redeemed the shares the loss would ....
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....Act. The appellant had purchased preference shares in a company at less than their face value and held them as capital assets. The company redeemed them at their face value: Held accordingly, that the difference between the sum received by the appellant on redemption of the shares and the sum earlier paid by her for purchasing them, was taxable as capital gains." 38. Similar issue was also considered by Hon'ble Supreme Court in the case of Kartikeya Sarabhai vs. CIT 228 ITR 163 where there is reduction in face value of shares, the definition of transfer were discussed and held as under: - "Section 2(47) of the Income-tax Act, 1961, defines "transfer" in relation to a capital asset. It is an inclusive definition which, inter alia, provides that relinquishment of an asset or extinguishment of any right there in amounts to a transfer of a capital asset. It is not necessary for a capital gain to arise, that there must be a sale of a capital asset. Sale is only one of the modes of transfer envisaged by section 2(47) of the Act, Relinquishment of the asset or extinguishment of any right in it, which may not amount to a sale, can also be considered as a transfer and any profit....
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..... (d) any distribution to its shareholders by a company on the reduction of its capital, to the extent to which the company possesses accumulated profits which arose after the end of the previous year ending next before the 1st day of April, 1933, whether such accumulated profits have been capitalised or not;" 41. As can be seen by the above provision, there should be a reduction of its capital and distribution to the shareholders out of the accumulated profits. Section 80(3) of the Companies Act states that the redemption of preference shares under this section by a company shall not be taken as reducing the amount of its authorised share capital. By virtue of section 80(3) redemption of preference shares cannot be considered as reduction of authorised share capital, therefore, treating them as deemed dividend does not arise, as the provisions of section 2(22){d) can only be invoked only when there is distribution of accumulated profits by way of reduction of share capital. On the facts of the case, assessee has purchased the preferential shares at a cost of Rs. 2 crores and they were redeemed at the same price of Rs. 2 crores. Therefore the question of invoking deemed dividen....
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....e to be determined. The Tribunal, while computing capital gains, would have to decide how this property should be valued for the purpose of deciding what the assessee had received on reduction in the value of his shares, and whether any capital gains had accrued to the assessee or not. This question was not required to be considered but the Tribunal because the Tribunal came to the conclusion that there being no transfer of any capital asset, the question of capital gains did not arise. But the question would now have to be considered and decided by the Tribunal when the matter went back before it for the determination of capital gains." 42. It was further held that thus the amount distributed by a company on reduction of its share capital has two components, i.e. distribution attributable to accumulated profits and distribution attributable to capital (except capitalised profits). To the extent of accumulated profits whether such accumulated profits are capitalised or not, the return to the shareholder on reduction of share capital is a return of such accumulated profits. This part of it is taxable as dividend. The balance may be subject to tax as capital gain, if they accrue. ....
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....der which the receipt in question can be assessed. Once he assesses a particular receipt under a particular head of income, that amount is no more available to him for assessment under another head. The Revenue cannot approbate and reprobate. It cannot be permitted to treat a part or the whole of the consideration as dividend and to assess The same as such and also t say that this will not have the effect of reducing the amount of consideration for the purpose of computation of capital gain. Redemption of preference shares amounts to "transfer" within the meaning of section 2(47). Section 45 will apply to such a transfer and the capital gain or loss will have to be computed. From a bare reading of section 2(22) and sections 45 and 48, it is clear that for the purpose of finding out the profits or gains arising from the transfer of a capital asset, it is necessary to know the cost of acquisition of the asset and the full value of the consideration for which the transfer is made. It is the difference between the two which is termed as profits and gains arising from t he transfer subject, however, to specific provisions, if any, contained in any other section of the Act. Section 48 ....
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....ence shares. 18. Learned DR also fairly conceded that issue is covered by the order of the Tribunal in case of subsidiary company and which has also been confirmed by the Hon'ble Bombay High Court. 19. The AO has also disallowed sum of Rs. 1,76,023/- on account of advances written off. 20. We have considered rival contentions and found that AO has dealt with the issue at para 9 of his order whereas CIT(A) has dealt with the issue at para 11 of his appellate order. It appears that disallowance has been upheld considering this claim as for bad debts and not fulfilling the conditions of section 36(2) of the Act. However, since this was an advance given in the course of business and neither services rendered nor advance returned back, the claim is required to be allowed as a business loss. In the interest of justice, we restore the matter back to AO and we direct the AO to verify the facts and decide afresh. We direct accordingly. 21. Assessee is also aggrieved for not granting deduction for provision for leave encashment of Rs. 14,82,636/-. We have considered rival contentions and found that issue is squarely covered by the decision of the Supreme Court in case of Bharat Earth Mov....
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....hines. 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....
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....the fixed assets in the impugned assessment year. The only reason on which the learned Commissioner (Appeals) has rejected assessee's claim of depreciation is, the assessee was unable to prove that the machinery was used in production. As could be seen from the materials placed before us, which were also before the Departmental Authorities, the machine in question is used for cutting and wrapping confectionary toffees and were delivered at ready to use condition. Thus, it is evident that the machine has no role to play in the production activity. Therefore, when the learned Commissioner (Appeals) has accepted the fact that the machine was purchased and commissioned and formed part of the fixed asset in the relevant financial year, there is no reason to disallow assessee's claim of depreciation. Moreover, the fact that in the subsequent assessment year, assessee's claim of depreciation on such machinery has been allowed has not been controverted by the learned Departmental Representative. Therefore, we delete the disallowance made by the Assessing Officer and confirmed by the learned Commissioner (Appeals). This ground is allowed. 67. Grounds no.4 and 5 having already ....
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....34. As per learned AR the facts in the current year is different and therefore the above observations based on which the decision was taken will not apply in the current year. 35. As per learned AR during the year under consideration, the assessee has incurred foreign travel expenditure for directors as well as executives of the assessee. The assessee has also submitted the following documents as evidences/ proofs: i. Copies of passports and visas issued to the directors and executives of the assessee for travelling abroad for the purpose of business. ii. Copy of the extract of resolutions passed by the Board of Directors of the assessee with respect to foreign travel'; 36. Our attention was also invited to the Copy of correspondences with the foreign parties: 1. Letter from APV Baker to Mr. Ajay Chauhan with respect to the visit to Hard candy cooking and depositing plant in Tourcoing near Lille, France. 2. Letter from Kohli and Kohli to Mr. Vijay Chauhan and Mr. Ajay Chauhan with respect to Food extrusion seminar in France 3. Meeting with Strategic Food International Co.LLC in Dubai by Mr. Vijay Chauhan and Mr. Ajay Chauhan. 37. Learned AR also highlighted the vis....