TaxTMI 
TaxTMI 
2018 (1) TMI 1077
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.... Act. 2. Most of the grounds taken by assessee 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 a....
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....d machinery of Rs. 18,61,835/-wrongly relying on the CIT(A)'s order for A.Y. 1996- 97, where in fact the CIT(A) had rejected the assessee's claim of depreciation 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 ....
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....predecessor. Therefore, the consumption is an assumed figure and may not be the actual consumption. The suppressed production has been worked out by applying shortfall of 3.67% to the consumption 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 corr....
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....it and 85.99% for confectionary. Whereas, the corresponding figure for contract manufacturing unit were 91.65% and 100.24% respectively. When the Assessing Officer called upon the assessee to explain the difference 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....
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....urse of hearing of appeal before the learned Commissioner (Appeals), assessee contesting the addition made by the Assessing Officer submitted that the Assessing Officer did not appreciate the facts properly. It was submitted, 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....
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.... that while packing the biscuits extra weight of 5% to 10% is given. Thus, taking into consideration these aspects the learned Commissioner (Appeals) held that the percentage of yield of biscuit of the Mumbai unit can be fixed 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 th....
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.... tax audit report at Page-211 of the paper book. He submitted, when the Assessing Officer called for details of "Others", the assessee furnished statement of consumption of raw materials wherein coco vita oil was wrongly shown at 1056 MTs 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....
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....of yield of biscuits of the assessee compared to the percentage of yield of the contract manufacturing units. The allegation of the Assessing Officer is, as per the tax audit report the percentage of yield works out to 92.55%, whereas, as per the 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....
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....t furnished during the assessment proceedings, it is a fact that the quantity of coco vita oil has been shown at 1059 MTs instead of 1860 MTs shown in the audit report. However, in the revised statement, the quantity of coco vita oil has been shown at the correct figure of 1859 MTs. Therefore, the assessee's explanation 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 r....
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.... record cannot stand legal scrutiny. It is also a fact on record that as per the information obtained from the contract manufacturing units, the yield varies between 87% to 100%. Therefore, average yield cannot be standardized to a particular percentage. Moreover, the yield of Mumbai unit for preceding assessment years has 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 throu....
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....he assessee company in the month of July 1995 at a face value of Rs. 1,000/- and were redeemed in July 1997 at a value of Rs. 1,000/-, i.e. same value. In the notes attached to the statement of Income assessee stated that redemption of preference shares amounts to transfer within the meaning of section 2(47) relying on the decision of the Hon'ble Supreme Court in the 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 pertain....
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....hares have been specifically described as "Cumulative" and "Redeemable" in the present case. Hence as the shares are not participating preference shares the exception (i) to section 2(22)(d) will apply and the amount will not be taxable as deemed dividend u/s 2(22)(d) but as capital gains under section 45. (b) that Sec. 2(22)(d) refers to any distribution to the shareholders by a company 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 los....
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....tion 2 speaks of "sale, exchange or relinquishment of the asset" and implies parting with any capital asset for gain which will be taxable under section 45 of the Act. When preference shares are redeemed by the company, the shareholder has to abandon or surrender the shares, in order to get the amount of money in lieu thereof. There is, therefore, also a relinquishment which brings the transaction within the meaning of section 2(47)(i) of the Income-tax 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 in....
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....rores. However, by virtue of mode of computation prescribed under section 48 of the I.T. Act assessee's sale consideration being Rs. 2 crores and indexed cost of acquisition being Rs. 2,35,58,718/- being the deduction allowable under section 48, the net loss of Rs. 35,58,718/- has been computed. This amount is an allowable long term capital loss. 40. The A.O., however, examined the issue of section 2(22){d). Provisions of section of section 2(22)(d) are as under: - '2(22)...... (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 secti....
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.... "(ii) that the assessee in the present case had been paid not merely cash but had also been given a property for the reduction in the value of his shares from Rs. 1,000 to Rs. 210. Out of the total amounts so received including the value of the property so received, the portion attributable to accumulated profits had to be deleted. Only the balance amount could be treated as a capital receipt. Thereafter looking to the cost of acquisition of that portion of the share which had been diminished, capital gains would have 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 furthe....
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....llow. In other words, the consequences and incidents flowing from a legal fiction should also be deemed to be real. The very same income or the very same receipt cannot be assessed twice under two different heads of income. "Dividend", which is income from other sources and "Capital gains" are two different heads under which the income falls to be charged. That being so, once a particular receipt has been treated as dividend, it cannot be treated as income under any other head. The duty of the Income-tax Officer is to find out the appropriate head under 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 th....
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....tal loss. Therefore the A.O. is directed to allow the same as claimed. Assessee's ground on this is allowed . 47. Assessee appeal is partly allowed whereas Revenue appeal is dismissed. 17. We have considered rival contentions and carefully gone through the orders of the authorities below as well as order of Tribunal for the A.Y. 1996- 97 as reproduced above and find that the facts and circumstances during the year under consideration are same, we do not find any merit for the disallowance of Rs. 41,200/- on account of long term capital loss of redemption of preference 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) ....
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....ed and accepted by the CIT(A) in the order for A.Y. 1996-97. The addition was however confirmed by the CIT(A) on the ground that no evidence has been adduced to show how production results changed which could prove that the machines were used. The assessee submitted that the machines imported are wrapping machines. Their function is to wrap/pack the chocolates & confectionery and by themselves do not produce any chocolates/confectionery. Hence, there has not been any change in the production results on account of the wrapping machines and no increased production is attributable to the wrapping machines. 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 detail....
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....n this particular machine. 65. Learned Departmental Representative relying upon the observations of the Assessing Officer and the learned Commissioner (Appeals) submitted that onus is on the assessee to prove the use of machinery. Since the assessee failed to prove such facts, deprecation was rightly disallowed. 66. We have heard rival contentions and perused the material available on record. As could be seen from the impugned order of the learned Commissioner (Appeals), he has accepted that the assessee has produced evidence to prove that the machines were purchased through import and it was commissioned and form part of 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 activ....
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....allowed assessee's claim by following order of the Tribunal in the A.Y.1984-85 to 1986-87. 32. It was brought to our notice by learned DR that issue with regard to disallowance of foreign travel expenses have been decided by the Tribunal in assessee's own case for the A.Y.1996-97 against the assessee after following the order of the Tribunal for A.Y.1995-96. 33. It was submitted by learned AR that in the assessment year 1995-96, the ITAT has observed that the directors of the assessee had visited foreign countries in connection with Company's business as per the Board resolutions and no correspondence/ evidences were submitted to substantiate the foreign tours. 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 assesse....
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....he balance sheet of the assessee, the disallowance of Rs. 1,00,000/- would meet the end of the justice. 44. Learned AR also drawn our attention to the balance sheet for the year under consideration and contended that similar investments are held by the assessee company. Considering the totality of facts and circumstances of the case, we restore the issue back to the file of the AO for deciding afresh after considering the assessee's balance sheet for the year ending on 31/03/2008. 45. We also direct the AO to consider only those investments wherein exempt income is received during the year. For this purpose reliance is placed on the following decisions: Delhi High Court in case of Cheminvest Ltd. (378 ITR 33) (2015). ITAT Delhi Special Bench in case of Vireet Investment (P.) Ltd. (165 ITD 27). 46. Strategic investments are not to be considered. Reliance is placed on the decision of Bombay High Court in the case of Reliance Capital Asset Management Ltd (ITA No. 487 of 2015). 47. In the A.Y.2009-10, AO has made disallowance of Rs. 11,20,490/- u/s.14A r.w.Rule 8D. Learned AR has contended that issue has been decided by the Tribunal. In the case of its sub....