TaxTMI 
TaxTMI 
2020 (11) TMI 695
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....ing nature and in failing to appreciate that the said expenditure did not result in any asset of enduring nature in the hands of the Appellant. 3 The CIT(A) failed to appreciate that the scope of the agreement was limited to a particular territory and that the bottlers were free to carry on business, and were in fact carrying on business in other territories. 4 The CIT(A) erred in disallowing the expenditure ignoring that settled legal position that the nomenclature used by the assessee in books of accounts or other documents is not decisive of the fact that expenditure is capital or revenue in nature. 5Without prejudice to the above, the CIT-(A) failed to consider that deprecation was allowable on the expenditure held to be "capital expenditure". Addition of Rs. 9,27,19,720 on account of l/5th of processing charges and service charges 6 CIT(A) erred in confirming the disallowance of Rs. 9,27,19,720 being l/5th of service charges and processing charges debited to profit and loss account failing to appreciate that these were genuine business expenditure of the appellant company incurred wholly and exclusively for the purpose of its busine....
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....ounts and specific notes given by the appellant in the notes to computation. 16 The CIT (A) erred in upholding the addition even while noting that the appellants have not claimed deduction for the said amount as part of the Excise duty expenditure. 17 Without prejudice to the direction of CIT(A) to allow deduction of the amounts paid under section 43 B , the CIT(A) erred in failing to appreciate that the very basis of the scheme under which the claim is made by appellants with the excise authorities viz., that it permits lodging of a claim only for the amounts already paid. 18 The Appellant craves leave to add to, alter, amend or delete all or any of the aforesaid grounds of appeal." The assessee has also taken an additional ground which reads as under:- "That on the facts and circumstances of the case, entire amount of Rs. 109.73 crores, being payments made by the appellant to bottlers under various "noncompete" agreements during the relevant previous year, should be held to be revenue expenditure and allowable as deduction in computing income for assessment year 2003-04." 3. After hearing both the sides and considering the fact that....
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....dismissed. 9. Ground Nos.6-12 by the assessee relate to the order of the CIT(A) in confirming the action of the AO in disallowing Rs. 9,27,19,720/- being 1/5th of service charge and processing charges debited to the Profit & Loss Account. 10. Facts of the case, in brief, are that the AO, during the course of assessment proceedings, asked the assessee to give details and justify the processing as well as service charges. Despite adequate opportunity granted to the assessee, the assessee did not submit any details or justification for the same. Therefore, in absence of filing of such details, the AO disallowed 1/5th of processing charges (Rs. 28,08,64,615/-) and service charge (Rs. 18,27,33,985/-) and added back the same to the total income of the assessee. 11. Before the CIT(A), the assessee submitted that adequate opportunity was not granted by the AO for furnishing details of the processing and service charges since the AO required such details within a period of four days. It was argued that the assessee had to compile data required by the AO from various sources and locations and had sought time, vide letter dated 17th March, 2006 to furnish the details whereas the AO, ....
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....le Punjab & Haryana High Court in the case of CIT vs. M/s Om Overseas, 334 ITR 202 and various other decisions. 14.1 He submitted that no adverse inference can be drawn on the basis of ex parte statement of any third party unless an opportunity to cross-examine is granted to the assessee. He submitted that in the remand report given by the AO with regard to processing charges, the AO had stated that Kothari Beverages Pvt. Ltd., had confirmed receipt of Rs. 1.07 crores from the assessee whereas the assessee had claimed making payment of Rs. 1.24 crores. Similarly, the AO has stated that there were discrepancies in reporting of processing charges in respect of M/s Esjay Plastomer Pvt. Ltd., wherein the assessee had claimed payment of Rs. 28.98 lakhs whereas the counter party had confirmed receipt of Rs. 29.75 lakhs. He submitted that the AO had never confronted the assessee with third party confirmation received by the Revenue authorities and no opportunities were provided to the assessee to verify the aforesaid confirmations. Relying on various decisions, he submitted that the CIT(A) should not have upheld the disallowance made by the AO by relying on ex parte statements and docu....
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.... substantiate such service charges and processing charges. While doing so, he also rejected the additional evidences filed before him. It is the submission of the ld. Counsel that such additional evidences were crucial for deciding the issue before the CIT(A) which he should have admitted. Further, once he has called for a remand report from the AO, he should have admitted those additional evidences. It is also his alternate submission that in subsequent assessment years, i.e., from A.Y. 2006-07 to 2009-10, such disallowances made by the AO were deleted by the CIT(A) and in A.Y. 2010-11, no such disallowance has been made by the AO. Considering the totality of the facts of the case and in the interest of justice, we deem it proper to restore the issue to the file of the AO with a direction to grant one final opportunity to the assessee to file the requisite details and reconcile the differences between outstanding appearing in its books of account and the balance appearing in the accounts of the third parties. The assessee is directed to file the requisite details and necessary evidences to substantiate the claim of such service charges and processing charges and the AO shall decid....
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....gs are as under:- (a) Although not specifically mentioned in assessment order, the adjustment of securities premium amount could not have been other than after invoking clause (b) in Explanation below the second proviso of Section 115JB(2). The clause states that the book profit for the purposes of Section 115JB should be increased by "the amounts carried to any reserves, by whatever name called other than a reserve specified u/s 33AC". In other words, the A.O. could be justified in making such adjustments, only if the account of the appellant so adjusted, bore a character of "reserve" as understood in accountancy and under the Company Law. In the book by Frank H. Jones , Guide to Company Balance sheet and Profit & Loss account, sixth edition , the author has defined reserves as "that portion of a company's profits (often an appreciable portion) which is retained for future use. It consists of appropriation from profits and other surpluses which are earned in the past i.e. amounts which are not designed to meet any liability, contingency, commitment or diminution in value of assets known to exist as at the date of the balance sheet". The fact that reserves are cre....
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....uld be paid by way of dividend. Thus, it will be seen that any sum out of the profits of the company which is to be made as a reserve or reserves must be set aside before the Directors recommend any dividend. The short point is that securities premium account falls under a separate heading in Part-I of Schedule-VI and also in view of Regulation 87(1) of Schedule -I , Section 211 and 217 of the Company's Act, securities premium account, not in the nature of reserves, cannot be a subject matter of adjustment u/s 115JB of the I.T Act. (b) The AO has stated that the P & L account of the company does not confirm to the requirements of the Company's Act and hence cannot be taken as a bench mark for determining income for the purposes of S 115JB of the Income Tax Act. It would be essential to refer to the Company's Act in order to examine whether there were deviations in the appellant's accounts vis-a-vis the requirements of the Company s Act. Paragraph (3) of Part-I I of Schedule- VI states "the profit and loss account shall set out the various items relating to the income and expenditure of the company arranged under the most convenient heads; and in particular, shall disclose ....
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....are premium account be categorized as a provision. As a corrolary, the share premium account can not be subject to any adjustment under the provisions of S 115JB of the Income Tax Act, since it would be transgressing the rules of interpretation to equate share premium account to an account in the nature of provision. (d) More over, it is statutorily possible to make adjustment by increasing the book profit by any amount mentioned in the clauses to the explanation u/s 115JB, only when the said amounts are debited to the P & L a/c. No such debit to the P & L a/c had ever been made in respect of the share premium account in any earlier year, and in that view of the matter, the adjustment to the book profit by way of reversal of share premium account is not in order. (e) I also agree that the ratio of the citation in the case of Apollo Tyres Ltd. Vs ClT 255 ITR 273 (SC), which states that the AO does not have the jurisdiction to go behind the net profit shown in the P & L a/c except to the extent provided in the Explanation to section 115J, covers the instant issue in appeal.. When the P & L a/c has been certified by the auditors of the company and the accounts have b....