TaxTMI 
TaxTMI 
2025 (3) TMI 1880
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.... AY.2000-01 /Ld. Assistant Commissioner of Income-tax, Central Circle 35, Mumbai, order passed under section 143(3), date of order 25/03/2004 for AY 2001-02 & date of order 11/03/2005 for AY 2002-03. 2. At the outset, all the appeals have same nature of facts and have common issue, so ITA No.7124/Mum/2004 for A.Y. 2000-01 (Assessee's appeal) and ITA No.7397/Mum/2004 (Revenue's appeal) are taken as lead case. 2.1 The following are the grounds raised by the assessee and the revenue: - ITA No.7124/Mum/2004 (Assessee's Appeal) "1. Learned Commissioner of Income Tax (Appeals) has erred in confirming the action of the Assessing Officer that while working out the profits of the Goa and Kanjikode undertaking for claiming a deduction u/s 80IB corporate office expenses and depreciation on assets installed at corporate office ought to be allocated. Without prejudice to the above, Learned Commissioner of Income Tax (Appeals) has erred in not accepting the alternative contention of the Appellant that the corporate office expenses and depreciation on assets installed at the corporate office, if allocable, ought to be allocated on an incremental basis. The learned Commi....
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....f appeal during the course of the hearing." Additional ground vide letter dated 01/05/2024 "The appellant is desirous of taking the following grounds of appeal of as additional ground of appeal: 1. The Learned AO erred in reducing Rs. 77,63,717 while computing section 80HHC of the Income Tax Act, 1961 ("the Act") in view of the provisions of 80IA(9) of the Act. On the facts and circumstances of the case and in les, the said reduction, not being in accordance with the provisions of section 80IA(9), should not be made while computing deduction under section 80IHC of the Act. 2. "Leaned AO has erred in not allowing deduction of Advertisement & Sales Promotion expenses of Rs. 3,73,03,344/- considering it mere provision. On the facts and circumstances of the case and in law, the deduction of said expenses ought to have been allowed while computing the total income." Additional ground vide letter dated 25/05/2007 "Without prejudice to the contention of the appellant that the assessee is entitled to the depreciation in AY 1995-96 and AY 1996-97 on the shunt capacitor (the equipment) leased to RSEB, in the event it has held that the assessee is ....
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.... the Department against the Bombay High Court's decision was not on merit and that the issue did not really receive the consideration of the Supreme Court". 6. "The appellant craves leave to add, to amend and/or to alter any of the grounds of appeal, if need be." 3. The brief facts of the case are that the assessee is a manufacturer and distributor of various consumer products being sold in market in the brand name of Parachute, Revive, Marco's Hair & Care, Saffola, Sweekar and Sil and having its manufacturing units at Kanjikode and Goa. The head office and corporate office of the company is at Rang Sharda, KC Marg, Bandra Reclamation, Bandra (W), Mumbai-400 051. The manufacturing unit of Kanjikode was set up in 1983, which is eligible for deduction under section 80IB @30% and Goa unit was set up in 1997-98 which is eligible for deduction under section 80IB @100% of its profit. During the impugned assessment year, the assessment was completed with additions under the different heads, and which is adjusted with the profit in respect of Goa and Kanjikode under section 80IB and 80HHC of the Act for the purpose of computation of income under section 115JA of the Act. Th....
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....sion is as below: - "Revenue's Submission: The Revenue emphasizes that the corporate office provides critical support, supervision, and management services to all manufacturing units. The allocation of Rs. 15,94,645 to Goa and Rs. 12,82,909 to Kanjikode as corporate office expenses, along with proportionate depreciation on corporate assets, was based on the turnover ratio of each unit. The Revenue argues that the corporate office handles key functions such as financial management, HR, procurement, and overall strategic planning, without which these units cannot function independently. Ignoring these expenses would inflate the profits of these units, leading to excessive deductions under section 80IB. The CIT(A) upheld the allocation as essential for fair profit computation, and the Revenue submits that this approach is consistent with established accounting standards and judicial precedents." 5. We heard the rival submission and considered the documents available in the record and we find that in allocation, the depreciation and the corporate office expenses to Goa and Kanjikode units was unjustified as these units are operated independently. We find that the Act ve....
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....he finance cost towards the working capital requirement of the Goa unit and to that extent he made adjustment while giving deduction under section 80IA of the Act. After careful consideration, we observe that the Goa unit has shown working capital deficit in the above said months. However, Assessing Officer has not discussed the working surplus declared by the Goa unit between January 1998 to March 1998. The Assessing Officer cannot cherry pick the working capital requirements only to working capital deficit overlooking the surplus. In our considered view the method adopted by the Assessing Officer is not proper. He has to see the overall working capital requirement for the period and in case at the end of the period if there is any deficit in working capital requirement, he may proceed to disallow the same. He has to analyze the whole period under consideration. In the given case it is not so. He has only focused on deficit of working capital overlooking the surplus of working capital during the subsequent period. Therefore, we do not see any reason to follow the method adopted by the Assessing Officer. Accordingly, in our considered view the assessee also demonstrated that it has....
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.... Total 344.55 120.21 99.43 39.10 23.88 25.36 1.42 16.11 287.41 174.14 1,131.59 Principal of allocation of Expenses: (a) Expenses pertaining to sales is allocated toGoa and Knjikode in the ratio of domestic PCNO sales of undertaking to PCNO domestic sales. (b) Expenses pertaining to parachute common is allocated to Goa and Kanjikode in the ratio of domestic PCNO sales of undertaking to PCNO domestic sales. (c) Expenses pertaining to Nature Care common is allocated to Goa and Kanjikode in the ratio of domestic PCNO sales of undertaking to total Nature Care Sales. (d) Expenses pertaining to Calicut is allocated to Goa and Kanjikode in the ratio of copra purchased by each undertaking to the total copra purchases." 10. On similar basis, the allocation was upheld by CIT(A) in A.Y. 1999-2000 and the department has not contested the matter before the Tribunal, though they have filed appeal on other issues. The assessee filed a breakup before he Ld.AO, which is enclosed in APB-I, pages 15-17. 11. The Ld. DR has relied on the order of the Ld.AO and the relevant paragraph of the assessment order, para 6.5 on ....
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....essee shall be afforded a reasonable opportunity of being heard and permitted to submit any documents deemed necessary by the Ld. AO in the set-aside proceedings. The assessee is further directed to cooperate fully with the set-aside assessment proceedings. Accordingly, ground no. 2(b) of assessee's appeal is allowed for statistical purpose. Ground no. 2(c): Allocation of R&D cost to Goa & Kanjikode units 13. The Ld.AR in argument placed that the assessee is carrying on business of fast-moving consumer goods (FMCG). The assessee manufacturers and markets products of various brand names like, Saffola, Sweekar, Marico's Hair & Care, Revive, etc. Only two units i.e. Goa and Kanjikode manufactured Parachute coconut oil. The R&D projected is related to this FMCG goods for innovating and new product managed. But the company was incorporated in 1989 and turnover consumer product business division of Bombay Oil Industries which was carrying on the business since 1949 with brands, Parachute and Saffola. So, for both these undertakings, no such R&D was paid. We respectfully relied on the decision of ITAT, Mumbai Bench in assessee's own case in ITA No.1621/Mum/2004, date of pronounce....
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....sp; 54.765 58.593 Less: Interest earned (Tax deducted at source Rs. 4.643 million (Rs. 4.815 million) 22.519 21.525 32.246 37.068 17. The assessee paid the interest or Rs. 54.76 million whereas the interest earned is Rs. 22.51 million and the said amount of Rs. 22.519 million is also covered under Explanation (baa) of section 80HHC(4) of the Act. The Ld. AO noted that the assessee has reduced 90% of lease income, export incentive and agency commission. But the assessee has not reduced 90% of IT interest and 90% of other interest receipts of Rs. 2,25,19,000/- which also comes under Explanation (baa) to Section 80HHC(4) of the Act. So, 90% of interest received are also considered for arriving at business profit for the purpose of deduction under section 80HHC. Accordingly, the recalculation was made by reducing the interest earned amount to Rs. 2,02,67,100/-. The Ld. AR invited our attention in "Schedule-P", as stated above and the total interest is netting off after adjusting interest paid & received. So, the 90% reduction is not applicable for calculation of 80HHC. He stated that the issue is squarely covered by the order of Hon'ble Supreme Cour....
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....n (baa) would mean only such receipts by way of brokerage, commission, interest, rent, charges or any other receipt which are included in the profits of the business as computed under the head "Profits and Gains of Business or Profession". Therefore, if any quantum of the receipts by way of brokerage, commission, interest, rent, charges or any other receipt of a similar nature is allowed as expenses under Sections 30 to 44D of the Act and is not included in the profits of business as computed under the head "Profits and Gains of Business or Profession", ninety per cent of such quantum of receipts cannot be reduced under Clause (1) of Explanation (baa) from the profits of the business. In other words, only ninety per cent of the net amount of any receipt of the nature mentioned in clause (1) which is actually included in the profits of the assessee is to be deducted from the profits of the assessee for determining "profits of the business" of the assessee under Explanation (baa) to Section 80HHC." 18. We heard the rival submissions and considered the documents available in the record. The Ld.AR agitated the issued related to reduction of 90% interest while computing deduction und....
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....ment 05/09/2024. We remand the matter to the file of the Ld. AO and directed to verify the fact & figure in light of the order of coordinate bench ITAT-Mumbai in ITA No. 1521/Mum/2024. Accordingly, the Additional ground no-1 is allowed for statistical purpose. 20. Additional ground-2 filed on dated 01/05/2024 is not pressed. So, it stands as withdrawn. Accordingly, the Additional ground-2 is dismissed as withdrawn. Ground 4 : Addition for provision of Advertisement and Sales promotion while computing book profit under section 115JA of the Act. 21. The Ld.AR stated that as is aware, the company is engaged in the business of Fast-Moving Consumer Goods. The key characteristic of this industry is that Advertisement and Sales Promotion expenses are integral part of its business and compulsory for its survival. FMCG companies are incurring expenses on Advertisement and Sales Promotion expenses (ASP) on various advertisements and sales promotions schemes through advertisement agencies. As per common business practices of advertising industry, detailed television estimate with schedules is prepared for the period of three months. These estimates include details of various ch....
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....ard of Directors of the company in the third week of April. The audited annual accounts of the company for the year ended 31 March 2000 were approved at the meeting of Board of Directors of the company, on 26th April 2000. The Ld.AR also submitted that there is a difference between accounting estimates and contingent liabilities (i.e. unascertained liabilities). The contingent liability does not create any obligation to any amount whereas the accounting estimates presuppose that liability is certain but the quantum will vary. The word liability has bigger meaning as compared to accounting estimates. All the accounting estimates put together make the liability. 24. It was also submitted that the company has provided for advertisement and sales promotion expenses on the principle of accounting estimates based on obligation. Since there is time gap between the approval of the media estimates and final advertisement invoices, the assessee-company is making provision at the year-end on the basis of media / advertisement estimates available with it as approved by the concerned brand / marketing manager. The media estimates for the month of February and March are received & approved by....
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....8. The scenario of contingent liability will arise only where the advertising agent incurs the expenses without any prior approval of the company. In that case, company is not legally bound to pay any amount to such agencies. The provisions for ASP expenses are made in the books of accounts based on the companies' obligations and the amounts are estimated based on best of information available at the time of closure of financial statements. Since the amounts of ascertained liabilities are estimated based on information available at the time of preparation of final accounts, the variation between the actual amount and estimate cannot make the liability as unascertained. Hence, the above provisions for ASP expenses in the financial accounts are for the ascertained liability for which the company has taken the obligation by approving the estimates received from advertising agencies and promotion schemes sanction to the sales field mangers. Hence, the amount is unutilized provisions as on 31^st March 2000 cannot by any stretch of imagination considered as unascertained liability. 29. The Ld.AR thus concluded that it will be appreciated that provision of Section 115JA start with a no....
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....f both the parties and perused the documents available in record. In light of the above submissions, it is evident that the provision made by the assessee for Advertisement and Sales Promotion (ASP) expenses is based on accounting estimates, which are necessary due to the inherent time gap between the approval of media estimates and the receipt of final invoices. The liability incurred is an ascertained liability and not contingent in nature, as it arises from legally binding obligations undertaken by the company through approval of estimates and sanctioning of sales promotion schemes. Furthermore, the computation of book profits under Section 115JA of the Act must align with the provisions of the Companies Act, 1956, which governs the determination of liabilities based on the financial position as on 31st March 2000. The offer of unutilized ASP provisions for taxation was made out of abundant caution and does not affect the ascertained nature of the liability. Therefore, no adjustment is warranted to the book profit computation under Section 115JA, and the assessee's claim regarding the non-contingent nature of ASP expenses remains justified. Accordingly, appeal of the asse....
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....t is the duty of the Tribunal even without an alternative submission, to pass necessary consequential orders suo moto to give such further direction in the matter as the situation may warrant. In the present case, we have held that this lease transaction is a finance lease transaction; and hence the assessee is not entitled to depreciation. As a consequences of the same, it has to be held that the lease rental receipt by the assessee has to be bifurcated into interest component and principal component. We, therefore, direct the Assessing Officer that while disallowing the claim of the assessee regarding depreciation; he should also examine and bifurcate the lease rental receipt of the assessee from this party into interest component and principal component and only interest component should be added to the income of the assessee instead of entire lease rental receipt. The Assessing Officer should pass necessary order as per law after providing adequate opportunity of being heard to the assessee." 34. Accordingly, the issue is sent back to the file of the Ld.AO. the Assessing Officer is directed to pass the order in the light of the order of the ITAT, Mumbai Bench. In the result,....
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....llant craves leave to add, to amend and/or to alter any of the grounds of appeal, if need be". Ground no 1: 36. The disallowance of recreational expenses by the Ld.AO is related to non production of evidence and alleged that the assessee was unable to co-relate the expenses with the business activities. The Ld.DR argued and submitted the written submission vide paragraph No.1.1.1 has taken same view as the Ld.AO had taken note in the impugned assessment order. The observation of the Ld.CIT(A) is as under: - "6. In ground of appeal No.3, the appellant states that the assessing officer erred in disallowing a sum of Rs. 5.05:29 being 1/10 of expenses of Rs. 58.32.982/- Incurred on recreation, picnic, sports and other miscellaneous expenses included in staff welfare expenses. The assessing officer has discussed this sue in para 9.1 of the assessment order. The disallowance is made on the ground that the absence of detach of these expenses it cannot be said that the expenses e incurred wholly and exclusively for the purpose of business Counsel of the appellant submits that necessary details were furnished before the assessing officer, that in the earlier year's disall....
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....iness, is a general observation. The Ld.DR submitted a written submission and vide para 1.1.2 submits that this is not at all related to business expenditure. But the issue is squarely covered by the order of the ITAT, Mumbai Bench in assessee's own case bearing ITA No.1521/Mum/2004& 8713/Mum/2011 for A.Y. 2007-08 and accordingly, the additions were deleted by the ITAT. We respectfully follow the order of the co-ordinate bench of ITAT, Mumbai Bench. Accordingly, the ground no.2 taken by the revenue is dismissed. Ground no. 3: 39. In ground no. 3, the revenue challenges the deletion of addition of Rs. 72,07,913/- out of shortage and leakage expenses. The Ld.AO alleged that there is increase of 0.16% in the shortage and leakage compared to earlier years. There is no documentary evidence filed for the abnormal increase under this head and accordingly, the addition of Rs. 72,07,913/- is made by the Ld.AO. On appeal, the Ld.CIT(A) deleted the same with the following observations: - "8.2 I have carefully considered the order of assessment, and submission of the counsel. In my considered opinion, there is no justification to make the disallowance merely on the ground tha....
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....fference of Rs. 1,94,32,857/- is added to the packing material expenses at Goa unit and the same expense is reduced from Kanjikode unit for the purpose of working out profit from the unit for the purpose of deduction under section 80IB. The assessee submitted that different methods of stock keeping are used in Goa and Kanjikode units. The Kanjikode unit stores oils, majority of which are in tins whereas the Goa unit stores oil, majority of which are in round bottles and some portion in tins. Accordingly, packing material costs did not correspond to the same quantity effected by both the units. The Ld.AO, however, allocated these expenses in the ratio of turnover. The details of submission were placed and unit-wise packing material consumed in APB pages 118-119. The issue was also placed before the ITAT, Mumbai Bench and in assessee's own case bearing ITA No.1621/Mum/2004, the co-ordinate bench has settled this issue in favour of the assessee. The Ld.DR argued and submitted the details in paragraph 1.1.4 of written submission but was unable to bring on record any new material in support of the contention of the revenue. Accordingly, we uphold the order of the Ld.CIT(A) and gro....