ACIT, Circle-8(1),, v. Seagram Manufacturing Pvt. Ltd.,,

ITA 4692/DEL/2004 | 2001-2002
Pronouncement Date: 28-11-2014 | Result: Dismissed

Appeal Details

RSA Number 469220114 RSA 2004
Bench Delhi
Appeal Number ITA 4692/DEL/2004
Duration Of Justice 10 year(s) 30 day(s)
Appellant ACIT, Circle-8(1),,
Respondent Seagram Manufacturing Pvt. Ltd.,,
Appeal Type Income Tax Appeal
Pronouncement Date 28-11-2014
Appeal Filed By Department
Order Result Dismissed
Bench Allotted I
Tribunal Order Date 28-11-2014
Date Of Final Hearing 21-07-2014
Next Hearing Date 21-07-2014
Assessment Year 2001-2002
Appeal Filed On 29-10-2004
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: I NEW DELHI BEFORE SMT DIVA SINGH JUDICIAL MEMBER AND SH. T.S.KAPOOR ACCOUNTANT MEMBER I.T.A .NO. - 4535/DE L/20 04 (ASSESSMENT YEAR - 2000 - 01 ) SEAGRAM MANUFACTURING PVT. LTD. (NOW SEAGRAM INDIA PVT. LTD.) 5 TH FLOOR TOWER - A GLOBAL BUSINESS PARK MEHRAULI GURGAON ROAD GURGAON. (APPELLANT) VS ACIT RANGE - 8 NEW DELHI (RESPONDENT) I.T.A .NO. - 4692/DE L/20 04 (ASSESSMENT YEAR - 2001 - 02 ) ACIT CIRCLE - 8(1) ROOM NO. - 163 C.R. BUILDING NEW DELHI (APPELLANT) VS M/S SEAGRAM MANUFACTURING PVT. LTD. 303 MANSAROVER 90 NEHRU PLACE NEW DELHI. (RESPONDENT) APPELLANT BY SH. DEEPAK CHOPRA ADV. SH. HARPREET AJMANI ADV. MS. RASHI KHANNA ADV. & SH. ADITYA GUPTA CA RESPONDENT BY SH. PEEYUSH JAIN & SH. YOGESH VERMA CIT DRS ORDER PER DIVA SINGH JM ITA NOS. 4535 & 4692/DEL/2004 ARE CROSS APPEALS FILED BY THE ASSESSEE AND THE REVENUE AGAINST THE ORDER OF THE CIT - XI NEW DELHI DATED 17.08.2004 PERTAINING TO 2001 - 02 ASSESSMENT. 2. AT THE TIME OF HEARING THE LD. AR INVITING ATTENTION TO THE PETITION DATED 07.11.2014 SUBMITTED THAT AMENDED FORM NO. - 36 FOR THE YEAR UNDER CONSIDERATION PLACED ON RECORD MAY BE SUBSTITUTED FOR THE ORIGINAL FORM NO. - 36 FILED WHICH CONTAINED AN INADVERTENT TYPOGRAPHICAL ERROR WHEREIN THE ASSESSMENT YEAR WAS INCORRECTLY MENTIONED AS 2000 - 01 INSTEAD OF 2001 - 02 ASSESSMENT YEAR. THE 2 I.T.A .NO S . - 4535 4692 /DEL/20 0 4 AMENDED FORM NO. - 36 IT WAS ACCEPTED WAS AVAILABLE WITH THE LD. CIT DR WHO STATED THAT HE HAS NO OBJECTION IF THE SAME IS TAKEN ON RECORD AS THE ISSUES RAISED IN THE GROUNDS CONTINUES TO REMAIN THE SAME. IN VI EW OF THE ABOVE THE AMENDED FORM NO - 36 DATED 04.11.2014 AS OPPOSED TO THE ORIGINAL FORM NO - 36 DATED 08.11.2004 IN THE ASSESSEE S APPEAL IS TAKEN ON RECORD. 3. THE GROUNDS RAISED BY THE ASSESSEE READ AS UNDER: - 1. THAT THE ORDER PASSED BY LD. COMMISSIONER OF INCOME TAX (APPEALS) [CIT(A)) IS BAD IN LAW TO THE EXTENT OF ADDITIONS SUSTAINED AND AS SUCH DESERVES TO BE STRUCK DOWN. 2. THAT THE ORDER OF THE LD. CIT(A) LACKS APPLICATION OF MIND AND THE ATTRIBUTES OF BEING A REASONED ORDER SINCE THE IMPUGNED ORDER IS MOSTLY A REPRODUCTION OF THE ASSESSMENT ORDER THE WRITTEN SUBMISSIONS MADE BY THE APPELLANT THE REMAND REPORT AND THE APPELLANTS REJOINDER TO THE SAME. 3. THAT THE LD CIT(A) ERRED ON FACTS AND IN LAW IN SU STAINING AN ADDITION OF RS. 895 956 ON ACCOUNT OF INTEREST FREE LOANS GIVEN TO SISTER CONCERN. 3.1 THAT THE LD. CIT(A) ERRED IN NOT PASSING A SPEAKING AND REASONED ORDER WHILE SUSTAINING THE ABOVE ADDITION. 3.2 THAT THE LD. CIT(A) ERRED ON FACTS I N NOT APPRECIATING THAT THE LOANS ADVANCED TO THE SISTER CONCERN WERE ONLY TO FURTHER THE BUSINESS PROSPECTS OF THE APPELLANT IN THE WESTERN AND SOUTHERN MARKETS OF INDIA WHERE IT HAD NO PRESENCE. 3.3 THAT THE LD. CIT(A) FAILED TO APPRECIATE THE CIRC UMSTANCES AND RESTRAINTS UNDER WHICH THE LIQUOR INDUSTRY FUNCTIONS IN INDIA AND THAT THE APPELLANT HAS LIMITED CHOICES FOR EXPANDING ITS BUSINESS OPERATIONS IN OTHER REGIONS. 4. THAT THE LD. CIT(A) ERRED IN SUSTAINING THE DIS - ALLOWANCE OF RS. 7 799 BEING DEPRECIATION ON FIXED ASSETS. 5. THAT THE LD. CIT(A) ERRED IN LAW IN SUSTAINING THE DISALLOWANCE OF RS.543 750 BEING PROVISION FOR LEGAL EXPENSES. 5.1. THAT THE LD. CIT(A) ERRED ON FACTS AND IN LAW IN CONCLUDING THAT THE PROVISION WAS MADE ON AN AD - HOC BASIS WHEN THE SAME WERE DISALLOWED ONLY FOR WANT OF DETAILS. 5.2. THAT THE LD. CIT(A) ERRED IN LAW IN NOT APPRECIATING THAT THE APPELLATE PROCEEDINGS WERE IN CONTINUATION OF THE ASSESSMENT PROCEEDINGS AND HIS POWERS BEING CO - TERMINUS WI TH THAT OF THE AO IT WAS INCUMBENT UPON THE CIT(A) TO ADMIT AND ADJUDICATE UPON THE DETAILS OF RS. 543 750 PLACED BEFORE HIM. 6. THAT THE LD. CIT(A) ERRED IN SUSTAINING THE DISALLOWANCE OF RS. 1 174 457 ON ACCOUNT OF PROVISION FOR TRANSIT BREAKAGES. 6 .1 THAT THE LD. CIT(A) ERRED BOTH ON FACTS AND IN LAW IN CONCLUDING THAT THE PROVISION FOR TRANSIT BREAKAGES WAS CONTINGENT IN NATURE. 7. THAT THE LD. CIT(A) ERRED IN SUSTAINING THE DISALLOWANCE OF RS. 159 130 ON ACCOUNT OF INTERES T EXPENSE. 8. THAT THE LD. CIT(A) ERRED IN NOT REDUCING THE AMOUNTS OF RS. 8 232 788 BEING PROVISION FOR DOUBTFUL DEBTS AND RS. 543 750 BEING PROVISION FOR PROFESSIONAL EXPENSES FOR THE PURPOSES OF COMPUTATION OF BOOK PROFIT UNDER SECTION 115JA OF TH E ACT. 3 I.T.A .NO S . - 4535 4692 /DEL/20 0 4 4. AT THE TIME OF HEARING REFERRING TO THE GROUNDS RAISED THE LD. AR SUBMITTED THAT GROUND NOS. - 1 & 2 MAY BE TREATED AS GENERAL GROUNDS AND GROUND NO. - 4 WOULD NOT BE PRESSED BY THE ASSESSEE. IN VIEW OF THE ABOVE THESE ABOVE - MENTIONED GROUNDS DO NOT NEED TO BE ADJUDICATED IN THE PRESENT PROCEEDINGS. 5. ADDRESSING GROUND NO. - 3 AND THE VARIOUS SUB - GROUNDS THEREIN LD. AR SUBMITTED THAT IN THE IMMEDIATELY PRECEDING ASSESSMENT YEAR THE SAID ISSUE HAS BEEN RESTORED BY THE TRIBUNAL TO THE FILE OF THE AO . IT WAS HIS SUBMISSION THAT THE ASSESSEE HAS CONSISTENTLY CANVASSED BEFORE THE AO AND THE CIT(A) THAT THE INTEREST FREE LOANS TO SISTERS CONCERNS WERE ADVANCED ON ACCOUNT OF COMMERCIAL EXPEDIENCY AND THE ISSUE IN THE YEAR UNDER CONSIDERATION MAY ALSO FO LLOWING THE PRECEDENT MAY BE RESTORED TO THE AO. HOWEVER THE DISTINGUISHING FACTS WHICH NEEDS TO BE HIGHLIGHTED IT WAS SUBMITTED IS THAT IN THE IMMEDIATELY PRECEDING ASSESSMENT YEAR THE SISTER CONCERNS BUSINESS HAD NOT BEEN SET UP WHEREAS IN THE YEAR UN DER CONSIDERATION NOT ONLY HAS THE BUSINESS BEEN SET UP BUT THEY HAVE ALSO MANUFACTURED GSNL AND SOLD IT TO THE ASSESSEE AND THIS FACT WOULD BE EVIDENT FROM THE COPIES OF THE P&L A/C FOR THE YEAR UNDER CONSIDERATION AS WELL AS THE FINANCIALS OF THE SUBSE QUENT YEARS WHICH THE LD. AR SOUGHT TO PLACE ON RECORD. WITHOUT PREJUDICE TO THE ABOVE PRAYER MADE IT WAS SUBMITTED THAT IN THE EVENTUALITY THE ISSUE FOLLOWING THE EARLIER YEARS THOUGH DISTINGUISHED ON FACTS IS STILL DECIDED AGAINST THE ASSESSEE EVEN THE N THE FINDING HAS TO BE RESTRICTED TO THE LOANS ADVANCED IN THE YEAR WHICH WAS ONLY RS.5 25 125/ - . FOR THE SAID PURPOSE ATTENTION WAS INVITED TO PAGE 14 OF THE ASSESSMENT ORDER. A PERUSAL OF THE SAME IT WAS SUBMITTED WOULD SHOW THAT THE OPENING BALANC ES AS ON 01.04.2000 WAS RS.3 43 54 078/ - AND IN THE YEAR UNDER CONSIDERATION INTEREST FREE ADVANCES WERE MADE ONLY TO THE TUNE OF RS.25 100/ - ON 05.04.2000 AND RS.5 00 000/ - ON 18.04.2000 TOTALING RS.5 25 125/ - ACCORDINGLY IN THE EVENTUALITY THE AO HOLDS THAT COMMERCIAL EXPEDIENCY IS HELD TO BE NOT MADE OUT THEN IT HAS TO BE LIMITED TO THE ADVANCES IN THE YEAR UNDER CONSIDERATION. RELIANCE WAS PLACED UPON THE DECISION OF THE APEX COURT IN THE CASE OF S.A. BUILDERS LTD. VS CIT (2007) 288 ITR 1 (SC). FOR THE SAKE OF COMPLETENESS IT WAS 4 I.T.A .NO S . - 4535 4692 /DEL/20 0 4 HIS SUBMISSION THAT HE WOULD WANT TO INVITE ATTENTION TO PAGE 14 PARA 4.1 WHEREIN THE AO HAS EXTRACTED THE SUBMISSIONS OF THE ASSESSEE OFFERED BY LETTER DATED 28.02.2004. THE SAME IS EXTRACTED HEREUNDER FOR READY - REFERENC E: - LIQUOR INDUSTRY IN INDIA IS A HIGHLY REGULATED TRADE. EVERY ASPECT OF MANUFACTURE AND SALE OF LIQUOR IS REGULATED AND NO OPERATIONS CAN BE CARRIED OUT WITHOUT COMPLYING WITH THE STRINGENT CONDITIONS RULES AND POLICES OF THE GOVERNMENT. PRODUCTION MANUFACTURE POSSESSION TRANSPORT PURCHASE AND SALE OF INTOXICATING LIQUOR FOR HUMAN CONSUMPTION IS A STATE SUBJECT AND IS COVERED UNDER ENTRY 8 OF LIST II OF THE SEVENTH SCHEDULE OF THE CONSTITUTION OF INDIA. THE POWER TO IMPOSE TAX ON LIQU OR IS DERIVED UNDER ENTRY 51 OF THE SAME LIST. ENTRY 51 PROVIDES THAT THE STATE IS EMPOWERED NOT ONLY TO LEVY EXCISE DUTY BUT ALSO COUNTERVAILING DUTY AT THE SAME OR LOWER RATE ON SIMILAR GOODS MANUFACTURED ELSEWHERE IN INDIA WHEN THE SAME IS IMPORTED OR BROUGHT INTO THE STATE. THE COUNTERVAILING DUTIES ARE MEANT TO EQUALIZE THE BURDEN ON ALCOHOLIC LIQUORS IMPORTED FROM OUTSIDE THE STATE. THUS DERIVING THE POWERS FROM THESE ENTRIES IN LIST II OF THE SEVENTH SCHEDULE THE STATE GOVERNMENTS NOT ONLY REGUL ATE THE ALL FACETS OF THE LIQUOR INDUSTRY BUT ALSO LEVY EXCISE AND COUNTERVAILING DUTIES ON THE SAME. THE LIQUOR POLICIES WOULD REVEAL THAT EACH STATE CAN MANUFACTURE OR LICENSE TO MANUFACTURE DESIGNATED KILO LITRES OF GRAIN NEUTRAL SPIRIT (GNS) BY VIRTUE OF WHICH CONSUMABLE LIQUOR IS MANUFACTURED (BY MIXING THE SPIRIT WITH THE IMPORTED SCOTCH CONCENTRATES). THUS WHENEVER A STATE GRANTS A LICENSE FOR MANUFACTURE OF GNS THE MANUFACTURING CAPACITY OF SUCH UNIT HAS TO BE WITHIN THE OVERALL LIMIT OF THE STATE . FOR EXAMPLE IF THE STATE OF MAHARASHTRA HAS A PERMISSIBLE LIMIT OF MANUFACTURE OF 100 KILO LITRES OF GNS IN A YEAR ALL THE MANUFACTURING UNITS (IN THAT STATE) CANNOT IN THE AGGREGATE MANUFACTURE MORE THAN THE STIPULATED LIMIT AS DISTRIBUTED AMOUNT THEM SELVES BY THE STATE. THUS BY NECESSARY IMPLICATION IF A MANUFACTURER OF GNS LOCATED IN ONE STATE WISHES TO SELL ITS PRODUCTS IN ANOTHER STATE IT HAS THE OPTION TO EITHER ACQUIRE AN EXISTING UNIT HAVING A LICENSED CAPACITY TO MANUFACTURE GNS IN THAT STATE OR IN THE ALTERNATIVE PAY COUNTERVAILING DUTY ON THE LIQUOR IMPORTED BY IT IN THAT STATE (WHICH WOULD MAKE THE PRICE OF THAT PRODUCT PROHIBITIVE). ANOTHER ALTERNATIVE IS TO BUY GNS FROM A COMPETITIVE LOCATED IN THAT STATE WHICH IS NOT REALLY AN OPTION. IT WOULD ALSO BE RELEVANT TO BRING TO YOUR ATTENTION THAT DURING THE YEAR UNDER CONSIDERATION THE APPELLANT WAS OPERATING ON 80% OF ITS LICENSED CAPACITY IN THE 1997 - 98 THE CAPACITY UTILIZATION WAS TO 63% AND 40% RESPECTIVELY. DRAWING SO CLOSE TO THE LICE NSED CAPACITIES THE APPELLANT WAS STILL A REGIONAL PLAYER AS IT WAS UNABLE TO INTRODUCE ITS BRANDS IN THE WESTERN AND SOUTHERN MARKETS OF INDIA. THUS IN ORDER TO FORAY INTO THE NEW MARKETS AND TO BE ABLE TO SERVICE THESE MARKETS SEAGRAM DECIDED TO ACQUIR E THE RUNNING BUSINESS OF OCEANIC DISTILLERS PVT. LTD. LOCATED IN NASIK MAHARASHTRA. OCEANIC HAD EXISTING LICENSE CAPACITY FOR MANUFACTURE OF GNS. SUBSEQUENTLY THE NAME OF OCEANIC WAS CHANGED TO SEAGRAM DISTILLERIES PVT. LTD. (SDL). COPIES OF SHARE PUR CHASE AGREEMENT COPY OF LICENSE GRANTED TO OCEANIC TO MANUFACTURE GNS ETC. ARE ENCLOSED AS ANNEXURE. IT WAS IN THESE CIRCUMSTANCES THAT THE ADVANCE WAS MADE TO SDL WHICH WAS REALLY TO HELP 5 I.T.A .NO S . - 4535 4692 /DEL/20 0 4 SDL FOR SETTING UP THE DISTILLERY IN NASIK. THE GNS MADE BY SDL IS SOLELY FOR THE CONSUMPTION OF THE APPELLANT. 6. THE SAID ISSUE IT IS SEEN IS FOUND DISCUSSED AT PAGE 52 OF THE IMPUGNED ORDER. A PERUSAL OF WHICH SHOWS THAT THE CIT(A) HAS CONFIRMED THE FINDING OF THE AO FOLLOWING THE VIEW TAKEN IN THE IMMEDIATELY P RECEDING ASSESSMENT YEAR. THE LD. CIT DR IN HIS REPLY THOUGH PLACED RELIANCE UPON THE AUTHORITIES BELOW HOWEVER CONSIDERING THAT THE ISSUE IN THE IMMEDIATELY PRECEDING ASSESSMENT YEAR HAS BEEN RESTORED BY THE TRIBUNAL TO THE FILE OF THE AO IT WAS HIS STA ND THAT THE PRECEDENT MAY BE FOLLOWED. 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. IT IS SEEN THAT THE ASSESSEE HAS CONTENDED COMMERCIAL EXPEDIENCY IN REGARD TO THE ADVANCES MADE TO SISTER CONCERNS WHICH IN THE YE AR UNDER CONSIDERATION AMOUNT TO ONLY RS.5 25 125/ - . IT IS SEEN THAT THE CLAIM OF THE ASSESSEE FOLLOWING THE VIEW TAKEN IN THE IMMEDIATELY PRECEDING ASSESSMENT YEAR HAS NOT BEEN ACCEPTED. THE SAID ISSUE IS FOUND TO HAVE BEEN RESTORED TO THE FILE OF THE AO BY THE CO - ORDINATE BENCH. THE MATERIAL DISTINCTION POINTED OUT BY THE LD. AR THAT IN THE YEAR UNDER CONSIDERATION THE SISTER CONCERNS TO WHOM LOANS WERE ADVANCED DID MANUFACTURE AND ALSO SELL THE LIQUOR TO THE ASSESSEE AND THE FACT IS BORNE OUT FRO M THE FINANCIALS FOR THE YEAR UNDER CONSIDERATION AND THE SUBSEQUENT YEARS WERE SOUGHT TO BE PLACED BEFORE US. SINCE THE ISSUE HAS TO BE RESTORED BACK FOLLOWING THE JUDICIAL PRECEDENT WE HAVE NOT TAKEN THOSE COPIES ON RECORD AND DIRECT FILING OF THE REL EVANT SUPPORTING EVIDENCE QUA THE CLAIM OF THE ASSESSEE BEFORE THE AO WHO SHALL DECIDE THE ISSUE BY WAY OF A SPEAKING ORDER IN ACCORDANCE WITH LAW AFTER GIVING THE ASSESSEE A REASONABLE OPPORTUNITY OF BEING HEARD. THE ASSESSEE BEFORE US HAS PLACED RELIAN CE UPON THE DECISION OF THE APEX COURT IN THE CASE OF S.A. BUILDERS (CITED SUPRA). NEEDLESS TO SAY THAT THE PRINCIPLE LAID DOWN THEREIN SHALL ALSO BE TAKEN INTO CONSIDERATION BY THE AO GROUND NO - 3 RAISED BY THE ASSESSEE ACCORDINGLY IS ALLOWED FOR STATIST ICAL PURPOSES. 8 . THE RELEVANT FACTS QUA GROUND NO. - 5 REPRODUCED IN THE EARLIER PART OF THIS ORDER ARE FOUND DISCUSSED AT PAGE 53 OF THE IMPUGNED ORDER. A PERUSAL OF THE SAME 6 I.T.A .NO S . - 4535 4692 /DEL/20 0 4 SHOWS THAT THE ADDITION MADE BY WAY OF A DISALLOWANCE IN THE ASSESSMENT YEAR HA S BEEN UPHELD ON THE GROUNDS THAT NO DETAILS WERE FURNISHED. THE LD. AR INVITING ATTENTION TO THE ASSESSMENT ORDER AND IMPUGNED ORDER AND THE PAPER BOOK PAGE 120 TO 122 SUBMITTED THAT THESE DETAILS WERE AVAILABLE ON RECORD AT PAGE 120 WHICH WOULD SHOW TH AT THE DETAILS OF THE PROVISION OF PROFESSIONAL CHARGES TOTALING TO RS.26 33 994/ - OUT OF WHICH THE DETAILS WERE GIVEN PROVISION OF RS.5 43 750/ - IS SPECIFICALLY GIVEN AND THE BREAK UP IS GIVEN AT PAGE 122 AND CONSIST OF THE PROVISION FOR PROFESSIONAL E XPENSES FOR THE FOLLOWING CA AND LEGAL FIRMS: - S.NO. PARTY NAME ADDRESS AMOUNT (RS.) 1. COLTS INTERNATIONAL LTD. 12/4 MATHURA ROAD FARIDABAD - 121003 HARYANA 170 000 2. S.TALWAR & CO. HOUSE NO.409 SECTOR 31 GURGAON - 12001 7 000 3. R K KHATTAR & CO. B - 4/134 GROUND FLOOR SAFDARJUNG ENCLAVE NEW DELHI - 29 20 000 4. SAHNI NATRAJAN & BAHL 303 MANSAROVAR 90 NEHRU PLACE NEW DELHI - 19 3 000 5. S K SHARMA 972 SECTOR - 15 PT.II GURGAON 8 000 6. PRICE WATERHOUSE COOPERS PWC CENTRE SAIDULLAHJAB MEHRAULI - BADARPUR ROAD SAKET DELHI - 30 50 000 7. GROUP FOUR SECURITAS KHASRA NO.1976/2 ATUL KATARIA CHOWK SECTOR - 14 GURGAON 200 000 8. D K MALIK & CO. F - 14 BHAGAT SINGH MARKET NEW DELHI - 1 15 750 9. OTHER MISCELLANEOUS PARTIES 70 000 AGGREGATE 543 750 8.1 . ACCORDINGLY IT WAS HIS SUBMISSION THAT CONSIDERING THE SAME THE ADDITION ON FACTS IS NOT WARRANTED. 8.2 . THE LD. CIT DR THOUGH RELYING UPON THE ORDERS OF THE AUTHORITIES BELOW STATED THAT INSTEAD OF GRANTING RELIEF HEREIN THE IMPUGNED ORDER MAY BE SET ASIDE AND THE ISSUE MAY BE RESTORED TO THE CIT(A) TO ADDRESS THE SPECIFIC EVIDENCE WHICH WAS PLACED BEFORE THE SAID AUTHORITIES. 8. 3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. IN VIEW OF THE CONTRADICTION IN THE STAND OF THE ASSESSEE AND THE ORDERS ON RECORD AND CONSIDERING THE SUBMISSIONS OF THE LD. AR WHEREIN THE LD. CIT DR IN ALL FAIRNESS HAS REQUESTED FOR A RESTORATION OF THE ISSUE WE ARE OF THE VIEW THAT IN 7 I.T.A .NO S . - 4535 4692 /DEL/20 0 4 THE PECULIAR FACTS AND CIRCUMSTANCES OF THE CASE IT WOULD BE APPROPRIATE TO RESTORE THE ISSUE BACK TO THE FILE TO THE AO WITH THE DIRECTION TO CONSIDER THE EVIDENCE PLACED BY THE ASSESSEE ON RECORD AN D PASS A SPEAKING ORDER IN ACCORDANCE WITH LAW AFTER GIVING THE ASSESSEE A REASONABLE OPPORTUNITY OF BEING HEARD. 9 . THE FACTS RELATABLE TO GROUND NO - 6 ARE FOUND DISCUSSED AT PAGE 17 OF THE ASSESSMENT ORDER IN PARAS 8 & 8.1 WHICH READ AS UNDER: - 8. PROV ISION FOR TRANSIT BREAKAGE FROM THE DETAILS OF OTHER SELLING EXPENSE IT WAS NOTICED THAT A PROVISION OF RS.11 93 778/ - WAS APPEARING IN THE ACCOUNT. THE DETAILS OF THIS PROVISION WAS FURNISHED VIDE LETTER DATED 08.09.2003. IT IS NOTICED THEREFROM THAT ONLY A PROVISION OF RS.19 321/ - ON ACCOUNT OF BOND HANDLING CHARGES. GAO WAS AN ASCERTAINED LIABILITY. THE BALANCE AMOUNT OF RS.11 74 457/ - REPRESENTED PROVISION TOWARDS TRANSIT AND SHORTAGES. THE ASSESSEE WAS REQUIRED TO EXPLAIN THE BASIS OF THIS PRO VISION. FOLLOWING EXPLANATION IN THIS REGARD WAS GIVEN VIDE LETTER DATED 06.10.2003: - AS STATED IN OUT LETTER DATED SEPTEMBER 8 2003 THE SAID PROVISION HAD BEEN CREATED AS A YEAR END PROVISION ON ACCOUNT OF TRANSIT BREAKAGES AND SHORTAGES IN RESPECT OF INTRANSIT GOODS TO VARIOUS STATES OF THE GOODS MANUFACTURED BY THE ASSESSEE. THE PROVISION HAD BEEN MADE ON THE BASIS OF ACTUAL BREAKAGES AND SHORTAGES WHICH HAD OCCURRED IN RESPECT OF SIMILAR TRANSACTIONS ENTERED EARLIER IN RESPECT OF THE SAID REGIONS. THUS THE PROVISION WAS ON A SCIENTIFIC BASIS AND BASED ON THE PAST EXPERIENCE OF THE ASSESSEE. THE ASSESSEE ALSO RELIED UPON THE DECISION OF HON BLE SUPREME COURT IN THE CASE OF BHARAT EARTH MOVERS VS CIT (112 TAXMAN 61) AND METAL BOX CO. (73 ITR 53) IN SUPPORT OF ITS CLAIM THE DEDUCTION OF PROVISION MADE. 8.1. I HAVE CONSIDERED THE SUBMISSIONS OF THE ASSESSEE. THE CASE LAWS RELIED UPON ARE FOUND TO BE DIFFERENT AND DISTINCT ON FACT. THE CASE OF BHARAT EARTH MOVERS LTD. THE ISSUE INVOLVED WAS ALLOWA BILITY OF PROVISION FOR LEAVE ENCASHMENT WHEREAS IN THE CASE OF METAL BOX CO. THE ISSUE PERTAINED TO ESTIMATED LIABILITY UNDER GRATUITY SCHEME. IN SUCH CASES THE ASSESSEE IS AWARE ABOUT THE NUMBER OF EMPLOYEES WHO CAN OPT FOR LEAVE ENCASHMENT OR WHO AR E ENTITLED TO GRATUITY AND THE PROVISION CAN BE ASCERTAINED WITH CERTAINTY. IN THE INSTANT CASE THE ASSESSEE HAS MADE A PROVISION FOR TRANSIT BREAKAGES AND SHORTAGES ON THE BASIS OF PAST EXPERIENCE. THERE IS NO CERTAINTY THAT IF A BREAKAGE OR SHORTAGE H AS OCCURRED IN THE PAST IT WILL OCCUR IN THIS YEAR TOO. THE LIABILITY IN FACT IS AN ACCOUNT OF A PROBABILITY WHICH MAY HAPPEN OR MAY NOT HAPPEN. IT IS ALSO FOUND THAT THE ASSESSEE HAS DEBITED THE EXPENSE ON ACCOUNT OF ACTUAL BREAKAGES THAT HAS TAKEN PLACE DURING THE YEAR. FOR EXAMPLE A SUM OF RS.3 01 409/ - WAS DEBITED T O ACCOUNT IN RESPECT OF ACTUAL BREAKAGE THAT OCCURRED IN A TRUCK ACCIDENT. WHEN THE ASSESSEE IS DEBITING THE ACTUAL TRANSIT LOSSES IN THE ACCOUNT ANY 8 I.T.A .NO S . - 4535 4692 /DEL/20 0 4 PROVISION MADE IN RESPECT OF T RANSIT BREAKAGES CANNOT BE ALLOWED. THE PROVISION OF RS.11 74 457/ - IS NEITHER ON ACCOUNT OF ACTUAL TRANSIT BREAKAGES NOR AN ASCERTAINED LIABILITY. HENCE THE SAME IS DISALLOWED AND ADDED TO THE INCOME OF THE ASSESSEE COMPANY. 9.1 . IN APPEAL THE SAID AC TION WAS CONFIRMED BY THE CIT(A) HOLDING AS UNDER: - GROUND NOS. 6 & 6.1: - THESE GROUNDS ARE DIRECTED AGAINST THE DISALLOWANCE OF RS.11 74 457/ - BEING PROVISION FOR BREAKAGES IN TRANSIT. DURING THE COURSE OF APPELLATE PROCEEDINGS IT HAS BEEN ADMITTED TH AT THE ACTUAL BREAKAGE EXPENSES ARE STRAIGHTWAY DEBITED TO PROFIT AND LOSS ACCOUNT BUT WHERE THE GOODS ARE IN TRANSIT AND THE DETAILS OF BREAKAGES IN TRANSIT ARE NOT AVAILABLE PROVISION IS ADJUSTED TO THAT EXTENT. IN OTHER WORDS IT IS ACCEPTED THAT THE P ROVISION FOR BREAKAGES IS NOT ON ACCOUNT OF ASCERTAINED LIABILITY BUT A CONTINGENT LIABILITY. SUCH ESTIMATED LIABILITY HOWEVER WOULD HAVE BECOME AN ASCERTAINED LIABILITY BY THE TIME THE FINAL ACCOUNTS WERE PREPARED. THE APPELLANT IS SILENT ABOUT THIS AS PECT. ON MERITS HOWEVER PROVISION FOR BREAKAGES IS TRANSIT IS NOT ON ACCOUNT OF ASCERTAINED LIABILITY AND AS SUCH CANNOT BE ALLOWED. THE DISALLOWANCE OF RS.11 74 457/ - IS ACCORDINGLY UPHELD. THIS GROUND OF APPEAL IS DISMISSED. 9. 2. AGGRIEVED BY T HIS THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. THE LD. AR INVITING ATTENTION TO PAGE 20 OF THE WRITTEN SUBMISSIONS FILED BEFORE THE CIT(A) FAIRLY CONCEDED THAT AS FAR AS THE PRESENT FORUM IS CONCERNED THE ISSUE HAS BEEN DECIDED AGAINST THE ASSESSEE BY THE ORDER OF THE CO - ORDINATE BENCH DATED 16.03.2009 IN ITA NO. - 2532/DEL/2006 FOR 2001 - 02 ASSESSMENT YEARS AMONGST OTHERS IN DCIT VS SEAGRAM DISTILLERIES LTD. (SDL) (COPY OF WHICH WAS FILED IN THE COURT). IN THESE CIRCUMSTANCES IT WAS HIS SUBMISSION THA T SINCE IT MAY NOT BE POSSIBLE TO COME TO A CONTRARY FINDING AND SINCE THE ISSUE IN THE SISTER CONCERN OF THE ASSESSEE IS PENDING BEFORE THE HON BLE HIGH COURT THE ORDER OF THE SISTER CONCERN MAY BE FOLLOWED. THE LD. CIT DR RELYING UPON THE IMPUGNED OR DER AND IN THE FACE OF THE STAND OF THE LD. AR HAD NO OBJECTION THAT THE ORDER OF THE CO - ORDINATE BENCH IN THE CASE OF THE SISTER CONCERN MAY BE FOLLOWED. 10. WE HAVE HEARD THE RIVAL SUBMISSION AND PERUSED THE MATERIAL AVAILABLE ON RECORD. IN THE LIGHT OF THE SUBMISSIONS ADVANCED BEFORE US WHERE THE FACTS AND CIRCUMSTANCES OF THE CASE ARE STATED TO BE IDENTICAL TO THE FACTS AND CIRCUMSTANCES AS CONSIDERED BY THE CO - ORDINATE BENCH IN ITA NO.2532/DEL/2006 FOLLOWING THE 9 I.T.A .NO S . - 4535 4692 /DEL/20 0 4 JUDICIAL PRECEDENT IN THE CASE OF DCIT VS SEAGRAM MANUFACTURING LTD. THE ORDER OF THE CIT(A) IS CONFIRMED AND GROUND NO. - 6 ACCORDINGLY IS DISMISSED. 11. THE ISSUE ADDRESSED BY GROUND NO. - 7 IS FOUND DISCUSSED AT PAGE 18 PARA 9 OF THE ASSESSMENT ORDER. FOR READY - REFERENCE WE REPRODUCE THE SAME: - 9. INTEREST ON ICD THE ASSESSEE HAD MADE AN INTER COMPANY DEPOSIT (ICD) OF RS.8 CRORES WITH M/S SEAGRAM DISTILLERIES LTD. C COMPANY UNDER THE SAME MANAGEMENT. IT WAS EXPLAINED THAT THE ASSESSEE HAD RECEIVED INTEREST @ 9% ON THE SAID ICD MADE WITH THE SISTER CONCERN. THE ASSESSEE WAS REQUIRED TO EXPLAIN THE SOURCE FROM WHICH ICD WAS MADE. A STATEMENT DEPICTING SOURCE OF FUNDS AVAILABLE WITH THE ASSESSEE FOR MAKING THE ICD OF RS.8 CRORES WAS FILED. IT IS NOTICED THERE FROM THAT THE FUNDS WERE ADVANCED FROM OVER DRAFT ACCO UNT OF THE ASSESSEE FOR MAKING THE ICD. ON THE DATE WHEN THE FUND WAS TRANSFERRED THERE WAS A NEGATIVE BALANCE AND IT WAS ONLY ON A LATER DATE THAT THE ASSESSEE HAD A POSITION BALANCE IN THE ACCOUNT. IT WAS THE RECEIVING INTEREST @ 9% ON ICD WHILE IT WA S PAYING INTEREST @ 15.5% ON THE OD A/C. THE ASSESSEE WAS THEREFORE REQUIRED TO WORKOUT THE INTEREST AT THE DIFFERENCE OF 6.5% FOR THE NUMBER OF DAYS THERE WAS NEGATIVE BALANCE IN THE OD A/C. THE ASSESSEE HAS WORKED OUT THE DIFFERENTIAL INTEREST AT RS. 1 59 130/ - . THIS EXCESS INTEREST PAID ON THE OD A/C CANNOT BE ALLOWED AS THE FUNDS WERE NOT DEPLOYED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. ACCORDINGLY THE DIFFERENT OF INTEREST RECEIVED ON ICD AND THE INTEREST PAID ON OD A/C IS DISALLOWED AND ADDED BACK TO THE INCOME OF THE ASSESSEE COMPANY. 12. BEFORE THE CIT(A) IT WAS CLAIMED THAT THE FINDING HEREIN IS AGAIN DEPENDENT ON THE FINDING O N THE EARLIER GROUND ON COMMERCIAL EXPEDIENCY. THE CIT(A) FOLLOWING THE VIEW TAKEN IN GROUND NO - 2 PERT AINING TO ADVANCES TO SISTER CONCERNS DISMISSED THIS GROUND ALSO. 13. AGGRIEVED BY THIS THE ASSESSEE IS IN APPEAL BEFORE US. THE LD. AR SUBMITTED THAT THE SAID ISSUE MAY ALSO BE RESTORED TO THE AO AS THE FINDING ARRIVED AT ON COMMERCIAL EXPEDIENCY WOUL D APPLY HEREIN ALSO. AS HEREIN ALSO FOR SIMILAR REASONS THE ADDITION HAS BEEN MADE BY THE AO AND CONFIRMED BY THE CIT(A). THE LD. CIT DR THOUGH RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW STATED THAT IS CORRECT THAT COMMERCIAL EXPEDIENCY HAS BEEN C ITED FOR THESE ICDS ALSO AND THE SAID ISSUE MAY ALSO BE CONSEQUENTLY EXAMINED BY THE AO AT HIS END. 14. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. ON A CONSIDERATION THEREOF WE HOLD THAT THE SAID ISSUE ALSO NEEDS TO BE 10 I.T.A .NO S . - 4535 4692 /DEL/20 0 4 RESTORED TO THE AO WHO SHALL LOOK INTO THE FACTS AND DECIDE THE ISSUE BY WAY OF SPEAKING ORDER IN ACCORDANCE WITH LAW AFTER GIVING THE ASSESSEE A REASONABLE OPPORTUNITY OF BEING HEARD. 15. QUA GROUND NO.8 RAISED BY THE ASSESSEE THE ISSUE PERTAINING TO DOUBTFUL DEBTS WAS NOT PRESSED AS IT WAS AGAINST THE STATUTORY MANDATE HOWEVER QUA THE PROFESSIONAL EXPENSES FOR THE PURPOSES OF COMPUTATION OF BOOK PROFIT U/S 115JA I T WAS THE SUBMISSION OF THE LD. AR THAT IN VIEW THAT THE ISSUE HAS BEEN RESTORED TO T HE AO AND IT MAY BE ACADEMIC HOWEVER THE SAID ISSUE MAY ALSO BE RESTORED FOR CONSIDERATION ON THE OUTCOME OF THE DECISION ON THE SPECIFIC GROUND RAISED. THE LD. DR PLACED RELIANCE UPON THE IMPUGNED ORDER. 16. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUS ED THE MATERIAL AVAILABLE ON RECORD. IN VIEW OF THE FACT THAT THE ISSUE OF PROVISION FOR PROFESSIONAL EXPENSES HAS BEEN RESTORED TO THE AO ACCORDINGLY THE FINDING ARRIVED AT THEREIN WOULD APPLY HEREIN ALSO. IN VIEW THEREOF QUA THE SAID CLAIM OF RS. 5 4 3 750/ - AGITATED GROUND NO. - 8 OF THE ASSESSEE THE SAME TO THAT EXTENT IS ALLOWED FOR STATISTICAL PURPOSES. 17. IN THE RESULT THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ITA NO. - 4692/DEL/2004 18. IN THE CROSS - APPEALS FILED BY THE REVENUE THE SOLE ISSUE AGITATED BY THE REVENUE READS AS UNDER: - 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION MADE BY AO ON ACCOUNT OF FOREIGN EXCHANGE LOSS WITHOUT APPRECIATING THE FACT THAT THE LOAN TAKEN BY ASSESSEE WAS ON CAPITAL ACCOUNT AND THE INCREASE IN LIABILITY DUE TO FLUCTUATION OF RATE WOULD ALSO BE ON CAPITAL ACCOUNT AND THE INCREASED LIABILITY WAS A CONTINGENTS LIABILITY AS THE PAYMENT WAS TO BE MADE AFTER SIX YEARS WHEN INSTALLM ENTS WOULD BEGIN. 19. THE RELEVANT FACTS QUA THE SAID ISSUE ARE FOUND DISCUSSED AT PAGES 2 TO 13 IN THE ASSESSMENT ORDER WHEREIN VIDE PARAS 3 TO 3.21 THE AO HOLDS THAT THE LOSS CLAIMED OF RS. 69 09 721/ - ON ACCOUNT OF FLUCTUATION IN FOREIGN EXCHANGE RAT E DEBITED TO SCHEDULE - 16 OF THE AUDITED ACCOUNT COULD NOT BE ALLOWED AND THE ASSESSEE WAS REQUIRED TO EXPLAIN THE SAME. CONSIDERING THE EXPLANATION IT WAS HELD THAT A 11 I.T.A .NO S . - 4535 4692 /DEL/20 0 4 CLEAR LOSS OF RS.91 20 000/ - HAS BEEN CLAIMED IN RESPECT OF A LIABILITY WHICH HAD NOT ARISEN DURING THE YEAR. THE REASONING ON FACTS IS EXTRACTED FROM THE ASSESSMENT ORDER: - 2. LOSS DUE TO FLUCTUATION IN FOREIGN EXCHANGE RATE THE ASSESSEE HAS CLAIMED A LOSS OF RS.69 09 721/ - (NET AMOUNT) ON FLUCTUATION IN FOREIGN EXCHANGE RATE DEBITED TO S CHEDULE - 16 OF THE AUDITED ACCOUNT. THE ASSESSEE WAS ASKED TO FURNISH THE DETAILS THEREOF. IT WAS EXPLAINED VIDE LETTER DT. 06.10.2003 THAT THE EXCHANGE LOSS WAS INCURRED DUE TO RESTATEMENT OF FOREIGN CURRENCY LOAN TAKEN FROM ITS PARENT COMPANY SEAGRAM N EATHERLANDS ANTILLES B.V. FOR MEETING ITS WORKING CAPITAL REQUIREMENTS. THE ASSESSEE FILED THE BREAK UP OF THE LOSS CLAIMED FROM WHICH IT IS FOUND THAT THE ACTUAL AMOUNT PROVIDED ON RESTATEMENT OF FOREIGN CURRENCY LOAN WAS RS.91 20 000/ - . AFTER ADJUSTIN G THE PROFIT ON FOREIGN EXCHANGE FLUCTUATION ON IMPORT/EXPORT THE ASSESSEE HAD CLAIMED NET FOREIGN EXCHANGE LOSS OF RS.69 09 721/ - ./ THOUGH THE ASSESSEE HAS DEBITED RS.69 09 721/ - IN THE P&L A/C IT IS APPARENT FROM THE DETAILS FILED THAT THE ACTUAL LOSS BOOKED ON ACCOUNT OF FLUCTUATION OF FOREIGN EXCHANGE WAS RS.91 20 000/ - THE ADMISSIBILITY OF WHICH REQUIRES EXAMINATION. THE ASSESSEE VIDE SUBMISSION DATED 06.10.2003 GAVE A DETAILED REASONING ALONGWITH VARIOUS JUDICIAL RULINGS TO CONTEND THAT THE LOSS CLAIMED WAS AN ALLOWABLE BUSINESS EXPENDITURE. FROM THE DETAILS FILED IT IS SEEN THAT THE ECB OF US $ 3 MILLION WAS TAKEN IN THE YEARS 1995 - 96 TO 1997 - 98 VIDE AGREEMENT BETWEEN THE ASSESSEE AND M/S SEAGRAM NETHERLANDS ANILLES NV AND THE LOAN REPAYMENT WA S TO BEGIN AFTER 6 YEARS FROM THE DATE THE LOAN WAS DRAWN DOWN. IT IS THEREFORE CLEAR THAT THE LOSS OF RS.91 20 000/ - HAS BEEN CLAIMED IN RESPECT OF A LIABILITY WHICH HAD NOT ARISEN DURING THE YEAR. 3.1. I HAVE CONSIDERED ASSESSEE S SUBMISSION. I HAVE ALSO GONE THROUGH THE CASE CITED BY THE ASSESSEE. THE CONTENTION OF THE ASSESSEE IS NOT LEGALLY TENABLE. THE UNDISPUTED FACTS ARE THAT THE ASSESSEE HAS TAKEN FOREIGN CURRENCY LOAN TO AUGMENT ITS FUNDS. THE ASSESSEE HAS STATED THAT THE LOAN WAS UTILIZED AS CIRCULATING CAPITAL. HOWEVER IN ITSELF THE FACT THAT THE LOAN WAS UTILIZED AS FIXED CAPITAL OR WORKING CAPITAL IS NOT OF MUCH SIGNIFICANCE ON THE PECULIAR FACTS OF THIS CASE. BECAUSE THIS IS A CASE OF FOREIGN CURRENCY LOAN AND NOT A FOREIGN CURRENCY HELD AS AN ASSET AND IT HAS BEEN HELD BY HON SUPREME COURT IN 60 ITR 52 THAT LOAN CANNOT BE AN ASSET. AND THEREFORE A FOREIGN CURRENCY LOAN CANNOT BECOME A FOREIGN CURRENCY ASSET AND IT WOULD REMAIN A LIABILITY. A LOAN IS NEVER ON REVENUE ACCOUNT AND THEREFORE REPAYMENT OF A LOAN CANNOT BE ON REVENUE ACCOUNT. IT MUST BE NOTED THAT INCREASE IN THE LOAN AMOUNT DUE TO CURRENCY FLUCTUATION IS ONLY AN INCREASE IN CAPITAL. 20. THE CIT(A) TAKING INTO CONSIDERATION THE ORDERS OF THE ITAT IN 1998 - 99 & 1999 - 2000 ASSESSMENT YEAR IN ITA NO. - 1629/DEL/2003 & 3267/DEL/2003 WHEREIN IT HAD BEEN HELD THAT LOSS ON ACCOUNT OF INCREASE IN LIABILITY DUE TO FLUCTUATION IN THE 12 I.T.A .NO S . - 4535 4692 /DEL/20 0 4 FOREIGN EXCHANGE RATE IS ALLOWABLE AS A REVENUE EXPENDITURE DELETED THE ADDITION MADE. THIS FAC T IS FOUND DISCUSSED AT PAGES 51 & 52 OF THE IMPUGNED ORDER. 20.1. THE REVENUE IS AGGRIEVED BY THIS THE LD. AR HAS PLACED RELIANCE UPON THE DECISION OF THE APEX COURT IN THE CASE OF CIT VS WOODWARD GOVERNOR SO AS TO CONTEND THAT THE ISSUE IS NO LONGER RE S INTEGRA . APART FROM THAT IT HAS ALSO BEEN SUBMITTED BY HIM THAT IN THE CASE OF THE ASSESSEE CONSISTENTLY RIGHT UP TO THE APEX COURT THE ISSUE HAS BEEN CONCLUDED IN THE PRECEDING ASSESSMENT YEARS IN FAVOUR OF THE ASSESSEE. THE LD. CIT DR DID NOT CONTRO VERT THE POSITION. 21. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. RESPECTFULLY FOLLOWING THE JUDGEMENT OF THE APEX COURT RENDERED IN CIT VS WOODWORD GOVERNOR AND THE CONSISTENT VIEW TAKEN BY THE CO - ORDINATE BENCHES I N ASSESSEE S FAVOUR ON SIMILAR FACTS AND CIRCUMSTANCES IN THE FACE OF NO CONTRARY DECISION OR FACT BROUGHT TO OUR NOTICE BY THE REVENUE THE DEPARTMENTAL APPEAL IS DISMISSED. 2 2 . IN THE RESULT THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED AND THE APPEAL OF THE DEPARTMENT IS DISMISSED. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 2 8 T H OF NOVEMBER 2014. S D / - S D / - ( T.S.KAPOOR ) ( DIVA SINGH ) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 2 8 / 11 /2014 *AMIT KUMAR* COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI