TMI Blog2010 (8) TMI 881X X X X Extracts X X X X X X X X Extracts X X X X ..... e that the assessee company is in the business of manufacturing of biscuits. The same are manufactured under the brand names of Parle-G, Krackjack, Monaco, Nimkin, etc. Besides having its own manufacturing unit at Bahadurgarh (Haryana) and at Neemrana (Rajasthan), it also gets the manufacturing done through its various Contract Manufacturing Units (CMUs) which manufacture Parle-G and cream biscuits. 4. The Assessing Officer during the course of assessment proceedings noted that in the earlier year an addition for the difference between the actual consumption of raw materials and the manufacture of the products and the standard consumption as per the standard input-output formula has been made wherever there has been excess consumption. 5. He noted the first addition was made in A.Y. 1988-89. In that year, the assessee was asked to give the input-output ratio of the raw material consumed and the finished product manufactured. Assessee submitted the input-output ratio as 108.19 : 100 which means 108.19 kg of raw material to be consumed for producing 100 kg of biscuits. This input-output ratio was based on scientific calculations for ideal condition. The Assessing Officer found ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... given by the CIT(A) in A.Y. 1989-90. However, in the year under consideration following the same principle there was a short consumption of raw material to the tune of ₹ 1,11,21,729 instead of excess consumption as was being worked out in all earlier years and as such it was submitted that no addition was to be made. The Assessing Officer has, however, departed from the method of working out the excess consumption in earlier year and did not allow following adjustment. i) In respect of production from own factory of the assessee, the Assessing Officer did not accept the contention of the assessee for allowing wastage of 1 kg maida in each bag of maida consumed. ii) The difference between the declared weight of biscuits and the actual weight of biscuit packets in respect of Crackjack, Monaco and Nimkin biscuits were taken on the same proportion as in the case of Parle-G ignoring the laboratory reports of excess weight in biscuit packets submitted by the assessee. iii) No adjustment made by the Assessing Officer in respect of biscuits produced by contract manufacturer. The Assessing Officer accordingly made an addition of ₹ 1,57,84,868 to the total income of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g Officer has no evidence on record to doubt the genuineness of the input-output ratio in respect of CMUs in the books of account. Further if the input-output ratio of 108.190:100 is applied to the CMUs, the wastage as allowed in respect of own factory should also be allowed in respect of production from CMUs. However, as the CMUs were on contract basis, the detailed figures of wastage are not available with the assessee and therefore, exact amount of adjustment for different kinds of wastage as has been done in respect of the own factory input-output ratio shall not be possible in the case of CMUs. 11. Based on the various arguments advanced by the learned counsel for the assessee, the CIT(A) rejected the contention of the assessee for allowing wastage of 1 kg of maida in each bag of maida consumed. He noted that during the A.Y. 1989-90 the Assessing Officer while giving effect to the order of the CIT(A) had only made adjustment in respect of weight of empty bag and not on account of left over maida. In all subsequent years also adjustment for the weight of empty bag which was found to be nearly 1 kg has been allowed. He accordingly directed the Assessing Officer to allow adjus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is short consumption instead of excess consumption for which no addition is to be made. The calculation as given by the assessee before the CIT(A) is as under: 15. He accordingly directed the Assessing Officer to verify these figures subject to the condition that no adjustment in respect of left over maida in the bags is to be made and allow relief. 16. Aggrieved with such order of the CIT(A), the as well assessee the Revenue are in appeal before us with the following grounds of appeal: Assessee's grounds of appeal: The appellant objects to the order dated 15.12.2005 passed by the Commissioner of Income-tax (Appeals), Central V, Mumbai, ( CIT(A) ) for the aforesaid assessment year on the following among other grounds. 1. The learned CIT(A) erred in not deleting the addition made by the Assessing Officer (AO) for alleged excess consumption of raw materials of ₹ 1,57,84,868. 2. The learned CIT(A) erred in confirming the action of the AO in applying the Input/Output formulae of 108.19:100 for computing alleged excess/short consumption of raw materials at the appellant's Contract Manufacturing Units (CMUs) as against the formulae of 110.607:100 as conte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t full details of purchases were filed and it has not been proved by the Assessing Officer that such purchases are not genuine. There is also no case of the Assessing Officer that the assessee sold its goods outside the books of account. He submitted that the assessee has maintained all the books statutorily required which are duly audited as per the Companies Act and Income-tax Act. The assessee's accounts cost- wise also were audited. The books of account were audited and verified by the Excise Department. In absence of any primary material to reject assessee's books of account the Assessing Officer cannot make the addition. Referring to the consolidated order of the Tribunal for the A.Ys. 1989-90, 1991-92 and 1994-95 to 1996-97, a copy of which is placed at Paper Book pages 166 to 174, the learned counsel for the assessee referred to para 11 of the order and submitted that the Tribunal while accepting the grounds of the assessee has held that no addition can be made on account of excess consumption. 18. Referring to the decision of the Hon'ble Bombay High Court in the case of R.B. Bansilal Abirchand Spinning Weaving Mills vs. CIT reported in 75 ITR 260, he submi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not carried out any enquiry with any of the suppliers to prove that the purchases are bogus. Referring to page 39 of the Paper Book he submitted that a note on computation of quantity and value of raw material was given to the Assessing Officer. Referring to page 41 of the Paper Book, he submitted that unit-wise production figures were submitted to the Assessing Officer. Referring to pages 49 to 51 of the Paper Book, he submitted that a note on yield of biscuits, handing loss and operational loss, etc., was given to the Assessing Officer. Referring to page 91 of the Paper Book, he submitted that why a standard or theoretical formula cannot be applied to work out the consumption of raw material was given to the Assessing Officer. Therefore, without considering all these factual documents, the Assessing Officer cannot make an addition on account of excess consumption of raw material. He submitted that since the Tribunal has already deleted such excess consumption to the extent sustained by the CIT(A) for the A.Ys. 1989-90, 1991-92 and 1994-95 to 1996-97, therefore, no addition is called for. 21. The learned DR, on the other hand, while supporting the order of the CIT(A) drew the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the purchases are bogus. We further find the Tribunal in assessee's own case in the consolidated order for the A.Ys. 1989-90, 1990-91 and 1994-95 to 1996-97 vide order dated 21st December, 2006 at para 11 of the order has discussed the issue and deleted the addition sustained by the CIT(A) on account of excess consumption by holding as under: We heard the rival submissions and gone through the orders of the revenue authorities. We are of the view that the appeal by the assessee on this issue is to be accepted. It is true that the assessee could not explain why the sister concern's consumption of raw material is comparatively less. But at the same time it is to be noted that the assessee's accounts are audited, book results are not rejected and there is no case for the revenue that there is sale outside the books. Revenue itself is indirectly accepting assessee's contention that there cannot be standard formula for usage of raw materials. In some items there is excess use and in some items there is less. The raw materials which are shown as used less, the revenue itself allowed set off against excess use shown in some other items, which indirectly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssing Officer directing him to make necessary verification and give appropriate relief to the assessee. We hold and direct accordingly. The grounds raised by the assessee are accordingly allowed for statistical purposes and the grounds of appeal No. 2 by the Revenue is dismissed. 26. As far as grounds of appeal No. 1 by the Revenue is concerned, in view of our finding in the preceding paragraph accepting the book results of the assessee for production through own factory, we do not find any infirmity in the order of the CIT(A) in directing the Assessing Officer to allow adjustment for empty bags of maida while working out the ratio of consumption of raw material and production. The grounds of appeal No. 1 by the Revenue is accordingly dismissed. 27. In the result, the appeal filed by the assessee is allowed for statistical purposes and the grounds raised by the Revenue are dismissed. I.T.A. No. 5542/Mum/2006 (A.Y. 2000-01) (By Revenue): I.T.A. No. 5320/Mum/2006 (A.Y. 2000-01) (By Assessee): I.T.A. No. 5543/Mum/2006 (A.Y. 2001-02) (By Revenue): I.T.A. No. 5321/Mum/2006 (A.Y. 2001-02) (By Assessee): 28. The grounds raised by the assessee and the Revenue are as under: I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ): 1. On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in directing the AO to allow adjustment for empty bags of maida while working out the ratio of consumption of raw material and production without appreciating that: a) The maida bags come in net weight and not as gross weight as made out to be by the assessee before CIT(A). The AO has already allowed adjustment of 25% on account of pre-production and post-production wastages. 2. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in directing the AO to allow all adjustments that have been allowed in respect of own factory to CMUs also without appreciating the fact that the excess consumption of raw material is worked out on the total production on the different brands of biscuits irrespective of production in own factory or by CMUs, and deduction was allowed in the same proposition in all the brands of biscuits ignoring the fact that pre- production and post production wastages are not included in the production of biscuits by CMUs. Therefore, question of taking input output ratio at 110.607:100 does not arise. I.T.A. No. 5321/Mum/2006 (A.Y. 2001-02 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT(A) erred in directing the AO to allow all adjustments that have been allowed in respect of own factory to CMUs also without appreciating the fact that the excess consumption of raw material is worked out on the total production on the different brands of biscuits irrespective of production in own factory or by CMUs, and deduction was allowed in the same proposition in all the brands of biscuits ignoring the fact that pre- production and post production wastages are not included in the production of biscuits by CMUs. Therefore, question of taking input output ratio at 110.607:100 does not arise. Assessee's grounds of appeal: The appellant objects to the order dated 15.02.2007 passed by the Commission of Income-tax (Appeals), Central V, Mumbai (CIT(A)) for the aforesaid assessment year on the following among other grounds: 1. The learned CIT(A) erred in not deleting the addition made by the Assessing Officer for alleged excess consumption of raw materials of ₹ 51,63,729 2. The learned CIT(A) erred in not directing the AO follow the order of the Income-tax Appellate Tribunal in the appellant's own case for the assessment years 1989-90, 1991-92, 1994-95, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) of the Income-tax Act, a deduction of any expenditure incurred by the assessee, not being capital or personal expenditure, incurred wholly and exclusively for the purpose of its business is allowable as a deduction in computing the profits and gains of business. Hence once expenditure is incurred the entire amount is allowable as a deduction irrespective of the fact that only a part of the amount is debited in its Profit Loss account. There is no concept of deferred revenue expenditure/ amortization under the Act except where specifically provided viz. section 35DDA (VRS amounts); 35DD (amalgamation expenditure) etc. The assessee has incurred expenditure of ₹ 16,88,82,896/- on advertisement during the year though it might have been deferred in the accounts for a period of two years. Hence the entire amount of ₹ 16,88,82,896/- has been claimed as a deduction in computation of income...... 34. The reliance was also placed in the case of Amar Raja Batteries V. ACIT (272 ITR 17, ITAT Supplement), Core Health Care Ltd. (78 ITD 1(TM), CIT vs. Bhor Industries Ltdd. (264 ITR 180) and Silcon Interfaces Pvt. Ltd. V. ITO (ITA No.7434/Mum/03). However, the A.O was of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alongwith return of income. The A.O in view of the entries recorded in the books of accounts treated the balance expenditure of ₹ 8,44,41,448/- as deferred revenue expenditure and allowed only ₹ 8.44 cores as debited in the books of accounts. On appeal ld. CIT(A) observed that there is no dispute that the impugned advertisement expenditure is revenue in nature and the expenditure is laid out wholly and exclusively for the purpose of business and that the only dispute is where the entire expenditure is to be allowed as deduction during the year or it is to be allowed in two years as per treatment given in the books of accounts, relied on certain decisions held that the entire advertisement expenditure is allowable in this year and hence deleted the disallowance made by the AO. 39. Here it is necessary to take note of the following cases on this issue. 40. In CIT vs. Berger Paints(India) Ltd.(No.2)(Cal.)(supra), it has been held(page 504 head note): Held,(i) that if according to the revenue laws the assessee is entitled to treat a sum as a revenue expenditure, then that legal right of the assessee is not estopped by the treatment given by the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... defined period with the incurring of the said expenditure. The Assessing Officer himself admitted the portion of expenditure debited in the profit and loss account as revenue expenditure. In these circumstances, we do not find any justification to interfere with the findings of the ld. Commissioner of Income tax (Appeals). 44. In CIT vs. Jai Parabolic Springs Ltd., (2008) 306 ITR 42 (Del) it has been observed and held as under:- The assessee filed a return of income declaring a net loss at ₹ 4,40,36,000/- for the assessment year 1990-91. The loss was computed at ₹ 4,27,63,353, inter alia, by making several additions and disallowances. The assessee incurred an expenditure of ₹ 19,48,125/- as expenditure on account of customer introduction charges which were debited as deferred revenue expenses in the balance-sheet. The expenditure was written off over a period of five years starting from the assessment year 1990-91 and accordingly the assessee claimed reduction of ₹ 3,89,625 in the return. The claim was allowed by the Assessing Officer. In appeal before the Commissioner (Appeals), the assessee claimed an additional ground that the enti ..... X X X X Extracts X X X X X X X X Extracts X X X X
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