TMI Blog2014 (6) TMI 985X X X X Extracts X X X X X X X X Extracts X X X X ..... find that the assessee company contributed a sum of ₹ 2,10,48,250/- by way of its shares in the joint venture. The assessee company under the name of Metro Dairy Ltd. produces milk in joint venture with WBSCMPFL and NDDB. The joint venture is a business enterprise and investment by assessee in the same is wholly and exclusively for the purpose of business. The assessee company filed copy of joint venture agreement amongst assessee, WBSCMPFL and NDDB before the AO, before CIT(A) and even now before us. Once the investment is made in a joint venture and all the monies borrowed were used wholly and exclusively for the purpose of business, no interest can be disallowed. This issue is covered by the decision of Hon’ble Calcutta High Court in the case of CIT Vs. Rajib Lochan Kanoria (1994 (2) TMI 42 - CALCUTTA High Court ). Even this issue is covered by the decision of Hon’ble Bombay High Court in the case of CIT Vs. Reliance Utilities & Powers Ltd.(2009 (1) TMI 4 - BOMBAY HIGH COURT ) wherein it is held that if there is interest free funds available to assessee to meet its investments and at the same time the assessee has raised loans it can be presumed that investments were from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aging charges relating to under despatch packing material and the current year and there was discrepancy. We find that the assessee has determined the income chargeable under the head Profit and Gains of business in accordance with the method of accounting regularly employed by the assessee and also reconcile the discrepancy in the packaging charges vis-à-vis closing stock. Once the assessee explained the same, the addition cannot be made. Accordingly, we confirm the order of CIT(A) deleting the addition Addition of amount received by assessee from Metro Dairy Ltd on account of TDS credit - Held that:- AO failed to correctly appreciate the submissions made by assessee in regard to real nature of receipt of the assessee. It is a fact that assessee has received a sum of ₹ 4,62,911/- on account of reimbursement of expenses incurred by assessee on a joint venture project carried on with Metro Dairy Ltd. Since this amount represented reimbursement of expenses it was not in the nature of income in the hands of the assessee. CIT(A) has rightly deleted the same and we confirm the same. Addition on account of obsolete stores - Held that:- From the details of closing stock as on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iry Development Board without appreciating the fact that the AO made such addition on the basis of materials on record and explanation offered by the assessee company. 3. Briefly stated facts are that the assessee company is engaged in the business of manufacturing and selling of fruit juice under the trade name of Frooti and also mineral water under the trade name of Bailley both as licencee/franchisee of Parle Agro (P) Ltd., Mumbai. The assessee company also carries out packing of Dhara oil at its factory premises situated at Fateabad, P.O. Barasat, North 24 Parganas, West Bengal on behalf of Dhara Vegetable Oil Food Co. Ltd. Barasat. The assessee company is also running a milk dairy at Barasat, Kolkata under the name and style of Metro Dairy Ltd. in term of joint venture with W.B. State Cooperative Milk Producers Federation Ltd. (in Short WBSCMPFL). In the relevant assessment year, assessment was framed by the AO u/s. 143(3) of the Act after verifying the books of account, bank statements and other documents. Subsequently, the AO issued notice u/s. 148 of the Act and assessment was framed u/s. 147 read with section 143(3) of the Act. As regards to this issue of unaccoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f month-wise packing charges for F.Y. 1998-99 and 1999-2000 and details of other income/miscellaneous income. All these details and documents were also produced before the AO. As mentioned above, during the assessment proceedings it was observed by the AO that there was difference of ₹ 12,32,996/- between the receipts from NDDB as per TDS certificates visa-vis the P L A/c. On being questioned, the appellant company filed explanation before the AO along with various statement and details in support of its explanation. However, it is observed that the AO rejected the explanation of the appellant company by merely stating that as per TDS certificates issued by NDDB it is seen that total of ₹ 1,32,60,998/- has been credited in the accounts of the assessee for the contract job undertaken (packing charges) during the period from 1/4/99 to 31/3/2000 against which TDS of ₹ 2,91,739/- had been deducted. Assessee s reply is not convincing. Assessee followed the mercantile accounting system. So total credit of contract charges should be taken into account this year under consideration. Hence, the difference of receipts of ₹ 12,32,996/- is added to the income . On ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hy the difference kept in. The assessee has reconciled the figure of ₹ 7,22,171/- being the amount of packaging charges already booked in the Ay 1999-2000 and it has been verified by the AO as well as CIT(A). The second figure of ₹ 4,62,597/- being the amount received from NDDB was reflected under the head other incomes as is evident from the statement forming part of assessee s paper book appearing at pages 27 to 31. From the above reconciliation it is clear that the assessee is able to explain why difference between the receipts as noted in TDS certificate and receipt declared by assessee arose. Accordingly, this amount of ₹ 12,32,996/- has rightly been deleted by CIT(A) and we confirm the same. This ground of appeal of revenue is dismissed. 6. The next issue in the appeals of revenue i.e. ground no.2 for AY 2000-01 and ground no. 6 for AY 2003-04 as against the order of CIT(A) directing the AO to delete the addition made by AO on account of disallowance of interest on borrowed money. Since grounds are identical, except variance in amount, and facts are common, we dispose of this ground of appeals for both the years together by reproducing following ground ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd the appellant had not shown any return from its investment in the said company. That, the line of business of the appellant company and other company were different. Under the circumstances, the AO disallowed proportionate amount of interest paid by the appellan which comes to ₹ 34,13,652/-. On the other hand it was claimed by the appellant that it had invested the money in Metro Dairy Ltd. as per joint venture agreement amongst appellant, W.B. State Co-operative Milk Producers Federation Ltd and National Dairy Development Board. It is contended by the appellant that the investment was made by the appellant company for business purpose and hence, no disallowance of interest was called for. In earlier years no such disallowance was made by the AO and that the appellant company was having its own funds more than the amount of investment in Metro Dairy Ltd. On perusal of the joint venture agreement it is observed that National Dairy Development Board, W.B. Cooperative Milk Producers Federation Ltd and the appellant i.e. Keventer Agro Ltd., entered into an agreement, as promoters to set up jointly a new dairy in West Bengal as Third Metro Dairy under a joint sector company. Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ₹ 34,13,652/-. On the other hand, it was argued that the investment made in Metro Dairy Ltd. was not in connection with assessee s business and, therefore, interest was not admissible u/s. 36(1)(iii) of the Act. Before us Ld. counsel for the assessee pointed out that the assessee itself was engaged in manufacturing and trading of fruit juice, packaging of edible oils but Metro Dairy Ltd. was engaged in different line of business i.e. in manufacturing of milk products from milk powder. It was explained by the assessee that the investment in shares of Metro Dairy Ltd. was made by the assessee during FY 199394 relevant to AY 1994-95. But revenue from AY 1994-95 to 1999-2000 has not questioned the investment of that which was for business purpose and no disallowance of interest was made in those years. The assessee also claimed that its own funds were sufficient to cover the investment made by it in Metro Dairy Ltd. Ld. counsel for the assessee stated that interest free funds available in the shape of capital reserves and loans are more that the interest paid on this investment. We find that the assessee company contributed a sum of ₹ 2,10,48,250/- by way of its shares in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oti Bailley. Parley Agro Ltd. introduced the consumer promotion scheme under the name of Scoobi Doo, which is a device of trademark of Cartoon Network of Warner Brothers, USA. The purpose of the scheme was to promote sales to Frooti in Indian market. Under this scheme the licensees/Franchisees were required to provide free Sticker and Tatoos to buyers of Frooti inviting them to enter into a Lucky Draw scheme with prizes like T.V. Watches etc. including a Family trip to Australia. In view of this scheme, Parley Agro Ltd. incurred expenses, which were required to be shared by licensees/Franchisees. Under the scheme, assessee incurred expenses of ₹ 49,44,199/-. The AO disallowed the expenditure on the basis that the assessee company did not furnish copy of any agreement entered into by it with Parley Agro Pvt. Ltd. in relation to promotional scheme. It was alleged that no bills evidencing such expenditure or any other expenses were produced. No evidence of advertisement in TV or print media in respect of assessee s promotion of contribution was furnished. It was further alleged that no services were rendered by the assessee company to Parley Agro Pvt. Ltd. in exchange of thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rle. As per letter issued by Parle to the appellant it was required to make payment for scheme @ ₹ 19/- per case having 27 packs of 200 ml. Frooti juice. During the year under appeal, the appellant dispatched 287156 cases of 200 ml. Frooti-mango drink, out of that 26935 cases remained in closing stock. Thus, net dispatch to the distributors was 260221 cases. At the rate of ₹ 19/- per case, the appellant- paid sum of ₹ 49,44,199/- to Parle under Scooby Doo Promotion Scheme. The appellant company paid sum of ₹ 14,73,734/- in the year under appeal and the balance amount of ₹ 34,70,465/- was paid to Parle in the next financial year. Thus, it cannot be said that the details were not furnished by the appellant. The AO has also mentioned in the order that Parle Agro has not rendered any services the appellant in exchange of payment made by the appellant. I find no merit in the said observation of the AO, because there was no agreement with Parle for rendering any services to the appellant under Scooby Doo Scheme. The whole scheme was to promote sale of Frooti mango juice and appellant had made payment to Parle as per agreement between Parle and Time Warner, U ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and All India display of such film was intended for increase of the sale of Frooti . This being a promotional scheme assessee received huge success in business and this being a business itself, assessee s expenses are also business expenses. We are of the view that the CIT(A) has rightly deleted the disallowance and we confirm the same. This ground of revenue s appeal is dismissed. 12. The next issue i.e. ground no.2 in the appeal of revenue for AY 2003-04 is against the order of CIT(A) deleting the addition made by AO on account of increase in closing stock of stores and spares. For this, revenue has raised following ground no.2: 2. That on the facts and circumstances of the case, Ld. CIT(A) erred in law in directing the AO to delete the addition of ₹ 17,772/- on account of increase in closing stock of stores spares etc. without considering the fact that the AO has made such addition after proper verification. 13. We have heard rival submissions and gone through facts and circumstances of the case. We find that AO during the course of assessment proceedings made addition of ₹ 17,772/- on account of increase in closing stock of stores and spares. The AO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AO filed reconcilialtion of difference and explained the discrepancy that the difference was on account of adjustment and its opening and closing stock of packaging charges. But the AO was not convinced and he made addition. Aggrieved, assessee preferred appeal before CIT(A) and CIT(A) after taking reconciliation deleted the addition. Aggrieved, revenue is now in appeal before us. 16. We find that as per TDS certificate issued to assessee by Dhara Vegetable Oil Food Co. Ltd. the total bill of packaging charges amounting to ₹ 87,11,115/- and not ₹ 87,21,394/- as noted by the AO in the assessment order. The assessee explained before us that the gross bill of ₹ 87,11,115/-, it reversed the packaging charges of the earlier years attributable to under despatch packing material and added the packaging charges relating to under despatch packing material and the current year and there was discrepancy. We find that the assessee has determined the income chargeable under the head Profit and Gains of business in accordance with the method of accounting regularly employed by the assessee and also reconcile the discrepancy in the packaging charges vis- -vis closing stock. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rdingly, assessee filed statement and filed evidence before the CIT(A). In view of the above facts, CIT(A) deleted the addition. Aggrieved, revenue came in appeal before us. 19. We find that the AO failed to correctly appreciate the submissions made by assessee in regard to real nature of receipt of the assessee. It is a fact that assessee has received a sum of ₹ 4,62,911/- on account of reimbursement of expenses incurred by assessee on a joint venture project carried on with Metro Dairy Ltd. Since this amount represented reimbursement of expenses it was not in the nature of income in the hands of the assessee. CIT(A) has rightly deleted the same and we confirm the same. This issue of revenue s appeal is also dismissed. 20. The next issue i.e. ground no. 5 in the appeal of revenue for AY 2003-04 and ground no. 1 for AY 2005-06 is as regards to the order of CIT(A) in deleting the addition made by AO on account of obsolete stores. Since grounds are identical, except variance in amount, and facts are common, we dispose of this ground of appeals for both the years together by reproducing following ground no. 5 from AY 2003-04 and also by taking facts from this assessment ye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd this issue of revenue s appeals for both the years is dismissed. 23. The next issue i.e. ground no. 7 in the appeal of revenue for AY 2003-04 and ground no. 2 for AY 2005-06 is against the order of CIT(A) deleting the addition made by AO on account of remission of sales tax. Since grounds are identical, except variance in amount, and facts are common, we dispose of this ground of appeals for both the years together by reproducing following ground no. 7 from AY 2003-04 and also by taking facts from this assessment year. 7. That on the facts and circumstances of the case, Ld. CIT(A) erred in law in directing the AO to delete the addition of ₹ 31,32,665/- on account of remission of sales tax since the Supreme Court in the case of Sahaney Steel Press Works Ltd. Vs. CIT pronounced that remission of sales tax is revenue receipt. 24. Briefly stated facts are that the assessee claimed out of total sales tax payable of ₹ 79,36,913/- a sum of ₹ 31,32,665/- as sales tax remission. The assessee claimed on the basis of sales tax assessment order granting remission. The AO noted from the West Bengal sales Tax Assessment Order dated 30.06.2005 for the year endi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ipt. It is argued by the appellant that the Government of West Bengal formulated the incentive scheme of the year 1993 and 1999 with the intention to allow incentive for the promotion of industries in the state of West Bengal. The said incentives were allowed by the State Government in various forms including by way of sales- tax remission. In the case of appellant company it enjoyed the sales-tax remission under the West Bengal Incentive Scheme, 1993/1999 in relation to its expansion projects of fruit juices, located at Barasat in North 24Prganas in the State of West Bengal as well as setting up of new industrial project i.e., mineral water project etc. The appellant company had made substantial investment in fixed capital assets as per the schemes and also obtained registration as well as the eligibility certificates. It was also argued by the appellant that its industrial units are located in Barasat in North 24-Parganas, West Bengal, which, as per the incentive scheme falls under locations classified under Group B. Hence, the appellant company had received incentive/subsidy in the form of sales-tax remission as per the scheme notified for group-B locations. That, the incentive ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as well as the new industry set up by the appellant company, both are located in Vill. Fateabad, P.O. Barasat, North 24-Parganas in the State of West Bengal. As per the Incentive Scheme, 1993/1999, the appellant s units fall under Group-B of classification of areas. Accordingly, the appellant company had received incentive in the form of sales-tax remission specified for group-B location. Since, the incentive has not been allowed to the appellant-company for its business or trade, hence, even as per the decision of Hon ble Supreme Court in the case of Sahaney Steel Press Works Ltd., the amount enjoyed by the appellant on account of sales tax remission, would be capital in nature. Aggrieved, revenue came in appeals before us. 25. Before us Ld. Sr. DR reiterated only one argument that this remission of sales tax is only a trading receipt being linked to production/operational subsidies. On the other hand, the Ld. counsel for the assessee relied on the order of CIT(A). 26. We have heard rival submissions and gone through facts and circumstances of the case. We find that the CIT(A) has considered the legal aspect as to whether the sales tax remission was a revenue or capit ..... X X X X Extracts X X X X X X X X Extracts X X X X
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