TMI Blog2020 (11) TMI 695X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. - 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. MAT computation u/s 115JB - CIT (A) directing the AO to exclude the share premium amount from the book profit calculated for the purposes of Section 115JB - HELD THAT:- No infirmity in the order of the CIT(A) approving the adjustment of security premium account with brought forward losses. F ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of ₹ 9,27,19,720 on account of l/5th of processing charges and service charges 6 CIT(A) erred in confirming the disallowance of ₹ 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 business. 7 The CIT(A) erred in upholding the disallowance of 1/5th of service charges on the grounds that no details were provided at the time of assessment proceedings failing to appreciate that sufficient opportunity was not provided to the appellant to submit the said details before assessing officer. 8 The CIT(A) erred in not admitting the so-called additional evidences relating to deductibility of processing charges paid and service charges submitted by the appellant during the appellate proceedings and in failing to appreciate that no proper opportunity was allowed to the appellant to submit these details during the assessment proceedings. 9 The CIT(A) failed to take cognizance of the material and evidences produced before him regarding deductibility of service charges and proces ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3 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 no fresh facts are required to be investigated, therefore, following the decisions of the Hon ble Supreme Court in the case of NTPC Ltd. vs. CIT, 229 ITR 383 and Jute Corporation of India vs. CIT, 187 ITR 688, the additional ground raised by the assessee is admitted. 4. Grounds of appeal Nos.1-5 of the assessee as well as the additional ground relate to the order of the CIT(A) in upholding the action of the AO in disallowing the non-compete fee of ₹ 48,34,13,706/-. 5. After hearing both the sides, we find, the assessee is a private limited company engaged in the business of manufacture and sale of aerated soft drinks under the brand name Coca Cola,, Fanta, Limka and manufacture and sale of packaged drinking water under the brand name Kinley. It filed its return of income for the relevant assessment year declaring loss of ₹ 282,90,29,838/- while its liabi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nted 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, without giving any opportunity to the assessee, passed the order on 20th March, 2006. The assessee also filed certain additional evidences in respect of the following based on which the ld.CIT(A) called for a remand report from the AO:- a) Break-up of processing charges; b) Sample agreement in respect of outsourcing of processing activities; c) Details of service charges incurred; d) Copy of service agreement entered into with CCI Inc.; e) Sample copy of debit notes/invoices in respect of services rendered by CCI Inc.; and f) RBI approval in respect of service agreement with CCI Inc. 12. After considering the remand report of the AO, the CIT(A) rejected the additional evidences filed by the assessee before him. He noted that the assessee also did not furnish any evidence before him to demonstrate that the payment of service c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 documents mentioned in the remand report. 14.2 Referring to the discrepancies so mentioned by the AO, he submitted that the same are very negligible whereas the AO has disallowed 1/5th of the total expenses which amounts to ₹ 9.27 crores which, by any standard, is extremely on the higher side. He submitted that in the subsequent years, i.e., A.Y. 2006-07 to A.Y. 2009-10, similar disallowance made by the AO in an arbitrary manner by relying on the assessment order passed by the AO for the year under consideration has been deleted by the CIT(A) holding the same to be arbitrary ad hoc disallowance not supported by any adverse evidence. Similarly, during A.Y. 2010- 11 also no such disallowance on account of payment of processing charge has been made by the subsequent AO. He accordingly submitted that the ad hoc disallowance made by the AO and sustained by the C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ite 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 decide the issue as per fact and law, after giving due opportunity of being heard to the assessee. We hold and direct accordingly. The grounds of appeal Nos.6 to 12 are accordingly allowed for statistical purposes. 17. Ground of appeal Nos.13 to 17 were not pressed by the assessee for which the ld. DR has no objection. Accordingly, these grounds are dismissed as not pressed. 18. Ground No.18 being general in nature is dismissed as such. ITA No.236/Del/2007 (by the Revenue A.Y. 2003-04) 19. The only effective ground raised by the Revenue reads as under:- On the facts and in the circumstances of the case and in law, the CIT (A) erred in directing the Assessing Officer to exclude the share premium amount of ₹ 2,086.14 crores from the book profit calculated for the purposes of Section 115JB, ignoring the fact that this amount was utili ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich 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 created out of profits of the company can also be seen in Regulation 87(1) of Table A of Schedule I to the Companies Act stating inter alia that the Board may, before recommending any dividend, set aside out of the profits of the company such amounts, as it thinks proper, as a reserve or reserves which shall , at the discretion of the Board , be applicable for any purpose to which the profits of the company may be properly applied , including provision for meeting contingencies or for equalizing dividends; and pending such application, may, at the like discretion , either be employed in a business of the company or be invested in such investments (other than shares of the company) as the Board may from time to time think fit . Section 211 of the Companies Act, 1956 provides for the form and contents of balance sheet and profit and loss account. The said form of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 the following information in respect of the period covered by the account. (viii) (a) The aggregate, if material , of any amounts set aside or proposed to be set aside, to reserves , but not including provisions made to meet any specific liability, contingency, or commitment known to exist at the date as at which the balance sheet is made up. (b) The aggregate, if material of any amounts withdrawn from such reserves . It is correct as stated by the appellant that there is no stipulation under the Company s Act Act to incorporate the entries relating to reversal of share premium account while drawing up the P L account of the Company. Share premium account is not in the nature of an entry bearing the character of income. It has not been created by debiting the P L account of the Company and hence as a corollary its reversal in any subsequent year can not be construed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot 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 been prepared in accordance with Part-II III of Schedule-VI of the Company s Act, the AO does not have statutory sanction for making the impugned adjustment. In fact, the appellant had filed a petition before the High Court of Delhi u/s 78(1) read with Section 100 to 103 of the Company s Act, 1956 and Rules 46 and 47 of the Companies (Court) Rules, 1959 for reduction of the amount standing in its securities premium account from ₹ 2100 crores to ₹ 13.85 crores by adjusting brought forward business losses of ₹ 2076 crores against the said amount. The Hon ble Court vide its order dated 20.12.2002 has allowed the company to reduce the amount standing in the securities premium account as prayed for. Since the Hon ble court has accorded sanction to the company, in terms of Section 78(1) read with Section 100 to 103 of the Company s Act, 1956, to reduce its securities premium account, it cannot also b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... td vs CIT, 255 ITR 273 (SC), Malayala Manorama Co. Ltd. vs CIT, 216 CTR102 (SC), Kinetic Motor Co Ltd vs DCIT, 262 ITR 330 (Bom) and Sri Hariram Hotels (P) Ltd vs CIT, 237 Taxman 564 (Kar), etc.] 24. We do not find any infirmity in the order of the CIT(A) who, while deleting the addition, has considered the decision of the Hon ble Delhi High Court approving the adjustment of security premium account with brought forward losses. Further, the Hon ble Supreme Court in the case of Apollo Tyres (supra) has held that the AO does not have the jurisdiction to go beyond the net profit shown in the Profit Loss Account except to the extent provided in the Explanation to section 115J which has been relied on by the CIT(A). In view of the above and in view of the detailed reasoning given by the CIT(A) at para 6.3 of his order, we do not find any infirmity in the same in absence of any contrary material brought to our notice by the ld. DR. Accordingly, the order of the CIT(A) is upheld and the ground raised by the Revenue is dismissed. 25. In the result, the appeal filed by the assessee is partly allowed for statistical purposes and the appeal filed by the Revenue is dismissed. The or ..... X X X X Extracts X X X X X X X X Extracts X X X X
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