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SEAGRAM DISTILLERIES PVT. LTD vs. Commissioner of Income Tax
High Court of Delhi
S. MURALIDHAR & MR. VIBHU BAKHRU
ITA 237/2015, 898/2009, 899/2009, 900/2009 & 901/2009
Oct 6,2015 1015Taxpundit 9
Section 37, 145(2), 260A
Asst. Year 2001-02 to 2004-05
Revenue S. Muralidhar, J
1. These five appeals under Section 260A of the Income Tax Act, 1961 („Act‟) by the two assesses, Pernod Ricard India Private Limited (earlier, Seagram Distilleries Private Limited) and Seagram Manufacturing Private Limited, raise a common question of law as to whether provision for transit breakages has a scientific basis or is contingent in nature and as such is not an allowable deduction while computing the total income of the Assessees. The Assessment Years (AYs‟) involved in the present appeals are AYs 2001-02 to 2004-05.
2. The first Assessee, Seagram Distilleries Private Limited was a 100% subsidiary of Seagram India Private Limited engaged in the business of manufacture and sale of Grain Neutral Spirit (GNS) and India Made Foreign Liquor (IMFL) from its Nasik plant. The parent company, originally incorporated under the Companies Act, 1956 on 3rd September, 1993 under the name and style of Seagram India Private Limited, changed its name to Pernod Ricard India Private Limited (PRIPL) and obtained a fresh certificate of incorporation on 23rd April, 2007. Thereafter, Seagram Distilleries Private Limited was merged into the parent company, PRIPL by a scheme of amalgamation which received sanction from this Court vide an order dated 8th October 2010. The second Assessee, Seagram Manufacturing Limited (SML) is a 100% subsidiary of Seagram India Private Limited, now PRIPL, and is engaged in the business of blending, bottling, and trading of IMFL. The memo of parties in the appeal by the second Assessee, being ITA No. 237, shows the second Assessee as also „now Pernod Ricard India Private Limited.‟ Both the Assessees‟ products are transported in glass bottles by roads to various states in the country. According to the Assessees, since the bottles are prone to breakages, the Assessees while dispatching the goods make a provision for breakages on the basis of the past history of the region to which the goods are transported. Once the goods reach their intended destination the Assessees reverse the provision and debits the actual breakages to the profit and loss account („P&L Account‟). At the close of the accounting year i.e. March 31st the Assessees make a similar provision for all goods under dispatch and debit the same to the P&L Account. However such provision is reversed on the first day of the following financial year and only actual breakages are debited to the P&L Account in the succeeding year as and when the goods under dispatch reach the destination.
3. The Assessing Officer („AO‟), in the case of the first Assessee, by the order dated 26th March 2004 for AY 2001-02, held that in cases of breakage.........