M/s. Sical Logistics Limited, CHENNAI V. DCIT, CHENNAI

CO 187/CHNY/2009

• Counselvise Citation: [2010] 122 COUNSELVISE.COM (IT) 5239 (ITAT-CHENNAI)
• Duration Of Justice: 11 month(s) 1 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 18-10-2010
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 18-10-2010
• Assessment Year: 2002-2003
• Appeal Filed On: 16-11-2009
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: K E B RENGARAJAN JR
• Assessee Lawyers: S SATHIYANAR AYANAN
• Keywords: Commercial expediency; Revenue expenditure
• Section: 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BENCH C CHENNAI BEFORE SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER AN D SHRI GEORGE MATHAN, JUDICIAL MEMBER .. I.T.A. NO. 1627/MDS/2009 ASSESSMENT YEAR :2002-03 THE DEPUTY COMMISSIONER OF INCOME-TAX, COMPANY CIRCLE-V(1), CHENNAI. V. M/S. SICAL LOGISTICS LTD., 73, ARMENIAN STREET, CHENNAI-600 001. PAN : AAACS37889B (APPELLANT) (RESPONDENT) AND C.O. NO. 187/MDS/2009 (IN ITA NO. 1627/MDS/2009) ASSESSMENT YEAR : 2002-03 M/S. SICAL LOGISTICS LTD., V. THE DY. COM MISSIONER OF 73, ARMENIAN STREET, INCOME-TAX, CHENNAI-600 001. COMPANY ACIRCLE-V(1), CHENNAI. (CROSS OBJECTOR) (RESPONDENT) DEPARTMENT BY : SHRI K.E.B. RENGARAJAN, JR. STANDING COUNSEL ASSESSEE BY : SHRI S. SATHIYANARAYANAN O R D E R PER GEORGE MATHAN, JUDICIAL MEMBER : ITA NO. 1627/MDS/2009 IS AN APPEAL FILED BY THE RE VENUE AGAINST THE ORDER OF THE LEARNED CIT(APPEALS)-V, CHENNAI IN APP EAL NO. ITA NO. 401/2007-08 DATED 23-12-2008 FOR THE ASSESSMENT YEAR 2002-03. C.O. NO. 187/MDS/2009 IS I.T.A. NO.1627/MDS/09 & C.O. NO.187/MDS/09 2 A CROSS OBJECTION FILED BY THE ASSESSEE AGAINST THE APPEAL OF THE REVENUE IN ITA NO. 1627/MDS/2009. 2. SHRI K.E.B. RENGARAJAN, JR. STANDING COUNSEL REPR ESENTED ON BEHALF OF THE REVENUE AND SHRI S. SATHIYANARAYANAN, ADVOCATE REPR ESENTED ON BEHALF OF THE ASSESSEE. 3. IN THE REVENUES APPEAL, THE REVENUE HAS RAISED THE FOLLOWING GROUNDS : 1. THE ORDER OF THE LEARNED CIT(A) IS CONTRARY TO LAW AND FACTS OF THE CASE. 2.1. THE LEARNED CIT(A) ERRED IN HOLDING THAT NO DISALLOWANCE OF ANY INTEREST COST WAS CALLED FOR, ON THE FACTS OF THE CASE. 2.2. THE LEARNED CIT(A) FAILED TO APPRECIATE THAT UNLIKE IN THIS CASE, IN THE CASE OF SOUTH INDIA TRAVELS PVT. LTD.(SITPL), THE HON'BLE JURISDICTIONAL ITAT, VIDE ITS ORDER IN ITA NO. 1901/MDS/2007 DATED 19.9.2008 FOR THE A-Y 2001-02, HAD GIVEN A FINDING THAT THE AMOUNTS WHICH CONTRIBUTED TO THE INTEREST LIABILITY OF SITPL, WERE DEPOSITED BY SITPL WITH TH E HON'BLE MADRAS HIGH COURT ON THE DIRECTIONS OF THE HON'BLE HIGH COURT. 2.3. THE LEARNED CIT(A) OUGHT TO HAVE NOTED THAT I N THE PRESENT CASE, THE IMPUGNED TRANSACTION, WHICH HAD O CCASIONED THE INTEREST LIABILITY, WAS UNDERTAKEN TO OVERCOME THE HURDLES IN THE COMPANY LAW PROVISIONS, WHEREAS, IN THE CASE OF SITPL, THE INTEREST LIABILITY WAS INCURRED TO COMPLY WITH THE DIRECTIONS OF THE HON'BLE MADRAS HIGH COURT. I.T.A. NO.1627/MDS/09 & C.O. NO.187/MDS/09 3 2.4. THE FACTS OBTAINING IN THE CASE OF SITPL BEIN G TOTALLY DIFFERENT FROM THAT OF THE INSTANT CASE, THE LEARNE D CIT(A) OUGHT NOT TO HAVE RELIED UPON THE AFORESAID ORDER OF THE HON'BLE TRIBUNAL TO DECIDE THIS CASE. 3. FOR THESE AND OTHER GROUNDS THAT MAY BE ADDUCED AT THE TIME OF HEARING, IT IS PRAYED THAT THE ORDER OF THE LEARNED CIT(A) MAY BE SET ASIDE AND THAT OF THE ASSESSING O FFICER RESTORED. 4. IT WAS SUBMITTED BY THE LEARNED DR THAT THE LEAR NED CIT(A) HAD DELETED THE DISALLOWANCE OF THE INTEREST ON ACCOUNT OF THE INTEREST-FREE ADVANCES GIVEN TO M/S. MCC FINANCE LTD. BY FOLLOWING THE DECISION OF THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF SOUTH INDIA TRAVELS PVT. LT D. IN ITA NO. 1901/MDS/2007 DATED 19-9-2008. IT WAS THE SUBMISSION THAT THE LE ARNED CIT(A) ERRED IN GRANTING RELIEF TO THE ASSESSEE. 5. IN REPLY THE LEARNED AUTHORISED REPRESENTATIVE S UBMITTED THAT THE ISSUE OF THE DISALLOWANCE OF INTEREST WAS SQUARELY COVERED B Y THE DECISION OF THE CO- ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF SOUT H INDIA TRAVELS PVT. LTD. WHICH WAS ALSO A SISTER CONCERN OF THE ASSESSEE COMPANY. IT WAS THE SUBMISSION THAT THE ASSESSEE ALSO HELD 40% PREFERENTIAL CAPITAL IN M/S. MCC FINANCE LTD. JUST AS M/S. SOUTH INDIA TRAVELS PVT. LTD. IT WAS THE SUBM ISSION THAT THE LEARNED CIT(A) HAD RIGHTLY DELETED THE DISALLOWANCE BY FOLLOWING T HE DECISION OF THE CO-ORDINATE I.T.A. NO.1627/MDS/09 & C.O. NO.187/MDS/09 4 BENCH OF THIS TRIBUNAL AS ALSO THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF S.A. BUILDERS REPORTED IN 288 ITR 1. 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. A PER USAL OF THE FACTS OF THE CASE CLEARLY SHOWS THAT THE FACTS IN THE ASSESSEES CASE ARE IDENTICAL TO THE FACTS AS ARE AVAILABLE IN THE CASE OF SOUTH INDIA TRAVELS PVT. LTD., THE DECISION IN WHOSE CASE THE LEARNED CIT(A) HAS FOLLOWED FOR THE PURPOSE OF DELETING THE DISALLOWANCE MADE. IN THE SAID DECISION THE CO-ORD INATE BENCH OF THIS TRIBUNAL HAS HELD AS FOLLOWS: 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAR EFULLY AND FIND FORCE IN THE ARGUMENT OF THE LEARNED COUNSEL F OR THE ASSESSEE. COPIES OF DEMAND DRAFTS CLEARLY REVEAL T HAT THE SAME WERE ISSUED IN FAVOUR OF REGISTRAR GENERAL OF HIGH COURT OF MADRAS. THIS CLEARLY SHOWS THAT MONEY WAS GIVEN TO HELP OUT MCC FINANCE LTD., TO DISCHARGE ITS LIAB ILITY REGARDING PAYMENT TO DIFFERENT DEPOSIT HOLDERS ON T HE DIRECTIONS OF THE HON'BLE HIGH COURT. OTHERWISE, M ONEY WOULD NOT HAVE BEEN DEPOSITED WITH THE HIGH COURT. SINCE THE ASSESSEE COMPANY IS HOLDING 40% PREFERENTIAL SH ARE WHICH CLEARLY SHOWS THAT MCC FINANCE LTD., WAS A SI STER CONCERN AND, THEREFORE, THE DECISION OF THE CALCUTT A BENCH OF THE TRIBUNAL IN THE CASE OF ITC LTD. V. JCIT (SUPRA ) DIRECTLY APPLIES TO THE FACTS OF THIS CASE. IN THAT CASE IT WAS HELD THAT:- I.T.A. NO.1627/MDS/09 & C.O. NO.187/MDS/09 5 EXPENDITURE INCURRED BY AN ASSESSEE WITH A VIEW TO PROTECT THE GOODWILL OF ITS BUSINESS IS A REVENU E EXPENDITURE LAID OUT WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF THE ASSESSEES BUSINESS, THUS ELIGIBLE TO DEDUCTION UNDER S. 37(1). THE CONNOTATION OF THE TERM WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF BUSINESS AS CONTAINED IN S. 37(1) DOES NOT REQUIRE THAT AN EXPENDITURE MUST BE INCURRED OUT OF NECESSITY. EVEN IF ITC CLASSIC HAD BENEFITED FROM THE EXPENDITURE INCURRED BY THE ASSESSEE, THE SAME COULD STILL BE ALLOWED AS DEDUCTION UNDER S.37(1) IN THE HANDS OF THE ASSESSEE IF IT CAN BE ESTABLISHED THAT THE SAME WAS INCURRED WITH A VIEW TO PROMOTE THE BUSINESS NEEDS OF THE ASSESSEE. ITC CLASSIC WAS ENTIRELY DEPENDENT ON THE BRAND NAME OF ITC AS WOULD BE EVIDENT FROM THE EXPLANATORY STATEMENT ANNEXED WITH THE NOTICE SENT TO THE SHAREHOLDERS OF ITC CLASSIC FOR HOLDING THE ANNUAL GENERAL MEETING IN 1993, CONTAINING THE PROPOSAL TO CHANGE THE NAME OF THE COMPANY FROM CLASSIC FINANCIAL SERVICES & ENTERPRISES LTD. TO ITC CLASSIC FINANCE LTD., WHEREIN IT WAS STATED THAT THE CHANGE IN NAME SIGNIFIED A GREATER AND MORE FOCUSED COMMITMENT OF THE ITC BRAND TO THE SAID COMPANY. THE MANAGEMENT OF THE ASSESSEE CONSIDERED THAT THE CLOSURE OF ITC CLASSIC WOULD HAVE HAD TREMENDOUS NEGATIVE IMPACT ON THE SEVERAL INVESTORS, WHO HAD I.T.A. NO.1627/MDS/09 & C.O. NO.187/MDS/09 6 PUT MONEY IN THE SAID COMPANY ON THE ASSURANCE OF THE SAME BEING ASSOCIATED WITH THE BRAND NAME OF ITC AND ACCORDINGLY, THE BUSINESS FRATERNITY AS A WHOLE WOULD HAVE LOST FAITH IN THE BRAND IMAGE OF ITC, OF WHICH THE ASSESSEE WAS THE FLAG-BEARER, WHICH WOULD HAVE AFFECTED THE GENERAL BUSINESS OF THE ASSESSEE AND ACCORDINGLY, ASSISTANCE IN REVIVING ITC CLASSIC WOULD HAVE PROTECTED THE ASSESSEES STANDING AS A PROMOTER AND A PREMIER INDIAN ENTERPRISE AND ACCORDINGLY FURTHER ITS BUSINESS INTERESTS IN THE LONG RUN. IT IS A SETTLED PRINCIPLE OF LAW THAT BUSINESS OR COMMERCIAL EXPEDIENCY IN THE MATTER OF INCURRING EXPENDITURE MUST BE DECIDED FROM THE PERSPECTIVE OF THE ASSESSEE. JUDGED FROM THE SAID PRINCIPLE, THE DECISION OF THE ASSESSEES MANAGEMENT IN INCURRING THE EXPENDITURE WITH A VIEW TO PROTECT OR SAFEGUARD ITS GOODWILL, WAS BACKED BY SOUND LOGIC AND THE SAME WAS BONA FIDE. THUS, EXPENDITURES INCURRED BY THE ASSESSEE FOR THE ASST. YEARS. 1998- 99 AND 1999-2000 AMOUNTING TO ` 52.79 CRORES AND ` 2.02 CRORES, RESPECTIVELY, SHOULD BE ALLOWED AS DEDUCTION UNDER S. 37(1) WHILE COMPUTING THE BUSINESS PROFITS FOR THE SAID ASSESSMENT YEARS, HAVING BEEN LAID OUT WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF THE BUSINESS OF THE ASSESSEE AND ALSO BEING IN THE NATURE OF REVENUE EXPENDITURES. CIT I.T.A. NO.1627/MDS/09 & C.O. NO.187/MDS/09 7 VS. DELHI SAFE DEPOSITS CO. LTD. (1932) 26 CTR (SC.) 411: (1982) 133 ITR 756 (SC.), CIT VS. NATIONAL BANK LTD. (1966) 62 ITR 638 (S.C.), SASSOON J. DAVID & CO. (P) LTD. VS. CIT (1979) 10 CTR (S.C) 383: (1979) 118 ITR 261 (S.C) AND LAWSON VS. JOHNSON MATTHEY PLC (1994) 209 ITR 761 (HL) RELIED ON: CIT VS. SIR HOMI M. MEHTA (1943) 11 ITR 142 (BOM) DISTINGUISHED. FOLLOWING THE ABOVE DECISION AND PARTICULARLY IN TH E LIGHT OF THE JUDGMENT OF THE HON'BLE SUPREME COURT IN THE CASE O F SA BUILDERS LTD. V. CIT (SUPRA), WE FIND NOTHING WRONG WITH THE ORDER OF THE CIT(APPEALS) ON THIS ISSUE AND ACCORDINGLY THE SAME IS CONFIRMED. IN THE CIRCUMSTANCES, RESPECTFULLY FOLLOWING THE DE CISION OF THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF SOUTH INDIA TRAVELS PVT. LTD. REFERRED TO SUPRA, THE FINDING OF THE LEARNED CIT(A) ON THIS ISSUE STANDS CONFIRMED. CONSEQUENTLY, THE APPEAL OF THE REVENUE IS DISMISSED. 7. IN THE CROSS OBJECTION THE ASSESSEE HAS ONLY SUP PORTED THE ORDER OF THE LEARNED CIT(A) ON THE ISSUE IN WHICH THE REVENUE HA S FILED THE APPEAL. AS WE HAVE ALREADY DISMISSED THE REVENUES APPEAL AND AS IT IS NOTICED THAT THE CROSS OBJECTION IS ONLY IN SUPPORT OF THE ORDER OF THE LE ARNED CIT(A) ON THE ISSUE, THE SAME HAS BECOME INFRUCTUOUS AND IS DISMISSED. I.T.A. NO.1627/MDS/09 & C.O. NO.187/MDS/09 8 8. IN THE RESULT, THE APPEAL OF THE REVENUE AND THE CROSS OBJECTION OF THE ASSESSEE STAND DISMISSED. 9. THE ORDER WAS PRONOUNCED IN THE COURT ON 18-10-2 010. SD/- SD/- (ABRAHAM P.GEORGE) (GEORGE MATHAN) ACCOUNTANT MEMBER JUDICIAL MEMBER CHENNAI, DATED THE 18 TH OCTOBER, 2010. H. COPY TO: ASSESSEE/AO/CIT (A)/CIT/D.R./GUARD FILE