M/s. Jai Parabolic Springs Ltd., New Delhi V. DCIT, New Delhi

CO 307/DEL/2010

• Counselvise Citation: [2010] 122 COUNSELVISE.COM (IT) 5280 (ITAT-DELHI)
• Duration Of Justice: 1 month(s) 6 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 15-10-2010
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 11-10-2010
• Assessment Year: 2003-2004
• Appeal Filed On: 09-09-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: MANEESH BHUGANA
• Keywords: Depreciation; Difference of opinion; Change of opinion; Revenue expenditure; Reassessment proceedings
• Section: 143(3); 37(1); 32; 147; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH D: NEW DELHI BEFORE SHRI I.P. BANSAL, JUDICIAL MEMBER AND SHRI A.K. GARODIA, ACCOUNTANT MEMBER ITA NOS. 3810 & 3811/DEL/2010 ASSESSMENT YEARS: 2003-04 & 2007-08 DCIT, CIRCLE 4(1), C.R. BLDG., I.P. ESTATE, NEW DELHI. VS. JAI PARABOLIC SPRINGS LTD., 2-PAK LANE, BEHIND 3-D, VASANT KUNJ, KISHAN GARH, NEW DELHI. AAACJ1830C (APPELLANT) (RESPONDENT) & CROSS OBJECTION NO. 307/DEL/2010 ASSESSMENT YEAR: 2003-04 JAI PARABOLIC SPRINGS LTD., 2-PAK LANE, BEHIND 3-D, VASANT KUNJ, KISHAN GARH, NEW DELHI. AAACJ1830C VS. DCIT, CIRCLE 4(1), C.R. BLDG., I.P. ESTATE, NEW DELHI. (APPELLANT) (RESPONDENT) APPELLANT BY : MANEESH BHUGANA, DR RESPONDENT BY : SANDEEP SAPRA, ADV. O R D E R PER I.P. BANSAL, J.M. IN RESPECT OF ASSESSMENT YEAR 2003-04 THE APPEAL IS FILED BY THE REVENUE AND CROSS OBJECTION IS FILED BY THE ASSESSE E. BOTH OF THEM ARE DIRECTED AGAINST ORDER OF CIT(A) DATED 23.06.2010 FOR A.Y. 2 003-04. FOR A.Y. 2007-08 2 ITA NO. 3810 & 3811/DEL/2010 & CO NO. 307/DEL/2010 THE APPEAL IS FILED BY THE REVENUE. GROUNDS OF APP EAL AND GROUNDS OF CROSS OBJECTION IN THE RESPECTIVE APPEALS AND CROSS OBJEC TION ARE AS UNDER: - GROUNDS OF ITA NO. 3810/DEL/2010 : - 1. THE ORDER OF THE LD. CIT(A) IS ERRONEOUS AND CO NTRARY TO FACTS AND LAW. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING DISALLOWANCE OF RS. 53 ,55,000/- ON ACCOUNT OF DEFERRED REVENUE EXPENDITURE. 2.1THE LD. CIT(A) HAS ERRED IN IGNORING THE FACT TH AT THE BENEFIT OF DEPRECIATION U/S 32 OF THE ACT IS ALLOWABLE ON TANG IBLE ASSETS AND GOODWILL IS INTANGIBLE ASSET AND IS NOT ENTITLED FO R THE BENEFIT OF DEPRECIATION. 3. THE APPELLANT CRAVES LEAVE TO ADD, TO ALTER, OR AMEND ANY GROUNDS OF THE APPEAL RAISED ABOVE AT THE TIME OF HEARING. GROUNDS OF ITA NO. 3811/DEL/2010 : - 1. THE ORDER OF THE LD. CIT(A) IS ERRONEOUS AND CO NTRARY TO FACTS AND LAW. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 1, 99,00,238/- MADE BY THE AO DISALLOWING THE DEFERRED REVENUE EXPENSES CL AIMED BY THE ASSESSEE. 2.1THE LD. CIT(A) HAS ERRED IN IGNORING THE FACT TH AT THERE IS NO PROVISIONS FOR CLAIMING DEFERRED REVENUE EXPENDITURE IN THE INCOME TAX ACT. 3. THE APPELLANT CRAVES LEAVE TO ADD, TO ALTER, OR AMEND ANY GROUNDS OF THE APPEAL RAISED ABOVE AT THE TIME OF HEARING. GROUNDS OF CROSS OBJECTION NO. 307/DEL./2010 : - 1. THAT THE LD. CIT(A) WAS FULLY JUSTIFIED IN DELE TING THE ADDITION OF RS. 53,55,000/- ON ACCOUNT OF DEFERRED REVENUE EXPENDIT URE BECAUSE THE ISSUE WAS COVERED BY THE JUDGMENT OF HONBLE ITAT. 2. THAT GROUND NO. 2.1 AS RAISED BY THE REVENUE IS MISCONCEIVED BECAUSE THE LD. CIT(A) HAD NOT IGNORED ANY FACTS WHILE ALLO WING DEPRECIATION U/S 32 OF THE I.T. ACT AS CLAIMED BY THE ASSESSEE. 3 ITA NO. 3810 & 3811/DEL/2010 & CO NO. 307/DEL/2010 3. THAT THE IMPUGNED ASSESSMENT ORDER AS PASSED U/S 147/143(3) OF THE I.T. ACT BY DCIT, CIRCLE4(1), NEW DELHI IS ARBITRAR Y, UNJUST AND ILLEGAL ON VARIOUS FACTUAL AND LEGAL GROUNDS INCLUDING THE FOL LOWING: A) THAT THE PROVISIONS OF SEC. 147/148 WERE NOT APP LICABLE TO THE FACTS OF THE APELLANTS CASE AS NOTICE U/S 148 DATE D 22.7.08 AS ISSUED WAS BARRED BY LIMITATION. B) THAT THE REASONS RECORDED WITH REGARD TO THE ALL EGED ESCAPEMENT OF INCOME HAVE NO NEXUS AND ARE ALSO VAGUE. C) THAT THE NOTICE U/S 148 ISSUED IS ILLEGAL AS IT TANTAMOUNTS TO CHANGE OF OPINION BY THE LD. AO. 4. THAT THE RESPONDENT ASSESSEE RESERVES ITS RIGHT TO ADD, AMEND/MODIFY THE GROUNDS OF CROSS OBJECTIONS. 2. AT THE OUTSET IT WAS POINTED OUT BY LD. AR THAT ISSUES RAISED BY THE DEPARTMENT IN ITS APPEALS ARE COVERED BY THE EARLIE R ORDERS OF THE TRIBUNAL. HE REFERRED TO THE PAGES NO. 43 TO 62 OF THE PAPER BOO K IN WHICH THE COPIES OF ORDERS OF ITAT ARE PLACED AS BELOW: - ASSTT. YEAR ORDER DATED ITA NO. PAGE NO. 2002-03 27.03.09 2880DEL/09 43-46 2005-06 06.07.09 3336/DEL/08 47-57 2006-07 5.01.09 3435/DEL/09 58-62 3. LD. DR WAS REQUESTED TO GO THROUGH THE ORDERS OF THE TRIBUNAL AND TO POINT OUT THAT WHETHER THE CLAIM OF THE LD. AR IS C ORRECT. 4. SO AS IT RELATES TO ISSUE REGARDING DEFERRED REV ENUE EXPENDITURE WHICH IS A COMMON ISSUE IN BOTH THE APPEALS. THE FACTS RELA TING TO A.Y. 2003-04 ARE THAT THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINES S OF MANUFACTURING AND MARKETING OF LEAF AND PARABOLIC SPRINGS. A SUM OF RS. 48.77 LAKH WAS CLAIMED 4 ITA NO. 3810 & 3811/DEL/2010 & CO NO. 307/DEL/2010 BY WAY OF DEFERRED REVENUE EXPENDITURE INCURRED ON DEVELOPMENT OF SAMPLES WHICH WERE CLAIMED TO BE 1/6 TH BEING DEFERRED REVENUE EXPENDITURE AND WERE WRITTEN OFF IN THE ACCOUNT BOOKS AS 1/6 TH INSTEAD OF CLAIMING THE ENTIRE AMOUNT IN THE YEAR ITSELF. ACCORDING TO AO THE CLAIM OF THE ASSESSEE SHOULD HAVE BEEN ALLOWED ONLY TO THE EXTENT IT WAS WRITTEN OFF IN TH E BOOKS OF ACCOUNT AS THE SAME WILL BE IN ACCORDANCE WITH OWN ACCOUNTING POLICY OF THE ASSESSEE AND, THEREFORE, HE CONSIDERED A SUM OF RS. 8.10 LAKH ELI GIBLE FOR SET OFF AGAINST CURRENT YEARS INCOME AND BALANCE SUM OF RS. 39.60 L AKH WAS CONSIDERED TO BE WRITTEN OFF FOR REMAINING FIVE YEARS. ACCORDINGLY A N ADDITION OF RS. 39.60 LAKH WAS MADE. 5. SIMILARLY IN RESPECT OF A.Y. 2007-08 A SUM OF RS . 1,99,238/- WAS DISALLOWED ON ACCOUNT OF DEFERRED REVENUE EXPENDITU RE. 6. IT WAS PLEADED BEFORE CIT(A) THAT ITAT IN ASSESS EES OWN CASE FOR A.Y. 1990-91 HAD ALLOWED DEFERRED REVENUE EXPENDITURE VI DE ORDER DATED 22.11.06 AND LD. CIT(A) HAD DELETED THE ADDITION HOLDING THA T IF THE EXPENDITURE INCURRED ARE REVENUE EXPENDITURE THEY HAVE TO BE ALLOWED IN THEIR ENTIRETY IN THE YEAR IN WHICH THEY HAVE INCURRED AND, THEREFORE, HE HAS ALL OWED THE CLAIM OF THE ASSESSEE. 7. BEFORE US RELIANCE WAS PLACED BY THE ASSESSEE ON THE ORDER OF THE TRIBUNAL FOR A.Y. 2003-04 AND 2004-05 IN ITA NOS. 3 365 AND 3335/DEL/08 DATED 6 TH JULY, 2009 FOLLOWING WHICH THE TRIBUNAL HAS DELETE D THE SIMILAR ADDITION 5 ITA NO. 3810 & 3811/DEL/2010 & CO NO. 307/DEL/2010 FOLLOWING THE AFOREMENTIONED ORDER DATED 6 TH JULY, 2009 THE RELEVANT PORTION IS REPRODUCED BELOW: - 6. HAVING GIVEN OUR CONSIDERATION TO THE FACTS AN D CIRCUMSTANCES OF THE CASE AND IN THE LIGHT OF DECIS IONS CITED AT THE BAR, WE DO NOT FIND ANY SUBSTANCE IN THESE A PPEALS OF THE REVENUE. IT IS WELL SETTLED PREPOSITION THAT Q UESTION WHETHER CLAIM OF EXPENDITURE IS TO BE ALLOWED OR NO T, HAS TO BE CONSIDERED AS PER STATUTORY PROVISION AND NOT ON THE BASIS OF ENTRY MADE IN THE BOOKS OF ACCOUNT. THE JURISDICTIONAL HIGH COURT AS WELL AS GUJARAT HIGH C OURT HAVE TAKEN THE VIEW THAT ASSESSEE CAN BE ALLOWED FULL EX PENSES IN THE YEAR IN WHICH EXPENSES WERE INCURRED AS REVENUE EXPENSES, NOTWITHSTANDING THE FACT THAT IN THE BOOK S OF ACCOUNT, THESE WERE SHOWN AS DEFERRED REVENUE EXPENDITURE. IN FACT IN THE CASE OF THE ASSESSEE F OR THE A.Y. 1990-91, THE ASSESSEE WAS ALLOWED EXPENDITURE NOT C LAIMED IN THE RETURN AS THOSE WERE FOUND TO BE OF REVENUE NATURE. THE DECISION IN THE CASE OF SHREYAS SHIPPING LTD. ( SUPRA) CITED BY THE REVENUE IS NOT APPLICABLE AND DISTINGU ISHABLE ON FACTS. THE TRIBUNAL AS A FACT FOUND, THE ASSESSEE HAD CARRIED OUT EXTREMELY HEAVY REPAIRS AND FOR THIS RE ASON IN THE BOOKS OF ACCOUNT, THE EXPENDITURE WAS SPREAD OVER M ORE THAN ONE ACCOUNTING YEAR. THE TRIBUNAL FURTHER OB SERVED, IN THE INSTANT CASE, IT IS NOT THE CASE OF THE ASS ESSEE THAT THE TREATMENT GIVEN BY IT IN THE BOOKS OF ACCOUNT I S ERRONEOUS. THE SAID CASE, THEREFORE, WAS DECIDED ON PECULIAR FACTS AND IS NOT APPLICABLE HERE. 6.1 THERE IS NO DISPUTE IN THE PRESENT CASE THAT E XPENDITURE IN QUESTION WAS INCURRED FOR DEVELOPMENT OF SAMPLES USED BY THE ASSESSEE FOR CARRYING ON ITS BUSINESS MORE E FFECTIVELY AND MORE EFFICIENTLY. EXPENSES WERE INCURRED FOR P URPOSES OF BUSINESS. SAMPLES LIKE ADVERTISEMENT, MAY BE BE NEFICIAL TO THE ASSESSEE NOT ONLY IN THE YEAR IN WHICH EXPEN SES ARE 6 ITA NO. 3810 & 3811/DEL/2010 & CO NO. 307/DEL/2010 INCURRED BUT IN OTHER YEARS ALSO. BUT ON THAT ACCO UNT, EXPENSES CANNOT BE TREATED AS OF CAPITAL NATURE. T HIS PROPOSITION IS NOW WELL ACCEPTED IN THE LIGHT OF DE CISION OF SUPREME COURT NOTED BY LD. CIT(APPEALS) IN THE IMPU GNED ORDER. THERE BEING NO DISPUTE THAT EXPENSES WERE NECESSARY FOR EFFICIENT RUNNING OF BUSINESS AND, TH EREFORE, FOR THE PURPOSES OF BUSINESS, THESE WERE REQUIRED TO BE ALLOWED IN TERMS OF SEC. 37(1) OF THE INCOME TAX ACT. ON F ACTS, WE DO NOT FIND ANY ERROR IN THE APPROACH OF LD. CIT(AP PEALS). THE VIEW OF LD. CIT(APPEALS) IN BOTH THE ASSESSMENT YEARS IS HEREBY CONFIRMED AND THE COMMON GROUND RAISED BY TH E REVENUE IS DISMISSED. 8. IN THIS VIEW OF THE SITUATION, AFTER HEARING BOT H THE PARTIES RESPECTFULLY FOLLOWING THE AFOREMENTIONED ORDER OF THE TRIBUNAL THIS ISSUE IS DECIDED IN FAVOUR OF ASSESSEE. THEREFORE, THE APPEAL OF THE D EPARTMENT FOR A.Y. 2007-08 HAVING ONLY ONE ISSUE IS DISMISSED AND GROUND NO. 1 OF REVENUES APPEAL FOR A.Y. 2003-04 IS ALSO DISMISSED. 9. IN THE APPEAL FOR A.Y. 2003-04 THE OTHER ISSUE R ELATES TO DEPRECIATION ON GOODWILL THIS ISSUE WHICH THE TRIBUNAL FOUND TO BE COVERED BY THE AFOREMENTIONED ORDER DATED 6 TH JULY, 2009 FOLLOWING WHICH THE TRIBUNAL IN ASSESSEES OWN CASE IN THE AFOREMENTIONED ORDERS HA VE DELETED THE PENALTY: - 5. ON CAREFUL CONSIDERATION OF RIVAL SUBMISSIONS, WE ARE OF THE VIEW THAT LD. CIT(A) HAS RIGHTLY ALLOWED RELIEF TO THE ASSESSEE AFTER CONSIDERING RELEVANT FACTS AND CIRCU MSTANCES OF THE CASE. THE ASSESSEE HAS NOT CLAIMED DEPRECIA TION ON GOODWILL. IT ACQUIRED COMMERCIAL RIGHTS TO SELL PR ODUCTS UNDER THE TRADE NAME AND PAID CONSIDERATION IN DISP UTE FOR ACQUIRING MARKETING AND TERRITORIAL RIGHTS TO SELL THROUGH 7 ITA NO. 3810 & 3811/DEL/2010 & CO NO. 307/DEL/2010 DEALERS AND DISTRIBUTORS I.E. THE NETWORK CREATED B Y THE SELLER FOR SALE IN INDIAN. UNDER THE AGREEMENT, IT BECAME ENTITLED TO USE OF INFRASTRUCTURE DEVELOPED BY THE SELLER. RIGHTS WERE ACQUIRED SICNE 1.4.1998 AND THESE RIGHTS HAVE ALL A LONG BEEN TREATED AS AN ASSET ENTITLED TO DEPRECIATION AND DE PRECIATION WAS ACTUALLY ALLOWED IN THE PAST. THE LD. AO IN OU R VIEW, WAS NOT CORRECT IN MAKING A DEPARTURE FROM THE PAST AND IN HOLDING THAT PAYMENT WAS MADE FOR ACQUISITION OF G OODWILL. PAYMENT HAD BEEN MADE FOR ACQUISITION OF COMMERCIAL RIGHTS ON WHICH DEPRECIATION IS PERMISSIBLE. THE AO WAS F URTHER NOT JUSTIFIED IN TREATING ENTRIES IN THE BOOKS OF A CCOUNT AS CONCLUSIVE AND IN TAKING PAYMENT IN DISPUTE AS CONS IDERATION FOR ACQUISITION OF GOODWILL. IT IS NOW MORE OR LES SETTLED THAT ENTRIES IN BOOKS CANNOT BE TREATED AS CONCLUSIVE AN D TRUE NATURE OF TRANSACTION HAS TO BE DETERMINED WITH REF ERENCE TO LAW. THE LD. CIT(A) IN THE IMPUGNED ORDER EXAMINED THE ISSUE WITH REFERENCE TO AGREEMENT AND FOUND THAT PA YMENT WAS MADE FOR ACQUISITION OF COMMERCIAL RIGHTS. ON F ACTS AND CIRCUMSTANCES OF THE CASE, WE DO NOT FIND ANY ERROR IN THEN APPROACH OF THE LD. CIT(A). HIS ACTION IS HEREBY C ONFIRMED. 10. IN THIS VIEW OF THE SITUATION, AFTER HEARING BO TH THE PARTIES WE SEE NO INFIRMITY IN THE ORDER OF CIT(A) VIDE WHICH THE ASS ESSEE HAS BEEN HELD ELIGIBLE FOR DEPRECIATION ON THE COST RELATING TO GOODWILL. THIS ISSUE IS ALSO DECIDED AGAINST THE DEPARTMENT. THEREFORE, THE OTHER APPEA L OF THE DEPARTMENT FOR A.Y. 2003-04 IS DISMISSED. 11. SO FAR AS IT RELATES TO CROSS OBJECTION FILED B Y THE ASSESSEE, LD. AR POINTED OUT THAT THIS ISSUE IS NOT ADJUDICATED BY T HE LD. CIT(A). IT IS SEEN THAT 8 ITA NO. 3810 & 3811/DEL/2010 & CO NO. 307/DEL/2010 THE ISSUE RELATING TO VALIDITY OR OTHERWISE OF REAS SESSMENT PROCEEDINGS HAS NOT BEEN DETERMINED BY THE LD.CIT(A) WITH THE FOLLOWING OBSERVATIONS: - 4. GROUND OF APPEAL NO. 1 WHICH RELATES TO THE LE GALITY AND VALIDITY OF ISSUING NOTICE U/S 148 OF THE ACT AND S UBSEQUENT COMPLETION OF THE REASSESSMENT ORDER U/S 147 READ W ITH SEC. 143(3) OF THE ACT, IS NOT BEING ADJUDICATED AS THE APPEAL HAS ALREADY BEEN DECIDED ON THE MERITS OF THE CASE. ACCORDINGLY, THIS GROUND IS TREATED AS DISMISSED. 12. LD. AR SUBMITTED THAT LD. CIT(A) CANNOT DECLINE TO ADJUDICATE THE ISSUE RELATING TO VALIDITY OF REASSESSMENT PROCEEDINGS. HE CONTENDED THAT ASSESSEE HAS A VERY GOOD CASE AND THE ISSUE RELATES TO JURIS DICTION OF THE AO WHO EXERCISE THE POWERS OF REASSESSMENT. THEREFORE, TH E SAME WAS REQUIRED TO BE DECIDED BY LD. CIT(A). HE SUBMITTED THAT THIS ISSU E MAY BE RESTORED BACK TO THE FILE OF CIT(A) WITH A DIRECTION TO DECIDE THE SAME AFTER GIVING REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE. 13. ON THE OTHER HAND, LD. DR RELIED UPON THE ORDER OF CIT(A). 14. AFTER HEARING BOTH THE PARTIES, WE FOUND THAT L D. CIT(A) HAS NOT ADJUDICATED THE BASIC ISSUE REGARDING THE VALIDITY OR OTHERWISE OF REASSESSMENT PROCEEDINGS. WE FOUND SUBSTANCE IN THE ARGUMENT OF LD. AR THAT THE SAME SHOULD HAVE BEEN ADJUDICATED FIRST. THEREFORE, WE R ESTORE THIS ISSUE BEFORE LD. CIT(A) WITH A DIRECTION TO ADJUDICATE THE ISSUE AFT ER GIVING THE REASONABLE OPPORTUNITY TO THE ASSESSEE. WE DIRECT ACCORDINGL Y. THE CROSS OBJECTION FILED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES IN THE MANNER AFORESAID. 9 ITA NO. 3810 & 3811/DEL/2010 & CO NO. 307/DEL/2010 15. TO SUM UP BOTH THE DEPARTMENTAL APPEALS ARE DIS MISSED AND CROSS OBJECTION OF THE ASSESSEE IS ALLOWED FOR STATISTICA L PURPOSES IN THE MANNER AFORESAID. ORDER WAS PRONOUNCED IN THE OPEN COURT ON 15.10.10 ( A.K. GARODIA ) ACCOUNTANT MEMBER (I.P. BANSAL) JUDICIAL MEMBER DATED: *KAVITA COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, NEW DELHI. TRUE COPY BY ORDER DEPUTY REGISTRAR