M/s. Daurala Organic Ltd., New Delhi V. DCIT, New Delhi

CO 439/DEL/2012

• Counselvise Citation: [2014] 123 COUNSELVISE.COM (IT) 0152 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 1 month(s) 11 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 12-12-2014
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 19-11-2014
• Assessment Year: 2004-2005
• Appeal Filed On: 01-11-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: R K KAPOOR
• Assessee Lawyers: PARWINDER KAUR
• Keywords: Reopening of assessment; Revenue expenditure
• Section: 143(3); 147; 148

Judgement Text

IN TH E INCOME TAX APPELLATE TRIBUNAL DELHI BENCH : B : NEW DELHI BEFORE SHRI J.S. REDDY, ACCOUNTANT MEMBER AND SHRI GEORGE GEORGE K. , JUDICIAL MEMBER ITA NO . 5179 / DEL / 201 2 ASSESSMENT YEAR : 200 4 - 0 5 (PAN AAACD 0229 M ) (APPELLANT ) (RESPONDENT) APPELLANT BY : SHRI PAR W INDER KAUR, SR.D.R. RESPONDENT BY: SHRI PRADEEP DINODIA, ADVOCATE AND SHRI R.K . KAPOOR, CA. ORDER PER SHRI GEORGE GEORGE K , J M : 1. TH IS APPEAL BY THE REVENUE AND CROSS OBJECTION BY THE ASSESSEE ARISES OUT OF THE CIT(A) S ORDER DATED 04.07.2012. THE RELEVANT ASSESSMENT YEAR IS 2004 - 05. DCIT, CIRCLE 10(1), NEW DELHI. VS. M/S DAU RALA ORGANIC LTD.(SINCE MERGED WITH DCM SHRIRAM INDUSTRIES LTD.) 6 TH FLOOR, KANCHANJUNGA BUILDING 18, BARAKHAMBA ROAD, NEW DELHI. C.O NO. 439/DEL/20 12 A.Y.2004 - 05 M/S DAURALA ORGANIC LTD.(SINCE VS. DCIT, CO. CIR.10(1) MERGED WITH DCM SHRIRAM NEW DELHI. INDUST RIES LTD.) 6 TH FLOOR, KANCHANJUNGA BUILDING 18, BARAKHAMBA ROAD, NEW DELHI. ITA NO. 5179 /DEL /201 2 CO NO.439/DEL/2012 2 2. IN REVENUE S APPEAL, THE SOLITARY GROUND THAT IS RAISED IS WHETHER THE CIT(A) IS JUSTIFIED IN DELETING A SUM OF RS.31,20,439/ - . IN THE ASSESSEE S CROSS OBJECTION, ALL THE GROUNDS RAISED RELATES TO THE ISSUE OF VALIDITY OF REOPENING OF ASSESSMENT U/S 147 OF THE I.T. ACT. 3. WE SHALL FIRST TAKE UP FOR ADJUDICATION THE REVENUE S APPEAL. THE BRIEF FACTS OF THE CASE ARE AS FOLLOWS. THE A SSESSMENT U/S 143(3) WAS COMPLETED VIDE ORDER DATED 24.11.2006, FIXING TOTAL INCOME OF RS.6,98,23,196/ - . THE ASSESSMENT WAS REOPENING ON 30.08.2011 BY ISSUANCE OF NO TICE U/S 148 OF THE ACT AND REASSESSMENT U/S 143(3) R.W.S. 147 OF THE ACT WAS COMPLETED ON 30.08.2011 . IN THE REASSESSMENT, THE AO MADE AN ADDITION OF RS.31.20 LAKHS. THE ASSESSEE HAD CLAIMED DEDUCTION OF AN AMOUNT OF RS.31.20 LAKHS AS REVENUE EXPENDITURE. THESE EXPENSES WERE INCURRED FOR DEVELOPMENT OF CERTAIN PRODUCTS. THE AO IN THE REASSESSMENT DISALLOWED THE EXPENDITURE, AS ACCORDING TO HIM, DEVELOPMENT OF ANY NEW PRODUCTS WILL GIVE AN ENDURING BENEFIT TO THE ASSESSEE AND SAME IS IN THE CAPITAL FI ELD . 4. AGGRIEVED BY THE REASSESSMENT ORDER, ASSESSEE FILED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY RAISING ISSUES WITH REFERENCE TO REOPENING OF ASSESSMENT AND ON MERITS OF DISALLOWANCE OF EXPENDITURE. THE CIT(A) DECIDED THE ISSUE ON MERITS IN FAVOUR OF THE ASSESSEE AND DID NOT ADJUDICATE THE ISSUE OF REOPENING OF ASSESSMENT. THE CIT(A) AFTER EXAMINING THE DETAILS OF EXPENDITURE ITA NO. 5179 /DEL /201 2 CO NO.439/DEL/2012 3 HELD THAT THE EXPENDITURE INCURRED OF RS.31.20 LACS ON SALARY, WAGES STORES, SPARES AND TRAVELLING WAS REVENUE IN NATURE. BY I NCURRING SUCH EXPENDITURE APPELLANT HAS NOT CREATED ANY ASSET WHICH IS CAPITAL IN NATURE. THE EXPENDITURE WAS INCURRED FOR IMPROVEMENT OF PRODUCT AND ENHANCEMENT OF ITS EXISTING BUSINESS IN THE LINE OF CHEMICAL MANUFACTURING UNDER THE UNITY AND CONTROL OF SAME MANAGEMENT WITH COMMON FUNDS. HENCE, THE DISALLOWANCE MADE BY THE ASSESSING OFFICER WAS NOT JUSTIFIED AND SAME IS ARE ALLOWED AS REVENUE EXPENDITUR E . THE CIT(A) FOLLOWED THE JUDGMENT OF THE HON BLE JURISDICTIONAL HIGH COURT IN THE CASE OF INDO RAMA S YNTHETICS (I) LTD. VS. CIT REPORTED IN 333 ITR 18 (DEL). 5 . THE REVENUE BEING AGGRIEVED IS IN APPEAL BEFORE US. LD. D.R. RELIED ON THE ORDER OF THE ASSESSING OFFICER. ON THE OTHER HAND, LD. AR REITERATED THE SUBMISSION MADE BEFORE THE INCOME TAX AUTHORITI ES AND RELIED ON THE FINDINGS OF THE CIT(A). 6 . WE HAVE HEARD RIVAL SUBMISSION S AND PERUSED THE MATERIAL ON RECORD. THE DETAILS OF EXPENDITURE CLAIMED BY THE ASSESSEE AS REVENUE S EXPENDITURE ARE AS UNDER: PARTICULARS AMOUNT COST OF STORES CONSUME D 11.73 WAGES & SALARIES 15.13 COST OF STEAM & POWER 2 . 80 MISC. EXPENSES 1 . 54 ________ TOTAL 31.02 ___ ITA NO. 5179 /DEL /201 2 CO NO.439/DEL/2012 4 7 . THE ABOVE EXPENDITURE WAS INCURRED IN THE EARLIER YEARS FOR IMPROVEMENT/DIVERSIFICATION OF ASSESSEE S CHEMICAL PRODUCTS INCLUDING THE NEW PRODUCTS IN THE SAME LINE. THE ENTIRE EXPENSES WERE OF REVENUE IN NATURE, BEING INCURRED ON COST OF STORES CONSUMED/WAGES & SALARY/POWER AND OTHER MISCELLANEOUS EXPENSES. THE ASSESSEE HAD TREATED THE AFORESAI D EXPENDITURE AS CWIP IN ITS ANNUAL ACCOUNTS FOR THE DIFFERENT YEARS AND DID NOT CLAIM THE SAME AS AN EXPENSE. DURING THE PREVIOUS YEAR UNDER CONSIDERATION, ON REVIEWING THE PROGRESS MADE ON DEVELOPMENT OF THIS NEW PRODUCT , ASSESSEE WAS OF THE OPINION THAT IT WOULD NOT GIVE DESIRED ECONOMIC BENEFITS AND AS SUCH THE AMOUNTS WERE WRITTEN OFF IN P&L ACCOUNT. THIS FACT WAS DULY EXPLAINED BY THE TAX AUDITORS IN FORM 3CA. 8. THE ASSESSING OFFICER HAD TREATED THE EXPENDITURE OF RS.31.2 LAKHS AS CAPITAL NATURE HOL DING THAT THE ASSESSEE HAS NOT GIVEN SPECIFIC REPLY AS TO THE NATURE OF THE EXPENDITURE. THE ASSESSEE VIDE ITS LETTER DATED 09.08.2011 HAD FURNISHED DETAILS OF THESE EXPENDITURE TO THE AO, WHICH CLEARLY ESTABLISHED THAT THE EXPENDITURE COMPRISES OF VARIOUS EXPENSES , WHICH ARE REVENUE IN NATURE. 9. SIMILAR ISSUE WAS EXAMINED IN THE CASE OF DCM SHRIRAM INDUSTRIES LTD. (ASSESSEE HAD MERGED WITH DCM SHRIRAM INDUSTRIES LTD.) WHEREIN EXPENDITURE INCURRED ON A NEW PROJECT WAS EARLIER CHARGED TO CWIP AND ON ABANDON MENT OF THE PROJECT, THE ASSESSEE HAS CLAIMED THE EXPENSES AS REVENUE. THE CIT(A) HAD ITA NO. 5179 /DEL /201 2 CO NO.439/DEL/2012 5 ALLOWED THE APPEAL OF THE ASSESSEE , WHICH WAS CONFIRMED BY THE ITAT AND SAME WAS ACCEPTED BY THE DEPARTMENT AND NO FURTHER APPEAL WAS PREFERRED . COPY OF THE ORDER OF THE CIT(A) FOR THE AY. 1991 - 92 IS PLACED ON RECORD AT PAGES 52 TO 56 PAPER FILED BY THE ASSESSEE. THE FOLLOWING TWO CASE LAWS ARE ALSO IDENTICAL TO THE FACTS OF THIS CASE: I). INDO RAMA SYNTHETICS INDIA LTD. VS. CIT REPORTED IN (2011) 333 ITR 18 (DEL). II). CI T VS. PRIYA VILLAGE ROADSHOWS LTD. REPORTED IN (2011) 322 ITR 594 (DEL). 10. NOW LET US EXAMINE THE FACTS OF THE HON BLE JURISDICTION HIGH COURT JUDGMENTS. I). INDO RAMA SYNTHETICS INDIA LTD. VS. CIT IN THIS CASE, THE DELHI HIGH COURT WAS DEALING WITH THE ISSUE OF EXPENDITURE OF RS.64.48 LACS INCURRED ON EXPANSION OF BUSINESS WHICH PLANS WERE LATER ABANDONMENT. THE EXPENDITURE WAS INCURRED IN DIFFERENT ASSESSMENT YEARS AND ON ABANDONMENT OF THE PROJECT THE EXPENDITURE WAS CLAIMED AS REVENUE IN NATURE. THE CLAIM OF THE ASSESSEE WAS DI S ALLOWED. HOWEVER, THE DELHI HIGH COURT FOLLOWING ITS EARLIER JUDGMENT IN THE CASE OF MODI INDUSTRIES LTD. 200 ITR 341 HAS HELD THE EXPENDITURE AS REVENUE IN NATURE. IT HAS BEEN HELD THAT SINCE THE EXPENDITURE WAS INCURRED ON SA LARIES WAGES, REPAIR, MAINTENANCE TRAVELLING/ OTHER ADMINISTRATIVE EXPENDITURE, WHICH ARE UNDOUBTEDLY REVENUE IN NATURE AND AS SUCH NO ASSET OF ENDURING NATURE CAN BE SAID TO COME INTO EXISTENCE ON INCURRING THIS EXPENSE. THE HON BLE SUPREME COURT HAS DISM ISSED SPECIAL LEAVE PETITION FILED BY THE DEPARTMENT AGAINST THE JUDGMENT OF HON BLE DELHI HIGH COURT. ITA NO. 5179 /DEL /201 2 CO NO.439/DEL/2012 6 II). CIT VS. PRIYA VILLAGE ROADSHOWS LTD. IN THIS CASE, THE HON BLE DELHI HIGH COURT HAS HELD THAT EXPENDITURE INCURRED ON FEASIBILITY STUDY FOR STA RTING NEW BUSINESS IN THE EXISTING LINE OF THE ASSESSEE WHERE THERE IS COMMON ADMINISTRATION COMMON FUND AND UNITY OF CONTROL THE EXPENSE IS OF REVENUE IN NATURE. THE HIGH COURT HAS FOLLOWED VARIOUS OTHER DECISIONS ON THIS ISSUE INCLUDING THE MODI INDUSTRI ES LTD. DECISION. 1 1 . THE FACTS OF INSTANT CASE IS IDENTICAL TO THE FACTS OF ABOVE CITED CASE. THE ASSESSEE HAS INCURRED EXPENDITURE OF RS.31.20 LACS ON SALARIES, WAGES, STORES & SAPARES, TRAVELLEING ETC. NO EXPENDITURE HAS BEEN INCURRED ON ANY ASSET OF THE NATURE FIXED ASSETS OR CAPITAL IN NATURE OR WHICH HAS RESULTED INTO ANY BENEFIT OF ENDURING NATURE. THE EXPENDITURE HAD BEEN INCURRED FOR IMPROVEMENT AND ENHANCEMENT OF ITS EXISTING BUSINESS IN THE LINE OF CHEMICAL MANUFACTURING UNDER THE UNITY AND CON TROL OF SAME MANAGEMENT WITH COMMON FUNDS ETC. THE RATIO OF THE AFORESAID JUDGMENTS ARE SQUARELY APPLICABLE ON THE FACTS OF INSTANT CASE. 1 2 . IN VIEW OF THE AFORESAID REASONING, WE HOLD THAT THE CIT(A) IS JUSTIFIED IN DELETING THE DISALLOWANCE OF RS.31.2 L AKHS AND WE AFFIRM THE ORDER OF THE CIT(A) AND REJECT THE GROUND OF THE REVENUE. 1 3 . SINCE THE REVENUE S APPEAL IS DISMISSED, THE ASSESSEE S COMPANY IS NOT ADJUDICATED . ITA NO. 5179 /DEL /201 2 CO NO.439/DEL/2012 7 1 4 . IN THE RESULT, APPEAL OF THE REVENUE AND CROSS OBJECTION OF THE ASSESSEE ARE DISM ISSED. TH E DECISION WAS PRONOUNCED IN THE OPEN COURT ON 1 2 TH DECEMBER , 201 4 . SD/ - SD/ - ( J.S. REDDY ) (GEORGE GEORGE K.) A CCOUNTANT MEMBER J UDICIAL MEMBER DATED: 1 2 TH DECEMBER , 201 4 . AKS/ - COPY FORWARDED TO 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ASST . REGISTRAR, ITAT, NEW DELHI