MAHINDRA FIRST CHOICE WHEELS LTD, V. ITO 2(2)(3),

CO 73/MUM/2013

• Counselvise Citation: [2013] 122 COUNSELVISE.COM (IT) 8973 (ITAT-MUMBAI)
• Duration Of Justice: 6 month(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 25-09-2013
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2008-2009
• Appeal Filed On: 25-03-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Depreciation; Additional evidence; Revenue expenditure; Capital expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES B, MUMBAI BEFORE SHRI H L KARWA, PRESIDENT & SHRI N K BILLAIYA, ACCOUNTANT MEMBER ITA NO.1846/MUM/2012 FOR ASST. YEAR: 2008-09 THE ITO 2(2)(3), MUMBAI. VS. MAHINDRA FIRST CHOICE WHEELS LTD MAHINDRA TOWERS, DR. G M BHOSALE MARG, WORLI, MUMBAI- 400 018 PAN AACCM0794N (APPELLANT) (RESPONDENT) CO NO. 73/MUM/2013 (ARISING OUT OF ITA NO.1846/MUM/2012 FOR ASST. YEAR: 2008-09) MAHINDRA FIRST CHOICE WHEELS LTD, MUMBAI. VS. THE ITO 2(2)(3), MUMBAI. (CROSS-OBJECTOR) (RESPONDENT) FOR THE REVENUE : SHRI SURENDRA KUMAR FOR THE ASSESSEE : SHRI H P MAHAJANI DATE OF HEARING : 17.09.2013 DATE OF PRONOUNCEMENT : 25.09.2013 O R D E R PER N.K.BILLAIYA (AM) : THIS APPEAL BY THE REVENUE AND THE CROSS-OBJECTION BY THE ASSESSEE ARE DIRECTED AGAINST THE VERY SAME ORDER OF THE CIT(A)- 5, MUMBAI DATED 30.12.2011 2 ITA NO.1846/M/12 CO 73/M/13 AY: 2008-09 PERTAINING TO A.Y. 2008-09. THEY WERE HEARD TOGETH ER AND ARE BEING DISPOSED OF BY THIS COMMON ORDER. ITA NO.1846/MUM/2012 2. THE REVENUE HAS RAISED FOUR SUBSTANTIVE GROUNDS OF APPEAL. GROUND NO.1 RELATES TO THE ADMISSION OF ADDITIONAL EVIDENCE IN VIOLATION OF THE PROVISIONS OF RULE 46A OF THE I.T RULES. THE REVENUE ALLEGES THAT THE CIT(A) HAS ADMITTED DETAILS OF CAPITAL WORK-IN-PROGRESS, WHICH WAS NOT BEFORE THE ASSESSING OFFICER WITHOUT AFFORDING ANY OPPORTUNITY TO THE ASSESSING OFFICER. GROUND NO.2 RELATES TO THE DELETION OF THE ADDITION MADE BY THE ASSESSING OFFI CER IN RESPECT OF PRIOR PERIOD EXPENSES. GROUND NOS. 1 & 2 ARE INTERLINKED. THE ASSESSEE IS CARRYING ON THE BUSINESS OF BUYING, SELLING AND OTHERWISE DEALING I N ALL FORMS OF SECOND HAND OR USED MOTOR VEHICLES WITH ACCESSORIES, REFURBISHED AND RE CONDITIONED WITH VALUE ADDITION OR OTHERWISE. IT ALSO PROVIDED VARIOUS RELATED SER VICES LIKE FACILITATING INSURANCE, FINANCE, REGISTRATION ETC. THE ASSESSING OFFICER O BSERVED THAT THE ASSESSEE HAS MADE ADDITION TO ITS INTANGIBLE ASSETS AMOUNTING TO RS.7 5,69,077/-. THE ASSESSEE WAS ASKED TO FILE DETAILS. THE NECESSARY DETAILS WERE FILED AND AFTER PERUSING THE SAME THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HA D ACQUIRED AND INSTALLED THE SOFTWARE DURING THE YEAR RELEVANT TO A.Y. 2007-08. AFTER CONSIDERING SUBMISSIONS MADE BY THE ASSESSEE, THE ASSESSING OFFICER OBSERVE D THAT THE ASSESSEE HAS CAPITALIZED THE VALUE OF SOFTWARE AND HAS CLAIMED D EPRECIATION ON THE SAME. ACCORDING TO THE ASSESSING OFFICER SOFTWARE OF RS.7 5,69,077/- PERTAINS TO THE PRIOR PERIOD AND ACCORDINGLY REJECTED THE CLAIM OF DEPREC IATION ON THE SAME. THE ASSESSEE CARRIED THE MATTER BEFORE THE CIT(A) AND FILED NECE SSARY DETAILS. IT WAS CONTENDED THAT SINCE THE SOFTWARE WAS PUT IN USE DURING THE Y EAR UNDER CONSIDERATION, THEREFORE, THE DEPRECIATION CLAIMED CANNOT BE DISAL LOWED. THE ASSESSEE FILED DETAILS RELATING TO THE CAPITAL WORK-IN-PROGRESS TO SUBSTAN TIATE ITS CLAIM. AFTER CONSIDERING THE FACTS AND HIS SUBMISSIONS THE CIT(A) OBSERVED T HAT THE ASSESSEE HAS CLAIMED EXPENDITURE ON SOFTWARE AS CAPITAL EXPENDITURE AND, THEREFORE, IT HAS BEEN SHOWN AS 3 ITA NO.1846/M/12 CO 73/M/13 AY: 2008-09 PART OF WORK-IN-PROGRESS. THE CIT(A) FURTHER OBSER VED THAT THE ASSESSEE NEVER CLAIMED IT AS REVENUE EXPENDITURE IN EARLIER YEARS. FURTHER IN EARLIER YEARS THE CAPITALIZATION OF THE EXPENDITURE HAS BEEN ACCEPTED THEREFORE, THIS EXPENDITURE CANNOT BE TERMED AS PRIOR PERIOD EXPENDITURE AND DI RECTED THE ASSESSING OFFICER TO ALLOW DEPRECIATION. THE REVENUE IS AGGRIEVED AND I S BEFORE US. WE FIND THAT THE ASSESSEE HAS FILED THE DETAILS OF WORK-IN-PROGRESS, WHICH WAS PART OF ITS BALANCE SHEET. THEREFORE, SUCH DETAILS CANNOT BE TERMED AS ADDITIONAL EVIDENCE. GROUND NO.1 IS ACCORDINGLY DISMISSED. 3. WE FURTHER FIND THAT THE ASSESSEE HAS NEVER CLAI MED EXPENDITURE ON SOFTWARE AS REVENUE EXPENDITURE. SINCE THE SOFTWARE HAS BEE N PUT TO USE DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE HAS RIGHTLY CLAIME D DEPRECIATION ON THE CAPITALIZED VALUE OF THE SOFTWARE. WE, THEREFORE, DO NOT FIND ANY REASON TO INTERFERE WITH THE FINDINGS OF THE CIT(A). GROUND NO.2 IS DISMISSED. 4. GROUND NO.3 & 4 RELATES TO THE DISALLOWANCE OF A DVERTISEMENT EXPENSES IN THE YEAR UNDER CONSIDERATION. THIS ISSUE HAS BEEN DISC USSED AT LENGTH BY THE ASSESSING OFFICER AT PAGE 8 VIDE PARA 4.4 OF HIS ORDER. THE ASSESSING OFFICER FOUND THAT THE ASSESSEE HAS DEBITED A NET AMOUNT OF RS. 1129.26 LA CS UNDER THE HEAD ADVERTISING AND SALES PROMOTION AS AGAINST RS.194.41 LACS IN TH E IMMEDIATELY PRECEDING YEAR. THE ASSESSEE WAS ASKED TO FURNISH COMPLETE DETAILS IN RESPECT OF THE SAME. THE ASSESSEE FILED NECESSARY DETAILS AND SUBMITTED THAT DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE HAS UNDERTAKEN AN ADVERT ISEMENT CAMPAIGN BRAND BUILDING AND, THEREFORE, ALL ADVERTISEMENT EXPENSE S IN RELATION TO THIS WERE CLAIMED AS REVENUE EXPENDITURE. THE REVENUE DID NOT ACCEPT THESE SUBMISSIONS OF THE ASSESSEE. THE ASSESSING OFFICER WAS OF THE FIRM BE LIEF THAT BENEFIT OF SUCH EXPENDITURE TRANSCENDS TO A LONGER PERIOD THEREFORE , THE SAME IS REQUIRED TO BE TREATED AS ALLOWABLE OVER A LONGER PERIOD. ACCORDI NGLY, HE ALLOWED ONLY 1/3 RD OF THE TOTAL EXPENDITURE FOR THE YEAR UNDER CONSIDERATION. THE ASSESSEE STRONGLY AGITATED THIS ISSUE BEFORE THE CIT(A). THE CIT(A) HAS CONSID ERED THIS GRIEVANCE AT PARA 7.1 ON 4 ITA NO.1846/M/12 CO 73/M/13 AY: 2008-09 PAGE 12 OF HIS ORDER AND AFTER CONSIDERING THE FACT S AND THE SUBMISSIONS THE CIT(A) WAS CONVINCED THAT THE DECISION OF THE TRIBUNAL IN THE CASE OF AMAR RAJA BATTERIES (91 ITD 280) CLEARLY APPLY AND FOLLOWING THE SAME D ELETED THE ENTIRE ADDITION. THE REVENUE IS AGGRIEVED BY THIS FINDING OF THE CIT(A). THE DR RELIED UPON THE ASSESSMENT ORDER. THE COUNSEL FOR THE ASSESSEE REI TERATED WHAT HAS BEEN SUBMITTED BEFORE THE LOWER AUTHORITIES. 5. WE HAVE CAREFULLY PERUSED THE ORDERS OF THE LOWE R AUTHORITIES. IT IS NOT IN DISPUTE THAT THE ASSESSEE HAS INCURRED ADVERTISEMEN T EXPENSES TO THE TUNE OF RS.1129.26 LACS. WE FIND THAT THE ASSESSING OFFICE R HAS ALSO NOT QUESTIONED THE GENUINENESS OF THIS TRANSACTION. THE ASSESSING OFF ICER HAS SIMPLY OBSERVED THAT THIS EXPENDITURE MAY HAVE THE BENEFIT OVER A LONGER PERI OD AND DISALLOWED 2/3 RD AS DEFERRED REVENUE EXPENDITURE. IN OUR CONSIDERATE V IEW, SO FAR AS I.T. ACT IS CONCERNED, THE EXPENDITURE CAN EITHER BE REVENUE EX PENDITURE OR CAPITAL EXPENDITURE. THERE IS NO CONCEPT OF DEFERRED REVEN UE EXPENDITURE. THEREFORE, WE DO NOT FIND ANY REASON/LOGIC FOR TREATING 2/3 RD OF THE EXPENDITURE AS DEFERRED REVENUE EXPENDITURE. THE CIT(A) HAS RIGHTLY DELETED THE AD DITIONS AND WE DO NOT FIND ANY REASON TO INTERFERE WITH THE FINDINGS OF THE CIT(A) . GROUND NOS. 3 & 4 ARE ACCORDINGLY DISMISSED. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. CO NO. 73/MUM/2013 6. THE ONLY GRIEVANCE OF THE ASSESSEE IN ITS CROSS- OBJECTION RELATES TO THE ADDITION OF RS.49,20,000/- BEING THE PROVISION REPR ESENTING THE AMOUNT BY WHICH THE COST OF CLOSING STOCK OF UNSOLD VEHICLES WAS LOWER THAN THEIR ESTIMATED SELLING OR REALIZABLE VALUE. THIS ISSUE HAS BEEN DISCUSSED BY THE ASSESSING OFFICER AT PARA 4.3 ON PAGE 7 OF HIS ORDER. THE ASSESSING OFFICER OBSE RVED THAT THE ASSESSEE HAS MADE PROVISION AT THE RATE OF RS.20,000/- PER VEHICLE TO TALING TO RS.49,20,000/- IN RESPECT OF 246 VEHICLES OUT OF THE TOTAL STOCK OF 798 VEHIC LES. THE ASSESSING OFFICER SOUGHT 5 ITA NO.1846/M/12 CO 73/M/13 AY: 2008-09 EXPLANATION FROM THE ASSESSEE TO JUSTIFY ITS CLAIM. THE ASSESSEE SUBMITTED THAT THESE 246 VEHICLES WERE MORE THAN SIX MONTHS OLD AND, THE REFORE, A FURTHER PROVISION WAS REQUIRED. THE SUBMISSION OF THE ASSESSEE DID NOT F IND ANY FAVOUR FROM THE ASSESSING OFFICER, WHO WAS OF THE OPINION THAT STOCK IS VALUE D AT LOWER OF COST OR MARKET PRICE. THE ASSESSING OFFICER FURTHER OBSERVED THAT IF THE ASSESSEE WAS OF THE OPINION THAT MARKET PRICE WAS MUCH LOWER THAN THE COST PRICE, NO THING PREVENTED THE ASSESSEE FROM ADOPTING SUCH RATE AT THE TIME OF VALUATION. THE ASSESSEE INSTEAD OF FOLLOWING THE ACCEPTED METHOD OF VALUATION HAS CREATED AN ADH OC PROVISION RESULTING IN REDUCTION OF THE VALUE OF CLOSING STOCK. THE ASSES SING OFFICER DISALLOWED THE ENTIRE PROVISION OF RS.49,20,000/-. BEFORE THE CIT(A), TH E ASSESSEE REITERATED ITS CLAIM. THE CI(T)A CONFIRMED THE FINDINGS OF THE ASSESSING OFFICER HOLDING THAT THE ASSESSEE HAS NOT GIVEN ANY COGENT REASONS FOR REDUCING THE V ALUE OF CLOSING STOCK. AGGRIEVED BY THIS THE ASSESSEE IS BEFORE US. 7. THE COUNSEL FOR THE ASSESSEE FILED A DETAILED LI ST OF 246 VEHICLES ON WHICH IT HAS MADE AN ADHOC PROVISION. THE COUNSEL ALSO FILE D A PAPER-BOOK CONSISTING JUDICIAL DECISIONS IN FAVOUR OF THE ASSESSEE. IT IS THE SAY OF THE COUNSEL THAT SINCE THE NATURE OF THE BUSINESS IS TO DEAL IN SECOND HAND VEHICLES, 246 VEHICLES OUT OF ITS CLOSING STOCK WERE MORE THAN SIX MONTHS OLD AND, THEREFORE, FURTHER REDUCTION IN VALUE WAS REQUIRED FOR WHICH ADHOC PROVISION WAS MADE. THE D R STRONGLY SUPPORTED THE FINDINGS OF THE LOWER AUTHORITIES. 8. WE HAVE CAREFULLY PERUSED THE ORDERS AND THE JUD ICIAL DECISIONS RELIED UPON BY THE COUNSEL. IT IS AN ADMITTED FACT THAT THE ASSES SEE HAS MADE ADHOC PROVISION OF RS.49,20,000/-, WHICH IS NOT BACKED BY ANY SCIENTIF IC METHOD. IF THE ASSESSEE WAS OF THE OPINION THAT THESE 246 VEHICLES HAVE MUCH LESSE R RESALE VALUE, NOTHING PREVENTED THE ASSESSEE TO VALUE THE CLOSING STOCK OF THESE 24 6 VEHICLES AT MARKET RATE. INSTEAD OF DOING SO, WHICH IS A RECOGNIZED METHOD AND ALSO WIDELY ACCEPTED METHOD, THE ASSESSEE CHOSE TO VALUE THE STOCK OF 246 VEHICLES A T COST AND, THEREAFTER MADE ADHOC PROVISION AT THE RATE OF RS.20,000/- PER VEHICLE AN D REDUCED THE TOTAL COST BY 6 ITA NO.1846/M/12 CO 73/M/13 AY: 2008-09 RS.49,20,000. IN OUR CONSIDERATE VIEW, NEITHER THI S ADHOC PROVISION IS BACKED BY ANY ACTUARIST VALUATION NOR ANY RECOGNIZED SCIENTIFIC M ETHOD. THE CASES RELIED UPON BY THE ASSESSEE RELATES TO THE METHOD OF VALUATION OF STOCK AND WHERE THE ITEMS WERE OF OBSOLETE IN NATURE, THE COURTS HAVE HELD THAT THE A SSESSEE COULD HAVE RIGHTLY WRITTEN OFF SUCH OBSOLETE ITEMS IN ITS BOOKS. ON PECULIAR F ACTS OF THIS CASE IN OUR HUMBLE OPINION, THE ASSESSEE SHOULD HAVE VALUED ITS STOCK OF 246 VEHICLES AT A RATE MUCH LOWER THAN COST PRICE AND THEN COULD HAVE CLAIMED T HAT THE MARKET VALUE OF THESE OLD VEHICLES IS MUCH LOWER THAN OTHER VEHICLES. THAT W OULD HAVE BEEN A REASONABLE BASIS BUT WHAT THE ASSESSEE HAS DONE CANNOT BE ACCE PTED AS A RECOGNIZED METHOD OF VALUATION OF CLOSING STOCK. WE, THEREFORE, DO NOT FIND ANY REASON TO ALTER THE FINDINGS OF THE CIT(A). THE ADDITION OF RS.49,20,000/- IS H EREBY CONFIRMED. THE CROSS- OBJECTION BY THE ASSESSEE IS ALSO DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 25 TH SEPTEMBER 2013. SD/- SD/- (H L KARWA) (N.K.BILLAIYA) PRESIDENT ACCOUNTANT MEMBER MUMBAI, DT : 25 TH SEPTEMBER, 2013 SA COPY FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE C.I.T, MUMBAI 4. THE CIT (A)-5, MUMBAI 5. THE DR, B- BENCH, ITAT, MUMBAI //TRUE COPY// BY ORDER ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI