M/s. Biswabani Pvt. Ltd., Kolkata V. ITO, Ward - 3(2), Kolkata, Kolkata

ITA 1096/KOL/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 62080 (ITAT-KOLKATA)
• Duration Of Justice: 8 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-04-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2005-2006
• Appeal Filed On: 12-08-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K R MONDAL
• Assessee Lawyers: SOUMITRA CHOW DHURY; T K CHAKRABORTY
• Keywords: Business expenditure; Principle of natural justice; Revenue expenditure; Capital expenditure
• Section: 143(3)

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH: KOL KATA () BEFORE , /AND , . ! . '# ) [BEFORE SHRI MAHAVIR SINGH, JM & SHRI C. D. RAO, AM ] $ $ $ $ / I.T.A NO. 1096/KOL/2011 %& '( %& '( %& '( %& '(/ // / ASSESSMENT YEAR: 2005-06 M/S. BISWABANI PVT. LTD. VS. INCOME-TAX OFFICER , WD-3(2), KOLKATA (PAN:AABCB0966C) (*+ /APPELLANT ) (,-*+/ RESPONDENT ) DATE OF HEARING: 18.04.2012 DATE OF PRONOUNCEMENT: 18.04.2012 FOR THE APPELLANT: S/SHRI SOUMITRA CHOWDHURY & T. K. CHAKRABORTY FOR THE RESPONDENT: SHRI K. R. MONDAL '. / ORDER PER MAHAVIR SINGH, JM ( , , , , ) THIS APPEAL BY ASSESSEE IS ARISING OUT OF ORDER OF CIT(A)-1, KOLKATA IN APPEAL NO. 250/ CIT(A)-1/WD-3(2)/07-08 DATED 31.05.2011. ASSESSMENT WAS FRAMED BY ITO, WARD-3(2), KOLKATA U/S. 143(3) OF THE INCOME-TAX ACT, 1961 (HE REINAFTER REFERRED TO AS THE ACT) FOR ASSESSMENT YEAR 2005-06 VIDE HIS ORDER DATED 30.11. 2006. 2. THE ONLY ISSUE IN THIS APPEAL OF ASSESSEE IS AG AINST THE ORDER OF CIT(A) CONFIRMING THE ADDITION OF RS.89,000/- TREATING THE SAME AS CAPITA L EXPENDITURE. FOR THIS, ASSESSEE HAS RAISED FOLLOWING GROUNDS: 1. FOR THAT THE LD. CIT(A) ERRED BOTH IN LAW AND I N FACT BY CONFIRMING THE ADDITION OF RS.89,000/- TREATING THE SAME AS CAPITAL EXPENDITUR E. 2. FOR THAT THE LD. CIT(A) FAILED TO APPRECIATE THE NATURE OF PAYMENT WHICH WAS COMPLETELY REVENUE EXPENDITURE BUT THE LD. CIT(A) O PINED ERRONEOUSLY AS CAPITAL EXPENDITURE. 3. FOR THAT THE ORDER IS ILLEGAL VOID AB INITIO AND IT SEEKS TO VIOLET THE PRINCIPLE OF NATURAL JUSTICE. 3. WE HAVE HEARD RIVAL SUBMISSIONS AND GONE THROUGH FACTS AND CIRCUMSTANCES OF THE CASE. WE FIND THAT THE ASSESSING OFFICER ON EXAMINATION O F ACCOUNTS FOUND THAT THE ASSESSEE HAS DEBITED A SUM OF RS.89,000/- IN THE P&L ACCOUNT CLA IMING TO BE NET OF ADVANCE AGAINST FILM BOOKING. THE ASSESSEE CLAIMED THIS LOSS DUE TO COM PENSATION MONEY PAID TO ONE M/S. CREATIVE EYE LTD. ON TERMINATION OF AGREEMENT MADE EARLIER W ITH THE PARTY BY ASSESSEE FOR THE PURPOSE OF 2 ITA 1096/K/2011 BISWABANI PVT. LTD. A.Y. 05-06 DISTRIBUTION OF FILM AABRA KA DAABRA. THE ASSESS ING OFFICER EXAMINED THE AGREEMENT AND FOUND THAT THE ASSESSEE WITH THE OTHER PARTY TO OBT AIN RIGHTS OF DISTRIBUTION OF FILM ENTERED INTO AGREEMENT DATED 13.12.2004 IN EASTERN REGION AND PA ID AN AMOUNT OF RS.2,00,000/- AS ADVANCE FOR SUCH TRANSACTION. SUBSEQUENTLY, THAT AGREEMENT WAS GOT CANCELLED AND AS PER TERMS AND CONDITIONS OF NEW AGREEMENT, THE ASSESSEE RECEIVED BACK ONLY RS.1.11,000/- AFTER DEDUCTING RS.89,000/- AS COMPENSATION AND THIS RS.89,000/- WA S CLAIMED AS BUSINESS EXPENDITURE AND DEBITED IN THE P&L ACCOUNT. THE ASSESSING OFFICER AFTER DISCUSSING MANY CASE LAWS DISALLOWED THE CLAIM OF ASSESSEE. THE CIT(A) ALSO CONFIRMED THE ACTION OF ASSESSING OFFICER. AGGRIEVED, NOW ASSESSEE IS IN APPEAL BEFORE US. 4. WE FIND THAT THE ASSESSEE ENTERED INTO AN AGREEM ENT WITH CREATIVE EYE LTD. FOR DISTRIBUTION RIGHT OF FILM AABRA KA DAABRA DATED 13.12.2004. VIDE THIS AGREEMENT, THE ASSESSEE PAID ADVANCE OF RS.2 LACS BUT DUE TO SOME REASONS THE AGREEMENT WAS CANCELLED. A CANCELLATION AGREEMENT DATED 04.01.2005 WAS ENTERED INTO AND VIDE THIS AGREEMENT THE ASSESSEE RECEIVED BACK A SUM OF RS.1.11 LACS AND BALANCE RS. 89,000/- WAS CLAIMED AS BUSINESS EXPENDITURE. THIS WAS CLAIMED AS BUSINESS LOSS. T HE ASSESSING OFFICER AS WELL AS CIT(A) HELD THIS AMOUNT ON ACCOUNT OF ACQUIRING OF CAPITAL RIGH TS. IN SUCH CIRCUMSTANCES, WHETHER IN ITS NORMAL MEANING, THIS EXPENDITURE WHICH DENOTES SPE NDING OR PAYING OUT OR AWAY IS CAPITAL OR REVENUE. THIS IS SOMETHING WHICH GOES OUT OF THE COFFERS OF THE ASSESSEE A MERE LIABILITY TO SPECIFY AN OBLIGATION BY AN ASSESSEE IS UNDOUBTEDLY NOT EXPENDITURE BUT IT IS ONLY WHEN HE SATISFIES THE OBLIGATION BY DELIVERY OF CASH OR PRO PERTY OR BY SETTLEMENT OF ACCOUNTS THEN THAT IS EXPENDITURE. AT THE SAME TIME, EXPENDITURE DOES NO T NECESSARILY INVOLVES ACTUAL DELIVERY OF OR PARTING WITH MONEY OR PROPERTY. BUT IF THERE ARE CR OSS CLAIMS ONE BY ASSESSEE AGAINST A STRANGER AND THE OTHER BY THE STRANGER AGAINST THE ASSESSEE AND AS A RESULT OF ACCOUNTING THE BALANCE DUE ONLY IS PAID THE AMOUNT WHICH IS DEBITED AGAINST TH E SETTLEMENT OF ACCOUNT MAY APPROPRIATELY BE TERMED AS EXPENDITURE WITHIN THE MEANING OF THIS PR OVISION. NO DOUBT THIS CAN ALSO BE CLAIMED AS LOSS OR EXPENDITURE AND THE TERMINOLOGY WILL NOT MAKE ANY DIFFERENCE TO THE CLAIM. HERE, HONBLE BOMBAY HIGH COURT IN THE CASE OF LORD DAIRY FARM LTD. VS. CIT (1955) 27 ITR 700 (BOM), WHEREIN IT HAS BEEN HELD THAT DEDUCTION CONT EMPLATED BY SECTION 10(2)(XV) OF THE INCOME-TAX ACT, 1922 MUST ARISE OUT OF A VOLUNTARY ACT ON THE PART OF THE ASSESSEE. HE MUST SPEND AN AMOUNT FOR THE PURPOSE OF THE BUSINESS, PR OFESSION OR VOCATION AND THEN CLAIM THAT AMOUNT AS HAVING BEEN SPENT WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS, PROFESSION OR VOCATION. WHEN THE MONEY IS LOST TO THE BUSINESS AS A RESULT OF EMBEZZLEMENT OF AN EMPLOYEE THERE IS NO EXPENDITURE ON THE PART OF THE EMPLOYER . THAT LOSS IS ENTIRELY INVOLUNTARY, AND ALTHOUGH IT MAY ARISE IN THE COURSE OF THE BUSINESS OR BE INCIDENTAL TO THE BUSINESS, IT CANNOT BE 3 ITA 1096/K/2011 BISWABANI PVT. LTD. A.Y. 05-06 SAID THAT THE AMOUNT REPRESENTED BY THE LOSS WAS AN AMOUNT SPENT WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS. BUT IN THE PRESENT CAS E, THE ASSESSEE ENTERED INTO AGREEMENT JUST ON PURE BUSINESS CONSIDERATION AND NO ENDURING RIGHTS WERE BEING ACQUIRED BY ASSESSEE RATHER IT WAS TOTALLY A BUSINESS TRANSACTION AND DUE TO THAT IT INCURRED LOSS BY WAY OF CANCELLATION OF AGREEMENT FOR ACQUIRING FILM DISTRIBUTION RIGHT. H ENCE, WE ALLOW THIS CLAIM OF ASSESSEE. 4. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED. 5. ORDER PRONOUNCED IN THE OPEN COURT. SD/- SD/- . ! ! ! ! . '# , (C. D. RAO) (MAHAVIR SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER ( !# !# !# !#) )) ) DATED : 18TH APRIL, 2012 /0 %12 3 JD.(SR.P.S.) '. 4 ,5 6'5'7- COPY OF THE ORDER FORWARDED TO: 1 . *+ / APPELLANT M/S. BISWABANI PVT. LTD., 2, CHOWRINGH REE APPROACH, 1 ST FLOOR, KOLKATA-700 072. 2 ,-*+ / RESPONDENT ITO, WARD-3(2), KOLKATA. 3 . .% ( )/ THE CIT(A), KOLKATA 4. 5. .% / CIT KOLKATA 5=> ,% / DR, KOLKATA BENCHES, KOLKATA -5 ,/ TRUE COPY, '.%?/ BY ORDER, 2 /ASSTT. REGISTRAR .