DCIT, Bangalore V. M/s VSL Steels Ltd.,

ITA 1110/BANG/2016

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 7573 (ITAT-BANGALORE)
• Duration Of Justice: 3 year(s) 1 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-07-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2009-2010
• Appeal Filed On: 30-05-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S RAMASUBRAMANYAM
• Keywords: Revenue expenditure; Capital expenditure; Set aside
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : BANGALORE BEFORE SHRI B.R BASKARAN, ACCOUNTANT MEMBER AND SMT. BEENA PILLAI, JUDICIAL MEMBER ITA NO.1110/BANG/2016 ASSESSMENT YEAR : 2009-10 THE DY. COMMISSIONER OF INCOME-TAX , CIRCLE-7(2)(2), ROOM NO.241, 2 ND FLOOR, BMTC BUILDING, 80 FT ROAD, KORAMANGALA, BENGALURU-560 095. VS. M/S VSL STEELS LTD., (EARLIER KNOWN AS M/S SLR STEELS LTD.,) PARAMENAHALLY VILLAGE, HIRIYUR TALUK, CHITRADURGA DIST., KARNATAKA-572 143. PAN AAICS 1510 N APPELL ANT RESPONDENT APPELLANT BY : SHRI R.N SIDDAPPAJI, ADDL. CIT (DR) RESPONDENT BY : SHRI S RAMASUBRAMANYAM, C.A DATE OF HEARING : 11.07.2019 DATE OF PRONOUNCEMENT : 24.07.2019 O R D E R PER B.R BASKARAN, ACCOUNTANT MEMBER THE APPEAL FILED BY THE REVENUE IS DIRECTED AGAINS T THE ORDER DATED 12/2/2016 PASSED BY LD CIT(A), GULBARGA AND IT RELATES TO ASST. YEAR 2009-10. 2. THE REVENUE IS AGGRIEVED BY THE DECISION RENDERE D BY LD CIT(A) ON THE FOLLOWING ISSUES:- A) DISALLOWANCE OF PRIOR PERIOD EXPENSES. ITA NO.1110/BANG/2016 PAGE 2 OF 6 B) DISALLOWANCE OF TRAVELLING AND LOAN PROCESSING CHA RGES C) DISALLOWANCE OF DONATIONS AND CHARITY 3. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUF ACTURING OF PIG IRON. THE ASSESSMENT FOR THE YEAR UNDER CONSIDE RATION WAS COMPLETED BY THE AO U/S 143(3) OF THE ACT BY MAKING VARIOUS ADDITIONS. THE ASSESSEE PREFERRED AN APPEAL BEFORE THE LD CIT(A), WHICH WAS PARTLY ALLOWED. THE REVENUE HAS FILED TH IS APPEAL CHALLENGING THE RELIEF GRANTED BY THE LD CIT(A) ON THE ABOVE SAID ISSUES:- 4. THE FIRST ISSUE RELATES TO DISALLOWANCE OF PRIOR PERIOD EXPENSES. THE AO NOTICED THAT THE ASSESSEE HAS CLA IMED PRIOR PERIOD EXPENSES AMOUNTING TO RS.55.14 LAKHS. SINCE THE ASSESSEE WAS FOLLOWING MERCANTILE SYSTEMS OF ACCOUNTING, THE AO TOOK THE VIEW THAT THE SAME IS NOT ALLOWABLE AND ACCORDINGLY DISALLOWED THE SAME. THE LD CIT(A) HOWEVER ALLOWED THE SAME BY FO LLOWING THE DECISION RENDERED BY MUMBAI BENCH OF TRIBUNAL IN T HE CASE OF URBAN IMPROVEMENT COMPANY PVT. LTD., (ITA NO.3246/ BANG/2006). 5. THE LD DR SUBMITTED THAT THE ASSESSEE IS FOLLOWI NG MERCANTILE SYSTEM OF ACCOUNTING AND HENCE PRIOR PERIOD EXPENSE S ARE NOT ALLOWABLE DURING THE YEAR UNDER CONSIDERATION. HE FURTHER SUBMITTED THAT THE DECISION IN THE CASE RELIED ON B Y THE CIT(A) WAS RENDERED IN A DIFFERENT CONTEXT. 6. WE HEARD LD AR AND PERUSED THE RECORD. IT IS A SETTLED PROPOSITION THAT THE EXPENSES RELATING TO EARLIER Y EARS MAY BE ITA NO.1110/BANG/2016 PAGE 3 OF 6 ALLOWED DURING THE YEAR, IF THE SAME GOT CRYSTALLIZ ED DURING THE YEAR UNDER CONSIDERATION. THE MUMBAI BENCH HAS FOLLOWED THIS PRINCIPLE ONLY IN THE CASE RELIED UPON BY LD CIT(A). HOWEVER , WE NOTICED THAT THE ASSESSEE HAS FAILED TO SHOW THAT THE PRIOR PERI OD EXPENSES CLAIMED BY IT DID CRYSTALLIZE DURING THE YEAR UNDER CONSIDERATION. ACCORDINGLY WE ARE OF THE VIEW THAT THE LD CIT(A) W AS NOT JUSTIFIED IN GRANTING RELIEF. ACCORDINGLY WE REVERSE THE ORDER PASSED BY LD CIT(A) ON THIS ISSUE. 7. THE NEXT ISSUE RELATES TO DISALLOWANCE OF TRAVEL LING AND LOAN PROCESSING EXPENSES INCURRED IN CONNECTION WITH NEW PROJECT IN DUBAI. SINCE THE ABOVE EXPENSES WERE INCURRED FOR THE NEW PROJECT, THE AO HELD THEM TO BE CAPITAL EXPENSES AND ACCORDI NGLY DISALLOWED THE SAME. THE LD CIT(A) DELETED THE SAME BY OBSERV ING THAT THE AO HAS NOT ESTABLISHED ANY BASE FOR HIS STATEMENT THA T THE EXPENDITURE WAS INCURRED FOR NEW PROJECT. 8. WE HEARD THE PARTIES ON THIS ISSUE. SINCE THE E XPENDITURE HAS BEEN INCURRED FOR EXPLORING NEW BUSINESS WHICH WAS CONSIDERED BY THE AO AS NEW PROJECT, THE AO HAS DISALLOWED THE SAME. WE NOTICED THAT THE LD CIT(A) HAS DELETED THE ADDITION BY MAKING GENERAL OBSERVATIONS AND NOT ON PROPER REASONS. IF THE ASSE SSEE HAS ESTABLISHED NEW PROJECT, THEN THE EXPENSES INCURRED THEREON WOULD BE CAPITAL EXPENDITURE. ON THE CONTRARY, IF THE EX PENSES ARE INCURRED FOR EXPANSION OF EXISTING BUSINESS, THEN T HE SAME SHALL BE ALLOWED AS REVENUE EXPENDITURE. IN THE INSTANT CAS E, SINCE THE LD CIT(A) HAS NOT GIVEN ANY SPECIFIC FINDING AND FURTH ER THE RELEVANT DETAILS REGARDING THE PROJECT ARE NOT AVAILABLE, WE SET ASIDE THE ORDER ITA NO.1110/BANG/2016 PAGE 4 OF 6 PASSED BY LD CIT(A) ON THIS ISSUE AND RESTORE THE S AME TO THIS FILE FOR EXAMINING IT AFRESH. 9. THE NEXT ISSUE RELATES TO DISALLOWANCE OF DONATI ONS AND CHARITY EXPENSES CLAIMED BY THE ASSESSEE. THE AO DI SALLOWED THE SAME BY HOLDING THAT THE DONATION AND CHARITY EXPEN SES DO NOT HAVE ANY NEXUS WITH THE BUSINESS ACTIVITIES OF THE ASSES SEE. THE LD CIT(A) HOWEVER, ALLOWED THE SAME BY OBSERVING THAT THESE K IND OF EXPENSES ARE NECESSARY FOR RUNNING THE BUSINESS ACTIVITY OF THE ASSESSEE. 10. WE HEARD THE PARTIES ON THIS ISSUE AND PERUSED THE RECORD. WE NOTICED THAT THOUGH THE LD CIT(A) HAS OBSERVED T HAT THE DONATIONS GIVEN BY THE ASSESSEE ARE NECESSARY FOR C ARRYING ON BUSINESS OF THE ASSESSEE, YET THE LD CIT(A) HAS NO T SHOWN ANY NEXUS BETWEEN THE BUSINESS ACTIVITIES AND EXPENSES OF THE ASSESSEE. ACCORDINGLY WE ARE OF THE VIEW THAT THE LD CIT(A) W AS NOT JUSTIFIED IN DELETING THESE DISALLOWANCE. ACCORDINGLY WE REVERSE THE ORDER PASSED BY THE LD CIT(A) ON THIS ISSUE. 11. IN THE RESULT, THE APPEAL OF THE REVENUE I S TREATED AS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 24TH JULY, 2019. SD/- (BEENA PILLAI) JUDICIAL MEMBER SD/- (B.R BASKARAN) ACCOUNTANT MEMBER BANGALORE, DATED, 24 TH JULY, 2019. / VMS / ITA NO.1110/BANG/2016 PAGE 5 OF 6 COPY TO: 1. THE APPLICANT 2. THE RESPONDENT 3 . THE CIT 4. THE CIT(A) 5. THE DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER A SST. REGISTRAR, ITAT, BANGALORE. ITA NO.1110/BANG/2016 PAGE 6 OF 6 1. DATE OF DICTATION 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER . 3. DATE ON WHICH THE APPROVED DRAFT COMES TO SR.P.S .. 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER .. 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE S R. P.S. .. 6. DATE OF UPLOADING THE ORDER ON WEBSITE.. 7. IF NOT UPLOADED, FURNISH THE REASON FOR DOING SO .. DICTATION NOTE ENCLOSED . 8. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK .. 9. DATE ON WHICH ORDER GOES FOR XEROX & ENDORSEMENT 10. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK . 11. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER . 12. THE DATE ON WHICH THE FILE GOES TO DISPATCH SEC TION FOR DISPATCH OF THE TRIBUNAL ORDER . 13. DATE OF DESPATCH OF ORDER. ..