DCIT, CHENNAI V. P.L.Shopping & Logistics Ltd., CHENNAI

ITA 1164/CHNY/2013

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 68862 (ITAT-CHENNAI)
• Duration Of Justice: 5 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-11-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 28-10-2013
• Assessment Year: 2006-2007
• Appeal Filed On: 27-05-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: MRS PUSHYA SITARAMAN SR; MRS J SHREE VIDYA A
• Keywords: Business expenditure; Revenue expenditure; Capital expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, CHENNAI BEFORE SHRI A.MOHAN ALANKAMONY, ACCOUNTANT MEMBER AND SHRI CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER ITA NO. 1164/MDS/2013 (ASSESSMENT YEAR: 2006-07) THE DEPUTY COMMISSIONER OF INCOME TAX, COMPANY CIRCLE-V(2), 415, MAIN BUILDING, 121, M.G.ROAD, CHENNAI-600 034. VS. M/S. P.L.SHIPPING & LOGISTICS LTD. 56/57, 3 RD FLOOR, RAJAJI SALAI, CHENNAI-600 001. PAN: AACCP2294G (APPELLANT) (RESPONDENT) APPELLANT BY : MR. GURU BASHYAM, JC IT RESPONDENT BY : MRS. PUSHYA SITARAMAN, SR. COUNSEL & MRS. J.SHREE VIDYA, ADVOCATE DATE OF HEARING : 28 TH OCTOBER, 2013 DATE OF PRONOUNCEMENT : 18 TH NOVEMBER, 2013 O R D E R PER CHALLA NAGENDRA PRASAD, JM : THIS APPEAL IS FILED BY THE REVENUE AGAINST THE O RDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-V, CHENNAI IN ITA NO.421/2011-12 FOR THE ASSESSMENT YEAR 2006-07. THE ONLY GRIEVANCE OF THE REVENUE IN THIS APPEAL IS TH AT THE COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN HOLD ING THAT THE ASSESSEE IS ELIGIBLE TO CLAIM EXPENDITURE OF ` 1.67 CRORES AND THAT THE EXPENDITURE IS REVENUE IN NATURE. ITA NO.1164/MDS//2013 2 2. THE ASSESSING OFFICER WHILE COMPLETING THE ASSES SMENT OBSERVED THAT IN THE NOTES OF ACCOUNTS IN POINT (1 .A) THE ASSESSEE STATED THAT EXPENDITURE INCURRED/ESTIMATED TO BE INCURRED FOR DISCONTINUING THE NVOCC OPERATIONS WHI CH IS IN THE NATURE OF EXTRA-ORDINARY EXPENDITURE AMOUNTING TO ` 2,82,00,000/- HAS BEEN DULY ADJUSTED/PROVIDED FOR IN THE ACCOUNTS FOR THE YEAR UNDER LINER ACTIVITY EXPENSE S IN SCHEDULE-9. THE ASSESSING OFFICER ALSO FOUND THAT T HE ASSESSEE IN ITS COMPUTATION OF INCOME DISALLOWED ` 1.15 CRORES OUT OF ` 2.82 CRORES AND CLAIMED EXPENDITURE OF ` 1.67 CRORES AS DEDUCTION. THE ASSESSING OFFICER DISALLOW ED THIS EXPENDITURE OF ` 1.67 CRORES ON THE GROUND THAT THE ASSESSEE ITSELF HAS SHOWN THIS EXPENDITURE AS EXTRAORDINARY EXPENDITURE AND THIS EXPENDITURE IS A CAPITAL EXPEN DITURE, IGNORING THE SUBMISSIONS OF THE ASSESSEE THAT IT HA D DISCONTINUED A PART OR UNIT OF ITS BUSINESS AND CON TINUED THE REST OF THE BUSINESS AND THEREFORE NO EXPENDITURE CAN BE DISALLOWED IN RESPECT OF THE BUSINESS WHICH WAS DIS CONTINUED. ON APPEAL, THE COMMISSIONER OF INCOME TAX (APPEALS) ON EXAMINING THE NATURE OF EXPENDITURE INCURRED BY THE ASSESSEE ITA NO.1164/MDS//2013 3 AND THE CIRCUMSTANCES UNDER WHICH THE ASSESSEE HAD DISCONTINUED PART OF ITS BUSINESS AND THE CASE LAW ON THE ISSUE ALLOWED THE APPEAL OF THE ASSESSEE BY DIRECTI NG THE ASSESSING OFFICER TO ALLOW THE SAID EXPENDITURE AS REVENUE EXPENDITURE ELIGIBLE AS DEDUCTION. 3. THE DEPARTMENTAL REPRESENTATIVE SUPPORTED THE OR DER OF THE ASSESSING OFFICER IN DISALLOWING SUCH EXPEND ITURE. THE DEPARTMENTAL REPRESENTATIVE FURTHER SUBMITTED THAT THE ASSESSEE HAS FURNISHED DETAILS FOR THE FIRST TIME B EFORE THE COMMISSIONER OF INCOME TAX (APPEALS) AND AN OPPORT UNITY WAS NOT PROVIDED BY THE COMMISSIONER OF INCOME TAX (APPEALS) TO THE ASSESSING OFFICER. THEREFORE, THE MATTER MAY BE SENT BACK TO THE FILE OF THE ASSESSING OFFICER F OR VERIFICATION. 4. THE COUNSEL FOR THE ASSESSEE AT THE FIRST PLACE SUBMITS THAT NO NEW MATERIAL HAS BEEN FURNISHED BEFORE THE COMMISSIONER OF INCOME TAX (APPEALS). SHE SUBMITS THAT ALL THE INFORMATION AND NATURE OF EXPENDITURE WITH ITA NO.1164/MDS//2013 4 DETAILS/SUBMISSIONS WERE FILED BEFORE THE ASSESSING OFFICER IN THE COURSE OF ASSESSMENT PROCEEDINGS VIDE LETTER DA TED 3.10.2011 AND THE VERY SAME INFORMATION WAS FILED B EFORE THE COMMISSIONER OF INCOME TAX (APPEALS) AND NO ADDITI ONAL INFORMATION WAS FILED BEFORE THE COMMISSIONER OF IN COME TAX (APPEALS) WHICH WAS NOT FILED BEFORE THE ASSESSING OFFICER AT THE TIME OF ASSESSMENT PROCEEDINGS. 5. COMING TO THE ISSUE, THE COUNSEL SUBMITS THAT THE ASSESSEES MAIN LINE OF BUSINESS IS SHIPPING AND RE LATED ACTIVITIES WHICH INCLUDED FREIGHT FORWARDING / NVOC C AGENCY / CUSTOM HOUSE AGENCY ETC. NVOCC IS ONLY A PART OF THE MAIN SHIPPING LINE OF BUSINESS IN WHICH THE ASSESSE E WAS REPRESENTING VARIOUS NVOCC OPERATORS AS AGENCY AND ALSO USING HIRED CONTAINERS FOR RUNNING ITS NVOCC LINE O F BUSINESS. WHEN FREIGHT RATES WENT ADVERSE, DOING BUSINESS WIT H HIRED CONTAINERS BECAME NON-PROFITABLE AND ACCORDINGLY TH E ASSESSEE DECIDED TO RETURN THE HIRED CONTAINERS BAC K TO THE LESSORS TO STOP THE MOUNTING LEASE RENTAL EXPENSES . THESE EXPENSES SHOULD ONLY BE TREATED AS GENERAL BUSINESS RELATED ITA NO.1164/MDS//2013 5 EXPENDITURE. THE ASSESSEE IS STILL IN ITS LINE OF B USINESS I.E. SHIPPING INCLUDING NVOCC AGENCY BUSINESS. THE ASSES SEE ONLY STOPPED HIRING CONTAINERS FOR RUNNING ITS NVOC C OPERATION. FURTHER LEASING CHARGES/ STORAGE CHARGES INCURRED BY THE ASSESSEE ARE PAYABLE FOR THE CONTAINER DEPLO YED IN BUSINESS AND NOTHING OF ANY EXPENSES RELATED TO CON TAINER WHICH IS ASSET BASED. THE COUNSEL FURTHER SUBMITS THAT GENERAL PRINCIPLES REGARDING EXPENDITURE INCURRED F OR DISCONTINUING OPERATIONS IS THAT IF THE ENTIRE BUSI NESS OF THE ASSESSEE IS STOPPED, THEN THE EXPENDITURE FOR THE B USINESS WHICH HAS BEEN DISCONTINUED WILL NOT BE ALLOWABLE A S REVENUE EXPENDITURE. THEREFORE, THE COUNSEL SUBMITS THAT I F ONE LINE OF BUSINESS IS DISCONTINUED, THEN SUCH EXPENDITURE IS ALLOWABLE AS REVENUE EXPENDITURE SINCE THE BUSINESS OF THE AS SESSEE IS CONTINUING. IN ORDER TO SUPPORT HER CONTENTIONS, TH E COUNSEL PLACES RELIANCE ON THE DECISION OF THE HONBLE MAD RAS HIGH COURT IN THE CASE OF CIT VS. NAZEENA TRADERS (PVT) LTD., ( 165 ITR 405) AND VARIOUS OTHER DECISIONS. ITA NO.1164/MDS//2013 6 6. HEARD BOTH SIDES. PERUSED THE ORDERS OF LOWER AUTHORITIES AND THE SUBMISSIONS MADE BY THE PARTIES AND THE CASE LAW RELIED ON. THE ASSESSING OFFICER DISALLOWE D THE EXPENDITURE OF ` 1.67 CRORES TREATING IT AS A CAPITAL EXPENDITURE AND IT IS NOT FOR THE ONGOING BUSINESS. THE ASSESSING OFFICER WAS OF THE OPINION THAT THE EXPEN DITURE PERTAINING TO ONGOING BUSINESS ONLY TO BE ALLOWED A S A DEDUCTION AND SINCE THE ASSESSEE HAD STOPPED ONE OF ITS UNITS/PARTICULAR PART OF BUSINESS, SUCH EXPENDITURE RELATING TO SUCH BUSINESS IS NOT ALLOWABLE AS DEDUCTION. THE COMMISSIONER OF INCOME TAX (APPEALS) CONSIDERING TH E SUBMISSIONS OF THE ASSESSEE AND FOLLOWING THE DECIS ION OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. NA ZEENA TRADERS PVT. LTD., (165 ITR 405) ALLOWED THE EXPEND ITURE AS REVENUE EXPENDITURE AFTER EXAMINING THE NATURE OF E XPENSES AND DETAILS FURNISHED BY THE ASSESSEE OBSERVING AS UNDER:- I HAVE CONSIDERED THE SUBMISSIONS OF THE APPELLANT AND HAVE ALSO GONE THROUGH THE DECISIONS RELIED ON BY THE APPELLANT. I FIND THE CONTENTION OF THE APPELLANT TO BE TENABLE IN VIEW OF THE BUSINESS ACTIVITIES OF THE APPELLANT ITA NO.1164/MDS//2013 7 WHICH ARE APPARENT FROM THE MOA. FROM THE ASSESSMENT ORDER ALSO IT IS SEEN THAT IT IS NOT THE CASE OF THE ASSESSING OFFICER THAT THE APPELLANT HAS CLOSED DOWN ITS BUSINESS IN ENTIRETY . IT IS IN FACT DISCONTINUATION OF ONE LINE OF BUSINESS ACTIVITY OF THE APPELLANT . THE JUR I SDICTIONAL HIGH COURT IN THE CASE OF CIT VS NAZEENA TRADERS PRIVATE LIMITED (SUPRA) ON THE FACTS THAT - THE ASSESSEE - COMPANY WAS CARRYING ON TRANSPORT BUSINESS IN BOTH GOODS AND PASSENGERS. FIND I NG THAT TRANSPORT BUSINESS WAS NOT MAINTAINABLE, THE ASSESSEE DECIDED TO WIND UP THE BUSINESS. HOWEVER , LATER, BY A RESOLUTION PASSED IN NOVEMBER 1972, IT WAS DECIDED TO ONL Y CARRY ON THE BUSINESS OF TRANSPORT OF GOODS. SOME EMPLOYEES WERE RETRENCHED AND IN THE ASSESSMENT YEAR 1973-74, THE ASSESSEE CLAIMED A CERTAIN SUM ON ACCOUNT OF PAYMENT OF GRATUITY, RETRENCHMENT COMPENSAT I ON AND NOTICE PAY TO SUCH EMPLOYEES. THE ITO HELD TH AT THE BUSINESS WAS NOT CONTINUED AS A TRANSPORT BUSINESS AND TH E DEDUCTION COULD NOT BE ALLOWED AS THE PAYMENT WAS NOT A STATUTORY OBLIGATION BUT ITA NO.1164/MDS//2013 8 WAS VOLUNTARY IN NATURE THOUGH IT WAS MADE IN ACCORDANCE WITH THE MEMORANDUM OF SE T TLEMENT WITH THE EMPLO Y EES. THE AAC FOUND THAT SINCE OPERATIONAL COSTS OF T RANSPO R T OF PASSENGERS HAD GONE UP, WITHOUT REVISION IN PASSENGER FARES, THE COMPAN Y DID NOT THINK IT WORTHWHILE TO RUN THE PASSENGER DIVISION . THE LAST TRANSPORT BUS WAS SOLD IN NOVEMBER 1972 TILL WHICH T I ME THE TRANSPORT BUSINESS WAS CARRIED ON. THE AAC WAS ALSO OF THE VIEW THAT THE BUSINESS OF PASSENGER AND GOODS TRANSPORT WERE A SINGLE BUSINESS BECAUSE THERE WAS INTERLOCKING AND INTERLACING OF FUNDS AND COMMON MANAGEMENT AND A COMBINED OFF I CE. HE , THEREFORE , ALLOWED THE ASSESSEE ' S APPEAL . THE TRIBUNAL ALSO FOUND THA T THE ACTIVITIES OF THE DIFFERENT DEPARTMEN T S OF THE ASSESSEE CONSTITUTED A SINGLE BUSINESS AND THAT THE BUSINESS HAD NEVER STOPPED BUT THERE WAS ONLY A PERIOD OF INACTIVITY. IT, THEREFORE , HELD THA T THE IMPUGNED PA Y MENT WAS NO T MADE IN THE COURSE OF WINDING UP OF THE BUSINESS BUT WAS MADE IN THE COURSE OF ITA NO.1164/MDS//2013 9 BUSINESS AND WAS, THEREFORE , ADMISSIBLE AS DEDUCTION. HELD, REFERRING TO THE DECISION OF THE APEX COURT IN THE CASE OF GERMANY CASHEW SALES CORPORATION (SUPRA ) THAT- THE TRIBUNAL HAD FOUND THAT THE ACTIVITIES OF THE DIFFERENT DEPARTMENTS CONSTITUTED ONLY A SINGLE BUSINESS AND IT WAS CLEAR THAT THE MAIN BUSINESS OF THE ASSESSEE COMPANY WAS TRANSPORT BUSINESS. IT WAS THIS BUSINESS WHICH CONSISTED OF TRANSPORT OF GOODS AND TRANSPORT OF PASSENGERS. MERELY BECAUSE THE TRANSPORT OF PASSENGERS WAS STOPPED, THE TRANSPORT BUSINESS AS SUCH DID NOT CEASE. THAT BUSINESS CONTINUED TO BE CARRIED ON AND THIS WAS CLEARLY A CASE OF A PART OF THE ACTIVITY IN THE BUSINESS BEING REQUIRED TO BE CLOSED DOWN, AS THAT ACTIVITY WAS UNECONOMICAL. AS THE ASSESSEE HAD INCURRED THE IMPUGNED EXPENDITURE SO THAT ITS OTHER BUSINESS WOULD CONTINUE TO YIELD PROFIT IT WAS DIFFICULT TO SEE WHY SUCH EXPENDITURE COULD NOT BE TREATED AS BUSINESS EXPENDITURE. THEREFORE, THE TRIBUNAL WAS JUSTIFIED. IN VIEW OF THE FACTS OF THE CASE OF THE APPELLANT, RELYING ON THE DECISION ITA NO.1164/MDS//2013 10 OF THE JURISDICTIONAL HIGH COURT, AS DISCUSSED ABOVE, I HOLD THAT THE APPELLANT HAD DISCONTINUED ONLY ONE DIVISION OF ITS BUSINESS BEING REQUIRED TO BE CLOSED DOWN AND THE BUSINESS OF 'FREIGHT FORWARDING' AS SUCH DID NOT CEASE AND THAT THE BUSINESS CONTINUED TO BE CARRIED ON. THE EXPENDITURE CLAIMED BY THE APPELLANT, THEREFORE, IS CLEARLY A BUSINESS/REVENUE EXPENDITURE THAT HAS INCORRECTLY BEEN TREATED AS CAPITAL BY THE AO. THE AO, THEREFORE, IS DIRECTED TO ALLOW THE SAID EXPENDITURE ON. THE GROUNDS OF APPEAL, THEREFORE, ARE ALLOWED. 7. ON GOING THROUGH THE ORDER OF THE COMMISSIONER O F INCOME TAX (APPEALS), WE FIND THAT THE ASSESSEE HAD DISCONTINUED ONLY ONE DIVISION OF ITS BUSINESS AND THE BUSINESS OF FREIGHT FORWARDING AS SUCH DID NOT CEAS E AND THE BUSINESS OF FREIGHT FORWARDING IS CONTINUED TO BE CARRIED ON. THE COMMISSIONER OF INCOME TAX (APPEALS) HELD THAT THE EXPENDITURE IS CLEARLY A BUSINESS / REVENUE EXPENDI TURE AND THE ASSESSING OFFICER HAS INCORRECTLY TREATED AS CA PITAL EXPENDITURE. THE REVENUE HAS NOT CONTROVERTED OR CO ULD NOT ITA NO.1164/MDS//2013 11 POINT OUT ANY MISTAKE IN THE FINDINGS OF THE COMMIS SIONER OF INCOME TAX (APPEALS). THERE IS NO GOOD REASON TO IN TERFERE WITH THE ORDER AND FINDINGS OF THE COMMISSIONER OF INCOME TAX (APPEALS) IN HOLDING THAT THE EXPENDITURE IS R EVENUE EXPENDITURE AND IS ALLOWABLE AS DEDUCTION. WE, THER EFORE, SUSTAIN THE IMPUGNED ORDER OF THE COMMISSIONER OF I NCOME TAX (APPEALS) AND REJECT THE GROUNDS OF APPEAL RAIS ED BY THE REVENUE. 8. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED. ORDER PRONOUNCED IN THE OPEN COURT ON MONDAY , THE 18 TH DAY OF NOVEMBER, 2013 AT CHENNAI. SD/- SD/- (A. MOHAN ALANKAMONY ) (CHALLA NAGENDRA PRASAD) ACCOUNTANT MEMBER JUDICIAL MEMBER CHENNAI. DATED THE 18 TH NOVEMBER, 2013. SOMU COPY TO: (1) APPELLANT (4 ) CIT(A) (2) RESPONDENT (5 ) D.R. (3) CIT (6 ) G.F.