M/s Chikodi Taluka Mahila supplementary Nutriation Production Centre, Belgaum V. Pr. CIT, Belgaum

ITA 1253/BANG/2015

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 0339 (ITAT-BANGALORE)
• Duration Of Justice: 8 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-06-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 05-05-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 23-09-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P CHANDRASHEKAR
• Keywords: Capital asset; Audit objection; Revenue expenditure; Capital expenditure
• Section: 143(3); 263

Judgement Text

IN THE INCOME TAX APPELLATE TRI BUNAL BANGALORE BENCH B, BANGALORE BEFORE SHRI A. K. GARODIA, ACCOUNTANT MEMBER AND SHRI VIJAY PAL RAO, JUDICIAL MEMBER ITA NO.1253 (BANG) 2015 (ASSESSMENT YEAR: 2010-11) M/S CHIKODI TAL. MAHILA SUPPLEMENTARY NUTRITION PRODUCTION CENTRE, ANKALI TAL. CHIKODI. PAN NO.AAAC8304Q APPELLANT VS PRL. COMMISSIONER OF INCOME-TAX, DR. AMBEDKAR ROAD, OPP: CIVIL HOSPITAL, BELAGAVI - 590 001 RESPONDENT ASSESSEE BY : NONE PRESENT ON BEHALF OF ASSESSEE REVENUE BY : SHRI P. CHANDRASHEKAR, CIT DATE OF HEARING : 05-05-2016 DATE OF PRONOUNCEMENT : 1 7-06-2016 O R D E R PER SHRI A. K. GARODIA, AM: THIS IS ASSESSEES APPEAL DIRECTED AGAINST THE ORD ER OF THE LD. PRL. CIT-II, BELAGAVI, DATED 27-03-2015 PASSED BY HIM U/ S 263 OF THE IT ACT, 1961. 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS; 1. THE IMPUGNED ORD E R I S ILL E GAL , I M P ROP E R , U NJ U S T & MUC H AGA IN S T ALL KNOWN CANON S OF LA W . ITA NO.1253(BANG)2015 2 2 . THE LEARNED COMMISSI O N E R O F INCOM E TA X H AS SER I O U SLY E R RED IN HOLDING THAT , EXPENSE S . INCURRED TOWARDS CAPACITY BUIL DER I S C APITAL IN NA T UR E. 3. PRESUMABLY, THE COMMISSIONER & OTHERS HAVE ASSUMED THE EXPENDITURE INCURRED TOWARDS ACQUISITION OF CAP ACITY BUILDER IS AN ITEM OF PLANT, MACHINERY & BUILDING. 4. THE CIT OUGHT TO HAVE CONSIDERED THE FACT THAT T HE DEFINITION OF CAPACITY BUILDER IS TO EQUIP AND FACI LITATE THE MSPCS TO COMMENCE THEIR OPERATIONS I N TERMS OF THE WORKING MODEL SUBMITTED B Y TH E CAPACITY BUILDER AND AFTER COMPLETION O F TWO Y EARS , THE COMPAN Y BUILDER HAS TO INSTALL FURTHER BACK - U P MACHINERIES AS WELL AS EQUIP TH E MEMBERS OF THE MSPCS TO MANUFACTURE AND SUPPLY ALL THE SNP FO O D ITEMS ISSUED ON INDIVIDUAL RAW MAT E R I ALS I N A PHASED MANNER . FURTHER , AS PER THE TERMS OF THE AGREEMEN T, THE CAPACITY BUILDER SHALL SUPPL Y TH E B LE ND OF P R OCE S S E D MATER IA L S DU R ING T H E INITIAL PERIOD OF TWO YEARS I N OTHER WORDS, THE NATURE OF THE CA PACI TY BUILD E R I S LI KE A PACK E R AND AT NO STRETCH OF IMAGINATION , TH I S PROCESS OF PACKER CANNOT BE EQUATED T O THAT O F A MACHINER Y, PLANT OR BUILDING. AND CONSEQUENTLY, THIS EXPENDITURE CANNOT BE TERM E D A S CAP I T AL IN NATUR E . COPY OF TH E I MPUGNED AGREEMENT ENTERED INT O BETWEEN THE APPELLANT AND THE DEPARTM E NT OF WOMEN AND CHILD DEVELOPMENT, GOVERNMENT OF KARNATAKA IS ENCLOSED . IN THIS VIEW OF THE MATTER, THE CL ' T HAS S ERIOUSLY ERRED IN HOLDING THE EXPENDITURE AS CAPITAL IN NATURE . THE APPELLANT SUBMIT THAT, THI S VIE W HAS BEEN ARRIVED AT BY THE COMMISSIONER OF INCOME TAX BASED ON AN AUDIT OBJECT ION. IN THIS CONNECTION , THE APPELLANT RELIES ON THE FOLLOWING DECISION WHIC H ITA NO.1253(BANG)2015 3 CLEARLY HOLDS THAT AUDIT OBJECTION CANNOT BE A SUBJ ECT MATTER FOR INVOKING THE PROVISIONS OF SEC . 263 : INCOME TAX APPELLATE T R IB UN AL , DE LHI BE NCH ' G ' , NEW DELHI BET W EEN S AT Y A PRAKASH GUPTA VS ASSES S EE , VIDE ITA NO . 2730 / DE1 / 20 13 D A TED 07 / 03 / 20 1 4. A CO P Y O F TH E SA ID ORDER IS ENCLOSED FOR READ Y REFERENC E . 3. THIS APPEAL IS FILED LATE BY ASSESSEE AND THE D ELAY IS OF 33 DAYS. THE ASSESSEE HAS MOVED AN APPLICATION FOR CONDONATI ON OF DELAY ALONGWITH AN AFFIDAVIT OF MRS MAHADEVI KAMBLE, PRES IDENT OF THE ASSESSEE SOCIETY. IT IS SUBMITTED IN THE AFFIDAVIT FILED THAT BECAUSE OF THE ILLNESS OF THE PRESIDENT OF THE ASSESSEE SOCI ETY, THE APPEAL COULD NOT BE FILED IN TIME. MEDICAL CERTIFICATE IS ALSO ENCLOSED ALONGWIH THE AFFIDAVIT. UNDER THESE FACTS, WE CONDONE THE DEL AY IN FILING OF THIS APPEAL. 4. THE LD. AR OF THE ASSESSEE REITERATED THE SUBMI SSIONS MADE BEFORE THE LD. CIT ALTHOUGH REJECTED BY HIM. 5. THE LD. DR OF THE REVENUE SUPPORTED THE ORDER O F THE LD. CIT. 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. ON P AGE NO.5 OF THE ORDER OF THE LD. CITS ORDER PARA 7(1) OF THE AGREE MENT WHICH DEFINES THE RESPONSIBILITY OF M/S CHRISTY FRIED GRAM INDUSTRIES TO ESTABLISH 137 MSPCS AND THE DUTIES OF THE CAPACITY BUILDER ARE RE PRODUCED. HENCE, ITA NO.1253(BANG)2015 4 VARIOUS PARAS FROM PAGE NO.5 TO 7 OF THE ORDER OF T HE LD.CIT ARE REPRODUCED HEREIN BELOW FOR THE SAKE OF READY REFER ENCE: AS PER PARA NO. 7(1) OF THE AGREEMENT, THE RESPONSIBILITY OF M/S CHRISTY FRIED GRAM INDUSTRIES TO ESTABLISH 137 MSPCS AND THE DUTIES OF THE CAPACITY BUILDER WILL BE: THE CAPACITY BUILDER WILL PROVIDE A HANDBOOK TO EAC H MSPC CONTAINING THE DETAILS OFFOL/OWING INFORMATION. A) LIST OF MACHINERY TO BE INSTALLED IN EACH MSPC. B) HOW TO HANDLE THE MACHINERY. C) HOW TO MAINTAIN IT. D) SUPPLIES OF THE MACHINERY TO EACH MSPC, CONTACT NUMBERS, WARRANTY PERIOD AND SERVICE CENTERS WITH D ETAIL AND ADDRESS. PREPARATION OF THE EF/FRM, FOR EACH OF THE PRE-MIXE S THE FOLLOWING INFORMATION IS TO BE PROVIDED. A) LIST OF INGREDIENTS TO HE USED FOR THE MANUFACTURE OF ENERGY FOOD. B) PREPARATION OF EF/FRM USING INGREDIENTS IN APPROPRI ATE PROPORTION C) PROCESS AND PLACE OF PURCHASE OF RAW-MATERIALS. D) QUALITY CHECKS TO RECOGNIZE GOOD QUALITY RAW- MATERIALS TO BE PROCURED BY THE MSPC MEMBERS E) STORAGE INSTRUCTIONS AND PLACE OF STORAGE. F SEASONAL VARIATIONS IN PRICES OF INGREDIENTS AND HOW TO BENEFIT BY PROCURING DURING LOW PRICE SEASON . G) PERSONAL HYGIENE TO BE TAKEN CARE OF BY THE MEMBERS WHILE PROCESSING ENERGY FOOD. H) PROCESSING NORMS OF EACH OF THE INGREDIENTS.' UNDER THIS AGREEMENT, IN THE FIRST 2 YEARS, THE MSP C WILL PURCHASE READYMADE ENERGY FOOD FROM M/S CHRISTY FRI ED GRAM INDUSTRIES AND SUPPLY IT TO THE ANGANWADIES. F ROM 3RD YEAR ONWARDS AS PROVIDED IN THE AGREEMENT, ONCE THE MACHINERY IS INSTALLED IN THE MSPCS, THE RAW MATERI ALS WILL BE PROCURED BY THE MSPCS WHO WILL START THE PRODUCTION OF THE ENERGY FOOD ITEMS THEMSELVES. TILL 5 YEARS THE CAPA CITY BUILDER WILL CONTINUE TO BE RESPONSIBLE FOR THE VIABILITY A ND QUALITY OF ITA NO.1253(BANG)2015 5 THE SUPPLIES BY THE MSPCS. FOR THESE SERVICES, M/S CHRISTY FRIED GRAM INDUSTRIES IS TO BE PAID A CONSIDERATION AT THE RATE OF RE.1 PER KG OF FOOD SU PPLIED FOR A PERIOD OF 5YEARS AGAINST THE SUPPLIES MADE BY THE R ESPECTIVE MSPCS TO ICDS PROJECTS AS STATED IN THE AGREEMENT. 4. ACCORDINGLY, THE ASSESSEE AND MSPC, HAS D EBITED RS.10,84,967/- DURING THE A.Y. 2010-11 WHICH IS THE FIRST YEAR OF CAPACITY BUILDING AS PER THE AGREEMENT WITH M/S CHRISTY FRIED GRAIN INDUSTRIES. M/S CHRISTY FRIED GRAM INDU STRIES HAS PROVIDED CAPACITY BUILDING SERVICES AS LISTED A BOVE TO THE ASSESSEE AND HAS SOLD READYMADE MIXES TO THE ASSESS EE WHO HAS IN TURN SUPPLIED IT TO THE ANGANWADIES. THE SIM ILAR SITUATION HAS CONTINUED TILL A.Y.2013-14 WHEN THE A SSESSEE HAS STARTED PRODUCING ENERGY MIXES ITSELF ON INSTAL LATION OF MACHINERY AND PROCURING OF RAW MATERIALS. 5. AS CLEAR FROM THE FACTS OF THE CASE, THE P AYMENT MADE TO M/S CHRISTY FRIED GRAM INDUSTRIES THIS YEAR FOR CAPACITY BUILDING TO ASSESSEE IS TOWARDS SETTING UP OF THE ASSESSEE MSPC AS A PRODUCTION UNIT. THE PAYMENT TO M/S CHRISTY FRIED GRAM INDUSTRIES ARE OF THE NAT URE OF EXPENSES THAT HAVE BEEN LAID OUT TO BRING INTO EXIS TENCE THE MSPC AS AN INDEPENDENT VIABLE UNIT CAPABLE OF PRODUCING THE ENERGY FOOD. THE PAYMENT IS MADE TO M /S CHRISTY - FRIED GRAM INDUSTRIES BRINGS AN ADVANTAGE OF AN ENDURING BENEFIT TO THE ASSESSEE MSPC AS THE TECHNI CAL KNOWLEDGE, TO PREPARE ENERGY FOOD, TRAINING ON HOW TO HANDLE MACHINERY, TRAINING ON THE ENTIRE MANUFACTURING PRO CESS, IN SHORT HOW TO PRODUCE THE ENERGY FOOD AND SET UP THE MSPC IS BEING GIVEN. WITH THIS CAPACITY BUILDING EXERCISE O F M/S ITA NO.1253(BANG)2015 6 CHRISTY FRIED GRAM INDUSTRIES, THE ASSESSEE MSPC WI LL BE ENABLED TO MANUFACTURE AND SUPPLY ITEMS TO THE ICDS PROJECTS AND BECOME INDEPENDENT. THESE EXPENSES ARE NOT IN T HE NATURE OF RUNNING EXPENDITURE INCURRED IN EARNING PROFIT. BY MAKING PAYMENT TO M/S CHRISTY FRIED GRAM INDUSTRIES A TOTALLY NEW ASSET IN THE FORM OF A PRODUCTION UNIT IS TO COME INTO EXISTENCE. THESE ARE IN THE NATURE OF PREOPERATIVE EXPENSES FOR THE MSPC AS A PRODUCTION UNIT. THE EXPENSES ARE THUS CAPITAL IN NATURE AND CANNOT BE ALLOWED AS REVENUE EXPENDITURE. THE AO IS DIRECTED TO DISALLOW THE EXPENSES OF RS.10,84,967 DEBITED TO TH E P&L ACCOUNT TOWARDS CONSIDERATION TO CAPACITY BUILDER S INCE IT IS NOT A REVENUE EXPENDITURE. ACCORDINGLY, THE ASSESSM ENT IS ENHANCED BY RS.10,84,967/-. 6. IN VIEW OF THE ABOVE, THE ORDER OF THE ITO, WA RD-1, NIPANI PASSED U/S 143(3) FOR THE AY: 2010-11 ON 31-03-2013 IS HELD TO BE ERRONEOUS AS WELL AS PREJUDICIAL TO THE INTEREST S OF THE REVENUE AND IS THEREFORE, ENHANCED ON THE POINTS DI SCUSSED ABOVE. THEREFORE, THE AO IS DIRECTED TO GIVE EFFEC T TO THIS ORDER AT THE EARLIEST. 7. AS PER PARA-7(1) OF THE AGREEMENT, THE MAIN RE SPONSIBILITY OF CAPACITY BUILDER WAS TO PROVIDE A HANDBOOK TO EACH MSPC CONTAINING VARIOUS INFORMATION AND ALSO TO PROVIDE INFORMATION FOR REA DYMADE MIXES. CONSIDERING THESE FACTS, IN OUR CONSIDERED OPINION, WHATEVER BENEFIT IS ACCRUING TO THE ASSESSEE FROM THE CAPACITY BUILDER CANNOT BE CONSIDERED AS A CAPITAL ASSET AND THEREFORE, THE IMPUGNED EXPENDITU RE CANNOT BE CONSIDERED ITA NO.1253(BANG)2015 7 AS CAPITAL EXPENDITURE. WE FIND NO MERIT IN THE IMPUGNED ORDER PASSED BY THE LD. CIT AND WE QUASH THE SAME. 8. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THE DATE MENT IONED ON THE CAPTION PAGE. SD/- (VIJAY PAL RAO) SD/- (A.K. GARODIA) JUDICAL MEMBER AC C OUNTANT MEMBER BANGALORE: D A T E D : 17.06.2016 AM* COPY TO : 1 APPELLANT 2 RESPONDENT 3 CIT(A)-II BANGALORE 4 CIT 5 DR, ITAT, BANGALORE. 6 GUARD FILE BY ORDER AR, ITAT, BANGALORE ITA NO.1253(BANG)2015 8 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 THE SR. P. S. .. 4 DATE ON WHICH THE ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT .. 5. DATE ON WHICH THE ORDER COMES BACK TO THE SR. P.S. .. 6. DATE OF UPLOADING THE ORDER ON WEBSITE .. 7. IF NOT U PLOADED, FURNISH THE REASON FOR DOING SO. 8. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK .. 9. DATE ON WHICH ORDER DOES FOR XEROX & ENDORSEMENT . 10. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK. 11 THE DATE ON WH ICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER. 12 THE DATE ON WHICH THE FILE GOES TO THE DISPATCH SEC TION FOR DISPATCH OF THE TRIBUNAL ORDER 13 DATE OF DISPATCH OF ORDER