Motor World Private Limited , Bangalore V. Assistant Commissioner of Income TAx Circle-4(1)(2), Bangalore

ITA 1257/BANG/2018

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 1077 (ITAT-BANGALORE)
• Duration Of Justice: 10 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-03-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2009-2010
• Appeal Filed On: 17-04-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: P M VEERAMANI
• Keywords: Capital asset; Opportunity of being heard; Audit objection; Difference of opinion; Change of opinion; Revenue expenditure; Capital expenditure; Set aside
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : BANGALORE BEFORE SHRI ARUN KUMAR GARODIA, ACCOUNTANT MEMBER AND SHRI PAVAN KUMAR GADALE, JUDICIAL MEMBER ITA NO. 1257 / BANG/201 8 ASSESSMENT YEAR : 2 0 09 - 10 M/S. MOTOR WORLD PRIVATE LIMITED, NO. 46/3A, KUDULU GATE, 7 TH MAIN, HOSUR ROAD, BANGALORE 560 068. PAN: AACCM6574A VS. THE ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE 4 (1) (2), BANGALORE. APPELLANT RESPONDENT APPELLANT BY : SHRI P.M. VEERAMANI, CA RESPONDENT BY : SHRI R.N. SIDDAPPAJI, ADDL. CIT (DR) DATE OF HEARING : 04 .0 3 .2019 DATE OF PRONOUNCEMENT : 15 .0 3 .2019 O R D E R PER SHRI A.K. GARODIA, ACCOUNTANT MEMBER THIS APPEAL IS FILED BY THE ASSESSEE AND THE SAME IS DIRECTED AGAINST THE ORDER OFLD. CIT(A)-4, BANGALORE DATED 12.12.2017 FOR ASSESSMENT YEAR 2009-10. 2. THE GROUNDS RAISED BY THE ASSESSEE ARE AS UNDER. 1. THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) IS AGAINST LAW 2. THE COMMISSIONER OF INCOME TAX (APPEALS) IS NOT JUSTIFIED IN DISMISSING THE APPEAL FOR NON-PROSECUTION. YOUR APPELLANT WAS UNAWARE OF THE POSTINGS OF HEARING AND NONAPPEARANCE BY THE CHARTERED ACCOUNTANT AND THUS JUSTICE IS DENIED TO THE APPELLANT DUE TO THE DISMISSAL OF APPEAL. COMMISSIONER OF INCOME TAX (APPEALS) FAILED TO APPRECIATE THAT THE LAW DOES NOT EMPOWER THE CIT(A) TO DISMISS THE APPEAL FOR NON-PROSECUTION. 3. THE COMMISSIONER OF INCOME TAX (APPEALS) FAILED TO NOTE THE FACT THAT THE ASSESSING OFFICER HAS NOT ASSUMED JURISDICTION BY PASSING A SPEAKING ORDER ON THE OBJECTIONS RAISED BY THE APPELLANT THAT THE RE- OPENING WAS NOT VALID ON THE BASIS OF AN AUDIT OBJECTION AND THAT IT WAS ONLY A CHANGE OF OPINION. THUS THE RE-ASSESSMENT IS BAD IN LAW 4. THE COMMISSIONER OF INCOME TAX (APPEALS) FAILED TO NOTE THE FACT THAT THE ORIGINAL ASSESSMENT OF THE APPELLANT WAS COMPLETED U/S 143(3) ACCEPTING THE LOSS AS PER RETURN AND THE RE-OPENING WAS DONE ON THE ITA NO. 1257/BANG/2018 PAGE 2 OF 4 BASIS OF AUDIT OBJECTION. THE COMMISSIONER OF INCOME TAX (APPEALS) FAILED TO APPRECIATE THE LEGAL POSITION THAT RE-OPENING OF THE ASSESSMENT ON THE BASIS OF AUDIT OBJECTION WAS BAD IN LAW. 5. THE COMMISSIONER OF INCOME TAX (APPEALS) FAILED TO APPRECIATE THE FACT THAT THE EXPENSES CLAIMED BY THE APPELLANT IN THE RETURN OF INCOME WHERE REVENUE EXPENSES LIKE RENT, BROKERAGE, REPAIRS AND ADVERTISEMENT AND RELATED EXPENSES AND THEY ARE ALLOWABLE AS EXPENDITURE IN THE YEAR THEY ARE INCURRED. NORMALLY, THE ORDINARY RULE IS THAT REVENUE EXPENDITURE IN A PARTICULAR YEAR IS TO BE ALLOWED IN THAT YEAR. THUS, IF THE APPELLANT CLAIMS THAT EXPENDITURE IN THAT YEAR, THE DEPARTMENT CANNOT DENY IT. 6. THE CONCEPT OF DEFERRED REVENUE EXPENDITURE IS ESSENTIALLY AN ACCOUNTING CONCEPT AND ALIEN TO THE ACT. THE RELEVANT PROVISIONS OF THE ACT RECOGNISE ONLY CAPITAL OR REVENUE EXPENDITURE. DEFERRED REVENUE EXPENDITURE DENOTES EXPENDITURE FOR WHICH A PAYMENT HAS BEEN MADE OR A LIABILITY INCURRED, WHICH IS ESSENTIALLY REVENUE IN NATURE BUT WHICH FOR VARIOUS REASONS LIKE QUANTUM AND PERIOD OF EXPECTED FUTURE BENEFIT ETC., IS WRITTEN OFF OVER A PERIOD OF TIME E.G. EXPENDITURE ON ADVERTISEMENT, SALES PROMOTION ETC. THOUGH THE NATURE OF SUCH EXPENDITURE IS REVENUE, KEEPING IN VIEW THE FACT THAT THE BENEFITS ARISING THEREFROM ARE EXPECTED TO BE DERIVED OVER A PERIOD OF TIME, STRETCHING SOMETIMES OVER SEVERAL ACCOUNTING YEARS, THE TAXPAYERS HAVE BEEN AMORTISING THE SAME OVER THE EXPECTED TIME PERIOD OVER WHICH THE BENEFITS ARE LIKELY TO ACCRUE THEREFROM. ACCORDINGLY, ONLY A PROPORTION OF SUCH EXPENDITURE IS AMORTISED IN THE P&L A/C BUT AN APPROPRIATE ADJUSTMENT IS MADE IN THE COMPUTATION OF INCOME, CLAIMING THE ENTIRE AS ALLOWABLE REVENUE EXPENDITURE IN TERMS OF PROVISIONS OF S. 37(1). THE DEFERRED REVENUE EXPENDITURE IS ESSENTIALLY REVENUE IN NATURE AND THE DECISION TO TREAT THE SAME AS DEFERRED REVENUE ONLY REPRESENTS A MANAGEMENT DECISION TAKEN IN VIEW OF THE MAGNITUDE OF THE EXPENDITURE INVOLVED. FOR THE PURPOSE OF ALLOWABILITY OF ANY EXPENDITURE UNDER THE ACT, WHAT IS MATERIAL IS THE CLASSIFICATION BETWEEN THE CAPITAL AND REVENUE AND THE SAME DOES NOT RECOGNISE ANY CONCEPT OF DEFERRED REVENUE EXPENDITURE. THE NATURE OF EXPENDITURE SUCH AS RENT, BROKERAGE, REPAIRS TO RENTED PREMISES, PRODUCT LAUNCH EXPENSES WHICH IS ESSENTIALLY ADVERTISEMENT AND SALE PROMOTION WHICH ARE TREATED AS DEFERRED REVENUE BY THE APPELLANT, ARE SUCH THAT, ALTHOUGH THE BENEFIT ARISING THEREFROM MAY EXTEND OVER THREE / FOUR ACCOUNTING PERIODS, THE SAME CANNOT BE CLEARLY AND DEFINITIVELY ASSIGNED OVER TIME SINCE THE SAME IS INTANGIBLE IN NATURE. MOREOVER SUCH EXPENDITURE DID NOT RESULT IN CREATION OF ANY CAPITAL ASSET, TANGIBLE OR INTANGIBLE, AND THE QUESTION OF TREATING THE SAME AS CAPITAL EXPENDITURE DOES NOT ARISE. HENCE THE APPELLANT'S CLAIM OF REVENUE EXPENDITURE IN THE YEAR IT WAS INCURRED IS CORRECT. ITA NO. 1257/BANG/2018 PAGE 3 OF 4 3. IT WAS SUBMITTED BY LD. AR OF ASSESSEE THAT THE IMPUGNED ORDER OF CIT(A) IS EX-PARTE QUA THE ASSESSEE AND EVEN IN THIS EX-PARTE ORDER ALSO, THE CIT(A) HAS NOT DECIDED THE ISSUE ON MERIT BUT SIMPLY DISMISSED THE APPEAL OF THE ASSESSEE IN LIMINE. HE SUBMITTED THAT THE ORDER OF CIT(A) SHOULD BE SET ASIDE AND THE MATTER MAY BE RESTORED BACK TO THE FILE OF CIT(A) FOR FRESH DECISION. HE ALSO SUBMITTED THAT IF MATTER IS RESTORED BACK TO THE FILE OF CIT(A), THIS TIME, THE ASSESSEE WILL MAKE PROPER COMPLIANCE BEFORE CIT(A). THE LD. DR OF REVENUE SUBMITTED THAT SEVERAL OPPORTUNITIES WERE PROVIDED BY CIT(A) AND SINCE THE ASSESSEE HAS NOT MADE ANY COMPLIANCE, THE ORDER OF CIT(A) SHOULD BE CONFIRMED. 4. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. FIRST OF ALL WE REPRODUCE PARA 1 OF THE ORDER OF CIT (A) BECAUSE IN THIS PARA, HE HAS NOTED THE DETAILS OF NOTICES ISSUED BY HIM AND THE COMPLIANCE BY THE ASSESSEE. THE SAME IS AS UNDER. THE APPEAL FOR A.Y. 2009-10 WAS FILED ON 30.04.2015 AGAINST THE ORDER OF ASST. COMMISSIONER OF INCOME TAX, CIRCLE-4(1)(2), BENGALURU, DATED 23/03/2015, PASSED U/S. 143(3) R.W.S. 147 OF THE I.T. ACT. THE APPEAL WAS FIXED FOR HEARING ON MANY OCCASIONS, IN RESPONSE TO WHICH NONE APPEARED. NOTICES WERE ISSUED ON 26.12.2016 & 01.11.2017 AND THE APPEAL WAS POSTED FOR HEARING ON 17.01.2017 & 14.11.2017, FOR WHICH APPELLANT FILED LETTERS DATED 25.11.2017 & 14.12.2017 SEEKING ADJOURNMENT. THE APPELLANT ONCE AGAIN SOUGHT ADJOURNMENT, AND THE FINAL COMPLIANCE DATE WAS FIXED ON 12.12.2017. FINAL ADJOURNMENT WAS GRANTED TO THE AR TO APPEAR LATEST BY 29.11.2017. ON THE SAID DATE THE AR WAS REQUIRED TO MAKE FULL & FINAL COMPLIANCE WITHOUT SEEKING FURTHER ADJOURNMENT. IT IS APPARENT THAT, THERE HAS BEEN NO FURTHER RESPONSE OR APPROPRIATE COMPLIANCE TO THE PROCEEDINGS. NO FURTHER ADJOURNMENT WAS ALSO SOUGHT AS PER RECORD. THEREFORE IN THESE FACTS & CIRCUMSTANCES, IT IS EVIDENT THAT, IN SPITE OF REPEATED OPPORTUNITIES, THE ASSESSEE HAS CHOSEN NOT TO ATTEND THE CURRENT APPEAL PROCEEDINGS. THE APPELLANT HAS THEREFORE CLEARLY FAILED TO CAUSE ANY SPECIFIC DOCUMENTARY / EVIDENCIARY COMPLIANCE DURING THE APPELLATE PROCEEDINGS. IT IS QUITE APPARENT THAT, THE ASSESSEE NO LONGER APPEARS TO BE, INTERESTED IN PURSUING THE APPEAL. BASED ON THE STATEMENT OF FACTS OF THE APPELLANT AND AO'S OBSERVATIONS / FINDINGS, PRESENT CASE IS FINALIZED, AS HEREUNDER. 5. FROM THE ABOVE PARA REPRODUCED FROM THE ORDER OF CIT (A), IT IS SEEN THAT FOR THE FIRST TWO NOTICES ISSUED BY CIT (A) ON 26.12.2016 AND 01.11.2017 POSTING THE APPEAL FOR HEARING ON 17.01.2017 AND 14.11.2017, THE ASSESSEE ITA NO.1257/BANG/2018 PAGE 4 OF 4 HAS FILED LETTERS SEEKING ADJOURNMENT. HE HAS ALSO NOTED THAT FINAL ADJOURNMENT WAS GRANTED TO ASSESSEE TO APPEAR LATEST BY 29.11.2017 AND ON THIS DATE, THE LD. AR OF ASSESSEE WAS REQUIRED TO MAKE FULL AND FINAL COMPLIANCE WITHOUT SEEKING FURTHER ADJOURNMENT. HENCE IT IS SEEN THAT THERE IS CONTRADICTION IN THE ORDER OF CIT(A) BECAUSE IN THE SAME PARA, HE IS SAYING THAT THE COMPLIANCE DATE BEING THE FINAL COMPLIANCE DATE WAS FIXED ON 12.12.2017. THEREAFTER HE SAID IN THE SAME PARA THAT FINAL ADJOURNMENT WAS GRANTED TO LD. AR OF ASSESSEE TO APPEAR LATEST BY 29.11.2017 AND ON THIS DATE, LD. AR OF ASSESSEE WAS REQUIRED TO MAKE FULL AND FINAL COMPLIANCE WITHOUT SEEKING FURTHER ADJOURNMENT. THE IMPUGNED ORDER WAS PASSED BY CIT(A) ON 12.12.2017. IN OUR CONSIDERED OPINION, SUFFICIENT OPPORTUNITIES OF BEING HEARD WAS NOT PROVIDED BY CIT(A) AND HENCE, WE SET ASIDE THE ORDER OF CIT(A) AND RESTORE THE MATTER BACK TO HIS FILE FOR FRESH DECISION AFTER PROVIDING REASONABLE OPPORTUNITY OF BEING HEARD TO BOTH SIDES. WE WANT TO MAKE IT CLEAR THAT THIS TIME, THE ASSESSEE SHOULD MAKE PROPER COMPLIANCE WITHOUT SEEKING ANY ADJOURNMENT EXCEPT FOR JUSTIFIABLE REASONS. IN VIEW OF THIS DECISION, NO ADJUDICATION ON MERIT IS CALLED FOR AT THE PRESENT STAGE. 6. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON THE DATE MENTIONED ON THE CAPTION PAGE. SD/- SD/- (PAVAN KUMAR GADALE) (ARUN KUMAR GARODIA) JUDICIAL MEMBER ACCOUNTANT MEMBER BANGALORE, DATED, THE 15 TH MARCH, 2019. /MS/ COPY TO: 1. APPELLANT 4. CIT(A) 2. RESPONDENT 5. DR, ITAT, BANGALORE 3. CIT 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR, INCOME TAX APPELLATE TRIBUNAL, BANGALORE.