Mrs. Sarita Handa, New Delhi V. ACIT, New Delhi

ITA 1298/DEL/2010

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 3579 (ITAT-DELHI)
• Duration Of Justice: 3 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-07-2010
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: G
• Assessment Year: 2006-2007
• Appeal Filed On: 25-03-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: NAMITA PANDEY
• Keywords: Capital asset; Depreciation; Deemed dividend; Revenue expenditure; Capital expenditure; TDS
• Section: 40(a)(ia)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL [ DELHI BENCH G DELHI ] BEFORE SHRI R. P. TOLANI, JM AND SHRI K. D . RANJAN, AM I. T. APPEAL NO. 1298 (DEL) OF 2010. ASSESSMENT YEAR : 2006-07. MRS. SARITA HANDA, ASSTT. COMMIS SIONER OF INCOME-TAX, A156/1, 2 ND FLOOR, OPP. MAX HOSPITAL, VS. C I R C L E : 32 (1), M A L V I Y A N A G A R, N E W D E L H I. N E W D E L H I 110 017. P A N / G I R NO. AAB PH 3956 M. ( APPELLANT ) ( RESPONDENT ) ASSESSEE BY : SHRI SATISH GOEL, ADV.; DEPARTMENT BY : MS. NAMITA PANDEY, SR. D. R.; O R D E R. PER K. D. RANJAN, AM : THIS APPEAL BY THE ASSESSEE FOR ASSESSMENT YEAR 200 6-07 ARISES OUT OF THE ORDER OF THE LD. CIT (APPEALS)-XXVI, NEW DELHI. 2. THE GROUNDS OF APPEAL, RAISED BY THE ASSESSEE, A RE REPRODUCED AS UNDER :- 1. (A) THAT ON THE FACTS AND IN THE CIRCUMS TANCES OF THE PETITIONERS CASE, AND NOTWITHSTANDING THE ACCEPTANCE BY THE LD. ASSESSING OFFICER OF THE BONA FIDES OF THE TRANSACTIONS AND GENUINENESS OF T HE REIMBURSEMENT OF THE FOLLOWING EXPENDITURE TO SARITA HANDA EXPORTS P VT. LTD. THE LD. CIT (APPEALS)HAS ERRED IN CONFIRMING THE ACTION OF LD. ASSESSING OFFICER IN TREATING 2 I. T. APPEAL NO. 1298 (DEL) OF 2010. THE SHARING / REIMBURSEMENT OF EXPENDITURE AS AN AR RANGEMENT IN THE NATURE OF A CONTRACT FOR CARRYING OUT WORK AND ACCORDINGLY COVERED BY THE PROVISIONS OF SECTION 194-C OF THE INCOME-TAX ACT, 1961 [THE A CT], REQUIRING TAX DEDUCTION AT SOURCE : I. SALARIES (FOR USE OF THEIR EMPLOYEES) 57,85846/- II. POWER AND FUEL (COSTS INCURRED BY THE COMPANY) 68,8 5,908/- III. ELECTRICITY (COSTS INCURRED BY THE COMPANY) 16,02 ,181/- 1,42,73,935/- ======== (B) THAT ON THE FACTS AND IN THE CIRCUMSTANCES O F THE PETITIONERS CASE, NO CONTRACT AS ENVISAGED BY SECTION 194-C OF THE ACT H AD BEEN ENTERED INTO BY THE APPELLANT WITH SARITA HANDA EXPORTS PRIVATE LTD. RE QUIRING SUCH DEDUCTION OF TAX AT SOURCE IN ACCORDANCE WITH THE PROVISIONS OF THE AFORESAID SECTION; (C) THAT ON THE FACTS AND IN THE CIRCUMSTANCES O F THE PETITIONERS CASE, THE LD. CIT (APPEALS) HAS ERRED IN LAW IN SUSTAINING THE DI SALLOWANCE MADE BY THE LD. ASSESSING OFFICER IN TERMS OF SECTION 40(A)(IA) REA D WITH SECTION 194-C OF THE ACT IN RESPECT OF THE REIMBURSEMENT OF THE SAID EXPENDI TURE AMOUNTING TO RS.1,42,73,935/- BY HOLDING THAT THE PROVISIONS OF THE SAID SECTION BEING SUBSTANTIAL ONE, REQUIRED THEIR STRICT INTERPRETATI ON; (D) THAT THE LD. CIT (APPEALS) IS WRONG AND UNJU STIFIED IN NOT ACCEPTING THE PETITIONERS PLEA THAT THE REIMBURSEMENT OF THE SAI D EXPENDITURE IS PROVEN AS TAX NEUTRAL, INTER SE THE APPELLANT AND THE PAYEE COMPA NY, NOT CAUSING ANY DETRIMENT OR LOSS TO THE REVENUE; AND FURTHER ON THE FACTS AN D IN THE CIRCUMSTANCES, HIS CONCLUSION TO SUSTAIN THE DISALLOW2ANCE OF THE SAID REIMBURSEMENT OF EXPENDITURE, IS UNWARRANTED AND NOT IN CONSONANCE WITH THE OBJEC TIVES FOR WHICH SECTION 40(A)(IA) WAS INTRODUCED IN THE SAID ACT; 2. THAT ON THE FACTS AND IN THE CIRCUMSTANCES O F THE PETITIONERS CASE, THE LD. CIT (APPEALS) IS WRONG IN NOT DELETING THE ADDITION ON ACCOUNT OF STT OF RS.44,874/- WRONGLY MADE BY THE ASSESSING OFFICER I N DISREGARD OF THE FACT THAT IT WAS DEBITED TO THE PERSONAL ACCOUNT OF THE PETITION ER AND NOT TO THE PROFIT AND LOSS ACCOUNT; 3. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE PETITIONERS CASE, THE LD. CIT (APPEALS) IS WRONG IN UPHOLDING THE INSURANCE P REMIUM OF NEW CAR OF RS.48,778/- AS CAPITAL EXPENDITURE AND ALLOWING DEP RECIATION @ 15 PER CENT INSTEAD OF TREATING THE SAME AS REVENUE EXPENDITURE . 3 I. T. APPEAL NO. 1298 (DEL) OF 2010. 3.1 THE FIRST ISSUE FOR CONSIDERATION RELATES TO CO NFIRMING THE DISALLOWANCE OF REIMBURSEMENT OF EXPENSES OF RS.1,42,73,935/- BY HOLDING THAT PRO VISIONS OF SECTION 40(A)(IA) READ WITH SECTION 194-C OF THE ACT BEING SUBSTANTIAL ONE, REQUIRED TH EIR STRICT INTERPRETATION. THE FACTS OF THE CASE STATED IN BRIEF ARE THAT THE ASSESSEE HAD SHOWN AN AMOUNT OF RS.1,42,73,935/- AS REIMBURSEMENT OF EXPENSES PAYABLE TO M/S. SARITA HANDA EXPORTS PV T. LTD. THE ASSESSING OFFICER ASKED THE ASSESSEE TO EXPLAIN THE TRANSACTION AND ALSO ASKED TO PRODUCE THE AGREEMENT IN THIS REGARD. THE ASSESSEE DID NOT PRODUCE ANY AGREEMENT OR EVIDENCE REGARDING THE AFORESAID TRANSACTION. ON FURTHER BEING CONFRONTED IT WAS SUBMITTED THAT DUE TO HEAVY EXPORT ORDERS AND TIMELY EXECUTION, THE MANUFACTURING FACILITIES OF M/S. SARITA HANDA E XPORTS WERE USED FOR WHICH THE FOLLOWING EXPENSES WERE REIMBURSED TO THEM :- PARTICULARS A M O U N T SALARY 57,85,846/- POWER AND FUEL 68,85,908 ELECTRICITY 16,02,181/- 3.2 HOWEVER SINCE THE ASSESSING OFFICER WAS NOT SAT ISFIED WITH THE REPLY OFFERED BY THE ASSESSEE, ANOTHER SHOW CAUSE NOTICE WAS ISSUED REQU IRING THE ASSESSEE TO EXPLAIN AS TO WHY PROVISIONS OF SECTION 40(A)(IA) FOR ALL THE EXPENSE S CLAIMED ON WHICH TDS DEDUCTIBLE HAD NOT BEEN DEDUCTED, SHOULD NOT BE INVOKED AND THE EXPENS ES CLAIMED SHOULD NOT BE DISALLOWED. THE ASSESSEE IN RESPONSE TO THE SHOW CAUSE NOTICE ISSUE D SUBMITTED THAT THERE WAS NO FORMAL CONTRACT ENTERED INTO WITH M/S. SARITA HANDA EXPORTS PVT. LT D. AND NOR WAS ONE REQUIRED. PROVISIONS OF SECTION 194-C OF THE ACT WERE ALSO NOT APPLICABLE. INCOME-TAX ON SALARIES WHEREVER APPLICABLE HAD BEEN DEDUCTED BY M/S. SARITA HANDA EXPORTS PVT . LTD. AS THEY WERE IN THEIR EMPLOYMENT. THE QUESTION OF TDS AGAIN ON SALARIES OF THEIR STAF F DID NOT ARISE. NO INCOME-TAX WAS DEDUCTIBLE ON POWER AND FUEL AND ELECTRICITY EXPENSES INCURRED NEITHER BY THE SAID COMPANY NOR BY THE ASSESSEE. IT WAS FURTHER SUBMITTED THAT PROVISIONS OF SECTION 40(A)(IA) WERE NOT APPLICABLE TO THE ABOVE MENTIONED REIMBURSEMENTS. THEREFORE, NO ADVE RSE VIEW COULD BE TAKEN. THE ASSESSING OFFICER REJECTED THE CONTENTION OF THE ASSESSEE ON THE GROUND THAT IT WAS A CASE OF CONTRACT 4 I. T. APPEAL NO. 1298 (DEL) OF 2010. BETWEEN TWO PARTIES AND, THEREFORE, PROVISIONS OF S ECTION 40(A)(IA) WERE EQUALLY APPLICABLE TO ALL CONTRACTS ORAL OR WRITTEN. SINCE THE ASSESSEE HAD NOT DEDUCTED TAX AT SOURCE ON REIMBURSEMENT OF EXPENSES, THE EXPENDITURE WAS NOT ALLOWABLE AS DEDU CTION. 4. THE ASSESSING OFFICER FURTHER NOTED THAT MRS. SA RITA HANDA WAS HAVING SHARE CAPITAL OF RS.55,65,100/- OUT OF TOTAL SHARE CAPITAL OF RS. 89,65,200/-, WHICH CONSTITUTED 90 PER CENT OF THE SHARE-HOLDING. IN THE BOOKS OF ACCOUNTS OF THE COMPANY THE AMOUNT OF RS.1,42,73,935/- WAS SHOWN UNDER LOAN AND ADVANCES. FURTHER IN THE BOOKS OF ACCOUNTS OF M/S. SARITA HANDA EXPORTS PVT. LTD. THE AMOUNT DID NOT APPEAR UNDER A NY ACCOUNT EXCEPT UNDER OTHER HEADS LIKE SUNDRY DEBTORS OR ANY OTHER RELEVANT HEADS REF LECTING THE CURRENT TRANSACTIONS BEING IN THE NATURE OF BUSINESS TRANSACTIONS. THE ASSESSING OFFICER, THEREFORE, ASKED THE ASSESSEE TO EXPLAIN AS TO WHY THE PROVISIONS OF SECTION 2(22)(E ) OF THE ACT SHOULD NOT BE APPLIED IN RESPECT OF THE AMOUNT OF RS.1,42,73,935/-. IN RESP ONSE TO THIS QUERY IT WAS SUBMITTED THAT THE ASSESSEE WAS NOT A CORPORATE ASSESSEE AND FURTHER T HAT NO TAX WAS IMPOSABLE IN THE HANDS OF THE RECIPIENT, THE PROVISIONS OF SECTION 2(22)(E ) OF THE ACT WERE NOT APPLICABLE. THE ASSESSING OFFICER, HOWEVER, REJECTED THIS CONTENTIO N OF THE ASSESSEE. HE WAS OF THE OPINION THAT THE ASSESSEE HAD ACCUMULATED PROFITS OF RS.4,7 6,71,155/- UNDER THE HEAD RESERVES AND SURPLUS AND, THEREFORE, THE AMOUNT OF RS.1,42,73,9 35/- WAS TO TREATED AS DEEMED DIVIDEND IN THE HANDS OF THE ASSESSEE. THE ASSESSING OFFICE R THUS ADDED THE AMOUNT OF RS.1,42,73,935/-. 5. ON APPEAL, IT WAS SUBMITTED THAT THE ASSESSEE HA D ENTERED INTO AN AGREEMENT WITH M/S. SARITA HANDA EXPORTS PVT. LTD. OF WHICH SHE WA S THE MANAGING DIRECTOR, TO PROVIDE OTHER INFRASTRUCTURE FACILITIES FOR MEETING HEAVY E XPORT ORDERS AND THEIR TIMELY EXECUTION. AS A RESULT, THE AVAILABLE EXCESS CAPACITY WITH M/S . SARITA HANDA EXPORTS PVT. LTD. WAS USED BY THE ASSESSEE PROPRIETORSHIP CONCERN AND IN RES PECT OF THE SAME THE ASSESSEE CONCERN REIMBURSED THE EXPENSES IN NATURE OF SALARIES FOR T HE USE OF EMPLOYEES OF M/S. SARITA HANDA EXPORTS PVT. LTD.; THE ELECTRICITY EXPENSES; AND PO WER AND FUEL EXPENSES. THE PROVISIONS OF SECTION 194-C OF THE ACT WERE NOT APPLICABLE IN CAS E OF REIMBURSEMENT MADE BY THE ASSESSEE 5 I. T. APPEAL NO. 1298 (DEL) OF 2010. CONCERN TO M/S. SARITA HANDS EXPORTS PVT. LTD. IT WAS ALSO SUBMITTED THAT WHEREVER TDS PROVISIONS WERE APPLICABLE, TDS WAS DULY DEDUCT ED BY SARITA HANDA EXPORTS PVT. LTD. AND THE SALARIES PAID TO THE EMPLOYEES BY M/S. SARITA HANDA EXPORTS PVT. LTD. IN RESPECT OF THE EMPLOYEES, WHO WERE WORKING FOR THE ASSESSEE WERE A LSO SUBJECT TO DEDUCTION OF TDS BY M/S. SARITA HANDA EXPORTS PVT. LTD. THEREFORE, QUESTION OF TDS AGAIN IN RESPECT OF REIMBURSEMENT OF SALARIES OF THEIR STAFF DID NOT AR ISE IN THE HANDS OF THE ASSESSEE COMPANY. FURTHER SINCE THE REMAINING PAYMENTS WERE THE REIMB URSEMENT OF COST INCURRED BY M/S. SARITA HANDA EXPORTS PVT. LTD. IN RESPECT OF POWER AND FUE L, ELECTRICITY EXPENSES INCURRED BY THAT COMPANY, PROVISIONS OF SECTION 40(A)(IA) OF THE ACT WERE NOT APPLICABLE TO THE AFORESAID REIMBURSEMENTS. 6. THE LD. CIT (APPEALS) EXAMINED THE CONTENTIONS O F THE ASSESSEE. HE OBSERVED THAT THE ARRANGEMENT BETWEEN M/S. SARITA HANDA EXPORTS P. LT D. AND THE ASSESSEE CONCERN WAS BENEFICIAL TO BOTH OF THEM AS THE ASSESSEE HAD HUGE EXPORT ORD ERS WHILE M/S. SARITA HANDA EXPORTS PVT. LTD. HAD AVAILABLE CAPACITY. IF THE ASSESSEE CONCERN HA D ENTERED INTO SIMILAR ARRANGEMENT WITH OUTSIDE CONCERN IN RESPECT OF CARRYING OUT WORK FOR THE ASS ESSEE, THE ASSESSEE WOULD HAVE BEEN REQUIRED TO DEDUCT TDS AS THE SAID WORK WAS COVERED UNDER TH E PROVISIONS OF SECTION 194-C OF THE ACT. THEREFORE, THE ASSESSEE SHOULD HAVE DEDUCTED TDS ON PAYMENTS MADE TO M/S. SARITA HANDA EXPORTS PVT. LTD.. AS SUCH, THE PAYMENT IN LIEU O F STAFF SALARY; ELECTRICITY; AND POWER AND FUEL MADE AVAILABLE TO THE ASSESSEE FOR MANUFACTURING PU RPOSES WAS COVERED WITHIN THE TERM WORK FOR THE PURPOSE OF SECTION 194-C OF THE ACT. IT WA S IMMATERIAL WHETHER THE SAID M/S. SARITA HANDA EXPORTS PVT. LTD. HAD DEDUCTED TDS ON PAYMENT OF SALARIES OR NOT AS THE DEDUCTION OF TDS ON SALARIES IS INCIDENTAL. IN VIEW OF THE ABOV E, HE HELD THAT THE ARRANGEMENT BETWEEN THE ASSESSEE AND M/S. SARITA HANDA EXPORTS PVT. LTD. FO R SUPPLY OF STAFF; POWER AND FUEL; AND ELECTRICITY FOR THE PURPOSE OF CARRYING OUT EXPORT RELATED MANUFACTURING, WAS IN EFFECT A CONTRACT FOR CARRYING OUT WORK. THEREFORE THE PAYMENTS, EV EN IF THEY HAD BEEN CALCULATED ON THE BASIS OF REIMBURSEMENT OF ACTUAL EXPENSES (WHICH WERE DETERM INED ON ESTIMATE BASIS FOR POWER AND FUEL AND ELECTRICITY) WERE NOT EXEMPT FROM THE PROVISONS OF SECTION 40(A)(IA) OF THE INCOME-TAX ACT, 1961, AS THE ASSESSEE WAS REQUIRED TO DEDUCT TDS UN DER SECTION 194-C THEREON. THERE WAS NO QUESTION ABOUT THE BONAFIDE OF SUCH A TRANSACTION S INCE THE SAME WERE FOUND TO BE GENUINE BY THE 6 I. T. APPEAL NO. 1298 (DEL) OF 2010. ASSESSING OFFICER ALSO. HOWEVER, THE PROVISION OF SECTION 40(A)(IA) BEING SUBSTANTIAL ONE REQUIRED THEIR STRICT INTERPRETATION AND THEREFORE THE AFORE SAID EXPENSES WERE CORRECTLY DISALLOWED BY THE ASSESSING OFFICER IN THE ABSENCE OF DEDUCTION OF TD S THEREOF. 7. BEFORE US THE LD. AR OF THE ASSESSEE SUBMITTED T HAT PROVISIONS OF SECTION 40(A)(IA) OF THE ACT ARE NOT APPLICABLE IN THE CASE OF THE ASSESSEE AS THE REIMBURSEMENT OF PAYMENT IS NOT IN THE NATURE OF CONTRACT. HE ALSO SUBMITTED THAT SECTION 194-C(1) WAS AMENDED WITH EFFECT FROM 1/06/2007 BY FINANCE ACT, 2007 AND, THEREFORE, AMEN DED PROVISIONS ARE NOT APPLICABLE FOR ASSESSMENT YEAR 2006-07. HE ALSO SUBMITTED THAT PR OVISIONS OF SECTION 40(A)(IA) OF THE ACT ARE ALSO NOT APPLICABLE IN RESPECT OF REIMBURSEMENT OF SALARIES, POWER AND FUEL AND ELECTRICITY. THEREFORE, THE ASSESSEE WAS NOT REQUIRED TO DEDUCT TAX AT SOURCE AND ACCORDINGLY NO DISALLOWANCE CAN BE MADE UNDER SECTION 40(A)(IA) OF THE ACT. 8. ON THE OTHER HAND, THE LD. SR. DR SUPPORTED THE ORDER OF THE LD. CIT (APPEALS). 9. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. UNDER SECTION 40(A)(IA) OF THE ACT, ANY INTEREST, COMMISS ION OR BROKERAGE, RENT OR ROYALTY, FEE FOR PROFESSIONAL SERVICES OR FEE FOR TECHNICAL SERVICES PAYABLE TO A RESIDENT OR AN AMOUNT PAYABLE TO A CONTRACTOR OR SUB-CONTRACTOR BEING RESIDENT FOR CAR RYING OUT ANY WORK [INCLUDING SUPPLY OF LABOUR] FOR CARRYING OUT ANY WORK, ON WHICH TAX IS DEDUCTIBLE AT SOURCE UNDER CHAPTER XVII-B AND SUCH TAX HAD NOT BEEN DEDUCTED OR AFTER DEDUCTI ON, HAS NOT BEEN PAID DURING THE RELEVANT PREVIOUS YEAR OR IN SUBSEQUENT YEAR BEFORE THE EXPI RY OF SUCH TIME UNDER SECTION 200(1) SHALL NOT BE ALLOWED AS DEDUCTION IN COMPUTING THE INCOME CHA RGEABLE UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION. THE RELATIONSHIP BETWE EN THE ASSESSEE AND THE COMPANY, ACCORDING TO THE REVENUE, IS THAT OF A CONTRACTOR. CLAUSE (K) OF SUB-SECTION (1) OF SECTION 194-C WAS INSERTED WITH EFFECT FROM 1/06/2007 BY FINANCE ACT, 2007 UND ER WHICH ANY INDIVIDUAL OR A HINDU UNDIVIDED FAMILY, WHOSE TOTAL SALES, GROSS RECEIPTS OR TURNOVER FROM THE BUSINESS OR PROFESSION CARRIED ON BY HIM EXCEEDS MONETARY LIMITS, SPECIFIE D UNDER SECTION 44-AB SHALL BE LIABLE TO DEDUCT TAX ON THE AMOUNT CREDITED OR PAID TO THE CO NTRACTOR. SINCE FOR THE ASSESSMENT YEAR 2006- 7 I. T. APPEAL NO. 1298 (DEL) OF 2010. 07 THERE WAS NO PROVISION TO DEDUCT TDS ON CONTRACT AMOUNTS BY THE INDIVIDUALS OR HINDU UNDIVIDED FAMILY. THE ASSESSEE WAS NOT LIABLE TO D EDUCT TAX AT SOURCE UNDER SECTION 194-C(1) OF THE ACT FROM THE CONTRACTOR FOR CARRYING OUT OF THE WORK. THEREFORE, THE ASSESSEE WAS NOT LIABLE TO DEDUCT TAX AT SOURCE FROM THE PAYMENTS MADE BY H ER TO THE COMPANY. SINCE THE ASSESSEE WAS NOT LIABLE TO DEDUCT TAX AT SOURCE, PROVISIONS OF S ECTION 40(A)(IA) OF THE ACT WERE NOT APPLICABLE. ACCORDINGLY, NO DISALLOWANCE COULD BE MADE IN THE H ANDS OF THE ASSESSEE. THEREFORE, IN OUR CONSIDERED OPINION THE LD. CIT (A) WAS NOT JUSTIFIE D IN CONFIRMING THE ADDITION. THE AO IS DIRECTED TO ALLOW THE CLAIM OF THE ASSESSEE. 10. THE NEXT ISSUE FOR CONSIDERATION RELATES TO CON FIRMING THE ADDITION ON ACCOUNT OF STT OF RS.44,874/-. DURING THE COURSE OF APPELLATE PROCEEDINGS BEFORE THIS TRIBUNAL, THE LD. AR OF THE ASSESSEE DID NOT PRESS THIS GROUND OF APP EAL. THEREFORE, THIS GROUND OF APPEAL IS DISMISSED, AS SUCH. 11. THE LAST ISSUE FOR CONSIDERATION RELATES TO CON FIRMING THE ADDITION ON ACCOUNT OF INSURANCE PREMIUM OF NEW CAR TREATING THE SAME AS CAPITAL EXP ENDITURE. THE FACTS OF THE CASE RELATING TO THIS GROUND OF APPEAL ARE THAT AN ADDITION OF MOTOR VEHICLE AMOUNTING TO RS.19,50,610/- WAS MADE TO FIXED ASSETS. ON A QUERY IT WAS SUBMITTED BY THE ASSESSEE THAT ONE CAMERY CAR FOR RS.19,50,610/- WAS PURCHASED. THE ASSESSING OFFICE R FROM THE DETAILS FURNISHED FOUND THAT THE ASSESSEE HAD PAID RS.69,276/- AS INSURANCE CHARGES FOR THE CAR. THE ASSESSING OFFICER TREATED THE INSURANCE PAID ON CAR AS CAPITAL EXPENDITURE. HE P LACED RELIANCE ON THE DECISION OF THE ITAT IN THE CASE OF ASHOKA STONE CRUSHING INDUSTRIES VS. IT O 30 I.T.D. 465. HE ALSO PLACED RELIANCE ON OTHER DECISIONS, SUCH AS, MITHIL TEXTILES VS. CIT 2 25 ITR 327 WHEREIN GUARANTEE COMMISSION PAID FOR PURCHASE OF MACHINERY WAS CAPITAL EXPENDIT URE. HE ALSO RELIED ON THE DECISION IN THE CASE OF L. G. BALKRISHNAN & OTHERS 95 ITR 284 FOR T HE PROPOSITION THAT PRIOR TO THE CAPITALIZATION OF A CAPITAL ASSET, FOREIGN EXPENSES WERE TO BE CAP ITALIZED AND WOULD FORM PART OF ACTUAL COST TO THE ASSESSEE. RELIANCE WAS ALSO PLACED ON THE DECI SION OF CIT VS. J.M.A. INDUSTRIES LTD. 129 ITR 373 WHEREIN IT WAS HELD THAT TRAVELLING EXPENDI TURE FOR PERSONS DEPUTED TO PURCHASE MACHINERY WERE PART OF ACTUAL COST OF ASSETS. 8 I. T. APPEAL NO. 1298 (DEL) OF 2010. 12. BEFORE THE LD. CIT (APPEALS) IT WAS PLEADED THA T THE ASSESSEE HAD CLAIMED ONLY RS.48,778/- AS REVENUE EXPENSES AND, THEREFORE, THE ADDITION MADE BY THE AO TO THE EXTENT OF RS.20,496/- WAS NOT CALLED FOR. THE LD. CIT (A) AC CORDINGLY DIRECTED THE AO TO VERIFY THE ACTUAL AMOUNT OF CLAIM MADE BY THE ASSESSEE. HE DI RECTED THAT THE DISALLOWANCE SHOULD BE RESTRICTED TO THE EXTENT OF EXPENDITURE CLAIMED ONL Y AFTER ALLOWING DEPRECIATION 50 PER CENT THEREON AS THE INSURANCE PREMIUM PAID FOR THE FIRST TIME WAS AN ESSENTIAL CONDITION FOR ALLOWING USE OF THE ACTUAL ASSET. 13. BEFORE US THE LD. AR OF THE ASSESSEE SUBMITTED THAT THE INSURANCE PREMIUM WAS CLAIMED FOR THE PERIOD FOR WHICH THE VEHICLE WAS USED. OUT OF THE TOTAL INSURANCE PREMIUM OF RS.69,276/- THE PREMIUM OF RS.48,778/- RELATED TO THE YEAR UNDE R CONSIDERATION WHEREAS THE BALANCE AMOUNT OF RS.20,496/- RELATED TO THE SUBSEQUENT ASSESSMENT YEAR. SINCE THE INSURANCE PREMIUM IS TO BE PAID EVERY YEAR, IT IS A REVENUE EXPENDITURE AND CA NNOT BE CAPITALIZED. HE, THEREFORE, REQUESTED THAT THE CLAIM OF THE ASSESSEE SHOULD BE ALLOWED. ON THE OTHER HAND, THE LD. SR. DR SUPPORTED THE ORDER OF THE LD. CIT (APPEALS). 14. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. THE INSURANCE PREMIUM IS PAYABLE EVERY YEAR DEPENDI NG UPON THE VALUE OF THE ASSET AND THE PERIOD FOR WHICH THE PAYMENT FALLS IN THE ACCOUNTIN G YEAR. FOR EXAMPLE, IF A VEHICLE IS INSURED ON 1 ST OF JUNE, THE INSURANCE COMPANY WILL COLLECT PREMIU M FOR THE WHOLE YEAR. HOWEVER, FOR THE RELEVANT ASSESSMENT YEAR, THE INSURANCE PREMIUM FOR 10 MONTHS WILL BE ALLOWABLE (FROM THE MONTH IN WHICH THE VEHICLE WAS INSURED TO END OF FI NANCIAL YEAR) AND THE BALANCE INSURANCE PREMIUM RELATABLE TO TWO MONTHS WILL BE ALLOWABLE I N THE SUBSEQUENT YEAR. THE ASSESSEE HAD CLAIMED THE INSURANCE PREMIUM OF RS.48,778/-, WHICH RELATES TO THE YEAR UNDER CONSIDERATION. THE PAYMENT OF INSURANCE PREMIUM CANNOT BE EQUATED WITH THE EXPENDITURE WHICH SHOULD BE CAPITALIZED WITH THE MACHINERY BEFORE THE SAME IS P UT TO USE. THEREFORE, IN OUR CONSIDERED OPINION, THE LD. CIT (APPEALS) WAS NOT JUSTIFIED IN CONFIRMING THE STAND OF THE ASSESSING OFFICER TO TREAT THE INSURANCE PREMIUM AS CAPITAL EXPENDITURE. ACCORDINGLY, WE DECIDE THIS ISSUE IN FAVOUR 9 I. T. APPEAL NO. 1298 (DEL) OF 2010. OF THE ASSESSEE. THE ASSESSING OFFICER IS DIRECTED TO ALLOW THE INSURANCE CLAIM AS REVENUE EXPENDITURE. 15. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. THE ORDER PRONOUNCED IN THE OPEN COURT ON : 16 TH JULY, 2010. SD/- SD/- [ R. P. TOLANI ] [ K. D. RANJAN ] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 16 TH JULY, 2010. *MEHTA * COPY OF THE ORDER FORWARDED TO : - 1. APPELLANT. 2. RESPONDENT. 3. CIT, 4. CIT (APPEALS), 5. DR, ITAT, NEW DELHI. TRUE COPY. BY ORDER. ASSISTANT REGISTRAR, ITAT. 10 I. T. APPEAL NO. 1298 (DEL) OF 2010. 11 I. T. APPEAL NO. 1298 (DEL) OF 2010.