M/s. LAFFANS PETROCHEMICALS LTD., MUMBAI V. DCIT RANGE- 10(2)(1), MUMBAI

ITA 1464/MUM/2018

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 5341 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 2 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-05-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2012-2013
• Appeal Filed On: 08-03-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: SHEKAR GUPTA
• Keywords: Business income; Depreciation; Business expenditure; Wholly owned subsidiary; Revenue expenditure; Capital expenditure; Set aside; Capital Gains
• Section: 143(3); 37(1); 201; 32

Judgement Text

1 ITA.NO. 1464/MUM/2018 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES A, MUMBAI BEFORE SHRI G.S. PANNU, VICE PRESIDENT AND SHRI RAVISH SOOD, JUDICIAL MEMBER ITA NO. 1464/MUM/2018 ASSESSMENT YEAR : 2012-13 LAFFANS PETROCHEMICALS LIMITED, 10, LUTHRA INDUL. COMPLEX ANDHERI KURLA ROAD, SAFED PHOOL MUMBAI-400 072 [PAN : AAACL 0645 D] VS. DEPYTY COMMISSIONER OF INCOME TAX, RANGE-10(2)(1) ROOM NO.509, 5 TH FLOOR AAYKAR BHAVAN, M.K.ROAD MUMBAI-400 020 (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI.DEEPAK TRALSHAWALA & SHRI. SHEKAR GUPTA RESPONDENT BY : MS. NILU JAGGI DATE OF HEARING : 22-03-2019 DATE OF PRONOUNCEMEN T : 29-05-2019 O R D E R PER G.S. PANNU, VICE PRESIDENT: 1. THE CAPTIONED APPEAL FILED BY THE ASSESSEE IS DI RECTED AGAINST AN ORDER PASSED BY THE CIT(A)-17, MUMBAI DATED 26.02.2018 PE RTAINING TO THE ASSESSMENT YEAR 2012-13, WHICH IN TURN, HAS ARISEN FROM AN ORDER PASSED BY THE ASSESSING OFFICER UNDER SECTION 143(3) OF THE I NCOME TAX ACT, 1961 (IN SHORT 'THE ACT') DATED 30.03.2015. 2 ITA.NO. 1464/MUM/2018 2. GROUNDS OF APPEAL RAISED BY THE ASSESSEE READ AS UNDER:- 1. (A) THE LEARNED CIT (APPEALS) HAS ERRED IN LAW AND ON THE FACTS OF THE CASE IN SUSTAINING THE ORDER OF THE ASSESSING OFFICER COMPUTING LONG T ERM CAPITAL GAIN ON DEMERGER OF ANKLESHWAR UNIT AT RS. 41,16,73,633/- AS AGAINST RS. 9,01,94,2 077- DECLARED BY THE ASSESSEE COMPANY. (B) THE LEARNED CIT (APPEALS) HAS ERRED IN LAW AND ON THE FACTS OF THE CASE IN NOT APPRECIATING THE FACT THAT THE NET SALE CONSIDERATION RECEIVED B Y THE ASSESSEE AGAINST THE DEMERGER WAS RS. 47,01,10,609/- AS AGAINST THE GROSS SALE-CONSIDERAT ION OF RS. 78,98,20,000/-. (C) THE LEARNED CIT (APPEALS) HAS ERRED IN LAW AND ON THE FACTS OF THE CASE IN NOT APPRECIATING THE FACT THAT AS PER CLAUSE 3.2 OF THE AGREEMENT WI TH M/S. HUNTSMAN INVESTMENTS (NETHERLANDS) B. V. THE TOTAL CONSIDERATION WAS TO BE REDUCED BY THE DEBTS PAYABLE BY THE ASSESSEE. (D) THE LEARNED CIT (APPEALS) HAS ERRED IN LAW AND ON THE FACTS OF THE CASE IN NOT APPRECIATING THE FACT THAT THE ASSESSEE HAS ONLY ONE MANUFACTURI NG UNIT AT ANKLESHWAR WHICH WAS DEMERGED AND THE DEMERGER INVOLVED TRANSFER OF ALL FIXED ASS ETS, CURRENT ASSETS, SECURED LOANS AND CURRENT LIABILITIES. 2. THE LEARNED CIT (APPEALS) HAS ERRED IN LAW AND ON THE FACTS OF THE CASE IN SUSTAINING THE ORDER OF THE ASSESSING OFFICER DISALLOWING REPAIRS AND MAINTENANCE RS. 94,11,574/-. 3. THE LEARNED CIT (APPEALS) HAS ERRED IN LAW AND ON THE FACTS OF THE CASE IN SUSTAINING THE ORDER OF THE ASSESSING OFFICER DISALLOWING DEPRECIA TION ON MOTOR CAR AND OTHER RELATED EXPENSES TO THE TUNE OF RS. 6,17,865/-. 4. THE ASSESSEE COMPANY CRAVES LEAVE TO ADD, ALTE R OR AMEND THE ABOVE GROUNDS OF APPEAL. 3. IN THIS APPEAL, THE GRIEVANCE RAISED BY THE ASSE SSEE IS AGAINST THE ACTIONOF THE INCOME TAX AUTHORITIES IN REJECTING TH E MANNER OF COMPUTING LONG TERM CAPITAL GAIN IN TERMS OF SECTION 50B OF THE AC T, DISALLOWANCE OF REPAIRS AND MAINTENANCE EXPENSES AND DISALLOWANCE OF DEPRECIATI ON AND RELATED EXPENSES ON MOTOR CAR, WHICH WE SHALL DEAL IN SERIATIM. 4. THE FIRST GROUND RAISED IN APPEAL WHICH PERTAINS TO THE MANNER OF COMPUTING LONG TERM CAPITAL GAIN IN TERMS OF SECTIO N 50B OF THE ACT. IN THIS CONTEXT, THE RELEVANT FACTS ARE THAT THE ASSESSEE I S A COMPANY INCORPORATED UNDER THE PROVISIONS OF THE COMPANIES ACT, 1956 AND IT IS, INTER ALIA, ENGAGED IN THE BUSINESS OF MANUFACTURING OF PETROCHEMICAL PROD UCTS. THE ASSESSEE COMPANY ALONG WITH SHRI. SANDEEP SETH (SHAREHOLDER AND MANAGING DIRECTOR OF 3 ITA.NO. 1464/MUM/2018 THE ASSESSEE COMPANY) ENTERED INTO A MASTER AGREEME NT DATED 31.07.2010 WITH M/S. HUNTSMAN INVESTMENTS (NETHERLANDS) B.V (HEREIN AFTER REFERRED TO AS PURCHASER) TO DEMERGE ITS MANUFACTURING UNIT AT A NKLESHWAR. PURSUANT TO THE APPROVAL OF THE HONBLE GUJARAT HIGH COURT TO THE S CHEME OF DEMERGER VIDE ORDER DATED 11.03.2011, THE ASSESSEE INCORPORATED A WHOLLY OWNED SUBSIDIARY COMPANY NAMED LAFFANS FINE CHEMICALS PVT. LTD. (HER EINAFTER REFERRED TO AS RESULTING COMPANY) AND DURING THE YEAR UNDER CONS IDERATION, DEMERGED ITS MANUFACTURING UNIT AT ANKLESHWAR INTO SAID COMPANY AND ALL THE SHARES OF THIS COMPANY WAS TRANSFERRED BY WAY OF A SLUMP SALE TO T HE PURCHASER, M/S. HUNTSMAN INVESTMENTS (NETHERLANDS) B.V. THE LONG TE RM CAPITAL GAIN ON THE ABOVE TRANSACTION UNDER SECTION U/S 50B OF THE ACT WAS WORKED-OUT BY THE ASSESSEE AT RS. 9,01,94,288/-.THE ASSESSEE-COMPANY FILED ITS RETURN OF INCOME FOR ASSESSMENT YEAR 2012-13 ON 24.09.2012DECLARING TOTAL INCOME OF RS. 8,96,04,701/- UNDER THE HEAD CAPITAL GAIN,COMPUTED IN TERMS OF SECTION 50B OF THE ACT, AFTER SETTING OFF BUSINESS LOSS OF RS. 5,8 9,506/-. IN THE COURSE OF ASSESSMENT PROCEEDINGS FINALISED U/S 143(3)OF THE A CT ON 30.03.2015, THE ASSESSING OFFICER, INTER ALIA, REJECTED THE ASSESSE ES MANNER OF COMPUTING LONG TERM CAPITAL GAIN IN TERMS OF SECTION 50B OF THE AC T AND RECOMPUTED THE LONG TERM CAPITAL GAIN AT RS. 41,16,73,633/-.IN DOING SO , THE ASSESSING OFFICER DENIED REDUCTION FOR THE LIABILITIES OF THE UNIT WH ICH WERE PAID FOR BY THE ASSESSEE, REDUCTION FOR BANK GUARANTEE PROVIDED BY THE ASSESSEE AND LOSS ON SALE OF VEHICLE. IN THIS CONTEXT, THE ASSESSING OFF ICER NOTED THAT ASSESSEE HAD FILED TWO REPORTS OF THE ACCOUNTANT DATED 06.09.201 2 IN FORM 3CEA IN TERMS OF SUB-SECTION (3) OF SECTION 50B OF THE ACT REPORTING DIFFERENT FIGURES FOR COMPUTATION OF LONG TERM CAPITAL GAINS UNDER SECTIO N 50B OF THE ACT. THE 4 ITA.NO. 1464/MUM/2018 ASSESSING OFFICER FURTHER NOTED THAT THE MASTER AGR EEMENT PROVIDES FOR CERTAIN ADJUSTMENTS TO THE TOTAL CONSIDERATION STATED IN TH E AGREEMENT, BUT IN ABSENCE OF ANY DETAILS AND EXPLANATION, THE ADJUSTMENTS MENTIO NED IN THE MASTER AGREEMENT FOR COMPUTATION OF TOTAL SALE CONSIDERATI ON WAS NOT TAKEN INTO CONSIDERATION AND GROSS CONSIDERATION OF RS.78,98,2 0,000/- WAS TAKEN AS BASE TO COMPUTE LONG TERM CAPITAL GAIN. THE ASSESSEE, IN TH E COURSE OF ASSESSMENT PROCEEDINGS EXPLAINED THE REASON FOR DIFFERENCE IN TWO REPORTS IN FORM 3CEA. THE CIT(A), HOWEVER, NOTICING THAT NO ADJUSTMENT IS PERMISSIBLE TO CONSIDERATION AS PER SECTION 50B OF THE ACT, REJECTED THE SUBMISS IONS OF THE ASSESSEE AND CONFIRMED THE ACTION OF ASSESSING OFFICER. 5.1 BEFORE US, THE LEARNED REPRESENTATIVE FOR THE A SSESSEE EXPLAINED THAT IN TERMS OF THE MASTER AGREEMENT, THE TOTAL CONSIDERAT ION IS TO BE DETERMINED AFTER MAKING CERTAIN ADJUSTMENTS PROVIDED THEREIN, AND AC CORDINGLY THE ASSESSEE WAS JUSTIFIED IN CLAIMING ADJUSTMENT FOR THE SAME WHILE COMPUTING THE CONSIDERATION FOR THE PURPOSE OF COMPUTING CAPITAL GAIN. THE LEAR NED REPRESENTATIVE FOR THE ASSESSEE REFERRED TO PAGE NO. 86 OF THE PAPER BOOK AND EXPLAINED THAT TOTAL CONSIDERATION, AS PER MASTER AGREEMENT DATED 31.07 .2010, IS TO BE COMPUTED AS FOLLOWS: INR 78,98,20,000/- REDUCED BY THE SHARE PURCHASE PRICE; REDUCED BY THE TOTAL DEBT; PLUS THE PURCHASER'S ETP CONTRIBUTION; PLUS , IF APPLICABLE, ANY REIMBURSEMENT OF AMOUNTS EQUAL TO THE OPTIONAL CAPITAL EXPENDITURE; AND ADJUSTED BY THE AUDITED NET WORKING CAPITAL DIFFERE NTIAL. 5 ITA.NO. 1464/MUM/2018 THE TOTAL CONSIDERATION PAYABLE BY THE COMPANY TO T HE VENDOR ON CLOSING SHALL BE COMPUTED USING THE ESTIMATED NET W ORKING CAPITAL DIFFERENTIAL AND WILL BE PAID IN ACCORDANCE WITH CL AUSES 3.7.2 AND 3.7.3 BELOW. THE TOTAL CONSIDERATION WILL BE ADJUSTED USI NG THE AUDITED NET WORKING CAPITAL DIFFERENTIAL AND AUDITED VARIANCE S ET OUT IN THE RECONCILIATION STATEMENT AND ANY ADJUSTMENTS WILL B E DEALT WITH IN ACCORDANCE WITH CLAUSE 4 BELOW. ACCORDINGLY, FIRSTLY, ASSESSEE REDUCED RS. 99,890/- , BEING SHARE PURCHASE PRICE OF THE ASSESSEE, WHILE ARRIVING AT TOTAL CONSIDERAT ION. SECONDLY, THE LEARNED REPRESENTATIVE FOR THE ASSESSEE EXPLAINED THAT TOTA L DEBT, WHICH IS TO BE REDUCED FROM THE CONSIDERATION, HAS BEEN DEFINED IN THE MAS TER AGREEMENT TO MEAN ALL LIABILITIES OF THE BUSINESS EXCLUDING THE CURRENT L IABILITIES BUT INCLUDING THOSE LIABILITIES CLASSIFIED UNDER THE HEADINGS SECURED L OANS AND UNSECURED LOANS AS PER THE CLASSIFICATION SPECIFIED UNDER PART 1 (FORM OF BALANCE SHEET) OF SCHEDULE VI TO THE COMPANIES ACT, 1956 AT CLOSING. TOTAL DEB T SHALL ALSO INCLUDE THE SALES TAX INCENTIVE LOAN WHICH THE PURCHASER HAS UNDERSTO OD AS THE GROSS SALES TAX LIABILITY. AS PER THE AUDITED FINANCIAL STATEMENTS OF THE ASSE SSEE AS ON 31.03.2011, THE SHORT TERM BORROWINGS COMPRISING OF SECURED CASH CREDITS STOOD AT RS. 22,73,45,855/-. THIS BEING IN THE NATU RE OF SECURED LOANS, ASSESSEE REDUCED THE SAME WHILE ARRIVING AT TOTAL CONSIDERAT ION FOR THE PURPOSE OF SECTION 50B OF THE ACT. THIRDLY, IN TERMS OF THE CLAUSE 7 O F THE MASTER AGREEMENT, ASSESSEE PROVIDED A BANK GUARANTEE IN FAVOUR OF THE PURCHASER FOR AN AMOUNT OF RS. 9,29,20,000/- FOR THE PURPOSE OF PAYING AND BEARING THE PURCHASER LOSSES FOR A PERIOD OF 18 MONTHS FROM CLOSING DATE. THE P URCHASER INVOKED THE BANK GUARANTEE PROVIDED BY THE ASSESSEE AND WITHDRAWN TH E AMOUNT OF RS. 9,29,20,000/-. THE COPY OF THE BANK GUARANTEE PROVI DED BY THE ASSESSEE IS 6 ITA.NO. 1464/MUM/2018 PLACED AT PAGE NO. 120-125 OF THE PAPER BOOK. FURTH ER, LETTER FROM THE BANK CONFIRMING INVOCATION OF THE BANK GUARANTEE BY THE PURCHASER IS PLACED AT PAGE NO. 127 OF THE PAPER BOOK.THE LEARNED REPRESENTATIV E FOR THE ASSESSEE EXPLAINED THAT THE PAYMENT FOR BANK GUARANTEE IS CO VERED UNDER THE HEAD ADJUSTED BY THE AUDITED NET WORKING CAPITAL DIFFERE NTIAL, AND THUS, WAS ALSO REDUCED WHILE ARRIVING AT THE TOTAL CONSIDERATION. IN THIS CONTEXT, THE LEARNED REPRESENTATIVE FOR THE ASSESSEE REFERRED TO LETTER ADDRESSED BY THE PURCHASER FOR INVOKING BANK GUARANTEE. FURTHER, ASSESSEE REDUCED MISCELLANEOUS LIABILITIES OF RS. 95,646/-. LASTLY, ASSESSEE DEDUCTED THE LOSS ON SALE OF VEHICLE OF RS. 17,70,034/-. 5.2 THE LEARNED REPRESENTATIVE FOR THE ASSESSEE FUR THER SUBMITTED THAT IN PRINCIPLE, THE ASSESSING OFFICER AGREED WITH THE FA CT THAT MASTER AGREEMENT PROVIDES FOR ADJUSTMENTS TO BE MADE FOR ARRIVING AT TOTAL CONSIDERATION. HOWEVER, HE HIMSELF DID NOT MADE ANY SUCH ADJUSTMENT TO ARRI VE AT TOTAL CONSIDERATION FOR WANT OF DETAILS AND EXPLANATION. THE ACTION OF THE ASSESSING OFFICER WAS ALSO INFLUENCED BY THE FACT THAT ASSESSEE FILED TWO REPO RTS OF THE ACCOUNTANT IN FORM 3CEA IN TERMS OF SUB-SECTION (3) OF SECTION 50B OF THE ACT, EVEN THOUGH THE REASON FOR FILING REVISED REPORT WAS EXPLAINED TO H IM IN THE COURSE OF ASSESSMENT PROCEEDINGS. ON APPEAL TO CIT(A), THE CIT(A) WITHOU T APPRECIATING THE MERITS OF THE CASE, UPHELD THE ACTION OF ASSESSING OFFICER AN D FURTHER WENT ON TO HOLD THAT NO ADJUSTMENT IS PERMISSIBLE IN ARRIVING AT TOTAL CONSIDERATION FOR THE PURPOSE OF SECTION 50B OF THE ACT.THE LEARNED REPRESENTATIVE F OR THE ASSESSEE, THUS, CONTENDED THAT THE COMPUTATION OF THE LONG TERM CAP ITAL GAIN MADE BY THE 7 ITA.NO. 1464/MUM/2018 ASSESSEE WAS AS PER THE MASTER AGREEMENT WITH THE P URCHASER, AND IT SHOULD BE ACCEPTED. 5.3 THE LEARNED DR ON THE OTHER HAND RELIED ON THE ORDER OF AUTHORITIES BELOW TO SUPPORT THE ACTION OF THE ASSESSING OFFICER IN D ENYING THE REDUCTION OF LIABILITIES AND BANK GUARANTEE AMOUNT WHILE COMPUTI NG THE LONG TERM CAPITAL GAIN. 5.4 WE HAVE HEARD THE RIVAL SUBMISSIONS. THE SHORT CONTROVERSY IN THIS CASE RELATES TO THE MANNER IN WHICH LONG TERM CAPITAL GA IN IS TO BE COMPUTED UNDER SECTION 50B OF THE ACT. MORE PRECISELY, THE AREA OF DIFFERENCE BETWEEN THE ASSESSEE AND THE REVENUE IS ON THE CALCULATION OF TOTAL CONSIDERATION FOR THE PURPOSE OF COMPUTATION OF LONG TERM CAPITAL GAIN IN TERMS OF SECTION 50B OF THE ACT. THE ASSESSING OFFICER WHILE CALCULATING THE T OTAL CONSIDERATION HAS NOT MADE ADJUSTMENTS BY WAY OF REDUCING THE TOTAL DEBTS OF THE UNDERTAKING AND AMOUNT OF BANK GUARANTEE AS STIPULATED IN THE MASTE R AGREEMENT PRIMARILY ON THE GROUND THAT THE DETAILS WITH RESPECT TO THE SAM E WERE NOT AVAILABLE WITH HIM. ON THE OTHER HAND, AS PER THE ASSESSEE, SUCH LIABIL ITIES WHICH ARE PRIMARILY TOWARDS THE BANK LOAN, AND THE AMOUNT OF BANK GUARA NTEE GIVEN IN FAVOUR OF THE PURCHASER FOR THE INDEMNIFYING LOSSES ARE ADMISSIBL E AS AN ADJUSTMENT AGAINST THE CONSIDERATION RECEIVED, FOR THE PURPOSE OF COMP UTING LONG TERM CAPITAL GAIN. 5.5 ON PERUSAL OF THE MASTER AGREEMENT DATED 31.07. 2010, IT IS CLEAR THAT THE CLAUSE NO. 3.2 OF THE AGREEMENT CLEARLY PROVIDES FO R THE MANNER OF DETERMINATION 8 ITA.NO. 1464/MUM/2018 OF THE TOTAL CONSIDERATION FOR THE SALE OF UNDERTAK ING, WHICH FACT IS NOT DISPUTED BY THE ASSESSING OFFICER. THE SAID CLAUSE PROVIDES FOR CERTAIN ADJUSTMENT TO BE MADE TO THE CONSIDERATION OF RS. 78,98,20,000/- STA TED IN THE AGREEMENT TO ARRIVE AT THE AMOUNT OF TOTAL CONSIDERATION. ADMI TTEDLY, THE ASSESSING OFFICER HAS NOT MADE THOSE ADJUSTMENTS AND HAS DIRECTLYTAKE N CONSIDERATION AT RS. 78,98,20,000/-.AS CAN BE SEEN FROM THE ASSESSMENT O RDER, EVEN ASSESSING OFFICER STATES THAT CERTAIN ADJUSTMENTS WERE IN FAC T REQUIRED TO BE MADE AS PER THE AGREEMENT, HOWEVER IN ABSENCE OF DETAILS AND EX PLANATION WITH RESPECT TO THOSE ADJUSTMENTS HE HAS NOT CARRIED OUT THE SAME. THE CIT(A) HAS ALSO CONFIRMED THE ACTION OF THE ASSESSING OFFICER AND F URTHER HELD THAT NO ADJUSTMENT TO THE AMOUNT OF CONSIDERATION IS PERMISSIBLE IN TE RMS OF SECTION 50B OF THE ACT. BEFORE US, THE LEARNED REPRESENTATIVE FOR THE ASSES SEE EXPLAINED THE ADJUSTMENTS CARRIED OUT BY THE ASSESSEE WHILE ARRIV ING AT THE AMOUNT OF TOTAL CONSIDERATION ALONG WITH THE SUPPORTING DOCUMENTS, WHICH ARE PLACED IN THE PAPER BOOK. THUS, LIMITED ISSUE BEFORE US IS WHETHE R ASSESSEE IS JUSTIFIED IN CARRYING OUT THE ADJUSTMENTS AS PER THE MASTER AGRE EMENT WHILE ARRIVING AT THE AMOUNT OF TOTAL CONSIDERATION FROM SALE OF UNDERTAK ING. 5.6 IN OUR CONSIDERED VIEW, WHEN THE AGREEMENT ITSE LF PROVIDES FOR THE MANNER OF COMPUTING TOTAL CONSIDERATION FOR TRANS FER OF UNDERTAKING, THE SAME SHOULD GOVERN THE MANNER OF ADOPTING TOTAL CONSIDE RATION AND NO OTHER METHOD SHOULD BE SUBSTITUTED FOR THE SAME. THE CONSIDERATI ON IS THE AMOUNT THAT IS DETERMINED TO BE PAYABLE BY THE BUYER TO THE SELLER AND IS AGREED UPON BY THE SELLER, AS SUCH. THE MANNER OF DETERMINATION OF THE CONSIDERATION IS MUTUALLY DECIDED BY THE BUYER AND SELLER AND STATED IN THE A GREEMENT AND ONCE IT IS 9 ITA.NO. 1464/MUM/2018 ADOPTED BY THE ASSESSEE, THE SAME CANNOT BE FAULTED BY THE INCOME TAX AUTHORITIES. IN FACT, IT IS NOT THE CASE OF THE ASS ESSING OFFICER THAT ASSESSEE HAS MADE ADJUSTMENTS TO TOTAL CONSIDERATION OVER AND ABOVE WHAT IS PROVIDED FOR IN THE AGREEMENT. IN ANY CASE, THE OBSERVATION OF THE CIT(A) THAT NO ADJUSTMENT TO TOTAL CONSIDERATION IS PERMISSIBLE IN TERMS OF SE CTION 50B OF THE ACT IS NOT RELEVANT IN DECIDING THE PRESENT CONTROVERSY. BEFO RE US, THE LD. REPRESENTATIVE FOR THE ASSESSEE FURNISHED DOCUMENTS IN THE FORM OF MASTER AGREEMENT DATED 31.07.2010, FINANCIAL STATEMENTS OF THE ASSESSEE FO R FINANCIAL YEAR 2010-11 AND FINANCIAL YEAR 2011-12, BANK GUARANTEE, LETTER FOR INVOCATION OF BANK GUARANTEE, ETC. TO SUPPORT THE CLAIM OF ADJUSTMENTS STIPULATED IN THE MASTER AGREEMENT. WE, THUS, HOLD THAT ASSESSEE HAS CORRECTLY REDUCED THE SECURED LIABILITIES AND BANK GUARANTEE, WHICH WAS INVOKED BY THE PURCHASER, WHIL E ARRIVING AT TOTAL CONSIDERATION FOR THE PURPOSE OF COMPUTATION OF CAP ITAL GAINS IN TERMS OF SECTION 50B OF THE ACT. THUS, WE SET-ASIDE THE ORDERS OF T HE LOWER AUTHORITIES IN THIS ASPECT. THUS, ASSESSEE SUCCEEDS ON THIS GROUND, AS ABOVE. 6. THE SECOND GROUND OF APPEAL RELATES TO DISALLOWA NCE OF REPAIRS AND MAINTENANCE EXPENSES OF RS. 94,11,574/- CLAIMED BY THE ASSESSEE. THE ASSESSING OFFICER NOTICED THAT DURING THE YEAR UNDE R CONSIDERATION ASSESSEE HAS NOT CARRIED OUT ANY BUSINESS ACTIVITY. THE ASSESSIN G OFFICER FURTHER NOTICED THAT IN THE IMMEDIATELY PRECEDING YEAR, WHEN THE COMPANY WA S FULLY OPERATIONAL, THE AMOUNT DEBITED UNDER THE HEAD REPAIRS AND MAINTENA NCE WAS ONLY RS. 9.19 LACS. FURTHER, AS PER THE DETAILS OF REPAIRS AND MA INTENANCE EXPENSES SUBMITTED BY THE ASSESSEE, THE ASSESSING OFFICER NOTED THAT T HESE EXPENSES ARE ONE TIME EXPENDITURES, THE BENEFIT OF WHICH IS NOT RESTRICTE D TO ONE YEAR. THE ASSESSING 10 ITA.NO. 1464/MUM/2018 OFFICER, THUS, TREATED THESE EXPENSES TO BE CAPITAL IN NATURE AND DISALLOWED THE SAME UNDER SECTION 37(1) OF THE ACT. IT WAS EXPLAIN ED THAT DURING THE YEAR ASSESSEE WAS ENGAGED IN THE WAREHOUSING BUSINESS; THE GODOWN WAS IN A DILAPIDATED CONDITION, THE SAME WAS GOT REPAIRED AN D WAS BROUGHT TO A CONDITION ACCEPTABLE TO THE LESSEE I.E. LAFFANS FINE CHEMICAL S PVT. LTD. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAS DECLARED INCO ME FROM WAREHOUSING OF RS. 45,50,000/-, WHICH IS OFFERED AS BUSINESS INCOME AN D THUS, CORRESPONDING BUSINESS EXPENSES SHOULD BE ALLOWED. SO IT CANNOT B E SAID THAT ASSESSE HAS NOT CARRIED OUT ANY BUSINESS ACTIVITIES. BEFORE CIT(A), ASSESSEE REITERATED THE SUBMISSION MADE BEFORE THE ASSESSING OFFICER, HOWEV ER SAME DID NOT FIND ANY FAVOUR WITH THE ASSESSEE. 6.1 BEFORE US, THE LEARNED REPRESENTATIVE FOR THE A SSESSEE POINTED OUT THAT THE ASSESSEE HAS ENTERED INTO LOGISTIC AGREEMENT WI TH THE RESULTING COMPANY, M/S. LAFFANS FINE CHEMICALS PVT. LTD. PURSUANT TO T HE SAID AGREEMENT, THE ASSESSEE IS TO PROVIDE WAREHOUSING AND TRANSPORTATI ON SERVICES TO M/S. LAFFANS FINE CHEMICALS PVT. LTD. TO FULFIL ITS COMMITMENTS UNDER THE SAID AGREEMENT, THE ASSESSEE INCURRED HUGE REPAIRS AND MAINTENANCE EXPE NSES WHICH SHOULD BE ALLOWED AS REVENUE EXPENSES. IT WAS ALSO POINTED OU T THAT ASSESSEE HAS ALSO OFFERED INCOME FROM PROVIDING LOGISTIC SERVICES TO THE TUNE OF RS. 86,20,998/-. 6.2 THE LEARNED DR ON THE OTHER HAND RELIED ON THE FINDINGS OF THE LOWER AUTHORITIES TO STATE THAT EXPENDITURE INCURRED BY T HE ASSESSEE ARE CAPITAL IN NATURE. 11 ITA.NO. 1464/MUM/2018 6.3 WE HAVE HEARD THE RIVAL CONTENTIONS. THE RELEVA NT SECTION WHICH REQUIRES CONSIDERATION HERE IS SECTION 37(1) OF THE ACT. AS PER SECTION 37(1) OF THE ACT, DEDUCTION FOR EXPENDITURE OF CAPITAL NATURE IS NOT ALLOWED. THE CAPITAL EXPENDITURE ARE THE EXPENDITURES, WHICH PROVIDE BEN EFIT OF ENDURING NATURE AND WHICH IS NOT CONFINED TO ONE YEAR.THE DETAILS OF TH E WORK FOR WHICH REPAIRS AND MAINTENANCE EXPENSES WEREINCURRED BY THE ASSESSEE I S LISTED BY THE ASSESSING OFFICER AT PARA 5.2 OF THE ASSESSMENT ORDER. AS CAN BEEN FROM THE ASSESSMENT ORDER, PAYMENTS WERE MADE FOR CARRYING OUT FOLLOWIN G WORK: I) J.C.B. EXCAVATION OF FOUNDATION, PROVIDING AND P CCP FPR MIX 1.3.6 FOR FOUNDATION INCLUDING COMPACTION CURING ETC., PCC BE LOW PLINTH BEAM, ETC. II) PROVIDING DRAY TRAP RUBBLE SOLTING IN POSITION INCLUDING RAMMING. III) PROVIDING AND DRESSING AND CLYIDING STONE WALL , PROVIDING BANK FILLING, FLOORING PCC ETC. IV) PROFESSIONAL FEES FOR PROJECT CARRIED OUT AT L PL, GIDC,PANOLI., ETC. THE MAIN ARGUMENT OF THE ASSESSING OFFICER WAS THAT ASSESSEE HAS NOT CARRIED OUT ANY BUSINESS ACTIVITY DURING THE YEAR UNDER CON SIDERATION. FURTHER, THE ASSESSING OFFICER WAS DRIVEN BY THE FACT THAT REPAI R EXPENSES OF THE CURRENT YEAR WERE SUBSTANTIAL AS COMPARED TO PREVIOUS YEAR. ON P ERUSAL OF THE LOGISTIC AGREEMENT ENTERED INTO BY THE ASSESSEE WITH M/S. LA FFANS FINE CHEMICALS PVT. LTD AND PROFIT AND LOSS ACCOUNT OF THE ASSESSEE, IT CAN BE SEEN THAT ASSESSEE HAS IN FACT CARRIED OUT BUSINESS ACTIVITIES AND EAR NED INCOME FROM WAREHOUSING SERVICES. PURSUANT TO THE LOGISTIC AGREEMENT ENTERE D INTO BY THE ASSESSEE,IT WAS REQUIRED TO PROVIDE WAREHOUSING SERVICES TO M/S. LA FFANS FINE CHEMICALS PVT. LTD. THE ASSESSEE WAS REQUIRED TO CARRY OUT VARIOUS REPAIRS WORK AT ITS GODOWN, WHICH WAS IN DILAPIDATED CONDITIONS TO MAKE IT ACCE PTABLE TO THE LESSEE. 12 ITA.NO. 1464/MUM/2018 6.4 IT IS PERTINENT HERE TO REFER TO THE DECISION O F THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT V. CHOWGULE& CO. PVT. LTD. (1995) 214 ITR 523 (BOM) WHEREIN COURT HAS CONSIDERED THE EXPRESSION CURRE NT PRECEDING REPAIRS AS UNDER : (I) THE AMOUNT SHOULD BE PAID ON ACCOUNT OF REPAIR S. (II) CURRENT REPAIRS MEANS REPAIRS UNDERTAKEN IN THE NORMAL COURSE OF USER FOR THE PURPOSE OF PRESERVATION MAINTENANCE OR PROPER UTILIZATION OR FOR RESTORING IT TO ITS ORIGINAL CONDITION. (III) CURRENT REPAIRS DO NOT MEAN ONLY PETTY REPA IRS OR REPAIRS NECESSITATED BY WEAR AND TEAR DURING THE PARTICULAR YEAR. (IV) SUCH REPAIRS SHOULD NOT BRING INTO EXISTENCE N OR OBTAIN A NEW OR DIFFERENT ADVANTAGE. (V) THE QUANTUM OF EXPENDITURE NOR THE FACT THAT IN THE PROCESS OF REPAIRS, THERE WAS SUBSTANTIAL REPLACEMENT OF THE P ARTS OF MACHINE OR SHIP IS DECISIVE OF THE TRUE NATURE OF THE EXPENDIT URE. (VI) THE ORIGINAL COST OF THE ASSET IS NOT AT ALL R ELEVANT OF OR ASCERTAINMENT OF THE TRUE NATURE OF THE EXPENDITURE ON REPAIRS. (VII) THE REPLACEMENT COST OF THE ASSET MAY HOWEVER , AT TIMES MAY BE USED AS INDICATOR OF THE TRUE CHARACTER OF THE EXPE NDITURE. IF THE EXPENDITURE ON REPAIRS ADDED TO THE WRITTEN DOWN VA LUE OR DISPOSAL VALUE EXCEEDS THE REPLACEMENT COST OF THE ASSET, A PRESUMPTION IS POSSIBLE THAT IT IS NOT A REVENUE EXPENDITURE BUT E XPENDITURE OF CAPITAL NATURE. SUCH PRESUMPTION, OF COURSE, WOULD BE REBUT TABLE. (VIII) THE EXPRESSION CURRENT PRECEDING REPAIRS APPEARS TO HAVE BEEN USED BY THE LEGISLATURE WITH A VIEW TO RESTRICTING THE ALLOWANCE TO EXPENDITURE INCURRED FOR PRESERVATION AND MAINTENAN CE THEREOF IN ITS CURRENT STATE IN CONTRADICTION TO THAT INCURRED ON ANY IMPROVEMENT OR AN ADDITION THERETO. 13 ITA.NO. 1464/MUM/2018 ADMITTEDLY, IT IS NOT THE CASE OF THE ASSESSING OFF ICER THAT THE IMPUGNED EXPENDITURE HAS RESULTED INTO CREATION OF A NEW ASS ET. THE QUANTUM OF EXPENDITURE CANNOT BE THE GUIDING FACTOR TO DECIDE WHETHER THE EXPENDITURE IS IN THE NATURE OF CAPITAL EXPENDITURE OR REVENUE EXPEND ITURE. THE EXPENDITURE INCURRED BY THE ASSESSEE IS TOWARDS MAINTENANCE OF THE EXISTING GODOWN AND WAS THUS IN THE NATURE OF CURRENT REPAIR. FURTHER M ORE, THE BENEFIT TO THE ASSESSEE IS IN THE REVENUE FIELD IN AS MUCH AS ASSE SSEE IS EARNING INCOME WHICH IS BEING ASSESSED AS BUSINESS INCOME. WE, THUS, SE T-ASIDE THE ORDER OF THE CIT(A) AND ALLOW THE ASSESSEES CLAIM OF REPAIRS AN D MAINTENANCE EXPENSES. IN RESULT, THIS GROUND OF THE APPEAL IS ALLOWED. 7. THE THIRD GROUND RELATES TO THE DISALLOWANCE OF DEPRECIATION OF RS. 4,06,641/- ON MOTOR CAR PURCHASED DURING THE YEAR I N THE NAME OF DIRECTOR AND EXPENSES INCURRED BY THE ASSESSEE ON MOTOR CAR. THE ASSESSING OFFICER POINTED OUT THAT DURING THE YEAR UNDER CONSIDERATION ASSESS EE PURCHASED CAR IN THE NAME OF ITS DIRECTOR,WHICH IS REFLECTED AS ADDITION TO FIXED ASSETS OF THE ASSESSEE, AND CLAIMED DEPRECATION ON THE SAME IN TH E HANDS OF THE COMPANY. FOR CLAIMING DEPRECIATION U/S 32 OF THE ACT, ASSESS EE SHOULD BE THE OWNER OF THE ASSETS.FURTHER, ASSESSEE HAS NOT PROVIDED THE RC BO OK, DATE OF PUT TO USE OF THE ASSET. SINCE, ASSESSEE IS NOT THE OWNER OF ASSET, T HE ASSESSING OFFICER DISALLOWED ENTIRE DEPRECIATION OF RS.4,06,641/-. TH E ASSESSING OFFICER FURTHER DISALLOWED 50% OF THE MOTOR CAR EXPENSES OF RS. 4,1 1,910/- CLAIMED BY THE ASSESSEE, HOLDING THE SAME TO BE RELATED TO THE MOT OR CAR PURCHASED DURING THE YEAR IN THE NAME OF DIRECTOR AND THUS NOT WHOLLY AN D EXCLUSIVELY INCURRED FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE COMPANY. THE AS SESSEE EXPLAINED THAT 14 ITA.NO. 1464/MUM/2018 THOUGH THE CAR WAS PURCHASED IN THE NAME OF THE DIR ECTOR, PAYMENT FOR THE SAME WAS MADE BY THE ASSESSEE AND THE CAR WAS USED FOR T HE PURPOSE OF BUSINESS.THE ASSESSEE ALSO RELIED ON THE DECISION O F HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. DILIP SINGH SARDAR SIN GH BAGGA [1993] 201 ITR 995 (BOMBAY), DECISION OF COORDINATE BENCH IN THE CASE OF KISAN RATILAL CHOKSEY SHARES & SECURITIES P. LTD. VS. ACIT [2015] 41 ITR( 1) 114 (MUMBAI- TRIB) AND VARIOUS OTHER DECISIONS. ON APPEAL TO CIT(A), CIT (A) AGREED WITH THE CONTENTION OF THE ASSESSEE THAT THE DEPRECIATION CANNOT BE DIS ALLOWED MERELY ON THE GROUND THAT THE ASSET IS IN THE NAME OF THE DIRECTOR. HOWE VER, CIT(A) STATED THAT THE ASSESSEE HAS NOT SUBMITTED THE DETAILS SUCH AS RC B OOK, DATE ON WHICH CAR WAS PUT TO USE AND HAS NOT ESTABLISHED THAT IT WAS USED FOR THE PURPOSE OF ASSESSEES BUSINESS. THE CIT(A), THUS, DISALLOWED THE CLAIM OF DEPRECIATION. 7.1 BEFORE US, THE LEARNED REPRESENTATIVE FOR THE A SSESSEE REITERATED THE SUBMISSION MADE BEFORE CIT(A) AND ASSESSING OFFICER . 7.2 WE HAVE HEARD THE RIVAL SUBMISSIONS. IT IS A WE LL SETTLED PROPOSITION THAT MERELY BECAUSE THE ASSET IS PURCHASED IN THE NAME O F DIRECTOR, THE COMPANY CANNOT BE DENIED DEPRECIATION ON THE SAME, IF THE A SSET IS OTHERWISE FOUND TO BE USED FOR THE PURPOSE OF BUSINESS. THE DECISION RELI ED UPON BY THE ASSESSEE IN THE CASE OF CIT VS. DILIP SINGH SARDARSINGH BAGGA [ 1993] 201 ITR 995 (BOMBAY) CLEARLY SUPPORTS THE STAND OF THE ASSESSEE. WE, THU S, SET ASIDE THE ORDER OF CIT(A) AND DIRECT THE ASSESSING OFFICER TO ALLOW DE PRECIATION ON THE MOTOR VEHICLE AND RELATED EXPENSES ON MOTOR VEHICLE. ACCO RDINGLY, THIS GROUND OF APPEAL IS ALSO TREATED AS ALLOWED. 15 ITA.NO. 1464/MUM/2018 8. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTY A LLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 29 TH MAY, 2019. SD/- SD/- (RAVISH SOOD) JUDICIAL MEMBER (G.S. PANNU) VICE PRESIDENT MUMBAI, DATE : 29 TH MAY, 2019 *SSL* 1. 2. 3. 4. 5. 6. 7. COPY TO : 8. 1) THE APPELLANT 2) THE RESPONDENT 3) THE CIT(A) CONCERNED 4) THE CIT CONCERNED 5) THE D.R, A BENCH, MUMBAI 6) GUARD FILE BY ORDER DY./ASSTT. REGISTRAR I.T.A.T, MUMBAI 9.