ESKAY DYESTUFF & ORGANIC CHEMICALS P. LTD, MUMBAI V. ASST CIT CIR 2(1)(OSD), MUMBAI

ITA 1625/MUM/2013

• Counselvise Citation: [2015] 120 COUNSELVISE.COM (IT) 9449 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 10 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-01-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: E
• Next Hearing Date: 16-12-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 28-02-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: NEIL PHILIP
• Assessee Lawyers: PANKAJ TOPRANI
• Keywords: Capital asset; Revenue expenditure; Capital expenditure
• Section: 143(3)

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL E , BENCH MUMBAI BEFORE SHRI JOGINDER SINGH, JM & SHRI R.C.SHARMA, AM ITA NO. 1625 / MUM /20 1 3 ( ASSESSMENT YEAR : 2009 - 2010 ) ESKAY DYESTUFF & ORGANIC CHEMICALS PVT. LTD., 22D, S.A. BREVLI ROAD, FORT, MUMBAI - 400 001 VS. ACIT, CIR.2(1)(OSD), MUMBAI PAN/GIR NO. : A A AC E 1232 H ( APPELLANT ) .. ( RESPONDENT ) /ASSESSEE BY : SHRI PANKAJ TOPRANI & KRUPA TOPRANI /REVENUE BY : SHRI NEIL PHILIP DATE OF HEARING : 1 7 TH DECEMBER , 201 4 DATE OF PRONOUNCEMENT 19/01/2015 O R D E R PER R.C.SHARMA (A.M) : TH IS IS AN APPEAL FILED BY ASSESSEE AGAINST THE ORDER OF CIT(A) , DATED 20 - 12 - 2012 FOR THE ASSESSMENT YEAR 2009 - 2010 , IN THE MATTER OF ORDER PASSED UNDER SECTION 143(3) OF THE I.T. ACT. 2 . THE ASSESSEE IN ITS APPEAL HAS TAKEN THE FOLLOWING GROUNDS : - 1. THE HONOURABLE CIT HAS ERRED IN CONCLUDING IN THE IMPUGNED ORDER THAT THE AMALGAMATION WAS COMPLETED W.E.F. 1 - 4 - 2005 AND THEREFORE WHATEVER EXPENDITURE, WAS TO BE INCURRED IN PARTICULAR DURING THE F.Y. 2004 - 05 AND 2005 - 06. HIS HONOUR HAS FAILED TO APPRECIATE THAT ALTHOUGH AMALGAMATION WAS W.E.F. 1 - 4 - 2005 THE HIGH COURT ORDER WAS DATED 20 - 4 - 2006 AND THE PROCESS AND EXPENSES HAD TO BE INCURRED AFTER THE HIGH COURT OR DER. 2. THE HONOURABLE CIT HAD ERRED IN CONCLUDING THAT THE TITLE TO THE PROPERTY IS DEFECTIVE. HIS HONOUR HAS FAILED TO APPRECIATE THAT ITA NO. 1625 /1 3 2 ON AMALGAMATION ALL ASSETS AND LIABILITIES VEST AND GET TRANSFERRED TO THE ACQUIRING COMPANY. 3. THE HONOURABLE CI T HAS ERRED IN CONCLUDING THAT THE STAMP DUTY ON PROPERTY HAS NOTHING TO DO WITH THE AMALGAMATION PROCEDURE OR TO GIVE EFFECT TO AMALGAMATION. THE FACT OF THE CASE IS VERY CLEAR THAT THE STAMP DUTY OF RS.11,72,6501 - IS PAID AS A RESULT OF AMALGAMATION. 4 . THE HONOURABLE CIT HAS ERRED IN NOT ALLOWING STAMP DUTY OF RS. 56,800/ - ON BANK DOCUMENTATION. HE HAS FAILED TO APPRECIATE THAT SUCH EXPENSES CAN ONLY GO TO REVENUE ACCOUNT. THE APPELLANT PLEADS BEFORE THE HONOURABLE MEMBERS OF THE IT AT THAT THE STAM P DUTY ON PROPERTY AMOUNTING TO RS. 11,72,6501 - PAID ON AMALGAMATION AND RS. 56,800/ - PAID FOR BANK DOCUMENTATION BE ALLOWED ON REVENUE ACCOUNT. THE ASSESSEE HAS ALSO FILED ADDITIONAL GROUND VIDE ITS LETTER DATED 6 - 12 - 2014, AS UNDER : - 1. THE LOWER AUTHOR ITIES ERRED IN LAW AND ON FACTS IN DISALLOWING A SUM OF RS.11,72,650/ - BEING STAMP DUTY PAYABLE ON LEASE DEED AS PER THE DIRECTIONS OF MIDC ON AMALGAMATION OF SURYA KIRAN ORGANIC (I) PVT. LTD. WITH THE ASSESSEE COMPANY. 2. WITHOUT PREJUDICE TO THE ABOVE GR OUND OF APPEAL, THE LOWER AUTHORITIES ERRED IN NOT ALLOWING PROPORTIONATE DEDUCTION OF 1/5 TH AMOUNT AS PER SECTION 35DD OF THE ACT IN RESPECT OF STAMP DUTY PAID OF RS.11,72,650/ - WHICH THE ASSESSEE HAD TO PAY CONSEQUENT ON AMALGAMATION OF SURYA KIRYAN ORGA NIC (I) PVT. LTD. WITH THE ASSESSEE COMPANY. 3 . WE HAVE CONSIDERED RIVAL CONTENTIONS AND PERUSED THE RECORD. T H E FACTS IN BRIEF ARE THAT THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURE OF OPTICAL BRIGHTENER, WHICH IS A CHEMICAL USED IN THE TEXTILE INDUSTRY. AS PER THE ORDER OF THE HONBLE HIGH COURT, M/S SURYA KIRAN ORGANIC INDIA PVT. LTD. MERGED/AMALGAMATED WITH THE ASSESSEE COMPANY AND THE AMALGAMATION BECAME EFFECTIVE FROM 1.4 - 2005. AFTER AMALGAMATION, ALL THE ASSETS AND LIABILITIES AS P ER THE DIRECTIONS OF THE HONBLE HIGH COURT, STOOD TRANSFERRED TO THE ASSESSEE COMPANY. IT WAS ITA NO. 1625 /1 3 3 NOTED BY THE AO THAT THE AMALGAMATING COMPANY M/S SURYA KIRAN ORGANIC INDIA PVT. LTD. WAS OWNING AN INDUSTRIAL PLOT ALLOTTED BY MIDC UNDER A LEASE DEED, WHICH AL SO CLAIMED TO HAVE BEEN TRANSFERRED TO THE ASSESSEE COMPANY W.E.F 1 - 4 - 2005, WHERE AS THE ASSESSEE GOT IT TRANSFERRED IN ITS OWN NAME IN THE PERIOD RELEVANT TO A.Y. UNDER CONSIDERATION BY MAKING PAYMENT OF STAMP DUTY OF RS. 12,29,450/ - . THE ASSESSEE CLAIMED IT AS REVENUE EXPENDITURE CLAIMING THAT THE EXPENDITURE RELATES TO THE AMALGAMATION. HOWEVER, THE AO DID NOT CONVINCE WITH THE SUBMISSION OF THE ASSESSEE AND DISALLOWED THE SAID EXPENSES OF RS. 12,29,450/ - ON THE GROUND THAT THE EXPENSES ARE IN THE NATURE O F CAPITAL EXPENDITURE AS STAMP DUTY EXPENSES HAVE BEEN INCURRED TO ACQUIRE CAPITAL ASSETS. 4. BY THE IMPUGNED ORDER, THE CIT(A) DISMISSED THE APPEAL OF THE ASSESSEE AFTER HAVING THE FOLLOWING OBSERVATIONS : - 5. I HAVE CONSIDERED THE FACTS OF THE CASE AND SUBMISSIONS OF THE ASSESSEE. THE AMALGAMATION HAD COMPLETED W.E.F. 1 / 4/05 AND, THEREFORE, WHATEVER EXPENDITURE WAS TO BE INCURRED FOR AMALGAMATION HAD ALREADY BEEN INCURRED IN EARLIER YEARS EARLIER TO THE YEAR UNDER CONSIDERATION AND IN PARTICULAR IN F.Y. 04 - 05 OR 05 - 06. EVEN THE PROPERTY STOOD TRANSFERRED AND POSSESSED BY THE ASSESSEE AFTER THE MERGER. BUT THE TITLE REGARDING THE PROPERTY WAS NOT WITH THE ASSESSEE WITHOUT REGISTRATION AND, THEREFORE, THE TITLE WAS DEFECTIVE. HENCE, ASSESSEE GOT IT TRANSFER RED BY WAY OF REGISTERED DEED IN ITS NAME, ON WHICH THE STAMP DUTY HAS TO BE PAID. THE STAMP DUTY IS CLEARLY PAID TO MAKE THE TITLE PERFECT REGARDING THE PROPERTY AND IT HAS NOTHING TO DO WITH THE AMALGAMATION PROCEDURE OR TO GIVE EFFECT TO THE AMALGAMATIO N ORDER. THEREFORE, THE STAMP DUTY PAID NEEDS TO BE ADDED TO THE COST OF THE PROPERTY ONLY. THE STAMP DUTY PAYMENT IS NEITHER RELATED TO THE CONDUCT OF THE BUSINESS OF THE ASSESSEE, NOR FOR GIVING EFFECT TO THE MERGER ORDER OF HON'BLE HIGH COURT. IT DOES N OT ADD TO THE REVENUE EARNING CAPACITY OF THE ASSESSEE ALSO AND, THEREFORE, IT HAS TO BE TREATED AS CAPITAL EXPENDITURE ONLY, THEREFORE, THE ACTION OF THE A.O. IS CONFIRMED AND THE GROUNDS OF APPEAL ARE REJECTED. ITA NO. 1625 /1 3 4 5.1 THE CASE LAWS RELIED BY THE ASSESSEE RELATE TO THE REVENUE EXPENSES FOR GIVING EFFECT TO THE ORDER OF AMALGAMATION/MERGER, WHEREAS IN THE CASE OF THE ASSESSEE THE AMALGAMATION HAD ALREADY COMPLETED W.E.F. 1/4/05 AND EVEN THE PLOT FOR WHICH S TAMP DUTY HAS BEEN PAID WAS IN THE POSSESSION OF THE ASSESSEE. IT IS ONLY TO BETTER ITS TITLE ON THE PLOT THAT ASSESSEE HAS GOT IT REGISTERED IN ITS NAME AND, THEREFORE, THE EXPENDITURE IS FOR MAKING ITS TITLE BETTER AND NOT FOR EFFECTING AMALGAMATION OF THE COMPANIES, THEREFORE, THE STAMP - DUTY PAID BY THE ASSESSEE HAS TO BE CAPITALIZED WITH THE COST OF THE PLOT OF LAND. IN RESULT, THE GROUNDS OF APPEAL ARE REJECTED. 4. WE HAVE CONSIDERED RIVAL CONTENTIONS, CAREFULLY GONE THROUGH THE O RDERS OF THE AUTHORITIES BELOW AND FOUND FROM THE RECORD THAT THE LOWER AUTHORITIES WERE JUSTIFIED IN DISALLOWING THE EXPENDITURE INCURRED ON STAMP DUTY. AS PER OUR CONSIDERED VIEW, SINCE THE EXPENDITURE WAS INCURRED ON AMALGAMATION, THE ASSESSEE IS ENTITLED FOR PROPORTIONATE DEDUCTION OF 1/4 TH AMOUNT AS PER SECTION 35DD OF TH E ACT IN RESPECT OF STAMP DUTY PAID. WE DIRECT ACCORDINGLY. 5 . IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED IN PART FOR STATISTICAL PURPOSES . ORDER PRONOUNCED IN THE OPEN COURT ON THIS 19/01 / 201 5 . 19/01 /2015 SD/ - SD/ - ( ) ( JOGINDER SINGH ) ( ) ( R.C.SHARMA ) / JUDICIAL MEMBER / ACCOUNTANT MEMBE R MUMBAI ; DATED 19 /01 /201 5 /PKM , PS COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. / THE CIT(A), MUMBAI. 4. / CIT 5. / DR, ITAT, MUMBAI ITA NO. 1625 /1 3 5 / BY ORDER, ( ASSTT. REGISTRAR) / ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY//