Asst. Comm. of Income-tax, Aurangabad V. East West Seeds India Pvt. L:td., Aurangabad

ITA 1655/PUN/2011

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 2031 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 1 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-02-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2006-2007
• Appeal Filed On: 26-12-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ANN KAPTHUAMA
• Keywords: Revenue expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE BEFORE SHRI R.S.PADVEKAR, JUDICIAL MEMBER AND SHRI R.K.PANDA, ACCOUNTANT MEMBER. ITA.NO.1655/PN/2011 (ASSTT. YEAR : 2006-07) ACIT, CIRCLE-1, AURANGABAD. .. APPELLANT VS. EAST WEST SEEDS INDIA PVT. LTD., GUT NO.66, VILLAGE NARAYANPUR (BK.) GANGAPUR TQ. AURANGABAD. .. RESPONDENT PAN: AABCE1237F ASSESSEE BY : SHRI S.N.PURANIK DEPARTMENT BY : MS.ANN KAPTHUAMA DATE OF HEARING : 20.02.2013 DATE OF PRONOUNCEMENT : 22.02.2013 ORDER PER R.S.PADVEKAR, JM : THIS APPEAL IS FILED BY THE REVENUE CHALLENGING TH E IMPUGNED ORDER OF THE LD. CIT(A), AURANGABAD, DATED 18.10.20 11 FOR THE A.Y. 2006-07. THE SHORT CONTROVERSY IS IN RESPECT OF TH E DISALLOWANCE OF RS.15,52,467/-BY THE ASSESSING OFFICER TREATING THE SAME AS ON THE CAPITAL ACCOUNT NOT ON THE REVENUE ACCOUNT. 2. THE FACTS WHICH REVEALED FROM THE RECORD ARE AS UNDER. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURIN G, PROCESSING AND MARKETING OF VEGETABLE AND FLOWER SEEDS IN INDI A. THE ASSESSEE IS HAVING HEAD OFFICE AT AURANGABAD AND BRANCHES AT VARIOUS PLACES. THE ASSESSEE COMPANY IMPORTS SEEDS IN INDI A FOR FURTHER PROCESSING AND MARKETING IT. FOR MARKETING THE SEE DS IN INDIA, THE ASSESSEE COMPANY HAS TO GROW SEEDS FIRST ON AGRICUL TURAL LANDS TAKEN ON LEASE THROUGHOUT INDIA, WHICH IN TURN SHOW CASES THE FINAL 2 PRODUCT TO FARMERS OR GROWERS. THE ASSESSEE HAS TO CARRY OUT THE MARKETING AND TRIAL OF THE SEEDS ON WHICH ASSESSEE HAS TO INCUR EXPENSES OF CULTIVATION OF SEEDS, PESTICIDES, FERTI LIZERS, INDIRECT WAGES, ETC. THE ASSESSEE BOOKED THE SAID EXPENSES ON DAILY BASIS ON THE REVENUE ACCOUNT. IT WAS CLAIMED BY THE ASSE SSEE THAT IT HAS INCURRED REVENUE RESEARCH AND TRIAL EXPENSES LIKE P RODUCT EXPENSES, TRIAL EXPENSES, QUALITY CONTROL EXPENSES, ETC. THE LEASE RENTALS OF THE CONTRACTED FARM, INDIRECT WAGES, FARM EXPENSES, SALARIES ETC., ARE GROUPED UNDER THE HEAD REVENUE RESEARCH AND TR IAL EXPENSES TO THE EXTENT OF RS.15,52,467/-. THE ASSESSEE ALSO CONTENDED THAT THERE IS HAVING VIDE DEALERS NETWORK IN INDIA, ACR OSS ALL THE STATES TO MAINTAIN COMPETITIVE AND ENHANCED SEED PRODUCT R ANGE AND TRIAL AND DEMONSTRATION DRIVES ARE CARRIED OUT THROUGH TH OSE NETWORK DEALERS. THE ASSESSING OFFICER WAS NOT IMPRESSED W ITH THE EXPLANATION OF THE ASSESSEE. AS OBSERVED BY THE AS SESSING OFFICER, THE NATURE OF BUSINESS OF THE ASSESSEE IS PROCESSIN G AND MARKETING OF VEGETABLE SEEDS AND IT IS NEITHER DEVELOPING NOR PRODUCING ANY KIND OF SEED. THE ASSESSING OFFICER ALSO NOTED THA T THE ASSESSEE HAS NOT FURNISHED ANY EVIDENCE THAT COMPANY IS CARR YING OUT ANY RESEARCH ACTIVITY. THE ASSESSING OFFICER, THEREFOR E, DISALLOWED RS.15,52,467/- WHICH WAS CLAIMED UNDER THE HEAD RE SEARCH AND TRIAL EXPENSES AND MADE ADDITION TO THE TOTAL INCO ME OF THE ASSESSEE. 3. THE ASSESSEE CHALLENGED THE SAID DISALLOWANCE BE FORE THE LD. CIT(A) AND LD. CIT(A) DELETED THE ADDITION. THE OP ERATIVE PART OF THE FINDING OF THE LD. CIT(A) ARE AS UNDER: 5.4. I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE AND RIVAL CONTENTIONS OF THE A.O. AND THE APPELLANT. T HE A.O. HAS DISALLOWED THE REVENUE RESEARCH AND TRIAL EXPENDITU RE AS NOT ALLOWABLE U/S.37(1) OF THE I.T. ACT BEING CAPITAL I N NATURE AS BY INCURRING THE SAID EXPENDITURE THE APPELLANT HAS AC QUIRED BENEFIT OF ENDURING NATURE. THE A.O. HAS STATED IN THE REMAND REPORT THAT THE NATURE OF EXPENDITURE INCURRED IS S UCH WHICH IS NOT OF RECURRING NATURE AND ONCE INCURRED, THE APPE LLANT IS NOT REQUIRED TO INCUR THE SAME AGAIN. THE A.O. IS OF T HE OPINION THAT 3 THE RESEARCH AND TRIAL STUDIES CARRIED OUT BY THE A PPELLANT SHALL GIVE LONG TERM BENEFIT TO THE ASSESSEE. ON THE OTHER HAND, ON PERUSAL OF THE SUBMISSION OF THE APPELLANT, IT HAS BEEN NOTICED THAT THE NATURE OF E XPENDITURE INCURRED IS REVENUE AND NOT CAPITAL. THE APPELLANT HAS NOT ACQUIRED ANY ASSETS BY INCURRING THE SAID EXPENDITU RE. FURTHER, THE A.O. HIMSELF HAS CLEARLY STATED IN THE ASSESSME NT ORDER THAT THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF PROCESSING AND MARKETING OF VEGETABLE AND FLOWER SEEDS. THE N ATURE OF THE BUSINESS OF THE APPELLANT CLEARLY REVEALS THAT THE APPELLANT HAS TO INCUR THE SAID RESEARCH AND TRIAL EXPENSES ON RE GULAR BASIS, PARTICULARLY IN VIEW OF THE COMPETITION FROM OTHER CONCERNS AND NEED OF RESEARCH AND TRIALS TO PROCESS AND MARKET S EEDS WHICH SHALL RESULT INTO MAXIMUM PRODUCTION OF VEGETABLES AND FLOWERS OF GOOD QUALITY. IN VIEW OF THE ABOVE FACTS AND DISCUSSION AND ALSO IN VIEW OF THE RATIO LAID DOWN BY VARIOUS DECISIONS RELIED ON BY THE APPELLANT, I AM OF THE CONSIDERED VIEW THAT THE NAT URE OF EXPENDITURE OF RS.15,52,467/- INCURRED BY THE APPEL LANT IS OF REVENUE NATURE AS THE SAID EXPENDITURE IS RECURRING EXPENDITURE AND NOT ONE TIME EXPENDITURE. THE ADDITION OF RS.1 5,52,467/- IS, THEREFORE, DELETED. GROUND NO.1 STANDS ALLOWED . 4. NOW THE REVENUE IS IN APPEAL BEFORE US. WE HAVE HEARD THE PARTIES AND PERUSED THE RECORD. THE SHORT CONTROVE RSY IS WHETHER THE EXPENDITURE CLAIMED BY THE ASSESSEE UNDER THE H EAD RESEARCH AND TRIAL EXPENSES IS ALLOWABLE U/S.37(1) OF THE I NCOME TAX ACT OR IT IS CAPITAL IN NATURE. THE LD. CIT(A) HELD THAT THE ASSESSEE HAS NOT ACQUIRED ANY BENEFIT OF ENDURING NATURE. MOREOVER, IT IS SEEN THAT THE REMAND REPORT OF THE ASSESSING OFFICER WAS CALL ED IN WHICH, AS OBSERVED BY THE LD. CIT(A), THE ASSESSING OFFICER H AS STATED THAT NATURE OF EXPENDITURE INCURRED IS SUCH WHICH IS OF NON-RECURRING NATURE AND ONCE INCURRED, THE ASSESSEE IS NOT REQUI RED TO INCUR THE SAME. THE LD. CIT(A) DOES NOT AGREE WITH THE REMAN D REPORT OF THE ASSESSING OFFICER. IN HIS OPINION, CONSIDERING THE NATURE OF THE BUSINESS OF THE ASSESSEE, HE HAS TO INCUR THE SAID RESEARCH AND TRIAL EXPENSES ON REGULAR BASIS PARTICULARLY IN VI EW OF THE COMPETITION FROM THE OTHER CONCERNS AND THERE IS NE ED OF RESEARCH AND TRIAL OF SEEDS. THE ASSESSEE MADE THE ELABORAT E STATEMENT SHOWING HOW THE TESTING AND TRIAL ACTIVITY ARE CARR IED OUT. THE ASSESSEE ALSO DEMONSTRATED BEFORE THE LD. CIT(A) HO W THE TEST 4 CHECKS ARE CONDUCTED TO ENSURE THAT THE SEEDS PRODU CED MEET THE STRICTEST QUALITY STANDARDS, I.E., MOISTURE TEST, P HYSICAL PURITY TEST, SEGREGATION, GERMINATION TEST, GENETIC PURITY TEST, DECEASE DIAGNOSIS TEST, MASS CULTURING, ETC. ACCORDINGLY, HE ALLOWED ASSESSEES CLAIM AS REVENUE EXPENDITURE. IN OUR OPINION, WHEN THE A SSESSING OFFICER HAS NOT DISPUTED THE NATURE OF THE BUSINESS, I.E., MARKETING AND PROCESSING OF THE SEEDS, THE RESEARCH AND TRIAL EXP ENSES IS RECURRING EXPENDITURE AS RIGHTLY HELD BY THE LD. CIT(A). IN OUR OPINION, NO INTERFERENCE IS CALLED FOR IN THE ORDER OF THE LD. CIT(A) AND SAME IS CONFIRMED. 5. IN THE RESULT, REVENUES APPEAL IS DISMISSED. PRONOUNCED IN THE OPEN COURT ON THIS THE 22 ND DAY OF FEBRUARY, 2013. SD/- SD/- ( R.K.PANDA ) ( R.S.PADVEKAR ) ACCOUNTANT MEMBER JUDICIAL MEMBER GSPS PUNE, DATED THE 22 ND FEBRUARY, 2013 COPY OF THE ORDER IS FORWARDED TO: 1. THE ASSESSEE 2. THE ACIT, CIRCLE-1 AURANGABAD. 3. THE CIT(A), AURANGABAD. 4. THE CIT, AURANGABAD. 5. THE DR A BENCH, PUNE. 6. GUARD FILE. BY ORDER //TRUE COPY// PRIVATE SECRETARY, INCOME TAX APPELLATE TRIBUNAL, PUNE.