Shri Mukesh Maganlal Majithia, Ahmedabad V. The Dy.CIT.,Circle-7, Ahmedabad

ITA 1677/AHD/2011

• Counselvise Citation: 167720514 RSA 2011
• Duration Of Justice: 4 year(s) 5 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-11-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 21-10-2015
• Assessment Year: 2006-2007
• Appeal Filed On: 21-06-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: K MADHUSUDAN SRDR
• Assessee Lawyers: S N SOPARKAR
• Keywords: Business expenditure

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, AHMEDABAD .. , ( .) , BEFORE SHRI G.D. AGARWAL,VICE PRESIDENT (AZ) AND SHRI KUL BHARAT, JUDICIAL MEMBER ./ I.T.A. NO.1677/AHD/2011 ( / ASSESSMENT YEAR : 2006-07) SHRI MUKESH MAGANLAL MAJITHIA JAY BUNGLOWS B/H. BANK OF BARODA USMANPURA AHMEDBAD-380 014 / VS. THE DCIT CIRCLE-7 2 ND FLOOR, NAVJEEVAN- -TRUST BUILDING ASHRAM ROAD AHMEDABAD % & ./ ./ PAN/GIR NO. : ACLPM 5690 B ( %( / APPELLANT ) .. ( )*%( / RESPONDENT ) %( / APPELLANT BY : SHRI S.N. SOPARKAR, AR )*%( , / RESPONDENT BY : SHRI K. MADHUSUDAN, SR.DR -. , /& / DATE OF HEARING 21/10/2015 0123 , /& / DATE OF PRONOUNCEMENT 30/11/2015 / O R D E R PER SHRI KUL BHARAT, JUDICIAL MEMBER : THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST T HE ORDER OF THE LD.COMMISSIONER OF INCOME TAX(APPEALS)-VI, AHMEDABA D [CIT(A) IN SHORT] DATED 19/05/2011 PERTAINING TO ASSESSMENT Y EAR (AY) 2006-07. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF A PPEAL:- ITA NO.1677/AHD /2011 SHRI MUKESH MAGANLAL MAJITHIA VS. DCIT ASST.YEAR 2006-07 - 2 - (1) THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) VI, AHMEDABAD HAS ERRED BOTH IN LAW AND ON FACTS OF THE CASE IN FRAMING APPELLATE ORDER U/S.250 OF THE I.T.ACT FOR AY 2006-07 ON 19 TH MAY, 2011. (2) THE LEARNED CIT(A)-VI, AHMEDABAD HAS ERRED IN CONFI RMING THE ADDITIONS MADE BY ASSESSING OFFICER BY DISALLOWANCE OF LEGAL AND PROFESSIONAL FEES AND TRAVELLING EXPENSES OF RS.1,0 8,15,626/-. (3) THE LEARNED CIT(A) HAS ERRED IN NOT ADJUDICATING UP ON GROUND RELATING TO INITIATION OF PENALTY PROCEEDING. (4) YOUR APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND, O MIT ALL OR ANY OF THE GROUNDS OF APPEAL BEFORE THE APPEAL IS FINAL LY HEARD AND DECIDED. 2. BRIEFLY STATED FACTS ARE THAT THE CASE OF THE AS SESSEE WAS PICKED UP FOR SCRUTINY ASSESSMENT AND THE ASSESSMENT U/S.143( 3) OF THE INCOME TAX ACT,1961 (HEREINAFTER REFERRED TO AS THE ACT) WAS FRAMED VIDE ORDER DATED 28/11/2008; THEREBY THE ASSESSING OFFICER (AO IN SHORT) MADE DISALLOWANCE OF LEGAL AND PROFESSIONAL FEE AND TRAV ELLING EXPENSES OF RS.1,08,15,626/-. THE ASSESSEE BEING AGGRIEVED BY THE ASSESSMENT ORDER, PREFERRED AN APPEAL BEFORE THE LD.CIT(A), WHO AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE DISMISSED THE APPEAL. AGGRIEVED BY THE ORDER OF THE LD.CIT(A), NOW THE ASSESSEE IS FURTHER IN APPEAL BEFORE US. 3. AT THE TIME OF HEARING, LD.COUNSEL FOR THE ASSES SEE SUBMITTED THAT HE DOES NOT WISH TO PRESS GROUND NO.1 AND, THEREFOR E, THE SAME IS DISMISSED AS NOT PRESSED. ITA NO.1677/AHD /2011 SHRI MUKESH MAGANLAL MAJITHIA VS. DCIT ASST.YEAR 2006-07 - 3 - 4. GROUND NO.2 IS AGAINST CONFIRMATION OF ADDITION MADE BY THE AO BY DISALLOWANCE OF LEGAL AND PROFESSIONAL FEES AND TRAVELLING EXPENSES OF RS.1,08,15,626/-. THE LD.SR. COUNSEL FOR THE ASSES SEE SUBMITTED THAT THE LD.CIT(A) WAS NOT JUSTIFIED IN MAKING THE ADDITION. HE SUBMITTED THAT THE ASSESSEE WAS A PARTNER IN A FIRM, NAMELY M/S.BABUL PRODUCTS. DURING THE YEAR, THE ASSESSEE HAS CARRIED ON THE BUSINESS UNDE R THE NAME AND STYLE OF M/S.ZEN PRODUCTS, A PROPRIETARY CONCERN AND USED TH E BRAND-NAME BABUL WHICH WAS REGISTERED TRADE MARK OF THE FIRM . THE OTHER PARTNERS OF THE FIRM FILED CASES AGAINST THE ASSESSEE FOR US ING THE BRAND-NAME BABUL. THE ASSESSEE IN ORDER TO CONTESTING THE C ASES PENDING BEFORE THE HONBLE DISTRICT COURT INCURRED EXPENSES WHICH WERE UTILIZED FOR THE PRODUCTION OF THE BUSINESS. THEREFORE, HE SUBMITTE D THAT THE AO WAS NOT JUSTIFIED IN MAKING DISALLOWANCE. HE SUBMITTED THA T UNDER THE IDENTICAL FACTS, THE HONBLE SUPREME COURT IN THE CASE OF M/S .MANGALORE GANESH BEEDI WORKS VS. CIT IN CIVIL APPEAL NOS.10547 105 48 OF 2011, DATED 15/10/2015 HAS DECIDED THE ISSUE IN FAVOUR OF THE A SSESSEE. HE FURTHER SUBMITTED THAT THE AUTHORITIES BELOW WERE NOT JUSTI FIED IN MAKING THE DISALLOWANCE IN VIEW OF THE JUDGEMENT OF HONBLE AP EX COURT IN THE CASE OF M/S.MANGALORE GANESH BEEDI WORKS(SUPRA). 5. ON THE CONTRARY, LD.SR.DR SUPPORTED THE ORDE RS OF THE AUTHORITIES BELOW AND SUBMITTED THAT THERE IS NO DISPUTE WITH R EGARD TO THE FACT THAT THE ASSESSEE IS NOT THE OWNER OF THE TRADE-MARK, TH EREFORE THE EXPENSES ITA NO.1677/AHD /2011 SHRI MUKESH MAGANLAL MAJITHIA VS. DCIT ASST.YEAR 2006-07 - 4 - INCURRED FOR USING THE BRAND BABUL CANNOT BE TERM ED AS THE EXPENDITURE HAVE BEEN INCURRED FOR THE PROTECTION OF THE BUSINE SS. 5.1. WE FIND THAT THE LD.CIT(A) HAS DECIDED THIS IS SUE IN PARA-3.3 OF HIS ORDER, BY OBSERVING AS UNDER:- 3.3 I HAVE CONSIDERED THE FACTS OF THE CASE, ASSES SMENT ORDER AND APPELLANT'S SUBMISSION. APPELLANT CLAIMED SUBSTANTI AL LEGAL AND RELATED TRAVELLING EXPENSES ON FIGHTING LEGAL SUITS AGAINST HIM FOR USING BABUL BRAND. AS PER SEQUENCE OF EVENTS MENTIONED BY THE A PPELLANT, THE BRAND WAS OWNED BY M/S BABUL PRODUCTS, A PARTNERSHIP FIRM IN WHICH APPELLANT WAS ALSO ONE OF THE PARTNER ALONG WITH SE VERAL OTHER PARTNERS. LATER ON BY REGISTERED USER AGREEMENT, THE BRAND WA S ALLOWED TO BE USED BY BABUL PRODUCTS PVT LTD. LATER ON DISP UTE AROSE BETWEEN THE TWO GROUPS WHOSE MEMBERS WERE PARTNERS IN THE F IRM AND SHAREHOLDERS IN THE COMPANY. IN FEBRUARY 2005, APPE LLANT FAMILY GROUP TERMINATED REGISTERED USER AGREEMENT BETWEEN BABUL PRODUCTS AND BABUL PRODUCTS PVT LTD. THIS FAMILY GROUP ALSO ISSU ED NOTICE TO THE OTHER GROUP FOR DISSOLUTION OF PARTNERSHIP FIRM. AP PELLANT ISSUED NOTICE TO ALL OTHER PARTNERS INTIMATING THAT HE WOULD MANU FACTURE AND MARKET CHEWING TOBACCO USING BABUL BRAND. THEREAFTER DISPU TES WENT IN COURT AND FINALLY SUPREME COURT RESTRAINED BOTH THE SIDES NOT TO USE BABUL BRAND TILL FINAL DECISION. FROM THE ABOVE FACTS, IT IS CLEAR THAT BABUL BRAND IS NOT OWNED BY THE APPELLANT. IT IS OWNED BY A PARTNERSHIP FIRM IN WHI CH APPELLANT IS JUST ONE OF THE PARTNER ALONG WITH OTHER FAMILY MEMBERS AND MEMBERS OF OTHER GROUP. THE BRAND IS STILL IN THE NAME OF PART NERSHIP FIRM AND NOT IN THE NAME OF APPELLANT. APPELLANT IS NOT EXCLUSIV E OWNER OF THE BRAND EVEN AFTER DISSOLUTION OF PARTNERSHIP FIRM. THE ENTIRE LEGAL DISPUTE IS IN RESPECT OF LEGALITY OF USE OF BRAND B Y THE APPELLANT WITHOUT REGISTERED USER AGREEMENT. THE DISPUTE IS NOT TO PROTECT THE BABUL BRAND BUT TO DEFEND HIS ACTION OF USING BABUL BRAND . THEREFORE THE APPELLANT'S CLAIM THAT THE EXPENSES WERE INCURRED T O PROTECT THE BABUL BRAND IS NOT CORRECT. THE BRAND BELONGED TO ALL PA RTNERS OF THE FIRM AND APPELLANT HAS NO EXCLUSIVE RIGHT OVER THE SAME. APP ELLANT ALSO DID NOT HAVE EXCLUSIVE OR OTHERWISE USER AGREEMENT THEREFOR E IT CANNOT BE SAID ITA NO.1677/AHD /2011 SHRI MUKESH MAGANLAL MAJITHIA VS. DCIT ASST.YEAR 2006-07 - 5 - THAT THE LEGAL EXPENSES INCURRED WERE FOR THE PURPO SE OF APPELLANT'S BUSINESS OR TO PROTECT APPELLANT'S BUSINESS ASSET. IN VIEW OF THIS THE DECISIONS RELIED UPON BY THE APPELLANT ARE NOT APPL ICABLE TO THE SPECIFIC FACT OF THIS CASE. IT IS NOT THE CASE OF APPELLANT PROTECTING HIS BRAND AGAINST INFRINGEMENT. THE DISPUTE AND LEGAL EXPENSES ARE RELATING TO ENTITLEMENT OF USE OF BRAND WITHOUT PERMISSION OR A GREEMENT FROM OTHER PARTNERS OF THE FIRM WHICH OWNED THE BRAND. T HEREFORE APPELLANT'S EXPENSES ARE NEITHER TO PROTECT HIS BUS INESS ASSET NOR INCIDENTAL TO HIS BUSINESS. IN VIEW OF THIS APPELLANT CANNOT CLAIM THESE EXTRAORDINARY EXPENSES FROM ITS BUSINESS WHICH ARE CLEARLY NOT INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF RUNNING O F THE BUSINESS. ACCORDINGLY I HOLD THAT THE EXPENSES ARE NOT RELATI NG TO THE BUSINESS OF THE APPELLANT OR TO PROTECT HIS BUSINESS ASSET AND ACCORDINGLY NOT ALLOWABLE. THE ADDITION MADE BY THE ASSESSING OFFIC ER IS CONFIRMED. 5.2. THE ISSUE IS TO BE EXAMINED WHETHER THE AUTHOR ITIES BELOW WERE JUSTIFIED IN DISALLOWING THE EXPENDITURE INCURRED B Y THE ASSESSEE OR NOT. THE LD.COUNSEL FOR THE ASSESSEE HAS DRAWN OUR ATTEN TION TOWARDS PAGE NOS.16 TO 22, WHEREIN THE NOTICES HAVE BEEN GIVEN O N BEHALF OF THE PARTNERS TO DISSOLVE THE PARTNERSHIP-FIRM; NAMELY M /S.BABUL PRODUCTS WITH EFFECT FROM 09/02/2005. IT IS THE CONTENTION OF THE ASSESSEE THAT UPON GIVING THE NOTICE OF DISSOLUTION THE PARTNERSH IP-FIRM WAS DISSOLVED AND THE PRODUCTS OF THE PARTNERSHIP-FIRM BECAME THE PROPERTY OF THE PARTNERS. THEREFORE, THE TRADE-MARK BABUL BECAME THE PROPERTY OF THE PARTNER. AS PER THE CLAUSE OF 8 OF THE PARTNERSHIP -DEED THE PARTNERSHIP WAS AT WILL AND UPON GIVING THE NOTICE OF DISSOLUTI ON THE PARTNERSHIP- FIRM STOOD DISSOLVED W.E.F. 09/02/2005. SUBSEQUENT TO THAT, THE ASSESSEE USED BRAND-NAME BABUL. IT IS ALSO CONTENDED THAT PRIOR TO DISSOLUTION OF ITA NO.1677/AHD /2011 SHRI MUKESH MAGANLAL MAJITHIA VS. DCIT ASST.YEAR 2006-07 - 6 - FIRM, THE FIRM HAD ENTERED INTO THE AGREEMENT WITH M/S.BABUL PRODUCTS PVT.LTD. FOR USING THE TRADE-NAME BABUL. THE AGR EEMENT WITH M/S.BABUL PRODUCTS PVT.LTD. WAS CANCELLED AND THAT M/S.BABUL PRODUCTS PVT.LTD. FILED CIVIL SUIT IN THE COMPETENT COURT. IT IS CONTENDED THAT THE AUTHORITIES BELOW HAD NOT DOUBTED THE GENUINENESS O F THE EXPENDITURE, BUT THE EXPENDITURE WAS NOT ALLOWED MERELY ON THE GROUN D THAT THE ASSESSEE- COMPANY WAS NOT THE OWNER OF THE TRADE-MARK, THEREF ORE THE EXPENDITURE COULD NOT BE ALLOWED. IN OUR CONSIDERED VIEW, THIS REASONING OF THE AUTHORITIES BELOW IS NOT JUSTIFIED. AS PER THE PAR TNERSHIP-DEED, THE ASSESSEE HAD INTEREST INTO THE PROPERTIES OF THE ER STWHILE PARTNERSHIP-FIRM, NAMELY M/S.BABUL PRODUCTS. THEREFORE, IT CANNOT BE INFERRED THAT THE ASSESSEE HAD NO RIGHT INTO THE TRADE-MARK BABUL. THE DISPUTE WITH REGARD TO USAGE OF SAME AMONGST THE PARTNERS CULMIN ATED INTO VARIOUS PROCEEDINGS BEFORE THE COMPETENT CIVIL COURT. IN CONTESTING SUCH PROCEEDINGS, THE ASSESSEE HAD INCURRED EXPENDITURE WHICH IS CLAIMED TO BE BUSINESS EXPENDITURE. THE AUTHORITIES BELOW REJ ECTED THE CLAIM MERELY ON THE GROUND THAT THE ASSESSEE HAD NO OWNERSHIP OF THE TRADE-MARK BABUL. IN THE SIMILAR FACTS, THE HONBE SUPREME COURT IN THE CASE OF M/S.MANGALORE GANESH BEEDI WORKS VS. CIT(SUPRA) HAS APPROVED THE FINDING OF THE TRIBUNAL; WHO HAD ALLOWED THE EXPEND ITURE. THEREFORE, RESPECTFULLY FOLLOWING THE JUDGEMENT OF THE HONBLE APEX COURT, WE HEREBY DIRECT THE AO TO DELETE THE DISALLOWANCE AND ALLOW THE EXPENDITURE. THUS, THIS GROUND OF ASSESSEES APPEA L IS ALLOWED. ITA NO.1677/AHD /2011 SHRI MUKESH MAGANLAL MAJITHIA VS. DCIT ASST.YEAR 2006-07 - 7 - 6. GROUND NO.3 IS AGAINST NON-ADJUDICATING UPON GRO UND RELATING TO INITIATION OF PENALTY PROCEEDING. WE FIND THAT THE GROUND RAISED IS CONTRARY TO THE RECORDS AS THE LD.CIT(A) HAS DISMIS SED THE GROUND AS PRE- MATURE, THEREFORE WE DO NOT SEE ANY REASON TO INTE RFERE WITH THE ORDER OF THE LD.CIT(A), SAME IS HEREBY UPHELD. 7. GROUND NO.4 IS GENERAL IN NATURE WHICH REQUIRES NO INDEPENDENT ADJUDICATION. 8. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PAR TLY ALLOWED. ORDER PRONOUNCED IN THE COURT ON MONDAY, THE 30 TH DAY OF NOVEMBER, 2015 AT AHMEDABAD. SD/- SD/- ( .. ) ( ) ( . ) ( G.D. AGARWAL ) ( KUL BHARAT ) VICE PRESIDENT (AZ) JUDICIAL MEMBER AHMEDABAD; DATED / 11 /2015 6/..-, .-../ T.C. NAIR, SR. PS ITA NO.1677/AHD /2011 SHRI MUKESH MAGANLAL MAJITHIA VS. DCIT ASST.YEAR 2006-07 - 8 - !'#$%&' &$ / COPY OF THE ORDER FORWARDED TO : 1. %( / THE APPELLANT 2. )*%( / THE RESPONDENT. 3. 789 : / CONCERNED CIT 4. : ( ) / THE CIT(A)-VI, AHMEDABAD 5. ;< )-89 , / 893 , 7 / DR, ITAT, AHMEDABAD 6. <= >. / GUARD FILE. ! / BY ORDER, *; ) //TRUE COPY// / ( DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD 1. DATE OF DICTATION .. 4.XI.15 (DICTATION-PAD 10 +PAGES ATTACHED AT THE END OF THIS FILE) 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER ..4.XI.15 3. OTHER MEMBER... 4. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.P. S./P.S.. 5. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 6. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.P .S./P.S.30.11.15 7. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 30.11.15 8. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK ... 9. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER.. 10. DATE OF DESPATCH OF THE ORDER