DCIT 8(2), MUMBAI V. PAN INDIA FOOD SOLUTIONS P.LTD, MUMBAI

ITA 1694/MUM/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 78986 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 2 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-05-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2009-2010
• Appeal Filed On: 01-03-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: JI TENDRA YADAV
• Assessee Lawyers: JAY
• Keywords: Depreciation; Revenue expenditure; Capital expenditure

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, MUMBAI BEFORE S/SHRI I.P. BANSAL, (JM) AND N.K.BILLAIYA (AM) . . , . . , ./I.T.A. NO.1694/MUM/2013 ( / ASSESSMENT YEAR : 2009-10) DY. COMMISSIONER OF INCOME TAX 8(2), ROOM NO.209/216A, 2 ND FLOOR, AAYAKAR BHAVAN, M.K.ROAD, MUMBAI-400020 / VS. M/S PAN INDIA FOOD SOLUTIONS PVT.LTD., KNOWLEDGE HOUSE, SHYAM NAGAR, JOGESHWARI (E), MUMBAI-400060 ( $ / APPELLANT) .. ( %&$ / RESPONDENT) ./ ./PAN/GIR NO. : AADCP8747M $ / APPELLANT BY : SHRI JITENDRA YADAV %&$ * /RESPONDENT BY : SHRI JAY PANDE * . / DATE OF HEARING : 29.5.2014 * . /DATE OF PRONOUNCEMENT : 29.5.2014 / O R D E R PER I.P.BANSAL, JM: THIS APPEAL IS FILED BY THE REVENUE. THIS IS DI RECTED AGAINST THE ORDER PASSED BY LD. CIT(A) DATED 13.12.2012 FOR THE ASSESSMENT Y EAR 2009-10. 2. GROUNDS OF APPEAL TAKEN BY THE REVENUE READ AS U NDER : 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT(A) ERRED IN UPHOLDING THE CLAIM OF THE ASSESSE E THAT THE PAYMENT OF RS.20,35,380/- MADE TO M/S J SAGAR AND ASSOCIATES A S LEGAL AND PROFESSIONAL FEES IN CONNECTION WITH THE ACQUISITION OF BRAND FROM BLUE FOODS COMPANY, IS A REVENUE EXPENDITURE WITHOUT APPRECIATING THAT THE AO HAD CORRECTLY TREATED THE SAME AS CAPITAL EXPENDITURE AT PAR WITH OTHER EXPENSES INCURRED FOR THE SAME PURPOSE WHICH HAVE BEEN CAPITALIZED BY THE ASSESSEE ITSELF 3. THE ASSESSEE IS IN THE BUSINESS OF CHAIN OF RES TAURANTS AND FOOD JOINTS. FROM SCHEDULE 17 OF THE ACCOUNTS IT WAS NOTICED BY THE AO THAT OUT OF TOTAL AMOUNT OF I.T.A. NO.1694/MUM/2013 2 EXPENDITURE OF RS.2,39,84,260/- DEBITED ON ACCOUNT OF LEGAL AND PROFESSIONAL FEES A SUM OF RS.20,35,380/- WAS SHOWN TO BE INCURRED ON CONSULTATION FEES PAID TO M/S J SAGAR ASSOCIATES. FROM FURTHER DETAILS IT WAS FOUN D THAT THE ASSESSEE HAD ACQUIRED BRAND FROM M/S BLUE FOODS PVT LTD WHICH WAS CAP ITALIZED IN THE BOOKS OF ACCOUNT AND ON WHICH A DEPRECIATION WAS CLAIMED IN THE BLOCK T RADEMARKS & PATENTS. IT WAS ALSO NOTICED BY THE AO THAT THE FEES PAID TO M/S J SAG AR ASSOCIATES, ADVOCATES AND SOLICITORS WAS ON ACCOUNT OF RENDERING LEGAL AND P ROFESSIONAL SERVICES TO THE ASSESSEE IN CONNECTION WITH ACQUISITION OF BLUE FOODS PVT LTD. SINCE THE ASSESSEE HAD CAPITALIZED ACQUISITION OF BLUE FOODS PVT LTD, THE AFOREMENTI ONED AMOUNT OF RS.20,35,380/- WAS ALSO TREATED BY THE AO AS ACTUAL COST WHICH WAS AL SO REQUIRED TO BE CAPITALIZED. ACCORDINGLY, AFTER GRANTING BENEFIT OF DEPRECIATION AT THE RATE OF 12.5% WHICH IS COMPUTED AT RS.2,54,422/-, THE BALANCE AMOUNT OF R S.17,80,958/- WAS DISALLOWED ON ACCOUNT OF THE SAME BEING CAPITAL EXPENSES AND ADDE D THE SAME TO THE TOTAL INCOME OF THE ASSESSEE. 4. THE ADDITION OF AFOREMENTIONED AMOUNT WAS AGITA TED IN APPEAL FILED BEFORE THE LD. CIT(A). IT WAS SUBMITTED THAT THE SAID AMOUNT WAS PAID FOR OBTAINING FEASIBILITY REPORT FROM M/S J SAGAR ASSOCIATES. THE OBJECT OF EXPENDITURE WAS TO MAKE THE BEST USE OF FUNDS BY INVESTING INTO THE HIGH-QUALITY CO MPANY. IT WAS WHOLLY CONNECTED WITH THE EXISTING BUSINESS AS MENTIONED IN THE MEMO RANDUM OF ASSOCIATION AND IT WAS WHOLLY AND EXCLUSIVELY INCURRED FOR THE PURPOSE OF CARRYING ON ITS BUSINESS. THE INTENTION WAS TO UTILIZE THE FUNDS MORE EFFICIENTL Y AND MORE PROFITABLE WHILE LEAVING THE FIXED CAPITAL UNTOUCHED. REFERENCE WAS MADE TO SE VERAL DECISIONS TO CONTEND THAT THE EXPENDITURE INCURRED BY THE ASSESSEE WAS IN THE NAT URE OF REVENUE. CONSIDERING THESE SUBMISSIONS OF THE ASSESSEE, THE LD. CIT(A) HAS OB SERVED THAT THE EXPENDITURE WAS IN RELATION TO OBTAIN FEASIBILITY REPORT CONNECTED WI TH THE ACQUISITION OF BRAND FROM M/S BLUE FOODS PVT LTD AND THE EXPENDITURE WAS CONNECTE D TO THE EXISTING BUSINESS OF THE ASSESSEE. THE RELIANCE WAS PLACED UPON THE DECI SIONS WHICH INTERALIA INCLUDE THE I.T.A. NO.1694/MUM/2013 3 DECISION IN THE CASE OF CIT V/S KERALA STATE IND USTRIAL DEVELOPMENT CORPORATION (1990)182 ITR 62. THE LD. CIT(A) HAS ALLOWED THE CLAIM OF THE ASSESSEE BY OBSERVING THAT EXPENSES INCURRED IN INVESTIGATION, RESEARCH AND FEASIBILITY STUDIES ARE ONLY REVENUE EXPENSES AND NOT CAPITAL. THE DEPARTMENT IS AGGRIEVED AND HAS FILED THE AFOREMENTIONED GROUNDS OF APPEAL. 5. AFTER NARRATING THE FACTS, IT WAS SUBMITTED BY LD. CIT, DR THAT THE DECISION RELIED UPON BY THE LD. CIT(A) IN THE CASE OF KERALA STAT E INDUSTRIAL DEVELOPMENT CORPORATION (SUPRA) IS DISTINGUISHABLE ON THE FACTS OF THE SAID CASE AND THEREFORE THE LD. CIT(A) HAS WRONGLY GRANTED THE RELIEF TO THE ASSESSEE. THE DI SALLOWANCES WAS RIGHTLY MADE BY AO AND HIS ORDER SHOULD BE RESTORED AND THE ORDER OF LD. CIT(A) BE SET ASIDE. 6. ON THE OTHER HAND, IT WAS SUBMITTED BY LD. AR T HAT THE ASSESSEE HAS INCURRED THIS EXPENDITURE TO OBTAIN FEASIBILITY REPORT IN RESPECT OF PURCHASE OF BRAND FROM M/S BLUE FOODS PVT LTD. HE SUBMITTED THAT LD. CIT(A) HAS RIGHTLY GRANTED RELIEF TO THE ASSESSEE. IN ADDITION TO THE DECISIONS RELIED UP ON BY THE ASSESSEE BEFORE THE LD. CIT(A), THE LD AR ALSO PLACED RELIANCE ON THE DECI SION OF THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT V/S M/S SHELL BITUMEN INDIA (P) LT D IN ITA 815/2010 DATED 11 TH AUGUST 2010. A COPY OF WHICH WAS PLACED ON RECORD AND THE COPY OF SAME WAS GIVEN TO LD. DR. IN THE SAID CASE, THE EXPENDITURE OF RS.12,07, 907/- WAS INCURRED BY THE ASSESSEE ON ACCOUNT OF STURDY ON BITUMEN, WATER PROOFING, FEEDBACK REPORT ETC. ACCORDING TO THE REVENUE SUCH EXPENDITURE HAD GIVEN ASSESSEE BENEFIT OF ENDURING NATURE AND CAPITAL IN NATURE. THE CIT(A) AND ITAT HELD THA T CONSULTANCY EXPENDITURE INCURRED BY THE ASSESSEE WAS REVENUE EXPENDITURE AS, BY VI RTUE OF THE CONSULTANCY, THE ASSESSEE DID NOT ACQUIRE THE INCOME EARNING ASSET AND ALSO IT DID NOT OBTAIN ANY ENDURING ADVANTAGE. MOREOVER, THE EXPENDITURES W ERE CLEARLY RELATABLE TO THE BUSINESS OF THE ASSESSEE. 7. WE HAVE HEARD BOTH THE PARTIES AND THEIR CONTEN TIONS HAVE CAREFULLY BEEN CONSIDERED. THE BRAND EXPENDITURE INCURRED BY THE ASSESSEE HAS BEEN TREATED AS CAPITAL EXPENDITURE. THE EXPENDITURE INCURRED ON THE FEASIBILITY REPORT PAID TO M/S J I.T.A. NO.1694/MUM/2013 4 SAGAR ASSOCIATES CONSTITUTES LEGAL EXPENSES INCURRE D BY THE ASSESSEE TO ENSURE ABOUT THE PROPER ACQUISITION OF THE BRAND. THIS IS IN THE NATURE OF CONSULTANCY. THE ASSESSEE IS ALREADY IN THE LINE OF CHAIN OF RESTA URANTS AND FOOD JOINTS. THE ACQUISITION RELATING TO BRAND OF M/S BLUE FOODS PVT LTD IS A LSO WITH RESPECT TO FOOD CHAIN, THEREFORE, EXPENDITURE IS INCURRED BY THE ASSESSEE IN THE EXISTING LINE OF ITS BUSINESS. WE FIND THAT THE EXPENDITURE INCURRED ON CONSULTANC Y HAVE BEEN HELD BY THE HONBLE DELHI HIGH COURT IN THE CASE OF M/S SHELL BITUMEN INDIA (P) LTD (SUPRA) ON ACCOUNT OF REVENUE EXPENDITURE. THEREFORE, WE FIND NO INFIRMI TY IN THE ORDER OF LD. CIT(A) VIDE WHICH IT HAS BEEN HELD THAT THE EXPENDITURE WERE IN THE NATURE OF REVENUE AND COULD NOT BE DISALLOWED AS CAPITAL EXPENDITURE. WE DECLINE T O INTERFERE. 8. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED. THE ABOVE ORDER WAS PRONOUNCED IN THE OPEN COURT ON 29TH MAY, 2014. 2 3 29TH MAY, 2014 * SD SD ( . . / N.K.BILLAIYA) ( . . /I.P. BANSAL ) / ACCOUNTANT MEMBER / JUDICIAL MEMBER MUMBAI: 29TH MAY, 2014 . . ./ SRL , SR. PS ! / COPY OF THE ORDER FORWARDED TO : 1. $ / THE APPELLANT 2. %&$ / THE RESPONDENT. 3. 8 ( ) / THE CIT(A)- CONCERNED 4. 8 / CIT CONCERNED 5. 9 %; , . ; , / DR, ITAT, MUMBAI CONCERNED 6. / GUARD FILE. / BY ORDER, TRUE COPY (ASSTT. REGISTRAR) . ; , /ITAT, MUMBAI