Appeal details
Counselvise Citation
[2011] 134 COUNSELVISE.COM (IT) 9331 (ITAT-KOLKATA)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
2 year(s) 5 month(s) 7 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
11-02-2011
Appeal Filed By
Department
Bench Allotted
C
Assessment Year
2004-2005
Appeal Filed On
03-09-2008
Judgement Text
1 , C , , IN THE INCOME TAX APPELLATE TRIBUNAL, BENCH- C, KOL KATA [ . . . . . . . . , ,, , . .. . . .. . , , , , !' ] BEFORE SHRI B.R.MITTAL, JUDICIAL MEMBER & SRI C.D. RAO, ACCOUNTANT MEMBER # # # # / ITA NO. 1708 (KOL) OF 2008 $%& '( / ASSESSMENT YEAR 2004-05 ASSTT.COMMISSIONER OF INCOME-TAX CIRCLE-7, KOLKATA. M/S. BRITANNIA INDUSTRIES LTD., KOLKATA. (PAN-AABCB2066P) (+, / APPELLANT ) - % - - VERSUS - (/0+,/ RESPONDENT ) +, 1 2 !/ FOR THE APPELLANT: / SMT. A.MOOKHERJEE /0+, 1 2 ! / FOR THE RESPONDENT: / SRI D.S. DAMLE !3 / ORDER ( . . . . . . . . ), (B.R.MITTAL), JUDICIAL MEMBER : THE DEPARTMENT HAS FILED THIS APPEAL FOR ASSESSME NT YEAR 2004-05 AGAINST THE ORDER OF LD. C.I.T.(A)-VIII, KOLKATA DATED 04/6/200 8 DISPUTING THE DELETION OF THE ADDITIONS MADE BY THE A.O. 2. GROUND NO.1 OF THE APPEAL READS AS UNDER :- 1. THAT THE LD. CIT(A) DID NOT APPRECI ATE THE FACTS IN DELETING THE ADDITIONS OF RS.18,51,98,485 ON ACCOUNT OF WORKING CAPITAL ADVAN CES WRITTEN OFF WHEN THEY FULFILLED NEITHER THE NATURE OF WORKING CAPITAL NOR ADVANCE. 3. THE RELEVANT FACTS ARE THAT THE ASSESSEE HAD GI VEN ADVANCES TO ITS TWO SISTER CONCERNS, WHO WERE CONTRACT BISCUIT MANUFACTURERS O F THE ASSESSEE, AGGREGATING TO RS.18,51,98,485/- AS UNDER :- (I) M/S. J.B. MANGHARAM FOODS PVT. LTD. (HEREIN AFTER REFERRED TO IN SHORT AS JBMFPL) HAVING REGISTERED OFFICE AT 3A, RS. 6,86,02,085 METRO CHAMBERS, 69/71, TRINITY STREET, MUMBAI. (II) M/S. MANNA FOODS PVT. LTD. (HEREINAFTER R EFERRED TO IN SHORT AS MFPL) HAVING REGISTERED OFFICE AT RS.11,65,96,400 48, LAVELLE ROAD, BANGALORE. RS.18,51,98, 485 THE ASSESSEE STATED THAT THE SAID ADVANCES WERE GIV EN TO ABOVE TWO CONCERNS, VIZ., JBMFPL AND MFPL, AS WORKING CAPITAL ADVANCES TO MEE T THEIR DAY TO DAY OPERATIONS. 2 THE ASSESSEE IN THE ASSESSMENT YEAR UNDER CONSIDERA TION HAS CLAIMED LOSS ON ACCOUNT OF IRRECOVERABLE WORKING CAPITAL ADVANCES. THE ASSESS EE STATED THAT THESE ADVANCES WERE IN THE NATURE OF BUSINESS LOSS INCURRED IN THE COURSE OF BUSINESS AS BOTH THE PARTIES EXPRESSED THEIR INABILITY TO REPAY THE AFORESAID AD VANCES. 4. THE A.O. PROCEEDED TO EXAMINE THE NATURE OF THE ADVANCES GIVEN BY THE ASSESSEE- COMPANY TO JBMFPL AND MFPL. HE HAS STATED THAT BOT H THE ABOVENAMED CONCERNS, VIZ., JBMFPL AND MFPL, DID NOT NEED SUCH A LARGE AM OUNT OF WORKING CAPITAL ADVANCES. BOTH THE CONCERNS UTILIZED THE AMOUNT GI VEN BY THE ASSESSEE-COMPANY IN GIVING LOANS AND ADVANCES TO OTHERS AND ALSO TO INV EST IN EQUITY SHARES OF M/S. KWALITY BISCUITS PVT. LTD., WHICH IS AGAIN AN ASSOCIATE CON CERN OF THE ASSESSEE-COMPANY. THE A.O. HAS ALSO STATED THAT THE ASSESSEE PAID CONVERS ION CHARGES, EXCISE DUTY AND OTHER REIMBURSEMENT OF EXPENSES AS AND WHEN BILLS WERE RA ISED ON THE ASSESSEE-COMPANY AND THE SAME WERE NOT ADJUSTED. THE A.O. STATED THAT T HE AFORESAID ADVANCES GIVEN BY THE ASSESSEE-COMPANY TO JBMFPL AND MFPL COULD NOT BE SA ID TO BE WORKING CAPITAL ADVANCES AT ALL. HE HAS FURTHER STATED THAT THESE WERE THE INVESTMENTS MADE BY THE ASSESSEE-COMPANY AND THUS THIS IS A CAPITAL EXPENDI TURE IN THE HANDS OF THE ASSESSEE- COMPANY. 4.1. THE A.O. HAS FURTHER STATED THAT THE CLAIM OF THE ASSESSEE IS NOT A REAL LOSS AS THE ASSESSEE-COMPANY HAS COMPLETE CONTROL OVER THE OWNE RSHIP AND MANAGEMENT OF BOTH THE CONCERNS, VIZ., JBMFPL AND MFPL. THE A.O. HAS FURTHER STATED THAT THE WRITE OFF OF WORKING CAPITAL ADVANCES IN RESPECT OF THE ABOVE TW O ASSOCIATE CONCERNS BY THE ASSESSEE-COMPANY IS DUE TO CLOSE NEXUS AND CONNECTI ON AND IF THE PERSONS TO WHOM WORKING CAPITAL ADVANCES HAVE BEEN GIVEN WERE UNREL ATED, THE ASSESSEE WOULD HAVE MADE ALL OUT EFFORTS TO RECOVER THEM. NO EFFORTS OF RECOVERY HAVE BEEN MADE BY THE ASSESSEE. HENCE THE ALLEGED LOSS CLAIMED BY THE AS SESSEE IS NOT REAL BUT ONLY FICTITIOUS OR NOTIONAL. THE A.O. HAS ALSO STATED THAT BY GIVING WORKING CAPITAL ADVANCES BY THE ASSESSEE TO THESE TWO COMPANIES, THE ASSESSEE-COMPA NY HAS ACQUIRED A SOURCE OF STOCK- IN-TRADE AND, THEREFORE, IT IS A CAPITAL EXPENDITUR E. THE A.O. HAS ALSO STATED THAT BOTH THESE COMPANIES ARE VERY MUCH SOLVENT AND THEY ARE BEING CARRIED ON THEIR BUSINESSES, AS COULD BE SEEN FROM THE DETAILS FILED BY THESE TW O COMPANIES AND DISCUSSED BY THE A.O. AT PAGE-4 (IN RESPECT OF JBMFPL) AND AT PAGE-6 (IN RESPECT OF MFPL). THE A.O. 3 HAS STATED THAT EVEN IF FOR THE SAKE OF ARGUMENT IT IS PRESUMED THAT THE LOSS IS ALLOWABLE, IT WILL BE MERELY AN ANTICIPATED LOSS AND SUCH ANTI CIPATED LOSS CANNOT BE ALLOWED BECAUSE BOTH THE COMPANIES ARE CONTRACT BISCUITS MANUFACTUR ERS FOR THE ASSESSEE-COMPANY AND THEY ARE CARRYING ON THEIR BUSINESSES. THE A.O. HAS ALSO STATED THAT ASSESSEE-COMPANY IS A MANUFACTURER AND TRADER OF THE BAKERY PRODUCTS AN D NOT A BANK OR FINANCE COMPANY. THEREFORE, ADVANCING MONEY TO OTHERS IS NOT THE BUS INESS OF THE ASSESSEE. THE LOSS CLAIMED BY THE ASSESSEE DOES NOT SPRING DIRECTLY FR OM THE CARRYING ON OF THE BUSINESS OF BAKERY PRODUCTS. NEITHER IT IS INCIDENTAL TO IT. THE A.O. HAS ALSO CONSIDERED THE CASES CITED BY THE ASSESSEE STATING THAT WRITE OFF OF IRR ECOVERABLE WORKING CAPITAL ADVANCES IS AN ALLOWABLE REVENUE EXPENDITURE, BUT HAS DISTINGUI SHED THOSE CASES ON THE GROUND THAT IN ALL THOSE CASES THE PARTIES TO WHOM THE MONEY WA S ADVANCED WERE UNRELATED PERSONS. THE CASES CITED BY THE ASSESSEE BEFORE THE A.O. ARE MENTIONED IN PARA 25A OF THE ASSESSMENT ORDER, WHICH ARE AS UNDER :- I) CIT VS. MYSORE SUGAR LIMITED [46 ITR 649 ( SC)] II) INDORE MALWA UNITED LTD. VS. STATE OF MAD HYA PRADESH [55 ITR 736 (SC)] III) CIT VS. JWALAPRASADA RADHA KISHAN [107 IT R 540 (ALL.)] IV) CIT VS. INDEN BISELERS [181 ITR 69 (MAD)] V) T.J. LALVANI VS. CIT [78 ITR 176 (BOM)] VI) P. SATYANARAYAN VS. CIT [116 ITR 803 (AP) ] VII) CIT VS. ABDUL RAZAK & CO. [136 ITR 825 (GUJ)] IN VIEW OF THE ABOVE, THE A.O. DISALLOWED CLAIM OF WRITE OFF OF ADVANCES MADE BY THE ASSESSEE AND ADDED THE SAME TO THE INCOME OF THE AS SESSEE. BEING AGGRIEVED, ASSESSEE FILED APPEAL BEFORE THE LD. C.I.T.(A). 5. ON BEHALF OF THE ASSESSEE IT WAS CONTENDED THAT THE A.O. DISALLOWED THE CLAIM OF THE ASSESSEE PRIMARILY ON THE FACT THAT THE PARTIES ARE RELATED TO THE ASSESSEE AND THUS THE LOSS WAS NOT REAL, WHICH WAS WRITTEN OFF IN THE BOO KS OF ACCOUNT OF THE ASSESSEE. IT WAS FURTHER CONTENDED THAT BOTH THE CONCERNS TO WHOM TH E ADVANCES WERE GIVEN BY THE ASSESSEE WERE CONTRACT MANUFACTURERS OF THE ASSESSE E-COMPANY AND DEPENDENT SOLELY ON THE ASSESSEE FOR THEIR EARNINGS. THAT THEIR SOUL S OURCE OF REVENUE WAS PROCESSING CHARGES PAID BY THE ASSESSEE-COMPANY. THAT THE SAI D CONTRACT MANUFACTURERS WERE OFFERING MOST COMPETITIVE RATES BECAUSE THE ASSESSE E MADE SUBSTANTIAL ADVANCES, WHICH 4 HAD HELPED THE ASSESSEE IN ECONOMIZING ITS COST OF PRODUCTION. THE WORKING CAPITAL ADVANCE PAID BY THE ASSESSEE COULD HAVE BEEN REPAID ONLY OUT OF EARNING MADE BY THEM FROM THE ASSESSEE AND FROM NO OTHER SOURCE. THE AS SESSEE ENTERED INTO SUBVENTION AGREEMENTS WITH BOTH THE PARTIES UNDER WHICH THE AS SESSEE GAVE UP ITS RIGHT TO RECEIVE THE AMOUNTS ADVANCED AND WROTE OFF THE ADVANCES IN ITS BOOKS BECAUSE THE INVESTMENT MADE BY THEM IN THE BODY CORPORATE OR BY WAY OF ADV ANCE HAD PROVED TO BE BAD AND, THEREFORE, BOTH THE COMPANIES HAD MADE PROVISIONS I N THEIR RESPECTIVE BOOKS FOR DIMINUTION IN VALUE INVESTMENT AND PROVISION FOR BA D AND DOUBTFUL ADVANCES. IT WAS ALSO CONTENDED THAT BOTH THE CONTRACT MANUFACTURERS IN T HEIR RESPECTIVE BOOKS FOR THE YEAR ENDED 31 ST MARCH, 2004 WROTE BACK THE AMOUNT OF LIABILITIES A ND, THEREFORE, THE ASSESSEE HAD LOST ALL RIGHTS AND CLAIMS IN RESPECT OF THE AM OUNTS DUE FROM THE CONTRACT MANUFACTURERS. HENCE THE LOSS HAD OCCURRED TO THE ASSESSEE IN ASSESSMENT YEAR 2004-05. THAT THE SUBVENTION AGREEMENTS WERE EXECUTED IN MAR CH, 2004. THE ASSESSEE ALSO PLACED RELIANCE BEFORE LD. C.I.T.(A) ON THE DECISIO N OF HONBLE DELHI HIGH COURT IN THE CASE OF C.I.T. VS. HONDA SIEL POWER PRODUCTS LTD. [ 165 ITR 577). IT IS NOT CORRECT CITATION AND THE CORRECT ONE IS 165 TAXMAN 577 EQUI VALENT TO 300 ITR 56. THE LD. C.I.T.(A) AFTER CONSIDERING THE ABOVE SUBMISSIONS O F THE ASSESSEE DELETED THE DISALLOWANCE MADE BY THE A.O. OF RS.18,51,98,485/- VIDE PARAS 6 TO 9 OF THE IMPUGNED ORDER, WHICH READ AS UNDER :- 6. I HAVE CONSIDERED THE SUBMISSIONS OF THE A/C AN D HAVE PERUSED THE REASONED ORDER PASSED BY THE ASSESSING OFFICER. IT IS NOT IN DISPUTE THAT BOTH M/S. MANGHARAM FOODS PVT. LTD. AND MANNA FOODS PVT. LTD. WERE CONT RACT MANUFACTURERS OF THE APPELLANT. THE SOLE SOURCE FOR THE REVENUE FOR THE SAID 2 CONCERNS, WERE PROCESSING CHARGES RECEIVED FROM THE APPELLANT. IT IS NOT IN DISPUTE THAT THE APPELLANT HAD GRANTED ADVANCES TO THESE PARTIES IN THE EARLIER YE ARS AND IN THE BOOKS OF THE APPELLANT THESE ADVANCES APPEARED AS TRADING ADVANC ES & NOT LOANS. NO INTEREST WAS CHARGED THEREON. IN THE MONTH OF MARCH 2004 THE APP ELLANT EXECUTED SUBVENTION AGREEMENTS WITH BOTH THE COMPANIES UNDER WHICH THE APPELLANTS RIGHT TO RECEIVE BACK THE TRADING ADVANCE WAS EXTINGUISHED AND THERE BY THE APPELLANT LOST ITS RIGHT TO RECOVER BACK ANY SUMS FROM THE SAID 2 COMPANIES. PU RSUANT TO THE SAID SUBVENTION AGREEMENT THE APPELLANT WROTE OFF THE AMOUNTS DUE F ROM BOTH THE PARTIES. IN THE BOOKS OF THE DEBTOR COMPANIES ALSO THE AMOUNT WAIVE D BY THE APPELLANT WAS CREDITED IN THEIR RESPECTIVE PROFIT & LOSS A/CS. FACT LEADIN G TO WRITE OFF WERE DISCLOSED IN THEIR RESPECTIVE AUDITED FINANCIAL STATEMENTS. COPI ES OF THE AUDITED FINAL ACCOUNTS OF BOTH THE DEBTORS WERE FILED FROM WHICH IT APPEARED THAT IN THE CASE OF J.B. MANGHARAM FOODS PVT. LTD. THE FOLLOWING INFORMATION WAS DISCLOSED: 5 DURING THE YEAR, THE COMPANY HAS WRITTEN BACK RS. 6 ,86,02,085/- (P.Y. RS.NIL) BEING WORKING CAPITAL ADVANCE SHOWN UNDER THE HEAD OTHER LIABILITIES AS PER THE SUBVENTION AGREEMENT DATED 25 TH MARCH, 2004 . 7. IT FURTHER APPEARED THAT IN THE ACCOUNTS FOR THE YEAR ENDED 31 ST MARCH 2004 THE SAID J.B. MANGHARAM FOODS PVT. LTD. HAD DEBITED PRO VISION FOR DIMINUTION IN THE VALUE OF ITS INVESTMENT AMOUNTING TO RS.4,18,43,402 /- AND PROVISION FOR BAD & DOUBTFUL ADVANCES AMOUNTING TO RS.2,70,00,000/-. TH E ADVANCES WRITTEN OFF PERTAIN TO THE BUSINESS CARRIED ON BY THE DEBTOR. IN THE AU DITED FINANCIAL STATEMENT OF MANNA FOODS PVT. LTD. THE SAID DEBTOR HAD DISCLOSED THE F OLLOWING NOTE RELATING TO LIABILITIES WRITTEN BACK. IN TERMS OF SUBVENTION AGREEMENT DATED 22 ND MARCH, 2004 WITH BRITANNIA INDUSTRIES LIMITED (BIL) WORKING CAPITAL ADVANCE RE CEIVED FROM BIL AMOUNTING TO RS. 11,65,96,400 HAS BEEN WAIVED BY BI L SUBJECT TO CERTAIN COVENANTS . IT APPEARED FROM THE NOTES ON ACCOUNT OF THE SAID C OMPANY THAT IT HAD WRITTEN OFF IRRECOVERABLE BUSINESS ADVANCES MADE TO VARIOUS PAR TIES AMOUNTING TO RS. 7,63,50,000/- AND DIMINUTION IN VALUE OF INVESTMENT AMOUNTING TO RS.4,02,19,231/-. 8. THESE FACTS THEREFORE, INDICATED THAT BOTH THE C OMPANIES WERE LEFT WITH ADEQUATE ASSETS OUT OF WHICH THEY COULD HAVE REPAID THE TRAD E ADVANCE GRANTED BY THE APPELLANT. AS NOTED FROM THE ACCOUNTS OF THE DEBTOR S THE PRINCIPAL SOURCE OF REVENUE FOR BOTH THE COMPANIES WAS PROCESSING CHARGES RECEI VED FROM THE APPELLANT AND THEREFORE, REPAYMENT OF THE TRADE ADVANCE WOULD HAV E BEEN POSSIBLE ONLY IF THE APPELLANT HAD INCREASED THE PROCESSING CHARGES. BUT FOR THE PAYMENT OF PROCESSING CHARGES BY THE APPELLANT BOTH THE DEBTORS DID NOT H AVE WAREWITHEL OF THEIR OWN TO RAISE SUFFICIENT FUNDS FOR THE REPAYMENT NOR THE CO MPANIES WERE LEFT WITH SUFFICIENT ASSETS OUT OF WHICH THEY COULD HAVE REPAID THE AMOU NTS ADVANCED BY THE APPELLANT. FACTS ON RECORD ESTABLISH THAT THE FINANCIAL POSITI ON OF BOTH THE CONTRACT MANUFACTURERS WAS WEAK IN AS MUCH AS THEY WERE LEFT WITH NO SUFFICIENT ASSETS OUT OF WHICH THEY COULD HAVE REPAID THE TRADING ADVANCE GR ANTED BY THE APPELLANT. IT IS NOT PROVED BY THE A.O. THAT THE INVESTMENTS AND TRADE A DVANCE GRANTED BY THE RESPECTIVE CONTRACT MANUFACTURERS WERE ON ACCOUNT OF THE APPEL LANT OR FOR THE APPELLANTS BENEFIT. BOTH THE CONTRACT MANUFACTURERS CONTINUED TO REMAIN OWNERS OF THE SHARES HELD BY THEM BY WAY OF INVESTMENT. DUE TO CONTINUED LOSSES OF THE INVESTEE COMPANY THE VALUE OF INVESTMENT WAS PERMANENTLY ERO DED FOR WHICH PROVISION WAS MADE IN THE BOOKS WRITING DOWN VALUE OF INVESTMENT. IT IS ALSO NOT THE CASE OF THE A.O. THAT THE TRADING ADVANCES WRITTEN OFF IN THE B OOKS OF THE CONTRACT MANUFACTURERS WERE ADVANCED FOR THE APPELLANTS BUSINESS. THE ADV ANCES WERE GRANTED BY THE CONTRACT MANUFACTURES AND ALWAYS APPEARED IN THEIR BOOKS. IN THE CIRCUMSTANCES WHEN IN THE SUBVENTION AGREEMENT THE APPELLANT WAIV ED ITS RIGHT TO RECEIVE THE AMOUNTS ADVANCED, THE APPELLANT IRREVOCABLY LOST IT S RIGHT TO CLAIM THE REFUND OF SUMS ADVANCED TO BOTH THE PARTIES. UNDER THE CIRCUM STANCES THE AMOUNT WRITTEN OFF WAS CERTAINLY BUSINESS LOSS OF THE APPELLANT. IN AB SENCE OF THE SUBVENTION AGREEMENT, OTHER COURSES THAT WERE OPEN FOR APPELLANT WAS TO G RANT INCREASE IN THE PROCESSING CHARGES TO THE CONTRACT MANUFACTURES OUT F WHICH TH E APPELLANT COULD HAVE RECOVERED ITS TRADING ADVANCE. IN SUCH CASE ALSO THE APPELLAN T WOULD HAVE BEEN ALLOWED DEDUCTION FOR THE EXPENDITURE AND THE TAX EFFECT WO ULD HAVE BEEN THE SAME. UNDER 6 THE CIRCUMSTANCES IF THE APPELLANT WROTE OFF IRRECO VERABLE TRADING: ADVANCE IN ITS BOOKS THEN SUCH AMOUNT WAS ALLOWABLE AS BUSINESS LO SS. FOR CLAIMING DEDUCTION FOR SUCH LOSS IT WAS NOT NECESSARY FOR APPELLANT TO PRO VE THAT THE DEBTORS HAD RUN UP HUGE LOSSES AND THEREBY THEY WERE ON THE BRINK OF INSOLV ENCY. 9. FACTS ON RECORD ON THE OTHER -HAND PROVE THAT TH E ASSETS OF THE CONTRACT MANUFACTURES WERE NOT ADEQUATE TO PAY OFF THE AMOUN T OF TRADING ADVANCE. I ALSO NOTE THAT CONTINUED SUPPORT TO THE CONTRACT MANUFAC TURERS WAS NECESSARY IN THE BUSINESS INTEREST OF THE APPELLANT AS THEY WERE FAC ILITATING TRADING OPERATIONS OF THE APPELLANT. THE APPELLANT HAD AN ESTABLISHED LONG TE RM ARRANGEMENTS WITH BOTH THE COMPANIES FOR SUPPLY OF BISCUITS TO MEET THE GROWIN G DEMAND FOR APPELLANTS BAKERY PRODUCTS. ON THE FACTS OF THE CASE THEREFORE, I FIN D THAT THE DECISION OF THE DELHI HIGH COURT IN THE CASE OF CIT VS. HONDA SIEL POWER PRODU CTS LTD. [165 ITR 577] WAS SQUARELY APPLICABLE. IN THAT CASE THE ASSESSEE WAS ENGAGED IN MANUFACTURE OF PORTABLE GENERATOR SETS WHO ADVANCED CERTAIN AMOUNT S TO THE SUPPLIERS OF TOOLS & DIES FOR COMPONENTS OF GENERATOR SETS. THE ASSESSEE CLAIMED THAT THE ADVANCE PAID WAS NON-RECOVERABLE AND TOOLS & DIES WERE PROPERTIE S OF THE CONTRACT MANUFACTURES / SUPPLIER. THE CLAIM FOR DEDUCTION WAS DISALLOWED BY THE A.O., BUT ALLOWED BY THE TRIBUNAL. WHILE UPHOLDING THE TRIBUNALS ORDER THE COURT FOUND THAT THE MOULDS & DIES OF THE SUPPLIERS FOR WHICH ADVANCE WAS MADE WE RE THE PROPERTIES OF THE SUPPLIER AND THIS WAS DECISIVE IN DECIDING THE NATURE OF EXP ENDITURE. THE COURT FOUND THAT THE TOOLING ADVANCE PAID TO VENDORS WAS NON-RECOVERABLE . NOT ONLY THAT THERE WAS AN ASSURANCE OF CONTINUED SUPPLY OF COMPONENTS, BUT AS RESULT OF THIS ARRANGEMENT THERE WAS A PRICE ADVANTAGE WHICH WAS IN THE REVENUE FIEL D AND THEREFORE, THE COURT ALLOWED THE CLAIM OF THE ASSESSEE. IN THE PRESENT C ASE ALSO BOTH THE DEBTORS ARE CONTRACT MANUFACTURES OF THE APPELLANT WITH WHOM TH E APPELLANT HAS LONG STANDING ARRANGEMENT FOR SUPPLY OF BISCUITS WHICH ARE PROCES SED IN THEIR PLANTS. THE APPELLANT ENJOYS PRICE ADVANTAGE. THESE CONTRACT MANUFACTURER S ALSO ENSURE CONTINUITY IN SUPPLY OF BISCUITS. IN THE CIRCUMSTANCES WHEN THE A PPELLANT FOUND THAT THE ASSETS OF THE DEBTORSJ WERE NOT SUFFICIENT TO REPAY THE TRADE ADVANCE, THE APPELLANT HAD OPTION EITHER TO.. WRITE OFF THE TRADING ADVANCE OR INITIA TE LEGAL PROCEEDINGS OR INCREASE THE PROCESSING CHARGES OUT OF WHICH THE ADVANCE COULD B E RECOVERED. LEGAL PROCEEDING FOR RECOVERY OF ADVANCE WOULD HAVE ADVERSELY AFFECT ED THE APPELLANTS ECONOMIC INTEREST AS SUCH COURSE WOULD HAVE PUT THE SOURCE O F SUPPLY OF BISCUITS, IN JEOPARDY. IN CASE OF OTHER 2 OPTIONS THE LOSS WAS REQUIRED TO BE BORNE BY THE APPELLANT. HAVING REGARD TO THE COMMERCIAL CONSIDERATIONS AND EXPEDIE NCY INVOLVED, THE APPELLANT CHOSE TO WRITE OFF THE TRADING ADVANCE PURSUANT TO SUBVENTION AGREEMENT. IT APPEARED THAT THE SUBVENTION AGREEMENT WERE ACTED U PON BY THE PARTIES. IN THE BOOKS OF THE DEBTORS THE AMOUNTS WRITTEN OFF WERE C REDITED TO THE RESPECTIVE PROFIT & LOSS A/CS. HAVING REGARD TO THE TOTALITY OF THE FAC TS THEREFORE, I FIND THAT WHEN THE APPELLANT ACTUALLY WROTE OFF THE AMOUNTS PURSUANT T O SUBVENTION AGREEMENTS WITH THE PARTIES, THE DEDUCTION WAS ALLOWABLE. ACCORDIN GLY, DISALLOWANCE OF RS. 18,51,98,485/- IS DELETED. HENCE THE DEPARTMENT IS IN APPEAL BEFORE THE TRIBUN AL. 6. ON BEHALF OF THE DEPARTMENT, THE LD. DEPARTMENT AL REPRESENTATIVE SUBMITTED THAT BOTH THE CONCERNS TO WHOM THE ASSESSEE MADE ADVANCE S ARE ASSOCIATE CONCERNS OF THE 7 ASSESSEE AND WERE CONTRACT BISCUITS MANUFACTURERS F OR THE ASSESSEE. THE LD. DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT THE A.O. OBSERVED THAT THE ASSESSEE- COMPANY REIMBURSED THE BILLS RAISED BY THE SAID TWO CONCERNS TOWARDS CONVERSION CHARGES PAYABLE BY THE ASSESSEE. THEREFORE, THE AD VANCES WERE NOT MEANT FOR ADJUSTMENT WITH FUTURE PURCHASES BY THE ASSESSEE FR OM BOTH THESE TWO CONCERNS TO WHOM THE ASSESSEE STATED TO HAVE MADE WORKING CAPITAL AD VANCES. THE LD. DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT THERE WAS NO FORMAL A GREEMENT ENTERED INTO BY THE ASSESSEE WITH THE ABOVE TWO CONCERNS WHILE GIVING A DVANCES AND THE A.O. HAS RIGHTLY STATED THAT THESE WERE THE INVESTMENTS MADE BY THE ASSESSEE-COMPANY IN OTHER ASSOCIATE CONCERNS OF THE ASSESSEE THROUGH JBMFPL AND MFPL. HENCE IT IS A CAPITAL EXPENDITURE AND NOT A REVENUE EXPENDITURE IN THE HANDS OF THE A SSESSEE-COMPANY. THE LD. DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT THE SAID MONEY ADVANCED BY THE ASSESSEE WAS NOT USED FOR DAY TO DAY OPERATIONS BUT FOR THE INVESTMENT IN SHARES AND GIVING LOANS TO OTHERS. HE REFERRED TO PAGES 9 TO 13 OF THE ASS ESSMENT ORDER AND SUBMITTED THAT THE A.O. AFTER CONSIDERING THE PARAMETERS HAS RIGHTLY D ISALLOWED THE CLAIM OF THE ASSESSEE THAT IT DID NOT RELATE TO THE OPERATION OF THE BUSI NESS OF THE ASSESSEE. THE LD. DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT BOTH THE CONCERNS ARE ASSOCIATE CONCERNS OF THE ASSESSEE AND THE ASSESSEE HAS FULL CONTROL OVER THOSE CONCERNS AND, THEREFORE, THE LOSS CLAIMED BY THE ASSESSEE IS HYPOTHETICAL. THE LD. DE PARTMENTAL REPRESENTATIVE SUBMITTED THAT THE ORDER OF THE LD. C.I.T.(A) IS BASED ON CON JECTURE AND SURMISE AND THE SAME SHOULD BE REVERSED BY CONFIRMING THE ACTION OF THE A.O. 7. ON THE OTHER HAND, THE LD. A/R SUPPORTED THE OR DER OF THE LD. C.I.T.(A) AND SUBMITTED THAT THE ASSESSEE-COMPANY EXTENDED ADVANC ES TO AFORESAID TWO CONCERNS TO ENABLE THEM TO CARRY ON DAY TO DAY PRODUCTION AND A LSO TO ENABLE THEM TO DO MODERNIZATION SO THAT THERE COULD BE AN EXPANSION A ND THE DEMAND OF THE ASSESSEE COULD BE MET. THE LD. A/R SUBMITTED THAT THE SAID ADVANC ES WERE MADE BY THE ASSESSEE FOR THE PURPOSE OF ITS BUSINESS AS A MEASURE OF COMMERCIAL EXPEDIENCY. HE SUBMITTED THAT IT WAS A PRUDENT BUSINESS DECISION OF THE ASSESSEE-COM PANY TO MAKE ADVANCES TO ABOVE TWO CONCERNS. RELYING ON THE DECISION OF HONBLE A PEX COURT IN THE CASE OF S.A. BUILDERS VS. C.I.T. [288 I.T.R. 1 (SC)], THE LD. A/ R SUBMITTED THAT THE EXPRESSION COMMERCIAL EXPEDIENCY IS ONE OF WIDE IMPORT AND I NCLUDES SUCH EXPENDITURE AS A 8 PRUDENT BUSINESSMAN INCURS FOR THE PURPOSE OF BUSIN ESS. HE SUBMITTED THAT THE HONBLE APEX COURT HELD THAT EVEN IF THE EXPENDITURE MAY HA VE BEEN INCURRED UNDER ANY LEGAL OBLIGATION, BUT YET IT IS ALLOWABLE AS BUSINESS EXP ENDITURE IF IT WAS INCURRED ON GROUNDS OF COMMERCIAL EXPEDIENCY. HE SUBMITTED THAT ONCE I T IS ESTABLISHED THAT THERE WAS NEXUS BETWEEN THE EXPENDITURE AND PURPOSE OF THE BUSINESS , WHICH NEED NOT NECESSARILY BE THE BUSINESS OF THE ASSESSEE ITSELF, THE REVENUE CANNOT JUSTIFIABLY CLAIM TO PUT ITSELF IN THE ARM OF THE BUSINESSMAN OR IN THE POSITION OF THE BO ARD OF DIRECTORS AND ASSUME THE ROLE TO DECIDE HOW MUCH IS THE REASONABLE EXPENDITURE HA VING REGARD TO THE CIRCUMSTANCES OF THE CASE. THE LD. A/R FURTHER SUBMITTED THAT ON ACC OUNT OF SUBSTANTIAL LOSS TO THE SAID TWO CONCERNS, THE ASSESSEE DECIDED NOT TO INSIST FO R RECOVERY AND ENTERED INTO SUBVENTION AGREEMENT DATED 25 TH MARCH, 2004 TO WAIVE ALL WORKING CAPITAL ADVANCES. THE LD. A/R SUBMITTED THAT IF THE ASSESSEE HAD NOT WAIVED OFF T HE SAID WORKING CAPITAL ADVANCES, BOTH THE CONCERNS HAD NEGATIVE NETWORK AND COULD NOT CAR RY ON THEIR OPERATION. THE LD. A/R SUBMITTED THAT MERELY BECAUSE THE SAID TWO CONCERNS WERE ASSOCIATE CONCERNS OF THE ASSESSEE-COMPANY, A DIFFERENT VIEW COULD NOT BE TAK EN. HE SUBMITTED THAT THE ASSESSEE- COMPANY ACTUALLY SUFFERED LOSS WHEN IT WROTE OFF TH E WORKING CAPITAL ADVANCES IN ITS BOOKS OF ACCOUNT. HE SUBMITTED THAT THE ASSESSEE-C OMPANY HAD TAKEN THE BUSINESS DECISION IN THE INTEREST OF ITS BUSINESS AND TO ENS URE CONTINUED SUPPLY FROM THE CONTRACT BISCUITS MANUFACTURERS. HE SUBMITTED THAT A SIMILA R ISSUE WAS CONSIDERED IN THE ASSESSEES OWN CASE IN ASSESSMENT YEAR 2003-04 IN I TA NO.1789 (KOL)/2008 VIDE ORDER DATED 31/8/2010, COPY PLACED AT PAGES 28 TO 41 OF T HE PAPER BOOK, AND THE TRIBUNAL VIDE PARA 18 OF THE ORDER CONFIRMED THE ORDER OF THE LD. C.I.T.(A) BY REJECTING THE GROUND OF APPEAL TAKEN BY THE DEPARTMENT AND CONFIRMING THE O RDER OF LD. C.I.T.(A) TO ALLOW THE ASSESSEES CLAIM OF DEDUCTION OF RS.1,04,63,615/- W HICH REPRESENTED WRITE OFF IN RESPECT OF LOAN ADVANCED TO M/S. MARVEL AGREX LTD. HE SUBM ITTED THAT THE ORDER OF THE LD. C.I.T.(A) IS JUSTIFIED AND THE SAME SHOULD BE CONFI RMED. 8. IN REJOINDER, THE LD. DEPARTMENTAL REPRESENTATI VE SUBMITTED THAT THE DECISION OF THE TRIBUNAL DATED 31/8/2010 (SUPRA) IS NOT APPLICA BLE TO THE CASE OF THE ASSESSEE AS IN THAT CASE THERE WAS A WRITTEN AGREEMENT AND THE DEB TOR WAS ALSO DECLARED A SICK COMPANY BY BIFR. HENCE THE DEBT WRITTEN OFF WAS AL LOWED UNLIKE IN THE ASSESSMENT YEAR UNDER CONSIDERATION. 9 9. WE HAVE CAREFULLY CONSIDERED THE ORDERS OF THE AUTHORITIES BELOW AND THE SUBMISSIONS OF THE LEARNED REPRESENTATIVES OF THE P ARTIES. WE HAVE ALSO GONE THROUGH THE CASES CITED BY THE AUTHORITIES BELOW AND THE LD . A/R OF THE ASSESSEE (SUPRA). WE OBSERVE THAT THE ASSESSEE-COMPANY IS IN THE BUSINES S OF MANUFACTURE, MARKETING, SALE AND DISTRIBUTION OF BAKERY PRODUCTS, SUCH AS BISCUI TS, CAKE, BREAD ETC. WE OBSERVE THAT THE ASSESSEE-COMPANY HAS GIVEN ADVANCES OF RS.6,86, 02,085/- TO JBMFPL AND OF RS. 11.65.96.400/- TO MFPL AND STATED THAT THE SAME HAV E BEEN GIVEN AS WORKING CAPITAL ADVANCES. WE OBSERVE THAT BOTH THESE CONCERNS ARE CONTRACT BISCUITS MANUFACTURERS FOR THE ASSESSEE-COMPANY. THE ASSESSEE HAS STATED THAT THE SAID ADVANCES ARE IN THE NATURE OF WORKING CAPITAL AND HAVE BEEN GIVEN TO MEET DAY TO DAY OPERATIONS OF THE SAID TWO CONCERNS. WE OBSERVE THAT THE SAID ADVANCES HAD BEE N GIVEN IN THE FINANCIAL YEARS 2000- 01 AND 2001-02, THE DETAILS OF WHICH ARE GIVEN BY T HE A.O. AT PAGES 10 & 12 OF THE ASSESSMENT ORDER AND IN THE BOOKS OF ACCOUNT OF THE ASSESSEE THESE AMOUNTS ARE SHOWN AS TRADING ADVANCES. THE DEPARTMENT HAS NOT DISPUT ED THE ABOVE FACTS. NO INTEREST HAS BEEN CHARGED ON THE AFORESAID ADVANCES GIVEN BY THE ASSESSEE-COMPANY. THE HONBLE DELHI HIGH COURT HAS HELD IN THE CASE OF HONDA SIEL POWER PRODUCTS LTD. (SUPRA) THAT WHERE AN ADVANCE IS MADE BY THE ASSESSEE-COMPANY, M ANUFACTURING PORTABLE GENERATOR SETS, TO SUPPLIERS OF TOOLS AND DIES WHICH ARE REQU IRED FOR COMPONENTS OF GENERATOR SETS TO ENSURE CONTINUED SUPPLY OF COMPONENTS, SUCH ADVA NCES ARE IN THE NATURE OF REVENUE EXPENDITURE, EVEN THOUGH TOOLS AND DIES PURCHASED R EMAINED UNDER THE OWNERSHIP OF SUCH MANUFACTURERS, BECAUSE AS A RESULT OF THIS ARR ANGEMENT THERE WAS A PRICE ADVANTAGE TO THE ASSESSEE-COMPANY. IN THE CASE BEFORE US WE OBSERVE THAT THE ASSESSEE-COMPANY HAS STATED THAT ON ACCOUNT OF ADVANCES MADE BY IT T O THE ABOVENAMED TWO CONCERNS, VIZ. JBMFPL AND MFPL, THE ASSESSEE-COMPANY WAS ASSURED C OMPETENT RATES IN GETTING CONTINUED SUPPLY OF BISCUITS MANUFACTURED ON BEHALF OF THE ASSESSEE-COMPANY AND AS A RESULT OF THIS ARRANGEMENT THERE WAS A PRICE ADVANT AGE TO THE ASSESSEE-COMPANY, WHICH WAS IN THE REVENUE FIELD. WE FURTHER OBSERVE THAT T HE ASSESSEE-COMPANY FOUND THE ASSETS OF CONTRACT BISCUITS SUPPLIERS TO BE INSUFFICIENT T O REPAY THE TRADE ADVANCES. IN THE SAID CIRCUMSTANCES, THE ASSESSEE HAD OPTIONS EITHER TO W RITE OFF THE DEBT OR INITIATE LEGAL PROCEEDINGS AGAINST ITS TRADE DEBTORS OR INCREASE T HE PROCESSING CHARGES, OUT OF WHICH ADVANCES COULD BE RECOVERED. ACCORDING TO THE ASSES SEE, THE MEASURES OF LEGAL ACTION 10 AND INCREASE IN PROCESSING CHARGES WOULD HAVE ADVER SELY AFFECTED ITS OWN ECONOMIC INTEREST AND THE LOSS WAS ULTIMATELY REQUIRED TO BE BORNE BY THE ASSESSEE. THEREFORE, CONSIDERING THE COMMERCIAL CONSIDERATIONS AND EXPED IENCY, THERE WAS NO OTHER OPTION LEFT TO THE ASSESSEE BUT TO WRITE OFF THE TRADE DEB TS PURSUANT TO SUBVENTION AGREEMENT. FURTHER, IN THE BOOKS OF THE DEBTORS, THE AMOUNTS W RITTEN OFF WERE CREDITED TO THEIR RESPECTIVE P/L ACCOUNTS. WE OBSERVE THAT THE DEPAR TMENT HAS NOT DISPUTED THE FACTS THAT THE ASSESSEE WAS ENSURED BY THE CONTRACT MANUFACTUR ERS, TO WHOM THE ADVANCES HAVE BEEN GIVEN BY THE ASSESSEE-COMPANY, CONTINUITY IN S UPPLY OF BISCUITS. WE ALSO OBSERVE ON PERUSAL OF SUBVENTION AGREEMENT ENTERED INTO WIT H THE ABOVE TWO CONCERNS DATED 22/3/2004 WITH MFPL AND DATED 25/3/2004 WITH JBMFPL THAT THE ASSESSEE-COMPANY ADVANCED WORKING CAPITAL ADVANCES TO FACILITATE THE BUSINESS OF MANUFACTURING AND SELLING OF BISCUITS AND IN VIEW OF WEAK FINANCIAL C ONDITION OF THE SAID TWO CONCERNS, THE ASSESSEE-COMPANY DECIDED FOR WAIVER OF ADVANCES. I T IS STATED IN THE SAID SUBVENTION AGREEMENTS THAT THE SAID TWO CONCERNS WILL NOT INCR EASE THE CONTRACT PACKING CHARGES FOR A PERIOD OF FOUR YEARS FROM THE DATE OF COMMENCEMEN T OF THE SAID AGREEMENTS AND WILL ALSO ENDEAVOUR TO REDUCE SUCH CONTRACT PACKING CHAR GES. THE SAID TWO CONCERNS ALSO COMMITTED TO TRAIN ITS EMPLOYEES TO MANUFACTURE/SER VICES OF VARIETIES OF BISCUITS MARKETED BY THE ASSESSEE-COMPANY AND ALSO COMMITTED TO PROVIDE SUCH SERVICES AT COMPETITIVE PRICES. THE ABOVE COVENANTS AND THE FA CTS SUBSTANTIATE THE CONTENTION OF THE ASSESSEE THAT THE ADVANCES HAD BEEN GIVEN BY THE AS SESSEE-COMPANY DUE TO BUSINESS EXPEDIENCY AND IN ITS BUSINESS INTEREST IN THE COUR SE OF ITS BUSINESS TO ENSURE CONTINUED SUPPLY OF BISCUITS. AS HELD BY THE HONBLE APEX CO URT IN THE CASE OF S.A. BUILDERS VS. C.I.T. (SUPRA) THAT THE EXPRESSION COMMERCIAL EXPE DIENCY IS ONE OF WIDE IMPORT AND INCLUDES SUCH EXPENDITURE AS A PRUDENT BUSINESSMAN INCURS FOR THE PURPOSE OF BUSINESS AND IF THE EXPENDITURE IS INCURRED ON THE GROUNDS O F COMMERCIAL EXPEDIENCY, IT IS ALLOWABLE AS BUSINESS EXPENDITURE. WE ALSO OBSERVE THAT THE DEPARTMENT HAS NOT DISPUTED THE FACT THAT IF THE ASSESSEE HAD NOT WRIT TEN OFF/WAIVED THE SAID ADVANCES GIVEN BY IT TO THESE ABOVE TWO CONCERNS, THE SAID TWO CON CERNS HAD NEGATIVE NETWORK AND COULD NOT CARRY ON ITS OPERATION. THEREFORE, WE FI ND MERITS IN THE CONTENTION OF THE LD. A/R THAT IT WOULD HAVE AFFECTED ADVERSELY THE BUSIN ESS INTEREST OF THE ASSESSEE-COMPANY AND THE DECISION WAS TAKEN TO WRITE OFF THE SAID AD VANCES IN THE COURSE OF ITS BUSINESS 11 OPERATION. WE AGREE WITH THE LD. A/R THAT MERELY B ECAUSE THE SAID CONCERNS, TO WHOM ADVANCES HAD BEEN GIVEN, WERE ASSOCIATE CONCERNS OF THE ASSESSEE-COMPANY, IT COULD NOT ALTER THE LEGAL POSITION TO MAKE THE REAL LOSS INTO AN HYPOTHETICAL LOSS OR A FICTITIOUS LOSS AS CONTENDED BY LD. DEPARTMENTAL REPRESENTATIVE AND /OR HELD BY THE A.O. 9.1. IN VIEW OF OUR DISCUSSIONS ABOVE, WE UPHOLD T HE ORDER OF LD. C.I.T.(A) IN DELETING THE DISALLOWANCE OF RS.18,51,98,485/-, WHICH WAS MA DE BY THE A.O. GROUND NO.1 OF THE REVENUES APPEAL IS, THEREFORE, DISMISSED. 10. GROUND NO.2 OF THE APPEAL READS AS UNDER :- 1. THAT THE LD. CIT(A)S ACTION WAS NOT PROPER IN HIS TREATMENT OF SHARE BUY BACK EXPENSES AS REVENUE EXPENDITURE WITHOUT ASSIGNING D EFINITE REASONS OR DISTINGUISHING ON FACT THE DECISION OF APEX COURT. 11. WE OBSERVE THAT THE ABOVE ISSUE IS COVERED BY THE DECISION OF I.T.A.T., C BENCH, KOLKATA DATED 31/8/2010 IN THE ASSESSEES OW N CASE FOR ASSESSMENT YEAR 2003-04 IN ITA NO.1789/KOL/2008 AND THE TRIBUNAL VIDE PARA- 6 OF THE ORDER AFTER CONSIDERING THE DECISION OF HONBLE APEX COURT IN THE CASE OF P UNJAB STATE INDUSTRIAL DEVELOPMENT CORPN. LTD. [225 ITR 792 (SC)] DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE. COPY OF THE SAID ORDER OF THE TRIBUNAL IS PLACED ON PAGES 28 TO 41 OF THE PAPER BOOK. FACTS AND CIRCUMSTANCES OF THE ASSESSEES CASE FOR THE ASSESS MENT YEAR UNDER CONSIDERATION BEING IDENTICAL TO THOSE FOR ASSESSMENT YEAR 2003-04, WE RESPECTFULLY FOLLOWING THE SAID ORDER OF THE TRIBUNAL HOLD THAT THE LD. C.I.T.(A) HAS RIG HTLY DELETED THE DISALLOWANCE OF RS.11,42,963/- BY TREATING THE EXPENDITURE ON SHARE BUY BACK AS REVENUE EXPENDITURE. THEREFORE, GROUND NO.2 OF THE REVENUES APPEAL STAN DS DISMISSED. 12. GROUND NO.3 OF THE APPEAL READS AS UNDER :- 1. THAT SOFTWARE CHARGES CANNOT BE CON SIDERED AS REVENUE EXPENSES AND HENCE LD. CIT(A) WAS NOT JUSTIFIED IN DELETING THE ADDITIONS MADE BY THE A.O. 13. WE OBSERVE THAT THE ABOVE ISSUE IS ALSO COVERE D BY THE ORDER OF I.T.A.T., KOLKATA BENCH C DATED 16/9/2005 IN ITA NO.1189/KOL/2004 I N THE CASE OF ACIT VS. GONTERMANN PEIPERS (INDIA) LTD., WHEREIN THE TRIBUN AL IN PARAS 10 TO 19 OF THE ORDER HELD AS UNDER :- 10. WE FIRST DEAL WITH THE OBJECTION OF A.O. HOLDI NG THAT THE ASSESSEE WAS OBTAINING ENDURING BENEFIT FROM THE INSTALLATION OF SUCH SOFT WARE. IN OUR OPINION, IT WOULD BE MISLEADING TO ASSUME THAT IN CASES, SECURING A BENE FIT FOR THE BUSINESS WOULD BE, 12 PRIMA FACIE, CAPITAL EXPENDITURE SO LONG AS THE BEN EFIT IS NOT SO TRANSITORY AS TO HAVE NO ENDURANCE AT ALL. THERE MAY BE CASES WHERE THE E XPENDITURE, EVEN IF INCURRED FOR OBTAINING ADVANTAGE OF ENDURING BENEFIT, MAY, NONET HELESS, BE ON REVENUE ACCOUNT AND THE TEST OF ENDURING BENEFIT MAY BREAK DOWN. WH AT IS MATERIAL TO CONSIDER IS THE NATURE OF THE ADVANTAGE IN A COMMERCIAL SENSE AND I T IS ONLY WHERE THE ADVANTAGE IS IN THE CAPITAL FIELD THAT THE EXPENDITURE WOULD BE DIS ALLOWABLE ON AN APPLICATION OF THIS TEST. 11. THE HONBLE SUPREME COURT IN ONE OF ITS LANDM ARK DECISIONS IN CASE OF EMPIER JUTE CO. LTD. VS.- CIT REPORTED IN 24 ITR PAGE 1 H AS HELD THAT ADVANTAGE CONSISTS MERELY IN FACILITATING THE TRADING OPERATIONS OR EN ABLING THE MANAGEMENT AND CONDUCT OF THE BUSINESS TO BE CARRIED ON MORE EFFICIENTLY O R MORE PROFITABLY WHILE LEAVING THE FIXED CAPITAL UNTOUCHED, THE EXPENDITURE WOULD BE O N REVENUE ACCOUNT, EVEN THOUGH THE ADVANTAGE MAY ENDURE FOR AN INDEFINITE FUTURE. THE TEST OF ENDURING BENEFIT IS, THEREFORE, NOT A CERTAIN OR CONCLUSIVE TEST AND IT CANNOT BE APPLIED BLINDLY AND MECHANICALLY WITHOUT REGARD TO THE PARTICULAR FACTS AND CIRCUMSTANCES OF A GIVEN CASE. 12. COMING TO THE EXPENDITURE MADE BY THE ASSESSE E ON ACCOUNT OF SOFTWARE, WE DO FIND THAT THE SOFTWARES, GENERALLY, DO NOT HAVE A L ONG LIFE. THESE SOFTWARES DO NOT BRING INTO EXISTENCE A NEW ASSET OR ANY BENEFIT OF AN ENDURING NATURE. THE BUYER ONLY ACQUIRES THE SOFTWARE ARID NOT THE COPYRIGHTS IN SU CH SOFTWARES ITSELF. ACCORDINGLY, NO NEW ASSET IS BEING CREATED NOR ANY BENEFIT OF AN EN DURING NATURE ARISES TO THE BUYER. 13. WE ALSO FIND THAT SUCH EXPENDITURE INCURRED B Y THE ASSESSEE HAS BEEN MADE FOR MEETING THE RAPID GROWTH IN THE FIELD OF COMPUTER T ECHNOLOGY AND FOR UPGRADATION OF ITS COMPUTER SYSTEM WHICH WAS NECESSARY FOR THE SMO OTH RUNNING OF ITS BUSINESS. THE HONBLE CALCUTTA HIGH COURT IN CASE OF CIT -VS.- HE ALTH & CO (CALCUTTA) (P.) LTD. REPORTED IN 114 ITR 605 HAS HELD THAT A PAYMENT MAD E TO REMOVE THE POSSIBILITY OF RECURRING DISADVANTAGE CANNOT BE CONSIDERED AS A PA YMENT MADE TO ACQUIRE AN ENDURING ADVANTAGE. 14. WE ALSO FIND THAT THE HONBLE APEX COURT IN A NOTHER LANDMARK DECISION HAS TAKEN AN IDENTICAL VIEW IN CASE OF ALEMBIC CHEMICAL S WORKS CO. LTD. -VS.- CIT REPORTED IN 177 ITR 377, WHEREIN IT WAS OBSERVED AS UNDER :- IT WOULD, IN OUR OPINION, BE UNREALISTIC TO IGNORE THE RAPID ADVANCES IN RESEARCH IN ANTIBIOTIC MEDICAL MICROBIOLOGY AND TO ATTRIBUTE A DEGREE OF ENDURABILITY AND PERMANENCE TO THE TECHNICAL KNOW-H OW AT ANY PARTICULAR STAGE IN THIS FAST CHANGING AREA OF MEDICAL SCIENCE . THE STATE-OF-ART IN SOME OF THESE AREAS OF HIGH PRIORITY RESEARCH IS CONSTANTLY UPDATED SO THAT KNOW-HOW COULD NOT BE SAID TO BEAR THE ELEMENT OF THE REQUIS ITE DEGREE OF DURABILITY AND NON-EPHEMERALITY TO SHARE THE REQUIREMENTS AND QUAL IFICATIONS OF AN ENDURING BENEFIT CAPITAL ASSET. THE RAPID STRIDES IN SCIENC E AND TECHNOLOGY I THE FIELD SHOULD MAKE US A LITTLE SLOW AND CIRCUMSPECT IN TOO READILY PIGEONHOLDING AN OUTLAY SUCH AS THIS AS CAPITAL 15. THE HONBLE JURISDICTIONAL HIGH COURT IN CASE OF CIT VS.- KARANPURA DEVELOPMENT CO. LTD. REPORTED IN 144 ITR 538 HAS AL SO HELD THAT WHEN THE PREDOMINANT AND MAIN PURPOSE OF INCURRING THE EXPEN DITURE WAS TO CARRYING ON THE 13 BUSINESS, ALTHOUGH THE INCIDENTAL ADVANTAGE IS OF S OME ENDURANCE, IT CANNOT EFFECT THE REVENUE NATURE OF THE EXPENDITURE. 16. CALCUTTA TRIBUNAL ON SIMILAR ISSUE IN CASE OF ITC CLASSIC FINANCE LIMITED VS.- DCIT REPORTED IN 112 TAXMAN 155 HAS HELD THAT THE S OFTWARE EXPENSES ARE ALLOWABLE AS REVENUE EXPENSE ON THE PREMISE THAT THE SOFTWARE WAS NEEDED IN EVERY ESTABLISHMENT FOR DAY-TO-DAY WORK. 17. APART FROM ABOVE, VARIOUS OTHER BENCHES OF TRIBUNAL HAVE ALSO HELD THAT THE SOFTWARE EXPENSES ARE REVENUE IN NATURE. APART FROM THE ORDER OF 1TAT. JAIPUR BENCH RELIED BY THE LD. A.R., ITAT. DELHI BENCH IN CASE O F MEDIA VIDEO LIMITED VS.- JCJT REPORTED IN 122 TAXMAN 28 HELD AS UNDER : IN THE MODERN TIMES, WHERE GLOBALIZATION, LIBERALIZ ATION AND COMPUTERIZATION ARE TAKING PLACE IN THE INDUSTRY AT A VERY FAST SPE ED, THE SOFTWARE IS VERY SIGNIFICANT APPARATUS WHICH BRINGS QUALITATIVE IMPR OVEMENT IN THE FUNCTIONING OF AN ORGANIZATION. THUS, THE SOFTWARE HAS TO BE U PDATED VERY FREQUENTLY. IT BECOMES OBSOLETE VERY FAST. IT DOES NOT CREATE ANY NEW ASSET. IT DOES NOT BRING ANY LONG ENDURING BENEFIT. THUS, THE EXPENDI TURE ON SOFTWARE COULD NOT BE HELD TO BE CAPITAL EXPENDITURE. ACCORDINGLY, TH E DISALLOWANCE WAS TO BE DELETED. 19. IN VIEW OF THE ABOVE AND THE JUDICIAL PRONOU NCEMENT, WE FIND THAT THE TECHNOLOGY IS CHANGED AT A RAPID PACE AND IT DIRECT LY AFFECTS THE WAY OF BUSINESS IS DONE. SINCE THE TECHNOLOGY BECOMES OBSOLETE VERY F AST AND AS SUCH NO ENDURING BENEFIT IS ENJOYED BY INVESTING IN SOFTWARE PACKAGE S AS DUE TO RAPID DEVELOPMENT IN THE FIELD OF COMPUTER TECHNOLOGY. NEW SOFTWARES AR E DEVELOPED WITH MORE ADVANCED FEATURES AND TECHNOLOGY. AS A RESULT, THE EXISTING SOFTWARE BECOMES REDUNDANT AND NEEDS TO BE REPLACED WITH NEW ONE AND, THEREFORE, N O SOFTWARE HAS A LIFE OF MORE THAN A YEAR AND ACCORDINGLY, IN THAT CASE, THE EXPENSES INCURRED FOR THE ACQUISITION OF THE SOFTWARE HAS TO BE TREATED AS REVENUE IN NATURE. W E, THEREFORE, KEEPING IN VIEW THE ABOVE FACTS AND CIRCUMSTANCES OF THIS CASE AND TAKI NG INTO CONSIDERATION THE ABOVE JUDICIAL PRONOUNCEMENT BY VARIOUS COURTS AND BENCHE S OF TRIBUNAL INCLUDING HONBLE JURISDICTIONAL HIGH COURT AND HONBLE SUPRE ME COURT, ARE OF THE OPINION THAT THE LD. CIT(A) WHILE DELETING THE DISALLOWANCE MADE BY THE A.O. HAS PASSED A WELL REASONED AND SPEAKING ORDER WHICH DOES NOT CAL L FOR ANY INTERFERENCE AT OUR END. WE, THEREFORE, UPHOLD SUCH ORDER OF LD. CIT(A) AND REJECT THE GROUND RAISED BY THE REVENUE IN THIS REGARD. 14. WE FURTHER OBSERVE THAT I.T.A.T., KOLKATA BENC H A VIDE ORDER DATED 31/10/2010 IN ITA NO. 412/KOL/2010 IN THE CASE OF ITO VS. JUBI LEE INVESTMENTS & INDS. LTD. BY FOLLOWING THE SPECIAL BENCH DECISION OF I.T.A.T., D ELHI BENCH IN THE CASE OF AMWAY INDIA ENTERPRISES VS. DCIT [111 ITD 112 (DELHI)] HA S UPHELD THE ORDER OF LD. C.I.T.(A) ON THIS ISSUE AND DISMISSED THE GROUND OF APPEAL OF THE REVENUE. THE SPECIAL BENCH (SUPRA) HELD THAT SINCE SOFTWARE BECOMES OBSOLETE W ITH TECHNOLOGICAL INNOVATION AND 14 ADVANCEMENT WITHIN A SHORT SPAN OF TIME, IT CAN BE SAID THAT WHERE LIFE OF THE COMPUTER SOFTWARE IS SHORTER (SAY LESS THAN TWO YEARS), IT M AY BE TREATED AS REVENUE EXPENDITURE. IT WAS FURTHER HELD THAT NATURE OF ADVANTAGE OF COM PUTER SOFTWARE HAS TO BE SEEN IN A COMMERCIAL SENSE. IT WAS FURTHER HELD THAT IF THE ADVANTAGE IS IN THE CAPITAL FIELD THEN THE SAME WOULD BE CAPITAL EXPENDITURE. IF THE ADVA NTAGE CONSISTS MERELY IN FACILITATING THE ASSESSEES TRADING OPERATIONS OR ENABLING THE M ANAGEMENT AND CONDUCT OF THE ASSESSEES BUSINESS TO BE CARRIED ON MORE EFFICIENT LY OR MORE PROFITABLY, WHILE LEAVING THE FIXED CAPITAL UNTOUCHED, THE EXPENDITURE WOULD BE ON REVENUE ACCOUNT. 15. HONBLE DELHI HIGH COURT HAS HELD IN THE CASE OF CIT VS. G.E. CAPITAL SERVICES LTD. [300 ITR 420 (DEL)] THAT COST OF UPGRADATION O F SOFTWARE IS A REVENUE EXPENDITURE. IN VIEW OF THE ABOVE, THERE IS NO INFIRMITY IN THE ORDER OF LD. C.I.T.(A) IN DELETING THE DISALLOWANCE MADE BY THE A.O. ON THIS COUNT. WE, TH EREFORE, UPHOLD THE ORDER OF LD. C.I.T.(A) ON THIS ISSUE BY REJECTING GROUND NO.3 TA KEN BY THE DEPARTMENT. 16. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. 4 !3 '5! 6 5% 7 48 THIS ORDER IS PRONOUNCED IN OPEN COURT ON 11.02.2011. SD/- SD/- ( . .. . . .. . ) !' ( . . . . . . . . ) (C.D.RAO) , ACCOUNTANT MEMBER (B.R.MITTAL) , JUDICIAL MEMBER ( (( ( ' ' ' ') )) ) DATE: 11-02-2011 !3 1 /$$9 :!9';- COPY OF THE ORDER FORWARDED TO : 1. +, / THE APPELLANT : A.C.I.T., CIRCLE-7, KOLKATA. 2 /0+, / THE RESPONDENT : M/S.BRITANNIA INDUSTRIES LTD., 5/1A, HUNGERFORD STREET, KOLKATA-700 017. 3. $3% () : THE CIT(A)-VIII, KOLKATA. 4. $3%/ THE CIT, KOL- 5 . ?$7 /$% / DR, ITAT, KOLKATA BENCHES, KOLKATA 6 . GUARD FILE . 09 /$/ TRUE COPY, !3%5/ BY ORDER, (DKP) @ A / DY/ASSTT. REGISTRAR .
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