SAGITTARIANS INTERNATIONAL Ltd., Kolkata V. D.C.I.T.Cir - 8,kol, Kolkata

ITA 1714/KOL/2012

• Counselvise Citation: [2015] 121 COUNSELVISE.COM (IT) 0498 (ITAT-KOLKATA)
• Duration Of Justice: 2 year(s) 6 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-06-2015
• Appeal Filed By: Assessee
• Bench Allotted: C
• Assessment Year: 2006-2007
• Appeal Filed On: 21-11-2012
• Court: TRIBUNAL
• Department Lawyers: K L KANAK
• Assessee Lawyers: ALOKE KR GHOSH
• Keywords: Business expenditure; Competent authority
• Section: 143(3); 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH: KOLKATA [BEFORE SHRI MAHAVIR SINGH, JM & SHRI B. P. JAIN, AM ] I.T.A NO. 1 714 /KOL/201 2 ASSESSMENT YEAR : 200 6 - 0 7 SAGITTARIANS INTERNATIONAL LTD. VS. DEPUTY COMMISSIONER OF INCOME - TAX, (PAN: AA ECS6227H CIRCLE - 8, KOLKATA. ( APPELLANT ) ( RESPONDENT ) DATE OF HEARING: 27 .0 4 .2015 DATE OF PRONOUNCEMENT: 09. 0 6 . 2015 FOR THE APPELLANT: SHRI ALOKE KR. GHOSH, ADVOCATE FOR THE RESPONDENT: S HRI K. L. KANAK , JCIT , SR. DR ORDER PER SHRI MAHAVIR SINGH, JM: THIS APPEAL BY ASSESSEE IS ARISING OUT OF ORDER OF CIT(A) - V I II , KOLKATA IN APPEAL NO. 326 / CIT(A) - V II I / KOL/08 - 09 DATED 07 . 09 .20 12 . ASSESSMENT WAS FRAMED BY D CIT, CIRCLE - 8 , KOLKATA U/S. 143(3) OF THE INCOME - TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT ) FOR ASSESSMENT YEAR 200 6 - 0 7 VIDE HIS ORDER DATED 1 2 .1 1 .200 8 . 2. THE SOLE ISSUE IN THIS APPEAL OF ASSESSEE IS AGAINST THE ORDER OF CIT(A) CONFIRMING THE ACTION OF AO IN DISALLOWING THE EXPENSES OF RESEARCH & DEVELOPMENT. FOR THIS, ASSESSEE HAS RAISED FOLLOWING THREE GROUNDS: 1. FOR THAT UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. ASSESSING AUTHORITY AND THE LD. APPELLATE AUTHORITY FAILED AND NEGLECTED TO APPRE CIATE THE FACTS AND NATURE OF BUSINESS CARRIED ON BY THE PETITIONER COMPANY AND THE ENTIRE OBSERVATIONS IN RESPECT TO SUCH DISALLOWANCE OF EXPENSES WHICH ARISES OUT OF RESEARCH & DEVELOPMENT WORK OF ONE EQUIPMENT FOR CONTROL OF VEHICLE POLLUTION, IS BAD IN LAW AND LIABLE TO BE QUASHED. 2. FOR THAT THE LD. APPELL A TE AUTHORITY AS WELL AS THE LD ASSESSING AUTHORITY SHOULD HAVE APPRECIATED THAT THE PETITIONER COMPANY HAS BEEN DE AL ING WITH DIFFERENT ENGINEERING PRODUCTS AND FOR FURTHERANCE OF ITS BUSINESS THE PETITIONER UNDERTOOK RESEARCH AND DEVELOPMENT WORK OF ONE EQUIPMENT FOR AUTOMOBILE POLLUTION CONTROL WHICH IS NEED OF THE DAY AND THE ENTIRE EX P ENSES SO INCURRED IN CARRYING OUT THE SAID RESEARCH WORK WHICH IS AN ONGOING PROCESS TILL THE FINAL APPROVAL BY THE COMPETENT AUTHORITY, IS VERY MUCH IN THE NATURE OF BUSINESS EXPENSES AND THE SAM E IS ALLOWABLE. 3. FOR THAT THE LD. APPELLATE AUTHORITY FAILED TO APPRECIATE THE SUBMISSI O N AND DOCUMENTS AS WAS FILED BY THE APPELLANT TO SUBSTANTIATE THE NATU R E OF EXPE NSES AND THE SAID ORDER IS OTHERWISE ARBITRARY IN ALL RESPECT A N D IS LIABLE TO BE QUASHED AND/OR DEL ETED. 3. BRIEFLY STATED FACTS ARE THAT THE ASSESSEE HAS DEBITED A SUM OF RS.7,21,207/ - AS PROJECT EXPENSES WRITTEN OFF WHICH WAS INCURRED BY ASSESSEE IN PAST YEARS IN CONNECTION WITH TESTING OF MULTI FUEL SYSTEM BY AUTOMOTIVE RESEARCH ASSOCIATION OF INDIA. THE 2 ITA NO. 1714 /K/201 2 SAGITTARIANS INTERNATIONAL LTD.. AY 200 6 - 0 7 AO DISALLOWED THIS EXPENDITURE FOR THE REASON THAT THE ASSESSEE HAS ABANDONED THE PROJECT AND WHOLE EXPENSES HAS CLAIMED AS DEDUCTION UNDER THE HEAD P ROJECT E XPENSES W RITTEN O FF . THE AO DISALLOWED IN VIEW OF SPECIFIC PROVISION OF SECTION 37(1) OF THE ACT B Y HOLDING THAT EXPENSES ARE NOT EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS AND HENCE, NOT ALLOWABLE. AGGRIEVED, ASSESSEE PREFERRED APPEAL BEFORE CIT(A), WHO ALSO CONFIRMED THE ACTION OF AO BY OBSERVING AS UNDER: I HAVE CAREFULLY CONSIDE RED THE SUBMISSION PUT FORWARD BY THE APPELLANT ALONG WITH THE SUPPORTING DOCUMENTS FURNISHED, PERUSED THE FACTS OF THE CASE INCLUDING THE FINDING OF THE AO IN THE IMPUGNED ASSESSMENT ORDER AND THE OTHER MATERIALS BROUGHT ON RECORD. I HAVE ALSO GONE THROUG H THE CONTENTS OF THE VARIOUS CORRESPONDENCES MADE BY THE APPELLANT WITH THE TRANSPORT DEPARTMENT, GOVT. OF WEST BENGAL AND WITH ARAI AND THE NATURE OF PROFORMA INVOICE FOR ADVANCE PAYMENT MADE. I DO NOT FIND ANY SUBSTANTIAL FORCE IN THE ARGUMENT PUT FORWA RD BY THE APPELLANT. ON THE OTHER HAND I DO FIND CONVINCING REASONING IN THE OBSERVATION OF THE AO THAT THE PROJECT EXPENSES WRITTEN OFF WERE INCURRED BY THE APPELLANT IN PAST YEARS IN CONNECTION WITH THE TESTING OF MULTI FUEL SYSTEM BY AUTOMOTIVE RESEARC H ASSOCIATION OF INDIA AND THEREFORE NOT AN ALLOWABLE EXPENDITURE IN THE RELEVANT AY. I AGREE WITH THE CONTENTION OF THE AO THAT THE APPELLANT HAD NO BUSINESS ACTIVITY IN PAST YEARS OR IN THE RELEVANT YEAR WHICH CAN BE SAID TO BE RELATED TO 'MULTI FUEL SYS TEM' AND THE CLAIM OF EXPENDITURE IS DISALLOWABLE. THEREFORE, IT IS SEEN THAT THE AO HAS DISALLOWED THE CLAIM OF THE APPELLANT IN VIEW OF THE SPECIFIC PROVISION OF SECTION 37(1) OF THE ACT BY HOLDING THAT THE EXPENSES ARE NOT EXPENDED WHOLLY AND EXCLUSIVEL Y FOR THE PURPOSE OF THE BUSINESS AND HENCE NOT ALLOWABLE EXPENDITURE. IN MY OPINION, THE VIEW OF THE AO IS CORRECT SO AS THE NON - ALLOWABILITY OF THE EXPENDITURE U/S 37(1) OF THE ACT IS CONCERNED. THE FURTHER OPINION OF THE AO THAT EVEN OTHERWISE THE EXPE NSES RELATING TO PRIOR PERIOD IS NOT ALLOWABLE, IS ALSO HELD TO BE LEGALLY CORRECT AND THEREFORE, THE ACTION OF THE AO IN DISALLOWING THE EXPENDITURE CLAIM OF THE APPELLANT UNDER THE HEAD 'PROJECT EXPENSES WRITTEN OFF' IS UPHELD. THUS, THIS GROUND OF APPEA L OF THE APPELLANT IS DISMISSED. 4. WE HAVE HEARD RIVAL SUBMISSIONS AND GONE THROUGH FACTS AND CIRCUMSTANCES OF THE CASE. WE FIND THAT THE ASSESSEE HAS DEBITED A SUM OF RS.7,21,207/ - AS PROJECT EXPENSES WRITTEN OFF, WHICH WAS INCURRED BY THE ASSESSEE I N PAST YEARS IN RESPECT TO TESTING OF MULTI FUEL SYSTEM BY AUTOMOTIVE RESEARCH ASSOCIATION OF INDIA. WE FIND THAT THE AO DISALLOWED THE CLAIM IN VIEW OF SPECIFIC PROVISION OF SECTION 37(1) OF THE ACT BY HOLDING THAT THE EXPENSES ARE NOT EXPENDED WHOLLY AN D EXCLUSIVELY FOR THE PURPOSE OF BUSINESS AS NO BUSINESS ACTIVITY IN PAST YEARS OR IN THE RELEVANT YEAR ARE CARRIED OUT, WHICH CAN BE SAID TO BE RELATED TO MULTI FUEL SYSTEM. HE FURTHER OPINED THAT THESE EXPENSES RELATES TO PRIOR PERIOD I.E. INCURRED IN F Y 2004 - 05 RELEVANT TO AY 2005 - 06 AND NOT TO THE FY 2005 - 06 RELEVANT TO AY UNDER DISPUTE 2006 - 07. TODAY, WHEN LD. COUNSEL FOR THE ASSESSEE WAS ENQUIRED ABOUT THE YEAR OF INCURRING OF THESE EXPENSES AND ALSO WHETHER THE ASSESSEE IS IN THE BUSINESS OF POLLUT ION CONTROL DEVICES, HE CATEGORICALLY ADMITTED THAT THIS IS A NEW LINE OF BUSINESS, WHICH WAS TO BE STARTED. ACCORDING TO HIM, THIS WAS ON - 3 ITA NO. 1714 /K/201 2 SAGITTARIANS INTERNATIONAL LTD.. AY 200 6 - 0 7 GOING PROCESS AND THESE EXPENSES ARE FOR EARNING OF FUTURE INCOME. WE FIND NO SUBSTANCE IN THE ARGUMENT OF THE LD. COUNSEL FOR THE ASSESSEE AND THE LOWER AUTHORITIES HAVE GIVEN A CONCURRENT FINDING THAT THERE IS NO BUSINESS RELATING TO THIS PROJECT, WHICH IS ABANDONED. IN SUCH CIRCUMSTANCES, WE CONFIRM THE ORDERS OF THE LOWER AUTHORITIES AND THIS ISSUE OF ASSESSEE S APPEAL IS DISMISSED. 5 . IN THE RESULT, APPEAL OF ASSESSEE IS DISMISSED. 6 . ORDER IS PRONOUNCED IN THE OPEN COURT ON 09.06.2015 . SD/ - SD/ - (B. P. JAIN) (MAHAVIR SINGH) ACCOUNTANT MEMBER J UDICIAL MEMBER DATED : 9 TH JUNE, 201 5 JD. SR. P.S COPY OF THE ORDER FORWARDED TO: 1 . A PPELLANT SAGITTARIANS INTERNATIONAL LTD., 46A, RAFI AHMED KIDWAI ROAD, KOLKATA - 700 016 . 2 RESPONDENT DCIT, CIR - 8, KOLKATA 3 . THE CIT (A), KOLKATA 4. 5. CIT KOLKATA DR, KOLKATA BENCHES, KOLKATA / TRUE COPY, BY ORDER, ASSTT. REGISTRAR .