The DCIT, Circle-1(1)(1), Ahmedabad V. Aagam Infrabuild Pvt. Ltd., Ahmedabad

ITA 1762/AHD/2016

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 8148 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 11 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-06-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2012-2013
• Appeal Filed On: 30-06-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: V K SINGH
• Keywords: Capital asset; Depreciation; Period of limitation; Revenue expenditure; Capital expenditure
• Section: 37(1); 32; 37

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, AHMEDABAD .. , , BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER & MS. MADHUMITA ROY, JUDICIAL MEMBER ./ I.T.A. NO.1762/AHD/2016 ( / ASSESSMENT YEAR : 2012-13) THE DCIT CIRCLE-1(1)(1) AHMEDABAD / VS. AAGAM INFRABUILD PVT.LTD. 9,AMUL SOCIETY NR.SHARDAMANDIR ROAD SUKHIPURA, PALDI AHMEDABAD & ./ ./ PAN/GIR NO. : AAICA 8530 G ( &) / APPELLANT ) .. ( *+&) / RESPONDENT ) &), / APPELLANT BY : SHRI V.K. SINGH, SR.DR *+&)-, / RESPONDENT BY : -NONE- .-/ / DATE OF HEARING 23/04/2018 0123-/ / DATE OF PRONOUNCEMENT 06/06/2018 / O R D E R PER MS. MADHUMITA ROY JM: THE APPEAL FILED BY THE REVENUE IS DIRECTED AGAIN ST THE ORDER PASSED BY THE COMMISSIONER OF INCOME TAX(APPEALS)-I , AHMEDABAD [CIT(A) IN SHORT] DATED 29.04.2016 ARISING OUT OF THE ASSESSMENT ORDER PASSED UNDER S.143(3) OF THE INCOME TAX ACT, 1961 ( HEREINAFTER REFERRED ITA NO. 1762/AH D/2016 DCIT VS. AAGAM INFRABUILD PVT.LTD. ASST.YEAR 2012-13 - 2 - TO AS 'THE ACT') DATED 03/03/2015 FOR THE ASSESSM ENT YEAR (AY) 2012- 13. 2. THE FOLLOWING GROUNDS HAVE BEEN RAISED BY THE R EVENUE IN ITS APPEAL:- (1) THAT THE LD.CIT(A) ERRED IN LAW AND ON FACTS I N DELETING THE ADDITION OF RS.4,22,091/- MADE ON ACCOUNT OF DISALL OWANCE OF DEPRECIATION CLAIMED ON CAR. (2) THAT THE LD.CIT(A) ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS.68,030/- MADE BEING CESSATION OF LIA BILITY. (3) THAT THE LD.CIT(A) ERRED IN LAW AND ON FACTS I N DELETING THE ADDITION OF RS.88,240/- MADE ON ACCOUNT OF WEBSITE DEVELOPMENT EXPENDITURE. (4) THAT THE LD.CIT(A) ERRED IN LAW AND ON FACTS I N DELETING THE ADDITION OF RS.1,07,21,475/- MADE ON ACCOUNT OF AD VERTISEMENT EXPENDITURE. 3. THE RELEVANT FACTS AS CULLED OUT FROM THE MATER IALS ON RECORD IN RESPECT OF GROUND NO.1 IS THIS THAT THE ASSESSEE-COMPANY HA S PURCHASED BMW MOTOR CAR OF RS.2,83,940/- IN THE NAME OF SHRI ABHA YKUMAR SHAH, DIRECTOR OF THE ASSESSEE-COMPANY OUT OF THE FUND OF THE ASSESSEE- COMPANY ITSELF. THE ASSESSEE CLAIMED DEPRECIATION OF RS.4,22,091/- ON THE SAID ASSET. ITA NO. 1762/AH D/2016 DCIT VS. AAGAM INFRABUILD PVT.LTD. ASST.YEAR 2012-13 - 3 - DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AS SESSING OFFICER (AO) WANTED TO BE SATISFIED AS TO WHETHER THE ASSESSEE-COMPANY IS FULFILLING THE TWO CONDITIONS WHILE ASKING FOR D EPRECIATION ON THE ASSET; FIRSTLY, WHETHER THE ASSET SHOULD BE OWNED BY THE A SSESSEE-COMPANY SINCE IT IS A MOVABLE ASSET AND SECONDLY, WHETHER THE ASS ET IS USED BY THE ASSESSEE-COMPANY FOR ITS OWN BUSINESS PURPOSES. TH E AO ISSUED NOTICE UNDER S.142(1) OF THE ACT ANNEXED WITH SHOW-CAUSE N OTICE DATED 09/02/2015 DIRECTING THE ASSESSEE TO FURNISH THE FO LLOWING DETAILS:- (I) LOG BOOK SHOWING USE OF VEHICLE FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE. (II) COPY OF REGISTRATION OF VEHICLE WITH THE REGIONAL T RANSPORT OFFICER. (III) COPY OF THE PAYMENT OF TAX/REGISTRATION CHARGES MAD E IN RESPECT OF VEHICLE CONCERNED. (IV) COPY OF PURCHASE BILL OF CAR/S. (V) REASON FOR REGISTERING THE VEHICLE IN THE NAME OF D IRECTOR/S WHEREAS IT HAS BEEN CLAIMED THAT THE PAYMENT HAS BE EN MADE OUT OF THE FUND OF THE ASSESSEE COMPANY AND THE DEP RECIATION THEREON HAS ALSO BEEN CLAIMED BY THE ASSESSEE COMPA NY. (VI) DIFFERENCE AMOUNT OF REGISTRATION CHARGES ON ACCOUN T OF REGISTRATION OF VEHICLE IN THE NAME OF DIRECTOR/S I NSTEAD OF COMPANY. (VII) THE COPY OF THE RESOLUTION OF THE BOARD PASSED FOR REGISTERING THE VEHICLE IN THE NAME OF THE DIRECTOR , IF ANY (ALONG WITH RESOLUTION BOOK FOR VERIFICATION). (VIII) THE AMOUNT OF EXPENDITURE CLAIMED IN PROFIT & LOSS ACCOUNT ON ACCOUNT OF SUCH VEHICLES, WHICH ARE NOT OWNED BY THE ASSESSEE COMPANY. ITA NO. 1762/AH D/2016 DCIT VS. AAGAM INFRABUILD PVT.LTD. ASST.YEAR 2012-13 - 4 - THE ASSESSEE-COMPANY WAS DIRECTED TO SHOW-CAUSE AS TO WHY THE DEPRECIATION CLAIMED ON SUCH VEHICLES, THE OWNERSHI P OF WHICH IS NOT WITH THE ASSESSEE-COMPANY AND ARE NOT REGISTERED IN THE NAME OF THE ASSESSEE-COMPANY SHOULD NOT BE DISALLOWED AND THUS ADDED BACK TO THE TOTAL INCOME OF THE ASSESSEE-COMPANY. IN RESPONSE TO THE SAME, THE ASSESSEE-COMPANY BY AND UNDER REPLY DATED 23.02.201 5 INFORMED THE AO THAT THE DIRECTOR NAMELY, SHRI ABHAYKUMAR SHAH WAS DULY AUTHORIZED FOR EXECUTING THE SAID TRANSACTION ON THE BASIS OF THE NECESSARY BOARD RESOLUTION PASSED UNANIMOUSLY. THE ASSESSEE FURTHE R SUBMITTED THE PURCHASE BILL OF THE CAR ALONG WITH THE PHOTOCOPY O F THE PROOF OF REGISTRATION WITH THE REGIONAL TRANSPORT OFFICE AND ITS RESPECTIVE LEDGER ACCOUNTS. IT WAS ALSO POINTED OUT BY THE ASSESSEE- COMPANY THAT THE BMW CAR WAS ENTIRELY USED FOR THE PURPOSE OF BUSINE SS OF THE ASSESSEE- COMPANY AND NOT FOR THE PERSONAL USE OF THE DIRECTO R WHO IS HAVING A PERSONAL CAR BEING HONDA CITY ZX GXI FOR HIS PERSO NAL USE AND THE CAR IN QUESTION WAS EXCLUSIVELY GIVEN BY THE ASSESSEE-C OMPANY TO THE DIRECTOR FOR THE USE OF THE COMPANY ITSELF WHICH IS SUPPORTED AND SUBSTANTIATED BY THE BOARD RESOLUTION PASSED UNANIM OUSLY TO THAT EFFECT. ACCORDING TO THE AO, THE CONDITIONS SPECIFIED UNDER SECTION 32 OF THE ACT FOR CLAIMING DEPRECIATION ARE NOT FULFILLE D. IT IS NOT PROVED THAT THE DOMINION OF THE CAR LIES WITH THE ASSESSEE SINC E THE ASSESSEE IS NOT THE REGISTERED OWNER OF THE CAR. ACCORDING TO THE AO, THE ASSESSEE HAS ITA NO. 1762/AH D/2016 DCIT VS. AAGAM INFRABUILD PVT.LTD. ASST.YEAR 2012-13 - 5 - FURTHER FAILED TO PROVE THAT THE VEHICLE WAS USED F OR THE BUSINESS PURPOSE SINCE NO LOG BOOKS WERE MAINTAINED FOR THE SAID PUR POSE. HE FURTHER ADDED THAT SINCE THE ASSESSEE-COMPANY IS A SEPARATE LEGAL ENTITY DISTINCT FROM ITS DIRECTOR, THE VEHICLE PURCHASED BY ITS DIR ECTOR IN HIS NAME CANNOT BECOME THE PROPERTY OF THE ASSESSEE-COMPANY UNLESS THE SAME IS TRANSFERRED/SOLD TO THE ASSESSEE-COMPANY. PROVIDIN G FUNDS TO THE DIRECTOR FOR PURCHASING OF THE SAID VEHICLE WILL SI MPLY NOT CONFER OWNERSHIP UPON THE ASSESSEE-COMPANY. THE TRANSACTI ON IS BETWEEN THE TWO SEPARATE ENTITIES, THE PURCHASE OF ASSET BY ONE WILL NOT AUTOMATICALLY BECOME ASSET OF FUND PROVIDER EVEN IF REGISTRATION REQUIREMENT IS IGNORED AS CLAIMED BY THE ASSESSEE. HE THUS DISALLOWED THE CLAIM OF THE ASSESSEE OF DEPRECIATION OF RS.4,22,091/- ON THE BMW MOTOR C AR AND ADDED BACK TO THE TOTAL INCOME OF THE ASSESSEE-COMPANY. WHILE DEALING WITH THE APPEAL PREFERRED BY THE ASSE SSEE, THE CIT(A) CONSIDERED THE WRITTEN SUBMISSION FILED BY T HE ASSESSEE BEFORE HIM AND ULTIMATELY ALLOWED THE CLAIM OF THE ASSESSE E-COMPANY. BEFORE THE CIT(A), THE ASSESSEE-COMPANY REITERATED THE SUB MISSION TO THIS EFFECT THAT FOR CLAIMING DEPRECIATION UNDER SECTION 32 OF THE ACT, IT IS NOT NECESSARY THAT THE ASSESSEE-COMPANY HAS TO BE THE R EGISTERED OWNER OF THE ASSET. IN THIS PARTICULAR CASE, THE BOARD HAS TAKEN A RESOLUTION AUTHORIZING THE DIRECTOR TO PURCHASE THE CAR FOR THE PURPOSE OF THE BUSINESS OUT OF THE FUND ARRANGED BY THE ASSESSEE-COMPANY AND MERELY BE CAUSE THE ITA NO. 1762/AH D/2016 DCIT VS. AAGAM INFRABUILD PVT.LTD. ASST.YEAR 2012-13 - 6 - REGISTRATION IS DONE IN THE NAME OF THE DIRECTOR CA NNOT BE A GROUND FOR DISALLOWANCE OF THE LEGITIMATE CLAIM OF DEPRECIATIO N TO THE ASSESSEE- COMPANY. THE ASSESSEE-COMPANY FURTHER SUBMITTED BEFORE THE CIT(A) THAT THE CAR WAS PURCHASED OUT OF THE FUND OF THE ASSESS EE-COMPANY, THE ASSESSEE HAD DOMINION OVER THE VEHICLE AND MERELY R EGISTRATION IN THE NAME OF DIRECTOR DOES NOT PROVE ITS USE BY THE DIRE CTOR. FURTHER THAT THE CAR IS USED EXCLUSIVELY FOR THE PURPOSE OF THE BUSI NESS OF THE ASSESSEE- COMPANY AND NOT FOR THE PERSONAL USE OF THE DIRECTO R AND THEREFORE THERE IS NO NEED FOR THE ASSESSEE TO MAINTAIN LOG BOOKS. 4. NONE APPEARED ON BEHALF OF THE RESPONDENT-ASSESS EE NOR ANY WRITTEN SUBMISSION HAS BEEN FILED AT THE TIME OF HE ARING OF THE MATTER. 5. BEFORE US, THE LD.DR FOR THE REVENUE, STRONGLY R ELIED UPON THE ORDER OF THE AO AND SUBMITTED THAT THE CIT(A) HAS P ASSED THE ORDER ALLOWING THE DEPRECIATION ON A WRONG PREMISE ITSELF . ACCORDING TO HIM, SINCE THE VEHICLE WAS PURCHASED IN THE NAME OF THE DIRECTOR OF THE ASSESSEE-COMPANY AND IS BEING USED BY THE DIRECTOR THOUGH FUNDED BY THE ASSESSEE-COMPANY. THE ASSESSEE-COMPANY NEITHER MAINTAINED THE LOG BOOK SHOWING THE USE OF THE CAR FOR BUSINESS PURPOS E ONLY AND, THEREFORE, ITA NO. 1762/AH D/2016 DCIT VS. AAGAM INFRABUILD PVT.LTD. ASST.YEAR 2012-13 - 7 - DOES NOT FULFILL THE CONDITIONS FOR CLAIMING DEPREC IATION UNDER SECTION 32 OF THE ACT. 6. WE HAVE HEARD THE LD.DR AND PERUSED THE MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE CASE-LAWS RELIED BY TH E ASSESSEE BEFORE THE CIT(A). WE FIND THAT THE IDENTICAL CASES CAME UP B EFORE THE DELHI TRIBUNAL WHERE THE ASSESSEE CLAIMED DEPRECIATION OF MOTOR CYCLE WHICH WAS NOT REGISTERED IN THE NAME OF THE ASSESSEE AND BY ITS ORDER DATED 07.07.1980, THE LD.TRIBUNAL GRANTED DEPRECIATION I N THE LIGHT OF THE ORDER OF THE COORDINATE BENCH OF TRIBUNAL (BOMBAY) IN THE CASE OF SBC (P) LTD. IN ITA NO.6 (BOM) 1974-75. SINCE THE VEHICLE IN QUESTION IS A MOVABLE ASSET, THE TRIBUNAL HELD THAT REGISTRATION AS REQUIRED IN THE CASE OF TRANSFER OF IMMOVABLE PROPERTY IS NOT A CONDITIO N PRECEDENT FOR LEGAL OWNERSHIP. THE SAME QUESTION HAS ALSO BEEN COVERED BY SEVERAL CASE- LAWS. WE HAVE CONSIDERED THE FOLLOWING JUDGEMENTS RELIED UPON BY THE ASSESSEE-COMPANY BEFORE THE CIT(A) IN THIS RESPECT: (I) MM FISHERIES (P) LTD. 277 ITR 204 (DEL.). (II)TAMILNADU CIVIL SUPPLIES CORPORATION LTD. VS. CIT 249 ITR 214(SC) (III)MYSORE MINERALS LTD. VS. CIT 239 ITR 775(SC). (IV) CIT VS. PODAR CEMENT (P.) LTD. (1997) 226 ITR 625. (V) SBC (P) LTD. IN ITA NO.6 (BOM) 1974-75, ITAT, BOMBAY (VI)MOHAMED BUXSHOKAT ALI 256 ITR 355 (RAJ.) (VII) CIT VS. SALKIA TRANSPORT ASSOCIATES (1983) 3 3 CTR (CAL) 198: 1983) 143 ITR 39 (CAL): TC 27R.266 (VIII) CONTINENTAL CONSTRUCTION LTD. VS. CIT (1990 ) 85 CTR (DEL) 116: ITA NO. 1762/AH D/2016 DCIT VS. AAGAM INFRABUILD PVT.LTD. ASST.YEAR 2012-13 - 8 - (1990) 185 ITR 178 (DEL) : TC 26R.532, CIT VS. DIL IP SINGH SARDARSINGH BAGGA (1993) 201 ITR 995 (BOM) : AND CI T VS MIRZA ATAULLAHA BAIG & ANR. (1993) 202 ITR 291 (BOM): TC 27R.217. FACTUALLY, THE VEHICLES ARE SHOWN AS ASSET IN THE BALANCE-SHEET OF THE ASSESSEE-COMPANY AND RUNNING & MAINTENANCE EXPE NSES ARE BORNE BY THE ASSESSEE-COMPANY AND SUCH MAINTENANCE EXPENDITU RE ON THE VEHICLE IN QUESTION HAVE BEEN ALLOWED BY THE AO AS REVENUE EXPENDITURE WHICH IS CONTRARY TO THE FINDING OF THE AO AND THEREFORE THE AO SHOULD HAVE ALLOWED THE CLAIM OF THE ASSESSEE. IN THAT VIEW OF THE MATTER AND IN THE ABSENCE OF ANY CONTROVERTING MATERIAL BROUGHT ON RECORD BY THE REVENUE AT THE TI ME OF HEARING BEFORE US, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF TH E LD.CIT(A) AND THE SAME IS HEREBY UPHELD AND THUS THE SAID GROUND OF A PPEAL OF THE REVENUE IS DISMISSED. 7. THE SECOND GROUND OF APPEAL PERTAINS TO DELETION OF ADDITION OF RS.68,030/- MADE ON ACCOUNT OF CESSATION OF LIABILI TY. THE FACT IS THIS THAT THE ASSESSEE IN THE BALANCE-SHEET HAS SHOWN SU NDRY CREDITOR IN RESPECT OF MARUTI CONSTRUCTION OF RS.68,030/- AS OU TSTANDING. 8. THE AO BY AND UNDER A QUESTIONNAIRE DATED 09.02. 2015 DIRECTED ASSESSEE TO ANSWER AS TO WHY THE SUNDRY CREDITOR SH OWN AS OUTSTANDING ITA NO. 1762/AH D/2016 DCIT VS. AAGAM INFRABUILD PVT.LTD. ASST.YEAR 2012-13 - 9 - SINCE LONG SHOULD NOT BE ADDED BACK IN VIEW OF SECT ION 41(1) OF THE ACT. IN RESPONSE THEREOF, THE ASSESSEE VIDE LETTER DATED 23/02/2015 SUBMITTED THAT THE ASSESSEE HAD NOT OBTAINED ANY BENEFIT IN R ESPECT OF AFORESAID TRADING LIABILITY EITHER BY WAY OF REMISSION OR CES SATION THEREOF. MORE SO, THE LIABILITY IS STILL LEFT TO BE SETTLED ON ACCOUN T OF PENDING DISPUTE. THE ASSESSEE HAS NOT OBTAINED ANY BENEFIT IN RESPECT OF EXPENDITURE INCURRED ON THAT TRADING LIABILITY WHICH WAS ALLOWED AS A DE DUCTION IN ANY OTHER PREVIOUS YEARS AND THEREFORE PROVISIONS OF SECTION 41(1) DOES NOT APPLY. ACCORDING TO THE AO, THE SAID OUTSTANDING LIABILITY IS OF A PERIOD EXCEEDING THREE YEARS UNDER CONSIDERATION AND TH E SAME HAS NOT BEEN PAID OFF EVEN ELAPSE OF THREE YEARS WHICH ACCORDING TO THE LIMITATION ACT, 1963 CEASED AFTER THE COMPLETION OF THREE YEARS FRO M THE CLOSE OF THE YEAR IN WHICH THE SAID ITEM ADMITTED OR PROVED IS ENTERE D IN THE ACCOUNT AND THUS THE LIABILITY OF THE ASSESSEE-COMPANY TO PAY I TS DEBTS HAS CEASED TO EXIST. ACCORDING TO HIM, THIS IS A TRADING LIABILI TY, I.E. THE LIABILITY TO SUPPLY GOODS, FURTHER BENEFIT HAS BEEN DERIVED BY T HE ASSESSEE-COMPANY BY WAY OF NOT PAYING THE LIABILITIES IN RESPECT OF GOODS/SERVICES/ADVANCE FOR SUPPLY OF GOODS AND SERVICES AND SAME FALLS WIT HIN THE PURVIEW OF SECTION 41(1) OF THE ACT. THE AO FURTHER ADDED WHE N THE CREDITORS IN QUESTION ARE NOT TRACEABLE, THEN PAYMENT OF TRADING LIABILITY DOES NOT ARISE AND THE LIABILITY WITH REGARD TO MAKING PAYMENT COM ES TO AN END AND THERE IS CESSATION OF THE LIABILITY UNDER S.41(1). THE AO THUS ADDED AN ITA NO. 1762/AH D/2016 DCIT VS. AAGAM INFRABUILD PVT.LTD. ASST.YEAR 2012-13 - 10 - AMOUNT OF RS.68,030/- TREATING THE SAME AS DEEMED I NCOME OF THE ASSESSEE UNDER THE PROVISIONS OF SECTION 41(1) OF T HE ACT. 9. THE LD.CIT(A) WHILE DEALING WITH THE APPEAL HAD GONE THROUGH THE WRITTEN SUBMISSION SUBMITTED BY THE ASSESSEE. THE CIT(A) HAS ALSO TAKEN INTO CONSIDERATION OF VARIOUS JUDGEMENTS RELIED UPO N BY THE ASSESSEE IN THIS RESPECT AND PARTICULARLY THE PROVISIONS OF SEC TION 41(1) OF THE ACT AND ALLOWED THE GROUND OF APPEAL BY DELETING THE DISALL OWANCE MADE BY THE AO UNDER S.41(1) OF THE ACT OF RS.68,030/-. 10. THE LD.DR FOR THE REVENUE STRONGLY RELIED UPON CONTENTION MADE BY THE AO WHILE PASSING THE ORDER OF ADDITION OF R S.68,030/-. 11. WE HAVE HEARD THE LD.DR AND PERUSED THE MATERIA L AVAILABLE ON RECORD AS WELL AS THE ORDERS OF THE AUTHORITIES BEL OW. THE MAIN CONTENTION RAISED BY THE ASSESSEE BEFORE THE CIT(A) IS THIS THAT IT HAS NOT OBTAINED ANY BENEFIT IN RESPECT OF THE AFORESAID TR ADING LIABILITY EITHER BY WAY OF REMISSION OR CESSATION THEREOF. THE LIABI LITY IS STILL LEFT TO BE SETTLED ON ACCOUNT OF PENDING DISPUTE. NEITHER THE ASSESSEE OBTAINED ANY BENEFIT IN RESPECT OF EXPENDITURE INCURRED ON THE S AID TRADING LIABILITY WHICH WAS ALLOWED AS DEDUCTION IN ANY OTHER PREVIOU S YEARS. WE HAVE GONE THROUGH THE CASE-LAWS RELIED UPON BY THE ASSES SEE BEFORE THE CIT(A). IN THE CASE OF CIT VS. SUGAULI SUGAR WORKS (P) LTD. 236 ITR ITA NO. 1762/AH D/2016 DCIT VS. AAGAM INFRABUILD PVT.LTD. ASST.YEAR 2012-13 - 11 - 519 (SC) IT IS HELD THAT WHEN UNCLAIMED LIABILITIE S ARE WRITTEN BACK, THEN AS A MATTER OF GENERAL RULE IT CANNOT BE SAID THAT ASSESSEE HAS OBTAINED BENEFIT AND SECTION 41(1) OF THE ACT. THE HONBLE APEX COURT FURTHER DECIDED THE PRINCIPLE THAT THE EXPIRY OF THE PERIOD OF LIMITATION PRESCRIBED UNDER THE LIMITATION ACT, 1963, COULD EXTINGUISH T HE DEBT BUT IT WOULD ONLY PREVENT THE CREDITORS FROM ENFORCING THE DEBT. IT IS FURTHER DECIDED IN THE CASE OF CIT VS. SILVER COTTON MILLS CO.LTD. (2001) 170 CTR 377 (GUJ.) THAT IF UNCLAIMED LIABILITIES ARE NOT WRITTE N OFF, THE LIABILITY TO TAX UNDER S.41(1) DOES NOT ARISE. WE HAVE ALSO GONE THROUGH THE JUDGEMENT OF HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. BH OGILAL RAMJIBHAI ATARA IN TAX APPEAL NO.588 OF 2013 DATED 04/02/2014 AS WELL AS THE JUDGEMENT IN THE CASE OF CIT VS. NITIN S.GARG (201 2) 22 TAXMANN.COM 59 (GUJ.) WHERE IDENTICAL ISSUE HAS BEEN CONSIDERED . IN THIS PARTICULAR CASE, THE LIABILITIES AS MENTIONED HEREINABOVE ARE CONTINUOUSLY ADMITTED BY THE ASSESSEE IN ITS BALANCE-SHEET AND THE ASSESS EE HAS NOT OBTAINED ANY BENEFIT EITHER BY WAY OF REMISSION OR CESSATION OF ANY LIABILITY, NO ADDITION UNDER S.41(1) OF THE ACT WAS WARRANTED IN THE CASE OF THE ASSESSEE-COMPANY. THE CIT(A) FURTHER ADDED THAT TH E LIABILITY OF RS.68,030/- INCURRED BY THE ASSESSEE DURING THE ASS ESSMENT YEAR UNDER CONSIDERATION I.E. FINANCIAL YEAR (FY) 20/11/2012 A ND THE AY 20/12/2013 ONLY AND THREE YEARS HAVE NOT EXPIRED DU RING THE YEAR UNDER ITA NO. 1762/AH D/2016 DCIT VS. AAGAM INFRABUILD PVT.LTD. ASST.YEAR 2012-13 - 12 - CONSIDERATION. THEREFORE, THE LIABILITY HAS NOT BE COME TIME-BARRED DURING THE RELEVANT ASSESSMENT YEAR. LOOKING TO THE TOTAL ITY OF THE CASE, WE FIND THAT SECTION 41(1) OF THE ACT IS NOT APPLICABLE TO THE INSTANT CASE AND SUCH LIABILITY CANNOT BE DISALLOWED IN THE RELEVANT ASSE SSMENT YEAR 2012-13 AND THUS WE UPHELD THE ORDER PASSED BY THE CIT(A) I N DELETING THE ADDITION OF RS.68,030/- MADE BY THE AO ON ACCOUNT O F CESSATION OF LIABILITY. THUS, GROUND NO.2 OF THE APPEAL OF THE REVENUE IS REJECTED. 12. THE THIRD GROUND OF APPEAL PERTAINS TO DELETION OF ADDITION OF RS.88,240/- MADE ON ACCOUNT OF WEBSITE DEVELOPMENT EXPENDITURE. IN THE INSTANT CASE, THE ASSESSEE HAS CLAIMED AN AM OUNT OF RS.88,240/- ON ACCOUNT OF WEBSITE DEVELOPMENT EXPEN SES PAID TO G.R.INFOSYS. THE AO ISSUED A QUESTIONNAIRE DATED 0 9/02/2015 REQUESTING THE ASSESSEE TO EXPLAIN WHY THE SAID EXP ENSES WOULD NOT BE TREATED AS CAPITAL EXPENDITURE AND ACCORDINGLY THE SAME SHOULD NOT BE DISALLOWED. IN RESPONSE THEREOF, THE ASSESSEE VIDE ITS SUBMISSION DATED 23.02.2015 EXPLAINED THAT THE EXPENSES INCURRED FOR WEBSITE DEVELOPMENT CANNOT BE EQUATED WITH ACQUISITION OF SOFTWARE OR T O BE TREATED AS CAPITAL EXPENDITURE. SUCH EXPENSES WERE INCURRED BY THE AS SESSEE TO PROMOTE THE BUSINESS INTEREST AND THUS REVENUE IN NATURE. SUCH SUBMISSION WAS NOT ACCEPTED BY THE AO. THE AO DISALLOWED THE SAM E MAINLY ON THE BASIS THAT THE EXPENSES INCURRED ON ACCOUNT OF DEVE LOPMENT OF WEBSITE IS APPARENTLY OF ENDURING BENEFIT AND THUS THE SAME FA LLS UNDER THE CATEGORY ITA NO. 1762/AH D/2016 DCIT VS. AAGAM INFRABUILD PVT.LTD. ASST.YEAR 2012-13 - 13 - OF CAPITAL EXPENDITURE AND THE AO MADE AN ADDITION A SUM OF RS.88,240/- TO THE TOTAL INCOME OF THE ASSESSEE-COMPANY. IN AP PEAL, THE CIT(A) CONSIDERED THE SUBMISSIONS MADE BY THE ASSESSEE AND ALSO THE JUDGEMENTS RELIED UPON AND ALLOWED THE EXPENDITURE AMOUNTING TO RS.88,240/- INCURRED BY THE ASSESSEE TOWARDS WEBSIT E DEVELOPMENT BY DELETING THE DISALLOWANCE MADE BY THE AO HOLDING SU CH EXPENDITURE AS CAPITAL IN NATURE. 13. WE HAVE HEARD THE LD.DR. THE LD.DR RELIED UPON THE ORDER PASSED BY THE AO AND PRAYED FOR ADDITION OF RS.88,240/- ON ACCOUNT OF WEBSITE DEVELOPMENT EXPENDITURE OF THE ASSESSEE-COMPANY.WE HAVE CONSIDERED THE SUBMISSIONS MADE BY THE ASSESSEE IN THE ASSESSM ENT PROCEEDING, OBSERVATION MADE BY THE AO AS WELL AS THE FINDINGS AND DECISION OF THE LD.CIT(A) IMPUGNED BEFORE US AND THE GROUNDS NARRA TED BY THE REVENUE IN THE INSTANT APPEAL. WE HAVE GONE THROUGH THE SEVERAL JUDGEMENTS PASSE D ON THIS ISSUE. IN THE CASE OF ALEMBIC CHEMICAL WORKS CO.LT D. VS. CIT (1989) 177 ITR 377 IT IS HELD BY THE HONBLE SUPREME COURT THAT THE TEST OF ENDURING BENEFIT IS NOT A CERTAIN AND CONCLUSIVE TE ST, IT CANNOT BE APPLIED BLINDLY AND MECHANICALLY WITHOUT REGARD TO PARTICUL AR FACTS AND CIRCUMSTANCES GIVEN IN THE CASE. ONCE THE TESTS OF OWNERSHIP AND ENDURING BENEFIT ARE SATISFIED, THE QUESTION WHETHE R EXPENDITURE INCURRED ITA NO. 1762/AH D/2016 DCIT VS. AAGAM INFRABUILD PVT.LTD. ASST.YEAR 2012-13 - 14 - ON WEBSITE DEVELOPMENT IS CAPITAL OR REVENUE HAS TO BE SEEN FROM THE POINT OF VIEW OF ITS UTILITY TO A BUSINESSMAN AND H OW IMPORTANT AN ECONOMIC OR FUNCTIONAL ROLE IT PLAYS IN HIS BUSINES S. IN THE PRESENT CASE, THE WEBSITES ENABLE COMPANIES TO DO WHAT THE PRINTE D BROCHURES DID BUT, IN A MUCH MORE EFFICIENT MANNER AS WELL AS IN A MUC H SHORTER PERIOD OF TIME COVERING A MUCH LARGER SET OF PEOPLE WORLDWIDE . THE ADVANCE OF TECHNOLOGY AND THE WIDE SPREAD USE OF THE INTERNET HAS PROVIDED A VERY POWERFUL MEDIUM TO COMPANIES TO PUBLICIZE THEIR ACT IVITIES TO A LARGER SPECTRUM OF PEOPLE AT A MUCH LOWER COST. IT DOES N OT LEAD INTO ADDITION INTO THE CAPITAL BASE OF THE COMPANY BUT ONLY HELPS IN THE PROMOTION OF THE BUSINESS OF THE COMPANY. IT IS ALSO DECIDED BY THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF M/S.EDELWE ISS CAPITAL LTD. THAT EVEN IF THE WEBSITES HAD MATERIALIZED, THE EXPENDIT URE COULD NOT HAVE BEEN VIEWED AS CAPITAL EXPENDITURE BECAUSE THE WEBS ITE IS PUT UP FOR THE PURPOSE OF DAY-TO-DAY RUNNING OF THE BUSINESS AND E VEN IF IT IS SEEN THAT SOME ENDURING BENEFIT IS OBTAINED BY THE ASSESSEE, THE BENEFIT CANNOT BE SAID TO ACCRUE TO THE ASSESSEE IN THE CAPITAL FIELD . A WEBSITE IS SOMETHING WHERE FULL INFORMATION ABOUT THE ASSESSEES BUSINES S IS GIVEN AND IT HELPS THE ASSESSEES CUSTOMERS IN DEALING WITH IT. A WEBS ITE CONSTANTLY NEEDS UPDATING, OTHERWISE IT MAY BECOME OBSOLETE. IT HEL PS IN THE SMOOTH AND EFFICIENT RUNNING OF THE DAY-TO-DAY BUSINESS. THE E XPENDITURE WOULD HAVE BEEN ALLOWABLE AS REVENUE EXPENDITURE. IN THE CASE OF EMPIRE JUTE CO. LTD. VS. CIT (1980) 124 ITR 01, THE HONBLE SUPREME COURT OBSERVED ITA NO. 1762/AH D/2016 DCIT VS. AAGAM INFRABUILD PVT.LTD. ASST.YEAR 2012-13 - 15 - THAT IF THE ADVANTAGE CONSISTS MERELY IN FACILITATI NG THE ASSESSEES TRADING OPERATIONS OR ENABLING THE MANAGEMENT AND CONDUCT O F THE ASSESSEES BUSINESS TO BE CARRIED ON MORE EFFICIENTLY OR MORE PROFITABLY WHILE LEAVING THE FIXED CAPITAL UNTOUCHED, THE EXPENDITUR E WOULD BE ON REVENUE ACCOUNT, EVEN THOUGH THE ADVANTAGE MAY ENDURE FOR A N INDEFINITE FUTURE. CONSIDERING THE ENTIRE FACTS OF THE MATTER, JUDGEME NTS PASSED BY VARIOUS TRIBUNALS, HIGH COURT AND THE RATIO LAID DOWN BY TH E HONBLE SUPREME COURT IN THIS REGARD, WE ARE OF THE CONSIDERED OPIN ION THAT THE EXPENDITURE INCURRED BY THE ASSESSEE ON ACCOUNT OF WEBSITE DEVELOPMENT IS REVENUE IN NATURE AND WE THUS UPHELD THE DECISIO N OF THE LD.CIT(A)AND DISMISS THE SAID GROUND OF APPEAL PREFERRED BY THE REVENUE. 14. GROUND NO.4 RELATES TO DELETION OF ADDITION OF RS.1,07,21,475/- MADE ON ACCOUNT OF ADVERTISEMENT EXPENDITURE BY THE LD.CIT(A). 15. THE AO IN HIS ASSESSMENT ORDER OBSERVED THAT TH E ASSESSEE- COMPANY HAS INCURRED ADVERTISEMENT EXPENDITURE OF RS.1,42,95,299/- AND SUCH EXPENDITURE IS OF ENDURING NATURE; SUCH EX PENSES WOULD FETCH INCOME OR BENEFIT TO THE ASSESSEE IN SUBSEQUENT YEA RS WHEN CLOSING STOCK OF WORK-IN-PROGRESS IS SOLD. THE AO FURTHER OPINED THAT BY INCURRING SUCH EXPENDITURE THE ASSESSEE WOULD CREATE A BRAND OF ITS OWN AND SUCH EXPENDITURE IS REQUIRED TO BE CAPITALIZED AND ON TH AT PREMISE THE AO HELD THAT THE ASSESSEE CANNOT GET THE BENEFIT OF AMORTIZ ATION OF MORE THAN 1/4 TH ITA NO. 1762/AH D/2016 DCIT VS. AAGAM INFRABUILD PVT.LTD. ASST.YEAR 2012-13 - 16 - EXPENDITURE AND MADE DISALLOWANCE OF RS.1,07,21,475 /- TREATED TO BE AS PART OF CLOSING WORK-IN-PROGRESS. THE ASSESSEE DUR ING THE COURSE OF APPELLATE PROCEEDINGS FILED A WRITTEN SUBMISSION WH EREIN IT WAS STATED THAT THE EXPENDITURE OF ADVERTISEMENT AS MENTIONED HEREINABOVE IS TO PROMOTE THE BUSINESS OF THE COMPANY AND TO CREATE A WARENESS OF MONEY INVESTORS REGARDING THE SCHEME INITIATED BY ASSESSE E-COMPANY. THE ADVERTISEMENT MADE BY THE ASSESSEE-COMPANY WILL HAV E ITS IMPACT ONLY FOR A LIMITED PERIOD. THE PEOPLE WILL REMEMBER ADVE RTISEMENTS BY WAY OF HOARDINGS PUT UP BY THE ASSESSEE-COMPANY ONLY TILL THE TIME IT IS PUT ON AND FORGET THE SAME AT A LATER STAGE. THE CONTENTIO N MADE BY THE AO AS THE EXPENDITURE ON ADVERTISEMENT BE OF ENDURING NAT URE IS NOT CORRECT, HAD IT BEEN LIKE THIS, THERE WOULD HAVE BEEN NO REQ UIREMENT FOR THE ASSESSEE-COMPANY TO INCUR HUGE EXPENDITURE IN SUBSE QUENT YEARS ON THE SAME ACCOUNT. IT IS A FACT THAT THE ASSESSEE-COMPA NY HAS INCURRED HUGE ADVERTISEMENT EXPENDITURE IN SUBSEQUENT YEARS TOO W HICH PROVES THAT SUCH EXPENDITURE IS NOT ENDURING NATURE BUT DELIVER S THE RESULTS ONLY FOR A SHORT SPAN OF TIME. ACCORDING TO THE ASSESSEE, BY I NCURRING THE EXPENDITURE ON ADVERTISEMENT, THE ASSESSEE-COMPANY DID NOT ACQUIRE IN FIXED CAPITAL ASSET SINCE IT WAS ONLY INCURRED TO P ROMOTE BUSINESS IN THE REAL ESTATE MARKET AND THUS THE SAME SHOULD BE TREA TED AS REVENUE EXPENDITURE. RELIANCE WERE MADE ON THE FOLLOWING JUDGEMENTS BY THE ASSESSEE:- ITA NO. 1762/AH D/2016 DCIT VS. AAGAM INFRABUILD PVT.LTD. ASST.YEAR 2012-13 - 17 - (A) DY.CIT VS. GODREJ TEA LTD. 4 ITR (TRIB) 649 (B) ITO VS. M/S. ELKA COSMETIC PVT.LTD. (ITAT DEL HI) (C) CIT VS. BHARAT ALUMINIUM CO.LTD. 303 ITR 256 HC (DELHI) (D) SILICON GRAPHICS SYSTEMS (I) (P) LTD. VS. DCI T 106 TTJ 1153 ITAT (DELHI). FURTHER THAT NOWHERE IN THE INCOME-TAX ACT, IT IS PROVIDED THAT THE EXPENDITURE SHOULD BE CLAIMED ONLY WHEN INCOME HAS BEEN EARNED AS PER SECTION 37(1) OF THE ACT, THE ASSESSEE CAN CLAIM AN Y EXPENDITURE WHICH IS INCURRED FOR THE PURPOSE OF BUSINESS OR PROFESSION (NOT BEING PERSONAL NATURE). IT WAS ALSO POINTED OUT BY THE ASSESSEE T HAT THERE IS NO CONCEPT OF DEFERRED REVENUE EXPENDITURE UNDER THE SAID ACT, UNLESS THE STATUTE PROVIDES TO DEFER REVENUE EXPENDITURE OVER A PERIOD , THE ENTIRE AMOUNT IS TO BE ALLOWED IN THE YEAR IN WHICH IT IS INCURRED F OR RUNNING THE BUSINESS IN TERMS OF SECTION 37 OF THE ACT. THE RATIO HAS BE EN DECIDED BY THE COURTS IN THE FOLLOWING JUDGEMENTS RELIED UPON BY T HE ASSESSEE:- (A) CIT VS. CASIO INDIA LTD. (2001) 335 ITGR 196 (GUJ. ) (B) CIT VS. CITI FINANCIAL CONSUMER FINANCE LTD. 335 IT R 29 (C) 19 SOT 13, SITU ELECTRO INSTRUMENTS (P) LTD. VS. IT O. NUMBER OF JUDGEMENTS WERE RELIED UPON BY THE ASSESS EE IN SUPPORT ITS CLAIM FOR ALLOWING THE EXPENDITURE INCURRED ON ADVERTISEMENT. ITA NO. 1762/AH D/2016 DCIT VS. AAGAM INFRABUILD PVT.LTD. ASST.YEAR 2012-13 - 18 - THE LD.CIT(A) RELYING UPON THE SUBMISSIONS MADE BY THE ASSESSEE-COMPANY AND THE JUDGEMENTS CITED BY IT DEL ETED THE ADDITION OF RS.1,07,21,475/- MADE ON ACCOUNT OF ADVERTISEMENT EXPENDITURE BY THE AO. WE HAVE HEARD THE LD.DR. THE LD.DEPARTMENTAL REPRESENTATIVE VEHEMENTLY OBJE CTED TO THE OBSERVATIONS MADE BY THE LD.CIT(A) WHILE DELETING T HE ADDITION AS MENTIONED HEREINABOVE AND SUPPORTED THE CONTENTION MADE BY THE AO IN DECIDING THE ISSUE IN FAVOUR OF REVENUE. WE HAVE GONE THROUGH THE ORDER PASSED BY THE AO, T HE WRITTEN SUBMISSION MADE BY THE ASSESSEE-COMPANY, THE OBSERV ATION MADE BY THE LD.CIT(A) AND THE JUDGEMENTS RELIED UPON BY THE ASS ESSEE-COMPANY BEFORE THE LD.CIT(A) IN SUPPORT OF HIS APPEAL ON TH E ISSUE IN HAND. WE FURTHER ADD THAT THE ASSESSEE-COMPANY IS ENGAGE D IN THE BUSINESS OF PURCHASING AND DEVELOPING LAND AND SALE THEREOF MAINLY CARRIED OUT PLOTTING ACTIVITY DURING THE YEAR. DUR ING THE COURSE OF BUSINESS, IT HAS INCURRED SUBSTANTIAL ADVERTISEMENT EXPENDITURE. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAS RECO GNIZED REVENUE OF RS.95.90 LAKHS BUT HAS BEEN ABLE TO COLLECT MEMBERS HIP COLLECTION OF MORE THAN RS.15 CRORES. THE ADVERTISEMENT HELPS TO CARRY OUT MANY BUSINESS MORE THAN EFFECTIVELY AND SMOOTHLY. IN THIS PARTICULAR CASE, THE ASSESSEE-COMPANY IS REQUIRED TO INCUR ADVERTISEMEN T EXPENDITURE ON ITA NO. 1762/AH D/2016 DCIT VS. AAGAM INFRABUILD PVT.LTD. ASST.YEAR 2012-13 - 19 - YEAR-TO-YEAR BASIS TO ATTRACT MORE CUSTOMERS/CLIENT S AND PUBLIC AT LARGE BECOME AWARE ABOUT THE PRODUCTS SOLD BY ITS. AS TH E EXPENDITURE HAS NOT RESULTED IN CAPITAL ASSET SO AS TO BE RECORDED AS E XPENDITURE IN CAPITAL FIELD. SUCH EXPENDITURE IS MADE BY THE ASSESSEE YE AR-AFTER-YEAR SO AS TO KEEP THE PRODUCT IN MARKET. THE CONTROVERSY IN THI S PARTICULAR CASE IS THIS AS TO WHETHER THE ADVERTISEMENT EXPENDITURE IS FOR ENDURING BENEFIT, CAPITAL IN NATURE OR OTHERWISE HAS ALREADY BEEN ADJ UDICATED BY THE HONBLE GUJARAT HIGH COURT IN THE CASE OF CORE HEAL THCARE LTD. 308 ITR 263 (GUJ.) WHEREIN THE JUDGEMENT OF THE HONBLE APE X COURT IN THE MATTER OF ALEMBIC LTD. WAS CONSIDERED. IT HAS BEEN DECIDED IN THE SAID JUDGEMENT THAT THE APPROACH OF THE COMMISSIONER (A PPEALS) THAT THE EXPENDITURE IN QUESTION WAS TREATED AS DEFERRED REV ENUE EXPENDITURE AND HENCE WAS CAPITAL IN NATURE IS NOT A CORRECT APPROA CH SINCE THERE IS NO SUCH CATEGORY OF DEFERRED REVENUE EXPENDITURE IN TH E INCOME TAX ACT. THE ISSUE IS ALSO SQUARELY COVERED BY THE HONBLE J URISDICTIONAL HIGH COURT IN THE CASE OF CORE HEALTHCARE LTD. WE THERE AFTER, ARE OF THE OPINION THAT THE ADVERTISEMENT EXPENDITURE INCURR ED BY THE ASSESSEE- COMPANY IS NOT OF ENDURING NATURE AND THUS 3/4 TH OF EXPENDITURE IS NOT REQUIRED TO BE TREATED AS PART OF COST OF CLOSING W ORK-IN-PROGRESS. WE ALSO OBSERVE THAT THE EXPENDITURE INCURRED BY THE A SSESSEE-COMPANY IN RESPECT OF ADVERTISEMENT IS TREATED AS REVENUE EXPE NDITURE AND AFFIRM THE ORDER PASSED BY THE CIT(A) IN DELETING THE ADDITION OF RS.1,07,21,475/- ITA NO. 1762/AH D/2016 DCIT VS. AAGAM INFRABUILD PVT.LTD. ASST.YEAR 2012-13 - 20 - TOWARDS THE COST OF ADVERTISEMENT EXPENDITURE. THU S, GROUND NO.4 OF THE REVENUES APPEAL IS DISMISSED. 16. IN THE RESULT, REVENUES APPEAL STANDS DISMISSE D. THIS ORDER PRONOUNCED IN OPEN COURT ON 06/06/2018 SD/- SD/- .. () ( ) ( N.K. BILLAIYA ) (MS.MAD HUMITA ROY ) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED / 05 /2018 PRONOUNCED ON 6/6/18 SD/- SD/- (AS) (MR) AM JM 7/..,. ../ T.C. NAIR, SR. PS !'#$%$' / COPY OF THE ORDER FORWARDED TO : 1. &) / THE APPELLANT 2. *+&) / THE RESPONDENT. 3. 8 9 / CONCERNED CIT 4. 9 ( ) / THE CIT(A)-1, AHMEDABAD 5. :;<* 8 , /83 , / DR, ITAT, AHMEDABAD 6. <>?@. / GUARD FILE. / BY ORDER, +:* //TRUE COPY// / ( DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD 1. DATE OF DICTATION ..24.4.2018/01.5.18 (DICTATION-P AD 31+13PAGES ATTACHED AT THE END OF THIS APPEAL-FILE) 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 24.4.2018/1.5.18 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.6.6.18