DCIT, New Delhi V. M/s. CBM Industries Ltd., New Delhi

ITA 1891/DEL/2011

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 3692 (ITAT-DELHI)
• Duration Of Justice: 2 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-06-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2007-2008
• Appeal Filed On: 18-04-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: Y KAKKAR
• Assessee Lawyers: K N AHUJA
• Keywords: Depreciation; Rule of consistency; Revenue expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH B DELHI BEFORE SHRI RAJPAL YADAV AND SHRI K.G. BANSAL ITA NO. 1891(DEL)/2011 ASSESSMENT YEAR: 2007-08 DEPUTY COMMISSIONER OF CBM INDUSTRIES LTD., INCOME-TAX, CIRCLE 3(1), VS. 4 5, FIRST FLOOR, COMMUNITY NEW DELHI. CENTRE, PH.-I, NARAINA, NEW DELHI. PAN-AAACC3576C C.O. NO. 151(DEL)/2011 ITA NO. 1891(DEL)/2011 ASSESSMENT YEAR: 2007-08 CBM INDUSTRIES LTD., DEPUTY COMMISSIONER OF NARAINA, NEW DELHI. VS. INCOME-TAX, CIRCLE. 3(1), NEW DELHI. (APPELLANT) (RESPONDENT) DEPARTMENT BY : MS. Y. KAKKAR, DR ASSESSEE BY : SHRI K.N. AHUJA, ADV. ORDER PER K.G. BANSAL : AM THE APPEAL OF THE REVENUE AND THE CROSS OBJECTION OF THE ASSESSEE, EMANATING FROM THE ORDER OF CIT(APPEALS)-VI, NEW DELHI, PASSED ON 4.2.2011, WERE ARGUED IN A CONSOLIDATED MANN ER BY THE LD. DR AND THE LD. COUNSEL FOR THE ASSESSEE. THEREFORE, A CONS OLIDATED ORDER IS PASSED. ITA NO. 1891 & C.O. NO. 151(DEL)/2011 2 2. AT THE OUTSET, THE LD. COUNSEL SUBMITTED TH AT GROUND NO. 1 STANDS COVERED BY THE DECISION OF THE TRIBUNAL IN THE CASE OF THE ASSESSEE FOR ASSESSMENT YEAR 2005-06 IN ITA NO. 3820(DEL)/ 2008 DATED 12.11.2010. THE LD. DR ALSO AGREED THAT THE ISSUE STAND S COVERED. THEREFORE, FOLLOWING THE EARLIER DECISION, THIS GROUND IS ALLOWED. THE RELEVANT PART OF THE DECISION OF THE TRIBUNAL IS REPRODU CED BELOW FOR READY REFERENCE:- 3.5 WE HAVE CONSIDERED THE FACTS OF THE CASE A ND SUBMISSIONS MADE BEFORE US. IT IS SEEN THAT THE REVENUE HAS ACCEPTED THE METHOD OF ACCOUNTING FOLLOWED BY THE ASSESSEE FOR SIX YEARS IN RESPECT OF KERALA PROJECT. IT HAS ALSO ACCEPTED THE METHOD FOR FOUR YEARS IN RESPECT OF NOIDA PROJECT. THIS IS THE LAST YEAR FOR KERALA PROJECT AND LAST BUT ONE YEAR OF NOIDA PROJECT. IT HAS NOWHERE BEEN C HALLENGED THAT THE METHOD OF ACCOUNTING FOLLOWED BY THE ASSESSE E GIVES DISTORTED PICTURE OF PROFITS. ON THE OTHER HAN D, IT HAS BEEN CLAIMED THAT THE METHOD FURNISHES FAIR AND REASO NABLE PICTURE OF PROFITS. THEREFORE, THE METHOD SHOULD HAVE BEEN ACCEPTED IN THE FIRST PLACE ON THE PRINCIPLE OF CONSISTENCY A S OTHERWISE THE ASSESSMENT OF EARLIER YEARS WILL ALSO HAVE TO BE MODIFIED ACCORDINGLY. IN THE CASE OF IRB INFRASTRUCTURE LIMITED (SUPRA), THE ASSESSEE WAS ACCOUNTING FOR THE R ECEIPTS IN ITS BOOKS OF ACCOUNT BY REDUCING THEM FROM WORK-IN-PR OGRESS, LEADING TO NO PROFIT. THE METHOD OF ACCOUNTING WAS SOUGHT TO BE CHANGED BY AMORTIZING THE PROJECT EXPENSES O VER A PERIOD OF 16 YEARS, BEING THE PERIOD OF BOT AGREEMENT. THE LD. CIT(A) UPHELD THIS DECISION OF THE ASSESSING OFF ICER. HOWEVER, THE TRIBUNAL POINTED OUT THAT THERE WA S NO CHANGE IN THE FACTS AND, THEREFORE, THE ASSESSING OFFIC ER WAS NOT JUSTIFIED IN TAKING A DIFFERENT VIEW FROM THE EA RLIER YEARS. THUS, IT FOLLOWS THAT A CONSISTENT METHOD USED B Y THE ASSESSEE ITA NO. 1891 & C.O. NO. 151(DEL)/2011 3 OUGHT NOT TO BE CHANGED ESPECIALLY WHEN THE METH OD ADOPTED BY THE ASSESSEE FURNISHES A FAIR AND REASONABLE VIEW OF THE PROFITS. THIS FOLLOWS FROM A NUMBER OF DECIS IONS UPHOLDING THE PRINCIPLE OF CONSISTENCY INCLUDING THE DECIS ION OF HONBLE SUPREME COURT IN THE CASE OF RADHASOAMI SATSANG VS. CIT (19920) 193 ITR 321, RELIED UPON THAT CASE. R ESPECTFULLY FOLLOWING THIS DECISION, IT IS HELD THAT THE LOWER AUTHORITIES WERE NOT JUSTIFIED IN MODIFYING THE BOOK RESULTS BASED UPON FOLLOWING A CONSISTENT METHOD OF ACCOUNTING. THU S, THIS GROUND IS ALSO ALLOWED. 3. GROUND NO. 2 REGARDING DEDUCTION OF DEPRECI ATION @ 60% IS ALSO ADMITTEDLY COVERED BY THE SPECIAL BENCH OF MUMB AI TRIBUNAL IN THE CASE OF CIT VS. DATACRAFT INDIA LTD., (2011) 133 TTJ 377. FURTHER, IN THE CASE OF EXPEDITORS INTERNATIONAL (INDIA) ( P) LTD. VS. ADDITIONAL CIT, (2008) 13 DTR (DEL) (TRIB.) 435, IT HAS BEEN INT ER-ALIA HELD THAT PERIPHERALS SUCH AS PRINTERS, SCANNERS, NT SERV ER ETC. FORM INTEGRAL PART OF THE COMPUTER AND, THEREFORE, ARE ELIGIBLE FOR DEDUCTION OF DEPRECIATION @ 60% AS APPLICABLE TO THE COMPUTERS. RESPECTFU LLY FOLLOWING THESE DECISIONS, THIS GROUND IS ALSO DECIDED IN FAVOU R OF THE ASSESSEE. 4. COMING TO THE CROSS OBJECTION OF THE ASSESSEE, THE ONLY GROUND TAKEN IS THAT ISO CERTIFICATION FEE OF RS. 20,00 0/- IS REVENUE EXPENDITURE. WHILE THE CASE OF THE LD. COUNSEL IS THAT THE EX PENDITURE NEITHER CREATES A NEW ASSET NOR GRANTS BENEFIT OF ENDURING NATU RE, THE CASE OF THE LD. DR ITA NO. 1891 & C.O. NO. 151(DEL)/2011 4 THAT THE EXPENDITURE GRANTS BENEFIT OF ENDURING NATURE TO THE ASSESSEE. IN THIS CONNECTION, RELIANCE HAS BEEN PLACED ON THE DECISION OF CIT VS. OFFICIAL LIQUIDATOR, AHMEDABAD MANUFACTURING & CAL ICO PRINTING CO. LTD., (2000) 244 ITR 156. IN THIS CASE, THE EXPEN DITURE INCURRED IN CONNECTION WITH AMALGAMATION AND BETTERMENT CHA RGES PAID TO THE MUNICIPAL CORPORATION WERE HELD TO BE CAPITAL EX PENDITURE. HOWEVER, WE FIND THAT THE ISSUE IS SPECIFICALLY COVERED BY THE DECISION OF THE TRIBUNAL IN THE CASE OF SHRIRAM PISTONS & RINGS LTD., IN ITA NO. 1861(DEL)/2008, DATED 31.5.2011, IN FAVOUR OF THE ASSESSEE, THE RELEVANT PORTION OF WHICH READ AS UNDER:- 9.12 WE HAVE CONSIDERED THE FACTS OF THE CASE AND SUBMISSIONS MADE BEFORE US. IN SO FAR AS ISO-9001 EXPENSES ARE CONCERNED, THE ISSUE STANDS COVERED BY THE DECISION OF DELHI TRIBUNAL IN THE CASE OF CLIMATE SYSTEMS INDIA (P) LIMITED VS. A CIT IN APPEAL NOS.1684/D/09 AND 2161/D/09 FOR ASSESSMENT Y EAR 2004-05 DATED 17.12.2009, IN WHICH IT HAS BEEN HELD THAT THE EXPENDITURE OF RS.95,254/- IS REVENUE IN NATURE. T HE RELEVANT PORTION OF THE DECISION IS REPRODUCED BELOW:- 9. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. THE ISO CERTIFICATION CHARGES ARE ANNUAL PAYMENT AS PLEADED BY THEASSESSEE. IN THE CA SE OF TIRUPATI MICROTECH (P) LTD. (SUPRA), IT HAS BEEN HE LD THAT BY MAKING PAYMENTS FOR OBTAINING ISO 9002 CERTIFICATIO N, THE FIXED CAPITAL OF THE ASSESSEE HAD NOT ENHANCED IN ANY MAN NER. RATHER IT CREATED A POSITIVE IMAGE OF THE PRODUCT OF THE A SSESSEE FOR THE SMOOTH CONDUCT OF THE BUSINESS, THEREFORE, THE EXPE NDITURE INCURRED BY THE ASSESSEE WAS IN THE NATURE OF REVEN UE ITA NO. 1891 & C.O. NO. 151(DEL)/2011 5 EXPENDITURE. THE BENCH WHILE ARRIVING AT THIS CONCL USION PLACED RELIANCE ON THE DECISION OF HON'BLE SUPREME COURT I N THE CASE OF EMPIRE JUTE MANUFACTURING CO. LTD. VS. CIT 124 I TR 1 = (2002-TIOL-238-SC-IT) WHEREIN THE TEST FOR DETERMIN ATION OF THE NATURE OF EXPENDITURE INCURRED HAS BEEN PRESCRI BED. IT HAS BEEN HELD THAT IF THE ADVANTAGE CONSISTS MERELY IN FACILITATING THE ASSESSEE'S TRADING OPERATIONS OR ENABLING THE M ANAGEMENT AND CONDUCT OF THE ASSESSEE'S BUSINESS TO BE CARRIE D ON MORE EFFICIENTLY OR MORE PROFITABLY WHILE LEAVING THE FI XED CAPITAL UNTOUCHED, THE EXPENDITURE WOULD BE ON REVENUE ACCO UNT EVEN THOUGH THE ADVANTAGE MAY ENDURE FOR AN INDEFINITE F UTURE. SINCE THE ISSUE IS COVERED BY THE DECISION OF LT.A.T. JOD HPUR BENCH IN THE CASE OF TIRUPATI MICROTECH. (P) LTD. (SUPRA) , WE HOLD THAT THE AMOUNT OF RS.95,254/- IS ALLOWABLE AS REVENUE E XPENDITURE. ACCORDINGLY, WE SET ASIDE THE ORDER OF ID.CIT(A) AN D DIRECT THE ASSESSING OFFICER TO ALLOW THE CLAIM OF THE ASSESSE E ON ACCOUNT OF ISO CERTIFICATION CHARGES. 9.13 RELYING ON THIS DECISION, IT IS HELD THAT THE EXPENDITURE OF RS. 3,97,253/- INCURRED IN RELATION TO ISO-9001 IS REVENUE IN NATURE. FOLLOWING THIS DECISION, THE GROUND IS ALL OWED. 5. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED AND CROSS OBJECTION OF THE ASSESSEE IS ALLOWED. THIS ORDER WAS PRONOUNCED IN THE OPEN COURT ON 2 4 JUNE, 2011. SD/- SD/- (RAJPAL YADAV) (K.G. BANSAL) JUDICIAL MEMBER ACCOUNTANT MEMBER DATE OF ORDER: 24 .06.2011. SP SATIA ITA NO. 1891 & C.O. NO. 151(DEL)/2011 6 COPY OF THE ORDER FORWARDED TO:- CBM INDUSTRIES LTD., NEW DELHI. DCIT, CIRCLE 3(1), NEW DELHI. CIT CIT(APPEALS) THE DR, ITAT, NEW DELHI. ASSISTANT REGISTRAR.