M/s ICRI Research (P) Ltd, New Delhi V. DCIT, New Delhi

ITA 2119/DEL/2010

• Counselvise Citation: [2011] 135 COUNSELVISE.COM (IT) 0549 (ITAT-DELHI)
• Duration Of Justice: 8 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-02-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 01-02-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 07-05-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAJNI KANT GUPTA
• Assessee Lawyers: ASHWANI TANEJA; DR RAKESH GUPTA
• Keywords: Revenue expenditure; Capital expenditure

Judgement Text

ITA NO. 2119/DEL/2010 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH C NEW DELHI BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER I.T.A. NO. 2119/DEL/2010 A.Y. : 2006-07 M/S ICRI RESEARCH (P) LTD., D-41, GROUND FLOOR, DEFENCE COLONY, NEW DELHI (PAN/GIR NO. : AABCT7298E) VS. DEPUTY COMMISSIONER OF INCOME TAX, CIRLCE-11(1), NEW DELHI (APPELLANT ) (APPELLANT ) (APPELLANT ) (APPELLANT ) (RESPONDENT ) (RESPONDENT ) (RESPONDENT ) (RESPONDENT ) ASSEESSEE BY : DR. RAKESH GUPTA, ADV. & SH. ASHWANI TANEJA, CA DEPARTMENT BY : SH. RAJNI KANT GUPTA, C.I.T.(D.R.) ORDER ORDER ORDER ORDER PER SHAMIM YAHYA: AM PER SHAMIM YAHYA: AM PER SHAMIM YAHYA: AM PER SHAMIM YAHYA: AM THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) DATED 23.2.2 010 AND PERTAINS TO ASSESSMENT YEAR 2006-07. 2. THE ISSUE RAISED IS THAT LD. COMMISSIONER OF INCOM E TAX (APPEALS) ERRED IN CONFIRMING THE ACTION OF THE ASSE SSING OFFICER IN MAKING DISALLOWANCE OF ` 53,39,503/- BY TREATING IT AS CAPITAL EXPENDITURE. 3. IN THIS CASE DURING THE COURSE OF ASSESSMENT ASS ESSING OFFICER OBSERVED THAT ASSESSEE HAS CLAIMED DEDUCTION OF ` 5 3,39,503/- ASSESSING OFFICER REFERRED TO THE FOLLOWING NOTES OF THE ASSESSEE:- SALARY AND TRAVELLING EXPENSES TO THE EXTENT OF ` 53,39,503/- INCURRED ON THE RESEARCH CONDUCTED FOR ESTABLISHING THE CRO ITA NO. 2119/DEL/2010 2 OFFICE DURING THE FINANCIAL YEAR 2005-06 HAS BEEN D EFERRED. THE SAID DEFERRED EXPENSES WOULD BE AMORTIZED OVER FIVE YEARS FROM FINANCIAL YEAR 2006-07. DEFERRED EXPENSES HAVE BEE N SHOWN UNDER THE HEAD OF CURRENT ASSETS. 3.1 ASSESSEE FURTHER CLARIFIED THAT THE EXPENSES PR IMARILY CONSISTS OF SALARY AND TRAVELLING EXPENSES. ASSESSING OFFICER DID NOT ACCEPT THE ASSESSEES CONTENTION AND NOTED THAT IT HAS ITSELF GIVEN A NOTE POINTING OUT THAT THE EXPENSES ARE GOING TO GIVE ENDURING BE NEFITS. SO HE TREATED THE SAME AS CAPITAL EXPENDITURE AND DISALL OWED THE CLAIM. 4. UPON ASSESSEES APPEAL LD. COMMISSIONER OF INCOME TAX (APPEALS) UPHELD THE ASSESSING OFFICERS ORDER. 5. AGAINST THIS ORDER THE ASSESSEE IS IN APPEAL BEF ORE US. 6. WE HAVE HEARD BOTH THE COUNSEL AND PERUSED THE R ECORDS. WE FIND THAT ASSESSEE HAS INCURRED A SUM OF ` 53,39,503 /- WHICH PRIMARILY CONSISTS OF SALARY AND TRAVELLING EXPENSE. IN ITS A CCOUNTS THE ASSESSEE HAS TREATED THE SAME AS DEFERRED REVENUE EXPENDITURE . HOWEVER, IN THE IT RETURN IT HAS CLAIMED THE SAME AS REVENUE EXP ENSES. IN THIS REGARD, WE REFER THE FOLLOWING EXPLANATION BY THE A SSESSEE:- DEFERMENT OF CHARGING OF SALARY AND TRAVELLING EXPE NSES AMOUNTING TO ` 53,39,503/-: THESE EXPENSES REPRESEN T THE EXPENSES INCURRED BY THE COMPANY FOR THE PURPOSE OF RESEARCH ACTIVITY RELATING TO BUSINESS ACTIVITY. THESE EXPE NSES MAINLY CONSIST OF SALARY COST AND TRAVELLING COST OF THE C ONCERNED STAFF ENGAGED IN THIS ACTIVITY. WHILE FINALIZATION OF T HE ACCOUNTS ITA NO. 2119/DEL/2010 3 MANAGEMENT WAS OF THE VIEW THAT THESE EXPENSES WILL GIVE BENEFITS IN THE COMING YEARS ALSO. ACCORDINGLY, THE SAME EXPENDITURE WAS DEFERRED IN THE BOOKS OF ACCOUNT. H OWEVER, THE SAME EXPENSE WAS FULLY CLAIMED IN THE TAX RETURN OF THE COMPANY FOR THE ASSESSMENT YEAR 2006-07 AS THE EXPENSES WAS REVENUE IN NATURE SINCE IT DOES NOT RESULT IN CREATION OF ANY NEW ASSETS OR ADVANTAGE OF ENDURING NATURE IN THE CAPITAL FIELD. FURTHER THERE WERE NOT SPECIFIC PROVISIONS IN THE INCOME TAX ACT UNDER WHICH ANY KIND OF EXPENSES CAN BE DEFERRED. HOWEVER, STA TUTORY AUDITORS WERE OF THE OPINION THAT IN ACCORDANCE WIT H THE ACCOUNTING STANDARDS AS-26 INTANGIBLE ASSETS TH E WHOLE EXPENSES ARE IN NATURE OF REVENUE NATURE AND TO BE CHARGED TO THE PROFIT AND LOSS ACCOUNT FOR THE YEAR UNDER ASSE SSMENT. ACCORDINGLY, AUDITORS EXPRESS THEIR OPINION THAT TO THE UNADJUSTED DEFERRED ADVERTISEMENT EXPENSES TO THE EXTENT OF ` 5 3,39,503/- AS REMAINING UNADJUSTED ARE CONTRARY OF THE PROVISIO NS OF ACCOUNTING STANDARDS ISSUED BY ICAI. 7. CONSIDERING THE ISSUE CAREFULLY, WE FIND THAT T HERE IS NO DISPUTE THAT EXPENDITURE ARE IN THE NATURE OF SALARY AND TR AVELLING EXPENSES. IT IS ALSO NOT THE CASE THAT THE EXPENDITURES HAV E ACTUALLY NOT BEEN INCURRED. IT IS ALSO A SETTLED LAW THAT ENTRIES IN THE BOOKS OF ACCOUNTS ITA NO. 2119/DEL/2010 4 CANNOT DETERMINE THE ACTUAL NATURE OF THE TRANSACTI ON. IT IS ALSO A SETTLED LAW THAT IN INCOME TAX THERE IS NO CONCEPT T O DEFERRED REVENUE EXPENDITURE. IN THESE CIRCUMSTANCES, WE DO NOT FIND ANY INFIRMITY IN THE ASSESSEES CLAIM OF THE ENTIRE AMOUN T AS REVENUE EXPENDITURE. HENCE, IN THE BACKGROUND OF THE AFORE SAID DISCUSSION AND PRECEDENT, WE SET ASIDE THE ORDERS OF THE AUTHORITI ES BELOW AND DECIDE THE ISSUE IN FAVOUR OF THE ASSESSEE. 8. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 4/02/2011. SD/- SD/- [R [R[R [RAJPAL YADAV AJPAL YADAV AJPAL YADAV AJPAL YADAV] ]] ] [SHAMIM YAHYA] [SHAMIM YAHYA] [SHAMIM YAHYA] [SHAMIM YAHYA] JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER DATE 4/02/2011 SRB COPY COPY COPY COPY FORWARDED TO: FORWARDED TO: FORWARDED TO: FORWARDED TO: - -- - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT TRUE COPY BY ORDER, DEPUTY REGISTRAR, ITAT, DELHI BENCHES