D.C.I.T Cir - 10,kolkata, Kolkata V. M/s Eureka Forbes Ltd, Kolkata

ITA 2126/KOL/2013

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 4082 (ITAT-KOLKATA)
• Duration Of Justice: 3 year(s) 5 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-12-2016
• Appeal Filed By: Department
• Bench Allotted: B
• Next Hearing Date: 30-08-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 15-07-2013
• Court: TRIBUNAL
• Department Lawyers: NIRAJ KUMAR
• Assessee Lawyers: ABHIJIT BISWA; DR SAMIR CHAKRABORTY
• Keywords: Unexplained cash credit; Capital asset; Depreciation; Business expenditure; Additional evidence; Onus to prove; Revenue expenditure; Capital expenditure
• Section: 143(3); 37(1); 68; 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B, BENC H KOLKATA BEFORE SHRI S.S.VISWANETHRA RAVI, JM & DR. A.L.SAI NI, AM ./ ITA NOS.2126&2625/KOL/2013 ( / ASSESSMENT YEAR:2008-2009 & 2009-2010) DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-10, P-7, CHOWRINGHEE SQUARE, 3 RD FLOOR, KOLKATA-700069 VS. M/S EUREKA FORBES LTD., 7, CHAKRABERIA ROAD (S), KOLKATA-700025 ./ ./PAN/GIR NO. : AAACE 5767 F ( /APPELLANT ) .. ( / RESPONDENT ) REVENUE BY : SHRI NIRAJ KUMAR, CIT DR ASSESSEE BY : DR. SAMIR CHAKRABORTY, SR. ADVOCAT E & SHRI ABHIJIT BISWAS, ADVOCATE / DATE OF HEARING : 06/12/2016 /DATE OF PRONOUNCEMENT 21/12/2016 / O R D E R PER DR. ARJUN LAL SAINI, AM: THESE TWO CAPTIONED APPEALS FILED BY THE REVENUE, P ERTAINING TO THE ASSESSMENT YEARS 2008-2009 & 2009-10, ARE DIREC TED AGAINST THE ORDER PASSED BY LD. COMMISSIONER OF INCOME TAX (APP EALS)-XII, KOLKATA IN APPEAL NO.507/XII/CIR-10/10-11, DATED 18.03.2013 AN D APPEAL NO. 508/XII/10/2011-12, DATED 19.08.2013, WHICH IN TURN ARISE OUT OF ORDERS PASSED BY THE ASSESSING OFFICER (AO) UNDER SECTION1 43(3) OF THE INCOME TAX ACT 1961, (IN SHORT THE ACT), DATED 30.12.201 0 AND 30.12.2011. 2. THESE TWO APPEALS FILED BY THE REVENUE PERTAIN T O SAME ASSESSEE, DIFFERENT ASSESSMENT YEARS, COMMON ISSUES INVOLVED, THEREFORE, THESE HAVE BEEN CLUBBED AND HEARD TOGETHER AND A CONSOLID ATED ORDER IS BEING PASSED FOR THE SAKE OF CONVENIENCE AND BREVITY. ITA NOS.2126&2625/13 EUREKA FORBES LTD. 2 FIRST, WE TAKE REVENUES APPEAL IN ITA NO.2126/KOL/ 2013. 3. BRIEF FACTS OF THE CASE QUA THE ASSESSEE ARE THA T THE ASSESSEE FILED ITS RETURN OF INCOME ON 27.09.2008 DECLARING TOTAL INCOME OF RS.34,58,89,112/- FOR THE ASSESSMENT YEAR 2008-09. THE RETURN OF INCOME WAS PROCESSED U/S.143(1) OF THE I.T.ACT ON 12.08.20 09 BY THE DCIT, CIRCLE-10, KOLKATA. LATER ON, THE CASE WAS SELECTED FOR SCRUTINY U/S 143(3) OF THE ACT AND THE AO COMPLETED THE ASSESSMENT BY M AKING THE ADDITION ON ACCOUNT OF CASH CREDIT U/S.68 OF THE ACT AT RS.4 ,80,63,259/-, ADDITION ON ACCOUNT OF REPAIRS AND MAINTENANCE EXPENSES AT R S.1,43,46,644/-, ADDITION ON ACCOUNT OF IRRECOVERABLE ADVANCE WRITTE N OFF AT RS.1,49,00,000/-, PROVISIONS FOR FUTURE WARRANTY CL AIMS AT RS.4.51 CRORES AND EXPENDITURE INCURRED IN ACQUISITION OF BID AT R S.1,18,96,000/-. 4. AGGRIEVED FROM THE ORDER OF LD. AO, THE ASSESSEE FILED AN APPEAL BEFORE THE LD. CIT(A), WHO HAS DELETED THE ADDITION S MADE BY THE AO, BY OBSERVING THE FOLLOWINGS :- OBSERVATIONS OF LD CIT (A) FOR GROUND NO.1 4. I HAVE CONSIDERED THE FINDING OF THE A.O. IN HI S ORDER DT. 30-12- 2010 AND THE WRITTEN SUBMISSION FILED BY THE A.R. D URING THE APPELLATE PROCEEDING. APPEAL ON GROUND NO. 1 IS AGA INST THE DISALLOWANCE OF RS. 48063259/- AS UNEXPLAINED CASH CREDITED U/S. 68 OF THE I.T ACT, 1961. THE AO HAS GIVEN FINDING I N THE ASSESSMENT ORDER THAT THE ASSESSEE DID NOT DISCHARGE THE INITI AL BURDEN TO SUPPLY THE DETAILS LIKE PAN, COMPLETE ADDRESS ETC. OF SUPPLIERS. THE A.O. HAS ALSO MENTIONED THAT THE APPELLANT HAS FAIL ED TO DISCHARGE ITS ONUS TO PROVE THE EXISTENCE, CREDITWORTHINESS E TC. OF ITS CREDITORS AND THEREFORE, THE AO TREATED THIS LIABILITY AS BOG US AND DISALLOWED THE SAME TREATING IT AS CASH CREDIT U/S. 68 OF THE I.T.ACT, 1961. DURING THE APPELLATE PROCEEDING THE A.R. SUBMITTED A DETAILED SUBMISSION DOCUMENTS AND EVIDENCES OF THE EXISTENCE OF VARIOUS PARTIES WITH WHOM THE ASSESSEE HAD TRANSACTIONS. TH E SAME WERE SENT TO THE A.O. FOR VERIFICATION AND HIS REMAND RE PORT. BUT NO REMAND REPORT HAS BEEN SUBMITTED BY THE A.O. AGAIN A REMINDER ITA NOS.2126&2625/13 EUREKA FORBES LTD. 3 WAS SENT. BUT NO REMAND REPORT HAS BEEN RECEIVED. O N 10.10.2011 DCIT, CIR-10. KOLKATA ATTENDED THE APPELLATE PROCEE DING, BUT NOTHING IN WRITING HAS BEEN RECEIVED FROM THE AO. T HE AR IN HIS WRITTEN SUBMISSION FILED, HAS BROUGHT ON RECORD THA T DURING THE ASSESSMENT PROCEEDING HARDLY 10 DAYS WERE GIVEN TO SUBMIT ADDRESSES, PAN ETC. OF MORE THAN 1300 PARTIES WITH WHOM THE ASSESSEE HAD ENTERED INTO TRANSACTIONS. HOWEVER, RE LEVANT ADDRESS ALONG WITH PAN WERE SUBMITTED. DURING THE APPELLATE PROCEEDING ALSO THE AR HAS SUBMITTED A COMPREHENSIVE LIST OF S UCH PARTIES, THEIR ADDRESSES, PAN ETC. THE AR HAS ALSO BROUGHT O N RECORD THAT ALL THE PAYMENTS BY THE ASSESSEE COMPANY WERE MADE THROUGH ACCOUNT PAYEE CHEQUE ONLY. IT HAS ALSO BEEN POINTED OUT THAT CREDITWORTHINESS OF PARTIES (CREDITORS) IS APPARENT FROM DETAILS AS PARTIES ARE MAINLY CORPORATE ENTITIES INCLUDING LIS TED COMPANIES FINANCIAL DETAILS OF WHICH IS AVAILABLE IN PUBLIC D OMAIN. THE AR HAS FILED A CASE LAW OF ADDL. CIT VS. BAHRI BROS. PVT. LTD. (154 ITR 244) PATNA. IN THIS ORDER THE HON'BLE HIGH COURT HAS OBS ERVED 'THE VERY FACT THAT ALL THE TRANSACTIONS WERE ENTERED INTO BE TWEEN THE PARTIES THROUGH ACCOUNT-PAYEE CHEQUES MAKES THE QUESTION OF IDENTITY OF CREDITORS FALL INTO OBLIVION AND IT BECOMES ABSOLUT ELY IRRELEVANT. I HAVE CONSIDERED THE FINDING OF THE AO. IN HIS ASS ESSMENT ORDER AND I HAVE ALSO CONSIDERED THE WRITTEN SUBMISSION A ND CASE LAWS FILED BY THE A.R. DURING THE APPELLATE PROCEEDING. I FIND THAT THE A.O. ASKED THE ASSESSEE TO FILE COMPLETE ADDRESS, PAN AN D OTHER IDENTITY PROOF OF ALL THE PARTIES WITH WHOM THE ASS ESSEE HAD TRANSACTIONS AT THE FAG END OF ASSESSMENT PROCEEDIN G. IT WOULD NOT BE POSSIBLE FOR THE A.R. TO COLLECT & FILE THE COMP LETE DETAILS OF SUCH LARGE NO. OF PEOPLE WITHIN SUCH A SHORT TIME. LATER ON, THE A.R. HAS SUBMITTED COMPLETE DETAILS WITH ADDRESS PROOF ETC. AT THE TIME OF APPELLATE PROCEEDING WHICH WERE SENT TO A.O.ALSO. R EGARDING CREDITORS SINCE ALL THE PAYMENTS BY THE ASSESSEE HA D BEEN MADE BY ACCOUNT PAYEE CHEQUES, THEREFORE, EXISTENCE OF SUCH PARTIES CANNOT BE DENIED. FURTHER, THE AR. HAS BROUGHT ON RECORD T HAT MOSTLY THE CREDITORS ARE LISTED COMPANIES WHOSE FINANCIAL STAT US IS ALREADY AVAILABLE IN PUBLIC DOMAIN. I HAVE ALSO CONSIDERED THE CASE LAW CITED BY THE A.R. I THINK THE CREDITORS EXISTENCE I S HARDLY QUESTIONABLE AS OBSERVED BY THE HON' BLE PATNA HIGH COURT IN THE CASE OF BAHRI BROS. PVT. LTD. (SUPRA)'. AFTER-TAKIN G INTO CONSIDERATION ALL THESE FACTS AND MATERIAL (SUBMISSION, DETAILS, DOCUMENTS ETC. FILED BY THE AR) AVAILABLE ON RECORD, I THINK AO IS NOT JUSTIFIED IN MAKING ADDITION OF RS.4,80,63,259/- ON THIS GROUND . THUS, ASSESSEE'S APPEAL ON GROUNDS NO.1 IS ALLOWED. OBSERVATIONS OF LD. CIT (A) FOR GROUND NO.2 APPEAL ON GROUND NO. 2 IS AGAINST THE DISALLOWANCE OF RS.1,43,46,644/- INCURRED OF REPAIRS AND MAINTENAN CE ON THE GROUND THAT THE SAME WERE CAPITAL IN NATURE. THE AO IN THE ASSESSMENT ORDER HAS GIVEN HIS FINDING THAT THE EXP ENDITURE INCURRED AND DEBITED UNDER THIS HEAD HAVE AN ENDURI NG BENEFIT AND ITA NOS.2126&2625/13 EUREKA FORBES LTD. 4 HAS BROUGHT INTO EXISTENCE NEW CAPITAL ASSETS FOR A SSESSEE. THE AO HAS ALSO POINTED OUT THAT THE ASSESSEE/A.R. FAILED TO ESTABLISH AS TO HOW THE EXPENDITURE INCURRED COULD HELP THE APPELLA NT IN THE PROCESS OF EARNING PROFIT IN THE COURSE OF ITS BUSI NESS. DURING THE APPELLATE PROCEEDING THE A.R. HAS SUBMITTED THAT TH E ASSESSEE SPENT RS.4,09,64,919/- OUT OF WHICH THE A.O. HAS DI SALLOWED RS. 1,43,46,644/- TREATING IT AS CAPITAL EXPENDITURE. T HE AR HAS ALSO SUBMITTED A VALUE-WISE AND QUANTITY-WISE SUMMARY OF LIST OF ITEMS DISALLOWED. FROM THE DETAILS FILED BY THE A.R. IT I S SEEN THAT THE EXPENDITURE OF RS. 76.47 LAKHS HAS BEEN INCURRED ON LEASED PREMISES. THE A.R. HAS BROUGHT ON RECORD THE CASE L AW OF MODI SPG. & WVG. MILLS COMPANY LTD. VS. CIT (1993) 200 I TR 544 DELHI. IN ITS JUDGEMENT THE HON'BLE DELHI HIGH COURT HAS O BSERVED THAT IF A TENANT INCURS AN EXPENDITURE ON RENTED BUILDING FOR ITS RENOVATION OR ALTERATION, HE DOES NOT ACQUIRE ANY CAPITAL ASSETS BECAUSE THE BUILDING DOES NOT BELONG TO HIM AND, SUCH AN EXPEND ITURE WILL BE REVENUE IN NATURE. FROM THE CHART FILED BY THE A.R . IT IS SEEN THAT RS.13.65 LAKHS HAS BEEN PAID AS ANNUAL MAINTENANCE CHARGES FOR COMPUTER ETC. RS. 3.5 LAKHS ON PREPAID EXPENSES, RS . 7.82 LAKHS ON REPLACEMENT ITEMS AND RS. 42.02 LAKHS ON OTHERS. I HAVE CONSIDERED THE FINDING OF THE A.O. AND THE SUBMISSI ON ALONG WITH THE CHART AND CASE LAWS FILED BY THE A.R. KEEPING I N VIEW THE RATIO DECIDED BY THE HON'BLE DELHI HIGH COURT IN THE CASE OF MODI SPG. & WVG. MILLS COMPANY LTD.(SUPRA) EXPENDITURE ON LEASE D PREMISED CANNOT BE CAPITAL IN NATURE. SIMILARLY, ANNUAL MAIN TENANCE CHARGES AND PREPAID EXPENSES ARE ALSO NOT EXPENDITURE INCUR RED TO ACQUIRE CAPITAL ASSET. HOWEVER. REPLACEMENT ITEMS OF RS. 7. 82 LAKHS MAY BE OF CAPITAL IN NATURE. SIMILARLY, SINCE ALL THE DETA ILS OF EXPENDITURE OF RS. 42.02 LAKHS ARE NOT AVAILABLE ON RECORDS. THERE FORE, 10% OF SUCH EXPENSES I.E. RS.420000/- ARE TAKEN AS EXPENDI TURE INCURRED FOR ASSETS OF CAPITAL IN NATURE. THUS, AO'S ADDITIO N UNDER THIS HEAD IS RESTRICTED TO RS. 7.82 LAKHS PLUS RS.4.20 LAKHS I.E. RS.12,02,000/-. HENCE, ASSESSEE'S APPEAL ON GROUND NO. 2 IS PARTLY ALLOWED. OBSERVATIONS OF LD CIT(A) FOR GROUND NO.3 7. APPEAL ON GROUND NO.4 IS AGAINST THE DISALLOWANC E OF RS.1,49,00,000/- BEING IRRECOVERABLE ADVANCE WRITTE N OFF. THE FACT OF THE CASE IS THAT THE ASSESSEE COMPANY HAD 70% OF EQUITY IN A SUBSIDIARY COMPANY WHICH WAS IN THE SAME LINE OF BU SINESS AS THAT OF THE ASSESSEE. DURING THE YEAR UNDER ASSESSMENT T HE ASSESSEE COMPANY HAD GIVEN ADVANCES OF RS. 149 LAKHS TO THE SUBSIDIARY COMPANY FOR ITS WORKING CAPITAL REQUIREMENTS. BUT T HE SUBSIDIARY COMPANY WAS CONTINUOUSLY MAKING LOSSES. THEREFORE, THE MANAGEMENT OF THE ASSESSEE COMPANY DECIDED TO COME OUT OF THE AFFAIRS OF THE SUBSIDIARY COMPANY AND THUS TRANSFER RED ITS SHARES. AS THE SUBSIDIARY COMPANY WAS MAKING LOSSES ONLY, T HEREFORE, THE ASSESSEE COMPANY COULD NOT RECOVER ITS ADVANCES AND THUS CHARGED IT TO ITS PROFIT AND LOSS ACCOUNT AS BUSINE SS EXPENDITURE. IN THE ASSESSMENT ORDER THE A.O. DISALLOWED THIS AMOUN T GIVING HIS FINDING THAT THE ADVANCE WAS GIVEN BY THE ASSESSEE TO ITS SUBSIDIARY COMPANY, NOT OBTAINING ANY MATERIAL OR BENEFITS FOR THE BUSINESS OF ITA NOS.2126&2625/13 EUREKA FORBES LTD. 5 THE ASSESSEE. THE A.R. HAS FILED A WRITTEN SUBMISSI ON IN WHICH HE HAS BROUGHT ON RECORD THAT THE SUBSIDIARY COMPANY W AS SET UP AS A SERVICE PROVIDER FOR MAINTENANCE OF VARIOUS ELECTRI CAL AND ELECTRONIC APPLIANCES. THE ASSESSEE ALSO ENGAGED IN A SIMILAR ACTIVITY OF DEALING IN WATER PURIFIER (AQUA-GUARD) AND VACUUM C LEANER. THUS, THERE IS A CLEAR CUT RELATIONSHIP BETWEEN ACTIVITY OF ASSESSEE COMPANY AND THAT OF THE SUBSIDIARY COMPANY. THE A.R . HAS SUBMITTED A CASE LAW OF WESTERN INDIA OIL DISTRIBUT ING COMPANY LTD. VS. CIT (77 ITR 140) IN WHICH THE HON'BLE BOMB AY HIGH COURT HELD THAT EXPENSE INCURRED FOR THE PURPOSE OF TERMI NATION OF DISADVANTAGEOUS TRADE RELATIONSHIP ARE INCURRED WHO LLY AND EXCLUSIVELY FOR THE PURPOSE OF COMPANY'S TRADE. I H AVE CONSIDERED THE FINDING OF THE A.O. ON THIS ISSUE AND THE WRITT EN SUBMISSION AND CASE LAWS FILED BY THE A. R. I FIND THAT THE ASSESS EE COMPANY HAD GIVEN ADVANCES TO ITS SUBSIDIARY COMPANY WHICH WAS ALSO IN THE SAME LINE OF BUSINESS AS THAT OF THE ASSESSEE. AS T HE ASSESSEE COMPANY DECIDED TO COME OUT OF THE BUSINESS ACTIVIT Y OF ITS SUBSIDIARY BECAUSE OF CONTINUOUS LOSS MAKING BY THE SUBSIDIARY COMPANY, THEREFORE, THIS ISSUE IS SQUARELY COVERED BY THE FINDING GIVEN BY THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF WESTERN INDIA OIL DISTRIBUTING COMPANY LTD.(SUPRA). THUS AS SESSEE'S APPEAL ON THIS GROUND IS ALLOWED. OBSERVATIONS OF LD. CIT(A) FOR GROUND NO.4 8. APPEAL ON GROUND NO.5 IS AGAINST THE DISALLOWANC E OF RS.4,51,00,000/- U/S.37(1) OF THE I.T.ACT, 1961. TH E ASSESSEE HAD MADE A PROVISION OF RS.4.51 CRORE FOR THE FUTURE WA RRANTY CLAIMS ON ACCOUNT OF THE GIVING WARRANTY FOR CERTAIN PRODUCTS UNDERTAKING TO REPAIRS, REPLACEMENT OF ITEMS THAT FAILED TO PERFOR M SATISFACTORILY DURING WARRANTY PERIOD. THE AO HAS GIVEN HIS FINDIN G THAT THE CALCULATION OF EXPENDITURE ON REPLACEMENT OF ITEMS DURING THE WARRANTY PERIOD WAS BASED ON SURMISES AND CONJECTUR ES. IT WAS NOT BACKED BY STATISTICS AND SO IT WAS UNSCIENTIFIC. TH E AR IN HIS WRITTEN SUBMISSION HAS POINTED OUT THAT A COMPLETE STATISTI CAL DATA WAS PROVIDED TO THE AO REGARDING REPLACEMENT OF ITEMS I N EARLIER YEARS. THE AR HAS ALSO SUBMITTED A CASE LAW OF ROTORK CONT ROLS INDIA PVT. LTD. VS. CIT (314 ITR 62) (SC). IN THIS CASE THE HO NBLE SUPREME COURT HELD THAT WHERE THERE WAS WARRANTY OBLIGATION SUCH OBLIGATION WAS A PART OF THE SALE PRICE AND STOOD ATTACHED TO THE SALE PRICE OF THE PRODUCT. IT WAS HELD THAT A WARRANTY OBLIGATION IS A PRESENT OBLIGATION AS A RESULT OF PAST EVENTS RESULTING IN AN OUTFLOW OF RESOURCES AND A RELIABLE ESTIMATE COULD BE MADE OF THE AMOUNT OF OBLIGATION. IF IT IS SO MADE IT IS A LIABILITY ALLO WABLE AS DEDUCTION U/S. 37 OF THE ACT. I HAVE CONSIDERED THE FINDING OF THE A.O. ON THIS ISSUE AND THE WRITTEN SUBMISSION AND CASE LAW FILED BY TH E A.R. DURING THE APPELLATE PROCEEDINGS. I THINK THIS ISSUE IS SQUARE LY COVERED BY THE RATIO DECIDED BY THE HON'BLE SUPREME COURT IN THE C ASE OF ROTORK CONTROLS INDIA PVT. LTD (SUPRA). THUS, ASSESSEE'S A PPEAL ON GROUND NO. 5 IS ALLOWED. ITA NOS.2126&2625/13 EUREKA FORBES LTD. 6 OBSERVATIONS OF LD. CIT(A) FOR GROUND NO.5 9. APPEAL ON GROUND NO. 6 IS AGAINST THE DISALLOWAN CE OF RS.1,18,96,000/- BEING EXPENDITURE INCURRED ON ACCO UNT OF ACQUISITION BID. THE FACT OF THE CASE IS THAT IN OR DER TO EXPAND ITS BUSINESS IN INTERNATIONAL MARKET THE ASSESSEE COMPA NY PARTICIPATED IN THE BIDING PROCESS FOR ACQUISITION OF M/S. KXI I N USA AND FOR THAT PURPOSE THE ASSESSEE INCURRED AN EXPENDITURE OF RS. 1,18,96,000/- IN THE FORM OF PROFESSIONAL FEES, LEGAL CHARGES ETC . HOWEVER, AS THE BID PRICE WAS NOT COMMENSURATE WITH THE' PRODUCT OF FERED BY M/S. KXI USA, THEREFORE, THE ASSESSEE EXITED FROM THE FI NAL BID OF THE ACQUISITION OF THE COMPANY. THE A.O. IN HIS ASSESSM ENT ORDER HAS MENTIONED THAT AS THE ASSESSEE COULD NOT EXPLAIN TH E ADVANTAGES FROM THE ACQUISITION OF THE TARGET COMPANY AND THE FUTURE BENEFITS ARISING .OUT OF SUCH AN ACQUISITION. THEREFORE, EXP ENDITURE INCURRED FOR THE SAME WAS DISALLOWED BY THE AO. THE A.R. IN HIS WRITTEN SUBMISSION FILED DURING THE APPELLATE PROCEEDING H AS POINTED OUT THAT M/S. KXI, USA (THE TARGETED COMPANY FOR ACQUIS ITION) WAS ENGAGED IN THE BUSINESS OF WATER PURIFIERS THE SAME AS THE ASSESSEE. THE ASSESSEE WANTED TO ACQUIRE THIS COMPA NY IN ORDER TO EXPAND ITS BUSINESS OVERSEAS. BUT SINCE THE PRIC ES QUOTED IN THE FINAL BID WAS NOT COMMENSURATE TO THE PRODUCT, THER EFORE, THE ASSESSEE EXITED FROM THE FINAL BIDING. THE AR. HAS ALSO BROUGHT ON RECORD THE CASE LAW OF CIT VS GRAPHITE INDIA LTD. 2 21 ITR 420 (KOL). IN THIS JUDGMENT THE HON'BLE KOLKATA HIGH COURT HAS HELD THAT ANY EXPENDITURE INCURRED WITH THE MOTIVE OF EXPANDING T HE POSSIBILITY OF THE BUSINESS OF THE ASSESSEE, SUCH EXPENDITURE INCU RRED DID NOT BRING INTO EXISTENCE ANY CAPITAL ASSET OF ENDURING NATURE AND, THEREFORE, IT IS TO BE CONSIDERED AS BUSINESS EXPEN DITURE. I HAVE CONSIDERED THE FINDING OF THE AO AND THE WRITTEN SU BMISSION AND CASE LAW FILED BY THE A.R. DURING THE APPELLATE PRO CEEDING. I FIND THAT THIS ISSUE IS SQUARELY COVERED BY THE RATIO DE CIDED BY THE JURISDICTIONAL HIGH COURT IN THE CASE OF GRAPHITE I NDIA LTD. (SUPRA). THUS, ASSESSEE'S APPEAL ON GROUND NO.6 IS ALLOWED. 4. NOT BEING SATISFIED WITH THE ORDER OF LD. CIT(A) ,THE REVENUE IS IN APPEAL BEFORE US AND HAS TAKEN THE FOLLOWING GROUND S OF APPEAL :- 1. WHETHER LD CIT(A)-XII, KOLKATA, WAS JUSTIFIED IN HOLDING THAT RS.4,80,63,252/- WAS NOT UNEXPLAINED CASH CREDIT WH EN THE A.O IN HIS ASSESSMENT ORDER KEPT IT ON RECORD THAT THE ASS ESSEE DID NOT DISCHARGE ITS ONUS BY FURNISHING INFORMATION BY WAY OF BANK STATEMENT ETC TO PROVE THE GENUINENESS SUNDRY CREDI TORS? 2. WHETHER LD CIT(A)-XII, KOLKATA, WAS JUSTIFIED IN HOLDING THAT EXPENDITURE OF RS.1,31,44,644/- ON REPAIR AND MAINT ENANCE WAS REVENUE IN NATURE WHEN THE A.O. IN HIS ASSESSMENT O RDER MADE ADDITION OF RS. 1,43,46,644/- OUT OF TOTAL EXPENDIT URE OF RS. 4.09 ITA NOS.2126&2625/13 EUREKA FORBES LTD. 7 CRORES, CLAIMED FOR REPAIR AND MAINTENANCE, AS CAPI TAL IN NATURE ON THE BASIS OF DETAIL FILED BY THE ASSESSEE? 3. WHETHER LD CIT(A)-XII, KOLKATA, WAS JUSTIFIED IN HOLDING THAT IRRECOVERABLE ADVANCE OF RS. 1,49,00,000/- WRITTEN OFF WAS ALLOWABLE AS THE SAME WAS WHOLLY AND EXCLUSIVELY FOR THE BUSI NESS PURPOSE WHEN THE A.O IN HIS ASSESSMENT ORDER MADE THE ADDIT ION SINCE THE ASSESSEE DID NOT DISCHARGE ITS ONUS BY SUBMITTING A NYTHING TO PROVE THAT THE CLAIM WAS GENUINE AND TRADE RELATIONSHIP W ITH THE SUBSIDIARY TO WHOM THE ADVANCE WAS MADE, WAS DISADV ANTAGEOUS AS WELL AS ON THE BASIS OF THE FACT THAT WRITE OFF WAS CAPITAL LOSS, HENCE CAN NOT BE ALLOWED ? 4. WHETHER LD CIT(A)-XII, KOLKATA, WAS JUSTIFIED IN HOLDING THAT RS. 4.51 CRORES AS PROVISION FOR FUTURE WARRANTY CLAIMS AS ALLOWABLE BUSINESS EXPENDITURE WHEN THE A.O. IN HIS ASSESSMEN T ORDER MADE ADDITION ON THE GROUND THAT THIS PROVISION FOR UNAS CERTAINED LIABILITY WAS NOT ALLOWABLE BUSINESS EXPENDITURE AND THE BASI S OF CALCULATION TO ARRIVE AT THIS FIGURE WAS NOT ACCORDING TO SCIEN TIFIC METHOD? 5. WHETHER LD CIT(A)-XII, KOLKATA, WAS JUSTIFIED IN HOLDING THAT RS.1,18,96,000/- AS EXPENDITURE INCURRED IN ACQUISI TION BID WAS ALLOWABLE BUSINESS EXPENDITURE WHEN THE A.O IN HIS ASSESSMENT ORDER MADE ADDITION ON THE GROUND THAT THE ASSESSEE DID NOT DISCHARGE ITS ONUS BY PROVIDING ANYTHING TO PROVE I TS CLAIM ? 5. THE FIRST GROUND RELATES TO UNEXPLAINED CASH CRE DIT RS. 4,80,63,259/- 5.1. THE LD. DEPARTMENTAL REPRESENTATIVE (DR) SUBMI TTED BEFORE US THAT THE ASSESSEE IS PUBLIC LIMITED LISTED COMPANY AND H ENCE, ITS CONDUCT IN ALL MATTERS SHOULD HAVE BEEN EXEMPLARY. HOWEVER, IT IS SEEN THAT THE ASSESSEE HAS REPEATEDLY FOUND WANTING IN SUBMISSION OF EVIDENCES. THE LD. DR POINTED OUT THAT PAN NO. IS A BASIC DOCUMENT TO CONDUCT INQUIRY. THE LD. ASSESSING OFFICER HAS MENTIONED IN HIS ASSE SSMENT ORDER, THE LIST OF PARTIES SUPPLIED BY THE ASSESSEE. THE SAID LIST OF PARTIES DOES NOT CONTAIN PAN NO. MOREOVER, THE SAID LIST DOES NOT CO NTAIN THE ADDRESSES ( VIDE PAGE 3-6 OF AO ORDER). WITHOUT PAN NO. IT IS D IFFICULT TO CONDUCT INTERNAL INQUIRY AS WELL AS EXTERNAL INQUIRY. THE L D. DR ALSO POINTED OUT ITA NOS.2126&2625/13 EUREKA FORBES LTD. 8 THAT THE OBSERVATIONS OF THE LD.CIT(A) THAT ALL TRA NSACTIONS ARE THROUGH CHEQUES THEREFORE THESE ARE GENUINE, IS WRONG. THAT IS, ALL TRANSACTIONS THROUGH CHEQUE, DOES NOT MEAN THAT THEY ARE NOT BOG US. IN ALL THE TRANSACTIONS, THE IDENTITY, GENUINENESS, AND CREDIT WORTHINESS HAD NOT BEEN PROVED BY THE ASSESSEE. THE LD. CIT (A) ADMITT ED THE ADDITIONAL EVIDENCE WITHOUT GETTING THE REMAND REPORT FROM THE AO. AS PER SECTION 250 (4) OF THE ACT, THE LD. CIT (A) COULD MAKE SUCH FURTHER INQUIRY AS HE THINKS FIT, IF HE DID NOT RECEIVE THE REMAND REPORT FROM ASSESSING OFFICER. IF FACT, THE LD CIT(A) DID NOT MAKE FURTHER INQUIRY TO PROVE THE IDENTITY, GENUINENESS AND CREDITWORTHINESS OF THE CREDITORS, THEREFORE HE DID NOT FOLLOW THE PROCEDURE GIVEN IN SECTION 250(4) OF THE I.T. ACT. THE ASSESSEE HAS FAILED TO DISCHARGE HIS ONUS OF P ROVIDING THE INITIAL EVIDENCE ON THE ISSUE LIKE PAN CARD, BANK STATEMENT S, ADDRESS, CONFIRMATIONS AND OTHER DETAILS REQUIRED BY THE AO. THE ASSESSEE HAS FAILED MISERABLY TO DO SO. IT IS CLEAR THAT NO EVID ENCES WERE PRODUCED BY THE ASSESSEE TO DISCHARGE THE INITIAL BURDEN. THE A SSESSEE HAS PREVENTED AN ENQUIRY BY NOT BRINGING ANY MATERIAL ON RECORD T O SHOW THAT THE CREDITORS ARE GENUINE. THEREFORE, THE ADDITION MADE BY AO OF RS. 4,80,63,259/ - U/S. 68 OF THE ACT, IS CORRECT. 5.2 LD. AR FOR THE ASSESSEE HAS SUBMITTED BEFORE US THAT THE ASSESSEE, HAD SUBMITTED THE DETAILS OF MAJOR PARTIES OF SMALL SCALE SUPPLIERS, OTHER SUPPLIERS AND OTHER LIABILITIES. APART FROM THIS, T HE ASSESSEE HAD MADE A DETAILED SUBMISSION BEFORE THE LD CIT(A) WHICH IS R EPRODUCED BELOW: ITA NOS.2126&2625/13 EUREKA FORBES LTD. 9 HOWEVER, DUE TO INADEQUATE TIME PROVIDED BY THE A. O. OF 1 WEEK, THE ASSESSEE WAS UNABLE TO SUBMIT DETAILS OF ALL THE PA RTIES DUE TO VOLUMINOUS NATURE OF TRANSACTIONS. AT THE OUTSET, IT IS SUBMIT TED THAT SUCH DISALLOWANCES ARE UNJUSTIFIED AND UNWARRANTED IN CA SE OF LARGE COMPANY LIKE APPELLANT WHICH REGULARLY GETS ITS ANNUAL ACCO UNTS AUDITED BY STATUTORY AUDITORS (ANNEXURE-I) AND TAX AUDIT U/S 4 4AB, HAS GROSS SALES OF MORE THAN RS.800 CRORES, EARNED NET PROFIT OF RS .51.74 CRORES DURING THE YEAR AND PAID TAXES OF RS. 11.72 CRORES. THE AO FAILED TO APPRECIATE THAT IN SUCH A SHORT TIME THE APPELLANT WAS ABLE TO PROVIDE PAN AND OTHER DETAILS OF MORE THAN 90% PARTIES AND COULD HAVE PRO VIDED THE DETAILS OF BALANCE PARTIES IF SUFFICIENT TIME WAS GRANTED TO T HE APPELLANT. THE APPELLANT ALSO SUBMITS THAT THE GENUINENESS OF COMP ANY IS EVIDENT FROM THE FACT THAT APPELLANT IS ASSESSED UNDER SECTION 1 43(3) EVERY YEAR BUT NO SUCH DISALLOWANCES HAVE BEEN MADE IN THE PAST ASSES SMENTS. IT IS SUBMITTED THAT THE DETAILS OF PAYMENT AGAINST SUCH OUTSTANDING, SUPPLIED DURING THE TIME OF ASSESSMENT WAS NOT FOR THE YEAR BUT AS PER DATA READILY AVAILABLE IN THE LIMITED TIME. 5.3 HAVING HEARD THE RIVAL SUBMISSIONS, PERUSED THE MATERIAL AVAILABLE ON RECORD, WE ARE OF THE VIEW THAT THERE IS MERIT IN T HE SUBMISSIONS OF THE LD. DR FOR REVENUE, AS THE PROPOSITIONS CANVASSED BY TH E LD DR ARE SUPPORTED BY THE FACTS NARRATED BY HIM ABOVE. AS HE POINTED OUT THAT LD. CIT (A), AS PER SECTION 250(4) OF THE ACT, MAY, BEF ORE DISPOSING OF ANY APPEAL, MAKE SUCH FURTHER INQUIRY AS HE THINKS FIT. BUT LD. CIT (A) DID NOT CONDUCT ANY INQUIRY TO ESTABLISH THE IDENTITY, GENU INENESS AND CREDITWORTHINESS OF THE CREDITORS. BESIDES, THE ASS ESSING OFFICER DID NOT GIVE ENOUGH TIME TO THE ASSESSEE TO SUBMIT DETAILS OF ALL THE PARTIES. THE ASSESSEE HAS POINTED OUT BEFORE THE LD.CIT (A), BY WAY OF WRITTEN SUBMISSION, THAT ASSESSING OFFICER ALLOWED ONE WEEK TIME, WHICH WAS NOT SUFFICIENT TO PREPARE VOLUMINOUS DETAILS. THE SAID SUBMISSION OF THE ASSESSEE IS REPRODUCED BELOW: ITA NOS.2126&2625/13 EUREKA FORBES LTD. 10 HOWEVER, DUE TO INADEQUATE TIME PROVIDED BY THE A. O. OF 1 WEEK, THE ASSESSEE WAS UNABLE TO SUBMIT DETAILS OF ALL TH E PARTIES DUE TO VOLUMINOUS NATURE OF TRANSACTIONS. THEREFORE, THIS ISSUE REQUIRES A FRESH EXAMINATION AT THE END OF THE ASSESSING OFFICER FOR TWO REASONS: (I).THE LD CIT(A) COULD NOT MAKE FURTHER INQUIRY, A S PER SECTION 250(4) OF THE ACT, TO ESTABLISH THE IDENTITY, GENUI NENESS AND CREDITWORTHINESS OF THE CREDITORS. (II). THE ASSESSEE DID NOT GET ENOUGH TIME TO SUBMI T THE DETAILS BEFORE THE ASSESSING OFFICER. THEREFORE, WE ARE OF THE VIEW THAT THIS ISSUE REQUI RES FRESH EXAMINATION AT THE END OF THE ASSESSING OFFICER, THEREFORE, WE DIR ECT THE ASSESSING OFFICER TO MAKE FRESH INQUIRY TO ESTABLISH THE IDEN TITY, GENUINENESS AND CREDITWORTHINESS OF THE CREDITORS. WE, THEREFORE, R EMIT THE CASE BACK TO THE FILE OF AO WITH THE DIRECTION MENTIONED SUPRA. 5.4 IN THE RESULT, THE APPEAL FILED BY THE REVENUE, ON THIS ISSUE, IS ALLOWED FOR STATISTICAL PURPOSES. 6. REPAIRS AND MAINTENANCE EXPENDITURE OF RS. 1,43, 46,644/- CLAIMED AS REVENUE, AO TREATED AS CAPITAL IN NATURE. 6.1 THE LD. DR FOR THE REVENUE HAD SUBMITTED THAT T HE ENTRIES IN THE ANNEXURE 9 WHICH WAS SUBMITTED BY ASSESSEE BEFORE A SSESSING OFFICER, DO NOT BEAR THE CHARACTER OF REVENUE EXPENDITURE OR NOT IN NATURE OF REPAIRS AND MAINTENANCE. THE LD.CIT(A) DID NOT FOLL OW THE PROPER PROCEDURE AND HE COULD NOT OBTAIN THE REMAND REPORT FROM THE ASSESSING OFFICER. AS PER SECTION 250(4) OF THE ACT, THE LD C IT (A) DID NOT CONDUCT FURTHER INQUIRY TO ESTABLISH WHETHER EXPENDITURE IS IN THE NATURE OF REVENUE OR CAPITAL. IT IS SETTLED POSITION OF LAW T HAT A LOT OF FACTORS WOULD ITA NOS.2126&2625/13 EUREKA FORBES LTD. 11 DETERMINE WHETHER THE EXPENDITURE IS CAPITAL OR REV ENUE IN NATURE. IT IS SEEN IN THE SAID ANNEXURE THAT THE ASSESSEE HAS DEB ITED EXPENSES LIKE PURCHASE OF SCANNERS, UPS, BATTERIES, PROVISIONS FO R EARLIER YEARS, HUGE PLUMBING EXPENSES, EXPENDITURE IN CIVIL CONSTRUCTIO N LIKE EXTRA SPACE FOR GODOWN, ALUMINIUM CUBICALS AND FITTINGS, PURCHASE O F CHAIRS, SOFAS. THERE ARE SOME ENTRIES WHICH DO NOT HAVE ANY HEAD BUT ONL Y AMOUNT HAS BEEN MENTIONED. THE EXPENDITURE MENTIONED BY THE ASSESSE E HAVE AN ENDURING BENEFIT AND HAS BROUGHT INTO EXISTENCE A N EW CAPITAL ASSET FOR THE ASSESSEE. LIKE FOR EXAMPLE, THE SCANNER, THE BA TTERY, THE CHAIRS ARE PERMANENT ASSETS. THE OFFICE OF THE ASSESSEE, THE G ODOWN, THE COMPUTER, THE BUILDING ARE PERMANENT BUSINESS ASSETS OF THE A SSESSEE AND HENCE, ANY EXPENDITURE INCURRED BY THE ASSESSEE FOR RENOVA TING THE OFFICE, GODOWN ETC. IS TO BE TREATED AS CAPITAL EXPENDITURE . THE ASSESSEE HAS FAILED TO ESTABLISH AS TO HOW THE EXPENDITURES MENT IONED BY HIM CAN HELP THE ASSESSEE IN THE PROCESS OF EARNING PROFIT IN TH E COURSE OF HIS BUSINESS ACTIVITIES. THESE EXPENDITURES, ARE ADDING VALUE TO THE PROPERTY, CREATING NEW PROPERTY OR APPRECIABLY PROLONGING ITS LIFE. TH E ASSESSEE IS IN THE BUSINESS OF SELLING VACUUM CLEANERS, WATER PURIFIER S ETC. AND DEFINITELY NOT IN THE COMPUTER BUSINESS OR CINEMA THEATRE ETC. TO JUSTIFY THE EXPENDITURES MENTIONED ABOVE AS BEING INCIDENTAL TO HIS BUSINESS . THE ASSESSEE HAS INCURRED HUGE EXPENDITURE WHICH HAS RESULTED IN LON G TERM BENEFIT TO THE ASSESSEE AND SUCH EXPENDITURE IS NOT ALLOWABLE AS R EVENUE EXPENDITURE AND THE SAME CANNOT BE PASSED AS REPAIR AND MAINTEN ANCE. THEREFORE, AN AMOUNT OF RS.1,43,46,644/- OUT OF A TOTAL OF RS. 4,09,64,919/- INCURRED ITA NOS.2126&2625/13 EUREKA FORBES LTD. 12 UNDER THE HEAD 'REPAIRS AND MAINTENANCE' IS TREATED AS CAPITAL IN NATURE. THIS WAY, THE LD DR HAS REITERATED THE STAND TAKEN BY THE ASSESSING OFFICER. THE LD DR ALSO RELIED ON THE FOLLOWING JUD GMENT: CIT,MADURAI VS.SARAVANA SPG. MILLS (P) LTD. [2007] 163 TAXMANN 201(SC): ASSESSEE MANUFACTURER OF YARN REPLACED OLD 3 RING F RAMES BY NEW ONES AND CLAIMED EXPENDITURE INCURRED IN SAID A CTIVITY AS CURRENT REPAIRS CONTENDING THAT WHOLE TEXTILE MI LL WAS A PLANT AND RING FRAMES WERE ONE OF 25 MACHINES WHI CH CONSTITUTED A SINGLE PROCESS AND THEREFORE, REPLACE MENT OF FRAMES BE TREATED AS REPLACEMENT OF PART OF PLANT/T OTAL MACHINERY AND NOT REPLACEMENT OF A MACHINE-ASSESSIN G OFFICER HELD THAT EACH MACHINE INCLUDING RING FRAME WAS AN INDEPENDENT AND SEPARATE MACHINE CAPABLE OF INDEPEN DENT AND SPECIFIC FUNCTION AND, THEREFORE, EXPENDITURE I NCURRED FOR REPLACEMENT OF ENTIRE MACHINE WOULD NOT COME WITHIN MEANING OF WORDS CURRENT REPAIRS 6.2 THE LD. AR SUBMITTED THAT DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAD INCURRED EXPENSES ON REPAIRS & MAINTEN ANCE OF RS.4,09,64,919/- OUT OF SUCH AMOUNT THE AO HAS DISA LLOWED RS.1,43,46,644/-. THE ASSESSEE SUBMITTED COMPLETE D ETAILS REGARDING THE ABOVE MENTIONED EXPENDITURE AS WELL AS EXPLAINED TH E NATURE THEREOF. THE LD. AR FURTHER SUBMITTED THAT ALL THESE EXPEN SES HAVE BEEN INCURRED BY THE ASSESSEE ON LEASED ASSETS. THE ASSESSEE IS N OT OWNER OF LEASED ASSETS. THEREFORE ANY REPAIRS AND MAINTENANCE EXPE NDITURE INCURRED BY THE ASSESSEE ON LEASED ASSETS DO NOT GIVE OWNERSHIP TO CLAIM DEPRECIATION. THAT IS, IN ORDER TO CLAIM DEPRECIATI ON THE ASSESSEE MUST BE LEGAL OWNER OF THE ASSET. THEREFORE, THE EXPENDITUR E INCURRED TO MAINTAIN THE LEASEHOLD PROPERTY IS REVENUE IN NATURE. THE LD AR FOR THE ASSESSEE HAS SHOWN US LEASE AGREEMENTS AND LEASE DETAILS. TH E AR FOR THE ASSESSEE ALSO RELIED ON THE FOLLOWING JUDGMENT: ITA NOS.2126&2625/13 EUREKA FORBES LTD. 13 COMMISSIONER OF INCOME TAX VS. MADRAS AUTO SERVICE (P) LTD. [1998] 99 TAXMAN 575 (SC): IN ORDER TO DECIDE WHETHER THIS EXPENDITURE IS REVENUE EXPENDITURE OR CAPITAL EXPEN DITURE, ONE HAS TO LOOK AT THE EXPENDITURE FROM A COMMERCIAL POINT OF VIEW. WHAT ADVANTAGE DID THE ASSESSEE GET BY CONSTRUCTING A BU ILDING WHICH BELONGED TO SOMEBODY ELSE AND SPENDING MONEY FOR SU CH CONSTRUCTION. THE ASSESSSEE GOT A LONG LEASE OF A N EWLY CONSTRUCTED BUILDING SUITABLE TO ITS OWN BUSINESS A T A VERY CONCESSIONAL RENT. THE EXPENDITURE, THEREFORE, WAS MADE IN ORDER TO SECURE A LONG LEASE OF NEW AND MORE SUITABLE BUSINE SS PREMISES AT A LOWER RENT. IN OTHER WORDS, THE ASSESSEE MADE SUB STANTIAL SAVINGS IN MONTHLY RENT FOR A PERIOD OF 39 YEARS BY EXPENDI NG THESE AMOUNTS. THE SAVING IN EXPENDITURE WAS A SAVING IN REVENUE EXPENDITURE IN THE FORM OF RENT. WHATEVER, SUBSTITU TES FOR REVENUE EXPENDITURE SHOULD NORMALLY BE CONSIDERED AS REVEN UE EXPENDITURE. MOREOVER, THE ASSESSEE DID NOT GET ANY CAPITAL ASSET BY SPENDING THE SAID AMOUNTS. THE ASSESSEE, THEREFO RE, COULD NOT HAVE CLAIMED AND DEPRECIATION. LOOKING TO THE NATUR E OF THE ADVANTAGE WHICH THE ASSESSEE OBTAINED IN COMMERCIAL SENCE, THE EXPENDITURE APPEARED TO BE REVENUE EXPENDITURE. THE BUILDING WAS NEVER BELONGED TO THE ASSESSEE. RIGHT FROM THE INCE PTION THE BUILDING WAS UNDER THE OWNERSHIP OF THE LESSOR. TH EREFORE, BY SPENDING THIS MONEY, THE ASSESSEE DID NOT ACQUIRE A NY CAPITAL ASSET. THE ONLY ADVANTAGE THE WHICH THE ASSESSEE DE RIVED BY SPENDING THE MONEY WAS THAT IT GOT THE LEASE OF A N EW BUILDING AT A LOW RENT. FROM THE BUSINESS POINT OF VIEW, THEREFOR E, THE ASSESSEE GOT THE BENEFIT OF REDUCED RENT. THE HIGH COURT HAD , THEREFORE, RIGHTLY CONSIDERED THIS AS OBTAINING A BUSINESS AD VANTAGE. THE EXPENDITURE WAS , THEREFORE, TO BE TREATED AS REVEN UE EXPENDITURE. 6.3 HEAVING HEARD THE RIVAL SUBMISSIONS, PERUSED TH E MATERIAL AVAILABLE ON RECORD, WE ARE OF THE VIEW THAT THERE IS MERIT I N THE SUBMISSIONS OF THE ASSESSEE, AS THE PROPOSITION CANVASSED BY THE LD.AR FOR THE ASSESSEE ARE SUPPORTED BY THE JUDGMENT OF HON`BLE SUPREME COURT IN THE CASE OF CIT VS. MADRAS AUTO SERVICE (P) LTD. (SUPRA). THE LD AR POINTED OUT THAT THE ASSESSEE SPENT THE AMOUNT TO REPAIR LEASED PROPERTY . THE LEASED PROPERTY BELONGS TO THE LESSOR AND NOT TO THE ASSESSEE. THE ASSESSEE CAN NOT CLAIM DEPRECIATION ALSO. CONSIDERING THE FACTUAL PO SITION, WE ARE OF THE VIEW THAT ORDER PASSED BY THE LD CIT (A) DOES NOT C ONTAIN ANY INFIRMITY. THEREFORE, WE CONFIRM THE ORDER OF LD.CIT(A). ITA NOS.2126&2625/13 EUREKA FORBES LTD. 14 6.4 IN THE RESULT, THE APPEAL FILED BY THE REVENUE ON THIS ISSUE IS DISMISSED. 7. THE THIRD GROUND RELATES TO IRRECOVERABLE ADVANC E OF RS. 1,49,00,000/- WRITTEN OFF BY THE ASSESSEE. 7.1 THE LD. DR FOR THE REVENUE HAS REITERATED THE S TAND TAKEN BY THE ASSESSING OFFICER. HE STATED THAT ASSESSING OFFICER HAS PASSED A REASONED ORDER STATING THE FOLLOWINGS: IT IS CLEAR THAT THIS ADVANCE WAS GIVEN TO A NEWLY FORMED SUBSIDIARY COMPANY AND NOT TO OBTAIN ANY MATERIAL OR BENEFITS FOR THE PURPOSES OF THE BUSINESS OF THE ASSESSEE COMPANY. IT IS ALSO NOTICED THAT THE ASSESSEE COMPANY SOLD OF THESE SHARES AND THEN CHAR GED THIS ADVANCE UNDER REVENUE EXPENDITURE. THE ALLOWABILITY OF EXPENDITURE HAS BEEN DEALT WITH U/S.30 TO 36 AND SECTION 37 OF THE I.T.ACT 1961. THE KEY PRINCIPLES OF ALLOWABILITY OF AN EXPENDITUR E HAVE PURPOSE AS THE CARDINAL POINT TO BE CONSIDERED BEFORE ITS A LLOWANCE OR OTHERWISE. AS DISCUSSED, THE ASSESSEE IS IN THE BUS INESS OF SELLING, MANUFACTURING OF VACUUM CLEANERS AND NOT IN THE BUS INESS OF ADVANCING LOANS. IN THIS INSTANT CASE OF THE ASSESS EE, THE ASSESSEE HIMSELF HAS ADMITTED TO HAVE ADVANCED LOANS AS WORK ING CAPITAL TO THE SUBSIDIARY COMPANY WHEREIN IT HAD HELD 70% EQUI TY. THE ASSESSEE HAS FAILED TO DISCHARGE ITS ONUS TO ESTABL ISH ANY NEXUS BETWEEN ITS OWN BUSINESS AND THE BUSINESS OF THE SU BSIDIARY. IT HAS FAILED TO ADDUCE ANY EVIDENCE TO BRING OUT ANY COVE RT OR OVERT ADVANTAGE IN THE BUSINESS OF THE ASSESSEE ITSELF. T HE ASSESSEE HAS FAILED TO PROVIDE ANY EVIDENCE LIKE THE OBJECT CLAU SE OF MEMORANDUM OF ASSOCIATION OF THE SUBSIDIARY COMPANY , THE QUALIFICATION OF THE STAKE HOLDER, THE RESULTS OF T HE SUBSIDIARY COMPANY, THE NATURE OF THE ADVANCE ALONGWITH AGREEM ENT, THE PRICE IN WHICH THIS INVESTMENTS IN THE SUBSIDIARY COMPANY WAS SOLD, THE EFFORTS MADE BY THE COMPANY TO RECOVER THESE ADVANC ES, THE OTHER TRANSACTION OF TRADE BETWEEN THE, SUBSIDIARY COMPAN Y AND THE ASSESSEE COMPANY ETC. THE ASSESSEE HAS MERELY CITED TWO CASES WHICH ARE DISTINGUISHABLE BOTH ON LAW AND FACTS AND HENCE, THE CLAIM OF THIS EXPENDITURE U/S.37 DOES NOT HAVE ANY LEGS TO STAND. IN FACT, THE ASSESSEE HAS NOT EVEN SUPPLIED THE RESOLU TION OF THE BOARD IN THIS REGARD. IN FACT, IN THE ABSENCE OF THE DETA ILS OF THE SALE OF THE SHARES OF THE SUBSIDIARY COMPANY, THE FACT OF A PAC KAGE DEAL CAN NOT BE RULED OUT. TO CLAIM A DEBT AS BAD DEBT AND A S A DEDUCTION, THE DEBT SHOULD BE IN RESPECT OF THE BUSINESS WHICH IS CARRIED ON BY THE ASSESSEE IN THIS ASSESSMENT YEAR. IN FACT, THE ASSESSEE HAS MADE THE DIFFERENTIATION AND CATEGORIZE THIS AS AN ADVANCE AND NOT A DEBT BECAUSE A DEBT ARISES ON ACCOUNT OF TRANSACT IONS OF THE BUSINESS CARRIED OUT BY THE ASSESSEE' AND TO THAT E XTENT DEBT ITA NOS.2126&2625/13 EUREKA FORBES LTD. 15 MEANS SOMETHING MORE THAN A MERE ADVANCE. THE ADVAN CE WRITTEN OFF CAN NOT BE ALLOWED AS A BAD DEBT OR AN IRRECOVE RABLE ADVANCE AS REVENUE DEDUCTION. TO CLAIM A DEDUCTION IT HAS T O BE PROVED THAT THERE IS CLOSE PROXIMITY BETWEEN THE BUSINESS OF TH E ASSESSEE AND THE PERSON TO WHOM SUCH LOANS HAVE BEEN ADVANCED. I N THE PRESENT CASE, THE ADVANCE WHICH HAS BECOME BAD HAS NOT EMERGED FROM THE TRADING ACTIVITY OF THE ASSESSEE AND HENCE , CAN NOT BE ALLOWED AS A REVENUE DEDUCTION. THE ASSESSEE COMPAN Y IS NEITHER A BANKER, NOR A MONEY LENDER AND NEITHER IS THIS AD VANCE INCIDENTAL TO THE BUSINESS OF THE ASSESSEE BUT MERELY MONEY BE ING HANDED OVER TO A SUBSIDIARY COMPANY AND IN TURN THE SUBSID IARY COMPANY FAILING TO RETURN THE SAME CANNOT BE ALLOWED AS DED UCTION ULS.36 OR U/S. 37 ON WRITING OF THE SAME. RELIANCE IS ALSO PL ACED ON [2010] 6 TAXMANN.COM 86 (HYD- TAT) ITAT, HYDERABAD BENCH 'B' , IN THE CASE OF HYDERABAD VST. INDUSTRIES LTD. VS. ACIT IN ITA NO. 691/HYD/2005, JULY, 2010. THE ASSESSEE HAS MISERABL Y FAILED TO MARSHAL ENOUGH EVIDENCE TO SUPPORT ITS CASE THAT TH ESE ADVANCES WOULD IN ANY WAY CAUSED ANY ADVANTAGE TO ITSELF EIT HER IN THE PRESENT OR IN THE FUTURE. IT HAS ALSO NOT BEEN ABLE TO ADDUCE ANY EVIDENCE TO SUPPORT THE THEORY OF PROXIMITY BETWEEN THE ASSESSEE'S OWN BUSINESS AND ITS SUBSIDIARY AND NEITHER, FURNIS HED ANYTHING TO SUBSTANTIATE THE STAND OF THE ASSESSEE WITH REGARDS TO THE TEST OF PURPOSE. THIS WAY, THE DEPARTMENTAL REPRESENTATIVE (DR) FOR THE REVENUE, HAS PRIMARILY REITERATED THE STAND TAKEN BY THE ASSESSI NG OFFICER, WHICH WE HAVE ALREADY NOTED ABOVE. 7.2 ON THE OTHER HAND THE LD. AR FOR THE ASSESSEE H AS SUBMITTED THAT SUBSIDIARY COMPANY WAS SET UP AS A SERVICE PROVIDER FOR MAINTENANCE OF VARIOUS ELECTRICAL AND ELECTRONIC APPLIANCES. THE A SSESSEE IS PRESENTLY ENGAGED IN A SIMILAR TYPE OF ACTIVITY I.E. SERVICE PROVIDER, FOR ITS WATER PURIFIERS. THUS, THERE IS A CLEAR NEXUS BETWEEN THE BUSINESS CARRIED ON BY THE SUBSIDIARY COMPANY AND THE ASSESSEE. SINCE THE SUBSIDY COMPANY WAS INCURRING LOSSES, THE ASSESSEE SOLD OFF ITS SH ARE. HOWEVER, THE ADVANCES GIVEN BY THE ASSESSEE WERE NOT RECOVERABLE . HENCE, THE EXPENDITURE IN FORM OF ADVANCES INCURRED BY THE ASS ESSEE IS IN THE NATURE ITA NOS.2126&2625/13 EUREKA FORBES LTD. 16 OF NORMAL BUSINESS EXPENDITURE, AND HENCE, BE ALLOW ED U/S.37(1) OF THE ACT. THE LD. AR FOR THE ASSESSEE HAS ALSO RELIED ON THE JUDGMENT OF BOMBAY HIGH COURT IN THE CASE OF WESTERN INDIA OIL DISTRIBUTING COMPANY LTD. VS. CIT [1970] ,77 ITR 140 IN WHICH THE HON`BL E COURT HELD THAT THE EXPENSE INCURRED FOR THE PURPOSE OF TERMINATION OF DISADVANTAGES TRADE RELATIONSHIP ARE INCURRED WHOLLY AND EXCLUSIVELY FO R THE PURPOSE OF COMPANY`S TRADE. 7.3 HEAVING HEARD THE RIVAL SUBMISSIONS, PERUSED TH E MATERIAL AVAILABLE ON RECORD, WE ARE OF THE VIEW THAT THERE IS MERIT I N THE SUBMISSIONS OF THE ASSESSEE, AS THE PROPOSITION CANVASSED BY THE LD.AR FOR THE ASSESSEE ARE SUPPORTED BY THE JUDGMENT OF BOMBAY HIGH COURT (SU PRA) AND FACTS NARRATED BY HIM. THE LD AR POINTED OUT THAT THE ASS ESSEE IS PRESENTLY ALREADY ENGAGED IN A SIMILAR TYPE OF ACTIVITY I.E. SERVICE PROVIDER, FOR ITS WATER PURIFIERS. THUS, THERE IS A CLEAR NEXUS BETWE EN THE BUSINESS CARRIED ON BY THE SUBSIDIARY COMPANY AND THE ASSESSEE. SINC E THE SUBSIDY COMPANY WAS INCURRING LOSSES, THE ASSESSEE SOLD OF F ITS SHARE. HOWEVER, THE ADVANCES GIVEN BY THE ASSESSEE WERE NOT RECOVER ABLE. HENCE, THE EXPENDITURE IN FORM OF ADVANCES INCURRED BY THE ASS ESSEE IS IN THE NATURE OF NORMAL BUSINESS EXPENDITURE, AND SHOULD BE ALLOW ED U/S.37(1) OF THE ACT. CONSIDERING THE FACTUAL POSITION AND PRECEDENT CITED BY THE ASSESSEE, WE ARE OF THE VIEW THAT THE LD. CIT (A) HAD PASSED A REASONED ORDER AND IT DOES NOT REQUIRE ANY INTERFERENCE, THEREFORE, WE CONFIRM THE ORDER PASSED BY THE LD CIT(A). ITA NOS.2126&2625/13 EUREKA FORBES LTD. 17 7.4 IN THE RESULT, THE APPEAL FILED BY THE REVENUE ON THIS ISSUE IS DISMISSED. 8. GROUND NO. FOUR RELATES TO PROVISION FOR WARRANTY C LAIMS AT RS. 4.51 CRORES. 8.1 THE LD. DR FOR THE REVENUE HAD PRIMARILY RE ITERATED THE STAND TAKEN BY THE ASSESSING OFFICER AND SUBMITTED BEFORE US THAT THE ASSESSEE IS PRIMARILY ENGAGED IN THE MANUFACTURING AND SELLI NG OF TWO ITEMS, THAT IS, VACCUM CLEANER AND WATER PURIFYING SYSTEMS, AND HEN CE, THE LIABILITY IS CONTINGENT . THE ASSESSEE HAS NOT PROVIDED ANY STAT ISTICAL DATA FOR THE PAST FEW YEARS WHERE WARRANTY CLAIMS HAVE BEEN MADE BY THE ASSESSEE. THERE BEING NO EVIDENCE BY THE ASSESSEE TO PROVE BY DATA ABOUT THE CORRECTNESS AND ACCURACY OF THE CLAIM, THE ENTIRE A MOUNT OF RS.4.51 CRORES SHOULD BE DISALLOWED. 8.2 ON THE OTHER HAND LD. AR FOR THE ASSESSEE HAS S UBMITTED THAT AN OBLIGATION UNDER WARRANTIES IS AN OBLIGATION IN PRE SENT AND ONLY THE DISCHARGE OF SUCH OBLIGATION IS AT A FUTURE DATE. A LSO, AS PER AS-29 ISSUED BY THE ICAI, ANY PRESENT OBLIGATION REQUIRING FUTUR E OUTFLOW OF RESOURCES AND FOR WHICH A RELIABLE ESTIMATION CAN BE MADE, PR OVISION FOR SUCH OBLIGATION SHALL BE RECOGNIZED IN THE BOOKS OF THE ENTITY. IN CASE OF THE ASSESSEE, THE SALE OF PRODUCTS WITH WARRANTY IS A PRESENT OBLIGATION EVEN THAT GIVES RISE TO A FUTURE PROBABLE OUTFLOW OF RES OURCES, THE PROBABILITY OF INCURRING OF WHICH IS MORE HIGH. HENCE THE ASSESSEE HAVE RECOGNIZED PROVISION ON THE BEST ESTIMATE OF THE COST TO MAKE GOOD THE WARRANTY ITA NOS.2126&2625/13 EUREKA FORBES LTD. 18 PRODUCTS SOLD BEFORE THE BALANCE SHEET DATE. THEREF ORE, DISALLOWANCE SHOULD BE DELETED AND THE AMOUNT OF PROVISION RECOG NIZED FOR WARRANTY CLAIMS BE ALLOWED UNDER SECTION 37 OF THE ACT. THE LD. AR FOR THE ASSESSEE HAS ALSO RELIED ON THE JUDGMENT OF HON`BLE SUPREME COURT IN THE CASE OF ROTORK CONTROLS INDIA PVT. LTD. VS.CIT, 314 ITR 62, WHEREIN THE HON`BLE SUPREME COURT HELD THAT WHERE THERE WAS A WARRANTY OBLIGATION SUCH OBLIGATION WAS A PART OF THE SALE P RICE AND STOOD ATTACHED TO THE SALE PRICE OF THE PRODUCT. IT WAS HELD THAT A WARRANTY OBLIGATION IS A PRESENT OBLIGATION AS A RESULT OF PAST EVENTS RESUL TING IN AN OUT FLOW OF RESOURCES AND A RELIABLE ESTIMATE COULD BE MADE OF THE AMOUNT OF OBLIGATION. IF IT IS SO MADE IT IS A LIABILITY ALLO WABLE AS DEDUCTION U/S 37 OF THE ACT. 8.3 HEAVING HEARD THE RIVAL SUBMISSIONS, PERUSED TH E MATERIAL AVAILABLE ON RECORD, WE ARE OF THE VIEW THAT THERE IS MERIT I N THE SUBMISSIONS OF THE ASSESSEE, AS THE PROPOSITION CANVASSED BY THE LD.AR FOR THE ASSESSEE ARE SUPPORTED BY THE JUDGMENT OF HON`BLE SUPREME COURT IN THE CASE OF ROTORK CONTROLS INDIA PVT. LTD. (SUPRA) AND THE FAC TS NARRATED BY HIM. THE LD AR POINTED OUT THAT WARRANTY OBLIGATION IS A PAR T OF SALE PRICE. THE COMPANY NORMALLY GIVES WARRANTY FOR ITS PRODUCTS TO UNDERTAKE REPAIR AND REPLACEMENT OF ITEMS THAT FAILED TO PERFORM SATISFA CTORILY DURING WARRANTY PERIOD. THE CUSTOMER PURCHASES THE PRODUCTS BECAUSE THE COMPANY GIVES WARRANTY TO REPAIR/REPLACE THE DEFECTIVE PRODUCTS. CONSIDERING THE FACTUAL POSITION AND PRECEDENT CITED BY THE ASSESSEE, WE AR E OF THE VIEW THAT THE ITA NOS.2126&2625/13 EUREKA FORBES LTD. 19 LD. CIT (A) HAD PASSED A REASONED ORDER AND IT DOES NOT REQUIRE ANY INTERFERENCE, THEREFORE, WE CONFIRM THE ORDER PASSE D BY THE LD CIT(A). 8.4 IN THE RESULT, THE APPEAL FILED BY THE REVENUE ON THIS ISSUE IS DISMISSED. 9.GROUND NO. FIVE RELATES TO EXPENDITURE INCURRED IN ACQUISITION BID AT RS.1,18,96,000/- 9.1 LD. DR FOR THE REVENUE HAS PRIMARILY REITERATE D THE STAND TAKEN BY THE ASSESSING OFFICER WHICH IS GIVEN AS UNDER: THE ASSESSEE HAS FAILED TO SUBSTANTIATE THE CLAIM F OR ALLOWANCE OF THIS EXPENDITURE UNDER THE P&L ACCOUNT AS IT HAS NO T BROUGHT ANY EVIDENCE SUCH AS LEGAL AND PROFESSIONAL CHARGES INC URRED, CORRESPONDENCES WITH THE COMPANY IN QUESTION, RESOL UTION OF THE BOARD, THE ANNUAL REPORT OF THE COMPANY IN WHICH TH E ASSESSEE CLAIMS TO HAVE BEEN INTERESTED, DETAILS OF FOREIGN TRAVEL WITH THIS PURPOSE ETC. FURTHER, IT HAS NOT BEEN ABLE TO BRING OUT THE COMPLEMENTARY NATURE OF THE BUSINESS OF THE ASSESSE E AND THE COMPANY WHICH IT ATTEMPTED TO ACQUIRE. THE ASSESSEE HAS MERELY SUBMITTED THE NAME OF A COMPANY AND SOME CASE LAWS WHICH ARE DISTINGUISHABLE FROM THE CASE OF THE ASSESSEE. THE ASSESSEE HAS ALSO NOT PROVIDED ANY EVIDENCE WHERE A FACT CAN COM E OUT THAT THE DIRECTORS OF BOTH THE COMPANY MET AND THOUGH THAT I T WOULD BE ADVANTAGEOUS TO BOTH THE COMPANIES IF THIS ACQUISIT ION TAKES PLACE. EVEN IF, THE ACQUISITION BID WAS SUCCESSFUL, THE AC QUISITION WOULD BE OF A CAPITAL ASSET AND HENCE, THE EXPENDITURE WOULD PARTAKE THE NATURE OF CAPITAL EXPENDITURE. SINCE THE ASSESSEE H AS NOT BROUGHT ANY EVIDENCE TO PROVE THAT BOTH THE COMPANIES WERE CARRYING ON COMPLEMENTARY BUSINESSES AND THE ACQUISITION WAS NE CESSARY FOR THE SMOOTH AND EFFICIENT CONDUCT OF THE BUSINESS, T HE QUESTION OF ALLOWABILITY OF THIS EXPENSE UNDER P&L ACCOUNT DOES NOT SEEM LOGICAL. THE ASSESSEE HAS ALSO FAILED TO PROVE THAT THE TRANSACTION OF ACQUISITION OF THIS COMPANY WAS IN ANY WAY RELATED TO THE COMMENCEMENT, AND CARRYING ON OF THE ASSESSEE'S OWN BUSINESS AND HENCE, IN A NORMAL COURSE CANNOT BE REGARDED AS EXPENDITURE FOR THE PURPOSE OF THE BUSINESS, WHICH WAS CARRIED IN THE ACCOUNTING PERIOD. THE ASSESSEE HAS ALSO NOT BEEN ABLE TO BRIN G ANYTHING ON RECORD TO MAKE OUT A CASE OF ADVANCEMENT OF BUSINES S BY ENTERING INTO THIS TRANSACTION AT ANY FUTURE DATE. THE ASSES SEE HAS NOT PROVIDED ANY EVIDENCE IN AS MUCH AS THE PROJECTIONS OF PROFITS AFTER THE ACQUISITION OF THIS COMPANY. THE ASSESSEE HAS N OT PROVIDED ANY MATERIAL EVIDENCE ON THE DUE DILIGENCE PROCEDURE CA RRIED OUT IF ANY. ITA NOS.2126&2625/13 EUREKA FORBES LTD. 20 THE ASSESSEE HAS NOT FURNISHED ITS ANALYSIS IF ANY, OF THE COMPANY IN QUESTION PURPORTEDLY FOR ACQUISITION. IN FACT, T HE ASSESSEE HAS NOT EVEN MENTIONED THE NATURE OF PRODUCTS BEING MANUFAC TURED BY THE COMPANY PURPORTEDLY TO BE ACQUIRED. HENCE, IN A NUT SHELL, THE ASSESSEE HAS FAILED TO BRING ANYTHING ON RECORD TO PROVE THE GENUINENESS OF THIS TRANSACTION, THE COMPLEMENTARY NATURE OF BOTH THE BUSINESSES, AND THE WAY IN WHICH THIS EXPENDITU RE WAS FOR THE PURPOSES OF SMOOTH AND EFFICIENT CONDUCT OF THE BUS INESS, AND FUTURE BENEFITS ARISING OUT OF SUCH AN ACQUISITION. IN THE ABSENCE OF SUCH EVIDENCES THE ENTIRE EXPENDITURE OF RS.118.96 LAKHS ON ACCOUNT OF ACQUISITION BID IS DISALLOWED AND ADDED BACK TO THE INCOME OF THE ASSESSEE. 9.2 THE LD. AR FOR THE ASSESSEE HAS SUBMITTED BEFOR E US THAT M/S KXI, THE TARGETED COMPANY FOR ACQUISITION, WAS ENGAGED I N THE BUSINESS OF WATER PURIFIERS, THE SAME AS THE ASSESSEE. IT WAS S OUGHT TO BE ACQUIRED AS A GEOGRAPHICAL EXPANSION OF THE ASSESSEES EXIST ING LINE OF BUSINESS OF WATER PURIFIERS. THE BID PRICE WAS NOT COMMENSURATE WITH THE PRODUCTS OFFERED BY THE M/S KXI, HENCE, THE ASSESSEE EXITED FROM THE BID PROCESS AND CONSEQUENTLY ACQUISITION DID NOT TAKE PLACE. HO WEVER, THE ASSESSEE HAD INCURRED EXPENDITURE ON ACCOUNT OF LEGAL AND PR OFESSIONAL FEES, IN THE BIDDING PROCESS. FURTHER THE PROJECT OF ACQUISITION BEING IN THE COURSE OF THE EXISTING BUSINESS OF THE ASSESSEE, THE EXPENDIT URE INCURRED IN CONNECTION WITH THE SAME SHALL ALSO BE CONSIDERED A S BUSINESS EXPENDITURE. THE LD AR ALSO RELIED ON THE JUDGEMENT OF HON`BLE KOLKATA HIGH COURT IN THE CASE OF CIT VS. GRAHPHITE INDIA L TD. 221 ITR 420(KOL) WHEREIN IT WAS HELD THAT ANY EXPENDITURE INCURRED W ITH THE MOTIVE OF EXPANDING THE POSSIBILITY OF THE BUSINESS OF THE AS SESSEE, SUCH EXPENDITURE INCURRED DOES NOT BRING INTO EXISTENCE ANY CAPITAL ASSETS OF ENDURING NATURE AND THEREFORE, IT IS TO BE CONSIDER ED TO BE BUSINESS EXPENDITURE. ITA NOS.2126&2625/13 EUREKA FORBES LTD. 21 9.3. HEAVING HEARD THE RIVAL SUBMISSIONS, PERUSED T HE MATERIAL AVAILABLE ON RECORD, WE ARE OF THE VIEW THAT THERE IS MERIT I N THE SUBMISSIONS OF THE ASSESSEE, AS THE PROPOSITION CANVASSED BY THE LD.AR FOR THE ASSESSEE ARE SUPPORTED BY THE JUDGMENT OF HON`BLE CALCUTTA HIGH COURT IN THE CASE OF GRAHPHITE INDIA LTD. (SUPRA). THE LD. AR POINTED OU T THAT M/S KXI, THE TARGETED COMPANY FOR ACQUISITION, WAS ENGAGED IN TH E BUSINESS OF WATER PURIFIERS, THE SAME AS THE ASSESSEE. IT WAS SOUGHT TO BE ACQUIRED AS A GEOGRAPHICAL EXPANSION OF THE ASSESSEES EXISTING L INE OF BUSINESS OF WATER PURIFIERS THEREFORE, EXPENDITURE INCURRED ON ACQUISITION BID IS REVENUE EXPENDITURE. CONSIDERING THE FACTUAL POSITION AND PRECEDENT CITE D BY THE ASSESSEE, WE ARE OF THE VIEW THAT THE LD. CIT (A) HAD PASSED A REASONED ORDER AND IT DOES NOT REQUIRE ANY INTERFERENCE, THEREFORE, WE CO NFIRM THE ORDER PASSED BY THE LD CIT(A). 9.4 IN THE RESULT, THE APPEAL FILED BY THE REVENUE ON THIS ISSUE IS DISMISSED. REVENUE`S APPEAL IN ITA NO.2625/KOL/2013(AY 2009-20 10) THE GROUNDS RAISED BY THE REVENUE IN THIS APPEAL AR E AS UNDER :- 1. WHETHER LD. CIT(A)-XII, KOLKATA, WAS JUSTIFIED I N RESTRICTING THE DISALLOWANCE TO RS.11,16,629/- ON THE STRENGTH OF T HE VERDICT GIVEN BY THE HONBLE DELHI HIGH COURT IN THE CASE O F MODI SPG. & WVG. MILLS COMPANY LTD. (SUPRA) ? 2. WHETHER LD. CIT(A)-XII, KOLKATA, WAS JUSTIFIED T O CONSIDER THE RELATIONSHIP BETWEEN THE ASSESSEE AND DISTRIBUTORS/ DEALERS AS PRINCIPAL TO PRINCIPAL INSTEAD OF PRINCIPAL AND AGE NT WHICH NULLIFIES THE INVOKING OF SECTION 40(A)(IA) OF THE I.T.ACT ? ITA NOS.2126&2625/13 EUREKA FORBES LTD. 22 10.GROUND NO.1:THE LD.CIT(A) WHILE DEALING WITH THE GROUND NO.1,HAS OBSERVED AS UNDER :- I HAVE CAREFULLY CONSIDERED THE SUBMISSION PUT FOR TH ON BEHALF OF THE APPELLANT ALONG WITH THE SUPPORTING DOCUMENTS/D ETAILS FURNISHED & CASE LAWS RELIED UPON, PERUSED THE FACTS OF THE C ASE INCLUDING THE OBSERVATION OF THE AO MADE IN THE ASSESSMENT ORDER AND OTHER MATERIALS BROUGHT ON RECORD. I FIND SUBSTANTIAL FOR CE IN THE ARGUMENT ADVANCED BY THE A/R OF THE APPELLANT. IT IS SUBMITT ED THAT THE APPELLANT HAD SUBMITTED COMPLETE DETAILS REGARDING THE ABOVE MENTIONED EXPENDITURE AS WELL AS THE DETAILS OF TAX DEDUCTED THEREON, VIDE ITS LETTER DATED 2ND DECEMBER 2011 BE FORE THE AO. THE A/R OF THE APPELLANT CONTENDED THAT ON PERUSAL OF THE DETAILS PROVIDED AS ANNEXURE, IT COULD BE SEEN THAT THE A.O . HAS DISALLOWED EXPENSES RANGING FROM RS.200/- TO RS.12 LAKHS BY TR EATING THEM AS CAPITAL IN NATURE. ON A PERUSAL OF THE LIST, IT ALS O COULD BE SEEN THAT SUCH EXPENSES ARE RECURRING IN NATURE AND DID NOT R ESULT IN ANY BENEFIT OF ENDURING LIFE. AS REGARDS THE EXPENDITURE INCURRED ON LEASED PREMI SES, IT IS SUBMITTED THAT THE HON'BLE DELHI HIGH COURT IN THE CASE OF MODI SPG.& WVG. MILLS CO. LTD. V. CIT [1993] 200 ITR 544 HAS HELD THAT IF A TENANT INCURS AN EXPENDITURE ON A RENTED BUILDING FOR ITS RENOVATION OR ALTERATION, HE DOES NOT ACQUIRE ANY C APITAL ASSET, BECAUSE THE BUILDING DOES NOT BELONG TO HIM AND, OR DINARILY, SUCH AN EXPENDITURE WILL BE OF A REVENUE NATURE. I FIND FROM THE COPY OF THE ORDER OF THE HON'BLE IT AT ( ANNEXURE - ILL) THAT THIS RATIO OF THE HIGH COURT HAS BEEN APPLIED BY THE HON'BLE ITAT IN APPELLANT'S OWN CASE IN AY 1992-93 AND HAS HELD THE SAME AS REVENUE IN NATURE AND ALLOWED IT AS DEDUCTION. A S PER THE HON'BLE ITAT ( POINT NO. 9 PAGE3) IT IS MENTIONED T HAT- 'THE FACTS THAT THE ASSESSEE INCURRED THE SAID EXPE NDITURE ONLY FOR RENOVATING ITS OFFICE PREMISES BY REPLACING THE OLD FURNITURE ETC , THE ASSESSEE HAS NOT CREATED ANY NEW ASSET BUT HAD INCU RRED THE EXPENDITURE FACILITATE ITS BUSINESS AND THEREFORE WE AGREE WITH THE LD AR OF THE ASSESSEE THAT THE NATURE OF THE EXPEND ITURE INCURRED BY THE ASSESSEE IS REVENUE EXPENDITURE AND THE SAME HAS TO BE ALLOWED AS DEDUCTION U/S 37(1) OF THE ACT. ' IT IS ALSO BROUGHT TO MY NOTICE THAT THE TOR THE AS SESSMENT YEAR 2008-09 IN APPEAL NO. 507/XII/CIR-10/10-11, THE COM MISSIONER OF INCOME TAX (APPEAL -XII) HAS PARTLY ALLOWED THE EXP ENDITURE WHILE- ADJUDICATING THE SIMILAR ISSUE CONSIDERING THE SUBM ISSION OF THE APPELLANT. I HAVE GONE THROUGH THE DECISION OF MY P REDECESSOR ON THE ISSUE ON THE SIMILAR SET OF FACTS WHEREIN HE OB SERVED AS UNDER: 'APPEAL ON GROUND NO. 2 IS AGAINST THE DISALLOWANCE OF RS. 14346644/- INCURRED OF REPAIRS AND MAINTENANCE ON T HE GROUND THAT ITA NOS.2126&2625/13 EUREKA FORBES LTD. 23 THE SAME WERE CAPITAL IN NATURE. THE AO. IN ASSESSM ENT ORDER HAS GIVEN HIS FINDING THAT THE EXPENDITURE INCURRED AND DEBITED UNDER THIS HEAD HAVE AN ENDURING BENEFIT AND HAS BROUGHT INTO EXISTENCE NEW CAPITAL ASSETS FOR ASSESSEE. THE AO HAS ALSO PO INTED OUT THAT THE ASSESSEE/AR. FAILED TO ESTABLISH AS TO HOW THE EXPENDITURE INCURRED COULD HELP THE APPELLANT IN THE PROCESS OF EARNING PROFIT IN THE COURSE OF ITS BUSINESS. DURING THE APPELLATE PR OCEEDING THE AR. HAS SUBMITTED THAT THE ASSESSEE SPENT RS.40964919/- OUT OF WHICH THE AO HAS DISALLOWED RS.14346644/- TREATING IT AS CAPITAL EXPENDITURE. THE A.R,. HAS ALSO SUBMITTED A VALUE-W ISE AND QUANTITY-WISE SUMMARY OF LIST OF ITEMS DISALLOWED. FROM THE DETAILS FILED BY THE AR IT IS SEEN THAT THE EXPENDITURE OF RS. 76.47 LAKHS HAS BEEN INCURRED ON LEASED PREMISES. THE AR HAS BROUGH T ON RECORD THE CASE LAW OF MODI SPG.'& WVG. MILLS COMPANY LTD. VS. CIT (1993)200 ITR 544 DELHI. IN ITS JUDGEMENT THE HON'B LE DELHI HIGH COURT HAS OBSERVED THAT IF A TENANT INCURS AN EXPEN DITURE ON RENTED BUILDING FOR ITS RENOVATION OR ALTERATION, HE DOES NOT ACQUIRE ANY CAPITAL ASSETS BECAUSE THE BUILDING DOES NOT BELONG TO HIM AND, SUCH AN EXPENDITURE WILL BE REVENUE IN NATURE. FROM THE CHART FILED BY THE AR IT IS SEEN THAT RS. 13.65 LAKHS HAS BEEN PAID AS ANNUAL MAINTENANCE CHARGES FOR COMPUTERS ETC. RS.3.5 LAKHS ON PREPAID EXPENSES, RS. 7.82 LAKHS ON REPLACEMENT ITEMS AND R S. 42.02 LAKHS ON OTHERS. I HAVE CONSIDERED THE FINDING OF T HE AO AND THE SUBMISSION ALONG WITH THE CHART AND CASE LAWS FILED BY THE AR. KEEPING IN VIEW THE RATIO DECIDED BY THE HON'BLE DE LHI HIGH COURT IN THE CASE OF MODI SPG. & WVG. MILLS COMPANY LTD. (SU PRA) EXPENDITURE ON LEASED PREMISED CANNOT BE CAPITAL IN NATURE. SIMILARLY, ANNUAL MAINTENANCE CHARGES AND PREPAID E XPENSES ARE ALSO NOT EXPENDITURE INCURRED TO ACQUIRE CAPITAL AS SET. HOWEVER, REPLACEMENT ITEMS OF RS.7.82 LAKHS MAY BE OF CAPITA L IN NATURE. SIMILARLY, SINCE ALL THE DETAILS OF EXPENDITURE OF RS.42.02 LAKHS ARE NOT AVAILABLE ON RECORDS. THEREFORE, 10% OF SUCH E XPENSES I.E. RS. 420000/- ARE TAKEN AS EXPENDITURE INCURRED FOR ASSE TS OF CAPITAL IN NATURE. THUS, AO'S ADDITION UNDER THIS HEAD IS REST RICTED TO RS.7.82 LAKHS PLUS RS. 4.20 LAKHS I.E. RS.12,02,000/-. HENC E, ASSESSEE'S APPEAL ON GROUND NO. 2 IS PARTLY ALLOWED.' 10.1 CONSIDERING THE ABOVE CITED FACTS, ON THE SAME IDENTICAL ISSUE, WE HAVE ALREADY DISMISSED THE APPEAL OF THE REVENUE ( VIDE PARA 6.3 ABOVE), IN REVENUE`S APPEAL 2126/K/2013, A.Y. 2008-09. THER EFORE, WE DISMISS THE GROUND NO. 1 OF APPEAL IN ITA NO.2625/K/2013. 11. IN REGARD TO GROUND NO.2 IN REVENUE APPEAL IN I TA NO.2625/KOL/2013, THE LD.CIT(A) HAS OBSERVED AS FO LLOWS :- ITA NOS.2126&2625/13 EUREKA FORBES LTD. 24 I HAVE CAREFULLY CONSIDERED THE SUBMISSION PUT FOR TH ON BEHALF OF THE APPELLANT ALONG WITH THE SUPPORTING DOCUMENTS/D ETAILS FURNISHED & CASE LAWS RELIED UPON, PERUSED THE FACTS OF THE CASE INCLUDING THE OBSERVATION OF THE AO MODE IN THE ASSESSMENT OR DER AND OTHER MATERIALS BROUGHT ON RECORD. IT IS SUBMITTED THAT I N THE CASE OF THE APPELLANT, THE SALE EFFECTED DIRECTLY TO THE DEALER S IS FULLY RECOGNIZED AS REVENUE BY THE APPELLANT IMMEDIATELY AND THEN ON LY ANY DISCOUNT / INCENTIVE IS GIVEN. THE APPELLANT SUBMIT TED THAT' THE RELATIONSHIP BETWEEN APPELLANT AND DISTRIBUTORS/DEA LERS IS ON 'PRINCIPAL TO PRINCIPAL' BASIS AND NOT THAT OF 'PRI NCIPAL AND AGENT' AS CONSIDERED BY THE AO, WHICH IS A PRECONDITION FOR I NVOKING SECTION ,194H OF THE ACT. FURTHER SUCH INCENTIVES AND DISCO UNTS ARE GIVEN TO THE DEALERS ON OUTRIGHT PURCHASE OF GOODS AND THERE FORE IT IS ARGUED THAT NO TAX IS DEDUCTIBLE IN TERMS OF SECTION 194H ON INCENTIVES OR DISCOUNTS IN SUCH TRANSACTIONS. IN SUPPORT OF THIS CONTENTION, THE A/R OF THE APPELLANT PLACED RELIANCE ON THE JUDGMENTS O F A NUMBER OF HIGH COURTS AND ITATS AS ABOVE. MY ATTENTION IS ALS O DRAWN TO THE DECISION OF MY PREDECESSOR ON THE ISSUE WHILE ADJUD ICATING THE APPEAL FOR THE ASSESSMENT YEAR 2008-09 IN APPEAL NO . 507/XII/CIR- 10/10-11 AND CONTENDED THAT THE SAME WAS DECIDED IN FAVOUR OF THE APPELLANT ON THE IDENTICAL SET OF FACTS AND GROUND. IT IS NOTED THAT THE COMMISSIONER OF INCOME TAX (APPEAL -XII) HAS OBSERV ED THAT THE RELATIONSHIP BETWEEN THE APPELLANT COMPANY AND DIST RIBUTING COMPANIES IS NOT OF PRINCIPAL AND AGENT BUT OF TRAN SACTION BETWEEN 'PRINCIPAL TO PRINCIPAL' AND THEREFORE, IN THIS CAS E TDS ON INCENTIVES IS NOT APPLICABLE. HENCE DISALLOWANCE U/S 40(A)(IA) OF THE ACT IS NOT JUSTIFIED. ACCORDINGLY APPELLANT'S APPEAL WAS ALLOW ED. THE RELEVANT PORTION OF THE ORDER OF MY PREDECESSOR IS REPRODUCE D BELOW: 'APPEAL ON GROUND NO. 3 IS AGAINST THE DISALLOWANCE OF EXPENSES ON SELLING AND SALES PROMOTION OF RS. 30200000/- U/S. 40(A)(IA) OF THE I.T.ACT, 1961. THE AO HAS GIVEN HIS FINDING THAT TH E ASSESSEE SPENT RS. 285216992/- ON SALES PROMOTION DURING THE YEAR OUT OF WHICH RS. 30200000/- WERE PAID AS INCENTIVES AND DISCOUNT S TO THE DEALERS OF COMPANY. AS NO TAX WAS DEDUCTED ON SUCH PAYMENTS. THEREFORE, THE AMOUNT OF RS. 30200000/- WAS DISALLO WED U/S. 40(A)(IA) OF THE I.T.ACT,1961. THE AR HAS FILED A D ETAILED SUBMISSION DURING THE APPELLATE PROCEEDING. THE AR HAS SUBMITT ED THAT THE RELATION BETWEEN THE ASSESSEE COMPANY AND DEALER CO MPANIES IS NOT OF THE PRINCIPAL AND THE AGENT. RATHER IT IS A RELATION/TRANSACTION BETWEEN TWO DIFFERENT AND SEPARATE COMPANIES I.E. T RANSACTION BETWEEN PRINCIPAL TO PRINCIPAL. THEREFORE, THERE WA S NO QUESTION OF DEDUCTING TAX AT SOURCE. THE AR HAS ALSO SUBMITTED THAT ASSESSEE'S THIS EXPLANATION HAS BEEN ACCEPTED BY THE DEPARTMEN T CONTINUOUSLY FOR MORE THAN 20 YEARS AND IT HAS BEEN ACCEPTED IN LATER YEARS ALSO. ONLY DURING ASSESSMENT OF 2008-09 THAT THE A.O. TRE ATED THE RELATION BETWEEN ASSESSEE AND DISTRIBUTING COMPANIE S AS PRINCIPAL AND AGENT AND NOT AS TRANSACTION BETWEEN PRINCIPAL TO PRINCIPAL. THE AR HAS ALSO CITED A NUMBER OF CASE LAWS WHICH HAVE BEEN CONSIDERED. I HAVE CONSIDERED THE FINDING OF THE A. O. AND WRITTEN ITA NOS.2126&2625/13 EUREKA FORBES LTD. 25 SUBMISSION AND CASE LAWS FILED BY THE A.R. DURING T HE APPELLATE PROCEEDING. I FIND THAT THERE ARE NO. 1 WRITTEN AGR EEMENT BETWEEN ASSESSEE AND ALL THE DEALERS, NO. 2 THE ASSESSEE CO MPANY ACCOUNTS FOR PAYMENT TO DISTRIBUTORS AS DISCOUNTS/I NCENTIVES, NO. 3 THE DISTRIBUTORS ARE FREE TO RESALE THE PRODUCT AT ANY PRIDE AS THEY DEEMED FIT WITHIN MRP, NO. 4 THE DISTRIBUTORS WORK MAINLY FOR THEIR OWN PROFITS EARNED ON THE BASIS OF THEIR SALES AT P RICES DECIDED BY THEM. THE INCENTIVES AND DISCOUNTS BASED ON THEIR O FF TAKE ONLY ADD TO THEIR NORMAL PROFITS. THUS, IT IS CLEAR FROM ABO VE FACTS THAT THE RELATION BETWEEN THE ASSESSEE COMPANY AND DISTRIBUT ING COMPANIES IS NOT OF PRINCIPAL AND AGENT BUT OF TRANSACTION BE TWEEN PRINCIPAL TO PRINCIPAL. THEREFORE, IN THIS CASE TDS ON INCENTIVE S IS NOT APPLICABLE. HENCE, DISALLOWANCE U/S.40(A)(IA) IS NO T JUSTIFIED. ACCORDINGLY, ASSESSEE'S APPEAL ON GROUND NO. 3 IS A LLOWED. 11.2 LD. DR FOR THE REVENUE HAS PRIMARILY RELIED O N THE STAND TAKEN BY THE ASSESSING OFFICER. WHEREAS, LD AR FOR THE ASSES SEE HAS POINTED OUT THAT THE REVENUE DID NOT FILE APPEAL AGAINST THE EA RLIER ORDER OF THE LD.CIT(A) ON THE SAME ISSUE, THEREFORE THE REVENUE CANNOT BLOW HOT AND COLD. EVEN ON MERITS OF THE CASE WE FIND THAT THE RELATIO NSHIP BETWEEN ASSESSEE AND DISTRIBUTORS/DEALERS IS ON 'PRINCIPAL TO PRINCI PAL' BASIS. THE LD CIT (A) HAS PASSED A REASONED ORDER ON THIS ISSUE AS POINTED OU T IN THE ABOVE PARA 11. THEREFORE, WE CONFIRM THE ORDER PASSED BY THE LD CI T (A) ON THIS ISSUE. 11.3 IN THE RESULT, THE APPEAL FILED BY THE REVENUE ON THIS ISSUE IS DISMISSED. 12. IN THE RESULT, THE APPEALS FILED BY THE REVENUE IN ITA NO. 2126/KOL/2013 A.Y. 2008-09 AND ITA NO.2625/KOL/2013 A.Y. 2009-10, ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 21/1 2/2016. SD/ - (S.S.VISWANETHRA RAVI) SD/ - (DR. A.L.SAINI) / JUDICIAL MEMBER / ACCOUNTANT MEMBER /KOLKATA ; ! DATED 21/12/2016 ' $%& /PRAKASH MISHRA , 0 . / PS ITA NOS.2126&2625/13 EUREKA FORBES LTD. 26 / COPY OF THE ORDER FORWARDED TO : / BY ORDER, / ( ASSTT. REGISTRAR) % & , / ITAT, 1. / THE APPELLANT-DCIT CIRCLE-10, KOLKATA 2. / THE RESPONDENT.-M/S EUREKA FORBES LTD. 3. 1 ( ) / THE CIT(A), KOLKATA. 4. 1 / CIT 5. 23 4 0056 , 56 , / DR, ITAT, KOLKATA 6. 4 78 / GUARD FILE. 2 0 //TRUE COPY//