ACIT, New Delhi V. Sh. Rajeev Khanna, New Delhi

ITA 2146/DEL/2009

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 61641 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 11 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-04-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: F
• Next Hearing Date: 30-04-2012
• Assessment Year: 2003-2004
• Appeal Filed On: 20-05-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B R R KUMARDR
• Keywords: Revenue expenditure; Reassessment proceedings; Capital expenditure
• Section: 143(3); 147; 148; 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI F BENC H BEFORE SHRI U.B.S. BEDI, JM & SHRI A.N. PAHUJA, A M ITA NO.2146/DEL/2009 ASSESSMENT YEAR:2003-04 A.C.I.T.,CIRCLE-15 (1), C.R. BUILDING,I.P. ESTATE, NEW DELHI V/S . SHRI RAJEEV KHANNA, M-168, GREATER KAILASH, PART-II, NEW DELHI [PAN :AAAPK 9300 K) (APPELLANT) (RESPONDENT) ASSESSEE BY NONE REVENUE BY SHRI B.R.R. KUMAR,DR DATE OF HEARING 30-04-2012 DATE OF PRONOUNCEMENT 30-04-2012 O R D E R A.N.PAHUJA:- THIS APPEAL FILED ON 20.05.2009 BY THE REVENUE AGAI NST AN ORDER DATED 27.02.2009 OF THE LD. CIT(A)-XVIII, NEW DELHI , RAISES THE FOLLOWING GROUNDS:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE LD. CIT(A) HAS ERRED IN NOT TREATING MARKET DEVELOPMENT FEES OF ` ` 1,45,51,292/- AS CAPITAL EXPENDITURE. 2. THE APPELLANT CRAVES TO BE ALLOWED TO AMEND, DEL ETE OR ADD ANY OTHER GROUNDS OF APPEAL DURING THE COURSE OF HE ARING OF THIS APPEAL. 2. AT THE OUTSET, NONE APPEARED BEFORE US ON BEHA LF OF THE ASSESSEE NOR SUBMITTED ANY REQUEST FOR ADJOURNMENT DESPITE SERVI CE OF NOTICE ISSUED ON 24.03.2012. CONSIDERING THE NATURE OF ISSUE INVOLV ED, THE BENCH DECIDED TO DISPOSE OF THE APPEAL AFTER HEARING THE LD. DR. . ITA N O.2146 /DEL./2009 2 3. FACTS, IN BRIEF, AS PER RELEVANT ORDERS ARE THA T RETURN DECLARING INCOME OF ` 2,72,14,081/- FILED ON 28.11.2003 BY THE ASSESSEE, WAS SELECTED FOR SCRUTINY WITH THE SERVICE OF A NOTICE U/S 143(2) OF THE INCOME-TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT). SUBSEQUENTL Y, ASSESSMENT WAS COMPLETED U/S 143(3) OF THE ACT ON THE RETURNED INCOME. LATE R, THE ASSESSING OFFICER (A.O. IN SHORT) NOTICED THAT THE ASSESSEE CLAIMED AN AMO UNT OF ` 1,45,51,292/- UNDER THE HEAD MARKET DEVELOPMENT FEES, WHICH WAS NOT A LLOWABLE AS REVENUE EXPENDITURE. ACCORDINGLY, THE ASSESSMENT WAS REOPE NED U/S 147 OF THE ACT WITH THE SERVICE OF A NOTICE U/S 148 OF THE ACT ISSUED O N 4 TH JULY 2007. IN RESPONSE, THE ASSESSEE REPLIED THAT THE RETURN ALREADY FILED MAY BE TREATED AS RETURN IN RESPONSE TO NOTICE U/S 148 OF THE ACT. THOUGH THE ASSESSEE QUESTIONED THE VALIDITY OF THE REOPENING OF THE ASSESSMENT BEFORE THE AO, THE LATTER CONCLUDED THAT REASSESSMENT PROCEEDINGS WERE INITIATED IN ACC ORDANCE WITH LAW IN VIEW OF THE JUDGMENT OF HONBLE SUPREME COURT IN THE CASE O F CIT P.V.S. BEEDIES PVT. LTD., 237 ITR 13 (1999). AS REGARDS MARKET FEE OF ` 1,45,51,292/-, THOUGH THE ASSESSEE CONTENDED THAT IN PRECEDING AND SUBSEQUENT ASSESSMENT YEARS CLAIM HAS BEEN ALLOWED, THE AO DISALLOWED THE AMOUNT IN T HE YEAR UNDER CONSIDERATION, HOLDING AS UNDER:- THE ASSESSEE SUBMISSION THAT IN THE AGREEMENT BETW EEN THE ASSESSEE AND CANPOTEX LTD. @US$ 46/MT OF MAURIATE O F POTASH PRODUCED BY URAKALI IN RUSSIA SOLD IN INDIA IS ACTU ALLY NOT BASED ON FACT AS WHILE GOING THROUGH THE AGREEMENT THE FOLLO WING PARA REQUIRES ATTENTION WHEREAS CONSULTANT HAS AGREED W ITH CPL TO COMPENSATE CANPOTEX FOR MARKET DEVELOPMENT COSTS NO T EXCEEDING US$ 0.46/MT NET OF TAX OF THE ADDITIONAL PRODUCT IN THE TERRITORY. THIS PARA CLEARLY IMPLIES THE EXPENDITURE UNDER THE HEAD MARKET DEVELOPMENT FEES WAS ON ACCOUNT OF CREATING MARKET FOR THE ADDITIONAL PRODUCTS THEREBY GIVING LONG TERM ENDURI NG BENEFITS TO THE ASSESSEE WHICH IS DEFINITELY OF CAPITAL IN NATU RE. THEREFORE, THE EXPENDITURE OF ` ` 1,45,51,292/- DEBITED TO THE PROFIT AND LOSS ACCOUN T UNDER THE HEAD MARKET DEVELOPMENT FEES IS DISALLO WED AND ADDED TO THE INCOME OF THE ASSESSEE. 4. ON APPEAL, THE LD. CIT(A) ALLOWED THE CLAIM OF THE ASSESSEE IN THE FOLLOWING TERMS:- ITA N O.2146 /DEL./2009 3 3 THE AR OF THE APPELLANT HAS CONTESTED THE SAID A DDITION MADE BY THE ASSESSING OFFICER MAINLY ON THE GROUND THAT THE ASSESSING OFFICER HAS READ ONE CLAUSE IN ISOLATION INSTEAD OF READING THE WHOLE AGREEMENT TOGETHER AND MISINTERPR ETED THE CLAUSE TO THE FACT THAT ;ADDITIONAL PRODUCT WAS DE FINED IN THE AGREEMENT AS AGRICULTURAL GRADE OF MARIATE OF POTA SH PRODUCED BY URALKALI IN RUSSIA. THE ASSESSING OFFICER HAS MIS READ ADDITIONAL PRODUCT AS SOME OTHER PRODUCT IN ADDITION TO MURIA TE OF POTASH. THE FACT WAS MARKET DEVELOPMENT FEE WAS PAID ON THE BASIS OF $0.46 PER MT. ON THE ACTUAL QUANTITY OF MAURIATE OF POTASH SOLD IN INDIA. CONPOTEX HAD RAISED INVOICES WHICH CLEARLY INDICATE THAT HOW MUCH QUANTITY WAS SOLD IN INDIA ON WHICH THIS FEE W AS PAID. COPIES OF INVOICES WERE ATTACHED FOR PERUSAL. SINCE THIS FEE WAS PAID ON THE BASIS OF QUANTITY SOLD IN INDIA AND HAD DIRECT NEXUS WITH THE INCOME OF THE APPELLANT COMPANY, THE SAME SHOULD BE ALLOWED AS REVENUE EXPENDITURE TO THE APPELLANT COMPANY. 4. I HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSION S AND FIND SUFFICIENT FORCE IN THE CONTENTION OF THE APPELLANT . THE APPELLANT HAS TO PAY MARKET DEVELOPMENT FEE TO COMPOTEX, CANADA @ US$ 0.46/MT OF MAURIATE OF POTASH PRODUCED BY URALKALI IN RUSSIA AND SOLD IN INDIA. IT IS VERY CLEAR THAT THE MARKET DE VELOPMENT FEE WAS PAID AT A FIXED PERCENTAGE OF PRODUCTS SOLD IN INDI A THROUGH THE APPELLANT AND WAS NOT A ONE TIME COST INCURRED FOR ANY MARKET DEVELOPMENT AND THEREFORE ALLOWABLE AS REVENUE EXPE NSE U/S 37 OF THE INCOME-TAX ACT, 1961 AS IT WAS INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS OF THE APPELLANT AN D RELATED TO THE YEAR UNDER CONSIDERATION. MOREOVER, THE SAME EXPEN SES HAVE BEEN ALLOWED IN PROCEEDING AND SUBSEQUENT SCRUTINY ASSESSMENT BY THE DEPARTMENT. 5. THE ASSESSING OFFICER HAS MISREAD ADDITIONAL PR ODUCT AS SOME OTHER PRODUCT IN ADDITION TO MURIATE OF POTASH , THOUGH DEFINITION OF ADDITIONAL PRODUCT WAS CLEARLY DEFI NED IN THE AGREEMENT AS AGRICULTURAL GRADE OF MURIATE OF POTA SH PRODUCED BY URALKALI IN RUSSIA. SINCE MARKET DEVELOPMENT FEE PAID HAS DIRECT NEXUS WITH THE INCOME OF THE APPELLANT COMPA NY AND WAS PAID ON THE BASIS OF QUANTITY SOLD, THE SAME IS ALL OWED AS REVENUE EXPENDITURE TO THE APPELLANT COMPANY AND THE ADDITI ON MADE AMOUNTING TO ` `1,45,51,292/- IS DELETED. 5. THE REVENUE IS NOW IN APPEAL BEFORE US AGAINST THE AFORESAID FINDINGS OF THE LD. CIT(A).THE LD.DR MERELY SUPPOR TED THE FINDINGS OF THE AO. TO ITA N O.2146 /DEL./2009 4 A QUERY BY THE BENCH, THE LD. DR COULD NOT STATE EI THER THE DATE OF AGREEMENT NOR SUBMITTED EVEN A COPY OF THE RELEVANT AGREEMENT BEF ORE US. 6. WE HAVE HEARD THE LD. DR AND GONE THROUGH THE F ACTS OF THE CASE. INDISPUTABLY, THE ASSESSEE PAID MARKET DEVELOPMENT FEE TO CANPOTEX, CANADA @USDOLLARS0.46/MT OF MURIATE OF POTASH PRODUCED BY URALKALI IN RUSSIA AND SOLD IN INDIA, WHICH WAS NOT A ONE TIME COST INCURR ED FOR MARKETING DEVELOPMENT. SINCE MARKET DEVELOPMENT FEE HAD DIRECT NEXUS WITH THE EARNING OF ASSESSEE AND WAS PAID ON THE BASIS OF QUANTITY SOLD, THE SAM E WAS TREATED AS REVENUE EXPENDITURE BY THE LD. CIT(A) . WHETHER OR NOT EXP ENDITURE IS OF CAPITAL IN NATURE, THE HONBLE SUPREME COURT IN THE CASE OF AL EMBIC CHEMICAL WORKS CO. LTD. VS. CIT (1989) 177 ITR 377 OBSERVED AS UNDER: THE IDEA OF 'ONCE FOR ALL' PAYMENT AND 'ENDURING B ENEFIT' ARE NOT TO BE TREATED AS SOMETHING AKIN TO STATUTORY CONDITIONS ; NOR ARE THE NOTIONS OF 'CAPITAL' OR 'REVENUE' A JUDICIAL FETISH. WHAT IS CAPITAL EXPEND ITURE AND WHAT IS REVENUE ARE NOT ETERNAL VERITIES BUT MUST NEEDS BE FLEXIBLE SO AS TO RESPOND TO THE CHANGING ECONOMIC REALITIES OF BUSINESS. THE EXPRESSION 'ASS ET OR ADVANTAGE OF AN ENDURING NATURE' WAS EVOLVED TO EMPHASISE THE ELEME NT OF A SUFFICIENT DEGREE OF DURABILITY APPROPRIATE TO THE CONTEXT. 6.1 HONBLE APEX COURT IN THE CASE OF EMPIRE JUT E CO. LTD. V. CIT [1980] 124 ITR 1 HELD THAT THERE COULD BE CASES WHERE THE EXP ENDITURE EVEN IF IT WAS INCURRED FOR OBTAINING OF A BENEFIT OF AN ENDURING NATURE MAY, NEVERTHELESS, BE ON THE REVENUE ACCOUNT AND, IN SUCH CASES, THE TEST OF 'ENDURING BENEFIT' MAY BREAK DOWN . IN THE LIGHT VIEW TAKEN IN THESE DECISIONS ,ESPECIALLY WHEN THE LD. DR DID NOT PLACE BEFORE US ANY MATERIAL CONTROVERTING THE AFORESAID FINDINGS OF THE LD. CIT(A) SO AS TO ENABLE US TO TAKE A DIFFERENT VIEW IN THE MATTER NOR BROUGHT TO OUR NOTICE ANY CONTRARY DECISION WHILE THE AO HIMSELF A LLOWED A SIMILAR CLAIM IN THE PRECEDING AND SUBSEQUENT YEARS, WE HAVE NO BASIS T O INTERFERE. ACCORDINGLY, GROUND NO.1 IN THE APPEAL IS DISMISSED. ITA N O.2146 /DEL./2009 5 7.. NO ADDITIONAL GROUND HAVING BEEN RAISED BEFORE US IN TERMS OF RESIDUARY GROUND NO.2 IN THE APPEAL, ACCORDINGLY, T HIS GROUND IS DISMISSED. 4. IN RESULT, THE APPEAL IS DISMISSED. SD/- SD/- (U.B.S. BEDI) (A.N. PAHUJA) (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) NS COPY OF THE ORDER FORWARDED TO :- 1. SHRI RAJEEV KHANNA, M-168, G.K., PART-II, NEW D ELHI 2. A.C.I.T.,CIRCLE-15 (1), C.R. BUILDING,I.P. ESTAT E, NEW DELHI 3. CIT CONCERNED 4. CIT (APPEALS)-XVIII, NEW DELHI 5. DR, ITAT,F BENCH, NEW DELHI 6. GUARD FILE. BY ORDER, DEPUTY / ASSTT.REGISTRAR ITAT, DELHI ORDER PRONOUNCED IN OPEN COURT