Appeal details
Counselvise Citation
[2011] 140 COUNSELVISE.COM (IT) 49053 (ITAT-MUMBAI)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
3 year(s) 1 month(s) 15 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
20-05-2011
Appeal Filed By
Assessee
Order Result
Dismissed
Bench Allotted
E
Next Hearing Date
19-04-2011
Assessment Year
2003-2004
Appeal Filed On
04-04-2008
Judgement Text
1 ITA NOS. 2333/MUM/2008/ 2262/MUM/2008 IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI MUMBAI MUMBAI MUMBAI E EE E BENCH BENCH BENCH BENCH MUMBAI BENCHES, MUMBAI MUMBAI BENCHES, MUMBAI MUMBAI BENCHES, MUMBAI MUMBAI BENCHES, MUMBAI BEFORE BEFORE BEFORE BEFORE SHRI SHRI SHRI SHRI J JJ J SUDHAKAR REDDY, AM & SUDHAKAR REDDY, AM & SUDHAKAR REDDY, AM & SUDHAKAR REDDY, AM & VIJAY PAL RAO, JM VIJAY PAL RAO, JM VIJAY PAL RAO, JM VIJAY PAL RAO, JM ITA NO. ITA NO. ITA NO. ITA NO. 2333/MUM/2008 2333/MUM/2008 2333/MUM/2008 2333/MUM/2008 (ASST YEAR (ASST YEAR (ASST YEAR (ASST YEAR 2003 2003 2003 2003- -- -04 0404 04 ) )) ) SCHINDLER INDIA P LTD B-401 DELPHI HIRANANDANI BUSINESS PARK, POWRAI MUMBAI 76 VS THE JT COMMR OF INCOME TAX (OSD) 8(3), MUMBAI ( (( (APPELLANT APPELLANT APPELLANT APPELLANT) )) ) (RESPONDENT) (RESPONDENT) (RESPONDENT) (RESPONDENT) PAN NO. PAN NO. PAN NO. PAN NO.AAECS1548J AAECS1548J AAECS1548J AAECS1548J & && & ITA NO. ITA NO. ITA NO. ITA NO. 2262/MUM/2008 2262/MUM/2008 2262/MUM/2008 2262/MUM/2008 (ASST YEAR (ASST YEAR (ASST YEAR (ASST YEAR 2003 2003 2003 2003- -- -04 04 04 04 ) )) ) THE JT COMMR OF INCOME TAX (OSD) 8(3), MUMBAI VS SCHINDLER INDIA P LTD B-401 DELPHI HIRANANDANI BUSINESS PARK, POWRAI MUMBAI 76 (APPELLANT) (APPELLANT) (APPELLANT) (APPELLANT) (RESPONDENT) (RESPONDENT) (RESPONDENT) (RESPONDENT) A SSESSEE BY SHRI YOGESH A THAR REVENUE BY SHRI D SONGATE - DR PER PER PER PER VIJAY PAL RAO, JM VIJAY PAL RAO, JM VIJAY PAL RAO, JM VIJAY PAL RAO, JM THESE CROSS APPEALS FILED BY THE ASSESSEE AND THE REVENUE ARE DIRECTED AGAINST THE ORDER DATED 7.1.2008 OF THE CIT(A) FOR THE ASSESSMENT YEAR 2003-04. ITA NO. 2262/MUM/2008 ITA NO. 2262/MUM/2008 ITA NO. 2262/MUM/2008 ITA NO. 2262/MUM/2008 (BY THE REVENUE) (BY THE REVENUE) (BY THE REVENUE) (BY THE REVENUE) 2 THE REVENUE HAS RAISED THE ONLY GROUND, WHICH REA DS AS UNDER: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LD CIT(A) ERRED IN DELETING THE ASSESSING OFFICERS DI SALLOWANCE OF PROPORTIONATE INTEREST OF RS. 29,37,097/- RELATING TO ONGOING PROJECTS AND ITS INCLUSION IN THE WIP AS ON 31.3.2003 WITHOUT AP PRECIATING THE FACTS OF 2 ITA NOS. 2333/MUM/2008/ 2262/MUM/2008 THE CASE AND THAT INTEREST RELATING TO ONGO8NG PROJ ECTS HAS TO BE CAPITALISED. 2.1 DURING THE YEAR, THE ASSESSEE HAS CLAIMED THE T OTAL EXPENDITURE ON ACCOUNT OF INTEREST AT RS. 73,60,698/- TOWARDS CASH CREDIT FACILITY. AFTER VERIFICATION OF THE P&L ACCOUNT, THE ASSESSING OFFI CER OBSERVED THAT THE ASSESSEE HAS SHOWN RS. 44,77,56,082/- AS SALES AND RS. 30,60,37,615/-AS WORK- IN- PROGRESS. ACCORDINGLY, THE ASSESSING OFFICER A SKED THE ASSESSEE WHY THE ENTIRE EXPENDITURE SHOULD BE HELD AS REVENUE EXPEND ITURE. THE ASSESSEE EXPLAINED THAT THE ASSESSEE IS IN THE BUSINESS OF S UPPLY, INSTALLATION, COMMISSIONING AND MAINTENANCE OF ELEVATORS AND ESCA LATORS. THE ASSESSEE HAD OBTAINED OVERDRAFT FACILITY FROM CITIBANK AND THE I NTEREST ON THE SAID OD FACILITY IS ALLOWABLE U/S 36(1)(III) OF THE I T ACT. THE MAI N CONTENTION OF THE ASSESSEE BEFORE THE ASSESSING OFFICER WAS THAT THE CREDIT FA CILITY WAS OBTAINED TO FUND THE GAP BETWEEN THE CREDIT PERIOD AVAILABLE ON PURCHASE AND THE CREDIT PERIOD ALLOWED ON SALES AND OTHER ROUTINE EXPENSES. THUS, THE ASSESSEE SUBMITTED THAT THE CREDIT FACILITY WAS UTILIZED BY THE ASSESSEE IN THE NORMAL COURSE OF BUSINESS AND THE INTEREST EXPENDITURE ON THE SAID FACILITY I S ALLOWABLE AS BUSINESS EXPENDITURE. 2.2 THE ASSESSING OFFICER DID NOT ACCEPT THE CONTEN TION OF THE ASSESSEE AND DOUBTED THE USE OF THE CREDIT FACILITY. THE ASSESSI NG OFFICER HAS EXPRESSED HIS VIEW THAT IT IS VERY MUCH POSSIBLE THAT THE LOAN FA CILITY IS AVAILED ONLY TO EXECUTE NEW PROJECTS. THEREFORE, INTEREST PAID IS ONLY TOWA RDS UN-COMPLETED PROJECT. ACCORDINGLY, THE ASSESSING OFFICER HAS DISALLOWED PROPORTIONATE INTEREST IN THE RATIO OF TOTAL WORK- IN- PROGRESS AND TOTAL TURNOVE R AMOUNTING TO RS. 29,37,097/-. 3 ITA NOS. 2333/MUM/2008/ 2262/MUM/2008 3. ON APPEAL, THE CIT(A) ALLOWED THE CLAIM OF THE A SSESSEE. 4 BEFORE US, THE LD DR SUBMITTED THAT WHEN THE ASSE SSEE IS HAVING WORK-IN- PROGRESS TO THE EXTENT OF MORE THAN 30 CRORES WHICH REPRESENTS NEW UN- COMPLETED PROJECT; THEREFORE, INTEREST PAID ON THE OVERDRAFT FACILITY IS NOT AVAILABLE TO THE EXTENT OF THE FUND UTILIZED IN THE UNCOMPLETED NEW PROJECT. THUS, THE LD DR HAS SUBMITTED THAT THE ASSESSING OFFICER HAS RIGHTLY DISALLOWED THE PROPORTIONATE INTEREST. HE RELIED ON THE ORDER OF T HE ASSESSING OFFICER. 4.1 ON THE OTHER HAND, THE LD AR OF THE ASSESSEE HA S SUBMITTED THAT THE INTEREST ON THE CASH CREDIT FACILITY IS ALLOWABLE U /S 36(1)(III) OF THE ACT. HE HAS POINTED OUT THAT THERE IS NO DIFFERENCE IN UTILIZAT ION OF BORROWED MONEY FOR ACQUIRING CAPITAL ASSET OR REVENUE ASSET FOR THE PU RPOSE OF ALLOWING THE CLAIM OF INTEREST. THE LD AR FURTHER SUBMITTED THAT WORK IN PROGRESS SHOWN BY THE ASSESSEE IS STOCK-IN-TRADE. EVEN IF THE FUND IS UT ILIZED FOR ACQUIRING CAPITAL ASSET THEN THE INTEREST PAID IS AN ALLOWABLE EXPENDITURE. THE LD AR HAS FURTHER SUBMITTED THAT ABOUT 96% OF THE FUNDS ARE OF ASSESS EES OWN FUND; THEREFORE, IT CANNOT BE PRESUMED THAT CREDIT FACILITY UTILIZED BY THE ASSESSEE IS FOR UNCOMPLETED PROJECT. HE HAS RELIED UPON THE DECISIO N OF THE HONBLE CALCUTTA HIGH COURT IN THE CASE OF CIT VS RAJEEVA LOCHAN KAN ORIA REPORTED IN 208 ITR 616(CAL) AND THE DECISION OF THE JURISDICTIONAL HI GH COURT IN THE CASE OF CIT VS LOKHANDWALA CONSTRUCTION INDS. LTD REPORTED IN 260 ITR 579(BOM) 5 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS MADE BY BOTH THE PARTIES AND PERUSED THE RELEVANT MATERIAL ON RECORD. IT IS AN U NDISPUTED FACT THAT THE ASSESSING OFFICER DISALLOWED THE PROPORTIONATE EXPE NDITURE IN THE RATIO OF WORK- IN-PROGRESS SHOWN BY THE ASSESSEE TO THE TOTAL TURN OVER. ONCE THE WORK-IN- 4 ITA NOS. 2333/MUM/2008/ 2262/MUM/2008 PROGRESS HAS BEEN SHOWN BY THE ASSESSEE, WHICH IS I N THE SHAPE OF STOCK-IN-TRADE THEN THE INTEREST EXPENDITURE CANNOT BE TREATED AS THE EXPENDITURE ON UNCOMPLETED PROJECT. EVEN OTHERWISE SO LONG AS THE EXPENDITURE IS THE INCOME FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE THEN IT DOES NOT MATTER WHETHER IT IS FOR THE REVENUE ASSET OR FOR ACQUIRING A CAPITAL AS SET. 5.1 IN THE CASE LOKHANDWALA CONSTRUCTION INDS. LTD (SUPRA), THE JURISDICTIONAL HIGH COURT HAS HELD THAT WHETHER THE EXPENSE WAS ON CAPITAL ACCOUNT OR REVENUE ACCOUNT WAS IRRELEVANT; IF THE SAME IS PAID BY THE ASSESSEE ON THE CAPITAL BORROWED BY THE ASSESSEE FOR THE PURPOSE OF BUSINES S OF THE ASSESSEE. THE ONLY CONDITION IS THAT THE ASSESSEE HAS TO SHOW THAT THE CAPITAL, WHICH WAS BORROWED AND UTILIZED FOR THE PURPOSE OF BUSINESS IN THE REL EVANT YEAR. IN THE CASE IN HAND, THE ASSESSING OFFICER HIMSELF HAS DISALLOWED THE EXPENDITURE ON THE GROUND THAT THE ASSESSEE HAS UTILIZED THE BORROWED FUNDS FOR THE PURPOSE OF THE PROJECT WHICH IS SHOWN AS WORK-IN-PROGRESS; THEN T HE CLAIM OF INTEREST EXPENDITURE IS ALLOWABLE DEDUCTION U/S 36(1)(III) O F THE ACT. ACCORDINGLY, WE DO NOT FIND ANY INFIRMITY IN THE FINDINGS OF THE LD CI T(A) AND CONFIRM THE ORDER OF THE LD CIT(A) ON THIS ISSUE. I II ITA NO.233 TA NO.233 TA NO.233 TA NO.2333/MUM/2008 (BY THE ASSESSEE) 3/MUM/2008 (BY THE ASSESSEE) 3/MUM/2008 (BY THE ASSESSEE) 3/MUM/2008 (BY THE ASSESSEE) 6 THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS IN ITS APPEAL: I) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD CIT(A) ERRED IN UPHOLDING THE ACTION OF THE ASSESSI NG OFFICER IN HOLDING THE EXPENDITURE AMOUNTING TO RS. 46,41,352/- INCURRED O N IOP PROJECT AS EXPENDITURE OF CAPITAL NATURE. 5 ITA NOS. 2333/MUM/2008/ 2262/MUM/2008 2) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE LD CIT(A) ERRED IN HOLDING THE ACTION OF THE ASSESSING OFFICER IN DISALLOWING EXPENSES OF RS. 1,32,500/- ON CLUB SUBSCRIPTION AND COST OF FACILITIES ON THE GROUND THAT THESE ARE EXPENSES OF PERSONAL NATURE. 3) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE LD CIT(A) ERRED IN HOLDING THE ACTION OF THE ASSESSING OFFICER IN DISALLOWING THE DEPRECIATION AMOUNT TO THE EXTENT OF RS. 1,64,1 66/ ON THE FOOTING THAT IN RESPECT OF COMMERCIAL VEHICLES, 40% DEPRECIATION RATE IS ALLWOABEL TO THE ASSESSES INVOLVED IN THE BUSINESS OF HIRING THE REOF. 7 GROUND OF APPEAL NO.1 RELATES TO DISALLOWANCE OF EXPENDITURE OF IOP. 7.1 THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS CHANGED THE METHOD OF ACCOUNTING AND IN RESULT LOSS OF THE ASSESSEE HA S INCREASED TO RS. 46,41,352/-. FROM THE AUDIT REPORT NOTE, THE ASSESSING OFFICER F OUND THAT DURING THE LAST YEAR, THE ASSESSEE COMPANY HAS CAPITALIZED DEVELOPMENTA L EXPENDITURE INCURRED ON INDIGENIZATION/LOCALIZATION OF COMPONENTS AND MATER IALS USED FOR ELEVATORS UNDER THE IOP PROJECT. IN THE SAID YEAR, THE ASSESSEE HAS RECOGNIZED THE DIRECT PROJECT EXPENDITURE INCURRED IN RELATION TO CREATION OF COM PONENTS AND MATERIAL AS ASSET. HOWEVER, FROM THE CURRENT YEAR, THE ASSESSEE COMPAN Y HAS DECIDED TO CHANRE SUCH DEVELOPMENTAL EXPENDITURE TO THE P&L ACCOUNT. ACCORDINGLY, DURING THE YEAR THE ASSESSEE HAS DEBITED RS. 46,41,352/- INCLU DING A SUM OF RS. 27,55,459/- INCURRED DURING THE PREVIOUS YEAR AND DISCLOSED A S CAPITAL WORK-IN-PROGRESS. AFTER INVITING THE EXPLANATION OF THE ASSESSEE, THE ASSESSING OFFICER DISALLOWED THE ENTIRE EXPENDITURE CLAIMED AS DEVELOPMENTAL CHA RGES AND ADDED BACK TO THE TOTAL INCOME OF THE ASSESSEE. 7.2 ON APPEAL, THE CIT(A) HAS CONFIRMED THE DISALLO WANCE MADE BY THE ASSESSING OFFICER . 6 ITA NOS. 2333/MUM/2008/ 2262/MUM/2008 8 BEFORE US, THE LD AR HAS SUBMITTED THAT INITIALLY THE ASSESSEE WAS IMPORTING ELEVATORS AND ASSEMBLED THEM IN INDIA. F ROM 1999, THE ASSESSEE STARTED A PROJECT WORK TO SUBSTITUTE IMPORT AND GET TING THE ELEVATOR COMPONENTS MANUFACTURED FROM LOCAL SUPPLIERS IN INDIA. THIS PR OJECT WAS CALLED AS INDIA OUTSOURCE PROJECT (IOP). THE MAIN OBJECT OF THE PR OJECT WAS TO GET THE COMPONENTS OF THE ELEVATOR AND MANUFACTURED IN INDI A FOR THE PURPOSE TO REDUCE THE COST OF THE PRODUCT. THE ASSESSEE IDENTIFIED TH E SUPPLIERS AND AFTER DISCUSSING WITH THEM, PROVIDED THE PRODUCT DRAWINGS AND SPECIFICATION FOR DEVELOPMENT OF THE COMPONENTS. ONCE THE PROTOTYPE C OMPONENTS WERE RECEIVED FROM THE SUPPLIERS, THE SAME WERE SENT TO TEST TOWE RS TO CHECK THE FITMENT AND WORKING. THE LD AR HAS SUBMITTED THAT SO FAR AS TH E EXPENSES FOR CONSTRUCTION OF THESE TEST TOWERS HAS ALREADY CAPITALIZED THE SAME AND ONLY THE EXPENDITURE INCURRED TOWARDS SUPPLEMENTAL MATERIALS AND CONSUMA BLES ARE CHARGED TO THE P&L ACCOUNT AS REVENUE EXPENDITURE. HE HAS FURTHER SUBMITTED THAT THESE EXPENSES ARE INCURRED ON THE EMPLOYEES TRAVELLING, TRANSPORTATION AND SUPPLEMENTAL MATERIALS AND CONSUMABLES FOR TESTING THESE COMPONENTS. THEREFORE, THE EXPENDITURE IS REVENUE AND ALLOWAB LE AS BUSINESS EXPENDITURE. IN THE EARLIER YEAR, THE ASSESSEE HAS CAPITALIZED T HE EXPENDITURE BUT IN THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAS CHANGED THE M ETHOD OF ACCOUNTING AS PER THE ACCOUNTING STANDARD AND THEREFORE, WHEN THE EXP ENDITURE IS IN THE NATURE OF REVENUE, THE SAME HAS BEEN CHARGED TO P&L ACCOUNT A S PER ACCOUNTING STANDARD THEN THE CHANGE OF METHOD OF ACCOUNTING IS BONAFIDE AND ACCORDING TO THE ACCOUNTING STANDARD. HE HAS REFERRED TO ACCOUNTING STANDARD-8 ISSUED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA AND SUB MITTED THAT AS PER THE ACCOUNTING STANDARD, THE EXPENSES INCURRED ON RESEA RCH AND DEVELOPMENT HAS 7 ITA NOS. 2333/MUM/2008/ 2262/MUM/2008 TO BE BOOKED AS EXPENDITURE TO THE P&L ACCOUNT, HE RELIED ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF EMPIRE JUTE CO LTD REPORTED IN 124 ITR 1 AS WELL AS THE ORDER OF THE TRIBUNAL IN THE CASE OF SI TU ELECTRO INSTRUMENTS P LTD VS ITO REPORTED IN 19 SOT 13(MUM) 8.1 ON THE OTHER HAND, THE LD DR HAS SUBMITTED THAT THE ASSESSEE HAS FREQUENTLY CHANGED THE METHOD OF ACCOUNTING WITHOUT GIVING ANY BONAFIDE AND JUSTIFIED REASON. THEREFORE, CHANGE OF ACCOUNTING METHOD WITHOUT ANY BONAFIDE REASON IS NOT PERMISSIBLE. HE HAS FURTHER POINTED O UT THAT OUT OF THE TOTAL EXPENDITURE OF RS. 46,41,356/- CLAIMED BY THE ASSE SSEE, RS. 27,55,459/- DOES NOT PERTAINS TO THE YEAR UNDER CONSIDERATION BUT TH E SAME RELATES TO EARLIER YEAR, WHICH WAS CAPITALIZED BY THE ASSESSEE AND DISCLOSED AS CAPITAL IN WORK-IN- PROGRESS. HE HAS FURTHER SUBMITTED THAT THE ENTIRE EXPENDITURE RELATES TO NEW PROJECT OF GETTING COMPONENTS OF THE ELEVATOR MANUF ACTURED IN INDIA. THEREFORE, THE EXPENDITURE IS IN THE NATURE OF CAPITAL AND CAN NOT BE ALLOWED AS REVENUE EXPENDITURE. HE HAS RELIED UPON THE ORDERS OF THE A UTHORITIES BELOW. 8.2 ON REBUTTAL, THE LD AR SUBMITTED THAT ONCE THE EXPENDITURE IS ALLOWABLE AS BUSINESS EXPENDITURE THEN IT MAY NOT MAKE ANY DIFFE RENCE AND IT IS ALLOWABLE IN THIS YEAR OR IN THE EARLIER YEAR BECAUSE THE ASSESS EE IS PAYING TAX AT THE SAME RATE. HE HAS RELIED ON THE ORDER OF HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS TRIVENI ENGG & INDUSTRIES LTD REPORTED IN 196 TM 94 AND THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS N AGRI MILLS CO LTD REPORTED IN 33 ITR 681. HE FURTHER RELIED ON THE DECISION OF D ELHI HIGH COURT IN THE CASE OF CIT VS DINESH KUMAR GOEL REPORTED IN 197 TM 375 AN D SUBMITTED THAT 8 ITA NOS. 2333/MUM/2008/ 2262/MUM/2008 EXPENDITURE WHICH WAS NOT CLAIMED DURING THE PREVI OUS YEAR CAN BE ALLOWED THIS YEAR WHEN THERE IS NO REVENUE EFFECT BECAUSE O F THE COMPANY IS SUBJECTED TO TAX AT THE SAME RATE. 9 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS MADE BY BOTH THE PARTIES AND PERUSED THE RELEVANT MATERIAL ON RECORD. THE DESCR IPTION OF THE EXPENDITURE IS GIVEN BY THE CIT(A) IN PARA 2.4. FROM THE DETAILS, IT IS CLEAR THAT MAJORITY OF THE EXPENDITURE IS ON ACCOUNT OF MATERIALS USED FOR DEV ELOPMENT OF PROTOTYPE ELEVATORS AND ESCALATORS AND OTHER COMPONENTS. IT IS CLEAR THAT THESE EXPENSES OF RS. 46,41,352/- RELATE TO COST OF MATERIALS USED BY THE ASSESSEE IN THE NEW PROJECT. WE FIND THE ASSESSEE HAS CREATED A FACILIT Y OF PROCURING COMPONENTS OF THE ELEVATORS THROUGH LOCAL VENDORS. IT IS AN UNDI SPUTED FACT THAT EARLIER THE ASSESSEE WAS PROCURING THE COMPONENTS BY IMPORTIN G THE SAME AND THERE WAS NO MANUFACTURE FACILITY IN INDIA. THE ASSESSEE HIMS ELF HAS ACCEPTED THAT HE HAS CREATED THE TESTING FACILITY FOR THAT PURPOSE, THE ASSESSEE HAS ERECTED THE TESTING TOWER AND THE EXPENDITURE INCURRED ON THE TESTING O F ELEVATOR HAS ALREADY BEEN CAPITALIZED BY THE ASSESSEE. 9.1 FROM THE PERUSAL OF THE NATURE OF THE EXPENDITU RE, IT APPEARS THAT ALL THE MATERIALS ARE FOR CREATING THE MANUFACTURING FACILI TY, WHICH HAS DEFINITELY AN ENDURING BENEFIT FOR A LONG TIME. THE SAID EXPENDIT URE WAS LAID OUT FOR DEVELOPMENT OF PROTOTYPE MACHINE TO ENABLE THE LOCA L VENDORS TO PRODUCE THE PRODUCT AS PER SPECIFICATION AND REQUIREMENT OF THE ASSESSEE. WHEN THE ASSESSEE WAS NOT HAVING ANY SUCH FACILITY PRIOR TO THIS NEW PROJECT, THEN IT CANNOT BE SAID THAT THE ASSESSEE IS UTILIZED ITS OWN EXIST ING RESOURCES AND EMPLOYEES FOR 9 ITA NOS. 2333/MUM/2008/ 2262/MUM/2008 ESTABLISHING THE NEW FACILITY OF PRODUCTION. IT HA S TO BE NOTED THAT FOR DEVELOPMENT OF THE PRODUCT, THE TESTING TOWER AND PROTOTYPE MACHINE TOGETHER FORM AN APPARATUS/ASSET TO FACILITATE THE NEW PROJE CT AND PRODUCTION OF THE DESIRED PRODUCT. THE ASSESSEE HAS ACCEPTED THE CREA TION OF THE NEW ASSET IN THE FORM OF TESTING TOWER BUT THE EXPENDITURE INCURRED ON DEVELOPMENT PROTOTYPE MACHINE HAS BEEN CLAIMED AS REVENUE EXPENDITURE. IN OUR OPINION THE PROTOTYPE MACHINE IS IN-SEPARABLE FROM THE TESTING TOWER AS B OTH COMBINED BRING A FACILITY FOR DEVELOPMENT OF A NEW PRODUCT. THE ASSESSEE HAS INCURRED THIS EXPENDITURE FOR THE FIRST TIME FOR THE FACILITY TO PRODUCE THE DESIRED PRODUCT AND NOT FOR UPDATING OR IMPROVING THE EXISTING MANUFACTURING FA CILITY/TECHNOLOGY. THUS, IT IS NOT A REGULAR YEAR AFTER YEAR EXPENDITURE BUT IS F OR THE FIRST TIME FOR CREATION OF DESIGN AND MANUFACTURING FACILITY AS A RESULT OF WH ICH NEW ASSET CAME INTO EXISTENCE WHICH COULD HAVE ENDURING BENEFIT FOR A L ONG TIME FOR THE PURPOSE OF THE BUSINESS. ACCORDINGLY, WE DO NOT FIND ANY REAS ON TO INTERFERE WITH THE FINDING SO THE LD CIT(A) ON THIS ISSUE. THE DECISIONS RELIE D UPON BY THE ASSESSEE ARE NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE. THE GR OUND TAKEN BY THE ASSESSEE IS ACCORDINGLY DISMISSED. 10 GROUND OF APPEAL NO.2 RELATES TO ADDITION ON ACC OUNT OF CLUB EXPENSES. 10.1 THE ASSESSEE CLAIMED RS.1,32,500/- AS SUBSCRI PTION. THE ASSESSING OFFICER DISALLOWED THE CLAIM OF THE ASSESSEE ON THE GROUND THAT THE NATURE OF THE EXPENDITURE IS PERSONAL. 11 ON APPEAL, THE CIT(A) CONFIRMED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER ON THE GROUND THAT NO EVIDENCE HAS BEEN PR ODUCED BY THE ASSESSEE TO 10 ITA NOS. 2333/MUM/2008/ 2262/MUM/2008 SUGGEST THAT SUCH EXPENSES WERE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS. 12 BEFORE US, THE LD AR OF THE ASSESSEE HAS RELIED ON VARIOUS DECISIONS INCLUDING THE DECISION OF THE JURISDICTIONAL HIGH C OURT IN THE CASE OF OTIS ELEVATORS CO INDIA LTD VS CIT REPORTED IN 195 ITR 6 82 AND SUBMITTED THAT THE EXPENDITURE TOWARDS SUBSCRIPTION IS ALLOWABLE AS B USINESS EXPENDITURE. HE FURTHER CONTENDED THAT THE ASSESSING OFFICER HAS NO T DISPUTED THE INCURRENCE OF THE EXPENDITURE BUT DISALLOWANCE WAS MADE ON THE GR OUND THAT THE EXPENDITURE IS PERSONAL IN NATURE. THUS, THE LD AR CONTENDED T HAT IN VIEW OF THE DECISION OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF OTIS E LEVATORS CO INDIA LTD (SUPRA) AND OTHER DECISIONS, THE EXPENDITURE IS ALLOWABLE AS BU SINESS EXPENDITURE. 12.1 ON THE OTHER HAND, THE LD DR WHILE RELYING THE ORDERS OF THE AUTHORITIES BELOW SUBMITTED THAT THIS EXPENDITURE IS NOT FOR TH E SUBSCRIPTION TO CLUB BUT IT WAS FOR SERVICES AVAILED FROM THE HOTELS. 13 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS MADE BY BOTH THE PARTIES AND PERUSED THE RELEVANT MATERIAL ON RECORD. THE LOWER AUTHORITIES HAVE DISALLOWED THE CLAIM OF THE ASSESSEE ON THE GROUND THAT THE EX PENDITURE IS PERSONAL IN NATURE AND CANNOT BE TREATED AS INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE. THE LD CIT(A) HAS CAT EGORICALLY GIVEN THE FINDINGS THAT THE ASSESSEE HAS NOT FILED ANY RECORD OR EVIDE NCE TO SUGGEST THAT SUCH EXPENSES WERE INCURRED FOR THE PURPOSE OF THE BUSI NESS OF THE ASSESSEE. IT IS 11 ITA NOS. 2333/MUM/2008/ 2262/MUM/2008 THE SETTLED PROPOSITION OF LAWS THAT ONUS IS ON THE ASSESSEE TO PROVE THE CLAIM OF EXPENDITURE THAT THE SAME IS LAID OUT WHOLLY AND EX CLUSIVELY FOR THE PURPOSE OF THE BUSINESS OF THE ASSESSEE. THE EXPRESSION WHOL LY CONNOTE THE ENTIRE EXPENSES WHEREAS THE EXPRESSION EXCLUSIVELY MEAN S THE SAID EXPENDITURE HAS BEEN INCURRED ONLY FOR THE PURPOSE OF BUSINESS OF T HE ASSESSEE. THUS, THE BURDEN LIES ON THE ASSESSEE TO ESTABLISH THAT THE ENTIRE E XPENDITURE HAS BEEN INCURRED ONLY FOR THE PURPOSE OF THE BUSINESS OF THE ASSESSE E. THE ASSESSEE HAS NOT PRODUCED ANY RECORD EITHER BEFORE THE LOWER AUTHORI TIES OR BEFORE US TO SUGGEST THAT THE SAID EXPENDITURE HAS BEEN INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS OF THE ASSESSEE. WHEN THE A SSESSEE HAS FAILED TO PRODUCE ANY MATERIAL OR EVIDENCE TO SUGGEST THAT SU CH EXPENDITURE HAS BEEN LAID OUT FOR THE PURPOSE OF THE BUSINESS OF THE ASSESSEE ; THE DECISION RELIED UPON BY THE ASSESSEE IS NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE. THUS, WE DO NOT FIND ANY REASON TO INTERFERE WITH THE FINDINGS GIVE N BY THE LD CIT(A) ON THIS ISSUE. THE GROUND TAKEN BY THE ASSESSEE IS ACCORDINGLY DIS MISSED. 14 THE REMAINING GROUND RELATES TO DEPRECIATION. 15 AT THE TIME OF HEARING, THE LD AR OF THE ASSESSE E SUBMITTED THAT THOUGH THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISIONS OF THE TRIBUNAL; I.E. IN THE CASE OF DALEEP S CHANDANI VS ACIT (14 SOT 2003); BIRLA SUNLIFE DISTRIBUTION CO LTD (1197/MUM/207); GIODFREY PHILLI PS INDIA LD (2632/MUM/2006); DR SANJAY AGARWAL V ACIT (6718/MUM/2008); AND DCIT VS M/S E MERCK INDIA LTD (3997/MUM/4); HOWEVER, IN VIEW OF THE SMALLNESS OF THE AMOUNT INVOLVED IN THE ISSUE, THE ASSESSEE DOES NOT PRESS THE GROUND OF DI SALLOWANCE OF DEPRECIATION 12 ITA NOS. 2333/MUM/2008/ 2262/MUM/2008 AND THE SAME MAY BE DISMISSED AS NOT PRESSED. THE L D DR HAS NO OBJECTION, IF THE GROUND OF DISALLOWANCE OF HIGHER DEPRECIATION I S DISMISSED AS NOT PRESSED. ACCORDINGLY, WE DISMISS THE GROUND RAISED BY THE AS SESSEE BEING NOT PRESSED. 16 IN THE RESULT, THE APPEAL FILED BY THE REVENUE A S WELL AS THE ASSESSEE ARE DISMISSED. ORDER PRONOUNCED ON THE 20 TH , DAY OF MAY 2011. SD/ SD/- ( (( ( J SUDHAKAR REDDY J SUDHAKAR REDDY J SUDHAKAR REDDY J SUDHAKAR REDDY ) )) ) ACCOUNTANT MEMBER ( (( ( VIJAY PAL RAO VIJAY PAL RAO VIJAY PAL RAO VIJAY PAL RAO ) )) ) JUDICIAL MEMBER PLACE: MUMBAI : DATED: 20 TH MAY L 2011 RAJ* COPY FORWARDED TO: 1 APPELLANT 2 RESPONDENT 3 CIT 4 CIT(A) 5 DR /TRUE COPY/ BY ORDER DY /AR, ITAT, MUMBAI
Mehul