The DCITNavsari Circle, Navsari V. M/s. Patel Metal, Navsari

ITA 2508/AHD/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 50888 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 2 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-10-2011
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 21-10-2011
• Assessment Year: 2007-2008
• Appeal Filed On: 12-08-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Capital asset; Business expenditure; Corroborative evidences; Royalty expenses; Revenue expenditure
• Section: 43B; 28

Judgement Text

- 1 - IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH B AHMEDABAD BEFORE S/SHRI D.K.TYAGI, JM AND A. MOHAN ALANKAMON Y, AM. DY. CIT, NAVSARI CIRCLE, NAVSARI. VS. M/S PATEL METAL, AT & PO DEGAM, OPP. GIRIRAJ QUARRY, TAL-CHIKHLI, DIST. NAVSARI. (APPELLANT) .. (RESPONDENT) APPELLANT BY :- SHRI SAMIR TEKRIWAL, SR.DR RESPONDENT BY:- SRI TUSHAR P.HEMANI, AR DATE OF HEARING : 21/10/2011 DATE OF PRONOUNCEMENT : 31/10/2011 O R D E R PER D. K. TYAGI, JUDICIAL MEMBER . THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF LD. CIT(A) DATED 03.03.2010 FOR ASST. YEAR 2007-08. THE REVENUE HAS RAISED FOLLOWING GROUNDS IN ITS APPEAL :- (1) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE HONBLE CIT(A) ERRED IN DELETING THE ADDITION OF RS .5,79,844/- MADE ON ACCOUNT OF DISALLOWANCE OF EXCESS OF ROYALT Y CLAIMED. (2) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE HONBLE CIT(A) ERRED IN DELETING THE ADDITION OF RS .101241/- MADE OUT OF DEFERRED REVENUE EXPENDITURE. ITA NO.2508/AHD/2010 ASST. YEAR :2007-08 ITA NO.2508/AHD/2010 ASST. YEAR 2007-08 2 (3) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE HONBLE CIT(A) ERRED IN DELETING THE ADDITION OF RS .20000/- MADE OUT OF VARIOUS EXPENSES CLAIMED. (4) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LD. CIT(A) OUGHT TO HAVE UPHELD THE ADDITION MADE B Y THE AO. 2. GROUND NO.1 RELATES TO DELETION OF ADDITION OF R S.5,79,844/- ON ACCOUNT OF EXCESS ROYALTY CLAIMED. THE FACTS OF THE CASE ARE THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS WHILE MAKING D ISALLOWANCE TOWARDS EXCESS CLAIM OF ROYALTY OF RS.5,79,844/- AND ON THE BASIS OF INFORMATION U/S.133(6) OF THE I.T ACT CALLED FOR FROM ASSISTANT GEOLOGIST, NAVSARI, THE AO OBSERVED THAT FOR THE FINANCIAL YEAR 2006-07, RO YALTY PAYABLE TO ASSISTANT GEOLOGIST, NAVSARI, BY THE ASSESSEE WAS O F RS.50,04,780/- (RS.45,09,630/- + RS.4,95,150/-). HOWEVER, THE ASSE SSEE HAS PAID DURING THE YEAR UNDER REFERENCE AN AMOUNT OF RS. 55,84,624 /- AS ROYALTY AND HAS CLAIMED THE TOTAL AMOUNT OF TOWARDS ROYALTY CHARGES . THUS, THE AO MADE ADDITION OF RS.5,79,844/- (RS.55,84,624 - RS. 50,04,780) ON THE CONTENTION THAT AS THE ASSESSEE IS FOLLOWING THE ME RCANTILE SYSTEM OF ACCOUNTING, THE ASSESSEE'S CLAIM TOWARDS ROYALTY ON PAYMENT BASIS IS NOT ALLOWABLE AND FINALLY CONSIDERED TO ALLOW THE CLAIM OF ROYALTY PAID ON ACCRUAL BASIS. THE AO MENTIONED THAT EVEN THE ASSES SEE'S SUBMISSION TO THE SHOW CAUSE NOTICE IS CONSIDERED, AS PROVISION O F SECTION 43B OF THE ACTS PROVIDES THAT ANY SUM PAID BY THE ASSESSEE BY WAY OF TAX, DUTY, CESS OR FEE BY WHATEVER NAME CALLED, UNDER ANY LAW FOR T HE TIME BEING IN FORCE IS ALLOWABLE AS EXPENDITURE DURING THE YEAR OF PAYM ENT, THE SAME IS NOT ACCEPTABLE IN CASE OF ASSESSEE. SINCE THE ASSESSEE FIRM FOLLOWS MERCANTILE SYSTEM OF ACCOUNTING, ROYALTY CLAIM CANNOT BE ALLOW ED ON PAYMENT BASIS. ITA NO.2508/AHD/2010 ASST. YEAR 2007-08 3 3. THE ASSESSEE WENT IN APPEAL BEFORE THE FIRST APP ELLATE AUTHORITY WHEREIN THE ASSESSEE MADE SAME SUBMISSIONS AS BEFOR E THE AO. 3.1 THE LD. CIT(A) CONSIDERED THE ASSESSMENT ORDER AND THE SUBMISSIONS OF THE ASSESSEE AND ALLOWED THE CLAIM O F ASSESSEE BY OBSERVING AS UNDER: I HAVE CONSIDERED THE FACTS AND THE CIRCUMSTANCES OF THE CASE. I HAVE ALSO CAREFULLY CONSIDERED THE OBSERVATION OF THE AO AND THE SUBMISSIONS OF THE APPELLANT. THERE IS A MERIT IN THE ARGUMENTS PUT FORTH BY THE ID. AR. THE ROYALTY PAID TO THE GOVERNMENT OF GUJARAT FALLS WITHIN THE PURVIEW OF THE SEC. 43B OF THE ACT AND BE ALLOWED IN THE YEAR OF PAYMENTS. THESE ROYALTY EXPENSES BEING PAYMENT MADE TO GOVERNMENT, WERE CLAIMED BY THE APPELLANT YEAR AFTER YEAR ON PAYMENT BASIS AND THEREFORE THE SAME ARE COVERED BY THE PROVISIONS OF SEC. 43B, THEREFORE, I AM OF THE CONSIDERED VIEW THAT THE ADDITION OF RS.5,79,844/- DESERVES TO BE DELETED AND THUS, THE APPELLANT'S GROUND NO.2 IS ALLOWED. AGGRIEVED BY THIS ORDER OF LD. CIT(A), THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL. 4. THE LD. DR RELYING ON THE ORDER OF AO SUBMITTED THAT ON THE BASIS OF INFORMATION U/S.133(6) OF THE I.T ACT CALLED FOR FROM ASSISTANT GEOLOGIST, NAVSARI, THE AO OBSERVED THAT FOR THE FI NANCIAL YEAR 2006-07, ROYALTY PAYABLE TO ASSISTANT GEOLOGIST, NAVSARI, BY THE ASSESSEE WAS OF RS.50,04,780/- (RS.45,09,630/- + RS.4,95,150/-). HO WEVER, THE ASSESSEE HAS PAID DURING THE YEAR UNDER REFERENCE AN AMOUNT OF RS. 55,84,624/- AS ROYALTY AND HAS CLAIMED THE TOTAL AMOUNT OF TOWARDS ROYALTY CHARGES. THUS, THE AO MADE ADDITION OF RS.5,79,844/- (RS.55, 84,624 - RS. 50,04,780) ON THE CONTENTION THAT AS THE ASSESSEE I S FOLLOWING THE MERCANTILE SYSTEM OF ACCOUNTING, THE ASSESSEE'S CLA IM TOWARDS ROYALTY ON PAYMENT BASIS IS NOT ALLOWABLE AND FINALLY CONSIDER ED TO ALLOW THE CLAIM OF ROYALTY PAID ON ACCRUAL BASIS. THE AO MENTIONED THAT EVEN THE ITA NO.2508/AHD/2010 ASST. YEAR 2007-08 4 ASSESSEE'S SUBMISSION TO THE SHOW CAUSE NOTICE IS C ONSIDERED, AS PROVISION OF SECTION 43B OF THE ACTS PROVIDES THAT ANY SUM PA ID BY THE ASSESSEE BY WAY OF TAX, DUTY, CESS OR FEE BY WHATEVER NAME CALL ED, UNDER ANY LAW FOR THE TIME BEING IN FORCE IS ALLOWABLE AS EXPENDITURE DURING THE YEAR OF PAYMENT, THE SAME WAS NOT ACCEPTABLE IN CASE OF ASS ESSEE. SINCE THE ASSESSEE FIRM FOLLOWS MERCANTILE SYSTEM OF ACCOUNTI NG, ROYALTY CLAIM CANNOT BE ALLOWED ON PAYMENT BASIS. IT WAS OTHERWIS E ALLOWABLE. BUT IT WAS NOT PAYABLE BY THE ASSESSEE. THEREFORE, THE AO HAD RIGHTLY DISALLOWED THE CLAIM OF ASSESSEE AND THE LD. CIT(A) WAS NOT JUSTIFIED IN DELETING THE SAME. THE ORDER OF LD. CIT(A) BE SET A SIDE AND THAT OF THE AO BE RESTORED. 5. ON THE OTHER HAND, THE LD. COUNSEL OF THE ASSESS EE SUBMITTED THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF RUNNING A ST ONE QUARRY, DIGGING OF TRAP STONE FROM MINE, CRUSHING OF STONE AND SELLING IT. THE ASSESSEE MADE PAYMENT OF RS.55,84,624/- TOWARDS ROYALTY TO THE GO VERNMENT OF GUJARAT IN THE F.Y.2006-07. HE RELIED ON THE DECISION OF TH E TRIBUNAL SPECIAL BENCH CHANDIGARH IN THE CASE OF GLAXO SMITHELINE 10 7 ITD 343 (CHD) (SB) AND SUBMITTED THAT THE ISSUE IS NOW DIRECTLY C OVERED BY THIS DECISION. HE ALSO SUBMITTED AS PER THE PROVISIONS OF SECTION 43B ANY SUM PAYABLE BY WAY OF TAX, DUTY, CESS OR FEE BY WHATEVER NAME C ALLED UNDER ANY LAW FOR THE TIME BEING IN FORCE SHALL BE ALLOWED IRRESP ECTIVE OF THE PREVIOUS YEAR IN WHICH THE LIABILITY TO PAY SUCH SUM WAS INC URRED BY THE ASSESSEE ACCORDING TO THE METHOD OF ACCOUNTING REGULARLY EMP LOYED BY HIM ONLY IN COMPUTING THE INCOME REFERRED TO IN SECTION 28 OF T HAT PREVIOUS YEAR IN WHICH SUCH SUM IS ACTUALLY PAID BY HIM. HE FURTHER SUBMITTED THAT PAYMENT OF ANY TAX, DUTY, CESS OR FEE IS ALLOWABLE IN THE YEAR OF PAYMENT IRRESPECTIVE OF THE ACCOUNTING METHOD FOLLOWED BY T HE ASSESSEE. THE ASSESSEE PAID RS.55,84,624/- AS ROYALTY IN THE PREV IOUS YEAR AND AS PER THE ITA NO.2508/AHD/2010 ASST. YEAR 2007-08 5 PROVISION OF SECTION 43B THE SAME IS ALLOWABLE IN T HE YEAR OF PAYMENT. THE AO FAILED TO APPRECIATE THE PROVISION IN ITS LE TTER AND SPIRIT AND DISALLOWED THE EXCESS ROYALTY PAYMENT. EVEN THOUGH THE ASSESSEE FOLLOWS MERCANTILE SYSTEM OF ACCOUNTING AND THE SAID ROYALT Y EXPENSES IS ALLOWABLE ON PAYMENT BASIS, THE BOOK RESULTS WILL R EFLECT TRUE AND CORRECT PICTURE. THE ASSESSEE HAS BEEN CONSISTENTLY SHOWING THE ROYALTY ON PAYMENT BASIS AND THE AO IN EARLIER YEARS HAS BEEN ACCEPTING THE SAME. ACCORDINGLY, HE SUBMITTED THAT IN VIEW OF ABOVE, FU LL PAYMENT OF ROYALTY IS ALLOWABLE AND THE LD. CIT(A) HAS RIGHTLY ALLOWED THE SAME. NO INTERFERENCE IS CALLED FOR IN HIS ORDER ON THIS ISS UE. 6. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND GOIN G THROUGH THE MATERIAL ON RECORD WE FIND THAT THE ISSUE IS NOW SQ UARELY COVERED BY THE DECISION OF TRIBUNAL (SPECIAL BENCH), CHANDIGARH IN THE CASE OF DY CIT VS. GLAXO SMITHKLINE CONSUMER HEALTHCARE LTD. (2007 ) 107 ITD 343 (CHD)(SB) WHEREIN IT WAS HELD AS UNDER :- AS REGARDS THE FIRST QUESTION RELATING TO DEDUCTIO N ON PAYMENT OF EXCISE DUTY, IT COULD BE SEEN THAT PROVISIONS OF SECTION 43B HAVE B ROUGHT A CHANGE IN THE NORMAL RULE OF DEDUCTION OF EXPENSES BASED ON THE ACCOUNTING ME THOD FOLLOWED BY AN ASSESSEE. THE NORMAL PRINCIPLES AND PRACTICES ARE DONE AWAY W ITH. ACCORDINGLY, THERE WAS NO FORCE IN THE ARGUMENT OF THE REVENUE THAT THE DEDUC TION UNDER SECTION 43B COULD BE GRANTED ONLY IF THE LIABILITY WAS INCURRED DURING T HE PREVIOUS YEAR, EVEN WHEN THE PAYMENT WAS MADE BY THE ASSESSEE. THE RULE OF DEDUC TION UNDER SECTION 43B IS THE ACTUAL PAYMENT OF THE LIABILITY. THE NATURE OF THE CURRENT ACCOUNT BRINGS HOME THE POINT THAT THE ADVANCE PAYMENTS OF EXCISE DUTIES AR E ACTUAL PAYMENTS OF DUTIES. THEREFORE, WHEN THE PAYMENTS ARE UNDERSTOOD AS ACTU AL PAYMENTS, THOSE PAYMENTS EVEN IF MENTIONED AS ADVANCE PAYMENTS NEED TO BE AL LOWED AS DEDUCTION UNDER SECTION 43B. (PARA 37). THE ABOVE POSITION IS EMERGING OUT OF THE LANGUAGE OF THE STATUTE ITSELF. SECTION 43B PROVIDES FOR THE DEDUCTION OF SUMS PAYABLE MENTIONE D IN CLAUSES (A) TO (F), ONLY IF ACTUALLY PAID; BUT SHALL BE ALLOWED IRRESPECTIVE OF THE PREVIOUS YEAR IN WHICH THE LIABILITY TO PAY SUCH SUM WAS INCURRED BY THE ASSES SEE. THE INTENTION OF THE LEGISLATURE IS APPARENT FROM THE LANGUAGE USED TO S ECTION 43B THAT THE DEDUCTION IN RESPECT OF TAX OR DUTY, WHICH IS ACTUALLY PAID BY T HE ASSESSEE, HAS TO BE ALLOWED AS DEDUCTION WITHOUT LOOKING INTO THE YEAR AND INCURRI NG LIABILITY.(PARA 38). ITA NO.2508/AHD/2010 ASST. YEAR 2007-08 6 FURTHER THE EXPRESSION IRRESPECTIVE OF THE PREVIOU S YEAR USED IN SECTION 43B DISPENSES WITH THE CONCEPT OF PREVIOUS YEAR, IN THE MATTER OF THE SUMS COVERED BY SECTION 43B. THE EXPRESSION IRRESPECTIVE MEANS LACK ING RELATION, REGARDLESS OF WHAT IS MENTIONED. HERE THE SUBJECT MENTIONED IS PREVIOUS Y EAR. IT MEANS THE DEDUCTION HAS TO BE ALLOWED REGARDLESS OF THE PREVIOUS YEAR. ANY REF ERENCE TO THE TIME OF INCURRING OR ACCRUING OF THE LIABILITY IS DISPENSES WITH BY THE STATUTE, WHILE CONCENTRATION IS MADE ON THE POINT OF ACTUAL PAYMENT OF THE SUM TO THE TR EASURY OF THE GOVERNMENT (PARA 39). THE SUPREME COURT HAD AN OCCASION TO CONSIDER THE V ERY SAME ISSUE OF PAYMENT OF DUTY VIS--VIS DEDUCTION UNDER SECTION 43B IN THE C ASE OF BERGER PAINTS (INDIA) LTD. VS. CIT (2004) 266 ITR 99/ 135 TAXMAN 586 (SC). IN FACT THE DECISION OF THE SUPREME COURT IN THE CASE OF BERGER PAINTS (INDIA) LTD. (SU PRA) SETTLES THE ISSUE RAISED BEFORE THE SPECIAL BENCH, AND HAS UPHELD THE VIEW ADVANCED BY THE ASSESSEE THAT DEDUCTION ON PAYMENT BASIS SHOULD BE ALLOWED UNDER SECTION 43 B IRRESPECTIVE OF THE PREVIOUS YEAR TO WHICH THE CORRESPONDING LIABILITY RELATES T O THE SUPREME COURT HAS HELD THAT THE ENTIRE AMOUNT OF EXCISE DUTY/CUSTOMS DUTY PAID BY THE ASSESSEE IN A PARTICULAR ACCOUNTING YEAR IS ALLOWABLE UNDER SECTION 43B AS A DEDUCTION IN RESPECT OF THAT YEAR, IRRESPECTIVE OF THE AMOUNT OF EXCISE DUTY/CUSTOMS D UTY INCLUDED IN THE VALUATION OF THE ASSESSEES CLOSING STOCK AT THE END OF THE ACCOUNTI NG YEAR (PARA 40, 41). THE REVENUE HAD ALSO RELIED ON CIRCULAR NO.550 DATE D 1.1.1990 ISSUED BY CBDT IN THE CONTEXT OF EXPLANATION 2 TO SECTION 43B. THE FI NANCE ACT, 1989 HAS BROUGHT IN EXPLANATION 2 TO SECTION 43B ACCORDING TO WHICH ANY SUM PAYABLE SHALL MEAN ANY SUM LIABILITY FOR WHICH HAS BEEN INCURRED BY THE TA XPAYER DURING THE PREVIOUS YEAR IRRESPECTIVE OF THE DATE BY WHICH SUCH SUM IS STATU TORILY PAYABLE. IN FACT, THE CIRCULAR DEALS WITH THE SHORT QUESTION OF DISTINCTION BETWEE N LIABILITY INCURRED AND PAYMENT DUE. IT CLARIFIES THAT EVEN IF THE SUM IS NOT DUE F OR PAYMENT DURING THE PREVIOUS YEAR AND THE PAYMENT WAS MADE DEDUCTION WOULD BE AVAILAB LE. IT CREATED A DIFFICULT SITUATION FOR ASSESSEES; ESPECIALLY LIKE PAYMENTS O F SALES TAX, ETC. IN ORDER TO REMOVE THE DIFFICULTIES, EXPLANATION 2 WAS BROUGHT IN ALON G WITH PROVISO TO SECTION 43B. PROVISO HAS MADE THE EXPLANATION PRACTICABLE AND WO RKABLE BY STATING THAT THE PAYMENTS MADE EVEN AFTER CLOSE OF THE PREVIOUS YEAR BUT BEFORE THE DUE DATE OF FILING OF THE RETURN WILL BE DEDUCTIBLE. THUS, THE CIRCULA R DEALS WITH THE EXTENDED PERIOD OF TIME BY WHICH CERTAIN BELATED PAYMENTS COULD BE CLA IMED BY THE ASSESSEE AS DEDUCTION. THE CIRCULAR NOWHERE DEALS WITH THE PATE NT QUESTION OF ADVANCE PAYMENT OF DUTIES AND TAXES AND DEDUCTION THEREOF (PARA 50). GENERALLY THE ADVANCE PAYMENTS OF EXCISE DUTY ARE N OT PROVISIONAL OR REFUNDABLE. THEY ARE ACTUALLY PAYMENTS OF CENTRAL EXCISE DUTY. THE ASSESSEES IN THE PAST WERE NOT PAYING TAXES DUTIES AND OTHER DUES TO THE GOVERNMEN T IN TIME. AT THE SAME TIME, THEY WERE BOOKING THOSE ITEMS AS EXPENSES IN THEIR ACCOU NTS ON ACCRUAL BASIS ON THE GROUND THAT THEY WERE FOLLOWING MERCANTILE SYSTEM O F ACCOUNTING. BY DOING SO, THEY WERE CLAIMING DEDUCTION AND REDUCING THE TAXABLE IN COME. CONCURRENTLY IN MANY CASES, THE ASSESSEES WERE CHALLENGING THE VERY LIAB ILITY ITSELF BEFORE THE COURTS AND TRIBUNALS, FINALLY RESULTING IN BELATED, DELAYED AN D DEFERRED PAYMENTS AND SOMETIMES NEVER MADE. IN ORDER TO STOP SUCH EXPLORATION PRACT ICED BY THE ASSESSEES SECTION 43B HAS BEEN BROUGHT IN THE STATUTE DECLARING THAT WELL YOU CLAIM THE DEDUCTION BUT ONLY ON ACTUAL PAYMENT. THE LAW HAS MADE IT CLEAR THAT S UCH PAYMENTS ARE TO BE ALLOWED AS DEDUCTIONS IN THE YEAR OF PAYMENT. SECTION 43B DOES NOT LAY DOWN ANY SEQUENCE OR ITA NO.2508/AHD/2010 ASST. YEAR 2007-08 7 ORDER OF EVENTS IN WHICH THE LIABILITY HAS TO BE IN CURRED FIRST AND ONLY THEREAFTER THE PAYMENT OF SUCH DUTY IS TO BE MADE SO AS TO CLAIM T HE DEDUCTION UNDER SECTION 43B. BUT THE REVENUE TRIED TO MAKE OUT A CASE THAT THE S TATUTE HAS PRESCRIBED SUCH AN ORDER OF EVENTS. IN FACT, THERE IS NO SUCH PRESCRIPTION I N THE STATUTE. THE EXPRESSION OTHERWISE ALLOWABLE REFERS TO A DEDUCTION OF PERMIS SION IN LAW THAT EXPENSES WHICH ARE AVAILABLE AS DEDUCTIONS ON PAYMENT UNDER SECTIO N 43B ARE THOSE EXPENSES WHICH ARE USUALLY ALLOWED BY THE ACT FOR THE PURPOSE OF C OMPUTING INCOME. FURTHER THE EXPRESSION ANY SUM PAYABLE DOES NOT MEAN PAYMENT OU TSTANDING. THEREFORE, FOR THE PURPOSE OF SECTION 43B THE PROVISO THEREUNDER AND E XPLANATION 2 HAVE TO BE READ AND CONSTRUED TOGETHER (PARA 51). THEREFORE, THE DEDUCTION FOR TAX, DUTY ETC., IS ALL OWABLE UNDER SECTION 43B ON PAYMENT BASIS BEFORE INCURRING THE LIABILITY TO PAY SUCH AM OUNTS (PARA 52). RESPECTFULLY FOLLOWING THE ABOVE DECISION, WE DISMI SS THIS GROUND OF REVENUE. 7. THE SECOND GROUND RAISED BY THE REVENUE IS REGAR DING DELETION OF ADDITION OF RS.1,01,241/- TOWARDS DEFERRED REVENUE EXPENSES. IN ORDER TO MAKE ADDITION ON ACCOUNT OF DISALLOWANCE OF LEASE P ROCESS OF RS.1,12,490/- AND ALLOWING THE SAME CONSIDERING IT TO BE DEFERRED REVENUE EXPENSES, THE AO MADE VARIOUS OBSERVATIONS, RELEVANT ABSTRACT IS REPRODUCED AS UNDER: 16] VERIFICATION OF PROFIT AND LOSS ACCOUNT, IT IS SEEN THAT THE ASSESSES HAS CLAIMED RS.1,12,490/- AS LEASE PROCESS EXPENSES . ON GOING THROUGH THE DETAILS, IT IS NOTICED THAT THE SAID EXPENSES W AS ACTUALLY INCURRED FOR RENEWED OF LEASE FOR FURTHER PERIOD OF TWO YEARS. A S SUCH, THE EXPENSES IN QUESTION IS PARTAKE THE CHARACTER OF DIFFERED REVEN UE EXPENSES.' 7.1 IN APPEAL BEFORE LD. CIT(A) THE AR OF THE ASSES SEE ARGUED THAT THE ASSESSEE INCURRED EXPENSES TOWARDS LEASE PROCESS OF RS.1,12,490/- DURING THE YEAR UNDER REFERENCE IN ORDER TO OBTAIN PERMISS ION FROM THE GOVT. TO USE THE MINES FOR EXTRACTING THE METAL, STONES, ETC . THE ASSESSEE HAD MADE PAYMENT OF RS,1,12,490/- TOWARDS RENEWAL OF TH E LICENSE USED FOR CARRYING OUT ACTIVITIES ALREADY CARRIED ON BY THE A SSESSEE. THE AR OF THE ASSESSEE VEHEMENTLY ARGUED THAT THESE EXPENSES CANN OT BE CONSIDERED AS ITA NO.2508/AHD/2010 ASST. YEAR 2007-08 8 DEFERRED REVENUE BECAUSE IN THE INCOME TAX ACT, 196 1, DEFINITION FOR THE TERM 'DEFERRED EXPENSES' IS NOT PROVIDED FOR AND TH ERE IS NOTHING LIKE DEFERRED REVENUE EXPENDITURE IN THE ACT. FURTHER, I T WAS SUBMITTED THAT AS THESE EXPENSES ARE OF REVENUE NATURE AND BEING REVE NUE ITEM, THE CLAIM SHOULD BE ALLOWED TO THE APPELLANT AS ARE INCURRED DURING THE YEAR INCURRED FOR THE BUSINESS PURPOSE, ETC. 7.2 THE LD. AR OF THE ASSESSEE PLACED RELIANCE UPON THE FOLLOWING DECISIONS TO SUPPORT ITS CONTENTIONS AND EXPLAINED THAT THE PAYMENTS MADE TOWARDS LEASE EXPENSES OF RS.1,12,490 /- ARE ALLOWA BLE BEING OF REVENUE NATURE; ITW SIGNODE INDIA LTD. VS. DCFT (2007) 110 TTJ (HYD .) 170 : EXPENDITURE INCURRED IN CONNECTION WITH EXISTING UN IT TREATED AS DEFERRED REVENUE EXPENDITURE IN ASSESSED ACCOUNT WAS ALLOWAB LE IN ITS ENTIRETY IN THE RELEVANT YEAR OF PAYMENT AND SEC.35D WAS NOT AT TRACTED. HONDA SIEL CARS INDIA LID. US. ACFT (2008) 9 DTR (DEL)(TRIB.) 14: ASSESSES HAVING ACQUIRED RIGHTS TO PERFORM THE ACTI VITIES RELATED TO HIS BUSINESS AS A LICENSEE FOR A SPECIFIED PERIOD, LUMP SUM PAYMENT MADE FUR THE SAME AND ROYALTY ON SALE OF THE PRODUCT MADE FR OM THE LICENSE IS ALLOWABLE REVENUE EXPENDITURE, HERO HONDA MOTORS LTD. VS. JCIT (2005) 95 TTJ (DEL) 782: EXPENDITURE ON CIVIL WORK LEASED ASSETS AND MANAGEM ENT FEE PAID BY ASSESSEE FOR ARRANGING LEASE TRANSACTION WERE REVEN UE EXPENDITURE AS OWNERSHIP OF THE ASSETS WHICH WERE OBTAINED ON LEAS E AND INSTALLED FOR THE PURPOSE OF ASSESSEE'S BUSINESS DID NOT VEST WITH TH E ASSESSEE. BANGLORE TOOL WORKS (P} LTD. VS. ITO (1993) 47 TTJ (BANG.)698:: REVENUE EXPENDITURE ALREADY INCURRED CANNOT BE FLOW ED ON DEFERRED BASIS BY SPREADING OVER NUMBER OF YEARS. IBM GLOBAL SERVICES INDIA (P) LID. VS. DCIT (2008) 113 TTJ (BANG.) 747 ITA NO.2508/AHD/2010 ASST. YEAR 2007-08 9 - BUSINESS ALREADY BEING IN EXISTENCE, EXPENDITURE IN CURRED BY ASSESSEE IN ACQUIRING RIGHT TO USE DOMESTIC CUSTOMER DATABASE W AS REVENUE EXPENDITURE, MORE-SO WHEN THE SAME WAS TREATED AS R EVENUE RECEIPT IN THE HANDS OF RECIPIENT, 8. THE LD. CIT(A) AFTER GOING THROUGH THE ARGUMENTS OF THE AR. AS WELL AS FINDINGS OF THE AO, DECIDED THE ISSUE BY OB SERVING AS UNDER :- I AM OF THE OPINION THAT THE AO'S OBSERVATION WITH RESPECT TO ALLOWABILITY OF LEASE PROCESS EXPENSES OVER A PERIO D OF TEN YEARS IS QUITE ACCEPTABLE. HOWEVER, THE CONTENTION OF THE AR THAT THERE IS NO MEANING ASSIGNED TO THE: TERM 'DEFERRED REVENUE EXPENDITURE ' IN THE INCOME-TAX ACT, 1961, IS CONVINCING. I HAVE ALSO CONSIDERED TH E DECISIONS AND CONCLUSIONS ARRIVED IN THE VARIOUS LEGAL PRECEDENTS RELIED UPON BY THE AR AND THE SAME ARE RESPECTED. RATIO LAID DOWN IN THE CASE OF HONDA SIEL CARS INDIA LTD. VS. ACIT (2008) 9 DTR (DEL.)(TRIB.) 14, HERO HONDA MOTORS LTD. VS. JCIT (2005) 95 TTJ (DEL) 782, BANGL ORE TOOL WORKS (P) LTD. VS. ITO (1993) 47 TTJ (BANG.) 698 AND IBM GLOB AL SERVICES INDIA (P) LTD. VS. DCIT (2008) 113 TTJ (BANG.) 747 DISCUS SES SIMILAR FACTS AND ISSUE UNDER CONSIDERATION TO THAT OF THE APPELLANT. RESPECTFULLY FOLLOWING THE DECISIONS OF TRIBUNAL AND HIGH COURT, I AM OF THE OPINION THAT THE APPELLANT IS CORRECT IN CLAIMING THE PAYMENT INCURR ED TOWARDS LEASE PROCESS EXPENSES ON REVENUE BASIS. THEREFORE, THE A O IS DIRECTED TO ALLOW CLAIM MADE BY THE APPELLANT AT RS.1,12,490/-. THUS THIS GROUND OF APPEAL OF THE APPELLANT IS ALLOWED. AGGRIEVED BY THIS ORDER OF LD. CIT(A), THE REVENUE IS IN APPEAL BEFORE US. 9. THE LD. DR SUBMITTED THAT ON VERIFICATION OF PRO FIT AND LOSS ACCOUNT, THE AO OBSERVED THAT ASSESSEE HAD CLAIMED RS.1,12,490/- AS LEASE PROCESS EXPENSES. IT WAS NOTED BY THE AO THAT THE SAID EXPENSES WERE ACTUALLY INCURRED FOR RENEWAL OF LEASE FOR FUR THER PERIOD OF 10 YEARS. AS SUCH THE EXPENSES PARTAKE THE CHARACTER OF DEFER RED REVENUE EXPENSES. THE AO REQUIRED THE ASSESSEE TO SHOW CAUSE AS TO WH Y LEASE PROCESS EXPENSES SHOULD NOT BE TREATED AS TREATED AS DEFERR ED REVENUE EXPENDITURE. AFTER CONSIDERING THE SUBMISSIONS OF ASSESSEE, THE AO NOTED THAT THE ASSESSEE WOULD DERIVE ENDURING BENEFIT OF SAID EXPE NSES FOR 10 YEARS. ITA NO.2508/AHD/2010 ASST. YEAR 2007-08 10 THUS THE AO WAS JUSTIFIED IN DISALLOWING THE CLAIM OF ASSESSEE AS LEASE PROCESS EXPENSES. THE LD. CIT(A) WAS WRONG IN DELET ING THE DISALLOWANCE MADE BY AO. THEREFORE, HE PRAYED THAT THE ORDER OF LD. CIT(A) BE SET ASIDE AND THAT OF THE AO BE RESTORED. 10. ON THE OTHER HAND, THE LD. COUNSEL OF THE ASSES SEE SUPPORTING THE ORDER OF LD. CIT(A) SUBMITTED THAT THE ASSESSEE HAS OBTAINED LEASE FROM THE GOVERNMENT FOR USING THE MINES FOR EXTRACTING M ETAL, STONES ETC. DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE HA D INCURRED EXPENSES AMOUNTING TO RS.1,12,490/- TOWARDS STAMP DUTY FOR R ENEWAL OF LEASE FOR FURTHER 10 YEARS. THE AO TREATED THE STAMP DUTY EXP ENDITURE OF RS.1,12,490/- AS DEFERRED REVENUE EXPENDITURE AND D ISALLOWED THE PROPORTIONATE EXPENDITURE. THE ASSESSEE HAS BEEN EN GAGED IN THE BUSINESS OF RUNNING STONE QUARRY SINCE MANY YEARS. THE EXPEN DITURE OF RS.1,12,490/- TOWARDS STAMP DUTY IS A REVENUE EXPEN DITURE FOR THE PURPOSE OF BUSINESS AND THE SAME IS ALLOWABLE. HE R ELIED ON THE DECISION OF HONBLE ANDHRA PRADESH HIGH COURT IN THE CASE OF CIT VS. PANYAM CEMENTS & MINERALS INDUSTRIES LTD. 228 ITR 212 WHER EIN IT WAS HELD THAT SUCH STAMP DUTY PAID ON RENEWAL OF LEASE TO BE OF A REVENUE NATURE. HE ALSO RELIED ON THE DECISION OF HONBLE SUPREME COUR T IN THE CASE OF CIT VS. MADRAS AUTO SERVICE (P) LTD. 233 ITR 468 (SC) A ND SUBMITTED THAT THE ISSUE IS NOW DIRECTLY COVERED BY THIS DECISION. THEREFORE, HE SUBMITTED THAT LD. CIT(A) HAS RIGHTLY DELETED THE A DDITION. HIS ORDER MAY KINDLY BE UPHELD. 11. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PE RUSED THE RECORD. WE FIND FORCE IN THE SUBMISSIONS OF LD. COUNSEL OF THE ASSESSEE THAT ASSESSEE HAS OBTAINED LEASE FROM THE GOVERNMENT FOR USING THE MINES FOR EXTRACTING METAL, STONES ETC. DURING THE YEAR UNDER CONSIDERATION THE ITA NO.2508/AHD/2010 ASST. YEAR 2007-08 11 ASSESSEE HAD INCURRED EXPENSES AMOUNTING TO RS.1,12 ,490/- TOWARDS STAMP DUTY FOR RENEWAL OF LEASE FOR FURTHER 10 YEAR S. THE AO TREATED THE STAMP DUTY EXPENDITURE OF RS.1,12,490/- AS DEFERRED REVENUE EXPENDITURE AND DISALLOWED THE PROPORTIONATE EXPENDITURE. THE A SSESSEE HAS BEEN ENGAGED IN THE BUSINESS OF RUNNING STONE QUARRY SIN CE MANY YEARS. THE EXPENDITURE OF RS.1,12,490/- TOWARDS STAMP DUTY IS A REVENUE EXPENDITURE FOR THE PURPOSE OF BUSINESS AND THE SAME IS ALLOWAB LE. WE FIND THAT THIS ISSUE IS COVERED BY THE DECISION OF HONBLE ANDHRA PRADESH HIGH COURT IN THE CASE OF CIT VS. PANYAM CEMENTS & MINERALS IN DUSTRIES LTD.(SUPRA) WHEREIN IT WAS HELD AS UNDER :- AN EXPENDITURE OF RS.1,37,050/- WAS INCURRED BY TH E ASSESSEE DURING THE ASSESSMENT YEAR 1978-79 ON STAMP DUTY SECURING RENEWAL OF THE MINING LEASE WITH THE GOVERNMENT. THE ASSESSEE CLAIMED DEDUCTION OF THE S AME AS REVENUE EXPENDITURE. THE INCOME-TAX OFFICER TOOK THE VIEW THAT THE EXPENDITU RE WAS IN THE NATURE OF PREMIUM FOR OBTAINING THE LEASE AND HENCE IT WAS CAPITAL EX PENDITURE. THE APPELLATE ASSTT. COMMISSIONER AFFIRMED THE ORDER OF THE INCOME-TAX O FFICER. THE TRIBUNAL HELD THAT THE EXPENDITURE INCURRED WAS NECESSARY IN THE COURS E OF CARRYING ON THE BUSINESS OF MANUFACTURING CEMENT AND CALCIUM CARBIDE AND THAT T HE EXPENDITURE WAS NORMAL BUSINESS EXPENDITURE AND THAT THE ASSESSEE HAD NOT ACQUIRED ANY CAPITAL ASSET. ON A REFERENCE : HELD, AFFIRMING THE DECISION OF THE TRIBUNAL, THAT THE TRIBUNAL HAD FOUND THAT THE ORIGINAL LEASE DEED CONFERRED A RIGHT ON THE AS SESSEE TO SEEK RENEWAL OF THE LEASE. WHEN THAT RIGHT WAS EXERCISED BY THE ASSESSEE BY OB TAINING RENEWAL OF THE LEASE, ANY EXPENDITURE INCURRED BY WAY OF STAMP DUTY COULD NOT BE TREATED AS ACQUISITION OF A NEW ASSET. THEREFORE, THE TRIBUNAL WAS RIGHT IN HOL DING THAT THE EXPENDITURE INCURRED TOWARDS STAMP DUTY FOR SECURING RENEWAL OF THE MINI NG LEASE WITH THE GOVERNMENT WAS REVENUE EXPENDITURE. THEREFORE, FOLLOWING THE ABOVE DECISION OF THE HON BLE ANDHRA PRADESH HIGH COURT, WE FIND NO INFIRMITY IN THE ORDER OF LD . CIT(A) AND CONFIRM THE SAME. THE GROUND RAISED BY THE REVENUE IS DISMI SSED. 12. THE THIRD GROUND RELATES TO DELETION OF ADDITIO N OF RS.20,000/- MADE OUT OF VARIOUS EXPENSES CLAIMED. DURING THE CO URSE OF ASSESSMENT PROCEEDINGS THE AO OBSERVED THAT ON VERIFICATION OF PROFIT AND LOSS ACCOUNTS REVEALED THAT THE ASSESSEE HAS DEBITED RS. 85256/- UNDER THE HEAD ITA NO.2508/AHD/2010 ASST. YEAR 2007-08 12 OFFICE EXPENSE RS.3245/- POSTAL AND COURIER AND R S.75,407/- UNDER THE HEAD STATIONERY & PRINTING AGGREGATE AMOUNTING TO R S.163908/-. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE WAS ASKED TO PRODUCE BILLS AND OTHER SUPPORTING DOCUMENTARY EVIDENCE TO SUBSTANTIATE ITS CLAIM OF SAID EXPENSES. HOWEVER, IT COULD NOT PRODUCE BIL LS FOR VERIFICATION. ON GOING THROUGH THE LEDGER PRODUCED DURING THE COURSE OF ASSESSMENT PROCEEDING, IT REVEALED THAT THE SAME WERE FOUND TO HAVE INCURRED BY CASH. IT LED TO BELIEVE THAT THE ASSESSEE HAD NO PR OPER CHECK OVER THE SAID EXPENSES. THEREFORE, IT WAS HELD THAT THE ENTIRE EX PENSES WERE NOT INCURRED FULLY AND EXCLUSIVELY FOR THE BUSINESS PUR POSE. ACCORDINGLY, THE AO DISALLOWED RS.20,000/- OUT OF RS.1,63,908/- AND ADDED TO THE INCOME OF THE ASSESSEE. 13. THE ASSESSEE WENT IN APPEAL BEFORE THE LD. CIT( A) AND SUBMITTED THAT THE AO WAS NOT CORRECT IN MENTIONING THAT THE ASSESSEE DID NOT PRODUCE ANY BILLS OR SUPPORTING EVIDENCES. IN FACT THE AO SHOULD HAVE PIN POINTED ANY SPECIFIC GLARING DEFECT IN THE BILLS AN D VOUCHERS MAINTAINED BY THE ASSESSEE FIRM WHICH WERE SUBMITTED BY THE AS SESSEE DURING THE COURSE OF ASSESSMENT PROCEEDINGS. MERE MENTION THAT FEW EXPENSES WERE INCURRED IN CASH AND WERE NOT INCURRED FULLY AND EX CLUSIVELY FOR THE PURPOSE OF BUSINESS SHOULD NOT DISALLOW THE GENUINE CLAIM OF THE ASSESSEE. RELIANCE WAS PLACED ON VARIOUS CASE LAWS BEFORE THE LD. CIT(A). THE LD. CIT(A) CONSIDERING THE SUBMISSIONS OF ASSES SEE AND FACTS OF THE CASE DELETED THE ADDITION BY OBSERVING AS UNDER :- 8.3 I HAVE CONSIDERED THE RIVAL CONTENTIONS. I HAV E ALSO CONSIDERED THE AUTHORITIES RELIED UPON BY THE APPELLANT. I FIND TH AT THERE IS FORCE IN THE CONTENTION OF THE APPELLANT AS THE APPELLANT HAS CL AIMED THAT AD HOC PARTIAL DISALLOWANCE OUT OF CLAIM FOR EXPENSES CANN OT BE MADE ESPECIALLY WHEN THESE EXPENSES ARE FULLY SUPPORTED BY PROOFS A ND ARE INCURRED WHOLLY AND EXCLUSIVELY FOR THE BUSINESS PURPOSE. TH E AO OUGHT TO HAVE ITA NO.2508/AHD/2010 ASST. YEAR 2007-08 13 GIVEN SPECIFIC INSTANCES SHOWING THE DEFECTS IN THE EVIDENCES PRODUCED BY THE APPELLANT BEFORE HIM. IF AT ALL THE AO WAS NOT SATISFIED WITH THE EVIDENCES MAINTAINED, THEN HE WOULD HAVE GIVEN SPEC IFIC INSTANCES OF PARTICULAR EXPENSES ENTRY FOR WHICH EVIDENCE TO HIS SATISFACTION WAS NOT MAINTAINED OR SHOULD HAVE ASKED THE APPELLANT TO EX PLAIN WHY PARTICULAR EXPENSES WERE INCURRED IN CASH. IN ABSENCE OF SUCH FINDINGS, I AM INCLINED TO AGREE WITH THE CONTENTION OF THE APPELL ANT. THE AD HOC PARTIAL DISALLOWANCE OF RS.20,000/- MADE BY THE AO IS DELET ED. THE APPELLANTS GROUND NO.4 IS ALLOWED. AGGRIEVED, THE REVENUE IS NOW IN APPEAL BEFORE THE TRIBUNAL. 14. THE LD. DR SUPPORTED THE ORDER OF ASSESSING OFF ICER WHEREAS THE LD. COUNSEL OF THE ASSESSEE RELIED ON THE ORDER OF LD. CIT(A). THE LD. COUNSEL OF THE ASSESSEE SUBMITTED THAT AO MADE AD H OC DISALLOWANCE OF RS.20,000/- OUT OF THE EXPENSES IN THE NATURE OF OF FICE EXPENSES, POSTAL AND COURIER EXPENSES AND STATIONERY AND PRINTING EX PENSES. THEY WERE OF REVENUE NATURE AND THE SAME HAVE BEEN INCURRED WHOL LY AND EXCLUSIVELY FOR THE PURPOSES OF BUSINESS. THE SAME ARE ALLOWABL E. 15. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND GO ING THROUGH THE MATERIAL ON RECORD, WE FIND DURING THE COURSE OF A SSESSMENT PROCEEDINGS THE AO OBSERVED THAT ON VERIFICATION OF PROFIT AND LOSS ACCOUNTS REVEALED THAT THE ASSESSEE HAD DEBITED RS.85256/- UNDER THE HEAD OFFICE EXPENSE RS.3245/- POSTAL AND COURIER AND RS.75,407/- UNDER THE HEAD STATIONERY & PRINTING AGGREGATE AMOUNTING TO RS.163908/-. THE AO ASKED THE ASSESSEE TO PRODUCE BILLS AND OTHER SUPPORTING DOCUMENTARY E VIDENCE TO SUBSTANTIATE ITS CLAIM OF SAID EXPENSES. HOWEVER, I T COULD NOT PRODUCE BILLS FOR VERIFICATION. ON GOING THROUGH THE LEDGER PRODUCED DURING THE COURSE OF ASSESSMENT PROCEEDING, IT HAS REVEALED TH AT THE SAME WERE FOUND TO HAVE INCURRED BY CASH. THE AO THEREAFTER HELD TH AT THE ENTIRE EXPENSES WERE NOT INCURRED FULLY AND EXCLUSIVELY FOR THE BUS INESS PURPOSE. ACCORDINGLY, THE AO HAD DISALLOWED RS.20,000/- OUT OF RS.1,63,908/- AND ITA NO.2508/AHD/2010 ASST. YEAR 2007-08 14 ADDED TO THE INCOME OF THE ASSESSEE. WE FIND THAT T HE LD. CIT(A) ACCEPTING THE SUBMISSIONS OF ASSESSEE, HAS WRONGLY DELETED THE ADDITION. WE SET ASIDE THE ORDER OF LD. CIT(A) AND RESTORE TH AT OF THE AO ON THIS ISSUE. THIS GROUND OF REVENUE IS ALLOWED. 16. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS PARTLY ALLOWED. ORDER WAS PRONOUNCED IN OPEN COURT ON 31/10/2011. SD/- SD/-P (A. MOHAN ALANKAMONY) (D.K. TYAGI) ACCOUNTANT MEMBER JUDICI AL MEMBER AHMEDABAD, MAHATA/- COPY OF THE ORDER FORWARDED TO :- 1. THE ASSESSEE. 2. THE REVENUE. 3. THE CIT(APPEALS)- 4. THE CIT CONCERNS. 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER, DEPUTY / ASSTT.REGISTRAR ITAT, AHMEDABAD ITA NO.2508/AHD/2010 ASST. YEAR 2007-08 15 1.DATE OF DICTATION 21/10/2010. 2.DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE TH E DICTATING MEMBER.OTHER MEMBER 25/10/2011 3.DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. P.S./P.S. 4.DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT.. 5.DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR .P.S./P.S 6.DATE ON WHICH THE FILE GOES TO THE BENCH CLERK .. 7.DATE ON WHICH THE FILE GOES TO THE HEAD CLERK . 8.THE DATE ON WHICH THE FILE GOES TO THE ASSTT. REG ISTRAR FOR SIGNATURE ON THE ORDER 9.DATE OF DESPATCH OF THE ORDER..