The ACIT, Circle-8, Ahmedabad V. Veer Plastics Pvt.Ltd., Ahmedabad

ITA 2551/AHD/2009

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 6820 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 7 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-04-2011
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 20-04-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 07-09-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ROBIN RAVAL
• Assessee Lawyers: NIMISH B SHAH
• Keywords: Capital asset; Business expenditure; Opportunity of being heard; Commercial expediency; Revenue expenditure; Set aside
• Section: 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH AHMEDABAD (BEFORE S/SHRI BHAVNESH SAINI, JM AND N. S. SAINI, AM) ITA NO. 2551/AHD/2009 A. Y.: 2006-07 THE A. C. I. T., CIRCLE -8, 4 TH FLOOR, AJANTA COMMERCIAL CENTRE, A WING , ASHRAM ROAD, AHMEDABAD VS VEER PLASTICS PVT. LTD., 104, SARDAR PATEL COLONY, STADIUM ROAD, AHMEDABAD PA NO. AAACV 6291 P (APPELLANT) (RESPONDENT) APPELLANT BY SHRI ROBIN RAVAL, SR. DR RESPONDENT BY SHRI NIMISH B. SHAH, AR O R D E R PER BHAVNESH SAINI: THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE LEARNED CIT(A)-XI V, AHMEDABAD DATED 22 ND JUNE, 2009 FOR ASSESSMENT YEAR 2006-07. 2. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF BO TH THE PARTIES, PERUSED THE FINDINGS OF THE AUTHORITIES BELOW AND C ONSIDERED THE MATERIAL AVAILABLE ON RECORD. 3. ON GROUND NO.1, THE REVENUE CHALLENGED THE DELET ION OF DISALLOWANCE OF RS.5,38,000/- ON ACCOUNT OF LEGAL A ND PROFESSIONAL CHARGES. THE AO DISALLOWED THE ABOVE LEGAL EXPENSES WHICH WERE RELATED TO THE TERM LOAN WHICH HAVE BEEN UTILIZED B Y THE ASSESSEE FOR ACQUIRING MACHINERIES AND FIXED ASSETS AND IT HAD D IRECT NEXUS WITH THE ACQUISITION OF CAPITAL ASSETS. THE ABOVE EXPENS ES WERE ITA NO.2551/AHD/2009 ACIT, CIR- 8, AHMEDABAD VS VEER PLASTICS PVT. LTD. 2 DISALLOWED BY TREATING THE SAME AS CAPITAL EXPENDIT URE. IT WAS SUBMITTED BEFORE THE LEARNED CIT(A) THAT THE ASSESS EE DURING THE YEAR HAD CONTRACTED LOANS FROM THE BANK FOR THE PUR POSE OF BUSINESS AND FOR PROCURING SUCH LOANS, IT HAD TO NEGOTIATE T HE PROPOSAL WITH STATE BANK OF INDIA AND THE EXPENDITURE ON ACCOUNT OF LEGAL AND PROFESSIONAL CHARGES WAS PAID TO V. K. SONI & CO. IT WAS SUBMITTED THAT THE AO HAD NOT DISPUTED THE GENUINENESS OF THE EXPENDITURE INCURRED AND IN FACT THIS AMOUNT WAS PAID FOR NEGOT IATING THE PROPOSAL FOR LOAN WITH STATE BANK OF INDIA, PURSUING THE SAI D PROPOSAL AND ARRANGING FOR DISBURSEMENT OF LOAN AND THE LIMITS O F DRAWALS ETC. AND THE SAME COULD NOT BE CONSIDERED AS CAPITAL IN NATU RE BY ANY STRETCH OF IMAGINATION. THIS TYPE OF EXPENDITURE DID NOT IN VOLVE CAPITAL ELEMENTS BECAUSE THE PROFESSIONAL CHARGES WERE NOT PAID IN CONNECTION WITH PURCHASE OF ANY CAPITAL ASSET AND T HE EXPENDITURE IS ALLOWABLE U/S 37 OF THE IT ACT. THE ASSESSEE RELIE D UPON THE FOLLOWING DECISIONS IN SUPPORT OF THE CONTENTION TH AT THE PAYMENT MADE TOWARDS PROFESSIONAL CHARGES FOR PROVIDING SER VICES FOR ENHANCEMENT OF BANK LIMIT WAS DEDUCTIBLE: 1) MEDIA VIDEO LTD. VS CIT 122 TAXMAN 28 (DEL) MAG. ) 2) SRI RAMA MULTI TECH LTD. VS CIT 92 TTJ (AHD) 568 3) ORISSA CEMENT LTD. VS CIT 73 ITR 14 (DEL) 4. THE LEARNED CIT(A) CONSIDERING THE FACTS AND DET AILS ON RECORD FOUND THAT LEGAL AND PROFESSIONAL CHARGES HAVE BEEN PAID TO THE PARTY FOR NEGOTIATING WITH THE STATE BANK OF INDIA FOR GE TTING THE LOAN PROCESSED AND SANCTION AND ALSO FOR ENHANCEMENT OF LIMIT OF THE LOAN AND THE SAME IS NOT RELATED TO ACQUIRING ANY CAPITA L ASSET. THE AO ITA NO.2551/AHD/2009 ACIT, CIR- 8, AHMEDABAD VS VEER PLASTICS PVT. LTD. 3 HAS NOT ESTABLISHED THAT THE LOAN SANCTIONED BY THE BANK WAS USED FOR ACQUIRING OF ANY FIXED ASSETS. THE PAYMENT TOWA RDS PROFESSIONAL CHARGES PAID FOR ARRANGING BANK LOAN FROM THE BANK IS ALLOWABLE DEDUCTION. ADDITION WAS ACCORDINGLY DELETED. 5. THE LEARNED DR RELIED UPON THE ORDER OF THE AO A ND SUBMITTED THAT THE EXPENSES WAS RELATED TO ACQUIRING OF THE M ACHINERIES AND FIXED ASSETS, THEREFORE, ADDITION SHOULD NOT HAVE B EEN DELETED BY THE LEARNED CIT(A). ON THE OTHER HAND, THE LEARNED COUN SEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW AND ALSO RELIED UPON THE DECISION OF THE HON BLE SUPREME COURT IN THE CASE OF CIT VS SIVAKAMI MILLS LTD. 227 ITR 465 AND ALSO RELIED UPON THE DECISION REPORTED IN 277 ITR 464 (N O RELEVANT DECISION FOUND). 6. ON CONSIDERATION OF THE ABOVE FACTS, WE DO NOT F IND ANY MERIT IN THIS GROUND OF APPEAL OF THE REVENUE. ITAT AHMEDABA D BENCH IN THE CASE OF SHRI RAMA MULTI TECH LTD. VS ACIT 92 TTJ 56 8 HELD AS UNDER: CONCLUSION: INTEREST ON BORROWINGS IS ALLOWABLE AS DEDUCTION WHETHER THE BORROWINGS ARE UTILISED FOR ACQUISITION OF CAPITAL ASSET OR FO R REVENUE PURPOSES AND, THEREFORE, INTEREST ON MONEY BORROWED FOR EXPANSION OF EXISTING UNITS WAS ALLOWABLE AS DEDUCTION. 6.1 THE HONBLE SUPREME COURT IN THE CASE OF CIT VS SIVAKAMI MILLS LTD. 227 ITR 465 HELD AS UNDER: ITA NO.2551/AHD/2009 ACIT, CIR- 8, AHMEDABAD VS VEER PLASTICS PVT. LTD. 4 CAPITAL OR BUSINESS EXPENDITURE PURCHASE OF MACHINERY BY ASSESSEE ON DEFERRED PAYMENT BASIS GUARANTEE EXECUTED BY BANK FOR ASSURING DUE PAYMENT OF INSTALLMENTS BY ASSESSEE IS ALLOWABLE AS REVENUE EXPENDITURE - INCOME-TAX ACT, 1961, S.37. 6.2 THE HONBLE DELHI HIGH COURT IN THE CASE OF ORI SSA CEMENT LTD. VS CIT 73 ITR 14 HELD AS UNDER: WHILE IT IS TRUE THAT EXPENDITURE INCURRED NEED NOT NECESSARILY YIELD RESULTS OR BE INCURRED TO DIRECTLY BENEFIT THE BUSINESS OR BE DIRECTLY RELATED TO THE EARNING OF INCOME, YET IT MUST BE INCIDENTAL TO THE BUSINESS AND MUST BE NECESSITATED OR JUSTIFIED BY COMMERCIAL EXPEDIENCY. BEFORE AN EXPENSE CAN BE ALLOWED UNDER SECTION 10(2) (XV) IT MUST BE DIRECTLY AND INTIMATELY CONNECTED WITH THE BUSINESS AND BE LAID OUT BY THE TAXPAYER IN HIS CHARACTER AS A TRADER. ONLY SUCH EXPENDITURE CAN BE ALLOWED WHICH IS REALLY INCIDENTAL TO THE TRADE ITSELF. AN EXPENDITURE REMOTELY CONNECTED WITH THE TRADE DOES NOT QUALIFY FOR PERMISSIBLE DEDUCTION. HELD, THAT THE LEGAL CHARGES OF RS.1,10,138 INCURRED BY THE ASSESSEE FOR OBTAINING A LOAN FROM THE INDUSTRIAL FINANCE CORPORATION WERE ALLOWABLE IN COMPUTING THE PROFITS AND GAINS OF THE ASSESSEE: IT WAS IRRELEVANT TO CONSIDER THE OBJECT WITH WHICH THE LOAN WAS OBTAINED. 7. CONSIDERING THE FACTS OF THE CASE IN THE LIGHT O F THE ABOVE DECISIONS, IT IS CLEAR THAT THE GENUINENESS OF THE EXPENDITURE IS NOT IN DISPUTE. IT IS ALSO NOT IN DISPUTE THAT THE AMOUNT WAS PAID FOR NEGOTIATING THE PROPOSAL FOR LOAN WITH STATE BANK O F INDIA AND THAT NO ITA NO.2551/AHD/2009 ACIT, CIR- 8, AHMEDABAD VS VEER PLASTICS PVT. LTD. 5 CAPITAL ASSET IS GENERATED OUT OF SUCH TRANSACTION BY MAKING PROFESSIONAL CHARGES. WE ACCORDINGLY, DISMISS THIS GROUND OF APPEAL OF THE REVENUE. 8. ON GROUND NO.2, THE REVENUE CHALLENGED THE DELET ION OF DISALLOWANCE OF RS.1,00,000/- OUT OF MISCELLANEOUS EXPENSES. THE AO ASKED THE ASSESSEE TO PRODUCE THE BILLS AND VOUC HERS OF THE EXPENDITURE. IT WAS SEEN THAT THE AFORESAID EXPENDI TURE WAS NOT FULLY ALLOWABLE. THE AO FURTHER NOTED THAT GENERAL CHARGE S HAVE BEEN DEBITED IN A SUM OF RS.3,30,000/-. THEREFORE, FOR W ANT OF VERIFICATION A SUM OF RS.1,00,000/- WAS DISALLOWED. IT WAS SUBMITT ED BEFORE THE LEARNED CIT(A) THAT THE ASSESSEE DEBITED A SUM OF R S.3,30,000/- UNDER THE GROUPING GENERAL CHARGES AND ALL EXPENSES WERE FULLY SUPPORTED BY BILLS AND VOUCHERS AND NO PERSONAL ELE MENT WAS THERE. IT WAS FURTHER EXPLAINED THAT THE EXPENDITURE WAS O NLY 0.003% OF THE TOTAL TURNOVER; THEREFORE, ADDITION SHOULD BE DELET ED. THE LEARNED CIT(A) FOUND THAT THE ADDITION IS AD HOC IN NATURE AND ACCORDINGLY, DELETED THE ADDITION. 9. THE LEARNED DR RELIED UPON THE ORDER OF THE AO. ON THE OTHER HAND, THE LEARNED COUNSEL FOR THE ASSESSEE REFERRED TO PB-14 WHICH IS ANNEXURE 3 OF THE AUDITED ACCOUNTS IN WHICH THE MISCELLANEOUS EXPENSES WERE CLAIMED IN A SUM OF RS.3,500/- ONLY O UT OF TOTAL GENERAL CHARGES OF RS.60,71,576/- (PB-14). THERE AP PEAR FACTUAL MISTAKES IN THE FINDINGS OF THE AO AND IN THE SUBMI SSIONS OF THE ASSESSEE. WE ACCORDINGLY, SET ASIDE THE ORDERS OF T HE AUTHORITIES BELOW AND RESTORE THE ISSUE TO THE FILE OF THE AO W ITH DIRECTION TO ITA NO.2551/AHD/2009 ACIT, CIR- 8, AHMEDABAD VS VEER PLASTICS PVT. LTD. 6 VERIFY THE FACTS AND PASS REASONED ORDER BY GIVING REASONABLE SUFFICIENT OPPORTUNITY OF BEING HEARD TO THE ASSESS EE. THE AO SHALL CONFINE HIMSELF TO THE AMOUNT OF DISALLOWANCE INVOL VED ON THIS ISSUE. THE ASSESSEE IS DIRECTED TO PRODUCE ALL RELEVANT EV IDENCES BEFORE THE AO IN SUPPORT OF THE CONTENTION. IN THE RESULT, GRO UND NO.2 OF THE APPEAL OF THE REVENUE IS ALLOWED FOR STATISTICAL PU RPOSES. 10. IN THE RESULT, THE APPEAL OF THE REVENUE IS PAR TLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 21-04-2011 SD/- SD/- (N. S. SAINI) ACCOUNTANT MEMBER (BHAVNESH SAINI) JUDICIAL MEMBER DATE : 21-04-2011 LAKSHMIKANT/- COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE CIT(A) CONCERNED 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE BY ORDER D Y. REGISTRAR, ITAT, AHMEDABAD