Optimos India Private Limited, New Delhi V. ACIT, New Delhi

ITA 262/DEL/2009

• Counselvise Citation: [2010] 119 COUNSELVISE.COM (IT) 5695 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 1 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-03-2010
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: F
• Next Hearing Date: 03-03-2010
• Assessment Year: 2005-2006
• Appeal Filed On: 23-01-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Capital expenditure
• Section: 143(3); 10B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH F : NEW DELHI BEFORE SHRI I.P.BANSAL, JM AND SHRI R.C.SHARMA, AM ITA NO.262/DEL/2009 ASSESSMENT YEAR : 2005-06 M/S OPTIMOS INDIA PVT.LTD., GROUND FLOOR, PLOT NO.4, KEHAR SINGH ESTATE, SAID-UL-AJAB, NEW DELHI 110 030. PAN NO.AACCA0443L. VS. ASSTT.COMMISSIONER OF INCOME TAX, CIRCLE-13(1), NEW DELHI. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI ATUL PURI, FCA. RESPONDENT BY : SHRI ASHOK KUMAR PANDEY, CIT-DR. ORDER PER R.C.SHARMA, AM : THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST TH E ORDER OF CIT(A) DATED 24.12.2008 FOR THE AY 2005-06, IN THE MATTER OF ORD ER PASSED U/S 143(3) OF THE IT ACT, WHEREIN FOLLOWING GROUNDS HAVE BEEN TAKEN BY T HE ASSESSEE :- 1. THAT THE LD.CIT(A) HAS ERRED IN CONFIRMING THE ADDITIONS MADE BY THE A.O. 2. THAT THE LD.CIT(A) HAS FURTHER ERRED IN CONFIRMI NG THE ADDITION OF RS.25,155,147/- UNDER SECTION 41(1) OF THE IT ACT 1956 BEING THE AMOUNT DUE TO THE PARENT COMPANY OF THE A SSESSEE CO., IGNORING THE FACTS OF THE CASE AS WELL AS THE BASIC REQUIREMENTS FOR ADDITIONS TO BE MADE UNDER SECTION 41(1). 3. THAT THE LD.CIT(A) HAS FURTHER ERRED IN CONFIRMI NG THE ADDITION OF RS.93,040/- PAID FOR EXPENSES INCLUSIVE OF APPLICABLE STAMP DUTY AND LEGAL EXPENSES ON REGISTERING THE LE ASE DEED FOR PREMISES TAKEN ON LEASE BY THE ASSESSEE CO. 4. THAT THE LD.CIT(A) HAS FURTHER ERRED IN NOT ADJU DICATING UPON THE ELIGIBILITY OF THE ASSESSEE CO. AS 100% EOU FOR DEDUCTION U/S 10B OF THE INCOME TAX ACT, 1961. ITA-262/DEL/2009 2 2. RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORD PER USED. WITH REGARD TO ADDITION MADE U/S 41(1), WE FOUND THAT WHILE PASSIN G ASSESSMENT ORDER, THE AO ADDED RS.2,51,55,147/- U/S 41(1) OF THE IT ACT, 196 1 AS LIABILITIES CEASED TO EXIST SINCE 31.3.2001 ABOUT THIS CREDIT ENTRY. THE ASSES SEE CLAIMED THAT DUE TO DELAY IN COMMENCEMENT OF PRODUCTION, THE COMPANY HAD OBTAINE D SALES ADVANCE AMOUNTING TO RS.257.87 LAKHS FROM ITS PARENT COMPAN Y OPTIMOS INC., USA TO MOBILIZE RESOURCES. THE ASSESSEE CLAIMED THAT COMM ERCIAL PRODUCTION STARTED ON 7.5.2001 BUT IT COULD NOT GENERATE ENOUGH RESOURCES TO PAY BACK THE PARENT COMPANYS MONEY BACK. HE ALSO STATED THAT THE COMP ANY WANTED TO CONVERT THIS MONEY INTO EQUITY BUT BECAUSE OF CHANGE OF POLICY, HE COULD NOT CONVERT INTO EQUITY SHARES. THE AO TREATED IT AS LIABILITY CEAS ED TO EXIST AND TAXED THE SAME U/S 41(1) OF THE IT ACT. BY THE IMPUGNED ORDER, CIT(A) CONFIRMED THE ADDITION. 3. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND FOU ND FROM THE RECORD THAT ASSESSEE COMPANY IS A 100% OWNED SUBSIDIARY OF OPTI MOS INC., USA. THE PARENT COMPANY GAVE ADVANCE TO THE ASSESSEE COMPANY FOR SE T UP IN INDIA, THE AMOUNT WAS REFLECTED IN THE ACCOUNTS OF OPTIMOS INC. AND A LL ALONG, THE AMOUNT HAD BEEN REFLECTED AS CURRENT LIABILITY IN THE BOOKS OF THE ASSESSEE WHICH WAS TO BE ADJUSTED AGAINST THE EXPORT IN FUTURE, IF ANY. MERELY BECAU SE THE AMOUNT WAS NOT REPAID DURING THE YEAR, THE AO DISALLOWED THE SAME BY OBSE RVING THAT ASSESSEE HAS NO INTENTION TO REPAY THE SAME. SINCE THE PARENT COMP ANY HAD PLANNED TO CONVERT THE AMOUNT OF ADVANCE INTO EQUITY, ONLY DUE TO NON-GRAN T OF APPROVAL FROM THE RBI IN VIEW OF CIRCULAR DATED 20 TH APRIL, 2007, THE SAME CANNOT BE CONVERTED INTO EQU ITY. WE FOUND THAT THE PARENT COMPANY HAD MADE NO FURTHE R PAYMENTS TO THE ASSESSEE OUT OF THE OUTSTANDING FUTURE INVOICES TILL THE ADV ANCE WAS ADJUSTED. UNDER THESE CIRCUMSTANCES, THERE IS NO REASON TO TREAT THE ADVA NCE AMOUNT RECEIVED AS CESSATION OF LIABILITY WITHIN THE MEANING OF SECTION 41(1) BY ASSUMING THE AMOUNT DUE AS TRADE LIABILITY. PROVISIONS OF SECTION 41(1) CAN B E APPLIED WHERE AN ALLOWANCE OR DEDUCTION HAS BEEN CLAIMED IN THE ASSESSMENT FOR AN Y YEAR IN RESPECT OF LOSS, ITA-262/DEL/2009 3 EXPENDITURE OR TRADING LIABILITY INCURRED BY THE AS SESSEE. HOWEVER, IN THE INSTANT CASE, THE AMOUNT WAS RECEIVED AS ADVANCE WHICH HAD BEEN USED BY THE ASSESSEE COMPANY AS CAPITAL EXPENDITURE, BY NO STRETCH OF IM AGINATION, SUCH ADVANCE RECEIVED CAN BE TREATED AS EXPENDITURE HAVING BEEN INCURRED BY THE ASSESSEE AND THE LIABILITY WITH RESPECT TO WHICH HAD BEEN CEASED . WE ARE THEREFORE INCLINED TO AGREE WITH THE LEARNED AR THAT ORDERS OF THE LOWER AUTHORITIES ARE DEVOID OF ANY MERITS, WE THEREFORE REVERSE THE SAME AND ALLOW THI S GROUND IN FAVOUR OF THE ASSESSEE. 4. NEXT ISSUE RELATES TO DISALLOWANCE OF EXPENDITUR E OF RS.93,040/- PAID FOR STAMP DUTY AND LEGAL EXPENSES ON REGISTRATION OF RE NT DEED. FROM THE RECORD, WE FOUND THAT ASSESSEE HAS TAKEN THE PREMISES ON LEASE . THE EXPENDITURE INCURRED ON STAMP DUTY AND LEGAL CHARGES FOR REGISTRATION OF LE ASE CUM RENT DEED WAS BORNE BY THE LANDLORD AND THE ASSESSEE EQUALLY. THE AO WAS OF THE VIEW THAT NORMALLY SUCH EXPENDITURE IS TO BE BORNE BY THE OWNER OF THE BUIL DING. WE DO NOT FIND ANY JUSTIFICATION IN AOS OBJECTION INSOFAR AS REGISTRA TION OF LEASE/RENT DEED IS NORMALLY BORNE BY EITHER THE TENANT OR AS MUTUALLY AGREED BY THE TENANT AND OWNER EQUALLY. IN THE INSTANT CASE, BOTH THE ASSESSEE AND LANDLORD HAVE BORNE THE EXPENDITURE EQUALLY, THERE IS NO JUSTIFICATION FOR ASSUMING THA T SHOULD HAVE BEEN INCURRED BY THE LANDLORD WITHOUT BRINGING COGENT MATERIAL ON RE CORD. NEITHER THE GENUINENESS OF THE EXPENDITURE HAS BEEN DOUBTED NOR ACTUAL INCU RRING OF THE SAME. SINCE THE EXPENDITURE IS REVENUE IN NATURE AND ACTUALLY INCUR RED BY THE ASSESSEE FOR THE PURPOSE OF ITS BUSINESS, THERE IS NO JUSTIFICATION IN DISALLOWING THE SAME. ACCORDINGLY, AO IS DIRECTED TO DELETE THE DISALLOWA NCE OF RS.93,040/- BEING THE EXPENSES INCURRED ON STAMP DUTY AND LEGAL CHARGES O N REGISTRATION OF LEASE DEED OF PREMISES TAKEN ON LEASE BY THE ASSESSEE COMPANY. 5. NEXT GRIEVANCE OF THE ASSESSEE RELATES TO CLAIM OF DEDUCTION U/S 10B WHICH HAS BEEN TAKEN DUE TO ADDITION MADE BY THE AO U/S 4 1(1) OF THE IT ACT. AS WE HAVE ALREADY ALLOWED GROUND NO.1 RELATING TO ADDITI ON MADE U/S 41(1), GROUND ITA-262/DEL/2009 4 NO.4 RAISED WITH RESPECT TO DEDUCTION U/S 10B HAS B ECOME INFRUCTUOUS, THE SAME IS DISMISSED IN-LIMINE. 6. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED IN PART. DECISION PRONOUNCED IN THE OPEN COURT ON 12 TH MARCH, 2010. SD/- SD/- (I.P.BANSAL) (R.C.SHARMA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 12.03.2010. VK. COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT DEPUTY REGISTRAR ITA-262/DEL/2009 5