M/s. Ramprasad Tubes & Bars Pvt. Ltd., Coimbatore V. DCIT, Coimbatore

ITA 2703/CHNY/2016

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 6191 (ITAT-CHENNAI)
• Duration Of Justice: 11 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-09-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 21-08-2017
• Assessment Year: 2012-2013
• Appeal Filed On: 19-09-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S SUNDARESAUA
• Assessee Lawyers: C A VENKATESAN
• Keywords: Revenue expenditure; Capital expenditure
• Section: 14A

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : CHENNAI . . . , ! ' , # $% & [ BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER ] ./ I.T.A.NO.2703/MDS./2016 / ASSESSMENT YEAR : 2012-13 M /S.R AMPRASAD TUBES & BARS P LTD., 289,KUNNATHUPUDUR POST, KOVILPALAYAM, COIMBATORE 641 107. VS. THE DEPUTY COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE -1, COIMBATORE-641 018. [PAN AAACR 9900 P ] ( '( / APPELLANT) ( )*'( /RESPONDENT) / APPELLANT BY : MR. C.A.VENKATESAN, C.A /RESPONDENT BY : MR.S.SUNDARESAU,ACIT,DR / DATE OF HEARING : 21 - 08 - 201 7 / DATE OF PRONOUNCEMENT : 04 - 09 - 201 7 / O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER THIS APPEAL OF THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS)-1, COIMBAT ORE DATED 28.06.2016 PERTAINING TO ASSESSMENT YEAR 2012-13. 2. THE FIRST GROUND RAISED BY ASSESSEE IS WITH REG ARD TO LD.CIT(A) /LD.AO TREATING THE EXPENSES IN RESPECT O F THE REPAIRS AND MAINTENANCE AS REVENUE EXPENDITURE INSTEAD OF THE A SSESSEES CLAIM AS ITA NO. 2703/MDS./16 :- 2 -: CAPITAL EXPENDITURE IN VIEW OF THE NATURE OF THE BU SINESS ACTIVITIES OF THE ASSESSEE. 3. THE FACTS OF THE ISSUE ARE THAT THE AO DISALLOW ED A SUM OF ` 5,08,233/- TOWARDS THE EXPENDITURE SAID TO BE INCUR RED FOR CONSTRUCTION OF NEW BUILDING IN RESPECT OF UNIT-I A ND A SUM OF ` 2 LAKHS TOWARDS RBTB UNIT-III, WHICH IS SAID TO BE NEW BUIL DING. THE AO TREATED THESE EXPENDITURES AS CAPITAL IN NATURE AND THE SAME WAS DISALLOWED. AGGRIEVED BY THE ORDER OF LD. ASSESSIN G OFFICER, THE ASSESSEE CARRIED THE APPEAL BEFORE THE LD.CIT(A). 3.1 ON APPEAL, THE LD.CIT(A) IN PARA-5(III) OF HIS ORDER DISCUSSED THE ISSUE IN A CRYPTIC MANNER AND CONFIRMED THE ADD ITION. AGAINST THE ORDER OF LD.CIT(A), NOW THE ASSESSEE IS IN APPEAL B EFORE US. 4. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. THE CONTENTION OF THE LD.A.R IS THAT IN RES PECT OF UNIT-I, THE EXPENDITURE IS FOR THE PURPOSE OF MAINTENANCE OF BU ILDING AND IT IS NOT AT ALL A NEW BUILDING AND IN RESPECT OF UNIT-III, THE LD.A.R STATED THAT IT IS A NEW CONSTRUCTION. HOWEVER, THE FACTS BROUGHT ON RECORD DO NOT GIVE ANY DETAILS OF NATURE OF EXPENDITURE. IN OUR O PINION, IT IS TO BE EXAMINED WITH REFERENCE TO THE BILLS AND VOUCHER RE LATED TO THIS EXPENDITURE. ACCORDINGLY, THIS ISSUE IS REMITTED T O THE FILE OF LD.CIT(A) TO PASS A SPEAKING ORDER ON THIS ISSUE AND DECIDE I N ACCORDANCE WITH ITA NO. 2703/MDS./16 :- 3 -: LAW. HENCE, WE SET ASIDE THE ORDER OF LOWER AUTHOR ITIES AND THE ISSUE IN DISPUTE IS REMITTED TO THE FILE OF LD. CIT(A) F OR FRESH CONSIDERATION. 5. THE SECOND GROUND RAISED BY ASSESSEE IS WITH RE GARD TO SOFTWARE EXPENDITURE, THE AO /LD.CIT(A) TREATING TH E EXPENSES OF ` 1,06,500/- IN RESPECT OF SOFTWARE DEVELOPMENT AS R EVENUE EXPENDITURE INSTEAD OF THE ASSESSEES CLAIM AS CAPI TAL EXPENDITURE. 5.1 WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. HEREIN ALSO, THERE IS NO DISCUSSION OF NATU RE OF SOFTWARE ACQUIRED BY THE ASSESSEE WHETHER IT IS APPLICATION OF SOFTWARE OR SOFTWARE RELATING TO OPERATING SYSTEM. HENCE, THIS ISSUE IS REMITTED BACK TO THE FILE OF LD.CIT(A) TO GIVE FINDINGS ON T HE NATURE OF SOFTWARE AND DECIDE IN ACCORDANCE WITH LAW. ACCORDINGLY, WE SET ASIDE THE ORDER OF LOWER AUTHORITIES AND THE ISSUE IN DISPUTE IS REMITTED TO THE FILE OF LD. CIT(A) FOR FRESH CONSIDERATION. 6. THE THIRD GROUND RAISED BY ASSESSEE IS WITH REG ARD TO THE AO /LD.CIT(A) ERRED IN TREATING THE EXPENSES OF ` 5,45,000/- IN CONNECTION WITH THE INCREASE OF THE AUTHORIZED CAPITAL OF THE COMPANY AS CAPITAL EXPENDITURE. 6.1 WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. IN OUR OPINION, THIS ISSUE CAME FOR CONSIDE RATION BEFORE THE ITA NO. 2703/MDS./16 :- 4 -: SUPREME COURT IN THE CASE OF BROKE BOND INDIA LTD. VS. CIT IN 225 ITR 798(SC) WHEREIN HELD THAT:- IT IS NO DOUBT TRUE THAT BEFORE THE AAC AS WELL AS BEFORE THE TRIBUNAL IT WAS SUBMITTED ON BEHALF OF THE ASSESSEE THAT INCREA SE IN THE CAPITAL WAS TO MEET THE NEED FOR WORKING FUNDS FOR THE ASSESSEE -COMPANY. BUT THE STATEMENT OF CASE SENT BY THE TRIBUNAL DOES NOT IND ICATE THAT A FINDING WAS RECORDED TO THE EFFECT THAT THE EXPANSION OF TH E CAPITAL WAS UNDERTAKEN BY THE ASSESSEE IN ORDER TO MEET THE NEE D FOR MORE WORKING FUNDS FOR THE ASSESSEE. ONE, THEREFORE, CANNOT PROC EED ON THE BASIS THAT THE EXPANSION OF THE CAPITAL WAS UNDERTAKEN BY THE ASSESSEE FOR THE PURPOSE OF MEETING THE NEED FOR WORKING FUNDS FOR T HE ASSESSEE TO CARRY ON ITS BUSINESS. THOUGH THE INCREASE IN THE CAPITAL RESULTS IN EXPANSION OF THE CAPITAL BASE OF THE COMPANY AND INCIDENTALLY THAT WOULD HELP IN THE BUSINESS OF THE COMPANY AND MAY ALSO HELP IN TH E PROFIT-MAKING, THE EXPENSES INCURRED IN THAT CONNECTION STILL RETAIN T HE CHARACTER OF A CAPITAL EXPENDITURE SINCE THE EXPENDITURE IS DIRECTLY RELAT ED TO THE EXPANSION OF THE CAPITAL BASE OF THE COMPANY. ON THE FACTS AND I N THE CIRCUMSTANCES OF THE CASE, THE TRIBUNAL WAS RIGHT IN SUSTAINING T HE DISALLOWANCE OF RS. 13,99,305 BEING EXPENSES INCURRED IN CONNECTION WIT H THE ISSUE OF FRESH LOT OF SHARES. ACCORDINGLY, THIS GROUND OF APPEAL RAISED BY THE AS SESSEE STANDS DISMISSED. 7. THE FOURTH GROUND RAISED BY ASSESSEE IS THAT TH E LD. ASSESSING OFFICER OUGHT TO HAVE GIVEN DUE WEIGHT AG E TO THE FACT THAT NEITHER EXPENSES NOR INCOME WAS DEALT WITH RELATION TO THE INVESTMENTS MADE IN PRIOR YEARS AND IS NOT JUSTIFIE D IN MAKING AN ITA NO. 2703/MDS./16 :- 5 -: ADDITION THEREON TAKING INTO CONSIDERATION THE PROV ISIONS OF THE SECTION 14A R.W.RULES 8D. 8. THE FACTS OF THE ISSUE ARE THAT THE AO DISALLOW ED A SUM OF ` 6,903/- BY INVOKING SECTION 14A R.W.RULE 8D. AT TH E TIME OF HEARING, THE LD.A.R STATED THAT THE ASSESSEE HAS EARNED NO E XEMPTED INCOME. HENCE, THERE CANNOT BE ANY DISALLOWANCE. IN OUR OP INION, THERE IS A FORCE IN THE ARGUMENT OF LD.A.R IN VIEW OF THE JUDG EMENT OF JURISDICTIONAL HIGH COURT IN THE CASE OF M/S.CHETTI NADU LOGISTICS IN TAX CASE NO.24 OF 2017 VIDE ORDER DATED 13.03.2017. AC CORDINGLY, SINCE THE INVESTMENT DOES NOT EARN ANY EXEMPTED INCOME, T HERE CANNOT BE ANY APPLICABILITY OF SEC.14A R.W. RULE 8D OF THE IN COME TAXRULES,1962. ACCORDINGLY, THIS GROUND OF THE APPEAL OF THE ASSES SEE IN BOTH THESE APPEALS IS ALLOWED. 5. THE LAST GROUND RAISED BY ASSESSEE IS THAT THE COST OF PATTERNS IS INCLUDED IN THE SALES OF THE RELATED DE ALS AND HENCE THE COST OF PATTERNS IS ALLOWABLE AS REVENUE ON THE MATCHING PRINCIPLE. 5.1 THE FACTS OF THE ISSUE ARE THAT THE LOWER AUTH ORITIES DISALLOWED A SUM OF ` 4,17,639/- TOWARDS PURCHASE OF PATTERNS, WHICH ARE USED AS MOULDS. THE CONTENTION OF THE LD.A.R I S THAT IT WAS ADDED TO THE SALE PRICE. AS SUCH, THERE WAS A REIMBURSEME NT BY CUSTOMER. ITA NO. 2703/MDS./16 :- 6 -: HENCE, THERE CANNOT BE ANY DISALLOWANCE FOR PURCHAS E OF PATTERN. IN OUR OPINION, THIS FACT IS TO BE VERIFIED WITH REFER ENCE TO THE BOOKS OF ACCOUNTS OF THE ASSESSEE AND ACCORDINGLY, THIS ISSU E IS REMITTED BACK TO THE FILE OF LD.CIT(A) AND TO DECIDE AFRESH. 6. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON 04 TH SEPTEMBER, 2017, AT CHENNAI. SD/ - SD/ - ( . . . ! ) (N.R.S. GANESAN) / JUDICIAL MEMBER ( ! ' ) (CHANDRA POOJARI) # / ACCOUNTANT MEMBER '# / CHENNAI $% / DATED: 04 TH SEPTEMBER, 2017. K S SUNDARAM %&'' ()'*) / COPY TO: ' 1 . / APPELLANT 3. ' +',! / CIT(A) 5. )-.' / / DR 2. / RESPONDENT 4. ' + / CIT 6. .0'1 / GF