The ACIT,(OSD)Circle-8, Ahmedabad V. Sidmak Laboratories(India) Pvt.Ltd., Ahmedabad

ITA 2780/AHD/2010

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 72854 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 3 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-01-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 27-11-2013
• Assessment Year: 2007-2008
• Appeal Filed On: 01-10-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R K DHANISTA SR D R
• Assessee Lawyers: M K PATEL
• Keywords: Depreciation; Revenue expenditure; Capital expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD C BENCH AHMEDABAD , , , , BEFORE SHRI MUKUL KR. SHRAWAT , JUDICIAL MEMBER AND , SHRI T.R. MEENA, ACCOUNTANT MEMBER .. , ! ! ! ! ITA NO. 2780/AHD/2010 ASSESSMENT YEAR : 2007-08 ACIT(OSD), CIRCLE-8, AHMEDABAD V/S . SIDMARK LABORATORIES (INDIA) LTD. B-6, DHARMAYUG, 2 ND FLOOR, NR. ATLANTA TOWER, PANCHWATI, GULBAI TEKRA, AHMADABAD. PAN NO . AA D C S9914R (APPELLANT) .. (RESPONDENT) '# $ % /BY APPELLANT SHRI R. K. DHANISTA, SR. D.R. &''# $ % /BY RESPONDENT SHRI M. K. PATEL, A.R. () $ /DATE OF HEARING 27.11.2013 *+, $ /DATE OF PRONOUNCEMENT 10.01.2014 O R D E R PER : SHRI MUKUL KR. SHRAWAT, JUDICIAL MEMBER THIS IS AN APPEAL FILED BY THE REVENUE ARISING FRO M THE ORDER OF CIT(A)- IX, AHMADABAD, DATED 05.07.2010. THE GROUNDS RAISE D BY THE REVENUE ARE HEREBY DECIDED AS FOLLOWS: 2. GROUND NO.1 1). THE LD. COMMISSIONER OF INCOME-TAX(A)-XIV, AHM EDABAD HAS ERRED IN LAW AND ON FACTS IN DELETING THE DISALLOWANCES O F RS.2,33,483/- & RS.31,783/- MADE BY THE ASSESSING OFFICER ON ACCOUN T OF REPAIRS AND MAINTENANCE OF MACHINERIES AND BUILDING RESPECT IVELY. 2(I). THE FACTS IN BRIEF AS EMERGED FROM THE CORRES PONDING ASSESSMENT ORDER PASSED U/S.143(3) DATED 16.12.2009 WERE THAT THE AS SESSEE COMPANY IS IN THE BUSINESS OF MANUFACTURING OF PHARMACEUTICAL FORMULA TIONS AND FOOD/DIETARY ITA NO. 2780/AHD/2010, A.Y. 07-08 PAGE 2 SUPPLEMENTS. IT WAS NOTED BY THE A.O. THAT THE ASS ESSEE HAD CLAIMED REPAIRS AND MAINTENANCE OF MACHINERY EXPENDITURE TO THE TUN E OF RS.2,67,329/-; WHICH WAS STATED TO BE INCURRED TOWARDS THE REPLACEMENT O F THE PARTS OF THE MACHINERY. AFTER CONSIDERING THE CONTENTIONS OF TH E ASSESSEE THE A.O. HAD OBSERVED THAT SOME OF THE EXPENDITURES WERE IN THE NATURE OF ENDURING BENEFIT. HENCE, OUT OF TOTAL EXPENDITURE, AN AMOUNT OF RS.9, 97,352/- WAS CONSIDERED AS CURRENT REPAIRS AND REST WAS HELD AS CAPITAL EXPENDITURE. FURTHER, THE ASSESSEE HAD INCURRED THE EXPENDITURE OF RS.4,42,4 45/- TOWARDS BUILDING REPAIRS. BUT THE A.O. HAD FOLLOWED THE ORDER OF TH E SUPREME COURT AND WORKED OUT DISALLOWANCE AT RS.2,65,266/- AGAINST TH IS ADDITION. 2(II). THE MATTER WAS CARRIED BEFORE THE FIRST APPE LLATE AUTHORITY, WHEREIN IT WAS INFORMED THAT THE SIMILAR ISSUE HAD ARISEN IN T HE ASSESSEES OWN CASE FOR A.Y. 02-03 & 03-04, WHERE CIT(A) HAD DELETED THESE DISALLOWANCES. IN THOSE YEARS AS WELL, THE MATTER WAS CARRIED BEFORE THE RE SPECTED ITAT AND VIDE A COMBINED ORDER DATED 27.02.2009, RELIEF GRANTED BY THE LD. CIT(A) WAS UPHELD. AFTER CONSIDERING THESE FACTS, THE LD. CIT(A) HAS D ELETED THOSE ADDITIONS IN THE FOLLOWING MANNER: 2.3 I HAVE CONSIDERED THE FACTS OF THE CASE AND TH E SUBMISSIONS OF THE APPELLANT. I AM INCLINED TO ACCEPT THE CONTENTIONS OF THE APPELLANT BASED ON EVIDENCES THAT REPAIR AND MAINTENANCE EXPENDITUR E INCURRED BY APPELLANT IN THE FORM OF REPLACING SPARE PARTS OF M ACHINERIES AND PAINTING. OF EXISTING BUILDING IS IN THE NATURE OF CURRENT RE PAIR AND MAINTENANCE AND HENCE ALLOWABLE AS REVENUE EXPENDITURE. THE A.O. HA S NOT BROUGHT OUT SPECIFICALLY THAT REPLACEMENT OF SPARE PARTS TO THE MACHINERIES HAS INCREASED ANY CAPACITY THEREBY GIVING ENDURING ADVA NTAGE. SIMILARLY, THE PAINTING OF EXISTING BUILDING CANNOT BE TREATED AS RENOVATION. LT. CIT (A) & HON'BLE ITAT IN APPELLANT'S OWN CASE HAS ALLOWED SU CH EXPENDITURE IN ITA NO. 2780/AHD/2010, A.Y. 07-08 PAGE 3 EARLIER YEARS. RESPECTFULLY FOLLOWING THOSE ORDERS AND REASONS AS DISCUSSED ABOVE, THE ADDITION SO MADE BY A.O. IS NO T JUSTIFIED AND NOT TENABLE IN THE EYES OF LAW. THE A.O. IS DIRECTED TO DELETE THE ADDITION SO MADE. THE APPELLANT GETS RELIEF OF RS . 2,65,266/-. 2(III). HEARD BOTH THE SIDES. NOW BEFORE US, THE A FOREMENTIONED ORDER OF THE RESPECTED CO-ORDINATE BENCH C, AHMEDABAD, HAS BEE N FURNISHED WHEREIN IN ITA NOS. 2222 & 2223/AHD/2006 FOR A.Y. 02-03 & 03-0 4 VIDE ORDER DATED 27.02.2009, IT WAS CONCLUDED AS UNDER: 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDER OF THE LOWER AUTHORITIES AND THE MATERIAL AVAILABLE ON REC ORD. IN THE INSTANT CASE THE ASSESSEE HAS DEBITED RS.29,25,615/- UNDER THE H EAD REPAIRS MACHINERY. THE A.O., AFTER GOING THROUGH THE DETAI LS OF EXPENSES INCURRED UNDER THIS HEAD OBSERVED THAT EXPENSES TO THE EXTEN T OF RS.10,39,733/- FOR REPLACEMENT OF PARTS OF MACHINERY. THE A.O. WAS OF THE VIEW THAT BECAUSE OF THESE EXPENDITURE THE LIFE OF THE MACHIN E WAS INCREASED AND, THEREFORE TREATED THE SAME AS CAPITAL EXPENDITURE A ND ALLOWED DEPRECIATION THEREON 25% AND THEREBY MADE ADDITION OF RS.7,79,800/-. ON APPEAL, THE LD. CIT(A) DELETED THE ABOVE ADDITIO N BY HOLDING THAT THE EXPENSES OF RS.10,39,733/- WAS REVENUE IN NATURE. THE LD. D.R. SUPPORTED THE ORDER OF THE ASSESSING OFFICER. WE F IND THAT IN THE INSTANT CASE, THE GENUINENESS OF EXPENDITURE IS NOT IN DOUB T. THE ONLY ISSUE WHICH REQUIRES ADJUDICATION BY US IS THAT THE EXPEN DITURE INCURRED FOR REPLACEMENT OF PARTS OF MACHINERY IS REVENUE EXPEND ITURE OR CAPITAL EXPENDITURE. IT IS OBSERVED THAT IT IS NOT IN DISP UTE THAT THE SPARE PARTS PURCHASED FOR EXISTING MACHINERY HAS NOT INCREASED THE CAPACITY OF THE MACHINERY. THUS, NO NEW ASSET WAS ACQUIRED BY THE ASSESSEE BY VIRTUE OF THESE EXPENDITURE IN QUESTION. FURTHER, THE ASSESS MENT YEAR UNDER APPEAL IS A.Y. 2002-03, WHICH IS PRIOR TO A.Y. 2004 -05 FROM WHICH PROVISIONS OF SECTION 31 HAS UNDERGONE AN AMENDMENT . IN THE CIRCUMSTANCES, IN OUR CONSIDERED OPINION, THE LD. C IT(A) WAS JUSTIFIED IN CONCLUDING THAT THE EXPENDITURE IN QUESTION ARE REV ENUE IN NATURE. WE, THEREFORE, DO NOT FIND ANY MERIT IN THIS GROUND OF APPEAL WHICH IS DISMISSED. ITA NO. 2780/AHD/2010, A.Y. 07-08 PAGE 4 RESPECTFULLY FOLLOWING THE ABOVE DECISION OF THE CO -ORDINATE BENCH, WE HEREBY AFFIRM THE DELETION. RESULTANTLY, THIS GROU ND OF APPEAL IS HEREBY DISMISSED. 3. GROUND NOS. 2, 3 & 4 2). THE ID. COMMISSIONER OF INCOME-TAX(A)-XIV, AHM EDABAD HAS ERRED IN LAW AND ON FACTS IN DELETING THE DISALLOWANCE OF RS.1,08,329/- MADE BY THE ASSESSING OFFICER ON ACCOUNT OF POSTAGE AND TELEGRAM EXPENSES. 3). THE ID. COMMISSIONER OF INCOME-TAX(A)-XIV, AHME DABAD HAS ERRED IN LAW AND ON FACTS IN DELETING THE DISALLOWANCE OF RS.2,75,190/- MADE BY THE ASSESSING OFFICER ON ACCOUNT OF ADVERTI SEMENT AND SALES PROMOTION EXPENSES. 4). THE ID. COMMISSIONER OF INCOME-TAX(A)-XIV, AHM EDABAD HAS ERRED IN LAW AND ON FACTS IN DELETING THE DISALLOWANCE OF RS.3,90,000/- MADE BY THE ASSESSING OFFICER ON ACCOUNT OF TRAVELI NG AND CONVEYANCE EXPENSES. 3(I). THE A.O. HAD MADE A PROPORTIONATE DISALLOWANC E ON THE GROUND OF PERSONAL USAGES BUT WHEN THE MATTER WAS CARRIED BEF ORE THE CIT(A), IT WAS INFORMED THAT IN THE PAST THE TRIBUNAL VIDE AN ORD ER DATED 27.02.2009 HAD DELETED THE ADDITION. CONSIDERING THOSE FACTS, LD. CIT(A) HAS DELETED THE ADDITION IN THE FOLLOWING MANNER: 3.3 I HAVE CONSIDERED THE FACTS OF THE CASE AND TH E SUBMISSIONS OF THE APPELLANT. I AM INCLINED TO ACCEPT THE CONTENTIONS OF THE APPELLANT. MERELY THE FACT THAT TELEPHONES .ARE AT THE RESIDENCE OR I N THE NAME OF APPELLANT CANNOT BE HELD AS BEING NOT USED WHOLLY AND EXCLUSI VELY FOR PURPOSE OF BUSINESS. IN CORPORATE ENTITY, SUCH DISALLOWANCES A RE NOT TENABLE IN THE EYES OF LAW. FURTHER, THE PERSONAL USE AND ITS SUBS EQUENT INCLUSION IN PERQUISITE IS DULY COVERED IN THE FRINGE BENEFIT TA X (FBT) AND HENCE SUCH ADDITION IS NOT JUSTIFIED. LD. CIT(A) AND HON'BLE I TAT IN EARLIER YEAR IN THE APPELLANT'S CASE HELD SO. THEREFORE, RESPECTFULLY F OLLOWING SUCH ORDER AND ITA NO. 2780/AHD/2010, A.Y. 07-08 PAGE 5 REASONS AS DISCUSSED, THE A.O. IS DIRECTED TO DELET E THE ADDITION. THE APPELLANT GETS RELIEF OF RS. 1,08,329/-. ---------------------- 4.3 I HAVE CONSIDERED THE FACTS OF THE CASE AND THE SUBMISSIONS OF THE APPELLANT. I AM INCLINED TO ACCEPT THE EARLIER OR DERS OF HON'BLE ITAT AND ID. CIT(A), WHERE THE EXPENSES INCURRED ON SUCH ITE M ARE TREATED AS BUSINESS PROMOTION AND ENTERTAINMENT EXPENDITURE. LOOKING TO THE NATURE OF BUSINESS OF THE APPELLANT AND TOTAL TURNO VER, SUCH EXPENDITURE CAN EASILY BE CONSIDERED UNDER SUCH HEAD. THE A.O. HAS NOT BROUGHT OUT ANY DISTINGUISHING FEATURE ABOUT SUCH EXPENDITURE T HAN THAT OF EARLIER YEARS. THE A.O. IS, THEREFORE, DIRECTED TO DELETE S UCH EXPENDITURE. THE APPELLANT GETS RELIEF OF RS. 2,75,190/- ----------------------- 5.3 I HAVE CONSIDERED THE FACTS OF THE CASE AND THE SUBMISSIONS OF THE APPELLANT. I AM INCLINED TO ACCEPT THE CONTENTIONS OF THE APPELLANT BASED ON FACTS AND LEGAL SUBMISSIONS. LD. CIT (A) IN APPE LLANT'S OWN CASE IN A.Y. 2005-06, HAS CONSIDERED THIS ASPECT AND ALLOWED THE EXPENDITURE. IN THE ABSENCE OF ANY SPECIFIC ABNORMALITY OR IRREGULARITY , THE A.O. IS NOT JUSTIFIED IN DISALLOWING SUCH EXPENDITURE. RESPECTFULLY FOLLO WING RATIO OF SUCH EARLIER ORDER, THE A.O. IS DIRECTED TO DELETE SUCH ADDITION . THE APPELLANT GETS RELIEF OF RS. 3,90,000/-. 3(II). HAVING HEARD THE SUBMISSIONS OF BOTH THE SID ES, WE ARE ALSO OF THE VIEW THAT IN THE ABSENCE OF ANY SPECIFIC INSTANCE OF PER SONAL USAGE; MERELY ON THE BASIS OF ASSUMPTION A PROPORTIONATE DISALLOWANCE SH OULD NOT HAVE BEEN MADE BY THE A.O. IN THE CASE OF THIS ASSESSEE. WE, THER EFORE, RESPECTFULLY FOLLOW THE PAST HISTORY OF THE CASE AS WELL AS THE ORDER OF TH E TRIBUNAL DATED 27.02.2009 AND AFFIRM THE DELETION. THESE GROUNDS OF REVENUE ARE HEREBY DISMISSED. 4. GROUND NO.5 5). THE ID. COMMISSIONER OF INCOME-TAX(A)-XIV, AHMEDABAD HAS ERRED IN LAW AND ON FACTS IN DELETING THE DISALLOWANCE OU T OF LEGAL & PROFESSIONAL CHARGES OF RS.67,344/- MADE BY THE ASSESSING OFFICE R. ITA NO. 2780/AHD/2010, A.Y. 07-08 PAGE 6 4(I). AS PER P&L ACCOUNT, A SUM OF RS.10,01,656/- W AS DEBITED UNDER THE HEAD LEGAL AND PROFESSIONAL CHARGES. ON VERIFICA TION, IT WAS NOTED BY THE A.O. THAT THE EXPENDITURE OF RS.3,36,720/- WAS INCU RRED FOR PAYMENT OF PROFESSIONAL FEES RECEIVED AS FINANCIAL ADVICE. THE ASSESSEE WAS ASKED TO PRODUCE THE COPY OF THE CONTRACT. AS PER THE CONTR ACT DATED 28 TH AUGUST, 2006 M/S. ASK-RAYMOND JAMES, WAS ENGAGED FOR ADVISORY SE RVICES AS LISTED THEREIN. ON PERUSAL OF THE SAID CONTRACT, THE A.O. HAD NOTICED THAT THE AMOUNT OF EXPENDITURE WAS INCURRED FOR INCREASE OF EQUITY THROUGH NEW INVESTORS. THE A.O. WAS OF THE OPINION THAT THE PAYMENT TO THE SAI D ADVISOR WAS CAPITAL IN NATURE. THE A.O. HAD THEREFORE CONSIDERED 20% OF T HE SAID AMOUNT AS CAPITAL EXPENDITURE AND DISALLOWED THE SAME. 4(II). WHEN THE MATTER WAS CARRIED BEFORE THE LD. C IT(A), IT WAS HELD AS UNDER: 6.3 I HAVE CONSIDERED THE FACTS OF THE CASE AND TH E SUBMISSIONS OF THE APPELLANT. I AM INCLINED TO ACCEPT THE CONTENTIONS OF THE APPELLANT. BOTH ON FACTS AND RATIO OF LEGAL PROPOSITION RELIED ON B Y APPELLANT, THE EXPENDITURE SO INCURRED IS HELD TO BE REVENUE IN NA TURE. THE A.O. HAS MADE DISALLOWANCE OF 20% OF SUCH EXPENDITURE WHICH IS IN THE NATURE OF ADHOC DISALLOWANCE AND NOT TENABLE IN THE EYES OF L AW. EVEN OTHERWISE, IF EXPENDITURE OF PRELIMINARY NATURE ARE CONCERNED, TH EN ENTIRE EXPENDITURE HAS TO BE DISALLOWED ANY ONLY 20% OF THAT IS ALLOWA BLE AS PER SEC. 35D OF THE ACT. BUT, THE A.O. HAS NOT INVOKED PROVISIONS OF SEC. 35D OF THE ACT, BUT DISALLOWED EXPENDITURE ON ASSUMPTIONS. THEREFO RE, SUCH ADDITIONS ARE NOT SUSTAINABLE. THE A.O. IS DIRECTED TO DELETE SU CH EXPENDITURE. THE APPELLANT GETS RELIEF OF RS.67,344/-. 4(III). HAVING HEARD THE SUBMISSIONS OF BOTH SIDES, WE ARE OF THE VIEW THAT IN THE CASE OF CROMPTON ENGINEERING CO. LTD., 242 ITR 317 (MAD.), IT WAS HELD THAT THE PAYMENT MADE TO OBTAIN THE REPORT OF A CON SULTANT FOR IMPROVING THE EFFICIENCY OF THE BUSINESS IS ALLOWABLE AS A REVENU E EXPENDITURE, LIKEWISE, IN ITA NO. 2780/AHD/2010, A.Y. 07-08 PAGE 7 THE CASE OF COROMANDAL FERTILIZERS, 105 TAXMANN 490 (AP) , IT WAS HELD THAT A PAYMENT MADE TO CONSULTANCY FIRM FOR MAKING FEASIBI LITY STUDY WOULD BE ALLOWABLE AS REVENUE EXPENDITURE. WE ARE OF THE OP INION THAT IN THE PRESENT CASE, THE IMPUGNED FINANCIAL ADVICE WAS NOT PRIMARI LY FOR INCREASE IN THE EQUITY THROUGH NEW INVESTOR BECAUSE THE ASSESSEE CA TEGORICALLY INFORMED THE A.O. THAT THERE WAS NO CHANGE IN THE EQUITY SHARE H OLDING OF THE COMPANY DURING THE YEAR UNDER CONSIDERATION. BECAUSE OF TH ESE REASONS, WE HEREBY AFFIRM THE VIEW TAKEN BY THE LD. CIT(A) AND DISMISS THIS GROUND OF THE REVENUE, AS WELL. 5. REST OF THE GROUNDS OF THE REVENUE ARE GENERAL I N NATURE, HENCE DISMISSED. 6. IN THE RESULT, THE APPEAL OF THE REVENUE IS HERE BY DISMISSED. THIS ORDER PRONOUNCED IN OPEN COURT ON 10/01/2014 SD/- SD/- (T.R. MEENA) ( MUKUL KR. SHRAWAT) ACCOUNTANT MEMBER JUDICIAL MEMBER TRUE COPY S.K.SINHA - - - - $ $$ $ &. &. &. &. /., /., /., /., / COPY OF ORDER FORWARDED TO:- 1. '# / APPELLANT 2. &''# / RESPONDENT 3. 33 4 / CONCERNED CIT 4. 4- / CIT (A) 5. .89 &( , , / DR, ITAT, AHMEDABAD 6. 9;< => / GUARD FILE. BY ORDER/ - , ?/ 3A , !