DCIT 3(3)(1), MUMBAI V. RALLIS INDIA LTD, MUMBAI

ITA 3044/MUM/2017

• Counselvise Citation: [2018] 112 COUNSELVISE.COM (IT) 4710 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 7 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-11-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Assessment Year: 2012-2013
• Appeal Filed On: 27-04-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: CHAITANYA ANJARIA
• Assessee Lawyers: HORMUZT JAMSHETJI
• Keywords: Business expenditure; Revenue expenditure; Capital expenditure
• Section: 143(3); 37(1); 201

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, MUMBAI BEFORE S/ SHRI MAHAVIR SINGH ( J M) & RAJESH KUMAR ( A M) I.T.A. NO. 3044 /MUM/20 1 7 (ASSESSMENT YEAR 20 12 - 13 ) DCIT - 3(3)(1) ROOM NO. 609 6 TH FLOOR AAYAKAR BHAVAN M.K. ROAD MUMBAI - 400 020. VS. M/S. RAL LIS INDIA LTD. 156/157, NARIMAN BHAVAN, NARIMAN POINT MUMBAI - 400 021. PAN : AABCR2657N ( APPELLANT ) ( RESPONDENT ) ASSESSEE BY SHRI M.M. GOLVALA & SHRI HORMUZT JAMSHETJI DEPARTMENT BY SHRI CHAITANYA ANJARIA DATE OF HEARING 1 5 . 11 . 201 8 DATE OF P RONOUNCEMENT 30 . 11 . 201 8 O R D E R PER MAHAVIR SINGH ( J M) : - THIS APPEAL OF THE REVENUE IS EMANATING FROM THE ORDER OF THE LEARNED CIT(A) - 8, MUMBAI IN APPEAL NO. CIT(A) - 8/IT - 586/15 - 16 ORDER DATED 12.1.2017. ASSESSMENT WAS FRAMED BY DCIT, CIRCLE 3( 3)(1), MUMBAI FOR THE A.Y. 2012 - 13 U/S. 143(3) OF THE I.T. ACT, 1961 (HEREIN AFTER REFERRED TO AS ACT) VIDE HIS ORDER DATED 23.2.2016. 2. FIRST ISSUE IN THIS APPEAL OF THE REVENUE IS AGAINST THE ORDER OF THE LEARNED CIT(A) DELETING THE ADDITION MADE BY THE ASSESSING OFFICER HOLDING THAT EXPENDITURE ON ACCOUNT OF IMPLEMENTING PROJECT EAGLE AS REVENUE EXPENDITURE. FOR THIS REVENUE HAS RAISED FOLLOWING GROUND NO. 1: - '1. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD.CLT(A) HAS ERR ED IN DIRECTING THE ASSESSING OFFICER TO TREAT THE EXPENDITURE OF RS.7 R OO,000/ - ON ACCOUNT OF IMPLEMENTING 'PROJECT EAGLE' AS REVENUE EXPENDITURE WITHOUT APPRECIATING THE FACT THAT IMPLEMENTATION OF THE SAID PROJECT HAS ENDURING BENEFIT TO THE ASSESSEE AND DESERVES TO BE TREATED AS CAPITAL EXPENDITURE. 2 3. AT THE OUTSET, LEARNED COUNSEL FOR THE ASSESSEE FILED COPY OF THE TRIBUNAL ORDER IN ASSESSEES OWN CASE IN ITA NO. 4316/MUM/2014 FOR A.Y. 2010 - 11, WHEREIN THE TRIBUNAL VIDE ORDER DATED 8.11.2017 HAS NOT A DJUDICATED THIS GROUND BUT FINALLY VIDE MISCELLANEOUS APPLICATION ORDER NO. 170/MUM/2018 ARISING OUT OF ITA NO. 4316/MUM/2014 FOR A.Y. 2010 - 11 VIDE ORDER DATED 23.8.2018 ALLOWED EXACTLY THE SAME ISSUE VIDE PARA NO. 8 AS UNDER : - 8. AFTER HEARING BOTH THE P ARTIES AND PERUSING THE MATERIAL ON RECORD, WE OBSERVE THAT THE OBJECT OF THE PROJECT 'EAGLE' WAS IDENTICAL TO ONE PROJECT 'DISHA' AND THE EXPENDITURES WERE INCURRED BY WAY OF LEGAL AND PROFESSIONAL FEE PAID TO ACCENTURE AND CONSULTANCY A LEADING FIRM IN T HAT FIELD. THE PURPOSE OF THE PROJECT WAS TO ACHIEVE EXCELLENCE IN THE PROMOTION OF THE COMPANY ON A TRANSFORMABLE BASIS SO THAT THE COMPANY BECOMES LEADER IN THE FORMULATION BUSINESS. THE LD. CIT(A) HAS PASSED A VERY REASONED ORDER TREATING THE SAME AS RE VENUE IN NATURE AND WE THEREFORE DO NOT FIND ANY REASON TO DEVIATE FROM THE FINDINGS OF LD. CIT(A).MOREOVER GROUND IS IDENTICAL TO GROUND NO 3 AS DECIDED BY US TREATING THE EXPENSES AS REVENUE. ACCORDINGLY, WE UPHOLD THE ORDER OF THE LEARNED CIT(A) ON THIS ISSUE BY DISMISSING THE GROUND NO. 4 OF THE REVENUE. 4. WHEN A QUERY WAS PUT TO SENIOR DR, HE FAIRLY AGREED THAT THE ISSUE IS COVERED BY THE TRIBUNAL DECISION IN ASSESSEES OWN CASE FOR A.Y. 2010 - 11. ONE MORE POINT WAS CLARIFIED BY LEARNED COUNSEL FOR THE ASSESSEE EVEN FOR A.Y. 2011 - 12, NO SUCH DISALLOWANCE WAS MADE BY THE ASSESSING OFFICER. 5. WE HAVE GONE THROUGH THE FACTS OF PRESENT YEAR AND FIND THAT THE FACTS ARE EXACTLY IDENTICAL IN REGARD OF IMPLEMENTATION OF PROJECT EAGLE AND EXPENSES ON THIS WAS TREATED BY THE ASSESSING OFFICER AND THE LEARNED CIT(A) AS CAPITAL IN NATURE. BUT THE TRIBUNAL IN A.Y. 2010 - 11 HAS TREATED AS REVENUE IN NATURE. RESPECTFULLY FOLLOWING THE TRIBUNAL DECISION, WE ARE OF THE VIEW THAT THE LEARNED CIT(A) HAS RIGHTLY DELET ED THE ADDITION AND WE CONFIRM THE SAME. ON THIS ISSUE OF REVENUE APPEAL IS DISMISSED. 6. NEXT ISSUE IN THIS APPEAL OF THE REVENUE IS AGAINST THE ORDER OF THE LEARNED CIT(A) DELETING THE DISALLOWANCE OF LEGAL AND PROFESSIONAL FEES PAID TO 3 SHRI AJIT GUJRAL AMOUNTING TO ` 64,33,162/ - . FOR THIS THE REVENUE HAS RAISED FOLLOWING GROUND NO. 2 AS UNDER : - 2. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD.CLT(A) HAS ERRED IN DELETING THE DISALLOWANCE OF RS.64,33,162/ - ON ACCOUNT OF LEGAL & PROFESSIONAL FEES PAID TO SHRI AJIT GUJRAL WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE IN ITS OWN SUBMISSIONS DURING THE ASSESSMENT PROCEEDINGS, HAD SUBMITTED THAT THE AMOUNT HAS BEEN PAID TO MR. AJIT GUJRAL AS ADVISOR FOR DEVELOPING NEW OPPORTUNITIE S IN THE AGRIBUSINESS SPACE TO PROVIDE ENDURING BENEFIT TO THE ASSESSEE COMPANY AND THEREFORE, THE EXPENSE DESERVES TO BE TREATED AS CAPITAL EXPENDITURE. 7. BRIEFLY STATED FACTS ARE THAT THE ASSESSING OFFICER HAS MADE DISALLOWANCE OF EXPENDITURE CLAIMED B Y THE ASSESSEE ON ACCOUNT OF LEGAL AND PROFESSIONAL FEES PAID TO SHRI AJIT GUJRAL ON THE GROUND THAT THE ASSESSEE HAS RECEIVED ENDURING BENEFIT BY INCURRING TH ESE EXPENSES. THE LEARNED CIT(A) AFTER CONSIDERING SUBMISSIONS OF THE ASSESSEE ALLOWED CLAIM OF T HE ASSESSEE BY OBSERVING IN PARA 5.5 AS UNDER : - 5.5 GROUND NO. 11 5.5.1 THIS GROUND RELATES TO DISALLOWANCE OF RS. 64,33,162/ - PAID AS LEGAL AND PROFESSIONAL FEE TO AJIT GUJRAL BY TREATING IT AS CAPITAL IN NATURE. THE ASSESSING OFFICER HAS DISCUSSED THIS UNDER PARA 7.3 AND 7.4 OF HIS ORDER. HE OB SERVED, 'AS PER SUBMISSION OF THE ASSESSEE, THIS AMOUNT HAS BEEN PAID MR AJIT GUJRAL AS ADVISER FOR DEVELOPING NEW OPPORTUNITIES IN THE AGRIBUSINESS TO PROVIDE ENDURING BENEFIT THE ASSESSES COMPANY.' HOLDING THE S ERVICES PROVIDED AS 'ENDURING NATURE' THE ASSESSING OFFICER HAS DISALLOWED THE AMOUNT U/S. 37(1) OF THE ACT. 5.5.2 IT IS NOTED THAT IN THE COURSE OF ASSESSMENT PROCEEDINGS, THE APPELLANT HAD FILED COPIES OF APPOINTMENT LETTER OF SHRI AJIT GUJRAL AS ADVISE R AGRIBUSINESS AND NOTARISED ENGAGEMENT AGREEMENT BETWEEN THE TWO PARTIES. PERUSAL OF THE APPOINTMENT LETTER REVEALS THAT SHRI GUJRAL WAS APPOINTED TO OFFER ADVISORY ON THE COMPANIES STRATEGIC INTENT AND TO DEVELOP NEW BUSINESS OPPORTUNITY AND RELATED CONS ULTANCY WORK. THE ENGAGEMENT AGREEMENT ALSO REVEALS THAT THE APPELLANT'S 'DESIROUS OF ENGAGING THE SERVICES OF A COMPETENT ADVISER FOR RENDERING ADVISORY SERVICES TO DESIGN AND EXECUTE THESE BUSINESS PLANS OF RALLIS.' 5.2.3 A BASIC READING OF THE ABOVE DO CUMENTS INDICATE THAT SHRI GUJRAL WAS HIRED AS A BUSINESS CONSULTANT TO HELP FORMULATE STRATEGIES FOR 'BUSINESS I EXPANSION. BUSINESS ENTERPRISES ROUTINELY HIRE SUCH EXPERTS 4 AND CONSULTANTS TO IMPROVE EFFICIENCY, PROFITS, EXPAND CONSUMER BASE, REDUCE COSTS ETC. WHILE SUCH EXPERTS CONTRIBUTE TOWARDS THE GROWTH AND DEVELOPMENT OF CLIENT'S BUSINESS, IN NO MANNER CAN THE SERVICES PROVIDED BY THEM BE CONSIDERED AS RESULTING IN 'ENDURING BENEFIT'. AT TIMES, BUSINESS STRATEGIES MAY FAIL OR THE ADVISORY RECEIVED MA Y NOT RESULT IN ANY BENEFITS OR MAY EVEN PROVE TO BE HAVING ADVERSE IMPACT ON. ONLY TIME REVEALS THE BENEFIT OR OTHERWISE OF SUCH ADVISORIES AND EVEN THEN, THE IMPACT MAY BE FOR LIMITED DURATION SINCE MARKETS ARE DYNAMIC AND ARE INFLUENCED BY SEVERAL OTHER UNPREDICTABLE PARAMETERS SUCH AS COMPETITION, OVERALL ECONOMIC ENVIRONMENT ETC. 5.2.4 IN THE FACTS AND CIRCUMSTANCES OF THE CASE I FIND NO JUSTIFICATION IN THE CONCLUSION OF THE ASSESSING OFFICER THAT THE NATURE OF SERVICES OBTAINED BY THE APPELLANT CAN BE ASCERTAINED AS HAVING 'ENDURING BENEFITS'. THEREFORE, THE DISALLOWANCE OF RS. 64,33,162/ - IS DELETED. THIS GROUND OF APPEAL IS ALLOWED. 8. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL. 9. WE HEARD RIVAL CONTENTIONS AND GONE THROUGH FACTS A ND CIR C UMSTAN C ES OF THE CASE. WE FIND FROM THE FACT OF THE CASE THAT THE ASSESSEE - COMPANY FOSTERS CORDIAL RELATIONS WITH ITS CUSTOMERS I.E. FARMERS AND TO IDENTIFY NEW OPPORTUNITY IN THE AGRO - CHEMICAL SPACE, IT HIRED A CONSULTANT SHRI AJIT GUJRAL. SHRI AJI T GUJRAL WAS GIVEN JOB TO DEVISE STRATEGIES TO TAKE THE AGRIBUSINESS FORWARD. IN THIS DIRECTION SHRI AJIT GUJRAL CARRIED OUT RESEARCH ON ACCOUNT OF AGRO SERVICES, WHICH ARE INTEGRAL PART OF ASSESSEES BUSINESS AND ALSO AIDS IN DEVELOPING SYNERGISTIC COMPET ENCIES ALONG WITH ITS PESTICIDES BUSINESS. AS PER ANNUAL REPORT, SHARE OF REVENUE FROM NON - PESTICIDES BUSINESS WAS ONLY 10% OF THE TOTAL REVENUE AND BY CONNECTING AS ASPIRING INCREASE THE REVENUE THERE F ROM, THE COMPANY POSITION TO MARKET ITS PESTICIDES AN D SEED PRODUCTS AND ALSO TO IDENTIFY CUSTOMERS DEMAND/NEED AND TO IDENTIFY NEW OPPORTUNITY, IT HAS HIRED THE SERVICES OF SHRI AJIT GUJRAL. THE ASSESSING OFFICER NOT DOUBTED THE GENUINENESS OF THE PAYMENT OR NEED FOR PAYMENT FOR THIS BUSINESS EXPENSES . THE ASSESSING OFFICER ONLY HELD THAT THIS EXPENDITURE I.E. PROFESSIONAL FEE PAID TO SHRI AJIT GUJRAL WILL GIVE ENDURING BENEFIT TO THE ASSESSEE AND HENCE THIS IS CAPITAL IN NATURE. WE FIND THAT THE ASSESSEES AGRO CHEMICAL AND PESTICIDE BUSINESS WAS ALREADY D OING VERY GOOD AND ON SIDE BY SIDE THEY ALSO WANTED TO IDENTIFY NEW OPPORTUNITY IN THE AGRO CHEMICAL SPACE. 5 WE FIND THAT THERE IS INTERCONNECTION, INTER L AC ING AND INTER DEPENDENCY AND MOREOVER FUNDS ARE ALSO INTERCONNECTED AS AGAINST ALL UNITS AND THIS I S NOT NEW BUSINESS. HENCE, WE ARE OF THE VIEW THAT THE ASSESSEES PREDOMINANT BUSINESS OF PESTICIDE AND AGROCHEMICAL SPACE IS ONE AND THE SAME AND HENCE PROFESSIONAL FEES PAID TO ONE ADVISER FOR DEVELOPING NEW OPPORTUNITY IN AGRO BUSINESS SPACE IS NEITHER IN THE NATURE OF ENDURING BENEFIT NOR IN CAPITAL IN NATURE . THIS VIEW OF OURS IS SUPPORTED BY THE DECISION OF HON'BLE P&H HIGH COURT IN THE CASE OF CIT VS. MAX INDIA LTD. (74 TAXMANN.COM 263). EVEN ON P&H HIGH COURT IN THE CASE OF CIT VS. JCT ELECTRONICS L TD. (188 TAXMAN 191) ALSO CONSIDERED IDENTICAL ISSUE AND HELD THAT WORD CAPITAL CO NNOTES PERMANENCY AND CAPITAL EXPENDITURE IS THEREFORE CLOSELY AKIN TO THE CONCEPT OF SECURING SOMETHING TANGIBLE OR INTANGIBLE PROPERTY, CORPOREAL OR INCORPOREAL RIGHT SO THAT THEY COULD BE OF A LASTING OR ENDURING BENEFIT TO THE ENTERPRISE IN ISSUE. THE REVENUE NATURE EXPENDITURE, ON THE OTHER HAND, IS OPERATIONAL IN ITS PERSPECTIVE AND SOLELY INTENDED FOR THE FURTHERANCE OF THE ENTERPRISES. IN OUR VIEW PROFESSIONAL FEES P AID BY THE ASSESSEE TO ONE OF ITS ADVISER IS FOR FURTHERANCE OF BUSINESS OF THE ENTERPRISE AND HENCE REVENUE IN NATURE. WE FIND NO INFIRMITY IN THE ORDER OF THE LEARNED CIT(A) AND HENCE THE SAME IS UPHELD. 10. IN THE RESULT, APPEAL FILED BY THE REVENUE IS DISMISSED. ORDER HAS BE E N PRONOUNCED IN THE COURT ON 30 . 11 .201 8 . SD/ - SD/ - (RAJESH KUMAR ) (MAHAVIR SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI ; DATE D : 30 / 11 / 20 1 8 6 COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. BY ORDER, //TRUE COPY// ( SENIOR PRIVATE SECRETARY ) PS ITAT, MUMBAI