The ACIT,Vapi Circle, Vapi V. Omnibus Industrial Development Corporation of Daman & Diu & DNH Ltd., Nani Daman

ITA 3128/AHD/2010

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 80255 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 8 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-08-2014
• Appeal Filed By: Department
• Bench Allotted: D
• Next Hearing Date: 05-08-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 26-11-2010
• Court: TRIBUNAL
• Department Lawyers: ROOP CHAND
• Assessee Lawyers: PF JAIN
• Keywords: Revenue expenditure
• Section: 143(3); 37(1)

Judgement Text

, , , , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, AHMEDABAD , , , , 0 00 0 0 00 0 ' ' ' ' , , , , #$ #$ #$ #$ # % # % # % # % BEFORE SHRI MUKUL KR. SHRAWAT, JUDICIAL MEMBER AND SHRI N.S. SAINI, ACCOUNTANT MEMBER ITA NO. 3128/AHD/2010 (ASSESSMENT YEAR 2007-08) ASSISTANT COMMISSIONER OF INCOME TAX, VAPI CIRCLE, VAPI. VS OMNIBUS INDUSTRIAL DEVELOPMENT CORPORATION OF DAMAN & DIU & DADRA NAGAR HAVELI LTD. NANI DAMAN (U.T. OF DAMAN & DIU) PAN: AAACO3361K &'/ APPELLANT )*&' / RESPONDENT REVENUE BY : SHRI ROOPCHAND, SR. DR ASSESSEE(S) BY : SHRI P.F.JAIN, AR + , $/ // / DATE OF HEARING : 05/08/2014 -./ , $ / DATE OF PRONOUNCEMENT: 08 08/2014 #0 #0 #0 #0/ // / O R D E R PER SHRI N.S. SAINI, ACCOUNTANT MEMBER: THIS IS AN APPEAL FILED BY THE REVENUE AGAINST TH E ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS), VALSAD DATED 26.07.2010. 2. THE SOLE ISSUE INVOLVED IN THIS APPEAL OF THE R EVENUE IS THAT THE COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN DELET ING ADDITION ON ACCOUNT OF LICENCE CHARGES OF RS 32,82,437/- ON THE GROUND THAT IT WAS AMOUNT TRANSFERRED TO THE RESERVE TO MEET FUTURE DEVELOPME NT EXPENSES WHICH WAS ONE OF THE OBJECT FOR ESTABLISHING THE COMPANY AND THE TRANSFER OF THE ITA NO. 3128/A/2010 OMNIBUS INDUSTRIAL DEV. CORP. OF DAMAN & DIU AND DADRA NAGAR HAVELI LTD. AY 2007-08 - 2 - AMOUNT WAS BASED ON THE DIRECTION OF THE ADMINISTRA TION OF DAMAN & DIU AND DADRA & NAGAR HAVELI. 3. THE BRIEF FACTS OF THE CASE ARE THAT DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE FILED RETURN OF INCOME DECLARING TOTAL INCOME OF RS 1,25,48,070/- ON 26.10.2007. THE ASSESSING OFFI CER COMPLETED THE ASSESSMENT U/S. 143(3) OF THE ACT ON 30.12.2009 DET ERMINING THE TOTAL INCOME OF THE ASSESSEE AT RS 1,58,75,330/- WHEREIN MAKING DISALLOWANCE/ADDITIONS OF CERTAIN AMOUNTS INCLUDING AN AMOUNT OF RS 32,82,437/- ON ACCOUNT OF LICENCE CHARGES PAID. TH E ASSESSEE EXPLAINED TO THE ASSESSING OFFICER THAT THE ASSESSEE HAD INCURRE D AMOUNT OF RS 32,82,437/- BEING LICENCE CHARGES DEBITED AS PER DI RECTION FROM ADMINISTRATION OF DAMAN & DIU AND DADRA & NAGAR HAV ELI. THE ASSESSEE HAD RECEIVED THE ORDER FROM THE SECRETARIAT OF DAMA N DIRECTING THE ASSESSEE TO TRANSFER AN AMOUNT EQUAL TO 20% OF THE GROSS PRO FIT EARNED FROM LIQUOR TRADE AS A STEP TO MEET FUTURE DEVELOPMENT EXPENSES . THIS TRANSFER OF AMOUNT IS TO BE COMPULSORILY MET IN ORDER TO MEET I NDUSTRIAL PROMOTION DEVELOPMENT/MAINTENANCE AND SOCIAL AND TOURISM RELA TED PROJECT AS MAY BE IDENTIFIED AND CONVEYED TO OIDC BY THE ADMINISTRATI ON OF DAMAN FROM TIME TO TIME. THE ASSESSEE ALSO FILED A COPY OF LETTER FROM THE FINANCE DEPARTMENT OF DAMAN & DIU AND DADRA & NAGAR HAVELI SECRETARIAT BEFORE THE ASSESSING OFFICER. IT WAS SUBMITTED THAT THE A SSESSEE HAS TO SPEND EARMARKED FUND FOR THE SPECIFIED PURPOSE TO MEET CO RPORATE SOCIAL RESPONSIBILITY. THEREFORE, THE SAME WAS RIGHTLY CL AIMED AS LEGAL EXPENDITURE WHICH IS CHARGED BY THE GOVERNMENT ADMINISTRATION. 4. THE ASSESSING OFFICER AFTER CONSIDERING THE SUB MISSION OF THE ASSESSEE OBSERVED THAT IT WAS CLEAR FROM THE SUBMIS SION OF THE ASSESSEE THAT 20% EXPENDITURE CLAIMED BY THE ASSESSEE IS NOT CHAR GED ON LICENCE AS SUCH. THE ASSESSING OFFICER OBSERVED THAT THE GOVERNMENT WANTS THE ASSESSEE TO MAKE CERTAIN EXPENDITURE IN SPECIFIC DIRECTION. TH EREFORE, AS A MECHANISM, ITA NO. 3128/A/2010 OMNIBUS INDUSTRIAL DEV. CORP. OF DAMAN & DIU AND DADRA NAGAR HAVELI LTD. AY 2007-08 - 3 - 20% OF GROSS PROFIT OF IMFL BUSINESS IS CREDITED TO THE DEVELOPMENT RESERVE AND AT THE SAME TIME IT HAS BEEN DEBITED TO PROFIT AND LOSS ACCOUNT. IT IS AN APPLICATION OF INCOME AND NOT A CHARGE OF INCOME. A LICENCE FEE HAS TO BE FIXED. IT CAN NEVER BE PER CENTAGE OF PROFIT. THE ASSESSING OFFICER ALSO OBSERVED THAT IT HAS BEEN GATHERED THAT THERE ARE Q UITE A FEW LICENCE HOLDERS OF THE SAME ITEM IN DAMAN. NO SUCH CHARGES ARE IMP OSED ON THEM. HE ALSO NOTED THAT IT IS SEEN FROM THE SUBMISSION OF THE AS SESSEE THAT THE SO-CALLED EXPENSES CLAIMED BY THE ASSESSEE ARE TOWARDS WELFAR E MEASURES FOR THE NORMAL CITIZENS. SUCH EXPENDITURE IS GENERAL IN TH E NATURE OF DONATION OR WELFARE EXPENSES WHICH ARE INCURRED FROM INCOME EAR NED BY THE ASSESSEE. THEY CANNOT BE CLAIMED AS REVENUE EXPENDITURE AS TH ESE CANNOT BE TREATED AS LEGITIMATE DEDUCTIONS WHICH ARE INCIDENTAL TO TH E BUSINESS OF THE ASSESSEE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS. PROVIDING MEANS, GIVING SCHOLARSHIPS ETC., IF PAID THROUGH TH E RECOGNIZED AND REGISTERED INSTITUTIONS, MAY QUALIFY FOR DEDUCTION UNDER CHAPTER VI-A OF THE ACT FOR WHICH SEPARATE PROVISIONS MAY BE APPLIED. THE ASSESSEE IS ALSO ENTITLED FOR APPROPRIATE DEDUCTION SUBJECT TO THE F URNISHING OF DOCUMENTARY EVIDENCES. SINCE THESE EXPENSES CANNOT BE TREATED AS LEGITIMATE DEDUCTION ALLOWABLE TO THE ASSESSEE FOR THE PURPOSE OF CARRYI NG OF ITS TRADE ACTIVITY, THE SAME ARE NOT ALLOWABLE. HENCE, HE MADE THE DISALLO WANCE. 5. ON APPEAL, THE COMMISSIONER OF INCOME TAX (APPE ALS) HELD AS UNDER: I HAVE CAREFULLY CONSIDERED THE OBSERVATION MADE BY THE ASSESSING OFFICER IN HIS ASSESSMENT ORDER AS WELL A S THE CONTENTIONS RAISED BY THE A.R. OF THE APPELLANT IN HIS WRITTEN SUBMISSION. IT CLEARLY CAME OUT THAT THE AMOUNT TR ANSFERRED RS 32,82,437/- I.E. 20% OF THE GROSS PROFITS EARNED BY THE APPELLANT FROM LIQUOR TRADE AS A STEP TO MEET FUTURE DEVELOPM ENT EXPENSES, WHICH IS ONE OF THE MAIN OBJECT FOR ESTAB LISHING THE COMPANY. IT IS ALSO WORTH TO NOTE THAT THE TRANSFE R OF THE AMOUNT IS BASED ON THE DIRECTION OF THE ADMINISTRAT ION OF DAMAN & DIU AND DADRA & NAGAR HAVELI. THEREFORE, THE STA ND TAKEN BY THE LEARNED AO IS NOT TENABLE AND ACCEPTABLE. THE ARGUMENT ITA NO. 3128/A/2010 OMNIBUS INDUSTRIAL DEV. CORP. OF DAMAN & DIU AND DADRA NAGAR HAVELI LTD. AY 2007-08 - 4 - ADVANCED BY THE LEARNED AUTHORIZED REPRESENTATIVE O F THE ASSESSEE OF THE APPELLANT DOES HAVE THE MERITS AND STAND TAKEN BY HIM IS SUSTAINABLE. THEREFORE, APPEAL OF THE AP PELLANT ON THIS GROUND IS ALLOWED. 6. AT THE TIME OF HEARING, THE DEPARTMENTAL REPRES ENTATIVE VEHEMENTLY RELIED ON THE ORDER OF THE ASSESSING OFF ICER. 7. ON THE OTHER HAND, THE AUTHORIZED REPRESENTATIV E OF THE ASSESSEE SUPPORTED THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) AND SUBMITTED THAT NO DISALLOWANCE HAS BEEN MADE BY THE ASSESSING OFFICER IN THE IMMEDIATELY SUCCEEDING ASSESSMENT YEARS 2008 -09 AND 2009-10 AND FILED COPY OF THE ASSESSMENT ORDER PASSED U/S. 143( 3) DATED 09.12.2010 AND 09.12.2012 RESPECTIVELY. THEREFORE, IT WAS THE SUB MISSION THAT MAINTAINING THE CONSISTENCY IN THE ASSESSMENT FRAMED BY THE DEP ARTMENT, NO DISALLOWANCE WAS WARRANTED DURING THE YEAR UNDER CO NSIDERATION. 8. HE FURTHER FILED BEFORE US COPY OF LETTER DATED JANUARY 23, 2000 BEARING NO. FIN/GEN/2000-01/541 ADDRESSED TO THE MA NAGING DIRECTOR OF THE ASSESSEE COMPANY AND POINTED OUT THEREFROM THAT WHILE GRANTING LICENCE TO SELL LIQUOR, MANDATORY CONDITIONS CONTAINED IN T HE SAID LETTER READS AS UNDER: ADMINISTRATION OF DAMAN & DIU AND DADRA & NAGAR H AVELI IS PLEASED TO ORDER THAT THE GRANT/CONTINUATION/RENEWA L OF LICENCE TO SELL LIQUOR IN THE UNION TERRITORIES BY OIDC SHA LL BE SUBJECT TO THE CONDITION THAT OIDC CREATES A DEVELOPMENT RESER VE BY EARMARKING 20% OF THE GROSS PROFIT GENERATED FROM T HE LIQUOR TRADE. THIS DEVELOPMENT RESERVE SHALL BE USED FOR SPENDING ON INDUSTRIAL PROMOTION AND DEVELOPMENT/MAINTENANCE OF SOCIAL & TOURISM RELATED PROJECTS AS MAY BE IDENTIFIED AND C ONVEYED TO OIDC BY THE ADMINISTRATION FROM TIME TO TIME. IT WAS THEREFORE HIS SUBMISSION THAT TO CARRY ON LI QUOR BUSINESS, THE ASSESSEE WAS COMPULSORILY REQUIRED TO SPEND 20% OF ITS GROSS PROFIT FROM SELLING LIQUOR AS PER THE DIRECTION OF THE ADMINIST RATOR OF DAMAN & DIU AND ITA NO. 3128/A/2010 OMNIBUS INDUSTRIAL DEV. CORP. OF DAMAN & DIU AND DADRA NAGAR HAVELI LTD. AY 2007-08 - 5 - DADRA & NAGAR HAVELI. THUS, IT WAS AN EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS OF THE ASSE SSEE AND ALLOWABLE U/S. 37(1) OF THE ACT. FOR THIS CONTENTION, HE PLACED R ELIANCE ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF SRI VENKAT A SATYANARAYNA RICE MILL CONTRACTORS CO. VS. CIT IN CIVIL APPEAL NOS. 5623-5 624 WITH CIVIL APPEAL NOS. 5625 TO 5637 & 5637A OF 1983 WHEREIN IT WAS HE LD AS UNDER: ANY CONTRIBUTION MADE BY AN ASSESSEE TO A PUBLIC WELFARE FUND WHICH IS DIRECTLY CONNECTED OR RELATED WITH THE CAR RYING ON OF THE ASSESSEES BUSINESS OR WHICH RESULTS IN THE BENEFIT TO THE ASSESSEES BUSINESS HAS TO BE REGARDED AS AN ALLOWA BLE DEDUCTION U/S. 37(1). 9. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF LOWER AUTHORITIES AND MATERIAL AVAILABLE ON RECORD. IN THE INSTANT CASE, THE ASSESSEE CLAIMED DEDUCTION OF RS 32,82,437/- ON ACC OUNT OF LICENCE CHARGES PAID. THE ASSESSING OFFICER DISALLOWED THE SAME BY OBSERVING THAT IT WAS NOT LICENCE CHARGES BUT WAS EXPENDITURE INCURRED BY THE ASSESSEE ON SPECIFIC DIRECTION OF THE GOVERNMENT. AS A MECHANISM, 20% O F GROSS PROFIT OF IMFL BUSINESS IS CREDITED IN THE DEVELOPMENT RESERVE AND WAS DEBITED IN THE PROFIT AND LOSS ACCOUNT AND HENCE IT WAS APPLICATION OF IN COME AND NOT A CHARGE AGAINST THE INCOME OF THE ASSESSEE. FURTHER, THE A SSESSING OFFICER OBSERVED THAT IT WAS GATHERED BY HIM THAT THERE ARE QUITE A FEW LICENCE HOLDERS OF THE SAME ITEM IN DAMAN AND NO SUCH CHARGES ARE IMPOSED ON THEM. HE WAS OF THE VIEW THAT THE EXPENSES CLAIMED ARE TOWARDS WELF ARE MEASURES OF NORMAL CITIZENS AND ARE IN THE NATURE OF DONATION OR WELFA RE EXPENSES WHICH CANNOT BE ALLOWED AS REVENUE EXPENDITURE INCIDENTAL TO THE BUSINESS OF THE ASSESSEE AS IT WAS NOT INCURRED WHOLLY AND EXCLUSIVELY FOR T HE BUSINESS OF THE ASSESSEE. 10. ON APPEAL, THE COMMISSIONER OF INCOME TAX (APP EALS) ALLOWED THE CLAIM FOR DEDUCTION TO THE ASSESSEE BY OBSERVIN G THAT TRANSFER OF 20% OF ITA NO. 3128/A/2010 OMNIBUS INDUSTRIAL DEV. CORP. OF DAMAN & DIU AND DADRA NAGAR HAVELI LTD. AY 2007-08 - 6 - GROSS PROFIT EARNED BY THE ASSESSEE FROM LIQUOR TRA DE WAS TO MEET FUTURE DEVELOPMENT EXPENSES BASED ON THE DIRECTION OF THE ADMINISTRATION OF DAMAN & DIU AND DADRA & NAGAR HAVELI AND HENCE THE STAND TAKEN BY THE ASSESSING OFFICER IS NOT TENABLE. 11. THE DEPARTMENTAL REPRESENTATIVE RELIED ON THE ORDER OF THE ASSESSING OFFICER. 12. ON THE OTHER HAND, THE AUTHORIZED REPRESENTATI VE OF THE ASSESSEE SUBMITTED THAT 20% OF THE GROSS PROFIT EAR NED ON IMFL WAS REQUIRED BY THE ASSESSEE TO BE INCURRED AS EXPENDIT URE ON INDUSTRIAL PROMOTION AND DEVELOPMENT/MAINTENANCE OF SOCIAL AND TOURISM RELATED PROJECTS AS MAY BE IDENTIFIED AND CONVEYED TO THE A SSESSEE BY THE ADMINISTRATOR OF DAMAN & DIU AND DADRA & NAGAR HAVE LI. THUS, THIS WAS AN EXPENDITURE INCURRED FOR THE PURPOSES OF OBTAINING LICENCE FOR DOING LIQUOR BUSINESS AND HENCE WAS INCIDENTAL TO AND INCURRED W HOLLY AND EXCLUSIVELY FOR THE PURPOSES OF BUSINESS OF THE ASSESSEE AND ALLOWA BLE AS DEDUCTION TO THE ASSESSEE U/S. 37(1) OF THE ACT. FURTHER, IT WAS HI S SUBMISSION THAT IN THE IMMEDIATELY SUCCEEDING ASSESSMENT YEARS 2009-10 AND 2010-11, SUCH EXPENDITURE HAS BEEN ALLOWED BY THE ASSESSING OFFIC ER IN AN ASSESSMENT MADE U/S. 143(3) OF THE ACT. THEREFORE, IT WAS HIS SUBMISSION THAT AS THERE WAS NO CHANGE IN FACTS, THE EXPENDITURE SHOULD BE A LLOWED TO THE ASSESSEE. 13. WE FIND THAT THE ASSESSEE FILED A LETTER DATED 23.01.2000 BEARING NO. FIN/GEN/2000-01/541 FROM DEPUTY SECRETARY (FINA NCE), ADMINISTRATOR OF DAMAN & DIU AND DADRA & NAGAR HAVELI WHEREIN IT HAS BEEN STATED THAT UNDER THE GRANT/CONTINUATION/RENEWAL OF LICENCE TO SELL LIQUOR IN THE UNION TERRITORIES BY THE ASSESSEE, THE ASSESSEE SHALL BE SUBJECT TO THE CONDITION THAT IT CREATES A DEVELOPMENT RESERVE BY EARMARKING 20% OF GROSS PROFIT GENERATED FROM THE LIQUOR TRADE WHICH SHALL BE USED FOR SPENDING ON INDUSTRIAL PROMOTION AND DEVELOPMENT/MAINTENANCE OF SOCIAL AND TOURISM ITA NO. 3128/A/2010 OMNIBUS INDUSTRIAL DEV. CORP. OF DAMAN & DIU AND DADRA NAGAR HAVELI LTD. AY 2007-08 - 7 - RELATED PROJECTS AS MAY BE IDENTIFIED AND CONVEYED TO THE ASSESSEE BY THE ADMINISTRATOR OF DAMAN & DIU AND DADRA & NAGAR HAVE LI FROM TIME TO TIME. FROM THE ABOVE CONDITION, IT IS SEEN THAT IT IS AN EXPENDITURE INCURRED BY THE ASSESSEE FOR OBTAINING A LICENCE FOR DOING LIQUOR B USINESS AND HENCE IT IS AN EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF BUSINESS OF THE ASSESSEE AND HENCE ALLOWABLE U/S. 37(1) OF THE ACT. FURTHER, THE ASSESSEE HAS RELIED ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF SRI VENKATA SATYANARAYNA RICE MILL CONTRACTORS C O. VS. COMMISSIONER OF INCOME TAX (SUPRA) WHEREIN IT HAS BEEN HELD AS UNDE R: ANY CONTRIBUTION MADE BY AN ASSESSEE TO A PUBLIC WELFARE FUND WHICH IS DIRECTLY CONNECTED OR RELATED WITH THE CAR RYING ON OF THE ASSESSEES BUSINESS OR WHICH RESULTS IN THE BENEFIT TO THE ASSESSEES BUSINESS HAS TO BE REGARDED AS AN ALLOWA BLE DEDUCTION U/S. 37(1). NO CONTRARY DECISION WAS CITED BY THE DEPARTMENTAL REPRESENTATIVE DURING THE COURSE OF HEARING. HENCE, IN OUR CONSIDERED OP INION, THE EXPENDITURE CLAIMED AS LICENCE CHARGES IS AN EXPENDITURE INCURR ED FOR THE PURPOSES OF THE BUSINESS OF THE ASSESSEE AND HENCE WE CONFIRM THE O RDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) AND DISMISS TH IS GROUND OF APPEAL OF THE REVENUE. 14. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMISS ED. ORDER PRONOUNCED IN THE COURT ON FRIDAY, THE 8 TH OF AUGUST, 2014 AT AHMEDABAD. SD/- SD/- (MUKUL KR. SHRAWAT) JUDICIAL MEMBER ( N.S. SAINI) ACCOUNTANT MEMBER AHMEDABAD; DATED 08/08/2014 GHANSHYAM MAURYA, SR. P.S.