M/s Michelin India Tyres Pvt. Ltd., New Delhi V. DCIT, New Delhi

ITA 3355/DEL/2011

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 97783 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 4 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-10-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: E
• Next Hearing Date: 17-09-2015
• Assessment Year: 2005-2006
• Appeal Filed On: 27-06-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: P DAM KANUNJNA
• Keywords: Capital asset; Depreciation; Transfer pricing; Business expenditure; Principle of natural justice; International transaction; Initiation of penalty proceedings; Commercial expediency; Revenue expenditure; Capital expenditure
• Section: 43B; 143(3); 142(1); 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH E , NEW DELHI) BEFORE SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER AND SHRI KULDIP SINGH, JUDICIAL MEMBER I.T.A. NO.3355 /DEL/2011 ASSESSMENT YEAR : 2005-06 M/S. MICHELIN INDIA TYRES PVT. LTD., VS. DCIT, CI RCLE 6(1), UNIT 401-404, 4 TH FLOOR, NEW DELHI COPIA CORPORATE SUITES, JASOLA DISTRICT CENTRE, NEW DELHI. GIR / PAN:AADCM8454G (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI NAGESHWAR RAO, ADV. SHRI SHAILESH KUMAR, ADV. RESPONDENT BY : SHRI P DAM KANUNJNA, SR. DR DATE OF HEARING : 17.09.2015 DATE OF PRONOUNCEMENT : 30.10.2015 ORDER PER KULDIP SINGH, JM: THE APPELLANT M/S. MICHELIN INDIA TYRES PVT. LTD. BY FILING THE PRESENT APPEAL UNDER THE I. T. ACT, 1961 (FOR SHORT THE AC T), SOUGHT TO SET ASIDE THE IMPUGNED ORDER DATED 14.02.2011 PASSED BY LD. CIT(A ) IX, NEW DELHI QUA THE ASSESSMENT YEAR 2005-06 ON THE GROUNDS INTER AL IA THAT: 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ('CIT (A)') ERRED IN CONFIRMING THE ORDER PASSED BY THE LEARNED ASSESSIN G OFFICER ('AO'); AND THEREBY CONFIRMING THE TOTAL LOSS OF THE APPELL ANT AT RS. 6,08,24,758 AS ASSESSED BY THE LEARNED AO IN THE OR DER OF ASSESSMENT UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 (' THE ACT') DATED 25.11.2008, AS AGAINST THE DECLARED LOSS OF RS. 7,8 1,94,190/-. ITA NO3355/DEL/2011 2 2. THE LEARNED CIT(A)/AO ERRED ON THE FACTS PRESENT ED BEFORE THEM AND HAVE NOT GIVEN DUE COGNIZANCE TO THE FACT THAT TECHNICAL SERVICES RECEIVED BY THE APPELLANT DURING THE FINAN CIAL YEAR 2004-05 WERE IMPERATIVE FOR THE PURPOSE OF ESTABLISHING ITS BUSINESS OPERATIONS IN INDIA AND THUS CANNOT BE TREATED AS C APITAL EXPENDITURE FOR THE ASSESSEE. 3. THE LEARNED CIT(A) ERRED IN CONCLUDING THAT THES E EXPENSES INCURRED DID NOT PERTAIN TO THE EXISTING BUSINESS C ARRIED OUT BY THE APPELLANT AND GROSSLY ERRED IN FAILING TO APPRECIAT E THAT THE EXPENSES INCURRED WERE IN THE NATURE OF FEE FOR TECHNICAL SE RVICES AND WERE NOT TOWARDS ANY NEW BUSINESS. THE EXPENSES WERE IN FACT TOWARDS THE APPELLANT'S EXISTING BUSINESS OF 'TYRES' AND THE PR OJECT WAS AN EXTENSION OF THE APPELLANT'S EXISTING BUSINESS. 4. IN CONCLUDING THAT THE PAYMENT FOR TECHNICAL SER VICES ARE CAPITAL IN NATURE, THE LEARNED CIT(A)/ AO HAS ALSO COMPLETELY IGNORED THE FACT THAT THESE EXPENSES ARE WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS OF THE APPELLANT, AND ACCOR DINGLY THEIR COMMERCIAL EXPEDIENCY IS OF NO RELEVANCE FOR THE PU RPOSE OF THEIR ALLOWABILITY UNDER SECTION 37(1) OF THE ACT. 5. THE LEARNED CIT(A)/AO FAILED TO TAKE COGNIZANCE OF THE FACT THAT DURING THE COURSE OF THE TRANSFER PRICING PROC EEDINGS, THE TRANSFER PRICING OFFICER ('LEARNED TPO') EXAMINED T HE BENEFITS ACCRUING TO THE APPELLANT FROM AVAILING TECHNICAL S ERVICES AND DETERMINED THAT PAYMENT MADE BY THE APPELLANT FOR A VAILING TECHNICAL SERVICES IS AT ARM'S LENGTH, THEREBY CONC LUDING THAT THE PAYMENTS MADE BY THE APPELLANT WERE NOT EXCESSIVE A ND WERE FOR THE BONAFIDE PURPOSE OF THE BUSINESS OPERATIONS. ACCORD INGLY, BASED ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LEARNE D CIT(A)/AO'S CONTENTION THAT THE BENEFIT OF THESE TECHNICAL SERV ICES HAS NOT ACCRUED TO APPELLANT IN THE FINANCIAL YEAR 2004-05, IS MISP LACED AND GROSSLY INAPPROPRIATE. 6. WITHOUT PREJUDICE TO THE ABOVE GROUNDS, THE LEAR NED CIT(A)/AO ERRED ON FACT AND CIRCUMSTANCES OF THE CA SE IN NOT ALLOWING THE DEPRECIATION ON TECHNICAL SERVICES EXP ENSE DISALLOWED AS CAPITAL EXPENDITURE. ITA NO3355/DEL/2011 3 7. THE LEARNED CIT(A)/AO HAS ERRED ON FACTS AND CIR CUMSTANCES OF THE CASE IN CONFIRMING THE INITIATION OF PENALTY PROCEEDINGS UNDER EXPLANATION 1 AND EXPLANATION 7 TO SECTION 271 (1)( C) OF THE ACT AGAINST THE APPELLANT, WHICH IS BAD IN LAW. 8. THE ORDER OF THE LEARNED CIT(A)/AO IS CONTRARY T O THE FACTS, LAW, AND THE PRINCIPLES OF NATURAL JUSTICE. 9. THE ABOVE GROUNDS OF APPEAL ARE MUTUALLY EXCLUSI VE & WITHOUT PREJUDICE TO EACH OTHER. 10. THE APPELLANT CRAVES FOR LEAVE TO AMEND, VARY, OMIT OR SUBSTITUTE ANY OF THE AFORESAID GROUNDS OF APPEAL O R ADD ANY FURTHER GROUND OF APPEAL(S) AT ANY TIME BEFORE OR AT THE TI ME OF HEARING OF THE APPEAL. THE ABOVE GROUNDS OF APPEAL ARE MUTUALLY EXCLUSIVE & WITHOUT PREJUDICE TO EACH OTHER. THE APPELLANT PRAYS FOR LEAVE TO ADD, ALTER, AMEND AND / OR MODIFY ANY OF THE GROUNDS OF APPEAL AT OR BEFORE THE HEARING O F THE APPEAL. THE APPELLANT PRAYS FOR APPROPRIATE RELIEF BASED ON THE SAID GROUNDS OF APPEAL AND THE FACTS AND CIRCUMSTANCES OF THE CA SE. 2. BRIEFLY STATED, THE FACTS OF THIS CASE ARE: DURI NG THE PROCESSING OF RETURN OF INCOME FILED BY THE ASSESSEE FOR THE ASSE SSMENT YEAR 2005-06, THE CASE OF THE ASSESSEE WAS SUBJECTED TO SCRUTINY AND NOTICE U/S 143(2) DATED 01.05.2006 WAS ISSUED TO THE ASSESSEE FOLLOWED BY D ETAILED QUESTIONNAIRE ALONG WITH NOTICE U/S 142(1) DATED 30.06.2004 AND I N RESPONSE THERETO, SHRI SIDDHARTH CA ATTENDED THE PROCEEDINGS AS AUTHORIZED REPRESENTATIVE, FILED REQUISITE DETAILS AND THE CASE WAS DISCUSSED WITH H IM. 3. MICHELIN-APOLLO INDIA IS A JOINT VENTURE BETWEEN MICHELIN GROUP OF FRANCE AND APOLLO TYRES LTD. IN INDIA INCORPORATED ON 17.11.2003 TO CARRY ITA NO3355/DEL/2011 4 OUT THE BUSINESS OF MANUFACTURING AND TRADING OF TY RES AND TUBES FOR TRUCKS AND BUSES AND PASSENGER CARS. DURING THE YEAR UNDE R CONSIDERATION, THE ASSESSEE WAS ENGAGED IN THE IMPORT AND RESALE (TRAD ING) OF TYRES FOR PASSENGER CARS, TRUCKS AND BUSES, IN THE REPLACEMEN T MARKET SEGMENT IN INDIA. CONSEQUENTLY, REFERENCE WAS MADE TO THE TRA NSFER PRICING OFFICER (TPO) U/S 92CA(1) OF THE ACT WHO HAS PASSED ORDER D ATED 30.09.2008 U/S 92CA(3) STATING THAT NO ADVERSE INFERENCE IS DRAWN IN RESPECT OF INTERNATIONAL TRANSACTION UNDERTAKEN BY THE ASSESSE E DURING THE FINANCIAL YEAR 2004-05. 4. DURING THE YEAR OF ASSESSMENT THE ASSESSEE STATE D TO HAVE PAID AN AMOUNT OF RS.1,42,04,926/- TOWARDS TECHNICAL FEES U NDER THE HEAD PROFESSIONAL AND LEGAL EXPENSES. PROVISIONS OF AGREEMENT ENTERED INTO BETWEEN THE ASSESSEE AND ITS PARTNERS GO TO PROVE T HAT THE TECHNICAL FEE PAID BY THE ASSESSEE TOWARDS RECEIPT OF CERTAIN RIGHTS T O USE TECHNOLOGY BY THE ASSESSEE FOR MANUFACTURE OF TYRES WAS EXPENDITURE W HICH WAS CLEARLY IN THE NATURE OF CAPITAL EXPENDITURE AS THE JOINT VENTURE IS USUALLY FOR MANUFACTURE OF PRODUCTS, THE AMOUNT CONTRIBUTED BY THE NON-RESI DENT BY WAY OF TECHNOLOGY IS ORDINARILY BEING OF CAPITAL NATURE AN D CONSEQUENTLY, ADDITION OF RS.1,42,04,926/- HAS BEEN MADE. 5. THE ASSESSEE HAS CLAIMED LEGAL FEE TO THE TUNE O F RS.29,11,330/- STATED TO HAVE BEEN PAID TO ROC FOR AN INCREASE IN AUTHORI ZED CAPITAL FOR RS.28.02 LACS AND THE BALANCE FOR SALES TAX AND EXCISE REGIS TRATION ON DIFFERENT LOCATIONS BUT THE SAME HAS BEEN CLAIMED TO BE CAPIT AL IN NATURE AND AS SUCH AMOUNT OF RS.28,02,000/- IS ADDED TO THE TAXABLE IN COME OF THE ASSESSEE. THE ASSESSEE CLAIMED AN AMOUNT OF RS.1,15,368/- AS A PROVISION BEING MADE FOR PAYMENT OF GRATUITY. THE ASSESSEE STATED THAT THE SAID AMOUNT WAS BASED ITA NO3355/DEL/2011 5 ON ACTUAL VALUATION AND WAS NOT PAID AND AS SUCH TH E SAME HAS BEEN DISALLOWED AND ADDED AN AMOUNT OF RS.1,15,368/- TO THE INCOME OF THE ASSESSEE. THE A.O. FURTHER MADE AN ADDITION OF RS. 2,44,328/- DEPOSITED LATE BY THE ASSESSEE PERTAINING TO EMPLOYEES CONTRIBUTIO N TO EPF BEING NOT ALLOWABLE DEDUCTION U/S 2(24)X OF THE ACT. THE ASS ESSEE FURTHER CLAIMED LOSS ON SALE OF FIXED ASSETS AMOUNTING TO RS.2810 I N THE P & L ACCOUNT AND THE SAME HAS BEEN ADDED TO THE INCOME OF THE ASSESS EE IN COMPUTATION SHEET AND THE SAME HAS ALSO BEEN DISALLOWED. SO, THE A.O . MADE THE ADDITION ACCORDINGLY. 6. THE ASSESSEE CHALLENGED THE ORDER PASSED BY A.O. BEFORE LD. CIT(A) WHO HAS DISMISSED THE APPEAL. FEELING AGGRIEVED, T HE ASSESSEE HAS COME UP BEFORE THE TRIBUNAL BY WAY OF FILING THE PRESENT AP PEAL. 7. LD. A.R. CHALLENGING THE IMPUGNED ORDER CONTENDE D INTER ALIA THAT SINCE THERE WAS NO CAPITAL ASSET TO BE TRANSFERRED NOR THERE WAS ANY TRANSFER OF TECHNICAL KNOWHOW, LD. CIT(A) HAS GROSSLY ERRED IN APPRECIATING THAT THE EXPENSES INCURRED WERE IN THE NATURE OF REVENUE EXP ENDITURE; THAT THERE WAS NO TRADING ACTIVITIES AND THE MATTER REFERRED TO TH E TPO WHO HAS FOUND NO FAULT IN THE INTERNATIONAL TRANSACTION. 8. HOWEVER, ON THE OTHER HAND, LD. D.R. CONTENDED T HAT SINCE THE APPELLANT HAS FAILED TO CONCLUSIVELY PROVE THAT THE EXPENDITURE WAS IN THE NATURE OF REVENUE EXPENDITURE, LD. CIT(A) HAS PASSE D VALID AND LEGAL ORDER AND RELIED UPON THE IMPUGNED ORDER. 9. NOW, THE FIRST QUESTION ARISES FOR DETERMINATION IN THIS CASE IS, AS TO WHETHER LD. CIT(A) HAS ERRED IN CONFIRMING THE TOTA L LOSS OF APPELLANT AT RS.6,08,24,758/- AS ASSESSED BY THE A.O. AS AGAINST THE DECLARED LOSS OF RS.7,81,94,190/-. ITA NO3355/DEL/2011 6 10. THE APPELLANT CLAIMED TO HAVE PAID AN AMOUNT OF RS.1,42,04,926/- DURING THE PERIOD OF ASSESSMENT TOWARDS TECHNICAL F EE UNDER THE HEAD PROFESSIONAL AND LEGAL EXPENSES. THE A.O. RELIED UPON THE OPERATIVE PART OF AGREEMENT ENTERED INTO BETWEEN THE ASSESSEE AND ITS PARTNER M/S. APOLLO TYRES LTD., WHICH IS REPRODUCED AS UNDER: .. WHEREAS, MATL HAS ENTERED INTO A MICHELIN TECHN OLOGY LICENSE AGREEMENT DATED NOVEMBER 17, 2003 ('MICHELI N TECHNOLOGY LICENSE AGREEMENT ') WITH SOCIETE DE TECHNOLOGIE MI CHELIN ('STM') AND MICHELIN RECHERCHE ET TECHNIQUE S.A. ('MRT') UN DER WHICH TVFATL HAS RECEIVED CERTAIN RIGHTS TO USE THE TECHN OLOGY (AS DEFINED HEREINAFTER) IN ORDER FOR MATL TO MANUFACTURE FROCK AND BUS RADIAL LYRES ('PRODUCT' AS HEREIN AFTER DEFINED). 11. A.O. OBSERVED THAT THE TECHNICAL FEE PAID BY TH E ASSESSEE TOWARDS RECEIPT OF CERTAIN RIGHTS TO USE TECHNOLOGY BY THE ASSESSEE FOR THE MANUFACTURE OF TYRES WAS EXPENDITURE WHICH WAS CLEA RLY IN THE NATURE OF CAPITAL EXPENDITURE AND RELIED UPON THE JUDGEMENTS CITED AS KCP LTD. VS CIT 242 ITR 659 (S.C.) AND CITS VS REINZ TALBROS PV T. LTD. 252 ITR 637 (DEL.). 12. LD. CIT(A) WHILE CONFIRMING THE ORDER PASSED BY A.O., OBSERVED IN PARA 5.2 OF THE IMPUGNED ORDER TO THE EFFECT THAT THE APPELLANT ITSELF HAS SUBMITTED THAT THESE EXPENSES WERE INCURRED WITH A VIEW TO ESTABLISH A MANUFACTURING FACILITY AS A PART OF ITS ON- GOING B USINESS STRATEGY AND ACHIEVE BACKWARD INTEGRATION. HOWEVER, THE PLAN FOR WHICH THE FUNDS AMOUNTING TO RS.1,42,04,926/- WERE EXPENDED BY THE APPELLANT I.E. AVAILING THE TECHNICAL SERVICES TO ASSESS THE FEASIBILITY, W AS EVENTUALLY HIVED-OFF / DISCONTINUED. THUS, SUCH EXPENDITURE CAN BE APTLY SUMMED UP AS 'INFRUCTUOUS EXPENDITURE' INCURRED FOR A PROJECT WH ICH WAS ULTIMATELY SCRAPPED. JUDICIAL PRECEDENTS ON THIS ISSUE HAVE HE LD SUCH EXPENSES AS NOT ITA NO3355/DEL/2011 7 ALLOWABLE BEING IN THE NATURE OF CAPITAL EXPENDITUR E AND RELIED UPON THE JUDGEMENT CITED AS TRIVENI ENGINEERING WORKS LTD. VS CIT 232 ITR 639 (DEL.), 100 TAXMAN 90 (DEL. H.C.). 13. LD. A.R. BY RELYING ON THE JUDGEMENT OF HONBLE JURISDICTIONAL HIGH COURT CITED AS INDO RAMA SYNTHETICS (I) LTD. VS CIT 185 TAXMAN 277 (DEL.) CONTENDED THAT IN THE IDENTICAL CIRCUMSTANCES, HON' BLE JURISDICTIONAL HIGH COURT HAS DISCUSSED THE CASE OF TRIVENI ENGINEERING WORKS LTD. (SUPRA) AND CIT VS MODI INDUSTRIES LTD. (1993) 200 ITR 341 AND CAME TO THE FOLLOWING CONCLUSION: IN THE CASE AT HAND THE AMOUNT SPENT ON THE PROJEC T REPORTS WAS NOT FOR THE PURPOSE OF FACILITATING THE ASSESSEE'S EXIS TING TRADING OPERATIONS OR ENABLING MANAGEMENT AND CONDUCT OF TH E ASSESSEE'S BUSINESS TO BE CARRIED ON MORE EFFICIENTLY OR MORE PROFITABLY WHILE LEAVING THE FIXED CAPITAL UNTOUCHED. IF ONLY THE PR OJECT REPORTS HAD BEEN SUCCESSFULLY ACCEPTED AND PUT INTO IMPLEMENTAT ION, THE ASSESSEE WOULD HAVE GONE INTO MANUFACTURING OF A NEW PRODUCT WHICH WOULD HAVE CERTAINLY REQUIRED INVESTMENT OF FRESH CAPITAL AND COMING INTO EXISTENCE OF ADDITIONAL FIXED ASSETS. 14. NOW. COMING TO THE CASE AT HAND, THE ASSESSEE C LAIMED TO HAVE SPENT AN AMOUNT OF RS.1,42,04,926/- TOWARDS LEGAL FEE UND ER THE HEAD PROFESSIONAL NEW DELHI LEGAL EXPENSES, WHICH HAVE BEEN TREATED AS CAPITAL EXPENDITURE AND ADDED TO THE INCOME OF THE ASSESSEE BY THE A.O. AS WELL AS LD. CIT(A). 15. LD. CIT(A) BY RELYING UPON THE DECISION OF HON' BLE HIGH COURT IN THE CASE OF TRIVENI ENGINEERING WORKS PVT. LTD. (SUPRA) CONFIRMED THE ORDER PASSED Y A.O. MAKING ADDITION OF RS.1,42,04,926/- B EING IN THE NATURE OF CAPITAL EXPENDITURE ON THE SOLE GROUND THAT WHEN TH E SAID AMOUNT WAS EXPENDED BY THE APPELLANT FOR AVAILING THE TECHNICA L SERVICES TO ASSESS THE ITA NO3355/DEL/2011 8 FEASIBILITY OF THE PROJECT WAS EVENTUALLY HIVED OFF / DISCOUNTED SUCH EXPENDITURE ARE TO BE TREATED AS INFRUCTUOUS EXPEND ITURE AND AS SUCH ARE IN THE NATURE OF CAPITAL EXPENDITURE. 16. HOWEVER, THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF INDO RAMA SYNTHETICS (I) LTD. (SUPRA) HAS MADE FINE DISTINCTION IN THE CAPITAL AND REVENUE EXPENDITURE IN PARA 10 OF THE JUDGEMENT REPRODUCED IN THE PRECEDING PARA OF THIS ORDER BY OBSERVING THAT IF T HE EXPENDITURE IS INCURRED FOR STARTING OF A NEW BUSINESS NOT CARRIED OUT BY T HE ASSESSEE EARLIER, THEN SUCH EXPENDITURE IS HELD TO BE OF CAPITAL IN NATURE . HOWEVER, IF THE EXPENDITURE INCURRED IS IN RESPECT OF THE SAME BUSI NESS WHICH IS ALREADY CARRIED OUT BY THE ASSESSEE EVEN IF FOR THE EXPANSI ON OF BUSINESS, TO START A NEW UNIT WHICH IS THE SAME AS EARLIER BUSINESS AND THERE IS UNITY OF CONTROL OF CREATING FUNDS THEN SUCH EXPENDITURE IS TO BE TREAT ED AS BUSINESS EXPENDITURE. NO DOUBT, HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF TRIVENI ENGINEERING WORKS LTD. (SUPRA) OBSERVED THAT :- AFTER TAKING NOTE OF VARIOUS JUDGMENTS OF THE SUPR EME COURT OBSERVED THAT TEST TO DETERMINE AN EXPENDITURE TO B E CAPITAL OR REVENUE IS NOT STRAIGHT. HOWEVER, THE TEST OF 'ENDU RING BENEFIT IS LARGELY ACCEPTED AND APPLIED BY THE COURTS. FURTHE R, IF THE EXPENDITURE IS INCURRED WITH A VIEW TO BRINGING AN ASSET OR ADVANTAGE INTO EXISTENCE, IT IS TO BE TREATED AS CAPITAL EXPE NDITURE AND WHILE DOING SO, IT IS NOT NECESSARY THAT SUCH EXPENDITURE SHOULD HAVE THAT RESULT. 17. BUT IN THE INSTANTS CASE, THE EXPENDITURE OF RS .1,42,02,926/- EXPENDED ON LEGAL FEES BY THE ASSESSEE, CANNOT BE TREATED AS CAPITAL EXPENDITURE FOR TWO REASONS ONE: THATS THE EXPENSES WERE INCURRED WITH A VIEW TO ESTABLISH MANUFACTURING FACILITIES AS A PART OF ONGOING BUSIN ESS STRATEGY AND TO ACHIEVE BACKWARD INTEGRATION, EVEN THOUGH, THE PLANT FOR WH ICH THE FUNDS AMOUNTING ITA NO3355/DEL/2011 9 TO RS.1,432,02,926/- WERE EXPENDED BY THE APPELLANT I.E. FOR AVAILING TECHNICAL SERVICES TO ASSESS THE FEASIBILITY WAS EV ENTUALLY HYPED OFF / DISCONTINUED AND THE SAME ARE TO BE TREATED AS REVE NUE EXPENDITURE IN VIEW OF THE LAW LAID DOWN BY HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE CITED AS INDO RAMA SYNTHETICS (I) LTD (SUPRA) AND AS SUCH, THE SAID EXPENDITURE ON ACCOUNT OF TECHNICAL FEE CANNOT BE TREATED AS CA PITAL EXPENDITURE. 18. THE ASSESSEE FURTHER CLAIMED AN AMOUNT OF RS.29 ,11,330/- ON ACCOUNT OF PAYMENT OF LEGAL FEE PAID TO ROC FOR INCREASING THE AUTHORIZED CAPITAL FOR RS.28,02,000/- AND THE BALANCE FOR SALES TAX AND EX CISE REGISTRATION ON DIFFERENT LOCATIONS. 19. FOR THE SAKE OF REPETITION, IT IS REITERATED TH AT WHEN THE AMOUNT IS BEING SPENT BY THE ASSESSEE FOR INCREASE IN THE AUT HORIZED CAPITAL AND FOR PAYMENT OF SALES TAX AND EXCISE REGISTRATION ON DIF FERENT LOCATIONS IN RESPECT OF THE SAME BUSINESS OR FOR THE EXPANSION OF BUSINE SS UNDER THE JOINT VENTURE THEN SUCH AN EXPENDITURE IS TO BE TREATED AS BUSINE SS EXPENDITURE DESPITE THE FACT THAT THE BUSINESS OF THE ASSESSES TANS DISCONT INUED. SO, IN VIEW OF THE LAW LAID DOWN BY HON'BLE HIGH COURT IN THE JUDGEMEN T CITED AS INDO RAMA SYNTHETICS (I) LTD. (SUPRA), ADDITION OF RS.28,02,0 00/- MADE BY THE A.O. AND CONFIRMED BY LD. CIT(A) IS NOT SUSTAINABLE AND HENC E, ORDERED TO BE DELETED. 20. THE ASSESSEE CLAIMED AN AMOUNT OF RS.1,15,368/- AS PROVISION FOR PAYMENT OF GRATUITY BASED ON ACTUAL VALUATION. UND ISPUTEDLY, THE AMOUNT OF RS.1,15,368/- CLAIMED ON ACCOUNT OF MAKING PROVISIO N FOR PAYMENT OF GRATUITY HAS NEVER BEEN PAID. PROVISIONS CONTAINED U/S 40A(7) OF THE ACT EXPLICITLY SAYS THAT NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF ANY PROVISION MADE IN BUSINESS HENCE, LD. CIT(A) HAS RIGHTLY CONF IRMED THE ADDITION OF RS.1,15,368/- MADE ON THIS ACCOUNT. ITA NO3355/DEL/2011 10 21. THE ASSESSEE HAS ALSO CLAIMED AN AMOUNT OF RS.2 ,44,328/- AS DEDUCTION ON ACCOUNT OF CONTRIBUTION TO EPF DURING THE YEAR UNDER CONSIDERATION. UNDISPUTEDLY, THE AFORESAID PAYMENT BEING CONTRIBUTION TO EPF WAS DEPOSITED LATE EVEN AFTER THE DATE OF FILIN G OF INCOME TAX RETURN. THE A.O. AS WELL AS LD. CIT(A) BY RELYING UPON THE PROVISIONS CONTAINED U/S 2(24)(X) OF THE ACT DISALLOWED THE DEDUCTION AMOUNT ING TO RS.2,44,328/- ON ACCOUNT OF CONTRIBUTION TO EPF ON THE GROUND OF LAT E DEPOSIT. HOWEVER, THE HON'BLE JURISDICTIONAL HIGH COURT IN THE JUDGEMENT CITED AS CIT VS AIMIL LTD. (2010) 321 ITR 508 (DEL .) DECIDED THE ISSUE IN CONTROVERSY. THE OPERATIVE PART OF THE JUDGEMENT SUPRA IS REPRODUCED AS UNDER: BUSINESS EXPENDITURE - DEDUCTION ONLY ON ACTUAL PAYMENT - PROVIDENT FUND AND ESI CONTRIBUTIONS MADE BEFORE FILING RETURN - ALLOWABLE - INCOME-TAX ACT, 1961, SS. 36(1)(VA), 43B THE DELETION WITH EFFECT FROM APRIL 1, 2004 BY THE FINANCE ACT, 2003 OF THE SECOND PROVISO TO SECTION 438 OF THE INCOME- TAX ACT, 1961, WHICH STIPULATES THAT CONTRIBUTIONS TO THE PROVIDEN T FUND AND EMPLOYEES STATE INSURANCE FUND SHOULD BE MADE WITHI N THE TIME MENTIONED IN SECTION 36(1)(VA) , THAT IS, THE TIME ALLOWED UNDER THE EMPLOYEES' PROVIDENT FUNDS AND MISCELLANEOUS PROVIS IONS ACT, 1952, AS WELL AS THE EMPLOYEES' STATE INSURANCE ACT, 1948 , IS TREATED AS RETROSPECTIVE IN NATURE. IF THE EMPLOYEES' CONTRIBU TION IS NOT DEPOSITED BY THE DUE DATE PRESCRIBED UNDER THE RELEVANT ACTS AND IS DEPOSITED THEREAFTER, THE EMPLOYER NOT ONLY PAYS INTEREST ON DELAYED PAYMENT BUT CAN INCUR PENALTIES ALSO, FOR WHICH SPECIFIC PROVIS IONS ARE MADE IN THE THOSE ACTS. IN SO FAR AS THE INCOME-TAX ACT, 1961, IS CONCERNED, THE ASSESSEE CAN GET THE BENEFIT OF DEDUCTION OF THE PA YMENTS, IF THE ACTUAL PAYMENT IS MADE BEFORE THE RETURN IS FILED. WHERE F OR THE ASSESSMENT YEAR 2002-03 THE ASSESSEE HAD DEPOSITED EMPLOYER'S CONTRIBUTION AS WELL AS EMPLOYEES' CONTRIBUTION TOWARDS PROVIDENT F UND AND ESI AFTER THE DUE DATE, AS PRESCRIBED UNDER THE RELEVANT ACT/ RULES BUT BEFORE THE DUE DATE FOR FILING THE RETURN UNDER THE INCOME-TAX ACT: HELD ACCORDINGLY, THAT NO DISALLOWANCE COULD BE MAD E IN VIEW OF THE PROVISIONS OF SECTION 438 AS AMENDED BY THE FINANCE ACT, 2003. ITA NO3355/DEL/2011 11 22. SO, FOLLOWING THE LAW LAID DOWN BY HON'BLE JURI SDICTIONAL HIGH COURT AMOUNT OF RS.2,44,328/- CLAIMED BY THE ASSESSEE AS DEDUCTION ON ACCOUNT OF CONTRIBUTION TO EPF, THOUGH DEPOSITED LATE, IS ALLO WABLE U/S 36(1)(VA), 43B OF THE ACT. CONSEQUENTLY, WE ARE OF THE CONSIDERED VIEW, ADDITION OF RS.2,44,328/- MADE BY THE A.O. AND CONFIRMED BY LD. CIT(A) IS TO BE ALLOWED AS DEDUCTION. 23. THE ASSESSEE CLAIMED LOSS OF FIXED ASSET AMOUNT ING TO RS.2810/- BUT THE SAME HAS BEEN MADE AS ADDITION TO HIS INCOME ON THE GROUND THAT THE SAME HAS NOT BEEN ADDED BACK TO THE INCOME OF THE A SSESSEE IN COMPUTATION SHEET. WHEN THE AMOUNT OF RS.2810/- HAS NOT BEEN AD DED BACK TO THE INCOME OF THE ASSESSEE IN COMPUTATION SHEET, THE SAME HAS BEEN RIGHTLY ADDED TO THE INCOME OF THE ASSESSEE AND RIGHTLY CONFIRMED BY LD. CIT(A). 24. IN VIEW OF OUR FINDINGS IN THE PRECEDING PARAGR APHS, THE PRESENT APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. 25. ORDER PRONOUNCED IN THE OPEN COURT ON 30 TH OCT.,2015. SD./- SD./- ( INTURI RAMA RAO) (KULD IP SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER DATE: 30.10.2015 SP COPY FORWARDED TO:- 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT (A)-, NEW DELHI. 5. THE DR, ITAT, LOKNAYAK BHAWAN, KHAN MARKET, NEW DEL HI. TRUE COPY. BY ORDER (ITAT, NEW DELHI). ITA NO3355/DEL/2011 12 S.NO. DETAILS DATE INITIALS DESIGNATION 1 DRAFT DICTATED ON 27/10 SR. PS/PS 2 DRAFT PLACED BEFORE AUTHOR 27,28,30,30,30 SR. PS/PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER AM/AM 5 APPROVED DRAFT COMES TO THE SR. PS/PS 30/10/15 SR. PS/PS 6 KEPT FOR PRONOUNCEMENT 30/10 SR. PS/PS 7 FILE SENT TO BENCH CLERK 30/10 SR. PS/PS 8 DATE ON WHICH THE FILE GOES TO HEAD CLERK 9 DATE ON WHICH FILE GOES TO A.R. 10 DATE OF DISPATCH OF ORDER