DCIT, UDAIPUR V. M/s. Hindustan Zinc Limited, UDAIPUR

ITA 337/JODH/2010

• Counselvise Citation: 33723314 RSA 2010
• Duration Of Justice: 2 year(s) 2 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-07-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 01-01-2013
• Assessment Year: 1996-1997
• Appeal Filed On: 17-05-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUBHASH CHANDRA
• Keywords: Business expenditure; Revenue expenditure
• Section: 37(1)

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL JODHPUR BENCH JODHPUR. ( BEFORE SHRI R.K. GUPTA AND SHRI N.K. SAINI ) ITA NO. 337/JU/2010 ASSTT. YEAR : 1996-97 THE DCIT VS. M/S. HINDUSTAN ZINC LTD. CIRCLE -2 YASHAD BHAWAN UDAIPUR UDAIPUR (APPELLANT) (RESPONDENT) DEPARTMENT BY : SHRI SUBHASH CHANDRA ASSESSEE BY : NONE DATE OF HEARING : 23.07.2012. DATE OF PRONOUNCEMENT : 24.07.2012 ORDER DATED :24/07/2012. PER R.K. GUPTA, J.M. THIS IS AN APPEAL BY THE REVENUE AGAINST THE ORD ER OF THE LD.CIT(A), UDAIPUR DATED 23-02-2010 FOR THE ASSESSMENT YEAR 1996-97. 2.1 THE DEPARTMENT IS OBJECTING IN DELETING THE DIS ALLOWANCE OF RS. 48,41,661/- MADE OUT OF TECHNICAL AND FEASIBILITY EXPENSES. 2.2 THE AO MADE DISALLOWANCE OF RS. 48,41,661/- BY OBSERVING THAT THE EXPENDITURE INCURRED BY THE ASSESSEE IS NOT OF THE NATURE WHICH FALLS UNDER SECTION 30 TO 36 OF THE ACT AND THEREFORE, CANNOT BE ALLOWED U/S 37(1) OF THE A CT. THE AO HELD THAT ONLY THE EXPENDITURE OF RS. 10,48,347/- WHICH DOES NOT FALL WITHIN THE PURVIEW OF SECTION 35D IS ALLOWABLE AS REVENUE EXPENDITURE AND THE REMAINING OF RS. 48,41,661/- WAS DISALLOWED. 2 2.3 DETAILED REPLY WAS FILED BEFORE THE LD.CIT(A). THE DETAILS OF THE EXPENDITURE INCURRED BY THE ASSESSEE WERE ALSO FILED. IT WAS ST ATED THAT THE EXPENDITURE IS INCURRED WHOLLY FOR THE PURPOSE OF BUSINESS AS THE SAME IS ESSENTIAL, LOOKING TO THE NATURE OF THE ASSESSEES BUSINESS. IT HAS BEEN EXPLAINED THAT THE EXPENDITURE HAS BEEN INCURRED IN REGULAR COURSE OF BUSINESS AND THE SAME IS INEVITAB LE IN THE LINES OF ASSESSEES BUSINESS. NO NEW ASSET COMES INTO EXISTENCE AS A RESULT OF TH IS EXPENDITURE. RELIANCE WAS PLACED ON THE DECISION OF HON'BLE ANDHRA PRADESH HIGH COURT I N THE CAE OF CIT VS COROMANDEL FERTILISERS ,247 ITR 417 AND VARIOUS OTHER DECISION S MENTIONED AT PAGE 8 OF LD.CIT(A)S ORDER. IT WAS FURTHER POINTED OUT THAT THE TRIBUNAL VIDE ITS ORDER DATED 30-09-2002 FOR THE ASSESSMENT YEAR 1992-93 HAS ALLOWED THE DEDUCTION I N RESPECT OF TECHNICAL FEASIBILITY EXPENSES. THE LD.CIT(A) AFTER CONSIDERING THE SUBMI SSIONS AND FOLLOWING THE ORDER OF THE TRIBUNAL ALLOWED THE CLAIM OF THE ASSESSEE. 2.4 NOW THE DEPARTMENT IS IN APPEAL HERE BEFORE THE TRIBUNAL. 2.5 THE LD. DR HAS PLACED RELIANCE ON THE ORDER OF THE AO. 2.6 ON THE OTHER HAND, NONE APPEARED ON BEHALF OF T HE ASSESSEE. HOWEVER, AN ADJOURNMENT APPLICATION WAS RECEIVED WHICH WAS REJE CTED AS THE ISSUE IS COVERED BY THE DECISION OF THE TRIBUNAL, IN FAVOUR OF THE ASSESSEE . 2.7 AFTER CONSIDERING THE ORDERS OF THE AO AND THE LD.CIT(A), WE FOUND NO INFIRMITY IN THE ORDER OF THE LD.CIT(A) WHO HAS GIVEN HIS FIN DINGS IN PARA 4 AT PAGES 9 TO 11 OF HIS ORDER AND THE SAME IS REPRODUCED AS UNDER- I HAVE CONSIDERED THE OBSERVATIONS OF THE AO AND THE CONTENTIONS OF THE APPELLANT. DURING THE COURSE OF APPELLATE PROCEEDINGS THE APPELLANT HAS SUBMITTED THE DETAILS AND NATURE OF EXPENSES INCURRED WHICH WAS DISALLOWED BY THE AO. IT HAS BEEN SUBMITT ED BY THE APPELLANT 3 THAT THESE DETAILS SHOW THAT THE EXPENSES ARE OUT, OF PURVIEW OF SECTION 35D IN VIEW OF THE FOLLOWING:- I. IT HAS BEEN INCURRED AFTER THE COMMENCEMENT OF T HE BUSINESS OF THE APPELLANT; II. THE EXPENDITURE IS NOT IN CONNECTION WITH EXTEN SION OF INDUSTRIAL UNDERTAKING/ SETTING UP OF NEW INDUSTRIA L UNIT. III. NO SUCH EXTENSION/ NEW INDUSTRIAL UNIT CAME IN TO EXTENSION AS A RESULT OF SUCH EXPENDITURE. SINCE THESE DETAILS OF THE EXPENSES WERE NOT FILED BEFORE THE AO, THE AO WAS DIRECTED TO EXAMINE THESE DETAILS AND T O SUBMIT HIS REPORT AS PER RULE 46A OF I.T. RULES, 1962. IN THIS CONNECTIO N, THE JOINT CIT RANGE- 1, UDAIPUR VIDE HIS LETTER DATED 8/8/2003 HAS SUBMI TTED AS UNDER:- AT PAGE NO. 6 OF THE ASSESSMENT ORDER DATED 30-11-9 9, THE AO HAS ELABORATELY DISCUSSED THAT ON CLOSE SCRUTINY OF THE NATURE OF SAID EXPENSES UNDER THE HEAD TECHNICAL FEASIBILITY MOST OF THE EXPENSES FALL WITHIN THE PURVIEW OF SECTION 35D. SU B SECTION 2 OF THE SECTION 35D SPECIFIES THE NATURE OF SUCH EXPENS ES AS BEING IN CONNECTION WITH: I. PREPARATION OF FEASIBILITY REPORT; II. PREPARATION OF PROJECT REPORT; III. CONDUCTING MARKET SURVEY OR ANY OTHER SURVEY NECESS ARY FOR THE BUSINESS OF THE ASSESSEE; AND IV. ENGINEERING SERVICES RELATED TO BUSINESS OF THE ASS ESSEE. AFTER EXAMINING THE ABOVE EXPENSES EACH MINE-WISE/ PLACE-WISE, THE AO HELD THAT SUCH EXPENSES PROPERLY FALL IN THE EXPENDITURE SPECIFIED IN SUB-SECTION (2) OF SECTION 35 D OF THE ACT. THE AO HAS RIGHTLY EXAMINED THE DETAILS OF EXP ENDITURE 4 DEBITED IN THE HEAD OF FEASIBILITY REPORT AND HAS A SCERTAINED THE NATURE OF SUCH EXPENSES WHICH HAS BEEN GIVEN IN THE (TABLE ON PAGE NO. 6 & 7 OF ASSESSMENT ORDER. AFTER ANALYZING THE EXPENSES, HE FELT THAT SUCH EXPENSES FALLS UNDER THE PURVIEW OF SECTION 35D AND THEREFORE, HE ACCORDINGLY DEALT WITH THE SAME. AS D ISCUSSED BY AO THAT THE EXPENDITURE WHICH PROPERLY FALLS UNDER ANY SECTION FROM SECTION 30 TO 36 OF THE I.T ACT CANNOT BE ALLOWED U /S 37(1) OF THE I.T. ACT AND FOR WHICH HE HAS CITED FIVE DECISIONS OF APEX COURT OF INDIA. THEREFORE, ASSESSEES ARGUMENT THAT AO HAS W RONGLY TREATED THE ABOVE EXPENSES U/S 35D AND THEREFORE, HE HAS NO JURISDICTION TO DETERMINE A QUESTION OF THE APPLICATION OF THE PART ICULAR PROVISION WHICH WAS NOT THE SUBJECT MATTER OF APPEAL IS NOT T ENABLE IN VIEW OF VARIOUS LEGAL DECISIONS CITED BY THE AO IN HIS ASSE SSMENT ORDER . I HAVE PERUSED THE DETAILS OF TECHNICAL FEASIBILITY 8 EXPENSES WHICH HAS BEEN CLAIMED IN RESPECT OF 4 MINES,3 SMELTERS, HEAD OFFICE AND FOR DELHI AND THE DETAILS OF TECHNICAL FEASIBILITY EXPE NSES EXCEEDING RS. 5.00 LACS IN PARA 3 ABOVE. THESE EXPENSES HAVE NOT BEEN INCURRED BEFORE THE COMMENCEMENT OF ITS BUSINESS OR AFTER COMMENCEMENT OF BUSINESS IN CONNECTION WITH EXTENSION OF ITS INDUSTRIAL UNDERTA KING OR IN CONNECTION WITH SETTING UP OF A NEW INDUSTRIAL UNIT OF THE APP ELLANT. THEREFORE, ALL THESE EXPENSES ARE OUTSIDE THE PURVIEW OF SECTION 3 5D OF THE I.T. ACT, 1961. IT HAS FURTHER OBSERVED THAT THESE FEASIBILIT Y STUDIES BY THE APPELLANT ARE ESSENTIAL BEFORE ANY PROCESS, INFORMATION PROJE CT; PRODUCT ETC. IS FINALLY PROCEEDED IN COMMERCIAL MANNER. THEREFORE, EXPENDIT URE IS NECESSARY IN CONNECTION WITH PROFIT MAKING ACTIVITY OF THE BUSIN ESS OF THE COMPANY IN CARRYING OUT BUSINESS IN MORE EFFICIENT AND PRUDENT MANNER. IN THE APPELLANTS CASE THE HON'BLE ITAT JODHPUR BE NCH VIDE ITS ORDER DATED 30-09-2002 FOR THE ASSESSMENT YEAR 1992 -93 HAS HELD THAT TECHNICAL FEASIBILITY EXPENSES AMOUNTING TO RS. 2,3 1,91,002/- PAID TO M/S. MECL, NAGPUR FOR MINING CONSULTANCY AND TO M/S. KIR LOSKAR CONSULTANCY 5 LTD. POONA FOR FEASIBILITY STUDY CHARGES ARE ALLOWA BLE UNDER THE PROVISIONS OF SECTION 37(1) OF THE I.T. ACT, 1961. IN VIEW OF THE ABOVE FACTS, IT IS HELD THAT THE TECHNICAL FEASIBILITY EXPENSES INCURRED BY THE APPELLANT IS ALLOWABLE AS BUSINESS EXPENDITURE U/S 37(1) OF THE I.T. ACT, 1961. IN VIEW OF THE ABOVE FACTS AND FINDINGS AND RESPECT FULLY FOLLOWING THE ABOVE. THEREFORE, THE AO WAS NOT JUSTIFIED IN D ISALLOWING TECHNICAL FEASIBILITY EXPENSES AMOUNTING TO RS. 48,41,661/-. ACCORDINGLY, THE ADDITION MADE OF RS. 48,41,661/- ON ACCOUNT OF ABOV E DISALLOWANCE IS DELETED. 2.8 THE ABOVE FINDINGS OF THE LD.CIT(A) ARE REASONA BLE FINDINGS WHICH HAS BEEN GIVEN AFTER ASCERTAINING THE FACTUAL ASPECT AND FOLLOWING THE ORDER OF THE TRIBUNAL IN THE CASE OF THE ASSESSEE ITSELF, THEREFORE, WE CONFIRM THE ORD ER OF THE LD.CIT(A) ON THIS ISSUE. 3.0 IN THE RESULT, APPEAL OF THE REVENUE IS DISMISS ED. . 4.0 THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 24 -07-2012 . SD/- SD/- ( N.K. SAINI ) ( R.K. GUPTA ) ACCOUNTANT MEMBER JUDICIAL MEMBER JODHPUR, *MISHRA COPY FORWARDED TO :- 1. THE DCIT,CIRCLE- 2, UDAIPUR. 2. M/S. HINDUSTAN ZINC LTD., UDAIPUR. 3. THE LD CIT (A) 4. THE LD. CIT 5. THE D/R 6. GUARD FILE (ITA NO.337/JU/2010) BY ORDER, AR ITAT JODHPUR. 6