The DCIT, 1(1), V. M/s Bridgestone (India) Pvt. Ltd.,

ITA 344/IND/2007

• Counselvise Citation: [2009] 115 COUNSELVISE.COM (IT) 1398 (ITAT-INDORE)
• Duration Of Justice: 2 year(s) 6 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-11-2009
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 05-11-2009
• Assessment Year: 2000-2001
• Appeal Filed On: 18-05-2007
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: T K SHAH
• Keywords: Capital asset; Business expenditure; Charitable institution; Commercial expediency; Revenue expenditure; Capital expenditure
• Section: 43B; 37(1); 80G

Judgement Text

PAGE 1 OF 19 - I.T.A.NO. 344/IND/07 & C.O.NO.62/IN D/2007 M/S.BRIDGESTONE (INDIA) LIMITED PVT.LTD.,INDORE. IN THE INCOME TAX APPELLATE TRIBUNAL INDORE BENCH : INDORE BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER AND SHRI V.K. GUPTA, ACCOUNTANT MEMBER PAN NO. : AABCB2304E I.T.A.NO.344/IND/2007 A.Y. : 2000-01 DY. CIT, M/S. BRIDGESTONE (INDIA) PRIVATE LIMITED, 1(1), VS PLOT NO.12, KHEDA GROTH CENTRE, INDORE. P.O. SAGOR, DISTRICT DHAR APPELLANT RESPONDENT C.O.NO.62/IND/2007 (ARISING OUT OF I.T.A.NO.344/IND/2007) A.Y. : 2000-01 M/S. BRIDGESTONE (INDIA) PRIVATE LIMITED, DY. CIT, PLOT NO.12, KHEDA GROTH CENTRE, VS 1(1), P.O. SAGOR, DISTRICT DHAR INDORE. CROSS OBJECTOR RESPONDENT DEPARTMENT BY : SHRI T.K.SHAH, CIT DR RESPONDENT BY : SHRI MANOJ FADNIS, C.A. DATE OF HEARING : 5 TH NOVEMBER, 2009. PAGE 2 OF 19 - I.T.A.NO. 344/IND/07 & C.O.NO.62/IN D/2007 M/S.BRIDGESTONE (INDIA) LIMITED PVT.LTD.,INDORE. O R D E R PER V.K. GUPTA, A.M. THIS APPEAL FILED BY THE REVENUE AND CROSS OBJECTIO N FILED BY THE ASSESSEE ARISE OUT OF THE ORDER OF THE LD. CIT(A) D ATED 14.2.2007, FOR THE ASSESSMENT YEAR 2000-01. 2. WE HAVE HEARD BOTH THE PARTIES AND HAVE ALSO PERUSE D THE MATERIAL AVAILABLE ON RECORD. 3. FIRST, WE SHALL TAKE UP REVENUES APPEAL IN I.T.A.N O. 344/IND/2007. 4. GROUND NO.1 READS AS UNDER :- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) ERRED IN HOLDING THAT THE COMMISSIONING OF P LANT FEES OF RS. 16,88,000/- IS REVENUE EXPENDITURE. 5. THE FACTS, IN BRIEF, ARE THAT THE A.O. FOUND THAT T HE ASSESSEE COMPANY HAD CLAIMED SUM OF RS. 16.88 LAKHS UNDER TH E HEAD COMMISSIONING EXPENSES, WHICH WAS EXPLAINED BY TH E ASSESSEE COMPANY AS PAID TO FOREIGN TECHNICIAN FOR COMMISSIO NING OF PLANT OR REPAIRS, HENCE, OF REVENUE NATURE. THE A.O. BASED U PON THE ACTION OF THE ASSESSEE IN THE EARLIER YEARS TREATING THE SAME AS OF CAPITAL NATURE TREATED PAGE 3 OF 19 - I.T.A.NO. 344/IND/07 & C.O.NO.62/IN D/2007 M/S.BRIDGESTONE (INDIA) LIMITED PVT.LTD.,INDORE. THE IMPUGNED PAYMENT AS OF CAPITAL NATURE AND ADDED THE SAME TO THE TOTAL INCOME OF THE ASSESSEE. IN APPEAL BEFORE THE LD. CI T(A), THE ASSESSEE SUBMITTED VARIOUS DOCUMENTARY EVIDENCES, WHICH WERE FORWARDED BY THE CIT(A) TO A.O. FOR HIS COMMENTS. THE A.O. TOOK NOTE OF VARIOUS EVIDENCES. HOWEVER, MERELY FOR THE REASON THAT THE ASSESSEE COMPANY DID NOT EXPLAIN WHY SIMILAR EXPENDITURE WAS TREATED AS CAPITAL EXPENDITURE IN EARLIER YEARS AGAIN SUPPORTED THE ORIGINAL STAND. T HE ASSESSEE BEFORE THE LD. CIT(A) CONTENDED THAT THE COMMISSIONING FEE PAI D TILL THE COMMENCEMENT OF THE PRODUCTION HAD BEEN CAPITALIZED AS PER NORMAL ACCOUNTING PRACTICE AND IN THE ASSESSMENT YEAR 1998 -99 COMMERCIAL PRODUCTION HAD COMMENCED AND IN ASSESSMENT YEAR 199 9-2000, A SUM OF RS. 19,31,000/- PAID UNDER THE SAME HEAD, HAD BEEN ALLOWED AS REVENUE EXPENDITURE. HENCE, THERE WAS NO REASON TO TREAT TH IS EXPENDITURE OF CAPITAL NATURE. IT WAS ALSO SUBMITTED THAT THE A.O. IN THE REMAND REPORT HAD FAILED TO TAKE COGNIZANCE OF THE FACT THAT THER E WAS ADVERSE EFFECT ON THE PRODUCTION DUE TO SOME DEFECTS, WHICH REQUIRED THE VISIT OF TECHNICIANS. THE LD. CIT(A) TAKING INTO CONSIDERATI ON THESE FACTS HELD THAT THESE EXPENSES WERE ALLOWABLE AS REVENUE EXPEN DITURE. AGGRIEVED BY THIS, THE REVENUE IS IN APPEAL BEFORE US. PAGE 4 OF 19 - I.T.A.NO. 344/IND/07 & C.O.NO.62/IN D/2007 M/S.BRIDGESTONE (INDIA) LIMITED PVT.LTD.,INDORE. 6. THE LD. DR NARRATED THE FACTS AND PLACED RELIANCE O N THE ORDER OF THE AO. THE LD. COUNSEL FOR THE ASSESSEE, ON THE OT HER HAND, PLACED STRONG RELIANCE ON THE ORDER OF THE LD. CIT(A). 7. ON DUE CONSIDERATION OF THE FACTS AND THE CIRCUMSTA NCES OF THE CASE, WE ARE OF THE VIEW THAT THESE EXPENSES ARE AL LOWABLE AS REVENUE EXPENDITURE FOR THE REASON THAT THESE HAVE BEEN INC URRED AFTER THE COMMENCEMENT OF COMMERCIAL PRODUCTION AND THAT TOO ON REPAIRS/MAINTENANCE OF THE PLANT. THUS, THIS GROUND OF THE REVENUE IS DISMISSED. 8. IN GROUND NO.2, THE REVENUE IS AGGRIEVED BY THE DEC ISION OF THE LD. CIT(A) IN HOLING THAT THE EXPENDITURE OF RS. 4, 33,70,000/- INCURRED ON STORES AND SPARES WAS ALLOWABLE AS REVENUE EXPEN DITURE. 9. THE FACTS, IN BRIEF, ARE THAT THE IMPUGNED EXPENSES HAD BEEN DISALLOWED BY THE ASSESSING OFFICER THE REASON THAT SUCH SPARES AND PARTS FORMED PART AND PARCEL OF THE MACHINERY, HENCE, OF CAPITAL NATURE. THE A.O. ALSO NOTED THAT NO RECORD HAD BEEN MAINTAINED TO ASCERTAIN THE LIFE SPAN OF SPARES AND TOOLS. HE ALSO REJECTED THE ASSE SSEES CONTENTION THAT THESE PARTS WERE REQUIRED FOR MAINTENANCE OF MACHIN ERY. AGGRIEVED BY THIS, THE ASSESSEE CARRIED THE MATTER INTO APPEAL B EFORE THE LD. CIT(A), WHEREIN THE VARIOUS DOCUMENTARY EVIDENCES AND SUBMI SSIONS WERE FILED. THE LD. CIT(A) CALLED THE REMAND REPORT FORM THE A. O., WHEREIN THE A.O. PAGE 5 OF 19 - I.T.A.NO. 344/IND/07 & C.O.NO.62/IN D/2007 M/S.BRIDGESTONE (INDIA) LIMITED PVT.LTD.,INDORE. REITERATED THE ORIGINAL STAND THAT THE ASSESSEE FAI LED TO ESTABLISH THE FACT THAT THESE SPARES/STORES WERE REQUIRED FOR REPAIRS AND MAINTENANCE AND RUNNING OF PLANT IN SMOOTH CONDITION NOR THE PERIOD OF NORMAL REPLACEMENT HAD BEEN POINTED OUT. THE LEARNED COUNS EL FOR THE ASSESSEE SUBMITTED THAT THE A.O. HAD DISALLOWED THESE EXPENS ES FOR THE REASONS THAT IN EARLIER YEARS, EXPENDITURE ON THESE ITEMS H AD BEEN CAPITALIZED BY THE ASSESSEE ITSELF. HOWEVER, ONCE THE COMMERCIAL P RODUCTION HAD COMMENCED IN ASSESSMENT YEAR 1998-99, STORES AND SP ARES UTILIZED THEREAFTER WERE TO BE CHARGED TO REVENUE. THE LD. C IT(A) HELD THAT STORES AND SPARES EXPENSES WERE OF NATURE OF ROUTINE RECUR RING EXPENSES FOR OPERATION AND MAINTENANCE OF MACHINERY. HE ALSO HEL D THAT THE A.O. DID NOT GIVE ANY SPECIFIC FINDING THAT HOW SUCH SPARES AND STORES UTILIZED WERE OF CAPITAL NATURE. ACCORDINGLY, HE DELETED THE DISALLOWANCE. 10. THE LD. DR NARRATED THE FACTS AND PLACED RELIANCE O N THE ORDER OF THE AO. THE LD. COUNSEL FOR THE ASSESSEE, ON THE OT HER HAND, PLACED STRONG RELIANCE ON THE ORDER OF THE LD. CIT(A). 11. WE HAVE CONSIDERED THE SUBMISSIONS MADE BY BOTH THE SIDES, MATERIAL ON RECORD AND THE ORDERS OF THE AUTHORITIE S BELOW. 12. IT IS NOTED THAT STORES AND SPARES EXPENSES REPRESE NT ITEMS, WHICH HAVE BEEN CONSUMED BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION . IT IS ALSO NOTED THAT BECAUSE PRODU CTION HAS ALREADY PAGE 6 OF 19 - I.T.A.NO. 344/IND/07 & C.O.NO.62/IN D/2007 M/S.BRIDGESTONE (INDIA) LIMITED PVT.LTD.,INDORE. COMMENCED IN ANY EARLIER ASSESSMENT YEARS. FROM THE PERUSAL OF BREAK UP OF STORES AND SPARES EXPENSES AT PAGE 150 TO 153, W E FIND THAT THESE EXPENSES COMPRISE OF OIL AND FUEL, STORES ITEMS, GA S, CHEMICALS, ELECTRICAL SPARES, GLOBES ETC. WHICH ARE OF PURELY CONSUMABLE NATURE. HENCE, WE ARE OF THE VIEW THAT THE LD. CIT(A) HAS RIGHTLY HELD TH AT THESE EXPENSES ARE OF REVENUE NATURE. THUS, THIS GROUND OF APPEAL OF THE REVENUE IS ALSO DISMISSED. 13. IN GROUND NO. 3, THE REVENUE IS AGGRIEVED BY THE D ECISION OF THE LD. CIT(A) IN HOLDING THAT THE COLONY EXPENSES OF RS. 77,45,000/- WERE ALLOWABLE AS BUSINESS EXPENSES. 14. THE FACTS, IN BRIEF, ARE THAT THE A.O. REQUIRED THE ASSESSEE TO EXPLAIN THE ALLOWABILITY OF THESE EXPENSES FOR THE REASON THAT HE WAS OF THE OPINION THAT THESE EXPENSES WERE NOT INCURRED F OR BUSINESS EXPEDIENCY. ACCORDINGLY, HE DISALLOWED THE SAME. AG GRIEVED BY THIS, THE ASSESSEE CARRIED THE MATTER INTO APPEAL BEFORE THE LD. CIT(A). 15. IN THE APPELLATE PROCEEDINGS, THE DETAILED SUBMISSI ONS WERE MADE AND VARIOUS DOCUMENTARY EVIDENCES WERE FURNISH ED, WHICH WERE FORWARDED BY THE LD. CIT(A) TO A.O. FOR HIS COMMENT S. IN SUCH REMAND REPORT, THE A.O., THOUGH, NOTED THAT BILLS AND VOUC HERS IN RESPECT OF MAJOR ITEMS OF REPAIRS AND MAINTENANCE IN RESPECT OF HOUS E KEEPING, ELECTRICITY, ON TELEPHONE CHARGES, WATER CHARGES IN RESPECT OF R ESIDENCE CUM OFFICE OF PAGE 7 OF 19 - I.T.A.NO. 344/IND/07 & C.O.NO.62/IN D/2007 M/S.BRIDGESTONE (INDIA) LIMITED PVT.LTD.,INDORE. JAPANESE EXPATRIATES AND OTHER SENIOR OFFICIALS OF THE ASSESSEE COMPANY HAD BEEN VERIFIED, HOWEVER, HE HELD THAT MERE PAYME NT BY THE ASSESSEE WOULD NOT ENTITLE IT TO CLAIM DEDUCTION OF EXPENDIT URE UNLESS THE SAME WAS PROVED TO HAVE BEEN INCURRED FOR COMMERCIAL CONSIDE RATIONS AND SINCE THE ASSESSEE FAILED TO PROVE SO, HENCE, THE DISALLOWANC E HAD RIGHTLY BEEN MADE. THE ASSESSEE SUBMITTED THAT THESE OBSERVATION S OF THE A.O. WERE SELF CONTRADICTORY AND ONCE THE DOCUMENTARY EVIDENC ES HAD BEEN SUBMITTED BEFORE HIM AND THE A.O. DID NOT DISPUTE T HE FACT THAT THE OFFICIALS/EMPLOYEES OF THE ASSESSEE COMPANY WERE RE SIDING IN THE COLONY, HENCE, HOW THESE EXPENSES COULD NOT BE CONSIDERED A S INCURRED FOR BUSINESS PURPOSES. THE LD. CIT(A) HELD THAT THE NAT URE OF EXPENDITURE I.E. REVENUE NATURE WAS NOT IN DISPUTE AND DOCUMENTARY E VIDENCES WERE ON RECORD TO SHOW THAT THESE EXPENSES WERE INCURRED BY THE COMPANY ON STAFF WELFARE MEASURES, HENCE, THIS EXPENDITURE SAT ISFIED THE REQUIREMENT OF PROVISIONS OF SECTION 37(1) OF THE ACT AND, THER EFORE, ALLOWABLE. AGGRIEVED BY THIS, THE REVENUE IS IN APPEAL BEFORE US. 16. THE LD. DR NARRATED THE FACTS AND PLACED RELIANCE O N THE ORDER OF THE AO. THE LD. COUNSEL FOR THE ASSESSEE, ON THE OT HER HAND, PLACED STRONG RELIANCE ON THE ORDER OF THE LD. CIT(A). 17. WE HAVE CONSIDERED THE SUBMISSIONS MADE BY BOTH THE SIDES, MATERIAL ON RECORD AND THE ORDERS OF THE AUTHORITIE S BELOW. PAGE 8 OF 19 - I.T.A.NO. 344/IND/07 & C.O.NO.62/IN D/2007 M/S.BRIDGESTONE (INDIA) LIMITED PVT.LTD.,INDORE. 18. IT IS NOTED THAT IN THE REMAND REPORT, THE A.O. HAS HIMSELF STATED THAT HE HAD VERIFIED BILLS AND VOUCHERS OF THESE EX PENSES. IT IS ALSO NOTED THAT HE HAS NOT DISPUTED THE FACT THAT THESE EXPENS ES WERE INCURRED IN CONNECTION WITH RESIDENTIAL CUM OFFICE PREMISES OF ASSESSEES OFFICIALS/EMPLOYEES. EVEN THEN, HE HAS STATED IN TH E REMAND REPORT THAT COMMERCIAL CONSIDERATIONS WERE NOT ESTABLISHED. IN THESE CUIRCUMSTANCES, WE ARE UNABLE TO UNDERSTAND WHAT MORE IS REQUIRED T O PROVE THE COMMERCIAL CONSIDERATIONS. THUS, IN OUR VIEW, THE L D. CIT(A) HAS RIGHTLY DELETED THE DISALLOWANCE MADE BY THE ASSESSING OFFI CER. ACCORDINGLY, THIS GROUND OF THE REVENUE IS ALSO DISMISSED. 19. GROUND NO. 4 READS AS UNDER :- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) ERRED IN IGNORING THE LEGAL POSITION THAT TH E EXCHANGE RATE FLUCTUATION IS APPLIED AT THE PAYMENT STAGE U/ S 43-A AND WRONGLY ALLOWING EXPENSES OF RS. 18,98,300/-. 20. THE FACTS, IN BRIEF, ARE THAT THE ASSESSEE CLAIMED A DEDUCTION OF RS. 18,98,283/- ON ACCOUNT OF EXCHANGE RATE FLUCTUA TION. ON INQUIRY FROM THE A.O., THE ASSESSEE EXPLAINED THAT IT HAD ARISEN ON ACCOUNT OF RE- STATEMENT OF FOREIGN CURRENCY LIABILITIES INCURRED FOR THE PURPOSE OF ACQUIRING RAW MATERIAL OR FIXED ASSETS, WHICH WERE ADJUSTED IN CARRYING AMOUNTS OF THE RESPECTIVE MATERIAL OR FIXED ASSETS. THE A.O. TREATED THIS PAGE 9 OF 19 - I.T.A.NO. 344/IND/07 & C.O.NO.62/IN D/2007 M/S.BRIDGESTONE (INDIA) LIMITED PVT.LTD.,INDORE. PROVISION AS A NOTIONAL LIABILITY AND HELD THAT AS PER THE PROVISIONS OF SECTION 43-A, THE SAME COULD NOT BE ALLOWED. AGGRIE VED BY THIS, THE ASSESSEE CARRIED THE MATTER INTO APPEAL BEFORE THE LD. CIT(A), WHEREIN DETAILED SUBMISSIONS WERE MADE IN REGARD TO THE NAT URE OF SUCH LIABILITY. THE ASSESSEE ALSO SUBMITTED THAT FOR EXCHANGE RATE FLUCTUATION WAS BOTH IN REGARD TO TRADING ASSETS/EXPENSES AND CAPITAL GOODS WHEREAS THE A.O. HAD APPLIED THE PROVISIONS OF SECTION 43-A FOR ENTIRE C LAIM, WHICH WAS NOT CORRECT. IT WAS ALSO CONTENDED THAT IN THE REMAND R EPORT AS WELL, THE CORRECT APPRECIATION OF LAW, WHICH WAS PREVALENT AT THE RELEVANT POINT OF TIME, WAS NOT DONE. THE LD. CIT(A) ACCEPTED SUCH CL AIMS OF THE ASSESSEE FOR THE REASON THAT THE LAW PREVALENT AT THAT TIME PERMITTED SUCH ALLOWANCE. HE FURTHER ASSAILED THE ORDER OF A.O. ON THE GROUND THAT THE A.O. HAD ADOPTED TWO CONTRADICTORY STANDS AS REGARD TO THE NATURE OF SUCH EXPENSES FOR THE REASON THAT WHEN IT CAME TO EXPENS ES, HE TREATED IT AS NOTIONAL AND DISALLOWED THE SAME AND, ON THE OTHER HAND, EXCESS REALIZATION OF INCOME ON THE SAME BASIS WAS ASSESSE D AS INCOME. AGGRIEVED BY THIS, THE REVENUE IS IN APPEAL BEFORE US. 21. THE LD. DEPARTMENTAL REPRESENTATIVE PLACED RELIANCE ON THE ORDER OF A.O., WHEREAS THE LEARNED COUNSEL PLACED S TRONG RELIANCE ON THE ORDER OF LD. CIT(A) AND ALSO RELIED ON THE DECISION OF HON'BLE SUPREME PAGE 10 OF 19 - I.T.A.NO. 344/IND/07 & C.O.NO.62/I ND/2007 M/S.BRIDGESTONE (INDIA) LIMITED PVT.LTD.,INDORE. COURT IN THE CASE OF WOODWORD GOVERNORS LIMITED, AS REPORTED 13 ITJ 1 (S. C.) 22. WE HAVE CONSIDERED THE SUBMISSIONS MADE BY BOTH THE SIDES, MATERIAL ON RECORD AND THE ORDERS OF THE AUTHORITIE S BELOW. 23. IT IS NOTED THAT EXCHANGE RATE FLUCTUATION EXPENSES HAVE ARISEN INSTEAD OF TRADING GOODS/EXPENSES AND CAPITAL ASSET S. AS FAR AS TRADING GOODS/EXPENSES ARE CONCERNED, IT IS NOT IN DISPUTE THAT SUCH EXCHANGE RATE FLUCTUATION HAS BEEN TAKEN INTO CONSIDERATION IN AR RIVING THE VALUE OF RAW MATERIALS REMAINING IN HAND AT THE END OF THE YEAR. AS FAR AS CAPITAL ASSETS ARE CONCERNED, THE SAME LIABILITY TO PAY THE CREDIT ORS FOR ACQUISITION OF SUCH CAPITAL ASSETS HAVE BEEN RE-STATED BY THIS AMO UNT AND CORRESPONDINGLY, VALUE OF CAPITAL ASSETS HAS BEEN M ODIFIED. AT THE RELEVANT POINT OF TIME, SUCH RE-STATEMENT OF VALUE OF CAPITAL ASSETS COULD BE DONE U/S 43-A. HENCE, THERE IS NO MERIT IN THIS GROUND OF THE REVENUE TO THIS EXTENT. IN RESPECT OF ALLOWANCE OF EXCHANGE RATE DIFFERENCE PERTAINING TO TRADING GOODS, THE SAME HAS TO BE ALL OWED AS PER THE METHOD OF ACCOUNTING FOLLOWED BY THE ASSESSEE ON WHICH THE RE IS NO DISPUTE BEFORE US. THUS, IN VIEW OF THE ABOVE FACTS AND LEG AL POSITION, WE HOLD THAT THERE IS NO INFIRMITY IN THE ORDER OF THE LD. CIT(A). ACCORDINGLY, THIS GROUND OF THE REVENUE IS ALSO DISMISSED. PAGE 11 OF 19 - I.T.A.NO. 344/IND/07 & C.O.NO.62/I ND/2007 M/S.BRIDGESTONE (INDIA) LIMITED PVT.LTD.,INDORE. 24. IN GROUND NO.5, THE REVENUE IS AGGRIEVED BY THE DE CISION OF THE LD. CIT(A) IN DELETING THE DISALLOWANCE OF RS. 32,8 2,670/- MADE BY THE ASSESSING OFFICER U/S 43B ON ACCOUNT OF LATE PAYMEN T OF P.F. AND E.S.I. 25. IN RESPECT OF THIS GROUND, THE UNDISPUTED FACT IS T HAT CHEQUES OF SUCH CONTRIBUTIONS HAVE BEEN GIVEN TO THE CONCERNED AUTHORITIES BEFORE THE DUE DATE, WHICH HAVE BEEN REALIZED SUBSEQUENTLY . IT IS A SETTLED POSITION AS PER THE LAW THAT DATE OF DELIVERY OF CH EQUES IS THE DATE OF PAYMENT, UNLESS CONTRARY PROVISIONS ARE MADE IN A S PECIFIC MANNER, WHICH IS NOT SO HERE. IN THIS VIEW OF THE MATTER, WE HOLD THAT THE LD. CIT(A) HAS RIGHTLY DELETED SUCH DISALLOWANCE. THUS, THIS GROUN D OF THE REVENUE IS ALSO DISMISSED. 26. NOW, WE SHALL TAKE UP THE ASSESSEES CROSS OBJECTIO N. 27. IN GROUND NO. 1 OF CROSS OBJECTION, THE ASSESSEE IS AGGRIEVED BY THE DECISION OF THE LD. CIT(A) IN HOLDING THAT CLU B EXPENSES OF RS. 2,15,250/- WERE INCURRED FOR PROVIDING ENTERTAINMEN T FACILITY TO THE DIRECTORS. 28. THE FACTS, IN BRIEF, ARE THAT THE A.O. REQUIRED THE ASSESSEE TO JUSTIFY THE CLAIM BY PROVING COMMERCIAL EXPEDIENCY THEREOF. THE ASSESSEE SUBMITTED THAT THESE PAYMENTS HAD BEEN MADE TO THRE E CLUBS TO DEVELOP CONTACTS FOR PROMOTING COMPANYS BUSINESS INTERESTS , HENCE, ALLOWABLE. THE A.O., HOWEVER, HELD THAT THERE WAS NO OTHER COM PETITOR IN THE FIELD IN PAGE 12 OF 19 - I.T.A.NO. 344/IND/07 & C.O.NO.62/I ND/2007 M/S.BRIDGESTONE (INDIA) LIMITED PVT.LTD.,INDORE. WHICH THE ASSESSEE WAS ENGAGED,HENCE, THESE EXPENSE S WERE OF PERSONAL NATURE. AGGRIEVED BY THIS, THE ASSESSEE CARRIED THE MATTER INTO APPEAL BEFORE THE LD. CIT(A), WHO ALSO UPHELD THE ACTION O F THE A.O. FOR THE REASON THAT THESE FACILITIES WERE PROVIDED ONLY TO TOP OFFICERS OF THE COMPANY MANAGEMENT AND NO EXPLANATION WAS OFFERED R EGARDING ADDITION OF THIS FACILITY AS PERQUISITE IN THEIR HANDS. STIL L AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US. 29. THE LEARNED COUNSEL FOR THE ASSESSEE NARRATED THE F ACTS AND CONTENDED THAT IT WAS NOT A CASE OF ENTRANCE FEE BU T A CASE OF SUBSCRIPTION. HENCE, NO ENDURING BENEFIT ACCRUED TO THE ASSESSEE. HE FURTHER PLACED RELIANCE ON THE DECISION OF THE INDORE BENCH OF THE TRIBUNAL IN THE CASE OF NAI DUNIA NEWS AND NET WORKS PRIVATE LIMITED VS. DY . CIT, AS REPORTED IN 8 ITJ 379. THE LD. DEPARTMENTAL REPRESENTATIVE, ON THE OTHER HAND, PLACED STRONG RELIANCE ON THE ORDER OF THE LD. CIT( A). 30. WE HAVE CONSIDERED THE SUBMISSIONS MADE BY BOTH THE SIDES, MATERIAL ON RECORD AND THE ORDERS OF THE AUTHORITIE S BELOW. 31. IT IS NOTED THAT THE ASSESSEE IS A COMPANY HAVING A HUGE TURNOVER. IT IS FURTHER NOTED THAT THE SUBSCRIPTION TO CLUBS HAS BEEN MADE BY THE ASSESSEE COMPANY ARE PRESTIGIOUS ONE. IT IS ALSO NOTED THAT THESE SUBSCRIPTIONS HAVE BEEN MADE WITH A VIEW TO DO LIAI SONING AS WELL AS ENTERTAINING THE COMPANIES GUESTS IN CONNECTION WI TH ITS BUSINESS, PAGE 13 OF 19 - I.T.A.NO. 344/IND/07 & C.O.NO.62/I ND/2007 M/S.BRIDGESTONE (INDIA) LIMITED PVT.LTD.,INDORE. WHEREIN THE COMPANY HAS SAVED EXPENDITURE BY GETTIN G DISCOUNTS. THESE EXPLANATIONS OF THE ASSESSEE HAVE BEEN TREATED BY T HE CIT(A) AS OF A GENERAL NATURE, WHICH, IN OUR VIEW, IS NOT CORRECT, BECAUSE IT IS NOW A COMMON PRACTICE WITH EVERY CORPORATE ENTITY TO HAVE THESE KINDS OF MEMBERSHIPS AND ARRANGE MEETINGS AT THOSE PLACES IN CONNECTION WITH ITS BUSINESS REQUIREMENTS. FURTHER, THE REVENUE HAS NOT BROUGHT ANY MATERIAL ON RECORD TO SHOW THAT NO BUSINESS PURPOSE WAS SERV ED OR EXCLUSIVE PERSONAL FACILITIES WERE ONLY OBTAINED BY SUCH OFFI CERS OF THE ASSESSEE COMPANY. IN THIS VIEW OF THE MATTER, WE HOLD THAT T HE ORDER OF THE LD. CIT(A) IS NOT CORRECT IN LAW. BEFORE PARTING, WE MA Y ADD THAT THE DECISION CITED BY THE LEARNED COUNSEL FOR THE ASSESSEE IS N OT AT ALL RELEVANT AS IN THAT CASE, ENTIRELY DIFFERENT ISSUES WERE INVOLVED. 32. IN GROUND NO.2, THE ASSESSEE IS AGGRIEVED BY THE DE CISION OF LD. CIT(A) IN HOLDING THAT CHARITY AND DONATION OF RS. 3.25 LAKHS WERE NOT ALLOWABLE U/S 37(1) OF THE ACT. 33. THE FACTS, IN BRIEF, ARE THAT THE A.O. DISALLOWED T HE EXPENSES FOR WANT OF EVIDENCE AND EXPLANATION BY THE ASSESSEE. I N APPEAL BEFORE THE LD. CIT(A), THE ASSESSEE SUBMITTED THE BIFURCATION OF CHARITY AND DONATIONS, WHICH IS REPRODUCED AS UNDER :- NAME OF THE DONEE AMOUNT CHIEF MINISTER KARGIL RELIEF FUND 2,00,000 KARGIL FUND (EMPLOYEES) 17,251 PAGE 14 OF 19 - I.T.A.NO. 344/IND/07 & C.O.NO.62/I ND/2007 M/S.BRIDGESTONE (INDIA) LIMITED PVT.LTD.,INDORE. CHRISTIAN EMINENT ACADEMY 5,000 SANATAN CHARITABLE TRUST 10,000 BIRSA TURKEY AID FUND 92,292 TOTAL RS. 3,24,543 34. BESIDES THIS, THE ASSESSEE ALSO RELIED ON VARIOUS J UDICIAL DECISIONS TO CONTEND THAT THESE EXPENSES WERE ALLOW ABLE U/S 37(1) FOR THE REASON THAT THESE EXPENSES WERE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF MAINTAINING GOOD LIAISONING WITH THE PUB LIC AND THE GOVERNMENT AND MERE FACT THAT THESE EXPENSES WERE F OR CHARITABLE PURPOSES, THE DEDUCTION THEREOF COULD NOT BE DENIED . THE LD. CIT(A) OBSERVED THAT ADMITTEDLY THERE WAS A HUGE LOSS SUFF ERED BY THE ASSESSEE. HENCE, THE ASSESSEE COULD NOT AVAIL DEDUCTION OF SU CH AMOUNT U/S 80G AND MAINLY FOR THIS REASON, THE ASSESSEE WAS TRYING TO CLAIM THESE EXPENSES U/S 37(1) OF THE ACT. THE LD. CIT(A), THER EAFTER, DISTINGUISHED THE DECISIONS RELIED ON BY THE ASSESSEE ON FACTS AN D CONFIRMED THE ACTION OF A.O. AGGRIEVED BY THIS, THE ASSESSEE IS IN APPEA L BEFORE US. 35. THE LEARNED COUNSEL FOR THE ASSESSEE, FIRSTLY, REIT ERATED THE SUBMISSIONS MADE BEFORE THE CIT(A) AND RELIED ON TH E SAME DECISIONS. THEREAFTER, HE PLACED RELIANCE ON THE DECISION OF T HE TRIBUNAL IN THE CASE OF SHRI A.M.MATHUR VS. DY. CIT, AS REPORTED IN 12 I TJ 250, WHEREIN THE ASSESSEES CLAIM FOR ALLOWANCE OF DONATION BY THE A SSESSEE, BEING AN PAGE 15 OF 19 - I.T.A.NO. 344/IND/07 & C.O.NO.62/I ND/2007 M/S.BRIDGESTONE (INDIA) LIMITED PVT.LTD.,INDORE. ADVOCATE TO CHARITABLE TRUST WAS DISALLOWED U/S 37. HOWEVER, THE TRIBUNAL HAD OBSERVED THAT THE ASSESSEE COULD HAVE CLAIMED DEDUCTION U/S 80G, IF THE CONDITIONS SPECIFIED THEREIN, WERE SATI SFIED AND ON THAT BASIS CONTENDED THAT BOTH THESE SECTIONS WERE INDEPENDENT AND, THEREFORE, IF THE ASSESSEE WAS NOT ELIGIBLE FOR DEDUCTION U/S 80-G DU E TO LOSS, THEN THIS FACT CANNOT BE A GROUND TO DISALLOW A GENUINE BUSINESS E XPENDITURE. 36. THE LD. DEPARTMENTAL REPRESENTATIVE, ON THE OTHER HAND, PLACED STRONG RELIANCE ON THE ORDER OF THE LD. CIT(A). 37. WE HAVE CONSIDERED THE SUBMISSIONS MADE BY BOTH THE SIDES, MATERIAL ON RECORD AND THE ORDERS OF THE AUTHORITIE S BELOW. 38. IT IS NOTED THAT FIRST TWO CONTRIBUTIONS HAVE BEEN MADE AFTER THE KARGIL WAR. THE NEXT TWO CATEGORIES OF DONATIONS RE LATE TO CONTRIBUTION TO TRUST/INSTITUTION IN THE LOCATIONS WHERE THE ASSESS EES BUSINESS OPERATIONS ARE BEING CARRIED OUT. LAST DONATION IS THE SHARE I N THE OVER ALL SUBSCRIPTION MADE BY THE HOLDING COMPANY OF THE AS SESSEE IN TURKEY, WHERE SOME PROJECTS OF HOLDING COMPANY WERE GOING O N. FIRST OF ALL, WE HOLD THAT THE DONATION IN TURKEY CANNOT BE CONSIDER ED AS INCURRED FOR THE PURPOSE OF BUSINESS AT THE VERY OUT-SET, AS NO MATE RIAL HAS BEEN BROUGHT ON RECORD TO SHOW THAT THE ASSESSEES BUSINESS INTE RESTS WERE ALSO INVOLVED AT THAT PLACE. HENCE, THIS PART OF THIS GR OUND OF THE ASSESSEE IS REJECTED. IN RESPECT OF DONATIONS TO KARGIL FUNDS A ND OTHER TWO SMALL PAGE 16 OF 19 - I.T.A.NO. 344/IND/07 & C.O.NO.62/I ND/2007 M/S.BRIDGESTONE (INDIA) LIMITED PVT.LTD.,INDORE. DONATIONS, WE FIND THAT THESE ARE PART OF DISCHARGE OF SOCIAL RESPONSIBILITIES OF THE BUSINESS AND GENUINENESS OF INCURRENCE OF THESE EXPENDITURE IS NOT IN DOUBT AND THE TERM COMMERCIA L EXPEDIENCY CANNOT BE SO NARROWLY CONSTRUED SO AS TO EXCLUDE SUCH TYPE OF CONTRIBUTIONS OUT OF THE PURVIEW OF THE TERM FOR THE PURPOSE OF THE BUSINESS. TO PUT IT DIFFERENTLY, THESE CONTRIBUTIONS CREATE GOODWILL IN THE EYES OF REGULATORS AND LOCAL PEOPLE, WHICH FACILITATE THE SMOOTH OPERA TIONS OF THE BUSINESS AND THESE CONTRIBUTIONS ALSO BOOST THE MORAL OF THE EMPLOYEES RESULTING INTO HIGHER PRODUCTIVITY. HENCE, THESE HAVE TO BE C ONSIDERED AS INCURRED FOR THE PURPOSES OF THE BUSINESS. WE ARE FURTHER OF THE VIEW THAT SCOPE OF SECTION 37(1) AND SECTION 80-G IS DIFFERENT AS T HESE PROVISIONS OPERATE IN DIFFERENT FIELDS. THUS, MERELY BECAUSE A N AMOUNT, WHICH IS OTHERWISE ELIGIBLE FOR DEDUCTION U/S 80-G, THE BENE FIT OF WHICH CANNOT BE AVAILED BY AN ASSESSEE BECAUSE OF LOSS, D EDUCTION OF AN EXPENDITURE CANNOT BE DENIED TO AN ASSESSEE IF IT A LSO SATISFIES THE CONDITIONS OF SECTION 37(1), MERELY FOR THE REASON THAT SUCH AMOUNT COULD HAVE BEEN CLAIMED AS DEDUCTION U/S 80-G. THE DECISION OF THE TRIBUNAL IN THE CASE OF A. M. MATHUR (SUPRA) ALSO S UPPORTS THIS VIEW. FURTHER, AS STATED EARLIER, THE IMPUGNED EXPENDITUR E IS A BUSINESS EXPENSE. ACCORDINGLY, WE ALLOW THIS GROUND OF THE ASSESSEE. PAGE 17 OF 19 - I.T.A.NO. 344/IND/07 & C.O.NO.62/I ND/2007 M/S.BRIDGESTONE (INDIA) LIMITED PVT.LTD.,INDORE. 39. IN GROUND NO.3, THE ASSESSEE IS AGGRIEVED BY THE D ECISION OF THE LD. CIT(A) IN HOLDING THAT SUNDRY EXPENSES AMOUNTIN G TO RS. 25,61,200/- WRITTEN OFF BY THE ASSESSEE IN THE YEAR UNDER CONSI DERATION WERE NOT ALLOWABLE. 40. THE FACTS, IN BRIEF, ARE THAT THIS SUM WAS DISALLOW ED BY THE ASSESSING OFFICER FOR WANT OF EXPLANATION BY THE AS SESSEE. ON APPEAL BY THE ASSESSEE, THE LD. CIT(A) FOUND THAT THIS AMOUNT REPRESENTED SECURITY DEPOSIT GIVEN IN O.Y.T. SCHEME TO TELEPHONE DEPARTM ENT AMOUNTING TO RS. 24,86,500/- UP TO ASSESSMENT YEAR 1999-2000 OR EARLIER YEARS AND EXPENDITURE OF RS. 74,700/- PERTAINED TO THE TELEPH ONES INSTALLED DURING THE YEAR UNDER CONSIDERATION. ACCORDINGLY, THE LD. CIT(A) HAVING REGARD TO THE METHOD OF ACCOUNTING EMPLOYED BY THE ASSESSE E AND HELD THAT THE EXPENSES OF RS. 24,86,000/- PERTAINED TO EARLIER YE ARS, HENCE, NOT ALLOWABLE. AGGRIEVED BY THIS, THE ASSESSEE HAS FILE D THIS CROSS OBJECTION. 41. THE LEARNED COUNSEL FOR THE ASSESSEE, AT THE VERY O UT-SET, SUBMITTED THAT THE AMOUNT IN THE GROUND OF CROSS OB JECTION SHOULD BE READ AS RS. 24,86,500/- INSTEAD OF RS. 25,61,200/-. THER EAFTER, HE REITERATED THE SUBMISSIONS MADE BEFORE THE REVENUE AUTHORITIES. 42. THE LD. DEPARTMENTAL REPRESENTATIVE, ON THE OTHER HAND, PLACED STRONG RELIANCE ON THE ORDER OF THE LD. CIT(A). PAGE 18 OF 19 - I.T.A.NO. 344/IND/07 & C.O.NO.62/I ND/2007 M/S.BRIDGESTONE (INDIA) LIMITED PVT.LTD.,INDORE. 43. WE HAVE CONSIDERED THE SUBMISSIONS MADE BY BOTH THE SIDES, MATERIAL ON RECORD AND THE ORDERS OF THE AUTHORITIE S BELOW. 44. IT IS NOTED THAT THE IMPUGNED SUM REPRESENTED SECUR ITY DEPOSIT GIVEN TO TELEPHONE DEPARTMENT FOR OBTAINING TELEPHO NES ON PRIORITY UNDER O.Y.T. SCHEME. SUCH SECURITY DEPOSIT AS PER T HE METHOD OF ACCOUNTING EMPLOYED BY THE ASSESSEE COULD BE WRITTE N OFF EITHER IN THE YEAR IN WHICH SUCH SECURITY DEPOSIT WAS GIVEN OR TH IS SECURITY DEPOSIT CAN BE CLAIMED AS EXPENDITURE ON PRO-RATA BASIS ACCORDI NG TO THE ADJUSTMENTS MADE BY THE TELEPHONE DEPARTMENT FROM THE BILLS OF THE ASSESSEE IN EACH FINANCIAL YEAR. IN THIS VIEW OF THE MATTER, WE HOLD THAT THE LD. CIT(A) HAS RIGHTLY DISALLOWED THE IMPUGNED SUM AS ADMITTEDLY, THE IMPUGNED SUM RELATES TO TELEPHONES INSTALLED IN THE YEARS EARLIE R TO THE YEAR UNDER CONSIDERATION, HENCE, NO EVENT HAS TAKEN PLACE IN T HIS YEAR, WHICH COULD JUSTIFY THE CLAIM OF THE ASSESSEE. THUS, THIS GROUN D OF THE ASSESSEE IS DISMISSED. 45. IN THE RESULT, THE CROSS OBJECTION FILED BY THE ASS ESSEE STANDS PARTLY ALLOWED. 46. TO SUM UP, REVENUES APPEAL IS DISMISSED AND CROSS OBJECTION FILED BY THE ASSESSEE STANDS PARTLY ALLOWED. PAGE 19 OF 19 - I.T.A.NO. 344/IND/07 & C.O.NO.62/I ND/2007 M/S.BRIDGESTONE (INDIA) LIMITED PVT.LTD.,INDORE. THIS ORDER HAS BEEN PRONOUNCED IN THE OPEN COURT ON 26 TH NOVEMBER, 2009. SD/- SD/- (JOGINDER SINGH) (V. K. GUPTA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 26 TH NOVEMBER, 2009. CPU* 512D13