The ITO, Ward-4, Ahmedabad V. Royal Marwar Tobacco Product Pvt.Ltd., Gandhinagar

ITA 3445/AHD/2010

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 5998 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 4 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-05-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 21-04-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 27-12-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: O P MEENADR
• Keywords: Depreciation; Royalty expenses; Revenue expenditure; Capital expenditure
• Section: 143(3); 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, AHMEDABAD (BEFORE SHRI G.C.GUPTA VICE PRESIDENT & SHRI ANIL C HATURVEDI, A.M.) I.T. A. NO. 3445 /AHD/2010 & CO. NO. 31/AHD/2011 (ASSESSMENT YEAR: 2007-08) THE ITO, WARD-4, AHMEDABAD V/S ROYAL MARWAR TOBACCO PRODUCTS P. LTD. PLOT NO. 901-A, SECTOR-28, GIDC ENNG.. ZONE, GANDHINAGAR (APPELLANT) (RESPONDENT) ROYAL MARWAR TOBACCO PRODUCTS P. LTD. PLOT NO. 901-A, SECTOR-28, GIDC ENNG.. ZONE, GANDHINAGAR V/S THE ITO, WARD-4, AHMEDABAD (APPELLANT) (RESPONDENT) PAN: AABCR 5770Q APPELLANT BY : SHRI O.P. MEENA, DR. D.R RESPONDENT BY : NONE ( )/ ORDER DATE OF HEARING : 21-04-201 4 DATE OF PRONOUNCEMENT : 02-05-2014 PER SHRI ANIL CHATURVEDI,A.M. 1. THIS APPEAL IS FILED BY THE REVENUE AGAINST THE ORD ER CIT(A), GANDHINAGAR, AHMEDABAD DATED 05.10.2010 FOR A.Y. 20 07-08 AND ASSESSEE HAS ALSO FILED A CO. ITA NO 3445/A/2010 & CO NO. 31/A/11 . A.Y. 2007- 08 2 2. ASSESSEE IS A COMPANY STATED TO BE ENGAGED IN THE B USINESS OF MANUFACTURING AND SALE OF GUTKHA. ASSESSEE FILED IT S RETURN OF INCOME FOR A.Y. 07-08 ON 14.11.2007 DECLARING TOTAL INCOME OF RS. 41,20,642/-. THE CASE WAS SELECTED FOR SCRUTINY AND THEREAFTER THE A SSESSMENT WAS FRAMED U/S 143(3) VIDE ORDER DATED 30.12.2009 AND THE TOTA L INCOME WAS DETERMINED AT RS. 68,09,877/-. AGGRIEVED BY THE OR DER OF A.O, ASSESSEE CARRIED THE MATTER BEFORE CIT(A). CIT(A) VIDE ORDER DATED 05.10.2010 GRANTED PARTIAL RELIEF TO THE ASSESSEE. AGGRIEVED BY THE ORDER OF CIT(A), THE REVENUE IS NOW IN APPEAL BEFORE US AND THE ASSE SSEE HAS ALSO FILED A CO. 3. THE EFFECTIVE GROUND RAISED BY THE REVENUE READS AS UNDER:- 1. THE LD CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELE TING THE ADDITION OF RS. 21,95,958/- MADE U/S. 40(A)(IA) OF THE I.T. ACT. 4. ON THE OTHER HAND THE GROUNDS RAISED BY THE ASSESSE E IN THE C.O READS AS UNDER:- 1. THE LD. CIT APPEALS HAS ERRED IN LAW AND ON FACTS I N CONFIRMING THE DISALLOWANCE OF RS.492250/- MADE OUT OF BUILDING REPAIR AND MAINTENANCE EXPENSE S AS MAJORITY OF EXPENSES WERE PAID THROUGH ACCOUNT PAYEE CHEQUES. 2. THE LD. CIT APPEALS HAS ERRED IN LAW AND ON FACTS I N CONFIRMING THE DISALLOWANCE OF DEPRECIATION OF RS.62500/- (WRONGLY TAKEN BY A.O. AT RS.1027/-) CLAIMED IN RESPECT OF TRADE MARK. THE LD CIT APPEALS SHOULD HAVE APPRECIATED THAT IF DEPRECIATIO N IS NOT ALLOWED THEN ENTIRE AMOUNT WAS REQUIRED TO BE ALLOWED AS IT WAS INCURRED WHOLLY AN D EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS. 5. ON THE DATE OF HARING NONE APPEARED ON BEHALF OF T HE ASSESSEE THOUGH THE NOTICE WAS SERVED ON ASSESSEE ON 24.03.2014. W E THEREFORE PROCEED TO DISPOSE OF THE MATTER EX PARTE QUA THE ASSESSEE. 6. NOW WE FIRST TAKE UP REVENUES APPEAL (FOR A.Y. 20 07-08). ITA NO 3445/A/2010 & CO NO. 31/A/11 . A.Y. 2007- 08 3 7. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, A.O NO TICED THAT ASSESSEE HAD DEBITED RS. 21,45,958/- UNDER THE HEAD ROYALTY EXPENSES. A.O ALSO NOTED THAT THE ASSESSEE HAD REMITTED THE AMOUN T THROUGH US DOLLAR ON 28.03.2008 BUT THE TDS WAS REMITTED ON 02.06.200 7. A.O WAS OF THE VIEW THAT SINCE THE ASSESSEE HAS NOT MADE THE PAYME NT OF TDS DURING THE ACCOUNTING YEAR, THE EXPENSES ON WHICH TDS WAS DEDUCTIBLE WAS LIABLE FOR DISALLOWANCE UNDER SECTION 40(A)(IA) OF THE ACT AND THEREFORE HE DISALLOWED THE ENTIRE ROYALTY EXPENDITURE OF RS. 21 ,95,958/- U/S 40(A)(IA) OF THE ACT. AGGRIEVED BY THE ORDER OF A.O, ASSESSEE CARRIED THE MATTER BEFORE CIT(A). CIT(A) DELETED THE ADDITION BY HOLDI NG AS UNDER:- 5.3 I HAVE CONSIDERED THE CONTENTIONS OF THE APPELLANT AS WELL AS THE ASSESSMENT ORDER. IT IS CLEAR FROM THE ABOVE THAT THE ENTIRE AMOUNT OF TDS WAS DEDUCTE D ON 31/3/2007 (I.E. THE LAST DAY OF THE PREVIOUS YEAR)AND EXCEPT FOR RS.493/- WHICH WAS DEP OSITED IN THE BANK ON 17/7/2007, REMAINING AMOUNT OF THIS TDS WAS DEPOSITED BY CHALLANS IN STA TE BANK OF INDIA BY CHALLANS WHICH SHOW DATE AS PER THAT BANK AS 2/6/2007. THE ASSESSEE HAS GIVE N A COPY OF THE BANK ACCOUNT IN BANK OF BARODA WHERE THIS AMOUNT HAS BEEN FOUND DEBITED ON 1 ST JUNE, 2007. IT IS CLEAR THAT FOR THE AMOUNT TO BE CLEARED IN A DIFFERENT BANK ON 1 ST JUNE, 2007, THIS AMOUNT HAS BEEN TENDERED IN STATE BANK OF INDIA ON 31/6/2007 WHICH IS DUE DATE FOR DEPOSITING SUCH TAX. IN THE LIGHT OF THESE FACTS WHEREIN, AS PER CIRCULAR OF THE BOARD, THE DATE OF TENDER OF CH EQUE IS DEEMED TO BE TAKEN AS THE DATE OF PAYMENT AND DRAWING SUPPORT FROM THE DECISION OF IT AT CHENNAI BENCH IN THE CASE OF P.L HAULWEL TRAILERS LTD (100 ITD 485|; IT IS HELD THAT THESE PAYMENTS WERE MADE WITHIN TIME AS REQUIRED EXCEPT RS. 493/- WHICH WAS DEPOSITED LATE. THEREFORE, THE AMOUNT OF ROYALTY PROPORTIONATE TO THIS DELAYED PAYMENT OF TAX OF RS. 493/- I.E. RS. 2,393/- IS HELD TO BE DISALLOWABLE UNDER THE PROVISIONS OF SECTION 40(A)(IA) AND THE R EMAINING ADDITION MADE BY THE A.O IS DELETED. 8. AGGRIEVED BY THE ORDER OF CIT(A), THE REVENUE IS NO W IN APPEAL BEFORE US. BEFORE US THE LD. D.R. RELIED ON THE ORDER OF A .O. 9. WE HAVE HEARD THE LD. D.R. AND PERUSED THE MATERIAL ON RECORD. WE FIND THAT CIT(A) WHILE DELETING THE ADDITION HAS NOTED T HAT ASSESSEE HAD DEDUCTED THE TDS ON THE LAST DAY OF PREVIOUS YEAR A ND THE ENTIRE AMOUNT OF TDS (EXCEPT RS. 493/-) WAS DEPOSITED IN BANK BEF ORE THE DUE DATE OF DEPOSITING TDS. HE THEREFORE HELD THAT NO AMOUNT CA N BE DISALLOWED ITA NO 3445/A/2010 & CO NO. 31/A/11 . A.Y. 2007- 08 4 UNDER THE PROVISIONS OF SECTION 40(A)(IA) OF THE AC T WITH RESPECT TO AMOUNTS ON WHICH TDS WAS DEPOSITED IN TIME. BEFORE CIT(A), IT WAS ALSO SUBMITTED THAT THE DEPOSIT OF TDS IN BANK WAS THROUGH CHEQUES AND THE CHEQUES WERE NOT DISHONOURED. BEFORE US, THE LD . D.R. COULD NOT CONTROVERT THE FINDINGS OF CIT(A). WE THEREFORE FIN D NO REASON TO INTERFERE WITH THE ORDER OF CIT(A) AND THUS THIS GR OUND OF REVENUE IS DISMISSED. 10. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMISSED. C.O. NO. 31/AHD/2011 (ASSESSEES APPEAL) 1 ST GROUND IS WITH RESPECT TO DISALLOWANCE OF RS. 4,92 ,250/- MADE OUT OF BUILDING REPAIR AND MAINTENANCE EXPENSE S. 11. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, A.O N OTICED THAT ASSESSEE HAD DEBITED BUILDING REPAIR AND MAINTENANCE EXPENSE S AMOUNTING TO RS. 4,92,250/-. THE ASSESSEE WAS ASKED TO SUBMIT THE DE TAILS OF EXPENSES. A.O. NOTED THAT ASSESSEE HAD FILED ONLY THE COPY OF LEDGER ACCOUNT OF FACTORY BUILDING REPAIRS BUT NO OTHER EVIDENCE LIKE COPY OF BILLS OR INVOICES THE DATE OF PAYMENT ETC WAS FURNISHED. HE THEREFORE WAS OF THE VIEW THAT MERELY PRODUCING A COPY OF THE LEDGER ACC OUNT DOES NOT PROVE THAT THE EXPENSES CLAIMED BY THE ASSESSEE TO BE GEN UINE AND HE ACCORDINGLY DISALLOWED THE EXPENSES. AGGRIEVED BY THE ORDER OF A.O, ASSESSEE CARRIED THE MATTER BEFORE CIT(A). CIT(A) C ONFIRMED THE ACTION OF A.O. BY HOLDING AS UNDER:- ITA NO 3445/A/2010 & CO NO. 31/A/11 . A.Y. 2007- 08 5 6.3. I HAVE CONSIDERED THE CONTENTIONS OF THE APPELLANT AS WELL AS THE ASSESSMENT ORDER. AS PER THE PROVISIONS OF SEC. 37(1) SUPPORTED BY DECISION OF HON'BLE HIGH COURT OF MADRAS IN THE CASE OF SAPTAGIRI TRADERS LTD (305 ITR 438; IN ORDER TO CLA IM DEDUCTION U/S.37 OF THE IT ACT, TWO CONDITIONS MUST BE SATISFIED (A) THE EXPENDITURE SHOULD HAVE B EEN INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS AND (B) SUCH EXPENDITURE SHOULD NOT BE IN THE NATURE OF CAPITAL EXPENDITURE. IN ASSESSEES CASE, IT HAS FAILED TO GIVE ANY PROOF WHATSOEVER (NOT EVEN IN APPELLATE PROCEEDINGS) REGARDING EVEN ONE OF THE TWO CONDITIONS BEING MET WHEREAS BOTH THE CONDITIONS ARE REQUIRED TO BE SATISFIED, SIMULTANEOUSLY. NO NAME OF THE PARTY TO WHOM THE PAYMENT HAVE BEE N MADE (WHAT TO SAY OF ADDRESS) NATURE OF GOODS OR SERVICES PROVIDED, IF A NY, IS NOT GIVEN AND THAT EVEN THE LEDGER ACCOUNT GIVEN BY ASSESSEE DOES NOT GIVE ANY DETAILS OF BILL NUMBERS ETC., AGAINST WHICH PAYMENTS HAVE BEEN MADE. THE CHEQUES ARE DEBITED DIRECTLY TO EXPENDIT URE CLAIMED AND NOT TO PARTY ACCOUNT TO WHOM PAYMENTS ARE MADE. THE CONTENTION THAT SUBSTANTIAL PAYMENT WERE MADE BY CHEQUE IS OF NO AVAIL WHEN EVEN THE BASIS FACTS ARE NOT PROVED TO CLAIM THE EX PENDITURE U/S. 37(1). THEREFORE, THE ADDITION OF R S. 4,92,250/- MADE ON THIS ACCOUNT IS SUSTAINED HOLDIN G THAT THE ASSESSEE HAS FAILED TO EVEN PROVE ONE OF THE CONDITIONS REQUIRED AS ENLISTED ABOVE IS SATISF IED FOR CLAIMING THE EXPENDITURE U/S. 37(1) OF THE ACT. 12. BEFORE US THE LD. D.R. SUPPORTED THE ORDER OF A.O A ND CIT(A). 13. WE HAVE HEARD THE LD. D.R. AND PERUSED THE MATERIAL ON RECORD. WE FIND THAT CIT(A) WHILE UPHOLDING THE ADDITION MADE BY A. O HAS NOTED THAT ASSESSEE HAD FAILED TO GIVE THE PROOF OF EXPENDITUR E BEFORE A.O AND EVEN BEFORE CIT(A) AND ACCORDINGLY THE ASSESSEE HAS FAIL ED TO PROVE THAT THE EXPENDITURE HAS BEEN INCURRED WHOLLY AND EXCLUSIVEL Y FOR THE PURPOSE OF BUSINESS AND THE EXPENDITURE IS NOT IN THE NATURE O F CAPITAL EXPENDITURE. BEFORE US IN THE ABSENCE OF ANY MATERIAL ON RECORD TO SUPPORT THE ASSESSEES CLAIM, WE FIND NO REASON TO INTERFERE WI TH THE ORDER OF CIT(A) AND THUS CONFIRM HIS ACTION OF DISALLOWANCE. 14. IN THE RESULT, THIS GROUND OF ASSESSEE IS DISMISSED . 2 ND GROUND IS WITH RESPECT TO CONFIRMING DISALLOWANCE OF DEPRECIATION OF RS. 62,500/-. 15. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, A.O NO TICED THAT ASSESSEE HAD CLAIMED DEPRECIATION ON TRADEMARK AMOUNTING RS. 1,027/- FOR ONE ITA NO 3445/A/2010 & CO NO. 31/A/11 . A.Y. 2007- 08 6 TIME NON REFUNDABLE ENROLMENT FEE FOR RIGHT TO USE THE TRADEMARK. A.O. NOTED THAT ASSESSEE WAS NOT THE OWNER OF THE TRADEM ARK AND HENCE DEPRECIATION ON TRADEMARK CANNOT BE ALLOWED. HE ACC ORDINGLY DISALLOWED THE CLAIM OF ASSESSEE. AGGRIEVED BY THE ORDER OF A. O, ASSESSEE CARRIED THE MATTER BEFORE CIT(A). CIT(A) DECIDED THE ISSUE BY HOLDING AS UNDER:- 7.2 IN THE COURSE OF APPELLATE PROCEEDINGS, IT IS SUBMI TTED BY THE APPELLANT THAT IT HAD PAID A SUM OF RS. 5,00,000/- TOWARDS ACQUISITION OF TRADE MARK FOR USE OF CAPTAIN BRAND OF GOA GUTKHJA AND CAPITALIZED THE AMOUNT ON THE GROUND THAT RIGHT TO USE THE TRADEMARK WAS ALSO AN INTANGIBLE ASSET SINCE IT HAS BENEFIT OF ENDURING NATURE FOR THE PERIOD OF RIGHT IT IS FURTHER STATED THAT THE AO HAD TAKEN THE AMOUNT OF DEPRECIA TION AS PER BOOKS OF RS.1,027/- AS AGAINST AMOUNT ACTUALLY CLAIMED: OF RS.62,500/- IN THE COMP UTATION OF TOTAL INCOME. HE REQUESTED TO DELETE THE ADDITION SO MADE. 7.3 I HAVE CONSIDERED THE CONTENTIONS OF THE APPELLANT AS WELL AS THE ASSESSMENT ORDER. GOING INTO THE TERMS OF AGREEMENT WHEREIN THE PERMISSION TO US E THE TRADE-MARK WAS GRANTED, FOLLOWING FACTS ARE IMPORTANT. (I) THE SUBJECT OF THE LETTER WRITTEN BY J.M. ADVERTISI NG AND MARKETING PVT. LTD STATING THE TERMS OF LICENSE AGREEMENT IS PERMISSION TO USE OUR TRAD E MARK. THE CONTENTS OF THE LETTER LEAVE NO DOUBT ABOUT IT. IT IS CLEAR THAT THE AGREEMENT I S ONLY FOR THE USE OF TRADE-MARK AND THE OWNERSHIP DOES NOT GET TRANSFERRED AT ALL. (II) THE PAYMENTS ARE TWO FOLD AS PER PARA.7, PAGE-2 OF THE AGREEMENT, THE AMOUNT OF RS. 5 LAC IS NON-REFUNDABLE ENROLMENT FEE. IN ADDITION, CONTINUOUS LICENSE FEE WAS TO BE PAID ACCORDING TO THE QUANTITIES MANUFACTURED AND MARKETED BY THE ASSESSEE. IT IS CLEAR THAT RS. 5 LACS PAID FOR IS NON-REFUNDABLE IN NATURE. NO TIME LIMIT FOR USE OF THE TRADEMARK IS SET. IT I S CLEAR FROM THE ABOVE THAT THE OWNERSHIP OF THE TRADE-MAR DOES NOT WHOLLY OR PARTLY REST WITH T HE ASSESSEE AND THE PAYMENT IS OF ENDURING BENEFIT AND THEREFORE CAPITAL IN NATURE. SO, IT IS NEITHER ALLOWABLE U/S.37(L) AS REVENUE EXPENDITURE NOR QUALIFIES FOR DEPRECIATION U/S.32(L ) AS THE ASSET IS NOT OWNED BY THE ASSESSEE. THEREFORE, DISALLOWANCE OF DEPRECIATION CLAIMED IS HELD TO BE CORRECTLY MADE BY THE AO. FURTHER, AS POINTED OUT BY THE ASSESSEE ITSELF, THE AMOUNT OF DEPRECIATION CLAIMED APPARENTLY DOES NOT MATCH WITH THE ADDITION MADE. THE A.O IS DIRECT TO VERIFY THE FIGURES AND IF NEEDED RECTIFY THE MISTAKE ACCORDINGLY AFTER GIVING DUE OP PORTUNITY TO THE ASSESSEE OF BEING HEARD. 16. AGGRIEVED BY THE ORDER OF CIT(A), THE ASSESSEE IS N OW IN APPEAL BEFORE US. 17. BEFORE US, THE LD. D.R. SUPPORTED THE ORDER OF A.O AND CIT(A). WE HAVE HEARD THE LD. D.R. AND PERUSED THE MATERIAL ON RECO RD. WHILE UPHOLDING THE ORDER OF A.O, CIT(A) AFTER PERUSING THE AGREEME NT ENTERED BY THE ASSESSEE WITH J.M. ADVERTISING AND MARKETING LTD, H AS NOTED THAT THE OWNERSHIP OF TRADEMARK DID NOT REST WHOLLY OR PARTL Y WITH THE ASSESSEE ITA NO 3445/A/2010 & CO NO. 31/A/11 . A.Y. 2007- 08 7 AND THE PAYMENT WERE OF ENDURING BENEFIT AND CAPITA L IS IN NATURE AND THEREFORE IT WAS NEITHER ALLOWABLE U/S 37(1) AS REV ENUE EXPENDITURE NOR QUALIFIED FOR DEPRECIATION U/S 32(1) OF THE ACT. H E HAS FURTHER NOTED THAT THE AMOUNT OF DEPRECIATION CLAIMED DID NOT MATCH WI TH THE ADDITIONS MADE AND HE THEREFORE DIRECTED THE A.O. TO VERIFY T HE FIGURES AND IF NEEDED RECTIFY THE MISTAKE. BEFORE US, NO MATERIAL HAS BEEN BROUGHT ON RECORD BY ASSESSEE TO CONTROVERT THE FINDINGS OF CI T(A). WE THEREFORE FIND NO REASON TO INTERFERE WITH THE ORDER OF CIT(A ) AND THUS THIS GROUND OF ASSESSEE IS DISMISSED. 18. IN THE RESULT THE C.O OF ASSESSEE IS DISMISSED. 19. IN THE RESULT, THE APPEAL OF REVENUE AND C.O OF ASS ESSEE ARE DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON 02 - 05 - 2014. SD/- SD/- (G.C.GUPTA) (ANIL CHATURVEDI) VICE PRESIDENT ACCOUNTANT MEMBER AHMEDABAD. TRUE COPY RAJESH COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (APPEALS) 4. THE CIT CONCERNED. 5. THE DR., ITAT, AHMEDABAD. 6. GUARD FILE. BY ORDER DEPUTY/ASSTT.REGISTRAR ITAT,A HMEDABAD