Caldrys India Refractories Limited, Nagpur V. Asst.Commissioner of Income Tax Circle-2, Nagpur

ITA 366/NAG/2012

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 3906 (ITAT-NAGPUR)
• Duration Of Justice: 6 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-04-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Assessment Year: 2008-2009
• Appeal Filed On: 11-09-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: DR MILIND BHUSARI
• Keywords: Gift; Business expenditure; Revenue expenditure; Capital expenditure
• Section: 234B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL NAGPUR , BENCH , ( E - COURT), MUMBAI BEFORE SHRI R.K.GUPTA , J M & SHRI D.KARUNAKAR A RAO , A M ITA NO. 366 / N AG / 20 1 2 ( ASSESSMENT YEAR 200 8 - 0 9 ) CALDERYS INDIA REFRACTORIES LIMITED (FORMERLY KNOWN AS ACE CALDERYS LIMITED ), GR. & FIRST FLOOR, THAPAR HOUSE, TEMPLE ROAD, CIVIL LINES, NAGPUR - 440 001 . VS. ACIT, CIRCLE - 2, AAYAKAR BHAWAN, NAGPUR - 440 001 . PAN NO. : A TKPK 8897 J ( APPELLANT ) .. ( RESPONDENT ) ASSESSEE BY : MR. K.P.DEWANI REVENUE BY : DR. MILIND BHUSARI DAT E OF HEARING : 8 TH MARCH., 2013 DATE OF PRONOUNCEMENT : 0 3 /04/2 013 O R D E R P ER SHRI R.K.GUPTA, JM : TH IS APPEAL HAS BEEN PREFERRED BY THE ASSESSEE BEFORE THE ITAT NAGPUR BENCH, NAGPUR, AGAIN ST THE ORDER OF LEANED CIT(A) - I , NAGPUR (MAHARASH TRA) RELATING TO ASSESSMENT YEAR 200 8 - 0 9 , WHICH HA S BEEN HEARD THROUGH E - COURT, MUMBAI. \ 2 . THE FIRST ISSUE IN APPEAL OF THE ASSESSEE IS AGAINST MAKING ADDITION OF RS. 52.59 LACS BY HOLDING THAT IT IS CAPITAL EXPENDITURE. 3 . THE FACTS IN BRIEF ARE THAT DU RING THE ASSESSMENT PROCEEDING, THE AO NOTED THAT IN THE NOTES TO THE ACCOUNTS, IT HAS BEEN MENTIONED THAT AN AMOUNT OF RS. 52.59 LACS HAS BEEN WRITTEN OFF IN RESPECT OF JOINT VENTURE AT CHINA AS THE COMMENCEMENT OF THE BUSINESS WAS UNCERTAIN. THE AO CONSID ERED THE VARIOUS SUBMISSIONS OF THE ASSESSEE AND HELD THAT THE EXPENDITURE IS IN THE NATURE OF CAPITAL EXPENDITURE AS THE JOINT ITA NO. 366 / NAG/2012 2 VENTURE WAS A DIFFERENT ENTITY AND THERE WAS NO COMMONALITY WITH THE EXISTING BUSINESS. PLACING RELIANCE ON THE DECISION REPORTE D IN [1994] 210 ITR 998 (GUJ.) , 30 CTR 266 AND 165 ITR 51 (SC) , THE AO HELD THAT THE EXPENDITURE INCURRED WAS IN CAPITAL IN NATURE, THEREFORE, THE SAME WAS DISALLOWED. 4 . DETAIL ED WRITTEN SUBMISSION WAS ALSO FILED BEFORE THE CIT(A). IT WAS STATED THAT FO R OBTAINING FEASIBILITY REPORT , A SUM OF RS. 34.03 LAKHS WAS PAID TO ICICI SECURITIES LIMITED AND RS. 18.56 LAKHS WAS INCURRED FOR TRAVELLING EXPENSES UNDERTAKEN BY OFFICERS OF ICICI SECURITIES LIMITED. THERE WAS NO EXPENDITURE INCURRED FOR THE FORMATION OF JOINT VENTURE COMPANY . THE EXPENDITURE WAS INCURRED FOR THE EXPANSION OF THE EXISTING BUSINESS OF REFRACTORIES WITH A VIEW TO CAPTURING INTERNATIONAL MARKET. HOWEVER, DUE TO VARIOUS REGULATIONS IMPOSED BY THE GOVT. OF CHINA IT WAS CONCLUDED THAT IT WOULD N OT BE PROFITABLE TO CARRY ON BUSINESS AD EXPENDITURE INCURRED FOR FEASIBILITY REPORT ON TRAVELLING EXPENDITURE WAS WRITTEN OFF. RELIANCE WAS PLACED ON THE DECISION OF THE HON BLE DELHI HIGH COURT REPORTED IN 228 CTR 271, WHEREIN IT WAS HELD THAT THE AMOUNT SPENT ON FEASIBILITY STUDY IS ADMISSIBLE EXPENDITURE . AFTER CONSIDERING THE SUBMISSION AND PERUSING THE MATERIAL ON RECORD, LEARNED CIT(A) WAS ALSO NOT SATISFIED WITH THE EXPLANATION OF THE ASSESSEE. THE DECISION RELIED UPON BY THE ASSESSEE WAS FOUND DIST INGUISHABLE ON FACTS. LEARNED CIT(A) NOTED THAT THIS EXPENDITURE WAS NOT INCURRED ON THE FEASIBILITY REPORT FOR THE SAME BUSINESS WHICH HAD COMMON ADMINISTRATION AND A COMMON FUND. IT ITA NO. 366 / NAG/2012 3 WAS FURTHER NOTED THAT THE ASSESSEE WAS NOT INVOLVED IN MERE EXPANSION O F OVERSEAS MARKET RELATING TO EXISTING BUSINESS, RATHER THE PROPOSAL WAS TO UNDERTAKE A VENTURE IN WHICH THE EXISTING MANAGEMENT AND ADMINISTRATION WOULD HAVE BEEN CONSIDERABLY ALTERED. ACCORDINGLY, HE CONFIRMED THE ORDER OF THE AO. 5 . AGGRIEVED THEREBY , NOW, THE ASSESSEE IS IN APPEAL HERE BEFORE THE TRIBUNAL. DETAILED WRITTEN SUBMISSION HAS BEEN FILED HERE BEFORE THE TRIBUNAL BY LEARNED AR. RELIANCE HAS BEEN PLACED ON VARIOUS CASE LAWS, COPIES OF WHICH ARE PLACED ON RECORD. COPIES OF CASES ON WHICH RELI ANCE HAS BEEN PLACED BY LEARNED CIT(A) ARE ALSO PLACED ON RECORD AND IT WAS EXPLAINED THAT ALL THESE DECISION ARE ON DIFFERENT FOOTING, AND, THEREFORE, THEY ARE NOT APPLICABLE ON THE FACTS OF THE PRESENT CASE. ATTENTION OF THE BENCH WAS DRAWN ON RELEVANT P ORTION OF THESE CASES. 6 . ON THE OTHER HAND, LEARNED DR PLACED RELIANCE ON THE ORDER OF AO. RELEVANT PORTION OF THE AO WAS READ ALSO. 7 . WE HAVE HEARD RIVAL SUBMISSION S AND CONSIDERED THEM CAREFULLY. AFTER CONSIDERING THE SUBMISSION AND PERUSING THE MAT ERIAL ON RECORD, WE FOUND THAT BOTH THE LOWER AUTHORITIES COULD NOT UNDERSTAND THE ISSUE IN RIGHT PERSPECTIVE. IT IS SEEN THAT THE EXPENDITURE INCURRED BY THE ASSESSEE IS NOT ON THE JOINT VENTURE BUT TO OBTAIN FEASIBILITY REPORT THROUGH ICICI SECURITIES LI MITED, FOR WHICH A SUM OF RS. 34 LAKHS OR ODD WAS GIVEN ON ACCOUNT OF OBTAINING FEASIBILITY REPORT AND A SUM OF RS. 18.56 LAKHS WAS INCURRED FOR TRAVELLING EXPENSES FOR OFFICERS OF ICICI SECURITIES LIMITED, COPY OF WHICH ARE PLACED ON RECORD. IT IS FURTHER ITA NO. 366 / NAG/2012 4 S EEN THAT MENTIONING OF JOINT VENTURES IN THE NOTES OF ACCOUNTS, WHICH WAS A VIA MEDIA TO ENTER INTO CHINA. HOWEVER, IT IS SEEN THAT FOR THE PURPOSE OF EXPANSION OF THE EXISTING BUSINESS , THE ASSESSEE COMPANY ENTERED INTO AN AGREEMENT WITH ICICI SECURITIES LIMITED JUST TO OBTAIN A FEASIBILITY REPORT AS TO WHETHER THE EXISTING BUSINESS I F STARTED IN CHINA WITH JOINT VENTURES WILL BE BENEFICIAL TO THE ASSESSEE. THEREAFTER FEASIBILITY REPORT WAS OBTAINED BY WHICH IT WAS CLARIFIED THAT THERE WILL BE NO USEFUL PU RPOSE IN STARTING THE BUSINESS IN CHINA AS THERE WAS MANY FORMALITIES BY THE CHINA GOVERNMENT . ACCORDINGLY, NO BUSINESS WAS STARTED IN CHINA , N EITHER ANY FURTHER STEP WAS TAKEN NOR ANY INFRASTRUCTURE WAS DEVELOPED . T HEREFORE, IT CANNOT BE SAID THAT THESE E XPENDITURES ARE CAPITAL IN NATURE. 8 . THE HON BLE DELHI HIGH COURT IN THE CASE OF CIT VS. PRIYA VILLAGE ROADSHOWS LIMITED, REPORTED IN (2011) 332 ITR 594 , HAS HELD THAT IF THE EXPENDITURE INCURRED IS IN RESPECT OF SAME BUSINESS WHICH IS ALREADY CARRIED O N BY THE ASSESSEE, EVEN IF IT IS FOR THE EXPANSION OF THE BUSINESS, NAMELY, TO START NEW UNIT, WHICH IS SAME AS EARLIER BUSINESS AND THERE IS UNITY OF CONTROL AND A COMMON FUND, THEN SUCH AN EXPENSE IS TO BE TREATED AS BUSINESS EXPENDITURE. IN SUCH A CASE WHETHER NEW BUSINESS/ASSET COMES INTO EXISTENCE OR NOT WOULD BECOME A RELEVANT FACTOR. IF THERE IS NO CREATION OF NEW ASSET, THEN THE EXPENDITURE INCURRED WOULD BE OF REVENUE NATURE. HOWEVER, IF THE NEW ASSET COMES INTO EXISTENCE WHICH IS OF ENDURING BENEF IT, THEN SUCH EXPENDITURE WOULD BE CAPITAL NATURE. ITA NO. 366 / NAG/2012 5 9 . IN THE PRESENT CASE, NO NEW ASSET HAS COME INTO EXISTENCE AS THE EXPENDITURE INCURRED BY THE ASSESSEE WAS INCURRED ON ACCOUNT OF PAYMENT TO ICICI SECURITIES LIMITED FOR OBTAINING FEASIBILITY REPORT AND PART OF THE EXPENDITURE WAS INCURRED ON VISIT BY THE OFFICIALS OF THE ICICI SECURITIES COMPANY . 10 . IN CASE OF PRIYA VILLAGE ROADSHOWS LIMITED (SUPRA) , ALSO THE EXPENDITURE WAS INCURRED ON PROCURING FEASIBILITY REPORT AND THEY HAVE ALLOWED THIS EXPENDIT URE AS REVENUE IN NATURE AS DISCUSSED ABOVE. THE RATIO OF THIS DECISION IS SQUARELY APPLICABLE ON THE FACTS OF THE PRESENT CASE. IT IS FURTHER SEEN THAT THE DECISION RELIED UPON BY THE AO IN THE CASE OF CIT VS. BRITISH INDIA CORPORATION LIMITED, REPORTED IN (1987) 165 ITR 51 (SC) , WHICH SUPPORTS THE CASE OF THE ASSESSEE. IN THAT CASE, A LUMPSUM AMOUNT WAS HELD TO BE ALLOWED AS REVENUE EXPENDITURE AT THE HAND OF THE ASSESSEE COMPANY. ANOTHER DECISION RELIED UPON BY THE AO IN CASE OF SHAHIBAG ENTREPRENEURS P VT. LTD. VS. CIT, REPORTED IN (1994) 210 998 (GUJ.) , IS ALSO DISTINGUISHABLE ON FACT. THE AFORESAID DECISION WAS RENDERED BY FOLLOWING EARLIER DECISION OF THE HON BLE GUJARAT HIGH COURT IN CASE OF MCGAX RAVINDRA LABORATORIES (INDIA) LTD. VS. CIT, REPORTED IN (1992) 106 CTR (GUJ.) 24 . IN THAT CASE, IT WAS HELD THAT MANUFACTURING UNIT TO BE STARTED IN MALAYSIA , WAS NOT PART OF EXISTING BUSINESS OF ASSESSEE AND, THEREFORE, COULD NOT BE SAID TO BE CONTINUATION OF THE BUSINESS OF THE ASSESSEE . HOWEVER, FACTS OF THE CASE IN HAND, CLEARLY SHOWS THAT THE ASSESSEE ASKED FEASIBILITY REPORT FOR EXPANSION OF THE SAME BUSINESS OWNED BY THE ASSESSEE COMPANY. ITA NO. 366 / NAG/2012 6 1 1 . IN CASE OF TRADE WINGS LIMITED VS. CIT, REPORTED IN 185 ITR 267 , THE ASSESSEE WAS ENGAGED IN BUSINESS OF TRAVEL AGENCY AND INCURRED EXPENDITURE FOR SETTING UP HOTELIERING AND, THEREFORE, IT WAS HELD THAT THE EXPENDITURE WAS NOT ALLOWABLE AS THEY WERE NOT FOR THE PURPOSE OF EXISTING BUSINESS. THEREFORE, THIS D ECISION IS ALSO NOT APPLICABLE ON THE FACTS OF THE PRESEN T CASE. 1 2 . ANOTHER DECISION IN THE CASE OF INDORAMA SYNTHETICS (I) LTD. VS. CIT, REPORTED IN (2011) 333 ITR 18 , RELIED UPON BY THE LEARNED AR, COPY OF WHICH IS PLACED ON RECORD, IT HAS BEEN FOUND THAT THIS IS IN SUPPORT OF THE CASE OF THE ASSESSEE. THER EFORE, WE HOLD THAT THESE EXPENSES ARE ALLOWABLE AS REVENUE EXPENDITURE AS THE NATURE OF EXPENDITURE ARE NOT CAPITAL IN NATURE AS NO NEW ASSET HAS BEEN CREATED BY THE ASSESSEE. THIS GROUND OF THE ASSESSEE IS ALLOWED. 1 3 . GROUNDS NO. 4 TO 6 HAVE NOT BEEN PR ESSED, THEREFORE, THEY ARE DISMISSED AS NOT PRESSED. 1 4 . GROUNDS NO. 7 & 8 RELATES TO CONFIRMING THE DISALLOWANCE OF RS. 1,99,338/ - OUT OF ADDITION MADE BY THE AO ON ACCOUNT OF VARIOUS EXPENSES. 1 5 . THE AO DISALLOWED A SUM OF RS. 3,98,677/ - ON ACCOUNT OF GO OD RELATION EXPENSES . THE AO NOTED THAT THESE EXPENSES WERE INCURRED ON ACCOUNT OF DIARY, CALENDARS AND GIFT. THE AO DISALLOWED 20% OF THE SAME BASED ON THE DISALLOWANCE MADE IN AY 2007 - 08. LEARNED CIT (A) RESTRICTED THESE EXPENSES TO 10%. ITA NO. 366 / NAG/2012 7 1 6 . AFTER CONSID ERING THE SUBMISSION AND PERUSING MATERIAL ON RECORD, WE FIND THAT THE LEARNED CIT(A) HAS RESTRICTED THE EXPENSES TO 10%, WHICH IS REASONABLE, THEREFORE, WE SEE NO REASON TO INTERFERE IN T HE FINDING OF THE LEARNED CIT(A). ACCORDINGLY, WE CONFIRM THE ORDER OF LEARNED (A) ON THIS ISSUE. 1 7 . REMAINING IS ISSUE IS CHARGING OF INTEREST UNDER SECTION 234B OF THE ACT, WHICH IS CONSEQUENTIAL IN NATURE. THEREFORE, THE AO IS DIRECTED TO ALLOW THE CONSEQUENTIAL RELIEF TO THE ASSESSEE. 1 8 . RESULTANTLY, APPEAL OF THE AS SESSEE IS ALLOWED IN PART . ORDER PRONOUNCED IN THE OPEN COURT ON THIS 3 RD DAY OF APR. 2013. SD/ - SD/ - (D.KARUNAKAR A RAO) (R.K.GUPTA) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI ; DATED : 0 3 / 04 / 2013 . PKM , PS COPY O F THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A) ,NAGPUR . 4. CIT 5. DR, ITAT, MUMBAI /NAGPUR 6. GUARD FILE. //TRUE COPY// BY ORDER, ( ASSTT. REGISTRAR) ITAT, MUMBAI