ACIT, New Delhi V. M/s Gopal Retail (P) ltd., New Delhi

ITA 4061/DEL/2012

• Counselvise Citation: 406120114 RSA 2012
• Duration Of Justice: 2 year(s) 1 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-09-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 04-09-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 30-07-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUNIL BAJPAI
• Assessee Lawyers: ADESH JAIN; AKSHIT JAIN
• Keywords: Capital asset; Depreciation; Search and seizure; Revenue expenditure
• Section: 153A; 132

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH C : NEW DELHI) BEFORE SHRI I.C. SUDHRI, JUDICIAL MEMBER AND SHRI B.C. MEENA, ACCOUNTANT MEMBER ITA NOS.4061 & 4062/DEL./2012 (ASSESSMENT YEARS : 2008-09 & 2009-10) ACIT, CENTRAL CIRCLE 2, VS. M/S. GOPAL RETAIL (P) LTD., NEW DELHI. 240, OKHLA INDUSTRIAL ESTATE PHASE III, NEW DELHI. (PAN : AACCG6940Q) (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI ADESH JAIN, CA AND SHRI AKSHIT JAIN, CA REVENUE BY : SHRI SUNIL BAJPAI, CIT DR ORDER PER B.C. MEENA, ACCOUNTANT MEMBER : BOTH THESE APPEALS FILED BY THE REVENUE EMANATE FR OM THE TWO ORDERS OF THE CIT (APPEALS)-III, NEW DELHI BOTH DATED 02.05.2 012 FOR THE ASSESSMENT YEARS 2008-09 & 2009-10. SINCE THE ISSUE IS COMMON IN BOTH THE APPEALS, THEY ARE BEING DISPOSED OFF BY THIS COMMON ORDER. THE GROUNDS TAKEN BY THE REVENUE READ AS UNDER :- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE CIT (A) HAS ERRED IN LAW AND ON FACTS IN DELETING T HE DISALLOWANCE (RS.2,29,91,652/- FOR ASSESSMENT YEAR 2008-09 AND RS.2,73,36,280/- FOR ASSESSMENT YEAR 2009-10) M ADE BY THE ASSESSING OFFICER ON ACCOUNT OF EXPENDITURE BEI NG CAPITALIZED. ITA NOS.4061 & 4062/DEL./2012 2 2. THE ORDER OF THE CIT (A) IS ERRONEOUS AND IS NOT TENABLE ON FACTS AND IN LAW. 3. THE APPELLANT CRAVES LEAVE TO ADD, ALTER OR AMEN D ANY/ALL OF THE GROUNDS OF APPEAL BEFORE OR DURING THE COURS E OF THE HEARING OF THE APPEAL. 2. THE ASSESSEE IS A PRIVATE LIMITED COMPANY ENGAGE D IN THE WHOLESALE AND RETAIL BUSINESS OF CHEWING TOBACCO, PAN MASALA, DHO OP AGGARBATTI, CHUTNEY, ETC. ETC. A SEARCH AND SEIZURE OPERATION WAS CAIRR ED OUT U/S 132 OF THE INCOME-TAX ACT, 1961 ON 15.01.2009. CONSEQUENTLY, NOTICES U/S 153A OF THE ACT WERE ISSUED AND THE ASSESSMENTS WERE FINALIZED. IN BOTH THESE YEARS, THE ADDITION HAS BEEN MADE BY TREATING 50% OF THE EXPEN DITURE DEBITED IN THE PROFIT & LOSS ACCOUNT AS CAPITAL. 2.1 THE RETURNS OF INCOME WERE FILED DECLARING LOSS OF RS.2,99,39,303/- AND RS.3,39,71,098/- FOR THE ASSESSMENT YEARS 2008-09 A ND 2009-10 RESPECTIVELY. THE ASSESSING OFFICER TREATED 50% EXPENDITURE DEBIT ED IN THE PROFIT AND LOSS ACCOUNT AS CAPITAL AND DISALLOWED THE SAME. THE AS SESSING OFFICER MADE THIS ADDITION IN ASSESSMENT YEAR 2008-09 BY HOLDING AS U NDER :- 3.1 THE ASSESSEE COMPANY HAS DECLARED INCOME OF RS.3,62,81,800/- AGAINST WHICH EXPENDITURE HAS BEEN INCURRED AMOUNTING TO RS.6,68,46,014/- AND DECLARED LOSS OF RS.3,05,64,214/-. THE ASSESSEE WAS ASKED TO JUSTIFY EXPENSES. THE ASSESSEE HAS FILED EXPLANATION THAT THIS BEING THE INITIAL YEAR OF THE BUSINESS, THEREFORE THE AMOUNT OF EXPENDIT URE WAS JUSTIFIED. I HAVE EXAMINED THE EXPLANATION OF THE ASSESSEE; T HE ASSESSEE COMPANY IS IN THE PROCESS OF SETTING UP OF A RETAIL C HAIN FOR DISTRIBUTION AND SALE OF PRODUCTS MANUFACTURED BY GOPAL GROUP. THE BUSINESS WAS MAINLY DONE THROUGH CSA IN THE EARLIER YEARS AND BULK OF THE SALE WAS MADE THROUGH THEM. AS A POLICY DECISION THE COMPANY H AS DIVESTED THE BUSINESS FROM CSA'S AND CARRIED OUT RETAIL BUSINESS BY A ITA NOS.4061 & 4062/DEL./2012 3 COMPANY CONTROLLED BY SAME PEOPLE AS THE ENTIRE SHARE HOLDING VEST S WITH SHRI SRI GOPAL GUPTA AND SMT. VINEETA GUPTA WHO ARE MAJOR SHARE HOLDERS IN COMPANY M/S GOPAL CORPORATION LTD AND M/S FLAKES-N- FLAVOURZ FOR WHICH THE ASSESSEE COMPANY HAS CARRIED OUT SELLING ACTIVITIES. UNDER THE CIRCUMSTANCES, THE ENTIRE EXPENDITURE COULD NOT BE TERMED AS OF REVENUE NATURE AND IS OF ENDURING NATURE AS A CAPITAL AS SET I.E. RETAIL CHAIN FOR EARNING PROFIT IN FUTURE BY CUTTING OUT MIDDLE M ANS IS BEING CREATED. THE COMPANY HAS BEEN ESTABLISHED AND EXPENDITURE HAS BEEN INCURRED WITH A MOTIVE TO BRING IN PROFITS TODAY OR TOMORROW. IN VIEW OR THE SAME 50% OF THE EXPENDITURE INCURRED (ON EMPLOYEE COST, ADMINISTRATIVE EXPENSES, SELLING AND DISTRIBUTION EXPENSES, DEPRECIATION AND FINANCIAL CHARGES) RS,2,29,91,652/- IS TREATED TO BE OF CAPITAL NATURE AND ADDED BACK. THE CIT (A) HAS GRANTED THE RELIEF IN THE ASSESSMEN T YEAR 2008-09 BY HOLDING AS UNDER :- ON A CAREFUL PERUSAL OF THE FINDING OF THE A.O. AND THE SUBMISSIONS OF T HE APPELLANT, AS SUMMARIZED ABOVE AND ALSO TAKING INTO ACCOUNT THE RATIO OF THE DECISIONS RELIED UPON BY THE A.O., I AM OF THE CONSIDERED VIEW THAT T HERE IS NO BASIS BEFORE THE A.O. FOR HOLDING THAT 50% OF THE EXPENSES ARE CAPITAL IN NATURE. IN THE FACTS AND CIRCUMSTANCES OF THE CASE OF THE APPELLA NTS CASE IT HAS INCURRED THE EXPENSES DEBITED IN THE PROFIT AND LOSS ACCOUNT FOR EF FICIENT AND EVEN MORE PROFITABLE RUNNING OF IT'S BUSINESS AND HAS NOT INCURRED THESE EXPENSES FOR CREATING ANY CAPITAL ASSET OF ENDURING NATURE. THE QUESTION OF CAPITAL AND REVENUE EXPENDITURE HAS TO BE VIEWED IN TODAY'S FAST PACED AND EVER CHANGING BUSINESS MODELS IN THE LARGER CONTEXT OF BUSINESS NECESSIT Y OR EXPEDIENCY. IF THE OUTGOING EXPENDITURE IS SO RELATED TO THE CARRYING ON OR THE CONDUCT OF THE BUSINESS THAT IT MAY BE REGARDED AS INTEGRAL PA RT OF THE PROFIT-EARNING PROCESS AND NOT FOR ACQUISITION OF AN ASSET OR A RIGHT OF A PERMANENT CHARACTER, THE POSSESSION OF WHICH IS A PRE-CONDITION OF THE CARRYING ON OF THE BUSINESS, THE EXPENDITURE HAS TO BE REGARDED AS R EVENUE EXPENDITURE. IT IS ALSO PERTINENT TO NOTE THAT THE SAID EMPLOYEE COST, ADMINIS TRATIVE EXPENSES, SELLING AND DISTRIBUTION EXPENSES, DEPRECIATION AND FINANCIAL CHARGES ARE ALSO INCURRED IN THE SUCCEEDING YEARS. AND IF SUCH EXPENSES WERE TO RESULT IN ANY ENDURING BENEFIT THE SAME WOULD NOT BE REQUIRED TO BE INCURRED IN THE NEXT FINANCIAL YEAR. FOR THIS REASON TOO THE SAID E XPENSES BEING OF RECURRING NATURE AND NOT ONLY RELATED TO THE FINANCIAL YEAR UND ER CONSIDERATION, ARE REVENUE IN NATURE. IT IS ALSO NOTED THAT THE EMPLO YEE COST CONSISTS EXPENSES ON SALARY, BONUS, EPF / ESI CHARGES, GRATUITY AN D SHIFTING ALLOWANCE, THE ADMINISTRATIVE EXPENSES MAINLY CONSISTS BOOKS & PERIODICALS, BROKERAGE, CONVEYANCE, GENERAL INSURANCE, TELEPHONE EXPENSES, INTERNET EXPENSES, ELECTRICITY EXPENSES, REFRESHMENT E XPENSES, RENT, REPAIR & RENEWALS, VEHICLE EXPENSES, PRINTING & STATIONERY, AUDI T FEE, FRINGE BENEFIT TAX ETC. THE SELLING AND DISTRIBUTION EXPENSES MA INLY ITA NOS.4061 & 4062/DEL./2012 4 CONSISTS COMMISSION, DAMAGE ALLOWANCE, EXTRA DISCOUNT, FREIGHT, DEALE RS MEETING EXPENSES, SALE PROMOTION, SALES DISTRIBUTION, SAMPLING, TRAVELLIN G ETC. AND FINANCIAL EXPENSES CONSISTS INTEREST AND BANK CHARGES. THUS EVEN ON AN ANALYSIS OF THE NATURE OF THE EXPENSES IT IS QUITE EVIDENT THAT ALL THE EXPENSES INCURRED ARE IN THE NATURE OF REVENUE EXPENSES. THUS KEEPING IN VIEW OF THE FACTS AND CIRCUMSTANCES OF THE CASE OF THE APPELLANT AND THE DECISIONS CITED ABOVE, I AM OF THE CONSIDERED VIEW ASSESSING OFFICER ERRED BOTH IN FACT AND LAW IN ARBITRARILY TREATING 50% OF T HE REVENUE EXPENDITURE AS CAPITAL IN NATURE ONLY ON THE BASIS OF CONJECT URE AND SURMISE WITHOUT BRINGING IN ANY MATERIAL ON RECORD AS TO WHY 50% OF THE SAID EXPENDITURE ARE CAPITAL IN NATURE AND NOT REVENUE IN NATURE AS CL AIMED BY THE APPELLANT. ACCORDINGLY, THE ESTIMATED ADDITION OF RS.2,29,91,652/- (I.E. 50% OF THE EXPENDITURE INCURRED ON EMPLOYEE COST, ADMINISTRATIVE EXPENSES, SELLING AND DISTRIBUTION EXPENSES, DEPRECIATION AND FINANCIAL CHARGES AGGREGATING TO RS.4,59,83,305/-) IS HELD AS BAD IN LAW AND THE ADDITION OF RS.2,29,91,652/- IS DIRECTED TO BE DELETED. IN THE ASSESSMENT YEAR 2009-10, THE CIT (A) HAS ALS O GRANTED THE RELIEF ON THE SAME FACTS AND CIRCUMSTANCES. 3. WE HAVE HEARD BOTH THE SIDES ON THE ISSUE. AFTE R HEARING, WE FIND THAT THE ASSESSING OFFICER HAS MADE THE ADDITION JUST BY ESTIMATING 50% OF THE EXPENSES AS CAPITAL IN NATURE. THERE IS NO SPECIFI C FINDING OF THE ASSESSING OFFICER WHERE ANY EXPENDITURE RELATED TO THE CAPITA L NATURE WAS DEBITED IN THE PROFIT AND LOSS ACCOUNT. THE ASSESSING OFFICER SIM PLY ESTIMATED THIS AMOUNT ON THE BASIS THAT THE ASSESSEE HAS DECLARED INCOME LESSER THAN THE EXPENDITURE FOR THE YEAR UNDER CONSIDERATION. THE ASSESSEE HAS TRIED TO EXPLAIN THE LOSS INCURRED BY GIVING THE REASON THAT THE ASSESSEE HAS MADE A POLICY DECISION ACCORDING TO WHICH THE BUSINESS THROUGH CONSIGNMENT SALE AGENT WAS DIVESTED AND IT WAS SETTING UP A RETAIL CHAIN OF DISTRIBUTIO N AND SALE BY ITSELF. THE ASSESSING OFFICER HAS NOT NEGATED THIS SUBMISSION O F THE ASSESSEE WITH REGARD ITA NOS.4061 & 4062/DEL./2012 5 TO THE CHANGE OF THE POLICY OF THE COMPANY. ASSESS ING OFFICER HAS NOT SPECIFIED WHICH EXPENDITURE DEBITED IN PROFIT & LOS S ACCOUNT WAS NOT OF REVENUE IN NATURE. FURTHER, SIMPLY ON THE BASIS OF APPREHENSION, NO EXPENDITURE CAN BE HELD TO BE CAPITAL AND DISALLOWA BLE. THE ASSESSEES ACCOUNTS ARE AUDITED. THE AUDITED REPORT PREPARED UNDER SECTION 44AB OF THE ACT IN FORM 3CD CLEARLY STATES THAT THERE WAS NO EX PENDITURE OF CAPITAL IN NATURE. AS PER THIS REPORT, NO SUCH EXPENDITURE HA S BEEN DEBITED TO THE PROFIT AND LOSS ACCOUNT. THIS IS EVIDENT FROM PAGE 16 OF THE PAPER BOOK. IN THE COLUMN WITH REGARD TO THE EXPENDITURE OF THE CAPITA L IN NATURE, IT HAS REPORTED AS NIL. IT IS ALSO PERTINENT TO MENTION THAT TH E PERUSAL OF NATURE OF EXPENDITURE DEBITED IN THE PROFIT AND LOSS ACCOUNT PRIMA FACIE SHOWS THAT NONE OF THE EXPENDITURE WAS IN THE NATURE OF CAPITAL. N ONE OF THE EXPENDITURE WAS IDENTIFIABLE AS GIVING BENEFIT OF ENDURING NATURE. CONSIDERING ALL THESE ASPECTS, WE FIND NO MERITS IN BOTH THE APPEALS OF R EVENUE AND THE SAME ARE DISMISSED. 4. IN THE RESULT, BOTH THE APPEALS FILED BY THE REV ENUE STAND DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON THIS 12 TH DAY OF SEPTEMBER, 2014. SD/- SD/- (I.C. SUDHIR) (B.C. MEENA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED THE 12 TH DAY OF SEPTEMBER, 2013 TS ITA NOS.4061 & 4062/DEL./2012 6 COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT(A)-III, NEW DELHI. 5.CIT(ITAT), NEW DELHI. AR, ITAT NEW DELHI.