ACIT, New Delhi V. M/s. Surya Herbal Ltd, New Delhi

ITA 4137/DEL/2009

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 3788 (ITAT-DELHI)
• Duration Of Justice: 8 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-06-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: G
• Next Hearing Date: 21-06-2010
• Assessment Year: 2001-2002
• Appeal Filed On: 21-10-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Capital asset; Revenue expenditure; Capital expenditure
• Section: 37(1)

Judgement Text

ITA NO. 4137/DEL/2009 A.Y. 2001-02 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH G NEW DELHI BEFORE SHRI RAJPAL YADAV, , JUDICIAL MEMBER AND SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER I.T.A. NO. 4137/DEL/2009 A.Y. : 2001-02 ASSTT. COMMISSIONER OF INCOME TAX, VS. M/S S URYA HERBAL LTD., CIRCLE 9(1), ROOM NO. 163, B-3/74, PASCHIM VIHA R, C.R. BLDG., NEW DELHI NEW DELHI (PAN : AAECS2370N) [APPELLANT] (RESPONDENT) ASSESSEE BY : NONE DEPARTMENT BY : SHRI B. KISHORE. DR PER SHAMIM YAHYA: AM THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST TH E ORDER OF THE LD. COMMISSIONERS OF INCOME TAX (APPEALS) DATED 16.6.20 09 PERTAINING TO ASSESSMENT YEAR 2001-02 2. THE ISSUE RAISED READS AS UNDER:- LD. COMMISSIONER OF INCOME TAX (APPEALS) ERRED, IN LAW AND ON THE FACTS AND CIRCUMSTANCES OF THE CASE, IN DELETING THE ADDI TIONS OF RS. 12,92,985/- MADE BY THE ASSESSING OFFICER . 3. IN THIS CASE THE ASSESSING OFFICER NOTED THAT A SSESSEE HAS DEBITED RS. 14,36,650/- TOWARDS REGISTRATION FEE FOR HIRING THE FACTORY BUILDING ON LEASE FOR A PERIOD OF 10 YEARS. ASSESSING OFFICER WAS OF THE OPINION THAT IT WAS AN EXPENDITURE OF CAPITAL NATURE AND ASSESSEE IS ELIGI BLE ONLY 10% OF TOTAL EXPENDITURE OF RS. 14,36,650/- AS THE AMOUNT WAS SP ENT FOR LEASE OF FACTORY, THE ITA NO. 4137/DEL/2009 A.Y. 2001-02 2 PERIOD OF WHICH WAS 10 YEARS. HENCE ASSESSING OFFI CER DISALLOWED 90% OF RS. 14,36,650/-. 4. BEFORE THE LD. COMMISSIONER OF INCOME TAX (APPEA LS) IT WAS SUBMITTED THAT THERE IS NO CONCEPT OF DEFERRED REVENUE EXPENDITURE IN TAX LAWS. HENCE IT WAS CLAIMED THAT THE ENTIRE EXPENDITURE WAS ALLOWABLE A S DEDUCTION DURING THE YEAR. THE ASSESSEE SUBMITTED BEFORE THE LD. COMMISSIONER OF INCOME TAX (APPEALS) AS UNDER:- DURING THE YEAR THE COMPANY HAS INCURRED AN EXPEND ITURE AMOUNTING TO RS. 14,36,650/- BEING REGISTRATION FEE PAID FOR EN TERING INTO A LEASE AGREEMENT FOR HIRING THE FACTORY BUILDING. (REFE R TO LEASE DEED AT PAGE NOS. 9-63). THE EXPENSES TOWARDS THE PAYMENT OF FAC TORY RENT AND THE EXPENSES INCURRED ON THE REGISTRATION OF LEASE AGRE EMENT ARE OF REVENUE NATURE AND ARE DISALLOWABLE U/S 37(1) OF THE INCOME TAX ACT. ACCORDINGLY THE ASSESSEE CLAIMED THE RENT LEASE PAID AND THE RE GISTRATION CHARGES FOR LEASE AGREEMENT AS REVENUE EXPENDITURE IN ITS COMP UTATION OF TAXABLE INCOME. THE SAME HAS BEEN SHOWN UNDER THE HEAD MISC ELLANEOUS EXPENDITURE AND SHALL BE WRITTEN OFF OVER A PERIOD OF TEN YEARS FROM THE YEAR OF COMMENCEMENT OF COMMERCIAL PRODUCTION AS ST ATED IN SCHEDULE N SIGNIFICANT ACCOUNTING POLICIES AND NOTES ON ACCOUN TS (ANNEXED TO AND FORMING PART OF THE BALANCE SHEET AS ON 31.3.2001 AND P&L ACCOUNT FOR THE YEAR ENDED ON THAT DATE. THE DEFERRED REVENUE EXPENDITURE IN QUESTION HAD N OT BEEN DOUBTED BY THE ASSESSING OFFICER AND THE SAME HAD BEEN INCURR ED DURING THE YEAR UNDER CONSIDERATION. THEREFORE, THE ENTIRE AMOUNT WAS ALLOWABLE TO THE ASSESSEE, IRRESPECTIVE OF THE ENTRIES MADE IN THE B OOKS OF ACCOUNTS. HE THEREFORE, ALLOWED THE ENTIRE AMOUNT OF RS. 14,36,6 50/- BEING THE AMOUNT OF REVENUE EXPENDITURE INCURRED BY THE ASSESSEE DUR ING THE RELEVANT FINANCIAL YEAR, WHICH HAS BEEN REFERRED AS DEFERRED REVENUE EXPENDITURE IN THE BOOKS OF ACCOUNT. THAT THE EXPENSES TOWARDS PAYMENT OF LEASE RENT AN D THE EXPENSES INCURRED ON REGISTRATION OF SUCH AGREEMENT ARE OF REVENUE NATURE AND ITA NO. 4137/DEL/2009 A.Y. 2001-02 3 ALLOWABLE U/S 37(1) OF THE INCOME TAX ACT, 1961. A CCORDINGLY, THE ASSESSEE CLAIMED THE LEASE RENT PAID AND REGISTRATION CHAR GES OF LEASE AGREEMENT AS REVENUE EXPENDITURE IN ITS COMPUTATION OF TAXABLE I NCOME FOR THE CAPTIONED ASSESSMENT YEAR. THAT THE REVENUE EXPENDITURE WHICH IS INCURRED WHOL LY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS MUST BE ALLOWED IN ITS ENTI RELY IN THE YEAR IN WHICH IT IS INCURRED. IT CANNOT BE SPREAD OVER A NUMBER OF PERIODS EVEN IF THE ASSESSEE HAS WRITTEN IT OFF IN HIS BOOKS, OVER A PE RIOD OF YEARS. SINCE, WRITING OF THE TOTAL EXPENDITURE IN ONE YEAR IN THE BOOKS OF ACCOUNTS WOULD HAVE GIVEN A VERY DISTORTED PICTURE OF THE PROFITS OF THE RELEVANT YEAR. HENCE, THE ASSESSEE CONSIDERED IT PRUDENT TO CHARGE D PART OF THE TOTAL EXPENDITURE SO INCURRED OVER A PERIOD OF FEW YEAR. SO THAT THE BOOKS OF ACCOUNTS MIGHT REFLECT A CORRECT PICTURE OF ITS FIN ANCIAL STATEMENT. 4.1 CONSIDERING THE ABOVE SUBMISSIONS LD. COMMISSIO NER OF INCOME TAX (APPEALS) HELD THAT ASSESSING OFFICER HAS ERRED I N DISALLOWING 90% OF EXPENSES CLAIMED 5. AGAINST THIS ORDER THE REVENUE IS IN APPEAL BEFO RE US. 6. WE HAVE HEARD THE LD. DEPARTMENTAL REPRESENTATI VE. NONE APPEARED ON BEHALF OF THE ASSESSEE. UPON CAREFUL CONSIDERATION , WE ARE OF THE OPINION THAT THIS APPEAL CAN BE DISPOSED OF, UPON HEARING THE LD . DEPARTMENTAL REPRESENTATIVE AND PERUSING THE RECORDS. ACCORDINGLY, WE PROCEED WITH THE ADJUDICATION. 7. THE ASSESSEE HAS INCURRED A SUM OF RS. 14,36,6 50/- TOWARDS REGISTRATION FEE FOR HIRING THE FACTORY BUILDING FOR A PERIOD OF 10 YEARS. THE AMOUNT SPENT TOWARDS REGISTRATION FEE HAS BEEN INCURRED FOR THE PURPOSE OF HIRING THE FACTORY BUILDING ON LEASE FOR A PERIOD OF 10 YEARS. SO IT CANNOT BE SAID THAT ASSESSEE HAS OBTAINED ANY CAPITAL ASSET. IT IS ONLY IN THE CAS E OF ACQUISITION OF CAPITAL ASSETS THAT REGISTRATION FEE NEEDS TO BE CAPITALIZED. SI NCE THE EXPENDITURE INCURRED IS IN ITA NO. 4137/DEL/2009 A.Y. 2001-02 4 THE REVENUE FIELD I.E. FOR THE PURPOSE OF HIRING TH E FACTORY BUILDING, THE AMOUNT SPENT FOR REGISTRATION, ALSO FALLS IN THE REVENUE FIELD. IT IS ALSO SETTLED LAW THAT THERE IS NO CONCEPT OF DEFERRED REVENUE EXPENDITUR E IN THE TAX LAWS. THERE ARE TWO TYPES OF EXPENDITURES IN TAX LAWS NAMELY CAPITA L EXPENDITURE AND REVENUE EXPENDITURE. THE AMOUNT IN THIS CASE IS CLEARLY IN THE NATURE OF REVENUE EXPENDITURE AND UNDER SUCH CIRCUMSTANCES, IN OUR CO NSIDERED OPINION, THERE IS NO INFIRMITY IN THE ORDER THE LD. COMMISSIONER OF INC OME TAX (APPEALS). ACCORDINGLY, WE UPHOLD THE SAME. 8. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 21/6/2010 UPO N CONCLUSION OF HEARING. SD/- SD/- [RAJPAL YADAV] [SHAMIM YAHYA] JUDICIAL MEMBER ACCOUNTANT MEMBER DATE 21/6/2010 SRB COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT TRUE COPY BY ORDER, DEPUTY REGISTRAR, ITAT, DELHI BENCHES