MNC Electricals Pvt. ltd, New Delhi V. DCIT, New Delhi

ITA 4214/DEL/2012

• Counselvise Citation: 421420114 RSA 2012
• Duration Of Justice: 2 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-10-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Assessment Year: 2006-2007
• Appeal Filed On: 03-08-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S K JAIN
• Assessee Lawyers: S K BANSAL
• Keywords: Capital expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: E NEW DELHI BEFORE SHRI J.S.REDDY, ACCOUNTANT MEMBER AND SHRI RAJPAL YADAV, JUDICIAL MEMBER I.T.A .NO-4214/DEL./2012 ASSESSMENT YEAR -2006-07 MNC ELECTRICALS PVT. LTD. VS. DCIT, 22, MOLARBAND, BADARPUR, CIRCLE-6(1), NEW DELHI. NEW DELHI. PAN-AAAECM2742A (APPELLANT) (RESPONDENT) APPELLANT BY: SH. S.K.BANSAL, CA RESPONDENT BY: SH. S.K.JAIN, SR. DR. DATE OF HEARING:-08.10.2012 DATE OF PRONOUNCEMENT:- 12.10.2012 ORDER PER RAJPAL YADAV, JM THE ASSESSEE IS IN APPEAL BEFORE US AGAINST THE ORD ER OF LD. CIT(A)-IX, NEW DELHI DATED 21.12.2010 PASSED FOR AY 2006-07. 2. GROUND NO -2 IS THE ONLY SUBSTANTIAL GROUND OF A PPEAL RAISED BY THE ASSESSEE. IN THIS GROUND, ASSESSEE PLEADED THAT LD. CIT(A) HA S ERRED IN CONFIRMING THE ADDITION OF RS.1,57,200/- AND RS.37,000/- BY TREATI NG THE EXPENSES AS CAPITAL IN NATURE. 3. THE BRIEF FACTS OF THE CASE ARE THAT ASSESSEE IS A COMPANY ENGAGED IN CONSTRUCTION OF POWER HOUSES AND LAYING ELECTRICAL CABLE LINES ON TURN KEY BASIS. IT ALSO UNDERTAKES TRADING AND FABRICATION OF ELECTRIC AL ITEMS I.E DISTRIBUTOR I.T.A .NO-4214/DEL./2012 2 TRANSFORMERS, M.SEAL HT CABLE BOX ETC. IT HAS FILE D ITS RETURN OF INCOME ON 31.11.2006 DECLARING AN INCOME OF RS. 32,52,860/-. THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY ASSESSMENT AND A NOTICE U/S 1 43(2) WAS ISSUED AND SERVED UPON THE ASSESSEE. ON SCRUTINY OF THE ACCOUNTS, IT REVEALED TO THE ASSESSING OFFICER THAT A SUM OF RS.1,57,200/- HAS BEEN CLAIMED TOWARD S TENDER FEES EXPENSES. IN A VERY BRIEF FINDING OF LD. ASSESSING OFFICER, ON THE STRENGTH OF HONBLE SUPREME COURTS DECISION IN THE CASE OF RB SETH MOOLCHAND S UGANCHAND VS CIT REPORTED IN 86 ITR 647 HAS OBSERVED THAT EXPENSES INCURRED T OWARDS TENDER FEES FOR SECURING CONTRACTS IS IN THE NATURE OF CAPITAL EXPENDITURE. SIMILARLY, HE TREATED THE BANK GUARANTEE FEES AS WELL AS LOAN PROCESSING CHARGES A S CAPITAL EXPENDITURE. HIS BRIEF FINDING ON BOTH THE ISSUES READS AS UNDER:- 1. TENDER FEES EXPENSES DURING THE YEAR, THE ASSESSEE HAS CLAIMED AND AMOUN T OF RS.1,57,200/- TOWARDS TENDER FEES EXPENSES. THE AS SESSEE STATED THAT SAID EXPENSES WERE INCURRED FOR THE TENDERS CA LLED BY DIFFERENT STATE ELECTRICITY BOARD AND GOVT. UNDERTA KINGS. THE EXPENDITURE INCURRED TOWARDS TENDER FEES FOR SECURI NG CONTRACTS IS IN THE NATURE OF CAPITAL EXPENDITURE. THE HON'B LE SUPREME COURT IN THE CASES OF IR VS. ADION 1928 HON'BLE SUP REME COURT 738, RB SETH MOOLCHAND SUGANCHAND VS. CIT 86 ITR 64 7 HELD THAT EXPENSES IN CONNECTION WITH PROCURING A LICENS E IS IN THE NATURE OF CAPITAL EXPENDITURE. (ADDITION OF RS.1.57.200/-) 2. BANK GUARANTEE & LOAN PROCESSING CHARGES DURING THE YEAR, THE ASSESSEE HAS CLAIMED AN AMOUNT OF RS.4,19,722/- TOWARDS BANK GUARANTEE CHARGES AND AN AMOUNT OF RS.37,000/- TOWARDS LOAN PROCESSING CHARGES. THE A SSESSEE STATED THAT THESE AMOUNTS WERE PAID TO VARIOUS BANK S FROM WHOM THE ASSESSEE HAS TAKEN LOAN AND BANK GUARANTEE FOR EXECUTING WORKS CONTRACT. THE SAID EXPENDITURE ARE IN THE NA TURE OF CAPITAL EXPENDITURE. IN THE CASE OF CIT VS VULLAB GLASS WO RKS LTD. 137 I.T.A .NO-4214/DEL./2012 3 ITR 389, THE GUJARAT HIGH COURT HELD THAT THE PAYME NTS MADE TO PROCURED BANK GUARANTEE IS CAPITAL EXPENDITURE. HE NCE THE ABOVE EXPENDITURE CLAIMED BY ASSESSEE IS DISALLOWED . 4. ON APPEAL, LD. CIT(A) HAS ALLOWED THE CLAIM IN R ESPECT OF BANK GUARANTEE CHARGES AMOUNTING TO RS.4,19,722/- BUT CONFIRMED TH E DISALLOWANCE IN RESPECT OF THE OTHER TWO ITEMS. LD. COUNSEL FOR THE ASSESSEE HAS RELIED UPON HIS SUBMISSIONS MADE BY THE LD. A.O AS WELL AS LD. FIRST APPELLATE AUTHORITY WHOSE COPIES HAVE BEEN PLACED ON PAGES NO-41 TO 96 OF THE PAPER BOOK. ON THE OTHER HAND, LD. DR RELIED UPON THE ORDER OF ASSESSING OFFICER. 5. WE HAVE DULY CONSIDERED THE RIVAL CONTENTIONS AN D GONE THROUGH THE RECORD CAREFULLY. IN THE CASE OF RB SETH MOOLCHAND SUGANC HAND REFERRED BY THE ASSESSING OFFICER, THE FACTS ARE THAT ASSESSEE APPL IED FOR ACQUIRING MINING LEASE WHICH WAS FOR 20 YEARS. THE FEES PAID IN THAT CONT EXT, WAS TREATED TO BE A CAPITAL EXPENDITURE, BECAUSE ASSESSEE HAD ACQUIRED A CAPITA L ASSET ON LEASE FOR A PERIOD OF 20 YEARS. IN THE PRESENT CASE, THE ASSESSEE HAS BE EN SUBMITTING TENDER IN ITS DAY-TO- DAY BUSINESS WHICH ARE BASICALLY WORKS CONTRACT ON TURN KEY BASIS. THE ASSESSEE HAS PROCURED ORDERS FOR SALE OF ITS ITEMS MANUFACTU RED. IT HAS TO FULFILL THE TENDERS FLOATED BY STATE GOVERNMENTS OR ELECTRICITY BOARDS. IT IS NOT NECESSARY THAT IT WILL GET THE ORDER. THE TENDER FEES WAS PAID BY IT IN T HE DAY-TO-DAY ORDINARY BUSINESS. IT DOES NOT CREATE ANY NEW ASSET. IT WAS INCURRED IN CONNECTION WITH THE INTEGRAL PART OF PROFIT EARNING PROCESS AND NOT FOR ACQUISIT ION OF ANY ASSET. LD. REVENUE AUTHORITY HAS FILED TO LOOK INTO THE T RUE NATURE OF THE EXPENSES. I.T.A .NO-4214/DEL./2012 4 6. AS FAR AS THE LOAN PROCESSING CHARGES ARE CONCER NED, WE FIND THAT IT WAS DEMONSTRATED BY THE ASSESSEE THAT LOAN WAS TAKEN FO R WORKING CAPITAL PURPOSES. LD. CIT(A) WHILE APPRECIATING THE FACTS SUBMITTED B Y THE ASSESSEE, HAS OBSERVED THAT ON PERUSAL OF THE COPIES OF INVOICES ISSUED BY VARIOUS VENDORS, IT REVEALS THAT THE GOODS PURCHASED BY THE ASSESSEE ARE INSULATOR, PANELS ETC. IN THE UNDERSTANDING, LD. FIRST APPELLATE AUTHORITY, THESE ARE CAPITAL GO ODS WHICH ARE USED IN CONNECTION WITH THE INSTALLATION/ERECTION OF CAPITAL GOODS. L D. FIRST APPELLATE AUTHORITY FAIL TO LOOK INTO THE FACT THAT ASSESSEE IS IN THE BUSINESS OF MANUFACTURE DISTRIBUTOR TRANSFORMERS, HT CABLE BOX ON JOB CONTRACT BASIS. IT ALSO CONSTRUCTS POWER HOUSES AND LAYS ELECTRICAL LINES. IN CONNECTION WITH THES E OPERATION, ASSESSEE HAS TO PURCHASE ALL THESE ITEMS. THESE ITEMS WERE CONSUMED IN THE ULTIMATE FINAL PRODUCT, WHICH IS THE TRADING STOCK OF THE ASSESSEE. LD. FI RST APPELLATE AUTHORITY HAS DRAWN WRONG INFERENCES. 7. IN VIEW OF THE ABOVE DISCUSSION, WE ALLOW THE AP PEAL OF THE ASSESSEE AND DELETE THE DISALLOWANCE. 8. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED. ORDER PRONOUNCED IN THE OPEN COURT ON 12.10.2012. SD/- SD/- (J.S.REDDY) (RAJPAL YADAV) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 12/10/2012 *AMIT KUMAR* I.T.A .NO-4214/DEL./2012 5 COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI