ACIT Central Circle -7 (1), V. Sauer Donfoss India Pvt. LTd,

ITA 424/DEL/2008

• Counselvise Citation: [2009] 114 COUNSELVISE.COM (IT) 8410 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 5 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-07-2009
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: H
• Next Hearing Date: 10-06-2009
• Assessment Year: 2002-2003
• Appeal Filed On: 07-02-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: M L MEENA
• Assessee Lawyers: B MOHAN
• Keywords: Capital asset; Depreciation; Revenue expenditure; Capital expenditure
• Section: 271(1)(c); 143(3); 234B; 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH H : NEW DELHI BEFORE SHRI D.R.SINGH, JM AND SHRI R.C.SHARMA, AM ITA NO.474/DEL/2006 ASSESSMENT YEAR : 2002-03 M/S SAUER DANFOSS (P) LTD., S-454, GREATER KAILASH, PART-II, NEW DELHI. PAN NO.AAFCS2954P. VS. ASSTT.COMMISSIONER OF INCOME TAX, RANGE-7, NEW DELHI. (APPELLANT) (RESPONDENT) ITA NO.424/DEL/2008 ASSESSMENT YEAR : 2002-03 ASSTT.COMMISSIONER OF INCOME TAX, RANGE-7, NEW DELHI. VS. M/S SAUER DANFOSS (P) LTD., S-454, GREATER KAILASH, PART-II, NEW DELHI. PAN NO.AAFCS2954P. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI VED JAIN, CA AND SHRI B.MOHAN, ADVOCATE. REVENUE BY : SHRI M.L.MEENA, SR.DR. ORDER PER R.C.SHARMA, AM : THIS APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF CIT(A) DATED 25.11.2005, IN THE MATTER OF ASSESSMENT FRAMED UNDE R SECTION 143(3) OF THE I.T. ACT FOR THE ASSESSMENT YEAR 2002-03, WHEREIN THE FO LLOWING GROUNDS HAVE BEEN TAKEN BY THE ASSESSEE:- 1) ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE ORDER PASSED BY THE CIT(A) IS BAD, BOTH IN THE EYE OF LAW AND ON FA CTS. 2) I) ON THE FACTS AND CIRCUMSTANCES OF THE CASE, T HE LEARNED CIT(A) HAS ERRED, BOTH ON FACTS AND IN LAW, IN CONFIRMING THE ITA-474/D/2006 & 424/D/2008 2 DISALLOWANCE OF THE EXPENDITURE OF RS.19,37,773/- I NCURRED BY THE APPELLANT ON THE GROUND THAT THE SAME PERTAINS TO T HE PERIOD BEFORE THE START OF THE BUSINESS BY THE APPELLANT. II) ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(A) HAS ERRED, BOTH ON FACTS AND IN LAW, IN HOLDING THA T THE APPELLANTS BUSINESS HAS COMMENCED ONLY FROM 1 ST JUNE, 2001, IGNORING THE EXPLANATION AND EVIDENCES BROUGHT ON RECORD BY THE APPELLANT IN SUPPORT OF ITS CONTENTION THAT THE APPELLANTS BUSI NESS HAS STARTED MUCH EARLIER. 3) I) ON THE FACTS AND CIRCUMSTANCES OF THE CASE, T HE LEARNED CIT(A) HAS ERRED, BOTH ON FACTS AND IN LAW, IN CONFIRMING THE DISALLOWANCE OF THE EXPENDITURE OF RS.47,38,979/- I NCURRED BY THE APPELLANT IN RESPECT OF THE PREMISES TAKEN ON RENT. II) ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(A) HAS ERRED, BOTH ON FACTS AND IN LAW, IN HOLDING THA T THE ABOVE-SAID EXPENDITURE OF RS.47,38,979/- IS CAPITAL IN NATURE IGNORING THE EXPRESS PROVISIONS OF SECTION 30 OF THE ACT. III) ON THE FACTS AND CIRCUMSTANCES OF THE CASE, TH E LEARNED CIT(A) HAS ERRED, BOTH ON FACTS AND IN LAW, IN IGNO RING THE JUDGMENT OF THE SUPREME COURT WHICH IS DIRECTLY APP LICABLE TO THIS CASE BY MISREADING THE EXPLANATION TO SECTION 32(1) AS BEING EFFECTIVE ONLY FROM THE ASSESSMENT YEAR 1988-89 IGN ORING THE FACT THAT THE SAID EXPLANATION WAS SUBSTITUTED FOR A SIM ILAR EARLIER PROVISION IN SECTION 32(1A), EFFECTIVE FROM THE ASS ESSMENT YEAR 1971-72 AFTER WHICH THIS JUDGMENT OF THE SUPREME CO URT HAS BEEN DELIVERED. 4) I) ON THE FACTS AND CIRCUMSTANCES OF THE CASE, T HE LEARNED CIT(A) HAS ERRED, BOTH ON FACTS AND IN LAW, IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER IN HOLDING THAT THE EXPENDITU RE OF RS.15,89,625/- INCURRED BY THE APPELLANT AS CONSULT ANCY FOR ARCHITECTURAL WORK IS NOT ALLOWABLE EXPENDITURE. II) THAT THE ABOVE-SAID DISALLOWANCE HAS BEEN CONFI RMED IGNORING THE EXPRESS PROVISIONS OF LAW AND DECIDED CASE LAWS AND THE EXPLANATION AND EVIDENCES BROUGHT ON RECORD BY THE APPELLANT. 5(I) ON THE FACTS AND CIRCUMSTANCES OF THE CASE, TH E LEARNED CIT(A) HAS ERRED, BOTH ON FACTS AND IN LAW, IN CONF IRMING THE ACTION OF THE ASSESSING OFFICER WHEREBY HE HAS DISA LLOWED AN ITA-474/D/2006 & 424/D/2008 3 EXPENDITURE OF RS.6,18,960/- BEING CONSULTANCY FEE PAID DURING THE YEAR BY HOLDING THE SAME AS NOT REVENUE IN NATU RE. II) THAT THE ABOVE-SAID DISALLOWANCE HAS BEEN MADE BY TOTAL MISAPPRECIATION OF THE FACT AND IGNORING THE EXPLAN ATION AND EVIDENCES BROUGHT ON RECORD BY THE APPELLANT. 6. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(A) HAS ERRED, BOTH ON FACTS AND IN LAW, IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER WHEREBY HE HAS RESTRICTED THE CLAIM OF DEPRECIATION TO 20% ON VEHICLES AS AGAINST 50% ALLO WABLE UNDER THE ACT. 7(I) ON THE FACTS AND CIRCUMSTANCES OF THE CASE, TH E LEARNED CIT(A) HAS ERRED, BOTH ON FACTS AND IN LAW, IN DISA LLOWING THE EXPENDITURE OF RS.7,11,779/- BEING THE AMOUNT INCUR RED BY THE APPELLANT ON THE SOFTWARE DURING THE YEAR. (II) THAT THE ABOVE-SAID DISALLOWANCE HAS BEEN UPHE LD IGNORING THE EXPLANATION AND EVIDENCES AS WELL AS THE FACTS ATTENDANT TO THE USE OF THE SOFTWARE. (III) THAT THE DISALLOWANCE HAS BEEN MADE BY THE AS SESSING OFFICER REJECTING EXPLANATION GIVEN BY THE APPELLAN T MERELY ON THE BASIS OF DOUBT WITHOUT BRINGING ANY ADVERSE MAT ERIAL ON RECORD. 8(I) ON THE FACTS AND CIRCUMSTANCES OF THE CASE, TH E LEARNED CIT(A) HAS ERRED, BOTH ON FACTS AND IN LAW, IN UPHO LDING THE ACTION OF THE ASSESSING OFFICER IN NOT ALLOWING THE EXPENDITURE OF RS.2,34,555/- INCURRED BY THE APPELLANT ON SOFTWARE IMPLEMENTATION DURING THE YEAR AS REVENUE EXPENDITU RE. (II) THAT THE EXPLANATION GIVEN BY THE APPELLANT AH S BEEN REJECTED ARBITRARILY WITHOUT APPRECIATING THE FACT THAT THE EXPENDITURE IS REVENUE IN NATURE AND AS SUCH ALLOWABLE UNDER THE P ROVISIONS OF THE ACT. 9. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(A) HAS ERRED, BOTH ON FACTS AND IN LAW, IN CONFIRMING THE DISALLOWANCE OF THE EXPENDITURE OF RS.2,04,313/- ON ACCOUNT OF LEAVE ENCASHMENT INCURRED BY THE APPELLANT DURING T HE YEAR IGNORING THE EXPLANATION AND EVIDENCES BROUGHT ON R ECORD BY THE APPELLANT IN SUPPORT OF ITS CONTENTION. ITA-474/D/2006 & 424/D/2008 4 10. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(A) HAS ERRED, BOTH ON FACTS AND IN LAW, IN CONF IRMING THE DISALLOWANCE OF RS.30,600/- BEING THE FEE PAID TO T HE REGISTRAR OF COMPANIES, ALLOWABLE U/S 35D OF THE ACT. 11. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(A) HAS ERRED, BOTH ON FACTS AND IN LAW, IN UPHO LDING THE ACTION OF THE ASSESSING OFFICER IN LEAVING INTEREST U/S 234B AND SECTION 234D OF THE ACT. ITA NO.424/D/09 2. THE REVENUE HAS TAKEN THE FOLLOWING GROUNDS:- ON THE FACTS & IN THE CIRCUMSTANCES OF THE CASE TH E LD. CIT(APPEALS) HAS ERRED IN LAW AND ON THE FACTS IN D ELETING THE PENALTY OF RS.43,58,260/- LEVIED BY THE ASSESSING O FFICER U/S 271(1)(C) OF THE I.T. ACT, 1961 3. RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORD PER USED. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE COMPANY WAS INCORPORATED FOR THE PURPOSE OF IMPORTING AND MARKETING MOBILE HYDRAULIC PRODUCTS AND PROVIDI NG SPECIALIZED AFTER SALES SERVICE AND MANUFACTURE HYDRAULIC PRODUCTS AND ITS COMPONENTS. DURING THE YEAR UNDER CONSIDERATION IN JUNE 2001 THE ASSESSEE COMPA NY ACQUIRED THE BUSINESS ASSETS AND LIABILITIES OF DANTAL HYDRAULIC LIMITED (DHL) IN ACCORDANCE WITH THE TERMS OF THE ASSETS BUSINESS AGREEMENT DATED 21.05. 2001. THE BUSINESS OF THE DHL WAS TO COVER BY THE ASSESSEE ON 1.6.2001. IN T HE COURSE OF ASSESSMENT PROCEEDINGS THE A.O. ASKED THE ASSESSEE TO SHOW CAU SE WHY THE EXPENDITURE RELATING TO THE PERIOD 1.4.2001 TO 31.5.2001 SHOULD NOT BE DISALLOWED BEING INCURRED BEFORE THE COMMENCEMENT OF BUSINESS. IN R ESPONSE TO THIS THE ASSESSEE SUBMITTED THAT IT HAD ALREADY SET UP ITS BUSINESS B EFORE 31.3.2001 AS IT WAS IN A POSITION TO DISCHARGE ITS FUNCTIONS AS A TRADER OF IMPORTED HYDRAULIC PRODUCTS AND RELATED ACCESSORIES AS ON 1.4.2001 I.E. IT WAS READ Y TO COMMENCE BUSINESS AS ON 1.4.2001. IT WAS IN A POSITION TO CARRY OUT THE TR ADING ACTIVITY ON 1.4.2001 AND THUS IT WAS ONLY A MATTER OF TIME BEFORE THE ASSESSEE SU CCEEDED IN ITS EFFORTS TO PROCURE ITA-474/D/2006 & 424/D/2008 5 THE SALE ORDER. IT WAS FURTHER SUBMITTED THAT SINC E THE ASSESSEE COMPANY WAS IN COMPLETE STATE OF READINESS TO CONDUCT THE TRADING BUSINESS, THE ENTIRE EXPENDITURE INCURRED BY THE ASSESSEE DURING THE RELEVANT ASSESS MENT YEAR IS AFTER SETTING UP OF ITS BUSINESS AND IS ALLOWABLE AS A REVENUE EXPENDIT URE. IT MADE ITS FIRST PURCHASE ON 26.4.2001 AND FIRST SALE ON 27.04.2001. IT WAS FURTHER CONTENDED THAT THE TRADING BUSINESS OF THE ASSESSEE WAS READY TO COMME NCE UPON SET OF THE REQUISITE INFRASTRUCTURE (GETTING INCORPORATED, ACQUISITION O F PLACE OF BUSINESS COMMENCEMENT OF ACTIVITIES OF HIRING OF SUITABLE PE RSONNEL, IDENTIFYING POTENTIAL CLIENTS HOLDING MEETINGS, DECISION MAKING, ETC BY T HE DIRECTOR) WHICH ENABLE THE ASSESSEE TO CARRY OUT THE INTENDED ACTIVITY, EVEN I F NO BUSINESS ACTIVITY WAS ACTUALLY CARRIED OUT. IN SUPPORT OF ITS CLAIM THE ASSESSEE COMPANY PLACED RELIANCE ON THE FOLLOWING CASE LAWS:- WESTERN INDIA VEGETABLE PRODUCTS LTD. VS CIT (1954) 26 ITR 151 (BOMBAY) ACIT VS. SRF HOLDING LTD. (1991) 29 ITD 487 (DELHI) PREM CONDUCTORS PVT. LTD VS. CIT(1977) 108 ITR 654 (GUJARAT) HOLEL ALANKAR VS. CIT 133 ITR 866 (1982) (GUJARAT). 4. THE ABOVE EXPLANATION WAS NOT FOUND CONVINCING B Y THE ASSESSING OFFICER. HE HELD THAT THE BUSINESS WAS SET UP AND COMMENCED IN THE ASSESSEES CASE ON 1.6.2001 DATE ON WHICH THE ASSESSEE TOOK OVER THE R UNNING BUSINESS DANTAL HYDRAULIC LIMITED (DHL). THE A.O. OBSERVED THAT TH E ASSESSEE COMPANY I.E. SDIPL HAD ENTERED INTO ASSET AND BUSINESS TRANSFER AGREEMENT ON 21.5.2001 WITH SAUR DANFOSS INC. USA AND DANTAL HYDRAULIC LIM ITED (DHL) AND TOOK OVER THE RUNNING BUSINESS OF DHL W.E.F. 1.6.2001. 5. BY THE IMPUGNED ORDER CIT(A) CONFIRMED THE ACTIO N OF THE A.O. BY OBSERVING THAT M/S SAURER DANFOSS INC., A CORPORAT ION REGISTERED UNDER THE LAWS OF THE STATE OF DELAWARE USA WAS CARRYING OUT ITS BUSI NESS OPERATION IN INDIA THROUGH ITS DISTRIBUTOR DANTAL HYDRAULIC LIMITED. M/S DANTAL HYDRAULIC WAS ENGAGED IN INDIA IN THE BUSINESS OF IMPORT AND SALE OF PRODUCTS MANUFACTURED BY ITA-474/D/2006 & 424/D/2008 6 SAURER DANFOSS. SAURER DANFOSS INC., WANTED TO TAK E OVER THE BUSINESS ACTIVITY OF M/S DANTAL HYDRAULIC TO SET UP ITS OWN SUBSIDIARY. IN THIS REGARD A COMPANY WAS INCORPORATED ON 5.2.2001 AND SOME PRELIMINARY STEPS TOWARDS SETTING UP OF THE BUSINESS WERE CARRIED OUT, E.G. PREMISES WERE TAKEN ON LEASE, APPOINTED A FINANCE MANAGER AND OPENING OF BANK ACCOUNT. HOWEVER THE A CTUAL TAKE OVER OF THE BUSINESS OF DANTAL HYDRAULIC LIMITED ALONGWITH ITS INFRASTRUCTURE TOOK PLACE ON 1.6.2001. THE CIT(A) OBSERVED THAT SAURER DANFOSS INC USA THE PARENT COMPANY WANTED TO SET UP A SUBSIDIARY COMPANY TO TAKE OVER THE RUNNING OF DANTAL HYDRAULIC LIMITED, WHICH WAS LOOKING AFTER ITS OPER ATION IN INDIA AS A DISTRIBUTOR. ACCORDINGLY SAURER DANFOSS INDIA PVT. LTD, WAS INCO RPORATED ON 5.2.2001 AND BUSINESS OF ITS DISTRIBUTOR WAS TAKEN OVER OF RUNNI NG BUSINESS ALONGWITH ITS ENTIRE BUSINESS ASSETS AND LIABILITIES AND STAFF, THE A.O. IS RIGHT IN HOLDING THAT AS FAR AS THE ASSESSEE COMPANY IS CONCERNED, THE BUSINESS IS SET UP ONLY ON 1.6.2001, I.E. THE DATE OF TAKE OVER. THE ACTIVITIES REFERRED TO BY T HE ASSESSEE TO ARGUE THAT THE BUSINESS WAS SET UP PRIOR TO THE TAKE OVER ARE FOUN D TO BE MERE PRELIMINARY ACTIVITIES, LIKE APPOINTMENT OF DIRECTOR, OPENING O F BANK ACCOUNT, TAKING PREMISES ON LEASE ETC. THESE ACTIVITIES ARE NOT SUFFICIENT ENOUGH TO HOLD THAT THE ASSESSEE HAS SET UP ITS BUSINESS AND WAS READY TO COMMENCE BUSIN ESS BEFORE THE ACTUAL TAKE OVER OF BUSINESS OF DANTAL HYDRAULIC LIMITED. 6. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND FOU ND FROM THE RECORD THAT THE ASSESSEE COMPANY WAS DULY INCORPORATED ON 5.2.2 001 UNDER THE COMPANIES ACT, 1956. IT HAS ALSO APPLIED FOR APPROVAL TO FIP B, AND FIPB VIDE APPROVAL DATED 24.1.2001 ALLOWED FOR SETTING UP OF BUSINESS IN IND IA FOR VARIOUS ACTIVITIES. THE ASSESSEE SET UP ITS BUSINESS FROM 1 ST APRIL, 2001 AND WAS READY TO COMMENCE ITS BUSINESS OPERATION. FIRST DIRECTOR WAS APPOINTED O N 5.2.2001 ON THE DATE OF INCORPORATION AND ADDITIONAL DIRECTORS WERE APPOINT ED ON 10.2.2001. IT HAS TAKEN PREMISES ON LEASE W.E.F. 1.4.2001, THE PHYSICAL POS SESSION OF WHICH WAS ALREADY TAKEN W.E.F. 15.2.2001. IT OPENED ITS BANK ACCOUNT WITH DUTCHE BANK IN MARCH FIRST WEEK WHEREIN FIRST REMITTANCE WAS RECEIVED ON 9.2.2001. IT IS QUITE CLEAR FROM ITA-474/D/2006 & 424/D/2008 7 THESE ACTIVITIES OF THE ASSESSEE COMPANY THAT IT HA S SET UP ITS BUSINESS AND WAS READY TO COMMENCE ON 1.4.2001. THERE IS NO DISPUTE TO THE WELL SETTLED LEGAL PROPOSITION THAT AT THE POINT OF TIME, THE ASSESSEE IS IN A COMPLETE STATE OF READINESS TO UNDERTAKE ITS ACTIVITY, IT CAN BE SAID THAT IT H AS SET UP ITS BUSINESS, THE ACTUAL COMMENCEMENT OF BUSINESS MAY BE AT A LATER DATE. T HE TRADING BUSINESS OF THE ASSESSEE WAS READY TO COMMENCE UPON SET UP OF REQUI SITE INFRASTRUCTURE I.E. ACQUISITION OF PLACE OF BUSINESS, COMMENCEMENT OF H IRING OF SUITABLE PERSONNEL, IDENTIFYING CLIENTS, OPENING BANK ACCOUNT ETC. WHIC H ENABLED THE ASSESSEE TO CARRY OUT ITS OBJECT CLAUSE. ITAT DELHI BENCH IN THE CAS E OF WHIRLPOOL OF INDIA LTD. 19 SOT 293 OBSERVED THAT THERE MAY BE INTEGREGRUM B ETWEEN SETTING UP OF BUSINESS AND DATE OF COMMERCIAL COMMENCEMENT OF BUS INESS, BUT UNDER THE INCOME TAX ACT, ALL THE EXPENSES INCURRED AFTER THE DATE OF SETTING UP OF BUSINESS ARE TO BE ALLOWED AS A DEDUCTION WHILE COMPUTING TH E INCOME U/S 28. THE HONBLE BENCH IN THIS CASE HELD THAT WHERE THE ASSESSEE COM PANY HAS APPOINTED BRANCH MANAGER AND REGIONAL MANAGER IN 1995, PAID SALARIES INCLUDING PF CONTRIBUTION ETC. BEGINNING FROM NOVEMBER, 1995, ITS BUSINESS CA N BE SAID TO BE SET UP FROM 1.11.1995 I.E. THE DATE ON WHICH THE COMPANY WAS IN A POSITION TO COMMENCE ITS BUSINESS, AND NOT ON 1.2.1996 WHEN ITS BANK ACCOUNT WAS OPENED. THE INSTANT CASE BEFORE US IS AT A MORE SOUND FOOTING WHERE EVEN A B ANK ACCOUNT WAS OPENED PRIOR TO 1.4.2001 AND THE ASSESSEE HAS CLAIMED THE EXPEND ITURE ONLY AFTER IT HAS SET UP ITS BUSINESS WHICH WAS READY FOR COMMENCEMENT. MERELY BECAUSE ASSESSEE ENTERED INTO AGREEMENT WITH DHL ON 21.5.2001 WHICH WAS TO B E OPERATIVE FROM 1.6.2001 DATE ON WHICH ASSESSEE TOOK OVER THE RUNNING BUSINE SS OF DHL, IT CANNOT BE SAID THAT IT HAS SET UP ITS BUSINESS ONLY ON 1.6.2001 AN D NOT FROM 1.4.2001. ACCORDINGLY, WE DO NOT FIND ANY MERIT IN THE ACTION OF THE LOWER AUTHORITIES FOR NOT ALLOWING THE EXPENDITURE INCURRED AFTER 1 ST APRIL, 2001. THE AO IS AT A LIBERTY TO VERIFY THAT THE EXPENDITURE TO BE ALLOWED SHOULD BE RESTRICTED TO REVENUE EXPENDITURE. WE DIRECT ACCORDINGLY. ITA-474/D/2006 & 424/D/2008 8 7. GROUND NO.3 IS AGAINST THE DISALLOWANCE OF LEASE HOLD IMPROVEMENTS FOR ARCHITECTURAL WORK AMOUNTING TO RS.47,38,97/-. ACC ORDING TO THE AO THE ASSESSEE HAS CAPITALIZED THESE EXPENDITURE IN ITS BOOKS OF A CCOUNT. HOWEVER SINCE THESE EXPENDITURE HAS NOT RESULTED IN ACQUISITION OF ANY CAPITAL ASSET BY THE ASSESSEE, AS THE LEASEHOLD PREMISES HAVE TO BE VACATED AT THE EN D OF THE LEASE TENURE ALONGWITH THE IMPROVEMENTS, IT WAS CONTENDED BY THE ASSESSEE THAT THE SAME DOES NOT PARTAKE OF THE NATURE OF CAPITAL EXPENDITURE. ACCORDING TO THE ASSESSEE THIS EXPENDITURE HAS RESULTED IN ONLY IMPROVING THE EXISTING FACILIT IES OF THE LEASEHOLD PREMISES, WHICH FACILITATES THE DAY-TODAY WORKING OF THE COMP ANY. THE ASSESSEE HAS ACCORDINGLY, CLAIMED THE SAME AS REVENUE EXPENDITUR E U/S 37(1) OF THE ACT. THE AO DID NOT ACCEPT THE ABOVE CONTENTION OF THE ASSES SEE. THE AO HAS REFERRED TO THE EXPLANATION TO SECTION 32(1) OF THE I.T.ACT, AC CORDING TO WHICH THE BUSINESS OR PROFESSION OF THE ASSESSEE HOLD A LEASE OR OTHER RI GHT OF OCCUPANCY AND ANY CAPITAL EXPENDITURE IS INCURRED BY THE ASSESSEE FOR THE PUR POSE OF BUSINESS OR PROFESSION ON THE CONSTRUCTION OF ANY STRUCTURE OR DOING OF AN Y WORK IN OR IN RELATION TO, AND BY WAY OF RENOVATION OR EXTENSION OF, OR IMPROVEMEN T TO, THE BUILDING, THEN, THE PROVISIONS OF THIS CLAUSE SHALL APPLY AS IF THE SAI D STRUCTURE OF WORK IS A BUILDING OWNED BY THE ASSESSEE. THE AO ACCORDINGLY HELD THE ABOVE EXPENDITURE AS CAPITAL EXPENDITURE AND ALLOWED DEPRECIATION ONLY. 8. BY THE IMPUGNED ORDER CIT(A) CONFIRMED THE ACTIO N OF THE A.O. BY OBSERVING THAT FOR CARRYING OUT THIS RENOVATION IT HAS EVEN ENGAGED PROFESSIONAL ARCHITECT NAMELY M/S NITESH MINOCHA & ASSOCIATES TO WHOM IT PAID A SUM OF RS.15,89,625/-. BESIDES THIS THE EXPENDITURE INCUR RED ON RENOVATION WAS RS.47,38,979/- THAT TOO ON NEW PREMISES TAKEN ON LE ASE. AS PER CIT(A) WHAT THE ASSESSEE DID WAS NOT MERE REPAIRS BUT MADE A TOTAL RENOVATION OF THE LEASEHOLD BUILDING. ACCORDINGLY HELD THAT EXPENDITURE INCURR ED BY THE ASSESSEE ON IMPROVEMENT/RENOVATION OF THE LEASEHOLD PREMISES IS NOTHING BUT CAPITAL EXPENDITURE. ITA-474/D/2006 & 424/D/2008 9 9. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND FOU ND FROM THE RECORD THAT EXPENDITURE WAS INCURRED IN RESPECT OF LEASEHOLD PR EMISES ON ACCOUNT OF ELECTRICAL WORK, WOODEN PARTITIONS, LAYING DOWN OF CABLES, FAL SE FLOORING ETC. THERE WAS NO ADDITION OR EXTENSION OF THE PREMISES TAKEN BY THE ASSESSEE ON LEASE. THE EXPENDITURE WAS INCURRED BY THE ASSESSEE COMPANY FO R OPTIMUM USE OF THE BUSINESS PREMISES TAKEN ON LEASE AND THE SAME WERE INCURRED TO FACILITATE BUSINESS OPERATION. NOTHING WAS ADDED TO THE PROFIT MAKING APPARATUS OF THE ASSESSEE. ACCORDINGLY, WE DO NOT FIND ANY MERIT IN THE ACTION OF THE AO FOR TREATING ALL SUCH EXPENDITURE INCURRED TO IMPROVEMENT OF ARCHITECTURA L WORK CARRIED OUT IN THE LEASEHOLD PREMISES AS CAPITAL IN NATURE. SIMILARLY , CONSULTANCY CHARGES PAID FOR ARCHITECTURAL WORK IS ALSO REQUIRED TO BE ALLOWED A S REVENUE EXPENDITURE. IN THE RESULT, GROUND NOS.3 & 4 OF THE ASSESSEES APPEAL S TAND ALLOWED. 10. GROUND NO. 5 IS AGAINST TREATING LEGAL AND PROF ESSION EXPENDITURE CLAIMED BY THE ASSESSEE AMOUNTING TO RS.6,18,960/- AS CAPI TAL EXPENDITURE. BEFORE THE AO IT WAS SUBMITTED THAT BY THE ASSESSEE THAT THESE EX PENSES WERE PAYABLE TO KPMG IN RELATION TO TRANSFER OF BUSINESS ASSETS AND LIAB ILITIES BY THE ASSESSEE FROM DANTAL HYDRAULIC LIMITED. SINCE THE EXPENDITURE IN QUESTI ON WAS INCURRED FOR THE PURPOSE OF ACQUIRING THE BUSINESS, THE AO WAS OF THE OPINIO N THE SAME IS IN THE NATURE OF CAPITAL EXPENDITURE. THE ASSESSEES BUSINESS WILL COMMENCE ONLY AFTER THE ACQUISITION PROCESS IS OVER. ANY EXPENDITURE IN CON NECTION WITH SUCH TRANSFER CAN AT BEST BE TREATED AS PART OF THE COST OF ACQUISITI ON OF THE BUSINESS IN QUESTION. 11. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND FO UND THAT ASSESSEE HAS PAID PROFESSIONAL CHARGES TO KPMG IN RELATION TO LEGAL F ORMALITIES TO BE UNDERTAKEN WITH REGARD TO EXECUTION OF AGREEMENT WITH DHL. TH E LEGAL EXPENDITURE SO INCURRED ARE ESSENTIALLY REVENUE IN NATURE IN VIEW OF THE DECISION OF HON'BLE BOMBAY HIGH COURT IN THE CASE OF BOMBAY DYEING & MA NUFACTURING CO. 219 ITR 521. ACCORDINGLY, WE DO NOT FIND ANY MERIT FOR THE DISALLOWANCE OF ITA-474/D/2006 & 424/D/2008 10 PROFESSIONAL CHARGES PAID TO A LEGAL CONSULTING FIR M, ON PLEA OF SAME BEING CAPITAL IN NATURE. 12. GROUND NO.6 WITH REGARD TO DISALLOWANCE OF CLAI M OF DEPRECIATION AT 50%, IN PLACE OF 20% ALLOWED BY THE AO, WAS NOT PRESSED DURING THE COURSE OF HEARING. WE, THEREFORE, DISMISS THE SAME IN-LIMINE. 13. GROUND NO.7 IS AGAINST DISALLOWANCE OF CLAIM OF DEPRECIATION ON SOFTWARE. THE A.O DISALLOWED THE CLAIM OF DEPRECIATION ON SOF TWARE PURCHASED FROM COMPAQ FOR RS.7,11,779/-. THE AO DISALLOWED THE SA ME ON THE GROUND THAT NO EVIDENCE HAS BEEN SUBMITTED BY THE ASSESSEE COMPANY TO PROVE THAT THE SOFTWARE WAS PUT TO USE DURING THE YEAR UNDER CONSIDERATION. GROUND NO.8 IS AGAINST DISALLOWANCE OF SOFTWARE IMPLEMENTING EXPENSES. BO TH THE DISALLOWANCES WERE CONFIRMED BY THE CIT(A), AGAINST WHICH, ASSESSEE IS IN FURTHER APPEAL BEFORE US. 14. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND FO UND FROM THE RECORD THAT ASSESSEE COMPANY HAS PURCHASED SOFTWARE VIDE INVOIC E DATED 20.3.2002. MERELY BECAUSE THE DATE OF INVOICE WAS AT THE FAG END OF T HE ACCOUNTING PERIOD, THE AO DECLINED THE ASSESSEES CLAIM THAT THE SAME WAS NOT PUT TO USE. WE FOUND THAT SOFTWARE PURCHASED ON 20.3.2002 DID NOT REQUIRE ANY COMPLEX INSTALLATION PROCEDURE AND WAS INSTALLED ON THE HARDWARE WITH TH E HELP OF A CD. WE THEREFORE DO NOT FIND ANY MERIT IN THE ACTION OF THE LOWER AU THORITIES FOR DECLINING THE CLAIM OF DEPRECIATION ON THE EXPENDITURE INCURRED ON SOFT WARE AND ITS IMPLEMENTATION EXPENSES MERELY ON THE ASSUMPTION THAT IT WAS NOT U SED PRIOR TO 31.3.2002 WITHOUT BRINGING ANY MATERIAL IN SUPPORT OF THE SAME. ACCO RDINGLY, GROUND NOS.7 & 8 OF THE ASSESSEES APPEAL STAND ALLOWED. 15. GROUND NOS.9 & 10 WERE NOT PRESSED BY THE LEARN ED AR, THE SAME ARE THEREFORE DISMISSED IN-LIMINE. ITA-474/D/2006 & 424/D/2008 11 16. CHARGING OF INTEREST U/S 234B IS CONSEQUENTIAL IN NATURE. AS PER THE DECISION OF ITAT SPECIAL BENCH IN THE CASE OF EKTA PROMOTERS (P) LTD. - 113 ITD 719(DEL)(SB) INTEREST CANNOT BE CHARGED U/S 234D FO R THE ASSESSMENT YEARS EARLIER TO AY 2004-05. SINCE THE ASSESSMENT YEAR INVOLVED IN THIS APPEAL IS 2002-03, THE AO WAS NOT JUSTIFIED IN LEVYING INTEREST U/S 234D. 17. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED IN PART, IN TERMS INDICATED HEREINABOVE. ITA-424/DEL/2006 :- 18. IN THIS APPEAL, REVENUE IS AGGRIEVED FOR DELETI ON OF PENALTY IMPOSED U/S 271(1)(C). 19. RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORD PE RUSED. THE AO HAS LEVIED PENALTY U/S 271(1)(C) WITH RESPECT TO ADDITIONS MAD E WHILE FRAMING ASSESSMENT U/S 143(3). AS DISCUSSED HEREINABOVE, MOST OF THE ADDI TIONS MADE BY THE AO HAVE BEEN DELETED BY US. ONLY THE GROUND NOT PRESSED RE LATES TO DISALLOWANCE OF CLAIM OF DEPRECIATION ON COMMERCIAL VEHICLES AT 50%, DECL INE OF EXPENDITURE INCURRED ON LEAVE ENCASHMENT AMOUNTING TO RS.2,04,313/- AND DIS ALLOWANCE OF RS.30,600/- PAID TO THE REGISTRAR OF COMPANIES. IN RESPECT OF CLAIM OF DEPRECIATION AT 50%, WE FOUND THAT ASSESSEE HAS CLAIMED DEPRECIATION ON THE COMMERCIAL VEHICLES USED FOR THE PURPOSE OF BUSINESS. MERELY ON THE PLEA THAT T HESE VEHICLES WERE NOT GIVEN ON HIRE, THE AO HAS RESTRICTED THE RATE OF DEPRECIATIO N TO 20%, IN PLACE OF 50%. WE FOUND THAT ASSESSEE HAS DISCLOSED ALL THE MATERIAL FACTS BEFORE THE AO, MERELY BECAUSE AO HAS RESTRICTED THE CLAIM OF DEPRECIATION AT 20%, WILL NOT AMOUNT TO CONCEALMENT OF ANY PARTICULARS OF INCOME. SIMILARL Y, DISALLOWANCE OF CERTAIN EXPENDITURE WHICH ARE BASED ON CERTAIN JUDICIAL PRO NOUNCEMENTS, WILL ALSO NOT AMOUNT TO CONCEALMENT OF INCOME. ALL THE OTHER ADD ITIONS MADE BY THE AO HAVE ALREADY BEEN DELETED BY US AS DISCUSSED IN ITA NO.4 74/DEL/2006. KEEPING IN VIEW THE DETAILED FINDING GIVEN BY THE CIT(A) WITH RESPECT TO EACH AND EVERY ITA-474/D/2006 & 424/D/2008 12 ADDITION MADE BY THE AO AND REASONS FOR DELETING TH E PENALTY THEREON, WHICH HAVE NOT BEEN CONTROVERTED BY THE LEARNED DR DURING THE COURSE OF HEARING BEFORE US, WE DO NOT FIND ANY REASON TO INTERFERE WITH THE ORD ER OF THE CIT(A) FOR DELETING THE PENALTY. 20. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED IN PART WHEREAS THE APPEAL OF THE REVENUE IS DISMISSED. DECISION PRONOUNCED IN THE OPEN COURT ON 31 ST JULY, 2009. SD/- SD/- (D.R.SINGH) (R.C.SHARMA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 31.07.2009. VK. COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT DEPUTY REGISTRAR