INTER GOLD GEMS P.LTD, MUMBAI V. DCIT RG 5(2), MUMBAI

ITA 4271/MUM/2012

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 78920 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 11 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-05-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: I
• Next Hearing Date: 27-05-2014
• Assessment Year: 2004-2005
• Appeal Filed On: 21-06-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Revenue expenditure; Capital expenditure

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL I, BENC H MUMBAI . . , ..!'. , BEFORE SHRI B.R.BASKARAN, AM & DR.S.T.M.PAVALAN, JM ./ ITA NO.4271/MUM/2012 ( $ $ $ $ / ASSESSMENT YEAR :2004-05) M/S INTER GOLD GEMS PVT. LTD., 58/60, JARIWALA MANSION, HUGHES ROAD, MUMBAI-400 007 VS. DCIT, RANGE-5(2), MUMBAI % ./ &' ./ PAN/GIR NO. : AAACI 1062 K ( %( / APPELLANT ) .. ( )*%( / RESPONDENT ) +, - -- - . . . . /ASSESSEE BY : MR. NITESH JOSHI & - -- - . . . . /REVENUE BY : MR. SANJEEV JAIN - ,' / DATE OF HEARING : 27 TH MAY, 2014 /0$ - ,' / DATE OF PRONOUNCEMENT : 30 TH MAY, 2014 1 1 1 1 / O R D E R PER B.R.BASKARAN (A.M.) : THE APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDE R DATED 10-04-2012 PASSED BY LD CIT(A)-9, MUMBAI AND IT REL ATES TO THE ASSESSMENT YEAR 2004-05. 2 . THE ASSESSEE IS AGGRIEVED BY THE DECISION OF LD C IT(A) IN CONFIRMING THE DISALLOWANCE OF RS.53,32,813/- OUT O F ADVERTISEMENT AND SALES PROMOTION EXPENSES. 3 . THE FACTS RELATING TO THE ISSUE UNDER OUR CON SIDERATION ARE SET OUT IN BRIEF. THE ASSESSEE COMPANY IS ENGAGED IN THE BUSI NESS OF MANUFACTURING AND MARKETING DIAMOND STUDDED GOLD AN D PLATINUM JEWELLERY. DURING THE YEAR UNDER CONSIDERATION, TH E ASSESSEE ESTABLISHED ITA NO.4271/12 2 EIGHT NEW SHOW ROOMS AT VARIOUS PLACES AND INCURRED A SUM OF RS.1,06,65,625/- IN AGGREGATE AS EXPENSES. THE ASS ESSEE TREATED THE SAME AS DEFERRED REVENUE EXPENSES IN THE BOOKS OF A CCOUNT, BUT CLAIMED THE SAME AS DEDUCTION IN ITS RETURN OF INCOME. THE AO, HOWEVER, TREATED THE SAME AS CAPITAL EXPENDITURE AND ACCORDINGLY DIS ALLOWED THE SAME. THE ASSESSEE CHALLENGED THE ADDITION BY FILING APPE AL BEFORE LD CIT(A) AND THEN TO THE TRIBUNAL. THE CO-ORDINATE BENCH OF ITAT, VIDE ITS ORDER DATED 04-09-2009 IN ITA NO. 5524/MUM/2008 HELD THAT THE IMPUGNED EXPENDITURE IS REVENUE IN NATURE. HOWEVER, THE TR IBUNAL SET ASIDE THE MATTER TO THE FILE OF THE AO WITH THE FOLLOWING OBS ERVATIONS:- .IN VIEW OF THIS WE HAVE NO HESITATION IN ALLOWI NG THE EXPENDITURE AS REVENUE EXPENDITURE IN THIS YEAR. H OWEVER, AS SEEN FROM THE RECORD NO VERIFICATION OF THE EXPENDI TURE HAS BEEN UNDERTAKEN BY THE ASSESSING OFFICER AS HE HAS DISAL LOWED THE ENTIRE AMOUNT. IN VIEW OF THIS, THE EXAMINATION AN D ALLOWANCE OF EXPENDITURE IS RESTORED TO THE FILE OF THE A.O WHIL E ACCEPTING IN PRINCIPLE THE ALLOWANCE OF EXPENDITURE AS REVENUE E XPENDITURE OF THE YEAR. ACCORDINGLY GROUND NO. 1 OF THE ASSESSEE IS CONSIDERED ALLOWED, SUBJECT TO VERIFICATION BY THE A.O FOR THE QUANTUM OF EXPENDITURE CLAIMED. 4 . IN THE SET ASIDE PROCEEDINGS, ACCORDING TO TH E ASSESSING OFFICER, THE ASSESSEE DID NOT PRODUCE ANY DOCUMENTARY EVIDENCE I N SUPPORT OF EXPENSES CLAIMED AND ALSO TO SHOW THAT THEY WERE IN CURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. HOWEVER T HE AO RESTRICTED THE DISALLOWANCE TO 50% OF THE EXPENDITURE CLAIMED BY T HE ASSESSEE. 5 . IN THE APPELLATE PROCEEDINGS, THE LD CIT(A) C ALLED FOR A REMAND REPORT FROM THE ASSESSING OFFICER. IN THE REMAND R EPORT, THE ASSESSING OFFICER SUBMITTED THAT A SUM OF RS.95,13,638/- WERE SUPPORTED BY THE BILLS/ VOUCHERS AND THE REMAINING AMOUNT OF RS.11,51,987/- WERE NOT SUPPORTED ITA NO.4271/12 3 BY THE BILLS / VOUCHERS. IN RESPECT OF THE AMOUNT OF RS.95,13,638/-, THE AO FURTHER OBSERVED THAT THE ASSESSEE HAS FAILED TO SHOW THAT THEY HAVE BEEN INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOS E OF THE BUSINESS OF THE ASSESSEE. HENCE, THE LD CIT(A) CONFIRMED THE D ISALLOWANCE MADE BY THE AO. 6 . WE HAVE HEARD RIVAL CONTENTIONS AND CAREFULLY PERUSED THE RECORD. A PERUSAL OF THE ORDER PASSED BY THE TRIBUNAL IN THE FIRST ROUND OF PROCEEDINGS, WHICH IS REFERRED SUPRA, WOULD SHOW TH AT THE TRIBUNAL HAS ALREADY RECORDED A FINDING THAT THE IMPUGNED EXPENS ES WERE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF BUSINESS . FOR THE SAKE OF CONVENIENCE, WE EXTRACT BELOW THE RELEVANT OBSERVAT IONS MADE BY THE TRIBUNAL:- 6. WE HAVE CONSIDERED THE ISSUE. AS SEEN FROM TH E DETAILS OF EXPENDITURE FILED IN THE PAPER BOOK, THE NATURE OF EXPENDITURE IS ADVERTISEMENT FOR THE PROMOTIONAL EVENTS AND FOR OP ENING OF NEW SHOW ROOMS AT VARIOUS PLACES AND THEN TRAVELING EXPENDIT URE PERTAINING TO TRAVEL FROM MUMBAI TO VARIOUS PLACES AND FURTHER PR INTING, RENT FOR SHOWROOMS, BROKERAGES AND EXPENDITURE ON PRESS MEET S, LAUNCH EXPENSES, COURIER CHARGES ETC., INCLUDING THE STONE LAYING AND DESIGNING CHARGES. EXAMINATION OF THE DETAILS REVEALED THAT NONE OF THE EXPENDITURE IS FOR ACQUIRING ANY ASSET AND E XPENDITURE IS ON THE REVENUE FIELD. THE CONCEPT OF DEFERRED REVENUE EXPENDITURE IS AN ACCEPTED PRINCIPLE OF ACCOUNTING AND THE HON BLE SUPREME COURT IN THE CASE OF MADRAS INDUSTRIAL INVESTMENT CORPORA TION LTD VS. CIT 225 ITR 802 HAS UPHELD THE PRINCIPLES IN CLAIMING R EVENUE EXPENDITURE INCURRED IN ONE YEAR OVER ITS ENTIRE PERIOD IN THE CASE THERE IS A CONTINUING BENEFIT TO THE BUSINESS OF THE COMPANY. IN THE INSTANT CASE THE REVENUE EXPENDITURE IS INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF BUSINESS AND AS HELD BY THE HONBLE SUPREME COURT IN THE ABOVE SAID DECISION THE SAME IS TO BE ALLOWED ORDINARILY IN THE YEAR IN WHICH IT IS INCURRED SINCE THE CO-ORDINATE BENCH OF THE TRIBUNAL, IN THE FIRST ROUND OF PROCEEDING, HAS HELD THAT THE IMPUGNED EXPENDITURE HAS BEEN INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF BUSINESS , IT MAY NOT BE CORRECT ITA NO.4271/12 4 ON THE PART OF THE TAX AUTHORITIES BELOW TO RECORD A DIFFERENT FINDING, WHICH IS CONTRADICTORY TO THE FINDING GIVEN BY THE TRIBUN AL. THE JUDICIAL DISCIPLINE DEMANDS THAT THE LOWER COURTS SHOULD BOW TO THE WIS DOM OF THE HIGHER COURT. HENCE, WE ARE UNABLE TO ACCEPT THE OBSERVAT IONS OF THE AO AND THE LD CIT(A) IN HOLDING THAT THE IMPUGNED EXPENSES WERE NOT WHOLLY AND EXCLUSIVELY INCURRED FOR THE PURPOSES OF BUSINESS. ACCORDINGLY, WE SET ASIDE THE SAID OBSERVATIONS. 7 . WE HAVE ALREADY NOTICED THAT THE ASSESSING OFF ICER, IN HIS REMAND REPORT, HAS GIVEN A FINDING THAT A SUM OF RS.95,13, 638/- OUT OF THE TOTAL AMOUNT OF RS.1,06,65,625/- IS SUPPORTED BY BILLS AN D VOUCHERS, MEANING THEREBY, THE AO HAS EXAMINED THE DETAILS OF VOUCHER S WITH REFERENCE TO THE VOUCHERS / BILLS. SINCE A SUM OF RS.95,13,638/ - WAS SUPPORTED BY THE BILLS / VOUCHERS, WE DO NOT FIND ANY REASON TO DISA LLOW THE SAID CLAIM. ACCORDINGLY, WE SET ASIDE THE ORDER OF THE LD CIT(A ) IN RESPECT OF RS.95,13,638/- AND DIRECT THE AO TO ALLOW THE SAME. 8 . IN RESPECT OF THE REMAINING AMOUNT OF RS.11,51 ,987/-, THE LD A.R SUBMITTED THAT THEY WERE ALSO SUPPORTED BY THE VOUC HERS AND ACCORDINGLY CONTENDED THAT THE AO WAS NOT CORRECT IN OBSERVING THAT THE SAME IS NOT SUPPORTED BY THE VOUCHERS. HOWEVER, THE LD A.R DID NOT BRING ANY MATERIAL ON RECORD TO SHOW THAT THE ABOVE SAID SUM OF RS.11,51,987/- IS SUPPORTED BY PROPER VOUCHERS / BILLS. ON THE CONTR ARY, WE NOTICE THAT THE ASSESSING OFFICER HAS GIVEN THE DETAILS IN HIS REMA ND REPORT AFTER CARRYING OUT NECESSARY EXAMINATION AND VERIFICATION. UNDER THESE CIRCUMSTANCES, WE ARE INCLINED TO ACCEPT THE VERSION OF THE ASSESS ING OFFICER. ITA NO.4271/12 5 9 . WE HAVE ALREADY NOTICED THAT THE ASSESSING OF FICER HAS DISALLOWED ONLY 50% OF THE EXPENDITURE CLAIMED BY THE ASSESSEE , MEANING THEREBY, THE DISALLOWANCE IN RESPECT OF RS.11,51,987/- SHOUL D ALSO BE SUSTAINED TO THE EXTENT OF 50% ONLY. ACCORDINGLY WE DIRECT THE ASSESSING OFFICER TO SUSTAIN THE ADDITION TO THE EXTENT OF 50% OF RS.11, 51,987/-. THE ORDER OF LD CIT(A) IS MODIFIED IN TERMS OF THE DISCUSSIONS M ADE SUPRA. 10 . IN THE RESULT, THE APPEAL FILED BY THE ASSESS EE IS PARTLY ALLOWED. + ,2 +, - 1 3, - &, 45 ORDER PRONOUNCED IN THE OPEN COURT ON THIS 30 TH MAY, 2014. 1 - /0$ 6 72 30 TH MAY,2014 0 - 8 SD/- SD/- ( . . !' . ) (DR.STM PAVALAN) ( . . ) (B.R.BASKARAN ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI ; 7 DATED 30/05/2014 ). . /PKM , . / PS 1 1 1 1 - -- - ),9 ),9 ),9 ),9 :9$, :9$, :9$, :9$, / COPY OF THE ORDER FORWARDED TO : 1 1 1 1 / BY ORDER, ; ;; ; / 4 4 4 4 & & & & ( ASSTT. REGISTRAR) , / ITAT, MUMBAI 1. %( / THE APPELLANT 2. )*%( / THE RESPONDENT. 3. < ( ) / THE CIT(A), MUMBAI. 4. < / CIT 5. 9=8 ), , , / DR, ITAT, MUMBAI 6. 8 > / GUARD FILE. *9, ), //TRUE COPY//