Appeal details
Counselvise Citation
[2012] 140 COUNSELVISE.COM (IT) 65222 (ITAT-DELHI)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
9 month(s) 27 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
01-08-2012
Appeal Filed By
Assessee
Order Result
Allowed
Bench Allotted
D
Next Hearing Date
30-07-2012
Assessment Year
2006-2007
Appeal Filed On
04-10-2011
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH C NEW DELHI BEFORE SHRI R.P. TOLANI AND SHRI T.S. KAPOOR ITA NO. 4458/DEL/11 A.YRS. 2004-05 DCIT CIR. 11(1), VS. M/S INDIA INTERNATIONAL HOU SE LTD., NEW DELHI. 4686, ANSARI ROAD, DARYA GANJ, NEW DELHI. PAN/ GIR NO.AAACI 2399P AND C.O. NO. 377/DEL/11 ( IN ITA NO. 4458/DEL/11 A.YR. 2004-05 M/S INDIA INTERNATIONAL HOUSE LTD., VS. DCIT CIR. 11(1), 4686, ANSARI ROAD, DARYA GANJ, NEW DELHI. NEW DELHI. ( APPELLANT ) ( RESPONDENT ) DEPARTMENT BY : SMT. ANUSHA KHURANA SR. DR RESPONDENT BY : SH. P.K. RASTOGI CA O R D E R PER R.P. TOLANI, J.M: : THIS IS REVENUES APPEAL AND ASSESSEES CROSS-OBJE CTION AGAINST CIT(A)S ORDER DATED 8-8-2011 RELATING TO A.YR. 20 04-05. BOTH THE MATTERS ARE HEARD TOGETHER AND ARE BEING DISPOSED OF BY A C ONSOLIDATED ORDER. 2. SOLE EFFECTIVE GROUND TAKEN BY THE REVENUE IN I TS APPEAL IS AS UNDER: 2 ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 93 ,48,300/- MADE ON ACCOUNT OF TREATMENT OF DESIGN AND OTHER CH ARGES AS CAPITAL IN NATURE. 3. BRIEF FACTS ARE: THE ASSESSEE IS ENGAGED IN THE MANUFACTURING OF HARDWARE MADE OF BRASS SUCH AS ELECTRIC SWITCH COVE R, DOOR HANDLES AND LOCK HANDLES ETC. PRIOR TO THIS YEAR THE ASSESSEE WAS IN TO EXPORTS OF THESE GOODS TO U.S. MARKET. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE ENTERED FOR THE FIRST TIME INTO EUROPEAN AND U.K. MARKET, WHIC H IS TOTALLY DIFFERENT IN REGARD TO DESIGNS, FITTINGS, MECHANISM AND WORKING . ONE M/S BUILDERS HARDWARE LTD. (BHL), AN ENGLAND CONCERN, WAS SUP PLYING SUCH PRODUCTS TO MAJOR CHAIN STORE CALLED HOME BASE IN UK AND OTH ER EUROPEAN COUNTRIES. THE ASSESSEE TIED UP WITH BHL BY WAY OF A RENEWABLE AGREEMENT FOR ONE YEAR. ACCORDINGLY, THE BHL GAVE PARTICULAR DESIGNS ETC. FOR MANUFACTURE AND SUPPLY OF SUCH GOODS, MARKETABLE IN U.K. THE AGREEM ENT WAS FOR ONE YEAR AND SUBSEQUENTLY IT WAS NOT RENEWED BY THE PARTIES. ASSESSEE CLAIMED THE DESIGNING CHARGES OF RS. 1,24,64,400/- PAID TO BHL IN P&L A/C. THE AGREEMENT WAS NOT RENEWED AS THE ASSESSEE WAS NOT A BLE TO GET REPEAT ORDERS AND MARKETABILITY. ASSESSING OFFICER , HOWEVER, HEL D THE DESIGN CHARGES PAID BY THE ASSESSEE WERE CAPITAL EXPENDITURE AND N OT REVENUE EXPENDITURE. THEY WERE HELD TO BE COMMERCIAL ASSETS ELIGIBLE FOR DEPRECIATION @ 25%, WHICH WAS ALLOWED AT RS. 31,16,100/- DISALLOWING TH E REMAINDER OF RS. 93,48,300/-. 3.1. AGGRIEVED, ASSESSEE PREFERRED FIRST APPEAL WHE RE ASSESSEE RELIED ON PLETHORA OF JUDGMENTS IN THE CASES OF: - CIT VS. ELECON ENGG. CO. LTD. 170 CTR 267; 3 - CIT VS. GREAVES COTTON LTD. 244 ITR 149 (MP); - CIT VS. IAEC PUMPS LTD. (1998) 232 ITR 316 (SC); - CIT VS. WESTEREWRK ENGINEERS LTD. 124 CTR 174 (BO M); - CIT VS. KIRLOSKAR PNEUMAIC LTD. 202 ITR 309 (BOM. ); - CIT VS. PRAGA TOOLS LTD. 157 ITR 282; - CIT VS. MODI OLIVETTI LTD. (2004) 3 SOT 22 (DEL.) ; - CIT VS. INDIAN CARBON LTD. 221 ITR 264; - CIT VS. LEKE PLACE HOTELS LTD. 131 TAXMAN 836 (RA J.); - CIT VS. HARI VIGNESH MOTORS PVT. LTD. 282 ITR 338 (MAD.); - CRESCENT CAPACITOR VS. CIT 149 ITR 285 (DEL.); AN D - ITO VS. BHARAT HEAVY PLATE & VESSELS LTD. 38 ITD 299. 3.2. CIT(A) ALLOWED THE CLAIM OF THE ASSESSEE BY H OLDING THAT THE EXPENDITURE IN QUESTION WAS REVENUE IN NATURE. AGGR IEVED, REVENUE IS IN APPEAL BEFORE US. THE ASSESSEE HAS FILED CROSS-OBJE CTION IN SUPPORT OF CIT(A)S ORDER. 4. LEARNED D.R. RELIES ON THE ORDER OF ASSESSING OF FICER . 5. LEARNED COUNSEL FOR THE ASSESSEE , ON THE OTHER HAND, CONTENDS THAT: (I) DEVELOPMENT AND REMAKING OF DESIGNS IS A REGULA R FEATURE OF THE ASSESSEES BUSINESS AND IS THUS PROCESS OF CHANGE O F DESIGNS IS INEXTRICABLY LINKED WITH THE PROFITABILITY OF THE A SSESSEES BUSINESS. (II) ASSESSEE WAS IN U.S. MARKET AND TO DEVELOP U.K . MARKET IT WAS IMPERATIVE FOR THE ASSESSEE TO MANUFACTURE THE HAR DWARE ON THE BASIS OF NEW DESIGNS ACCEPTABLE IN U.K. MARKET AND THUS THE DESIGN CHARGES WERE REVENUE IN NATURE FOR EARNING BETTER P ROFITS. (III) HAD ASSESSEE NOT PAID DESIGNING CHARGES TO H BL IN THAT CASE THE ALTERNATE ASSESSEE WOULD HAVE PAID THE ROYALTY ON THE GOODS EXPORTS WHICH WOULD HAVE BEEN CLEARLY ALLOWABLE. IN THIS CASE SINCE HBL INSISTED FOR A CONTRACT BASED ON PROVIDIN G DESIGNS AND 4 MARKETING THE ASSESSEES GOODS, ACCORDINGLY IT WAS A COMMERCIAL DECISION, BASED ON BUSINESS ACUMEN. (IV) SUCH ENGINEERING DESIGNS DEVELOPMENT ARE INCUR RED FOR THE PURPOSE OF EXPANSION/ EXTENSION AND INCREASING THE RANGE OF THE PRODUCTS AND THEIR UTILITY. THE SAME IS DONE IN THE REGULAR COURSE OF BUSINESS. 5.1. IN THIS CASE THE AGREEMENT WAS NOT RENEWED AF TER ONE YEAR AS THE ASSESSEE WAS NOT ABLE TO OBTAIN SUFFICIENT NUMBER O F ORDERS FROM U.K AND THUS RENEWING THE AGREEMENT WOULD HAVE COSTED MORE, RESULTING IN WASTEFUL EXPENDITURE. THUS BY NON-RENEWAL THE ASSESSEE SAVED ITSELF FROM GETTING INTO FURTHER LOSSES TO PROTECT THE REVENUE GENERATING AP PARATUS. RELIANCE IS PLACED ON HONBLE SUPREME COURT JUDGMENT IN THE CASE OF EM PIRE JUTE CO. LTD. VS. CIT 124 ITR 1 (SC) FOR THE PROPOSITION THAT THE EXP ENDITURE INCURRED BY THE ASSESSEE TO CONDUCT ITS BUSINESS MORE EFFECTIVELY A ND MORE PROFITABLY HAS INTEGRAL CONNECTION WITH THE PROFIT MAKING PROCESS , THE SAME IS TO BE HELD AS REVENUE EXPENDITURE. 5.2. THE ASSESSEE HAS RELIED ON NUMBER OF OTHER JUD GMENTS WHICH ARE MENTIONED IN CIT(A)S ORDER. 6. WE HAVE HEARD RIVAL CONTENTIONS AND GONE THROUGH THE RELEVANT MATERIAL AVAILABLE ON RECORD. AS THE FACTS EMERGE, THE ASSESSEE WAS ALREADY INTO THE BUSINESS OF MANUFACTURE AND SUPPLY OF MAN UFACTURE IN U.S. MARKET. THE ENTRY INTO THE SUPPLY OF U.K. MARKET NECESSITA TED THE DESIGNS WHICH ARE POPULAR IN EUROPEAN MARKET. THE DESIGN CHARGES PAID BY THE ASSESSEE TO MAKE ITS PRODUCT BETTER USEFUL AND ATTRACTIVE IN EU ROPEAN MARKET CONSTITUTE REVENUE NATURE. THE RELIANCE PLACED ON HONBLE SUPR EME COURT JUDGMENT IN 5 THE CASE OF EMPIRE JUTE CO. LTD. (SUPRA) IS WELL PL ACED AS THE EXPENDITURE INCURRED BY THE ASSESSEE HAS DIRECT NEXUS WITH ITS INCOME GENERATING APPARATUS. RESPECTFULLY FOLLOWING VARIOUS JUDGMENT S MENTIONED AND RELIED ON BY CIT(A) WE SEE NO INFIRMITY IN HIS ORDER, WHI CH IS UPHELD. THE ASSESSEES CROSS OBJECTION BEING ONLY IN SUPPORT OF CIT(A) ORDER, IS RENDERED INFRUCTUOUS. 7. IN THE RESULT, REVENUES APPEAL AS WELL AS ASSES SEES CROSS-OBJECTION STAND DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON 13-07-2012. SD/- SD/- ( T.S. KAPOOR ) ( R.P. TOLANI ) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 13-07-2012. MP COPY TO : 1. ASSESSEE 2. AO 3. CIT 4. CIT(A) 5. DR 6
