DCIT 8(2), MUMBAI V. METALMECCANICA FRACASSO INDIA P.LTD, MUMBAI

ITA 4421/MUM/2013

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 7903 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 6 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-12-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 03-07-2017
• Assessment Year: 2009-2010
• Appeal Filed On: 03-06-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUMAN KUMAR LD
• Assessee Lawyers: DR K SHIVARAM; ADITYA AJGAONKAR LD ARS
• Keywords: Business expenditure; Revenue expenditure; Capital expenditure
• Section: 143(3)

Judgement Text

ITA.NO.4421/MUM/2013 METALMECCANICA FRACASSO INDIA PRIVATE LIMITED ASSESSMENT YEAR-2009-10 IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, MUMBAI . . , , BEFORE SHRI D.T. GARASIA, JM AND SHRI MANOJ KUMAR AGGARWAL, AM ./I.T.A. NO.4421/MUM/2013 ( / ASSESSMENT YEAR: 2009-10) DEPUTY COMMISSIONER OF INCOME TAX 8(2) ROOM NO.216-A AAYKAR BHAVAN M.K.ROAD MUMBAI-400 020 / VS. METALMECCANICA FRACASSO INDIA PRIVATE LIMITED D-415/416,4 TH FLOOR FLORAL DECK PLAZA CENTRAL ROAD, MIDC ANDHERI(E), MUMBAI-400 093 ! ./ ./PAN/GIR NO. AADCM-4531-G ( !# /APPELLANT ) : ( $%!# / RESPONDENT ) A SSESSEE BY : DR. K.SHIVARAM & ADITYA AJGAONKAR ,LD.ARS RE VENUE BY : SUMAN KUMAR, LD. SR. DR / DATE OF HEARING : 31/10/2017 / DATE OF PRONOUNCEMENT : 13/12 /2017 / O R D E R PER MANOJ KUMAR AGGARWAL (ACCOUNTANT MEMBER) 1. THE CAPTIONED APPEAL BY REVENUE FOR ASSESSMENT Y EAR [AY] 2009- 10 ASSAILS THE ORDER OF THE LD. COMMISSIONER OF INC OME-TAX (APPEALS)- ITA.NO.4421/MUM/2013 METALMECCANICA FRACASSO INDIA PRIVATE LIMITED ASSESSMENT YEAR-2009-10 2 17 [CIT(A)], MUMBAI, APPEAL NO.CIT(A)-17/IT-58/2011-12 DATED 28/03/2013. THE ASSESSMENT FOR IMPUGNED AY WAS FRAMED BY LD. DEPUTY COMMISSIONER OF INCOME TAX-8(2), MUMBAI [AO] U/S 143(3) OF THE INCOME TAX ACT, 1961 ON 18/07/2011. THE REVENUE HAS RAISED THE FOLLOWING EFFECTIVE GROUNDS OF APPEAL:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE DISALLOWANCE OF DATA PROCESSI NG CHARGES OF EURO 90000 EQUIVALENT TO RS.58,18,500/- HOLDING THAT THE SAME IS REVENUE IN NATURE WITHOUT APPRECIATING THAT THE SAID EXPENDITURE WAS INCURRE D IN CONNECTION WITH SETTING UP OF THE NEW PLANT AND THEREFORE CAPITAL IN NATURE 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE DISALLOWANCE OF DATA PROCESSI NG CHARGES OF EURO 90000 EQUIVALENT TO RS.58,18,500/- HOLDING THAT THE SAME IS REVENUE IN NATURE WITHOUT APPRECIATING THAT THE INVOICES RAISED FOR SUCH CHAR GES ALSO BIFURCATED BETWEEN THE PERIODS BEING PRE-COMMENCEMENT AND POST COMMENC EMENT OF THE NEWLY SET UP PLANT, WHICH ESTABLISHES THAT THE SAID EXPEN DITURE WAS INCURRED IN CONNECTION WITH SETTING UP OF THE NEW PLANT AND THE REFORE CAPITAL IN NATURE. 3. THE APPELLANT PRAYS THAT THE ORDER OF THE CIT(A) ON THE ABOVE GROUND BE SET ASIDE AND THAT OF THE AO BE RESTORED. 2.1 FACTS LEADING TO THE SAME ARE THAT THE ASSESSEE BEING RESIDENT CORPORATE ASSESSEE ENGAGED IN THE BUSINESS OF ROAD SAFETY SYSTEMS ETC. WAS ASSESSED FOR IMPUGNED AY U/S 143(3) ON 18/07/20 11 AT RS.14.91 LACS UNDER NORMAL PROVISIONS AFTER CERTAIN ADDITION S / ADJUSTMENTS AS AGAINST RETURNED LOSS OF RS.90.66 LACS FILED BY THE ASSESSEE ON 30/09/2009. THE ONLY SUBJECT MATTER OF THE PRESENT DISPUTE IS WITH REGARD TO NATURE OF CERTAIN CONSULTANCY / PROFESSIONAL FEE S PAID BY THE ASSESSEE. 2.2 DURING ASSESSMENT PROCEEDINGS, IT WAS NOTED THA T THE ASSESSEE MADE CERTAIN PAYMENTS TO ITS HOLDING COMPANY NAMELY FRACASSO SPA, ITALY , THE DETAILS OF WHICH ARE TABULATED BELOW:- NO. AMOUNT (EUROS) PERIOD NATURE OF SERVICES 1. 90000 APRIL TO DECEMBER, 2008 DATA PROCESSING INCL UDING OVERALL COORDINATION AND LEGAL AFFAIRS, SALES MANAGEMENT, PLANT MANAGEMENT & QUALITY ASSURANCE MANAGEMENT 2. 30000 JANUARY TO MARCH 2009 ----------DO------ 3. 50000 APRIL TO DECEMBER, 2008 COORDINATION AND MA NAGEMENT OF WORKS CONCERNING SET UP OF NEW PLANT AT MURBAD OVERALL FLAT FEES ITA.NO.4421/MUM/2013 METALMECCANICA FRACASSO INDIA PRIVATE LIMITED ASSESSMENT YEAR-2009-10 3 2.3 THE PAYMENT OF EUROS 50000 WAS CAPITALIZED IN THE BOOKS OF ACCOUNT WHEREAS THE PAYMENT OF EUROS 30000 HAS BEEN ALLOWED AS REVENUE EXPENDITURE AT THE ASSESSMENT STAGE ITSELF. THE ONLY DISPUTE IS WITH REGARD TO PAYMENT OF 90000 EUROS (EQUIVALENT TO INDIAN RS.58.18 LACS) WHICH HAS BEEN CLAIMED AS REVENUE EXPENDITURE IN THE BOOKS OF ACCOUNT. THE LD. AO OPINED THAT THIS EXPENDITURE WA S TOWARDS SETTING UP OF NEW PLANT AT MURBAD AND PERTAINED TO PRE-COMMENCEMENT PERIOD SINCE THE PLANT AT MURBAD WAS SET DURING THE PERIOD APRIL, 2008 TO DECEMBER, 2008 AND HENCE THE EXPENSES WERE CAPITAL IN NATURE. THE ASSESSEE, BY DRAWING ATTENTION TO THE RELEVANT AGRE EMENT CONTENDED THAT THE ASSESSEE WAS ALREADY IN THE SAME LINE OF BUSINE SS SINCE 2002-03 AND CARRIED OUT OPERATIONS FROM LEASED PREMISES AND PLANT & MACHINERY. IT ONLY SET UP NEW UNIT AT MURBAD WHICH STARTED OPERATIONS FROM JANUARY, 2009 WHEREAS THE IMPUGNED EXPENDITURE WAS IN THE NA TURE OF SUPERVISIONS CHARGES AND MARKETING EXPENSE FOR PROD UCTS OF THE COMPANY WHICH WERE ALREADY IN EXISTENCE AND HENCE T HE EXPENSES WAS REVENUE IN NATURE. HOWEVER, NOT CONVINCED, LD. AO C ONCLUDED THAT THE IMPUGNED EXPENDITURE WAS CAPITAL IN NATURE AND HENC E DISALLOWABLE. 3. AGGRIEVED, THE ASSESSEE CONTESTED THE SAME WITH SUCCESS BEFORE LD. CIT(A) VIDE IMPUGNED ORDER DATED 28/03/2013 WHE RE LD. CIT(A) CONCURRED WITH ASSESSEES SUBMISSION AND CONCLUDED THE MATTER IN THE FOLLOWING MANNER:- 4.2 I HAVE CONSIDERED THE SUBMISSIONS OF THE APPELL ANT AND THE ORDER OF THE AO. THE APPELLANT HAS ONE PLANT AT TALOJA WHICH WAS A R UNNING PLANT AND ANOTHER PLANT WAS BEING SET UP AT MURBAD. THE EXPENSES RELATING T O EURO 90,000 INCURRED AT THE RATE OF EURO 10,000 PER MONTH FOR THE PERIOD APRIL 2008 TO DECEMBER 2008 WAS FOR BOTH THE PLANT AT TALOJA WHICH WAS ALREADY RUNNING AND IN EXISTENCE. THIS ITA.NO.4421/MUM/2013 METALMECCANICA FRACASSO INDIA PRIVATE LIMITED ASSESSMENT YEAR-2009-10 4 EXPENDITURE WAS NOT PERTAINING TO SETTING UP OF THE NEW PLANT, WHICH WAS IN ADVANCED STAGE OF CONSTRUCTION. THE PAYMENT TO FRAC ASSO WAS ON THE BASIS OF AN AGREEMENT ENTERED INTO ON MAY 29, 2008 WHEREIN IT W AS MENTIONED AS UNDER: - (D) MANAGEMENT SERVICES MEANS DATA PROCESSING SER VICES INCLUDING BUT NOT LIMITED TO OVERALL CO-ORDINATION AND LEGAL AFFAIRS, SALES MANAGEMENT, PLANT MANAGEMENT, QUALITY ASSURANCE MANAGEMENT, MANAGEMEN T OF NEW WORKS SET UP FROM TIME TO TIME AND ALL TYPES AND NATURE OF SERVI CES CONNECTED TO BUSINESS PROCESS OUTSOURCING. 4.3 IT WAS ALSO MENTIONED THAT THE TERM OF THE CONT RACT COULD START FROM APRIL 2008 AND WOULD CONTINUE FOR THREE YEARS. IT IS ALSO MENT IONED IN ITEM NO.5 OF THE PAPER BOOK ON PAGE 35 THAT THE APPELLANT WOULD PAY EURO 1 0,000 PER MONTH TO FRACASSO FOR SUCH PERIOD AS THE APPELLANT MAY CONTINUE AVAIL ING THE ABOVE SERVICES. THE NATURE OF THE SERVICES IS NOT RELATING TO SETTING U P A NEW PLANT BUT IS FOR THE DAY TO DAY RUNNING OF ADMINISTRATION AND MANAGEMENT. HENCE , THE SAME IS NOT LIABLE FOR BEING CAPITALIZED. THE APPELLANT HAS RELIED ON ARRA Y OF DECISIONS TO BUTTRESS ITS ARGUMENT REGARDING THE SAME. FOLLOWING THE FACTS AB OVE AND THE LEGAL POSITION AS ARGUED BY THE APPELLANT, THERE IS NO DOUBT THAT THE EXPENDITURE IS REVENUE IN NATURE. IT IS NECESSARY HERE TO QUOTE THE DECISION OF CIT, COIMBATORE VS. SHAKTHI SUGAR LTD (2010) 194 TAXMAN 91 (MAD), WHICH IS AS UNDER: - SINCE THE SUPREME COURT AS WELL AS HIGH COURTS HAV E MADE A DISTINCTION BETWEEN INVESTMENT IN RESPECT OF AN ASSET CREATED AND EXPEN SES INCURRED FOR THE ACTUAL RUNNING OF THE BUSINESS WHICH MAKES THE DIFFERENCE BETWEEN CAPITAL EXPENDITURE AND REVENUE EXPENDITURE AND SINCE IN THE CASE ON HA ND, THE EXPENSES IN QUESTION WERE ALL EXPENSES INCURRED FOR THAT PURPOSE, NAMELY , BUSINESS EXPENDITURE, THE IMPUGNED ORDER IN HAVING ALLOWED SUCH EXPENDITURE A S REVENUE EXPENDITURE WAS PERFECTLY JUSTIFIED. HENCE, THE CLAIM OF THE APPELLANT RELATING TO REVEN UE EXPENDITURE IS ALLOWED AND GROUND OF APPEAL OF THE APPELLANT IS ALLOWED. AGGRIEVED, THE REVENUE IS IN FURTHER APPEAL BEFORE US. 4. THE LD. DEPARTMENTAL REPRESENTATIVE [DR] DREW O UR ATTENTION TO THE FACT THAT INVOICING HAS BEEN DONE SEPARATELY FO R TWO PERIOD VIZ. PRE- COMMENCEMENT PERIOD AND POST-COMMENCEMENT PERIOD AN D THEREFORE, THE EXPENSES OF PRE-COMMENCEMENT PERIOD WERE REQUIR ED TO BE CAPITALIZED. 5. PER CONTRA, LD. AR DREW OUR ATTENTION TO THE TERMS OF THE RELEV ANT AGREEMENT AS PLACED ON RECORD THAT THE NATURE OF EX PENSES WAS COMPOSITE DATA PROCESSING SERVICE TO ENSURE SMOOTH RUNNING OF DAY TO DAY OPERATIONS OF THE BUSINESS AND NOT TOWARDS SETT ING UP OF THE NEW ITA.NO.4421/MUM/2013 METALMECCANICA FRACASSO INDIA PRIVATE LIMITED ASSESSMENT YEAR-2009-10 5 PLANT. FURTHER THE ASSESSEES BUSINESS WAS ALREADY IN EXISTENCE AND THE EXPENSES WERE REVENUE IN NATURE. OUR ATTENTION IS D RAWN TO THE FACT THAT THE ASSESSEE MADE SEPARATE PAYMENT OF EUROS 50000 TOWARDS SETTING UP OF THE NEW PLANT AT MURBAD AND THE SAME HAS ALREADY BEEN CAPITALIZED IN THE BOOKS OF ACCOUNTS. OUR ATTENTIO N IS FURTHER DRAWN TO FIXED ASSET SCHEDULE AND TURNOVER ACHIEVED BY THE A SSESSEE IN EARLIER YEARS. 6. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED RELEVANT MATERIAL ON RECORDS INCLUDING FINANCIAL STATEMENTS AND AGREE MENT DATED 29/05/2008 FOR MANAGEMENT SERVICES ENTERED INTO BY THE ASSESSEE WITH ITS HOLDING COMPANY I.E. PAYEE. 7. A PERUSAL OF THE TERMS OF THE AGREEMENT REVEALS THAT THE SAME IS EFFECTIVE FOR A PERIOD OF 3 YEARS AGAINST PAYMENT O F EUROS 10000 BY THE ASSESSEE. THE NATURE OF SERVICES BEING AVAILED BY T HE ASSESSEE IS MANAGEMENT SERVICES, THE SCOPE OF WHICH IS DEFINED IN THE AGREEMENT AS FOLLOWS:- MANAGEMENT SERVICES MEANS DATA PROCESSING SERVICE S INCLUDING BUT NOT LIMITED TO OVERALL CO-ORDINATION AND LEGAL AFFAIRS, SALES MANA GEMENT, PLANT MANAGEMENT, QUALITY ASSURANCE MANAGEMENT, MANAGEMENT OF NEW WOR KS SET UP FROM TIME TO TIME AND ALL TYPES AND NATURE OF SERVICES CONNECTED TO B USINESS PROCESS OUTSOURCING. A PERUSAL THEREOF REVEALS THAT THE SERVICES, IN PAR TICULAR, ARE NOT DIRECTED TOWARDS SETTING UP OF NEW PLANT AT MURBAD BUT THE SAME ARE IN THE NATURE OF DATA PROCESSING SERVICES, OVERALL COORDINATION, SALES / PLANT / QUALITY MANAGEMENT AND BUSINESS PROCESS OUTSOURCING. 8. THE ADMITTED FACT ON RECORD IS THAT THIS IS NOT A NEW LINE OF ASSESSEES BUSINESS. THE ASSESSEE HAS ACHIEVED TURN OVER OF RS.23.20 ITA.NO.4421/MUM/2013 METALMECCANICA FRACASSO INDIA PRIVATE LIMITED ASSESSMENT YEAR-2009-10 6 CRORES IN IMMEDIATELY PRECEDING AY AND IT ALSO HAS CARRIED FORWARD PLANT & MACHINERY TO THE EXTENT OF RS.49.25 LACS. THE ASS ESSEE HAS CONTENDED THAT IT OPERATED FROM LEASED PREMISES AND LEASED PLANT & MACHINERY IN EARLIER YEARS, WHICH IS NOT DISPUTED B Y THE REVENUE. 9. THE ASSESSEE HAS CAPITALIZED EUROS 50000 TOWARDS SETTING UP OF THE NEW PLANT AND ASSESSEE CONTESTED THE SAME DURIN G APPELLATE PROCEEDINGS ON THE PREMISES THAT THE SAME WAS REVEN UE IN NATURE. HOWEVER, THIS GROUND OF APPEAL HAS BEEN WITHDRAWN B Y THE ASSESSEE DURING APPELLATE PROCEEDINGS WHICH SUBSTANTIATE THE LD. ARS CONTENTION THAT EXPENSES EXCLUSIVELY INCURRED FOR SETTING UP O F THE NEW PLANT HAS ALREADY BEEN CAPITALIZED IN THE BOOKS OF ACCOUNT. 10. THE ABOVE DISCUSSION LEAD US TO INEVITABLE CONC LUSION THAT THE IMPUGNED EXPENDITURE WAS INCURRED BY THE ASSESSEE T O FACILITATE DAY TO DAY TRADING OPERATIONS OF ASSESSEES BUSINESS AND T O CARRY OUT BUSINESS MORE EFFICIENTLY. NO NEW ASSET CAME INTO EXISTENCE AND THERE WAS NO ENLARGEMENT OF PROFIT MAKING APPARATUS. THE IMPUGNE D EXPENDITURE WAS AN INTEGRAL PART OF PROFIT EARNING PROCESS OF ASSES SEES BUSINESS. OUR VIEW IS FORTIFIED BY THE JUDGMENT OF HONBLE APEX C OURT RENDERED IN EMPIRE JUTE CO. VS. CIT [980 124 ITR 1]. HENCE, FINDING THE CONCLUSION OF LD. CIT(A) QUITE FAIR & LOGICAL, WE DISMISS REVE NUES APPEAL. 11. RESULTANTLY, REVENUES APPEAL STANDS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 13 TH DECEMBER, 2017. ITA.NO.4421/MUM/2013 METALMECCANICA FRACASSO INDIA PRIVATE LIMITED ASSESSMENT YEAR-2009-10 7 SD/- SD/- (D.T. GARASIA) (MANOJ KUMAR AGGARW AL) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; DATED : 13.12. 2017 SR.PS:- THIRUMALESH ! / COPY OF THE ORDER FORWARDED TO : 1. !# / THE APPELLANT 2. $%!# / THE RESPONDENT 3. + ( ) / THE CIT(A) 4. + / CIT CONCERNED 5. $'- , - , / DR, ITAT, MUMBAI 6. . / GUARD FILE / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI