DCIT,Rourkela Circle, Rourkela, Rourkela V. M/s. Altrade Minerals Pvt. Ltd., Rourkela

ITA 457/CTK/2014

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 3841 (ITAT-CUTTACK)
• Duration Of Justice: 2 year(s) 4 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-04-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 19-04-2017
• Assessment Year: 2009-2010
• Appeal Filed On: 28-11-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: D K PRADHAN
• Keywords: Capital asset; Revenue expenditure; Capital expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, CUTTACK BENCH , CUTTACK BEFORE S/SHRI N.S SAINI, ACCOUNTANT MEMBER AND KULDIP SINGH JUDICIAL MEMBER ITA NO S.457 & 458/CTK/2014 ASSESSMENT YEAR S : 2009 - 2010 & 2010 - 2011 DCIT, ROURKELA CIRCLE, ROURKELA. VS. M/S. ALTRADE MINERALS PVT LTD., A - 6, COMMERCIAL ESTATE CIVIL TOWNSHIP, 7 & 8, AREA, ROURKELA. PAN/GIR NO. AAFCA 7136 F (APPELLANT ) .. ( RESPONDENT ) ASSESSEE BY : NONE REVENUE BY : SHRI D.K.PRADHAN , DR DATE OF HEARING : 19 /04/ 2017 DATE OF PRONOUNCEMENT : 25 /04/ 2017 O R D E R PER N.S.SAINI, AM THESE ARE APPEAL S FILED BY THE REVENUE AGAINST THE SEPARATE ORDER S OF CIT(A) - 1, BHUBANESWAR , BOTH DATED 25.9.2014 , FOR THE ASSESSMENT YEAR S 2009 - 2010 AND 2011 - 2011, RESPECTIVELY . 2. THE SOLE COMMON GROUND RAISED BY THE REVENUE IN BOTH THE APPEALS IS THAT THE CIT(A) ERRED IN DELETING THE ADDITION OF RS.50,33,335/ - (A.Y. 2009 - 10) AND RS.50,000/ - (A.Y. 2010 - 2011) MADE BY THE ASSESSING OFFICER WHEN THE EXPENDITURE CLAIMED BY THE ASSESSEE 2 ITA NOS.457 & 458/CTK/2014 ASSESSMENT YEARS : 2009 - 2010 & 2010 - 2011 UNDER THE HEAD RIGHT TO USE PLOT FALLS UNDER THE CATEGORY OF CAPITAL EXPENDITURE. 3. THE NOTICE OF HEARING DATED 23.3.2017 WAS SENT TO THE ASSESSEE BY SPEED POST FIXING THE HEARING ON 19.4.2017, WHICH IS SERVED ON THE ASSE SSEE AS EVIDENCED BY THE TRACK R ECORD OF INDIAN POST ON 29.3.2017. WHEN THE CAS E WAS CALLED FOR HEARING, NONE WAS PRESENT ON BEHALF OF THE ASSESSEE . WE, THEREFORE, PROCEED TO THE DECIDE THE APPEALS OF THE REVENUE EXPARTE QUA THE RESPONDENT ASSESSEE AFTER HEARING LD DEPARTMENTAL REPRESENTATIVE AND CONSIDERING THE MATERIALS AVAILABLE ON RECORD. 4 . THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF RAISING AND EXPORT OF MINERALS. THE ASSESSING OFFICER FOUND THAT THE ASSESSEE HAS PROCURED RIGHT TO USE SPECIFIED SPACE BEING A PLOT OF 3000 SQ.MTR TO STORE ITS MINERALS FOR EXPORT. THE ASSESSEE PAID BID AMOUNT OF RS.1,51,00,000/ - WHICH IS NON - REFUNDABLE. THE SPACE RECEIVED IS ALSO NON - TRANSFERABLE. THE ASSESSEE WROTE OFF THE AMOUNT OF RS.1,5 1,00,000/ - IN ITS BOOKS OF ACCOUNT IN FINANCIAL YEAR BEGINNING WITH FINANCIAL YEAR 2007 - 08. AFTER ANALYSING THE TERMS OF ALLOTMENT OF THE PLOT BY THE PARADEEP PORT TRUST AND THE EXPLANATION OF THE ASSESSEE, THE ASSESSING OFFICER DETERMINED THAT THE EXPENS ES CLAMED IS CAPITAL EXPENDITURE BASED ON THE PREMISES AS UNDER: 3 ITA NOS.457 & 458/CTK/2014 ASSESSMENT YEARS : 2009 - 2010 & 2010 - 2011 I) THE EXPENDITURE PRODUCES BENEFITS FOR SEVERAL YEARS. II) IT MAKES IMPROVEMENT IN EARNING CAPACITY OF THE BUSINESS AND; III) THE EXPENDITURE SHOULD BE NON - RECURRING IN NATURE. 5 . THE ASSE SSING OFFICER OBSERVED THAT THE EXPENDITURE CLAIMED BY THE ASSESSEE UNDER THE HAD RIGHT TO USE PLOT CLEARLY FULFILS THE ABOVE CONDITIONS AND, THEREFORE, DISALLOWED THE EXPENDITURE CLAIMED BY THE ASSESSEE OF RS.50,33,335/ - EACH FOR THE ASSESSMENT YEAR 2009 - 10 AND 2010 - 2011, RESPECTIVELY. 6 BEFORE THE CIT(A), THE ASSESSEE FILED A DETAILED WRITTEN SUBMISSION, WHICH IS REPRODUCED BY THE CIT(A) IN HIS ORDERS. AFTER A DETAILED ANALYSING THE WRITTEN SUBMISSION, THE CIT(A) DELETED THE ADDITION BY OBSERVING AS UNDER: I HAVE CONSIDERED THE MATTER CAREFULLY. THE APPELLANT'S DETAILED SUBMISSIONS HAVE MERIT. THE APPELLANT'S CLAIM THAT THE ALLOTMENT OF PLOT MAY BE CANCELLED AT ANY TIME IN CASE THE APPELLANT FAILS TO ACHIEVE TH E STIPULATED TARGET, WAS NOT ACCEPTED BY THE AO SINCE SUCH CONDITIONS DID NOT FIND A PLACE IN THE ALLOTMENT LETTER DT.18/19.1.2008. HOWEVER, IT IS SEEN THAT THE ALLOTMENT OF SPACE HAS BEEN CANCELLED W.E.F. 17.12.2013. THE CIRCULAR DT.31.12.2007 OF PARADEEP PORT TRUST FOR AUCTION OF PLOTS MENTIONED ONLY ONE PLOT WILL BE ALLOTTED TO EACH OF THE HIGHEST BIDDERS FOR A PERIOD OF ONE YEAR SUBJECT TO PAYMENT OF LICENSE FEE/RENTALS. RENEWAL OF THE PLOT THEREAFTER WILL BE ON THE BASIS OF PERFORMANCE'. ACCORDINGLY, T HE ALLOTMENT OF PLOT WAS NOT FOR INDEFINITE PERIOD AS CONCLUDED BY THE AO. THE PAYMENT OF THE BID AMOUNT OF RS.1,51,00,000/ - WAS TO FACILITATE THE EXPORT BUSINESS OF THE APPELLANT AND NOT FOR ACQUISITION OF ANY ASSET. THE MONEY PAID WAS A ONE TIME PAYMENT FOR USE OF ASSET AND NOT MEANT TO GIVE THE ENDURING BENEFIT. THE APPELLANT AT ITS OWN CHOICE HAS SPREAD THE EXPENDITURE OVER 3 FINANCIAL YEARS EVEN THOUGH THE SAME COULD HAVE BEEN CLAIMED IN THE YEAR OF PAYMENT. THE APPELLANT'S ACTION OF WRITING OFF THE PA YMENT OVER 3 FINANCIAL YEARS IS FOR CONVENIENCE AND WITH BROAD UNDERSTANDING THAT PLOT WOULD REMAIN WITH IT FOR 3 YEARS WHICH WOULD NOT INFLUENCE ITS RIGHT TO CLAIM THE SAME AS REVENUE EXPENDITURE IN THE YEAR OF ALLOTMENT OF THE PLOT. 4 ITA NOS.457 & 458/CTK/2014 ASSESSMENT YEARS : 2009 - 2010 & 2010 - 2011 IN THE CASE OF THE A PPELLANT THERE WAS NO ACQUISITION OF CAPITAL ASSETS AND THE AMOUNT PAID WAS FOR CARRYING ON THE BUSINESS AND FOR EFFICIENT AND QUICKER EXPORT OF THE ASSESSEE'S PRODUCT. SINCE THERE WAS NO ASSET ACQUIRED BY THE PAYMENT OF THE LEASE AMOUNT, THE AMOUNT PAID I S REVENUE EXPENDITURE. SUPPORT IS DERIVED FROM THE DECISION IN THE CASE OF CIT V. SOUTH INDIA EXPORTS CO. LTD. (2000) 242 IT 150(MAD.) / [2003] 127 TAXMAN 478 (MAD.). SUPPORT IS ALSO TAKEN FROM THE DECISION IN THE CASE OF DEVIDAS VITHALDAS & C V. CIT, [1972] 84 ITR 277 (SC), WHICH HAS BEEN RENDERED UNDER SIMILAR SITUATIOR WHICH THE APPELLANT HAS REFERRED TO IN ITS FAVOUR. IN THAT CASE IT HAS BEEN HELD A UNDER: 'ACQUISITION OF THE GOODWILL OF' THE BUSINESS IS, WITHOUT DOUBT, ACQUIS ITION OF, CAPITAL ASSET, AND, THEREFORE, ITS PURCHASE PRICE WOULD BE CAPITAL EXPENDITURE IT WOULD NOT MAKE ANY DIFFERENCE WHETHER IT IS PAID IN A LUMP SUM AT ONE R/MI OR IN INSTALMENTS DISTRIBUTED OVER A DEFINITE PERIOD. WHERE, HOWEVER, THI TRANSACTION IS NOT ONE FOR ACQUISITION OF THE GOODWILL, BUT FOR THE RIGHT TO USE IT, THE EXPENDITURE WOULD BE REVENUE EXPENDITURE.' IN THE CASE OF CIT V. GEMINI ARTS (P.) LTD. (2002) 254 ITR 201(MAD.) [2003] 128 TAXMAN 105 (MAD.), IT HAS BEEN OBSERVED AS UNDER: 'THE ASSESSEE WHICH HAD LEASEHOLD FOR 48 YEARS CHOSE TO PAY WITH THE CONSENT OF THE LESSOR THE RENT FOR 47 YEARS IN THE ASSESSMENT YEAR 1981 - 82. THE LEASE WAS FOR A PERIOD OF 48 YEARS FROM 18 - 2 - 1980, AND THE LUMP SUM PAYMENT WAS MADE ON 22 - %1980. THE TERMS OF THE LEASE DID NOT CONTEMPLATE ANY INCREASE IN THE RATE OR RENTAL DURING THE PERIOD O F LEASE. THE LESSEE GOT NO OTHER ADVANTAGE BY REASON OF THIS LUMP SUM PAYMENT EXCEPT THE RELIEF OF NO: HAVING TO MAKE THE ANNUAL PAYMENT DURING THE PERIOD OF LEASE. 2. THE CONTENTION OF THE REVENUE THAT THE ASSESSEE HAD RECEIVED AL ADVANTAGE OF ENDURING NATURE BY MAKING SUCH A LUMP SUM PAYMENT HAS BEEN NEGATIVE D BY THE TRIBUNAL AND IN OUR VIEW RIGHTLY. 3. THE SUPREME COURT IN THE CASE OF CIT V. MADRAS AUTO SERVICE (P.) LTD. [1998] 233 ITR 468, HAS HELD THAT TO DECIDE WHETHER EXPENDITURE IS REVERSE OR CAPITAL ONE HAS TO LOOK AT THE EXPENDITURE FROM A COMMERCIAL POINT OF VIEW. THE COURT OBSERVED AT PAGE 472 'WHATEVER SUBSTITUTES FOR REVENUE EXPENDITURE SHOULD NORMALL Y B E CONSIDERED AS REVENUE EXPENDI TURE'. HAD THE ASSESSEE CHOSEN TO PAY RENT ANNUALLY FOR EACH AND EVERY YEAR OF LEASE SUCH EXPENDITURE CERTAINLY WOULD HAVE TO BE REGARDED AS REVENUE EXPENDITURE. 7 FACT THAT THE PAYMENT WAS MADE IN LUMP SUM FOR THE ENTIRE DURATION OF THE LEASE DOES NOT ALTER THE CHARACTER OF IT BEING A REVENUE EXPENDITURE. 4. THE EXPENDITURE SO INCURRED BY THE ASSESSEE BEING OF A REVENUE CHARACTER IT HAS TO BE DEDUCTED FROM ITS INCOME IN THE YEAR IN WHICH THE 5 ITA NOS.457 & 458/CTK/2014 ASSESSMENT YEARS : 2009 - 2010 & 2010 - 2011 EXPENDITURE WAS INCURRED. TH E TRIBUNAL WAS RIGHT IN HOLDING THAT THE EXPENDITURE SHOULD BE ALLOWED IN THE ASSESSMENT YEAR IN WHICH THE EXPENDITURE WAS INCURRED. ' IN THE CASE OF CIT V. UCAL FUEL SYSTEMS LTD, (2008) 296 ITR 702 (MAD.), THE ASSESSEE FILED ITS RETURNS FOR THE PERIOD DURI NG THE RELEVANT ASSESSMENT YEAR CLAIMING SUMS OF RS. 30.00 LAKHS AND RS. 8.00 LAKHS PAID FOR TAKING LAND AND BUILDING AT PONDICHERRY ON LEASE FOR A PERIOD OF TWENTY YEARS, AS REVENUE EXPENDITURE. THE ASSESSING OFFICER, FOUND THAT THE ASSESSEE HAD TAKEN THE LAND ON LEASE FOR TWENTY YEARS FOR SETTING UP A NEW UNIT AT PIPDIC INDUSTRIAL ESTATE AT PONDICHERRY, THA T THE AMOUNT PAID BY THE ASSESSEE AS ADVANCE WAS IN THE NATURE OF DISCOUNTED VALUE OF THE LEASE AMOUNT OTHERWISE PAYABLE OVER THE PERIOD OF TWENTY YEARS AND THAT THE ASSESSEE HAD TREATED THE SAID PAYMENT AS CAPITAL IN ITS BOOKS OF ACCOUNT IN ORDER TO PROJE CT A BOOSTED PROFIT TO IMPRESS THE SHAREHOLDERS AND TREATED THE SAID PAYMENT AS CAPITAL EXPENDITURE. THE TRIBUNAL ALLOWED THE ASSESSEE'S CLAIM. IT WAS HELD BY THE HON'BLE MADRAS HIGH COURT THAT IN VIEW OF THE DECISION OF THE INSTANT COURT IN CIT V. GEMINI ARTS (P.) LTD. [2002] 254 ITR 201 (MAD.), THE TRIBUNAL WAS JUSTIFIED IN HOLDING THAT THE UPFRONT LEASE RENT CHARGES PAID FOR TAKING THE LAND AND BUILDING ON LEASE FOR A PERIOD OF 20 YEARS FOR THE PURPOSE OF SETTING UP THE NEW UNIT WAS A REVENUE EXPENDITURE . IN VIEW OF THE SAME, THE EXPENDITURE FOR RIGHT TO USE THE PLOT IS REVENUE EXPENDITURE. ACCORDINGLY, THE ADDITION OF RS.50,33,335/ - MADE BY THE AO IS DELETED. 7. BEFORE US, LD DEPARTMENTAL REPRESENTATIVE COULD NOT POINT OUT ANY SPECIFIC ERROR IN THE F INDINGS OF THE CIT(A). IN THE INST ANT CASE, THE AMOUNT IN QUESTION WAS PAID AS LE ASE RENT. THE ASSESSEE INSTEAD OF MAKING PAYMENT OF LEASE RENT EVERY YEAR PAID AN UPFRONT AMOUNT. THE SAID PAYMENT WAS SUBSTITUTION OF ANNUAL LEASE RENT. WE FIND THAT ON T HE SIMILAR FACTS, THE HONBLE MADRAS HIGH COURT IN THE CASE OF CIT VS. GEMINI ARTS PVT LTD., (2001) 254 ITR 201 (MAD HAS HELD AS UNDER: THE SUPREME COURT IN THE CASE OF CIT VS. MADRAS AUTO SERVICE (P) LTD. (1998) 233 ITR 468 (SC), HAS HELD THAT TO DECIDE WHETHER EXPENDITURE IS REVENUE OR CAPITAL ONE HAS TO LOOK AT THE EXPENDITURE FROM A COMMERCIAL POINT OF VIEW. THE COURT OBSERVED (PAGE 47 2) 'WHATEVER SUBSTITUTES FOR REVENUE EXPENDITURE SHOULD NORMALLY BE CONSIDERED AS REVENUE EXPENDITURE'. HAD THE ASSESSEE CHOSEN TO PAY RENT ANNUALLY FOR EACH AND EVERY YEAR OF LEASE SUCH EXPENDITURE CERTAINLY WOULD HAVE TO BE REGARDED AS REVENUE EXPENDITUR E. THE FACT THAT THE PAYMENT WAS 6 ITA NOS.457 & 458/CTK/2014 ASSESSMENT YEARS : 2009 - 2010 & 2010 - 2011 MADE IN LUMP SUM FOR THE ENTIRE DURATION OF THE LEASE DOES NOT ALTER THE CHARACTER OF IT BEING A REVENUE EXPENDITURE. THE EXPENDITURE SO INCURRED BY THE ASSESSEE BEING OF A REVENUE CHARACTER IT HAS TO BE DEDUCTED FROM ITS INCOME IN THE YEAR IN WHICH THE EXPENDITURE WAS INCURRED. THE TRIBUNAL WAS RIGHT IN HOLDING THAT THE EXPENDITURE SHOULD BE ALLOWED IN THE ASSESSMENT YEAR IN WHICH THE EXPENDITURE WAS INCURRED. RESPECTFULLY FOLLOWING THE SAME, WE CONFIRM THE ORDER OF THE CIT(A) AND DISMISS THE GROUND OF APPEAL OF THE REVENUE. 8. IN THE RESULT, APPEALS FILED BY THE REVENUE ARE DISMISSED . ORDER PRO NOUNCED IN THE OPEN COURT ON 25 /04/2017 IN THE PRESENCE OF PARTIES. SD/ - SD/ - (KULDIP SINGH) ( N.S SAINI) JUDICIAL MEMBER A CCOUNTANT MEMBER CUTTACK; DATED 25 /04/2017 B.K.PARIDA, SPS COPY OF THE ORDER FORWARDED TO : BY ORDER, SR.PRIVATE SECRETARY ITAT, CUTTACK 1. THE APPELLANT : DCIT, ROURKELA CIRCLE, ROURKELA. 2. THE RESPONDENT :M/S. ALTRADE MINERALS PVT LTD., A - 6, COMMERCIAL ESTATE CIVIL TOWNSHIP, 7 & 8, AREA, ROURKELA. 3. THE CIT(A) - 1, BHUBANESWAR. 4. PR.CIT - 1, BHUBANESWAR. 5. DR, ITAT, CUTTACK 6. GUARD FILE. //TRUE COPY//