W.H. BRADY & CO. LTD, MUMBAI V. ACIT 2(3), MUMBAI

ITA 4725/MUM/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 49608 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 1 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-07-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Assessment Year: 2006-2007
• Appeal Filed On: 07-06-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A K NAYAK
• Assessee Lawyers: R C JAIN
• Keywords: Capital asset; Revised return; Revenue expenditure; Capital expenditure
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH G MUMBAI BEFORE SHRI RAJENDRA SINGH (AM) AND SMT. ASHA VIJAYAR AGHAVAN (JM) ITA NO. 4725/MUM/2010 ASSESSMENT YEAR-2006-07 M/S. W.H. BRADY & CO. LTD., 12-14, 4 TH FLOOR, BRADY HOUSE, V.N. ROAD, FORT, MUMBAI-400 001 PAN-AAACW 0913B VS. THE ACIT 2(3), AAYAKAR BHAVAN, MUMBAI 400 020 (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI R.C. JAIN RESPONDENT BY: SHRI A.K. NAYAK O R D E R DATE OF HEARING : 14.07.2011 DATE OF PRONOUNCEMENT: 29 TH JULY, 2011 PER ASHA VIJAYARAGHAVAN (JM) THIS APPEAL PREFERRED BY THE ASSESSEE IS DIRECTED A GAINST THE ORDER DATED 16.4.2010 PASSED BY THE LD. CIT(A)-6 FOR THE ASSESSMENT YEAR- 2006-07. 2. THE RETURN OF INCOME WAS FILED ON 15 TH NOVEMBER, 2006 DECLARING TOTAL INCOME OF RS. 68,47,394/-. THEREAFTER THE AS SESSEE FILED REVISED RETURN OF INCOME OF RS. 93,11,471/-. THE ASSESSMEN T WAS COMPLETED U/S. 143(3) AND WHILE DOING SO, THE ASSESSING OFFIC ER MADE CERTAIN DISALLOWANCES/ADDITIONS. IT WAS OBSERVED BY THE AO THAT THE ASSESSEE COMPANY HAS DEBITED AN AMOUNT OF RS. 3,30,600/- TOW ARDS CONSULTANCY FEES FOR PREPARATION OF MARKET SURVEY REPORT FOR SE TTING UP ASSAY CENTRE I.E. NEW PROJECT GIVEN TO M/S. GITCO AND HELD THAT IT IS CLEARLY CAPITAL IN NATURE. FURTHER THE AO OBSERVED THAT WITH REFERENC E TO THIS CLAIM DETAILS ITA NO. 4745/M/2011 2 WERE FILED, HOWEVER NO JUSTIFICATION FOR THE CLAIM OF THE SAME WERE SUBMITTED ALONGWITH DETAILS. THE AO THEREFORE HELD THAT SUCH EXPENSES TO BE CAPITAL IN NATURE AND ARE BOUND TO HAVE AN ENDUR ING EFFECT ON THE BUSINESS OF THE ASSESSEE. THEREFORE THE AO DISALLO WED AN AMOUNT OF RS. 3,30,600/- AND ADDED IT BACK TO THE TOTAL INCOME OF THE ASSESSEE. 3. BEFORE THE LD. CIT(A), THE AR OF THE ASSESSEE ST ATED THAT THE EXPENDITURE TOWARDS CONSULTANCY FEES FOR PREPARATIO N OF MARKET SURVEY REPORT FOR SETTING UP A NEW PROJECT SHOULD HAVE BEE N ALLOWED AS REVENUE EXPENDITURE U/S. 37 OF THE I.T. ACT SINCE THE CONTE MPLATED PROJECT DID NOT GO THROUGH AND THEREFORE THE SAME DID NOT RESULT IN THE CREATION OF A CAPITAL ASSET OR ANY BENEFIT OF ENDURING NATURE. 4. THE LD. CIT(A) HELD AS FOLLOWS: I HAVE CONSIDERED THE FACTS OF THE ISSUE AS WELL A S THE SUBMISSIONS MADE BY THE AR BUT DO NOT FIND MERIT IN THEM. THE AO HAS GIVEN A CLEAR FINDING THAT THE SAID EXPE NDITURE WAS INCURRED FOR THE PURPOSE OF SETTING UP OF A NEW PROJECT. HENCE, EVEN THOUGH THE SAME DID NOT FRUCTIFY, THE S AME COULD NOT BE TREATED AS A REVENUE EXPENDITURE WHICH COULD BE ALLOWED AS A DEDUCTION U/S. 37 OF THE I.T. ACT. TH E SAID EXPENDITURE CANNOT BE SAID TO HAVE BEEN INCURRED FO R THE PURPOSES OF THE EXISTING BUSINESS AND HENCE COULD N OT BE ALLOWED AS REVENUE EXPENDITURE. THEREFORE THIS GRO UND IS DISMISSED. 5. AGGRIEVED, ASSESSEE IS IN APPEAL BEFORE US AND H AS RAISED THE FOLLOWING GROUNDS: 1. THE LD. CIT(A) ERRED IN UPHOLDING THE DISALLOWA NCE OF RS. 3,30,600/- BEING EXPENDITURE INCURRED FOR OBTAI NING THE FEASIBILITY REPORT FOR LAUNCHING OF ITS TRADING PRODUCTS WHICH DID NOT FRUCTIFY. 2. THE LD. CIT(A) DID NOT APPRECIATE THAT THE EXPEN DITURE WAS INCURRED IN CONNECTION WITH ITS TRADING OPERATI ONS. ITA NO. 4745/M/2011 3 6. THE LD. COUNSEL FOR THE ASSESSEE SHRI R.C. JAIN RELIED ON THE DECISION IN THE CASE OF CIT VS INDIA CARBON LTD. 2 21 ITR 264 AND 247 ITR 417 IN THE CASE OF CORAMANDAL FERTILIZERS (AP) AND SUBMITTED THAT ITS CLAIM SHOULD BE ALLOWED. 7. WE FIND THAT IN THE CASE OF CIT VS INDIA CARBON LTD., THE ASSESSEE WAS RUNNING A COKE PLANT AND EXPENDITURE WAS TOWARD S OBTAINING FEASIBILITY REPORT FOR CONVERTING COKE PLANT INTO C EMENT PLANT. THE COURT HELD THAT THE EXPENDITURE IN OBTAINING THE FEASIBIL ITY REPORT WILL BE REVENUE EXPENDITURE AND NOT A CAPITAL EXPENDITURE. IN THE CASE OF CIT VS CORAMANDAL FERTILIZERS, IT WAS HELD THAT IF THE EXP ENDITURE FOR OBTAINING ADVANTAGE OF ENDURING BENEFIT, IT IS A CAPITAL EXPE NDITURE. HOWEVER, IF THE ADVANTAGE CONSISTS MERELY IN FACILITATING THE TRADI NG OPERATIONS OR ENABLING THE MANAGEMENT AND CONDUCT OF THE ASSESSEE S BUSINESS TO BE CARRIED ON MORE EFFICIENTLY OR PROFITABLY THEN THE EXPENDITURE IS REVENUE. IN THAT CASE IT WAS HELD THAT THE FEASIBILITY REPORT SUBMITTED BY TATA SONS HAD NOT RESULTED IN ESTABLISHING A NEW UNIT. THE OBJECT OF THIS EXPENDITURE INCURRED BY THE ASSESSEE AND THE AMOUNT PAID TO APEX GEOLOGICAL SERVICES PVT. LTD. WAS EFFECTIVE UTILISATION OF THE SURPLUS FUNDS OF THE E XISTING BUSINESS AND TO EXPLORE AVENUES FOR INVESTMENT OF SUCH FUNDS. IN OTHER WORD S, THE ASSESSEE HAD UTILISED ITS SURPLUS FUNDS FOR THE PURPOSE OF PUTTING IT TO EFFECTIVE AND PROFITABLE USE. THEREFORE, IT WAS WHOLLY CONNECTED WITH ITS EXISTIN G BUSINESS AND IT WAS WHOLLY AND EXCLUSIVELY INCURRED FOR THE PURPOSE OF CARRYIN G ON ITS EXISTING BUSINESS. THERE WAS NEXUS BETWEEN THE EXPENDITURE INCURRED AN D THE BUSINESS IT WAS CARRYING ON AND HENCE THE EXPENDITURE WAS AN ALLOWA BLE EXPENDITURE UNDER SECTION 37 OF THE ACT. 8. IN THE PRESENT CASE, THE LD. COUNSEL FOR THE ASS ESSEE HAS SUBMITTED THAT THE ASSESSEE HAD WANTED TO PROCURE T HE FEASIBILITY REPORT FOR HALLMARKING OF GOLD AS HE WAS A TRADER. HOWEVE R, THE WHOLE PROPOSAL ITA NO. 4745/M/2011 4 GOT DROPPED AND WAS ABORTED BEFORE ANY BENEFIT COUL D BE OBTAINED BY THE ASSESSEE HENCE IT IS TO BE ALLOWED AS REVENUE EXPEN DITURE. 9. THE LD. DEPARTMENTAL REPRESENTATIVE SHRI A.K. NA YAK SUBMITTED THAT SECTION 35D IS TO BE LOOKED INTO WHILE DECIDIN G THE ISSUE. 10. WE HEARD BOTH THE PARTIES. THE ARGUMENT OF THE DR POINTING OUT TO SEC. 35D IS NOT RELEVANT IN AS MUCH AS NO PROJECT H AS BEEN SET UP AND THE PROVISIONS OF SEC. 35D ARE NOT APPLICABLE. HEN CE, IN OUR OPINION, THE EXPENDITURE INCURRED FOR OBTAINING THE FEASIBILITY REPORT FOR LAUNCHING OF THE ASSESSEES TRADING PROJECT WHICH ULTIMATELY DID NOT FRUCTIFY CANNOT BE CREATING ANY ENDURING BENEFIT FOR IT TO BE TREATED AS A CAPITAL EXPENDITURE, WHEREAS ANY EXPENDITURE MADE FOR SETTING UP A NEW P LANT AND FOR OBTAINING FEASIBILITY REPORT FOR SETTING UP A NEW P LANT WILL BE A CAPITAL EXPENDITURE. BUT IN THIS CASE, THE ASSESSEE IS NOT CARRYING ON ANY MANUFACTURING ACTIVITY NEITHER HAS ANY NEW MACHINER Y BEEN SET UP AND THEREFORE THE FEASIBILITY REPORT FOR HALLMARKING TH E GOLD TRADED BY THE ASSESSEE CANNOT BE CONSIDERED AS CAPITAL EXPENDITUR E. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED ON THIS 29 TH DAY OF JULY, 2011 SD/- SD/- (RAJENDRA SINGH) (ASHA VIJAYARAGHAVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED 29 TH JULY, 2011 RJ ITA NO. 4745/M/2011 5 COPY TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT-CONCERNED 4. THE CIT(A)-CONCERNED 5. THE DR G BENCH TRUE COPY BY ORDER ASSTT. REGISTRAR, I.T.A.T, MUMBAI ITA NO. 4745/M/2011 6 DATE INITIALS 1. DRAFT DICTATED ON: 15.7.2011 SR. PS/PS 2. DRAFT PLACED BEFORE AUTHOR: 1 5 . 07 . 2011 SR. PS/PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER: JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER: JM/AM 5. APPROVED DRAFT COMES TO THE SR. PS/PS: SR. PS/PS 6. ORDER PRONOUNCED ON: SR. PS/PS 7. FILE SENT TO THE BENCH CLERK: 8. DATE ON WHICH FILE GOES TO THE HEAD CLERK: SR. PS/PS 9. DATE ON WHICH FILE GOES TO AR 10. DATE OF DISPATCH OF ORDER: