ACIT, Ludhiana V. M/s Am Kryon International Pvt. Ltd., Ludhiana

ITA 474/CHANDI/2014

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 95638 (ITAT-CHANDIGARH)
• Duration Of Justice: 1 year(s) 5 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-10-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 14-09-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 02-05-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S K MITTAL
• Assessee Lawyers: SUBHASH AGGARWAL
• Keywords: Capital asset; Depreciation; Additional depreciation; Revised return; Revenue expenditure; Capital expenditure
• Section: 142(1); 80IB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCHES, CHANDIGARH BEFORE SHRI H.L.KARWA, HON'BLE VICE PRESIDENT & MS. ANNAPURNA MEHROTRA, ACCOUNTANT MEMBER ITA NO. 474/CHD/2014 ASSESSMENT YEAR: 2007-08 THE ACIT, CIRCLE-I, VS. AM KRYON INTERNATIONAL PVT. LTD. LUDHIANA LUDHIANA PAN NO. AACCA7077J (APPELLANT) (RESPONDENT) APPELLANT BY : SH. S.K. MITTAL RESPONDENT BY : SH. SUBHASH AGGARWAL DATE OF HEARING : 14.09.2015 DATE OF PRONOUNCEMENT : 29.10.2015 ORDER PER H.L.KARWA, VP THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAINS T THE ORDER OF CIT(A)-II, LUDHIANA DATED 14.2.2014 RELATING TO ASSESSMENT YEA R 2007-08. GROUND NO.1 OF THE APPEAL READS AS UNDER;- 1. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE C ASE AND IN LAW, THE LD CIT(A) ERRED IN DELETING THE DISALLOWANCE OF RS.7,46,088/- MADE BY AO AN ACCO UNT OF EARNEST MONEY GIVEN FOR ACQUISITION OF LAND. 2. BRIEFLY STATED THE FACTS OF THE CASE ARE THAT AS SESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF READYMADE GARMENTS FRO M FINE KNITTED FABRIC AND 2 WOVEN FABRICS. FOR THE ASSESSMENT YEAR 2007-08, TH E ASSESSEE SUBMITTED ITS RETURN ON 24.10.2007 DECLARING A LOSS OF RS. 63,52, 353/-. THE RETURN WAS PROCESSED U/S 143(1) OF THE INCOME-TAX ACT, 1961 (I N SHORT 'THE ACT') ON 6.2.2009 AT A LOSS OF RS. 63,52,253/-. SUBSEQUENTLY, THE CAS E WAS SELECTED FOR SCRUTINY AND STATUTORY NOTICES U/S 143(2) AND 142(1) ALONG WITH QUESTIONNAIRE WERE ISSUED AND SERVED UPON THE ASSESSEE. THE ASSESSING OFFICER NOT ICED THAT ASSESSEE HAD DEBITED AN AMOUNT OF RS. 7,46,088/- TO THE PROFIT AND LOSS ACCOUNT. IN THIS REGARD, THE ASSESSEE SUBMITTED THAT AMOUNT WAS FORFEITED BY SIP COT AND PERTAINED TO ADVANCE GIVEN FOR PURCHASE OF IMMOVEABLE PROPERTY. THE ASSESSEE ALSO SUBMITTED THAT AS PER THE TERMS AND CONDITIONS WITH THE ABOVE PARTY, THE ASSESSEE WAS REQUIRED TO EXECUTE THE LEASE DEED WITHIN A PERIOD OF 90 DAYS OF THE ALLOTMENT. DUE TO CERTAIN UNAVOIDABLE REASONS, THE ASSESSEE CO ULD NOT GET THE LEASE DEED EXECUTED AND ACCORDINGLY SURRENDERED THE INDUSTRIAL PLOT ALLOTTED BY THE SIPCOT. THE SIPCOT AUTHORITIES CANCELLED THE ALLOTMENT AND FORFEITED THE AMOUNT OF RS. 7,46,088/-. THE ASSESSEE FURTHER CONTENDED THAT TH E ADVANCE WAS GIVEN IN THE NORMAL COURSE OF BUSINESS AND NO NEW ASSET OF ENDUR ING BENEFIT / PROFIT MAKING APPARATUS HAD BEEN ACQUIRED OUT OF IT. THE ASSESSEE CLAIMED THAT EXPENDITURE WAS REVENUE EXPENDITURE AS IT HAD SUFFERED LOSS IN THE NORMAL COURSE OF BUSINESS. THE ASSESSING OFFICER DISALLOWED THE CLAIM OF THE ASSES SEE STATING THAT THE EXPENDITURE WAS A CAPITAL EXPENDITURE AND ACCORDING LY ADDED THE SAME TO THE TOTAL INCOME OF THE ASSESSEE. 3. ON APPEAL, THE CIT(A) DELETED THE ADDITION BY R ELYING ON THE ORDER OF THE ITAT AHMEDABAD BENCH IN THE CASE OF AHMEDABAD FINV EST CO. PVT LTD VS. ACIT IN ITA NO. 3050/AHD,/2004 AND ITA NO. 2375/AHD/2006 DATED 16.10.2009. THE CIT(A) HELD THE AMOUNT FORFEITED IS AN ALLOWABLE BU SINESS LOSS. THE LD. CIT(A) FURTHER OBSERVED THAT SINCE NO BENEFIT OF ENDURING NATURE RESULTED TO THE ASSESSEE, EXPENDITURE IN QUESTION CANNOT BE TREATED TO BE OF CAPITAL NATURE. 3 4. AFTER HEARING THE LD. REPRESENTATIVES OF BOTH TH E PARTIES WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF CIT(A) ON THIS ISSUE. IN OUR VIEW, IF ANY ASSET IS ACQUIRED AND IF IT IS A BENEFIT OF ENDURING NATURE, THEN, OF COURSE, ASSESSEE CANNOT GET DEDUCTION OF THE AMOUNT FOR ACQUISITION OF LAND AS REVENUE EXPENDITURE. WHEN LAND WAS NOT ACQUIRED, NO CAPITAL ASSET HAS BE EN ACQUIRED AND THEREFORE, THE PAYMENT OF RS. 7,46,088/- IS TO BE ALLOWED AS BUSIN ESS LOSS. IN OUR VIEW, THE CIT(A) HAS CORRECTLY HELD THAT THE CLAIM OF THE ASS ESSEE AS BUSINESS LOSS AND DESERVES TO BE ALLOWED. ACCORDINGLY, WE UPHOLD THE ORDER OF THE LD. CIT(A) AND DISMISS GROUND NO.1 OF THE APPEAL. 5. GROUND NO.2 OF THE APPEAL READS AS UNDER:- 2. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD CIT(A) ERRED IN DELET ING THE DISALLOWANCE OF RS.1,41,500/- MADE BY AO BY TREA TING THE EXPENDITURE CLAIMED BY THE ASSESSEE AS DEFERRED REVENUE EXPENDITURE IN P&L AND INCURRED ON EMPLOY EE RESTRUCTURING AND RE-ENGINEERING OF BUSINESS, AS CAPITAL EXPENDITURE. 6. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSE E HAS WRITTEN OF 1/5 TH OF RS. 7,07,500/- AMOUNTING TO RS. 1,41,500/- AS DEFERRED REVENUE EXPENDITURE. THE ASSESSEE CLAIMED THAT IT HAD ENGAGED A PROFESSIONAL AGENCY TO CARRY OUT EXTENSIVE RESEARCH FOR RE-ENGINEERING OF THE BUSINESS PROCESS ING AND ORGANIZATION STRUCTURE FOR SYSTEM IMPROVEMENT AND SYSTEM BUILDING AT VARIO US OUTLETS OF THE COMPANY. THE STUDY WAS CARRIED OUT IN THE YEAR 2004-05 AND T OTAL PAYMENT WAS MADE DURING THE SAME YEAR TO THE COMPANY. THIS EXPENDITURE WAS ACCOUNTED FOR IN THE BOOKS OF ACCOUNT AS DEFERRED REVENUE EXPENDITURE AND WAS BEI NG WRITTEN OFF IN FIVE EQUAL INSTALLMENTS. ACCORDINGLY, RS. 1,41,500/- WAS WRIT TEN OFF IN THE CURRENT ASSESSMENT YEAR UNDER CONSIDERATION. THE ASSESSING OFFICER HELD THE EXPENDITURE AS A CAPITAL EXPENDITURE. ACCORDING TO ASSESSING O FFICER, THE EXPENDITURE ON 4 RESEARCH FOR RE-ENGINEERING OF ORGANIZATION STRUCTU RE AND EMPLOYEE RESTRUCTURING WOULD PROVIDE THE ASSESSEE A LONG TERM ENDURING BEN EFIT. ACCORDINGLY, THE ASSESSING OFFICER DISALLOWED A SUM OF RS. 1,41,500/ -. 7. ON APPEAL, THE CIT(A) DELETED THE ADDITION FOR T HE REASONS STATED IN PARA 5.3 OF THE ORDER. THE LD. CIT(A) OBSERVED THAT THER E WAS NO CREATION OF CAPITAL ASSET IN THIS CASE. HE FURTHER OBSERVED THAT MERELY BECAUSE THE BENEFITS ACCRUING FROM THE STUDY WERE ENDURING DOES NOT BY ITSELF MAK E THE EXPENDITURE A CAPITAL EXPENDITURE. HE RELIED ON THE JUDGEMENT OF THE HON' BLE SUPREME COURT IN THE CASE OF EMPIRE JUTE VS CIT [1980] 124 ITR 1 WHEREIN THE HON'BLE SUPREME COURT HELD THAT IT IS NOT EVERY ADVANTAGE OF ENDURING NATURE A CQUIRED BY AN ASSESSEE THAT BRINGS THE CASE WITHIN THE PRINCIPLE LAID DOWN IN T HIS TEST. WHAT IS MATERIAL TO CONSIDER IS THE NATURE OF ADVANTAGE IN COMMERCIAL S ENSE AND IT IS ONLY WHERE THE ADVANTAGE IS IN THE CAPITAL FIELD THAT THE EXPENDIT URE WOULD BE DISALLOWABLE ON AN APPLICATION OF THIS TEST. THE HON'BLE SUPREME COUR T FURTHER HELD THAT IF ADVANTAGE CONSISTS OF MERELY IN FACILITATING THE AS SESSEES TRADING OPERATIONS OR ENABLING THE MANAGEMENT AND CONDUCT OF THE ASSESSEE S BUSINESS TO BE CARRIED ON MORE EFFECTIVELY OR PROFITABLY WHILE LEAVING THE F IXED CAPITAL UNTOUCHED, THE EXPENDITURE WOULD BE ON REVENUE ACCOUNT, EVEN THOUG H THE ADVANTAGE MAY ENDURE FOR AN INDEFINITE FUTURE. RELYING ON THE ABOVE JUD GEMENT, THE CIT(A) CAME TO THE CONCLUSION THAT IN THIS CASE STUDY WAS CONDUCTE D FOR THE PURPOSES OF FACILITATING THE BUSINESS OPERATION OF THE ASSESSE E AND ENABLING THE MANAGEMENT AND CONDUCT OF THE ASSESSEES BUSINESS TO BE CARRI ED OUT MORE EFFICIENTLY AND MORE PROFITABLY. ACCORDINGLY, HE HELD THAT THE EXP ENDITURE INCURRED WAS REVENUE EXPENDITURE AND NOT CAPITAL EXPENDITURE. 5 8. AFTER CONSIDERING THE RIVAL SUBMISSIONS, WE DO N OT FIND ANY VALID GROUND IN INTERFERING WITH THE ORDER OF LD. CIT(A) ON THIS IS SUE. THE ORDER OF CIT(A) IS PERFECTLY CORRECT AND THE LD. CIT(A) HAS RIGHTLY PL ACED RELIANCE ON THE JUDGMENT OF THE HON'BLE SUPREME COURT IN THE CASE OF EMPIRE JUTE CO. LTD V CIT (SUPRA). IN OUR CONSIDERED VIEW, THE EXPENDITURE WAS ESSENTI ALLY OF REVENUE NATURE AS IT WAS INCURRED FOR IMPROVEMENT OF BUSINESS PRACTICES LINKED WITH MARKETING AND HUMAN RESOURCE UTILIZATION. IT IS CLAIMED THAT TH E SCOPE OF THE STUDY RELATES TO THE PROMOTION OF PRODUCTS OF COMPANY IN ORDER TO SU STAIN MARKET PRESSURE AND TO MAINTAIN ITS MARKET POSITION. IT IS ALSO EXPLAINED THAT THE SCOPE FURTHER INCLUDED EMPLOYEE RESTRUCTURING ALSO SO AS TO SAVE THE MANPO WER COST AND TO ACHIEVE BEST UTILIZATION OF HUMAN EFFORT. , THUS IT IS CLEAR THA T THERE WAS NO CREATION OF CAPITAL ASSET IN THE CASE OF ASSESSEE COMPANY. IN VIEW OF THE ABOVE, WE DO NOT FIND ANY MERIT IN THE GROUND RAISED BY THE REVENUE. ACCORDI NGLY, WE DISMISS THIS GROUND. 9. GROUND NO3 OF THE APPEAL READS AS UNDER:- 3. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE C ASE AND IN LAW, THE LD C1T(A) ERRED IN DELETING THE AO TO A LLOW CLAIM OF THE ASSESSEE OF ADDITIONAL DEPRECIATION AN D IGNORING THE JUDGMENT OF HON'BLE SUPREME COURT IN THE CASE OF GOETZE (INDIA) LTD., VS. CIT(2006) 284 ITR 323 (SC), IN WHICH IT WAS HELD THAT CLAIM OF DEDUCTION BY WAY OF APPLICATION TO THE AO CANNOT BE ENTERTAINED. 10. THE FACTS NOTED BY THE AUTHORITIES BELOW ARE TH AT DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE HAD PURCHASED A NEW MACH INERY WORTH OF RS. 17,28,295/-. IN THE RETURN OF INCOME THE ASSESSEE CLAIMED DEPRECIATION AT ENHANCED RATES (ADDITIONAL DEPRECIATION). THE ASSES SING OFFICER DID NOT CONSIDER THIS CLAIM. NO REASONS WERE GIVEN BY THE ASSESSING OFFICER FOR REJECTING THIS CLAIM. 6 11. ON APPEAL, THE CIT(A) DIRECTED THE ASSESSING OF FICER TO EXAMINE THE CLAIM OF THE ASSESSEE PERTAINING TO THE ADDITIONAL DEPREC IATION ON MERITS. HE FURTHER DIRECTED THE ASSESSING OFFICER TO ALLOW THE SAME AS PER LAW. THE RELEVANT OBSERVATIONS OF THE CIT(A) ARE AS UNDER:- 7.3 I HAVE CAREFULLY CONSIDERED THE APPELLANTS SUBMISSIONS. I HAVE ALSO PERUSED THE DOCUMENTS FIEL D BY THE APPELLANT. PERUSAL OF THE DOCUMENTS REVEAL THA T DURING THE COURSE OF ASSESSMENT PROCEEDINGS, VIDE REPLY DA TED 10.12.2009 THE APPELLANT HAD FILED ITS CLAIM FOR AD DITIONAL DEPRECIATION PERTAINING TO THE ADDITION TO FIXED AS SETS AMOUNTING TO RS. 17,28.295. ALTHOUGH THIS ISSUE HAS NOT BEEN DISCUSSED IN THE ASSESSMENT ORDER, REFERENCE T O THE DISCUSSION WITH THE AO ON THIS ISSUE HAS BEEN MADE IN APPELLANT'S SUBMISSION DATED 10.12.2009 BEFORE THE AO. AS PER THIS LETTER DATED 10.12.2009 THE AO APPARENTLY REJECTED THE APPELLANT'S REQUEST FOR CLAIM OF ADDIT IONAL DEPRECIATION ON THE GROUNDS THAT NO FRESH CLAIM CAN BE ENTERTAINED EXCEPT THROUGH THE REVISED REPORT IN VIEW OF THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS. GOETZE INDIA LTD. AS REPORTED IN 284 ITR 32 3. I DO NOT AGREE WITH THIS VIEW OF THE AO. REFERENCE IN THIS REGARD MAY BE MADE TO THE CASE BUDHEUAL CO-OPERATIVE SOCIETY LTD. IN THIS CASE A SIMILAR CLAIM OF DEDUCT ION U/S 80-IP WAS DISALLOWED BY THE AO ON THE GROUND THAT T HE CLAIM WAS NOT MADE IN THE ORIGINAL RETURN OF INCOME NOR ANY REVISED RETURN WAS FILED FOR THIS CLAIM. THE CL AIM HAD BEEN MADE DURING THE ASSESSMENT PROCEEDINGS THROUGH THE LETTER FILED BEFORE THE AO . THE DISALLOWANCE MADE BY THE AO WAS CONFIRMED BY ME VIDE ORDER DATED 24.08.2012 IN APPEAL NO. 44/ROT/IT/CIT(A)-II/LDH RELYING ON THE C ASE OF GOETZE INDIA LTD. HON'BLE ITAT CHANDIGARH BENCH, VIDE ITS DECISION DATED 24.5.2013, IN THE CASE OF BUDHEWAL CO- OPERATIVE SOCIETY LTD., IN ITA NO. 1077/CHD/2012, REVERSED MY ORDER AND HELD THAT AN ASSESSEE CAN RAI SE 7 ADDITIONAL GROUNDS AND MAKE CLAIMS DURING THE ASSES SMENT PROCEEDINGS AND EVEN DURING THE APPELLATE PROCEEDIN GS. THE HON'BLE ITAT HELD AS UNDER:- 'WE FIND THAT THE HON'BLE PUNJAB & HARYANA HIGH COURT IN CIT VS. RAMCO INTERNATIONAL (SUPRA) ALLOWED THE CLAIM OF DEDUCTION UNDER SECTION 80IB O F THE ACT AS THE FORM NO. 10CCB IN RESPECT OF THE SAI D CLAIM WAS FILED DURING THE ASSESSMENT PROCEEDINGS AND IT WAS HELD THAT THE ASSESSEE WAS NOT TO MAKE ANY FRESH CLAIM AND HAD DULY FURNISHED AND SUBMITTED THE FORM FOR DEDUCTION, THERE WAS NO REQUIREMENT OF FILING ANY REVISED RETURN. THEREFORE , EPLEA OF THE REVENUE BEFORE THE HON'BLE HIGH COURT THAT THE JUDGMENT OF HON'BLE SUPREME COURT IN GOETZE (INDIA) LTD., VS. CIT (SUPRA) WAS APPLICABLE AND DEDUCTION WAS NOT ALLOWABLE, WAS NOT ACCEPTED BY THE HON'BLE COURT. IN VIEW OF THE ABOVE SAID RATIO LAID DOWN BY THE HO N'BLE PUNJAB & HARYANA HIGH COURT IN CIT VS. RAMCO INTERNATIONAL (SUPRA), WE ARE OF THE VIEW THAT THE CLAIM OF DEDUCTION MADE BY THE ASSESSEE U/S 80P(2)(A)(III) O F THE ACT IS TO BE CONSIDERED IN THE PRESENT FACTS AND CIRCUMSTANCES OF T THE CASE, EVEN THOUGH THE ASSESS EE HAD RAISED SAID CLAIM BY WAY OF LETTER DATED 15.12.2004 AND HAD NOT FURNISHED ANY REVISED RETURN OF INCOME. 12. WE HAVE HEARD THE RIVAL SUBMISSIONS. IT IS APPA RENT FROM THE RECORDS THAT THE ASSESSING OFFICER HAS REJECTED THE ASSESSEES R EQUEST FOR CLAIM OF ADDITIONAL DEPRECIATION ON THE GROUND THAT NO FRESH CLAIM CAN BE ENTERTAINED EXCEPT THROUGH REVISED RETURN IN VIEW OF THE DECISION OF THE HON'B LE SUPREME COURT IN THE CASE OF GOETZE (INDIA)LTD V CIT [2006] 284 ITR 323 (SC). I N THE CASE OF GOETZE (INDIA) LTD (SUPRA) THE HON'BLE SUPREME COURT HAS MADE IT CLEAR THAT THE DECISION IN THE 8 SAID CASE WAS RESTRICTED TO THE POWER OF THE ASSES SING OFFICER TO ENTERTAIN THE CLAIM FOR DEDUCTION OTHERWISE THAN BY WAY OF REVISE D RETURN. THIS BENCH OF THE TRIBUNAL IN THE CASE OF BUDHEWAL CO-OPERATIVE SOCIE TY LTD IN ITA 1077/CHD/2012 VIDE ITS ORDER DATED 24.5.2013 HELD T HAT THAT AN ASSESSEE CAN RAISE ADDITIONAL GROUND AND MAKE CLAIMS DURING THE ASSESS MENT PROCEEDINGS AND EVEN DURING THE APPELLATE PROCEEDINGS. WHILE HOLDING SO, THE TRIBUNAL HAS FOLLOWED THE DECISION OF THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT V RAMCO INTERNATIONAL REPORTED IN 221 CTR 491, WHEREIN THE HON'BLE HIGH COURT HAS HELD THAT ASSESSEE HAVING DULY FURNISHED THE DOCUMENTS A ND SUBMITTED FORM NO. 10CCB DURING THE ASSESSMENT PROCEEDINGS, CLAIMING D EDUCTION U/S 80IB WHICH WAS NOT CLAIMED IN THE RETURN, DEDUCTION IS ADMISSI BLE EVEN IN THE ABSENCE OF A REVISED RETURN. CONSIDERING THE ENTIRE FACTS AND CI RCUMSTANCES OF THE PRESENT CASE, WE UPHOLD THE ORDER OF CIT(A). IN OUR OPINION THE L D. CIT(A) HAS CORRECTLY DIRECTED THE ASSESSING OFFICER TO EXAMINE THE CLAIM OF THE ASSESSEE PERTAINING TO ADDITIONAL DEPRECIATION ON MERITS AND, IF FOUND TO BE ENTITLED, THE SAME MAY BE ALLOWED TO THE ASSESSEE. THERE IS NO MERIT IN THIS GROUND OF APPEAL AND ACCORDINGLY THE SAME IS DISMISSED. 13. IN THE RESULT, THE APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 29.10.2015 SD/- SD/- (ANNAPURNA MEHROTRA) (H.L.KARWA) ACCOUNTANT MEMBER VICE PRESIDENT DATED : 29 TH OCTOBER, 2015 RKK COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR