DCIT 10(2), MUMBAI V. GOLDEN FEED PRODUCTS LTD, MUMBAI

ITA 5348/MUM/2013

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 88528 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 7 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-03-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: G
• Next Hearing Date: 09-02-2015
• Assessment Year: 2006-2007
• Appeal Filed On: 01-08-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PAVAN KUMAR BEER LA
• Keywords: Revenue expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH G, MUMBAI , ,, , !' !' !' !' '''# '''# '''# '''#$ $$ $ % % % % BEFORE SHRI B R BASKARAN, ACCOUNTANT MEMBER AND SHRI VIVEK VARMA, JUDICIAL MEMBER ITA NO. : 5348/MUM/2013 (ASSESSMENT YEAR: 2006-07) DCIT-10(2), ROOM NO. 432, 4 TH FLOOR, AAYAKAR BHAVAN, M K MARG, MUMBAI -400 020 VS M/S GOLDEN FEED PRODUCTS LTD, PIROJSHANAGAR, EASTERN EXPRESS HIGHWAY, VIKROLI-EAST, MUMBAI -400 079 .: PAN: AACCG 0102 E (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI PAVAN KUMAR BEERLA RESPONDENT BY : NONE /DATE OF HEARING : 09-02-2015 !' / DATE OF PRONOUNCEMENT : 04-03-2015 & & & & ORDER '''# '''# '''# '''# , , , , : :: : PER VIVEK VARMA, JM: THE APPEAL IS FILED BY THE DEPARTMENT AGAINST THE ORDER O F CIT(A) 21, MUMBAI, DATED 07.05.2013, WHEREIN THE CIT(A) HAS CANCELLED THE PENALTY OF RS. 4,31,070/- LEVIED BY THE AO U/S 271(1)(C). 2. THE FACTS ARE THAT THE ASSESSEE ENGAGED IN THE BUS INESS OF MANUFACTURE AND DISTRIBUTION OF AQUA/SHRIMP FEED. IT HAD ENGAGED M/S ROBO FINANCE INTERNATIONAL FOR STRATEGIC AN D FINANCIAL ADVISORY SERVICES WHICH INCLUDED ADVISING ON ACQUISITION, INVESTMENT, JOINT VENTURE, STRATEGIC BUSINESS ALLIANCE ETC. IT PAID RS. 27,55,000/- TO THIS CONCERN. BESIDES THIS THE M/S GOLDEN FEED PRODUCTS LTD ITA 5348/M/2013 2 ASSESSEE PAID RS. 16,042/- FOR REGISTRATION FEE FOR SHRIMP D EED MARKETING BUSINESS. 3. THE ASSESSEE CLAIMED THE EXPENSES AS REVENUE, WHERE AS THE AO HELD THE SAME TO BE CAPITAL IN NATURE AND DISALLOW ED THE SAME. 4. CONSEQUENT TO THE DISALLOWANCE, THE AO INITIATED PENALTY PROCEEDINGS AND LEVIED THE PENALTY U/S 271(1)(C). 5. THE ASSESSEE DID NOT CONTEST THE DISALLOWANCE IN QUANTUM, BUT PREFERRED APPEAL IN PENALTY PROCEEDINGS. 6. BEFORE THE CIT(A), THE ASSESSEE REITERATED ITS FACTUAL SUBMISSIONS BEFORE THE CIT(A). THE CIT(A), AFTER CONSIDERING TH E SUBMISSIONS OF THE ASSESSEE HELD, AFTER CONSIDERING THE SUBMISSIONS OF THE APPELLANT , AOS PENALTY ORDER, IT IS AN UNDISPUTED FACT THAT APPELL ANT HAD ACQUIRED DURING THE YEAR THE BUSINESS OF SHRIMP DEE D MARKETING BUSINESS OF M/S. HIGASHIMARU FEEDS (INDIA ) LTD. AND PAID CONSULTANCY FEES TO CONSULTANT M/S. R ABO FINANCE INTERNATIONAL LTD., FEES FOR ACQUISITION AN D REGISTRATION FEES WAS ALSO PAID FOR THIS ACQUISITIO N BOTH AGGREGATING TO RS. 27,71,042/-. THE A.O. TREATED BO TH THE EXPENSES AS CAPITAL IN NATURE AND ALSO FURTHER LEVIED PENALTY U/S. 271(1)(C) OF THE ACT. WHETHER THE PAYM ENT OF CONSULTANCY FEE TO CONSULTANT FOR ACQUISITION OR ME RGER OF COMPANY IS CAPITAL OR REVENUE IN NATURE. THIS ISSUE HAS COME INTO CONSIDERATION OF SUPREME COURT IN THE CAS E OF CIT VS. BOMBAY DYEING & MANUFACTURING CO. LTD. 219 ITR 521 (SC) WHEREIN IT WAS HELD AS UNDER: 'REFERENCE-CAPITAL OR REVENUE EXPENDITURE- AMALGAMATION OF COMPANIES-PROFESSIONAL CHARGES PAID TO FIRM OR SOLICITORS-TRIBUNAL FINDING THAT AMALGAMATI ON WAS NECESSARY FOR THE EFFICIENT CONDUCT OF THE BUSINESS - TRIBUNAL CORRECT IN HOLDING THAT THE AMOUNT PAID TO THE SOLICITORS WAS REVENUE EXPENDITURE-HIGH COURT JUSTI FIED IN REJECTING APPLICATION TO DIRECT REFERENCE-INCOME -TAX ACT, 1961 SS. 37,256. A COMPANY WAS AMALGAMATED WITH THE ASSESSEE COMPANY. IN THAT CONNECTION AN EXPENDITURE OF RS. 10,350 WAS INCURRED BY THE ASSESSEE COMPANY TOWARDS PROFESSIONAL CHARGES PAID TO A FIRM OF SOLICITORS. IN THE ASSESSMENT PROCEEDINGS, DEDUCTION OF THE SAID AMOUN T WAS CLAIMED AS REVENUE EXPENDITURE. THE INCOME TAX OFFICER AND THE APPELLATE ASSISTANT COMMISSIONER REJECTED THE CLAIM BUT THE TRIBUNAL ALLOWED IT ON T HE GROUND THAT AS BOTH THE COMPANIES WERE EARNING ON COMPLEMENTARY BUSINESS AND THEIR AMALGAMATION WAS M/S GOLDEN FEED PRODUCTS LTD ITA 5348/M/2013 3 NECESSARY FOR THE SMOOTH AND EFFICIENT CONDUCT OF T HE BUSINESS, IT WAS AN EXPENDITURE LAID OUT WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS OF THE ASSESSEE. THE TRIBUNAL REFUSED TO MAKE A REFERENCE AND THE HIGH COURT REJECTED AN APPLICATION TO DIRECT RE FERENCE. ON APPEAL TO THE SUPREME COURT: HELD, DISMISSING THE APPEAL, THAT THE EXPENDITURE INCURRED TOWARDS PROFESSIONAL CHARGES OF THE SOLICI TORS FIRM FOR THE SERVICES RENDERED IN CONNECTION WITH T HE AMALGAMATION WAS IN THE COURSE OF CARRYING ON OF TH E ASSESSEES BUSINESS AND, THEREFORE, DEDUCTIBLE AS A REVENUE EXPENDITURE.' FURTHER IN THE CASE OF CIT VS. MAHINDRA AND MAHINDR A LTD. 284 ITR 679 (BORN), THE BOMBAY HIGH COURT HELD AS UNDER: 'THAT THE TRIBUNAL WAS RIGHT IN ALLOWING LEGAL EXPE NSES OF RS. 8,000 AND FOREIGN TRAVEL EXPENSES OF RS. 47, 754 IN CONNECTION WITH THE MERGER OF THE ASSESSEE WITH I L TD. AS A REVENUE EXPENDITURE IN COMPUTING THE TOTAL INCOME OF THE COMPANY FOR THE ASSESSMENT YEAR. 1977-78. IN THE ABOVE CASES BOMBAY HIGH COURT AND SUPREME COURT DISCUSSED ABOVE THIS ISSUE OF PAYMENT OF CONSULTANCY FEE FOR MERGER OR ACQUISITION THAT ON A CCOUNT OF ACQUISITION OR MERGER CONSULTANCY FEE PAID IS A REVENUE EXPENDITURE AND HENCE ALLOWABLE AS DEDUCTIO N. MOREOVER THIS CLAIM OF THE APPELLANT IS ONLY A LEGA L CLAIM AND A.O. HAD DISALLOWED THIS LEGAL CLAIM DURING ASSESSMENT PROCEEDINGS. THIS DISALLOWANCE IS MADE I N THE ASSESSMENT ORDER. CAN DISALLOWANCE OF LEGAL CLA IM CAN BE TREATED AS FURNISHING OF INACCURATE PARTICUL ARS OR CONCEALMENT OF INCOME. SUPREME COURT DISCUSSED THIS ISSUE IN CIT VS. RELIANCE PETROPRODUCTS PVT. LTD. 3 22 ITR 158 (SC) AS UNDER: 'A GLANCE OF THE PROVISIONS OF SEC. 271(1)(C) OF TH E INCOME- TAX ACT, 1961, SUGGESTS THAT IN ORDER TO BE COVERED BY IT, THERE HAS TO BE CONCEALMENT OF THE PARTICULARS OF T HE INCOME OF THE ASSESSEE. SECONDLY, THE ASSESSEE MUST HAVE FURNISHED INACCURATE PARTICULARS OF HIS INCOME . THE MEANING OF THE WORD 'PARTICULARS' USED IN SECTION 271(1)(C) WOULD EMBRACE THE DETAILS OF THE CLAIM MA DE. WHERE NO INFORMATION GIVEN IN THE RETURN IS FOUND T O BE INCORRECT OR INACCURATE, THE ASSESSEE CANNOT BE HEL D GUILTY OF FURNISHING INACCURATE PARTICULARS. IN ORD ER TO EXPOSE THE ASSESSEE TO PENALTY, UNLESS THE CASE IS STRICTLY COVERED BY THE PROVISIONS, THE PENALTY PRO VISION CANNOT BE INVOKED. BY NO STRETCH OF IMAGINATION CAN MAKING AN INCORRECT CLAIM TANTAMOUNT TO FURNISHING INACCURATE PARTICULARS. THERE CAN BE NO DISPUTE THA T EVERYTHING WOULD DEPEND UPON THE RETURN FILED BY TH E ASSESSEE, BECAUSE THAT IS THE ONLY DOCUMENT WHERE T HE ASSESSEE CAN FURNISH THE PARTICULARS OF HIS INCOME. WHEN SUCH PARTICULARS ARE FOUND TO BE INACCURATE, THE LI ABILITY WOULD ARISE. TO ATTRACT PENALTY, THE DETAILS SUPPLI ED IN THE RETURN MUST NOT BE ACCURATE, NOT EXACT OR CORRE CT, NOT ACCORDING TO THE TRUTH OR ERRONEOUS. WHERE THERE IS NO FINDING THAT ANY DETAILS SUPPLIED BY THE ASSESSEE IN ITS RETURN ARE FOUND TO BE INCORREC T OR ERRONEOUS OR FALSE THERE IS NO QUESTION OF INVITING THE M/S GOLDEN FEED PRODUCTS LTD ITA 5348/M/2013 4 PENALTY UNDER SECTION 271(1)(C). A MERE MAKING OF A CLAIM, WHICH IS NOT SUSTAINABLE IN LAW, BY ITSELF, WILL NOT AMOUNT TO FURNISHING INACCURATE PARTICULARS REGARDI NG THE INCOME OF THE ASSESSEE. SUCH A CLAIM MADE IN TH E RETURN OF INCOME AMOUNT TO FURNISHING INACCURATE PARTICULARS. IN THE ABOVE CASE SUPREME COURT HELD THAT ANY DISALLOWANCE OF LEGAL CLAIM BY APPELLANT CANNOT BE TREATED AS FURNISHING OF INACCURATE PARTICULARS OR CONCEALMENT OF INCOME AND PENALTY CANNOT BE LEVIED. RESPECTFULLY FOLLOWING THE ABOVE TWO DECISIONS, PEN ALTY LEVIED BY THE A.O. IS NOT SUSTAINABLE IN LAW AND PE NALTY IS CANCELLED. RELIEF GRANTED TO THE APPELLANT IS RS . 21,97,608/- THIS GROUND OF APPEAL IS ALLOWED 7. THE CIT(A), THEREFORE DELETED THE PENALTY. 8. AGAINST THIS ORDER, THE DEPARTMENT IS BEFORE THE ITAT. 9. BEFORE US, THE DR SUPPORTED THE ORDERS OF THE AO IN QUANTUM AND PENALTY. WHEREAS, THE AR SUPPORTED THE ORD ER OF CIT(A) IMPUGNED BEFORE US. 10. AFTER CONSIDERING THE SUBMISSIONS AND ORDERS, WE FIND T HAT THE ISSUE IS TO BE DECIDED WHETHER MATERIAL FACTS ARE BEFO RE THE REVENUE AUTHORITIES OR NOT. THE FACT IS THAT THE ASSESSE E HAD PLACED ALL FACTS MATERIAL TO SUPPORT ITS CLAIM FOR ALLOWANCE O F THE EXPENSE AS REVENUE EXPENDITURE. BUT THE AO HELD THE SA ME AS CAPITAL IN NATURE. 11. SINCE ALL THE FACTS WERE BEFORE THE AO IT IS ONLY A CA SE OF CHANGE OF PERCEPTION, I.E. WHETHER IT IS REVENUE OR CAPITAL. 12. THIS CHANGE OF PERCEPTION CANNOT BY ITSELF FORM THE GROUND FOR THE LEVY OF PENALTY. 13. THE APPEAL OF REVENUE IS THEREFORE DISMISSED ORDER PRONOUNCED IN THE OPEN COURT ON 04/03/2015. SD/- SD/- ( ) ( '''# '''# '''# '''# ) & & & & ' ' ' ' & & & & (B R BASKARAN) ( VIVEK VARMA ) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATE: 04/03/2015 M/S GOLDEN FEED PRODUCTS LTD ITA 5348/M/2013 5 (/ COPY TO:- 1) / THE APPELLANT. 2) / THE RESPONDENT. 3) THE CIT(A) -21, MUMBAI. 4) THE CIT-10, MUMBAI/CIT -10, MUMBAI. 5) / THE D.R. G BENCH, MUMBAI. 6) )*+ , COPY TO GUARD FILE. -&. / BY ORDER / / TRUE COPY / / / / 0 - (1' , 2 3 DY. / ASSTT. REGISTRAR I.T.A.T., MUMBAI *CHAVAN, SR.PS