DCIT, New Delhi V. M/s. Shriram Piston & Rings Ltd., New Delhi

ITA 5438/DEL/2012

• Counselvise Citation: 543820114 RSA 2012
• Duration Of Justice: 1 year(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-10-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: G
• Next Hearing Date: 17-10-2013
• Assessment Year: 2009-2010
• Appeal Filed On: 26-10-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: Y S KAKKAR
• Assessee Lawyers: R K KAPOOR F
• Keywords: Depreciation; Search and seizure; Question of law; Capital expenditure
• Section: 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH G: NEW DELHI) BEFORE SHRI RAJ PAL YADAV, JUDICIAL MEMBER AND SHRI T. S. KAPOOR, ACCOUNTANT MEMBER ITA NO.5438/DEL/ 2012 (ASSESSMENT YEAR : 2009-10) DCIT VS. SHRIRAM PISTON & RINGS LTD. CIRCLE-8(1), ROOM NO.163, 23, K. G. MARG C. R. BUILDING, NEW DELHI. NEW DELHI. PAN:AAACS0229G ASSESSEE BY : SHRI R. K. KAPOOR, F. C.A, REVENUE BY :MS. Y. S. KAKKAR, SR.DR ORDER PER T.S. KAPOOR, AM: THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-XI NEW DELHI D ATED 18.07.2012 FOR THE ASSESSMENT YEAR 2009-10. THE GROUNDS TAKEN BY T HE REVENUE ARE AS UNDER: 1. THE LD. CIT (A) ERRED ON FACTS AND IN LAW IN AL LOWING THE DEDUCTION ON ACCOUNT OF EXPENDITURE ON DYES FOR NEW MODEL DEVELOPMENT EXPENSES AS REVENUES IN NATURE. 2. THE LD. CIT (A) ERRED ON FACTS AND IN LAW IN TRE ATING TOTAL PRODUCTIVITY MAINTENANCE PROGRAMME (TPM) EXPE NDITURE AND ISO EXPENSES AS REVENUE IN NATURE. 3. THE LD. CIT (A) ERRED ON FACTS AND IN LAW IN ALL OWING THE DEDUCTION OF THE WHOLE OF COMMISSION PAID TO THE AG ENTS. ITA NO.5438/DEL/2012 2 4. THE APPELLANT CRAVES, LEAVE OR RESERVING THE RIG HT TO AMEND MODIFY, ALTER, ADD OR FOREGO ANY GROUND(S) OF APPEAL AT ANY TIME BEFORE OR DURING THE HEARING OF THIS APPEA L. 2. THE BRIEF FACTS OF THE CASE ARE THAT DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE COMPANY WAS ENGAGED IN THE BUSINESS OF MANUFACTURING VARIOUS AUTOMOTIVE COMPONENTS VIZ; PISTONS, PIN RINGS, PINS , ENGINE VALVES, ETC. THE RETURN OF INCOME DECLARING AN INCOME OF RS.35,5 0,52,150/- WAS FILED ON 30.09.2009. THE CASE WAS SELECTED FOR SCRUTINY THRO UGH CASS. 3. THE ASSESSING OFFICER MADE THREE ADDITIONS FOLLO WING THE SIMILAR ADDITIONS IN EARLIER YEARS BY HOLDING AS UNDER: EXPENDITURE ON DIES FOR NEW MODEL DEVELOPMENT 3.3 THE ASSESSEES SUBMISSION HAS BEEN CONSIDERED . IT IS PERTINENT TO MENTION HERE THAT THE SAME ISSUE WAS I NVOLVED AND RAISED BY THE ASSESSING OFFICER DURING THE ASSESSME NT PROCEEDINGS FOR THE A. Y 2007-08 AND 2008-09 AND AF TER RECORDING THE REASONS CLAIM OF THE ASSESSEE WAS DIS ALLOWED. THE DECISION TAKEN BY THE ASSESSING OFFICER IN PRECEDIN G YEARS IS ACCEPTED ON THE BASIS OF REASONING ADVANCED IN THE ASSESSMENT ORDER. ACCORDINGLY, FOLLOWING THE PRINCIPLE OF CON SISTENCY AS WELL AS TO KEEP THE ISSUE ALIVE, AS THE DEPARTMENT IS IN APPEAL, THE EXPENDITURE ON DIES IS HELD TO BE A CAPITAL EXP ENDITURE BASED ON THE SAME REASONING AS WAS ADVANCED BY MY PREDECESSOR OFFICERS IN A. Y.2007-08 AND 2008-09 AN D DISALLOWED AFTER PROVIDING THE DEPRECIATION. 3.4 THE DISALLOWANCE WORKS OUT TON RS.83,45,560/- A FTER ALLOWING NORMAL DEPRECIATION (1,18,76,693/- LESS DE P. OF 33,31,133/-) ITA NO.5438/DEL/2012 3 EXPENDITURE ON TOTAL PRODUCTIVITY MAINTENANCE 4.2 THE ASSESSEES SUBMISSION HAS BEEN CONSIDERED. THESE FACTS WERE SAME IN PREVIOUS YEAR I.E. A. Y. 2007-08 AND 2008- 09 BUT THEN THE ASSESSING OFFICER DISALLOWED THE CL AIM. THE DECISION TAKEN BY THE ASSESSING OFFICER IN PRECEDIN G YEARS IS FOUND CORRECT. ACCORDINGLY, FOLLOWING THE PRINCIPLE S OF CONSISTENCY AS WELL AS TO KEEP THE ISSUE ALIVE, AS THE DEPARTMENT IS IN APPEAL, THE EXPENDITURE ON TPM IS HELD TO BE A CAPITAL EXPENDITURE BASED ON THE SAME REASONING AS WAS ADVANCED BY MY PREDECESSOR OFFICERS IN A. Y. 2007- 08 AND 2008-09. 4.3 HENCE, CLAIM OF TPM EXPENSES AND ISO 9001 EXPEN SES AS REVENUE EXPENSES IS DISALLOWED. THE AMOUNT OF RS.14,41,599/- (RS.11,53,472/- +RS.2,88,127) IS THE REFORE ADDED TO THE TAXABLE INCOME OF THE ASSESSEE. COMMISSION ON SALES TO GOVT. UNDERTAKINGS 5.3 THE ASSESSEES SUBMISSION HAS BEEN CONSIDERED A ND FOUND NOT TENABLE AS THE ASSESSEE HAS ONLY GIVEN CH ART OF SUCH EXPENSE AND HAS NOT SUPPORTED IT WITH OTHER DOCUMEN TARY EVIDENCES SUCH AS COPY OF AGREEMENT WITH THE AGENTS , DETAILS OF ACTUAL SERVICES PROVIDED BY THE AGENTS, COPY OF COM MUNICATIONS WITH THE AGENT W.R.T. PAYMENT ETC. EVEN IF ANY SUCH AGREEMENT EXISTS, THE TRANSACTION IS NOT BEYOND DOUBTS. IN TH E CASE OF LACHMINARAYAN MADAN LAL VS. CIT 86 ITR 439(SC) IT I S HELD THAT: THE MERE EXISTENCE OF AN AGREEMENT BETWEEN THE AS SESSEE AND ITS SELLING AGENTS OR PAYMENT OF CERTAIN AMOUNTS AS COMMISSION, ASSUMING THERE WAS SUCH PAYMENT DID NO T BIND THE INCOME TAX OFFICER TO HOLD THAT THE PAYMENT WAS MADE EXCLUSIVELY AND WHOLLY FOR THE PURPOSE OF THE ASSES SEES BUSINESS. ALTHOUGH THERE MIGHT BE SUCH AN AGREEMENT IN EXISTENCE AND THE PAYMENTS MIGHT HAVE BEEN MADE, IT WAS STILL OPEN TO THE INCOME TAX OFFICE TO CONSIDER THE RELEV ANT FACTORS AND DETERMINE FOR HIMSELF WHETHER COMMISSION SAID T O HAVE ITA NO.5438/DEL/2012 4 BEEN PAID TO THE SELLING AGENTS OR ANY PORT THEREOF WAS PROPERTY DEDUCTIBLE U/S 37 5.4 IT WOULD BE PERTINENT TO MENTION HERE THAT THES E FACTS WERE SAME IN PREVIOUS YEARS I.E. A. Y. 2007-08 AND 2008-09 BUT THEN THE ASSESSING OFFICER DISALLOWED THE CLAIM. I FULLY AGREE WITH THE DECISION OF MY PREDECESSOR OFFICERS IN TRE ATING THIS EXPENDITURE AS IT IS NOT EXPENDED WHOLLY AND EXCLUS IVELY IN CONNECTION WITH THE BUSINESS BECAUSE THESE ORGANIZA TION MAKE THEIR PURCHASE THROUGH A DETAILED TENDERING SYSTEM WHERE NO OUTSIDER IS INVOLVED AS COMMISSION AGENT. HENCE, CL AIM OF COMMISSION ON SALES TO GOVERNMENT UNDERTAKINGS AND DGS AND D AMOUNTING TO RS.14,34,216/- IS DISALLOWED AND ADDED TO THE TOTAL INCOME. 4. ON APPEAL THE LD. CIT (A) DELETED THE ADDITIONS MADE BY ASSESSING OFFICER BY FOLLOWING TRIBUNALS ORDERS FOR EARLIER YEARS IN THE CASE OF ASESSEE ITSELF. THE LD. CIT (A) HAS DEALT WITH HIS FINDINGS AT PAGE 5 OF APPELLATE ORDERS, WHICH ARE REPRODUCED AS UNDER: I HAVE CONSIDERED THE SUBMISSIONS OF THE APPELLANT AND FACTS AND RECORD. GROUND NO.1 IS WHETHER EXPENDITURE ON NEW MODEL, NE W DIES COSTING RS.93,11,548 IS A CAPITAL OR A REVENUE EXPE NDITURE. IN THIS REGARD THE ORDER OF THE CIT (A) FOR AY 2007-08 AND 2008- 09 IN APPEAL NOS.85/09-10 DATED 26/03/2010 AND 259/ 2010-11 DATED 09/11/11 HAS DECIDED THE ISSUE IN FAVOUR OF T HE APPELLANT. FURTHER THE HONBLE ITAT HAS ALSO GIVEN ITS DECISIO N IN FAVOUR OF THE APPELLANT. THE HONBLE HIGH COURT HAS AFFIRM ED THE FINDING OF THE TRIBUNAL FOR AY 1998-99 ON THE ISSUE . RESPECTFULLY FOLLOWING THE ORDER OF THE COMMISSIONE R OF INCOME TAX (APPEALS) AND HONBLE ITAT AND HON. HIGH COURT. I UPHOLD THE GROUND OF THE APPELLANT AND DELETE THE AMOUNT OF RS.83,45,560/-. ITA NO.5438/DEL/2012 5 REGARDING GROUND NO.2 ON WHETHER TPM AND ISO-900 EX PENSES OF RS.58,08,137/- IS CAPITAL OR REVENUE IN NATURE, THE MATTER HAS BEEN DECIDED IN FAVOUR OF THE APPELLANT BY THE LD. CIT (A) FOR AY 2007-08 AND 2008-09 IN APPEAL NOS.85/09-10 DATED 26/03/2010 AND 259/2010-11 DATED 09/11/11. THE ISSUE HAS ALSO BEEN DECIDED BY THE HONBLE ITAT GIVING ITS DECISION IN FAVOUR OF THE APPELLANT. RESPECTFULLY FOLLOWING THE ORDER OF THE CIT (A) AND HONBLE ITAT I UPHOLD THE GROUND OF THE APPELLANT AND DELET E THE AMOUNT OF RS.14,41,559/-. GROUND NO.3 IS IN RESPECT OF COMMISSION ON SALES TO GOVT. UNDERTAKINGS. THE COMMISSION WAS DISALLOWED AS NOT INCURRED WHOLLY FOR THE PURPOSE OF BUSINESS. IN THIS REGARD THE LD. CIT (A) FOR AY 2007-08 HAS RESTRICTED COMMISSION TO 4.5 % AND ALLOWED THE DIFFERENCE TO THE APPELLANT. HOWEVER, T HE HONBLE ITAT FOR THE APPELLANT CASE FOR AY 1998-99 AND 2000 -01, 2001-02, 2002-03, 2003-04, 2004-05, 2005-06, 2006-0 7 AND 2007-08 HAS ALLOWED THE APPELLANT THE DEDUCTION OF WHOLE OF THE COMMISSION PAID TO THE AGENTS. RESPECTFULLY FOLLOWING THE ORDER OF THE HONBLE ITA T DATED 25/02/11. I UPHOLD THE GROUND OF THE APPELLANT AND DELETE THE AMOUNT OF RS.14,34,216/-. 5. AGGRIEVED THE REVENUE IS IN APPEAL BEFORE US. AT THE OUTSET, THE LD. DEPARTMENTAL REPRESENTATIVE HEAVILY RELIED UPON THE ORDER OF ASSESSING OFFICER AND WITH RESPECT TO THE DISALLOWANCE OF COM MISSION RELIED UPON EXPLANATION 1 TO SECTION 37 AND ARGUED THAT THE COM MISSION EXPENSES WERE NOT INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS AND, THEREFORE, ASSESSING OFFICER HAD RIGHTLY DISALLOWED THE SAME. RELIANCE IN ITA NO.5438/DEL/2012 6 THIS RESPECT WAS PLACED ON THE CASE OF CIT VS. DR. T. A. QURESHI AS DECIDED BY HONBLE MADHYA PRADESH HIGH COURT AS REPORTED AT 275 ITR 352. 6. THE LD. AR ON THE OTHER HAND SUBMITTED THAT THE ISSUES INVOLVED ARE SQUARELY COVERED IN FAVOUR OF ASSESSEE. HE FURTHER SUBMITTED THAT ISSUE OF EXPENSES OF COMMISSION WAS FURTHER UPHELD BY HONBL E DELHI HIGH COURT IN FAVOUR OF ASSESSEE VIDE DECISION DATED 16 TH FEBRUARY 2012 AND INVITED OUR ATTENTION TO PAPER BOOK PAGE 55 TO 65 WHICH CONTAIN ED A COPY OF HONBLE DELHI HIGH COURTS ORDER IN THIS RESPECT. REGARDING FIRST TWO DELETIONS MADE BY THE LD. CIT (A), HE RELIED UPON THE ORDER OF LD. CIT (A) AND ARGUED THAT ADDITIONS WERE MADE BY ASSESSING OFFICER ONLY TO KE EP THE ISSUE ALIVE AS THE MATTER WAS UNDER APPEAL. 7. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND HAVE GONE THROUGH THE MATERIAL PLACED ON RECORD. WE FIND THAT LD. COMMISSIONER OF INCOME TAX (APPEALS) ON THE BASIS OF EARLIER YEAR O RDER IN THE CASE OF ASSESSEE ITSELF HAS DELETED THE ADDITIONS MADE BY A SSESSING OFFICER. THE LD. CIT (A) HAS CLEARLY DEALT WITH THE ISSUE VIDE HIS F INDINGS REPRODUCED ELSEWHERE IN THIS ORDER. 8. THE LD. DEPARTMENTAL REPRESENTATIVE COULD NOT PR ODUCE ANY ADVERSE DECISION OF HIGHER COURT IN RELATION TO FIRST TWO G ROUNDS OF APPEAL. THEREFORE, FOLLOWING THE TRIBUNALS ORDER IN EARLIER YEARS IN THE CASE OF ASSESSEE ITSELF ITA NO.5438/DEL/2012 7 FOR WHICH FACTS AND CIRCUMSTANCES ARE SIMILAR, WE D ISMISS FIRST TWO GROUNDS OF APPEAL. 9. AS REGARDS 3 RD GROUND OF APPEAL, WE FIND THAT DISPUTE AROSE BECAU SE OF CERTAIN COMMISSION PAID BY ASSESSEE ON SALES TO GOV T. UNDERTAKINGS. THE REVENUE HAD TAKEN THE ABOVE ISSUE TO HIGH COURT FOR ASSESSMENT YEAR 1998- 99 WHEREIN THE HONBLE DELHI HIGH COURT HAS DECIDED IN FAVOUR OF ASSESSEE AND AGAINST REVENUE. THE OPERATIVE PART OF HONBLE DELHI HIGH COURT AS CONTAINED IN PAR 9 IS REPRODUCED BELOW: 9. THE CONCLUSION REACHED BY THE TRIBUNAL IS A FIN DING OF FACT. THE TRIBUNAL WEIGHED THE EVIDENCE BEFORE THEM AND ON PREPONDERANCE OF POSSIBILITIES HAS ACCEPTED THE CLA IM/ CONTENTION OF THE RESPONDENT- ASSESSEE. THE CONTENT ION OF THE REVENUE IS THAT THE EXISTENCE OF THE AGENCY AGREEME NT, PAYMENT TO THE AGENT DID NOT PROVE AND ESTABLISH THAT THE C OMMISSION PAID WAS AN ALLOWABLE EXPENSE U/S 37 OF THE ACT. HO WEVER, THE CONTENTION DOES NOT NOTICE THAT THE TRIBUNAL HAS NO T MERELY RELIED ON THE AGREEMENT AND THE ACTUAL PAYMENT, BUT HAS ACCEPTED AND AGREED THAT EVIDENCE EXISTS TO SHOW AN D ESTABLISH NATURE OF SERVICES ACTUALLY RENDERED BY VARIOUS AGE NTS AT DIFFERENT PLACES THROUGHOUT INDIA. THE ORDER DATED 25.02.2011 REFERS TO A PAPER BOOK FILED BY THE RESPONDENT- AS SESSEE IN SUPPORT OF HIS CONTENTION THAT THE AGENTS WERE INTE RACTING WITH THE STATE ROAD/ MUNICIPAL TRANSPORT CORPORATION/ UNDERTAKINGS. IT WAS OBSERVED THAT THERE WAS NO EVI DENCE OR MATERIAL, EXCEPT SUSPICION OR A SURMISE THAT THE CO MMISSION PAYMENT, IN FACT, REPRESENTS ILLEGAL GRATIFICATION PAID TO UNKNOWN OFFICERS AND THEREFORE, SHOULD NOT BE ALLOW ED AS A DEDUCTION. A FACTUAL DECISION IS PERVERSE IF THE AU THORITY HAS ACTED WITHOUT ANY EVIDENCE OR ON A VIEW OF FACTS CA NNOT BE REASONABLY ENTERTAINED. A PERVERSE FINDING IS ONE, IF IT IS ARRIVED AT WITHOUT ANY MATERIAL OR IF IT IS ARRIVED AT OR I NFERENCE IS MADE ON MATERIAL WHICH WOULD NOT HAVE BEEN ACCEPTED OR R ELIED UPON ITA NO.5438/DEL/2012 8 BY ANY REASONABLE PERSON. IT IS BASED ON SURMISES, CONJECTURES OR SUSPICIONS AND IS NOT RATIONALLY POSSIBLE. A FAC TUAL CONCLUSION IS REGARDED AS PERVERSE, WHEN NO PERSON DULY INSTRUCTED OR ACTING JUDICIALLY COULD UPON THE RECO RD BEFORE HIM, HAVE REACHED THE CONCLUSION ARRIVED AT THE TRIBUNAL / AUTHORITY (SEE CIT VS. S. P. JAIN (1973) 87 ITR 370 (SC) ). O N THE BASIS OF MATERIAL REFERRED TO AND THE REASONING GIVEN BY THE TRIBUNAL IT IS NOT POSSIBLE TO HOLD THAT FINDINGS RECORDED ARE RATIONALLY ILLOGICAL, INCONSISTENT WITH THE FACTS ON RECORD OR NOT SUPPORTED BY EVIDENCE AND MATERIAL. THE APPEALS ARE DISMISSED ON THE GROUND THAT NO SUBSTANTIAL QUESTION OF LAW ARISES. NO COSTS. 10. IN THE PRESENT CASE, THE ASSESSING OFFICER HAD DISALLOWED THE COMMISSION EXPENSES HOLDING THAT THE EXPENSES WERE NOT SUPPORTED BY AN AGREEMENT AND DETAIL OF ACTUAL SERVICES PROVIDED BY AGENTS WAS NOT AVAILABLE. WHEREAS WE FIND FROM THE SUBMISSIONS OF ASSESSEE AS NOTED IN THE ASSESSMENT ORDER ITSELF AT PAGE 7, THAT ASSESSEE HA D EXPLAINED ALL PAYMENTS ALONG WITH COPIES OF AGREEMENTS. THEREFORE, FACTS A ND A CIRCUMSTANCES OF THE PRESENT CASE ARE SIMILAR TO THE FACTS AND CIRCUMSTA NCES AS OF EARLIER YEAR IN WHICH TRIBUNAL HAD ALLOWED THE EXPENSES AND HONBLE DELHI HIGH COURT HAD UPHELD THE SAME IN FAVOUR OF ASSESSEE. 11. RELIANCE PUT BY LD. DEPARTMENTAL REPRESENTATIVE ON THE CASE LAW OF DR. T. A. QUERSHI DOES NOT APPLY TO THE FACTS AND C IRCUMSTANCES OF THE PRESENT CASE AS IN THAT CASE THE ASSESSEE WAS ENGAG ED IN THE PROFESSION OF A DOCTOR AND DURING A RAID IN HIS HOUSE SOME QUANTITY OF HEROINE WAS SEIZED AND THE ASSESSEE HAD CLAIMED LOSS ON ACCOUNT OF SEI ZURE OF HEROINE. THE ITA NO.5438/DEL/2012 9 CLAIM OF THE ASSESSEE IN THAT CASE WAS NOT ALLOWED AS CARRYING HEROINE WAS NOT PART OF BUSINESS/ PROFESSION OF THE ASSESSEE, W HEREAS IN THE PRESENT CASE THE ASSESSEE HAD MADE PAYMENTS FOR ITS BUSINESS. I N VIEW OF THE ABOVE GROUND NO.3 IS ALSO DECIDED AGAINST REVENUE AND IS DISMISSED. IN VIEW OF THE ABOVE, THE APPEAL FILED BY REVENUE IS DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON 31 ST /10/ 2013 SD/- SD/- (RAJ PAL YADAV) (T. S. KAPOOR) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED THE 31 ST DAY OF OCTOBER, 2013 S.SINHA COPY FORWARDED TO 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. CIT(ITAT), NEW DELHI. AR,ITAT NEW DELHI.