ACIT, Ludhiana V. M/s Omax Bikes Limited, Ludhiana

ITA 549/CHANDI/2015

• Counselvise Citation: 54921514 RSA 2015
• Duration Of Justice: 4 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-09-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2009-2010
• Appeal Filed On: 20-05-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S K MITTAL
• Assessee Lawyers: RAJEEV SHARMA
• Keywords: Question of law; Capital expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH, CHANDIGARH BEFORE SHRI H.L. KARWA, HONBLE VICE PRESIDENT AND MS. ANNAPURNA MEHROTRA, ACCOUNTANT MEMBER ITA NO.549/CHD/2015 ASSESSMENT YEAR:2009-10 ACIT VS. OMAX BIKES LIMITED CIRCLE 1 C-75, PHASE V LUDHIANA FOCAL POINT LUDHIANA PAN NO. AAACO2827Q (APPELLANT) (RESPONDENT) APPELLANT BY : SH. S.K. MITTAL RESPONDENT BY : SH. RAJEEV SHARMA DATE OF HEARING : 09/09/2015 DATE OF PRONOUNCEMENT :30/09/2015 ORDER PER ANNAPURNA MEHROTRA A.M. THIS APPEAL HAS BEEN FILED BY THE REVENUE AGAINST T HE ORDER OF THE LD. CIT(A)-1, LUDHIANA DT. 24/02/2015. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF CYCLE PARTS AND ELECTROPLATING JOB WORK. FOR THE IMPUGNED ASSESSMENT YEAR THE ASSESSEE FILED ITS RETURN OF IN COME ON 28/09/2009, SHOWING LOSS OF RS. 47,49,773/-. ASSESSMENT UNDER SECTION 1 43(3) WAS FRAMED ON THE ASSESSEE VIDE ORDER DT. 08/12/2011, AFTER MAKING VA RIOUS ADDITIONS ON ACCOUNT OF DISALLOWANCE OF INTEREST UNDER SECTION 36(1)(III) A MOUNTING TO RS. 19,17,931/-, DISALLOWANCE OF ISO EXPENSES TREATING THE SAME AS C APITAL AMOUNTING TO RS. 35,000/-, DISALLOWANCE OF GRATUITY OUTSTANDING FOR PAYMENT AMOUNTING TO RS. 2,75,329/- AND DISALLOWANCE OF DONATION AMOUNTING T O RS. 1007/-. 2 3. THE LD. CIT(A) VIDE HIS ORDER DT. 24/02/2015 DEL ETED THE DISALLOWANCE OF INTEREST UNDER SECTION 36(1)(III) AMOUNTING TO RS. 19,17,931/- AND ADDITION OF RS. 35,000/- ON ACCOUNT OF WRITE OFF OF ISO EXPENSES. 4. AGGRIEVED BY THE SAME THE DEPARTMENT HAS FILED T HIS APPEAL BEFORE US TAKING THE FOLLOWING GROUNDS: I) WHETHER IN THE LAW AND CIRCUMSTANCES OF THE CASE , WAS LD. CIT(A) JUSTIFIED IN DELETING THE ADDITION OF RS. 19,17,931/- MADE U/ S 36(1)(III) OF INCOME-TAX ACT, 1961 UPON THE ISSUE OF INTEREST FREE ADVANCES ? II) WHETHER IN THE LAW AND CIRCUMSTANCES OF THE CAS E, WAS LD. CIT(A) JUSTIFIED IN DELETING THE ADDITION OF RS. 35,000/- MADE UPON THE ISSUE OF WRITING OFF ISO EXPENSES ? 5. GROUND NO. 1 IS AGAINST THE DELETION OF ADDITION OF RS. 19,17,931/- MADE UNDER SECTION 36(1|)(III) OF THE INCOME TAX ACT. 6. DURING ASSESSMENT PROCEEDING IT WAS OBSERVED THA T THE ASSESSEE HAD GIVEN INTEREST FREE ADVANCES OF RS. 1,67,97,132/- T O M/S OMAX ENTERPRISES PVT. LTD. ON WHICH NO INTEREST HAD BEEN CHARGED. THE AO EXAMI NED THE FACTS OF THE CASE IN THE BACKGROUND OF THE JUDGMENT OF HONBLE JURISD ICTIONAL HIGH COURT IN THE CASE OF CIT VS. ABHISHEK INDUSTRIES LTD. 286 ITR 1 (2006)(P&H) AND DISALLOWED INTEREST AMOUNTING TO RS. 19,17,931/- ATTRIBUTING T HE SAME TO NON BUSINESS USE OF FUNDS BORROWED FOR BUSINESS PURPOSES. 7. DURING APPELLATE PROCEEDING THE ASSESSEE ARGUED THAT THE AMOUNT HAD BEEN ADVANCED TO M/S OMAX ENTERPRISES FOR COMMERCIA L EXPEDIENCY, FOR PURCHASE OF PROPERTY. THE ASSESSEE ALSO ARGUED THAT IT HAD SUFFICIENT FUNDS RAISED FROM ITS OWN RESOURCES FOR MAKING IMPUGNED THE ADVA NCE. THE ASSESSEE STATED THAT IT HAD SHARE CAPITAL OF RS. 2.15 CRORES AND LO ANS TO THE TUNE OF RS. 2.85 CRORES FROM MANAGING DIRECTOR, HIS HUF AND HIS WIFE ON WHI CH NO INTEREST HAD BEEN PAID AND THE SAME WAS MORE THAN SUFFICIENT FOR THE PURPOSE OF MAKING INTEREST FREE ADVANCE, OF RS. 1,67,97,132/- TO M/S OMAN ENTE RPRISES PVT. LTD. THE ASSESSEE STATED THAT IN SUCH CIRCUMSTANCES IT COULD BE SAFE LY INFERRED THAT THE ENTIRE 3 INTEREST FREE ADVANCE HAD BEEN MADE FROM THE INTERE ST FREE FUNDS OF THE ASSESSEE AND THEREFORE NO DISALLOWANCE OF INTEREST U/S 36(I)(III) WAS WARRANTED. 8. THE LD. CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE DELETED THE DISALLOWANCE MADE BY HOLDING AT PARA 3.4 OF HIS ORDER AS FOLLOWS: 3.4 I HAVE CONSIDERED THE BASIS OF ADDITION MADE B Y THE ASSESSING OFFICER, THE ARGUMENTS OF THE AR ON THE ISSUE. IT IS SEEN THAT T HE SAME ARE AT VARIANCE WITH THE FACTS OF THE CASE RELIED UPON BY THE ASSESSING OFFI CER IN TERMS OF JUDGMENT OF HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CI T VS. M/S ABHISHEK INDUSTRIES LTD. 286 ITR 1. IT IS AN ACCEPTED FACT IN THE INSTANT CA SE THAT THE ASSESSEE COMPANY HAD THE FACILITY OF INTEREST FREE LOANS FROM DIRECT ORS AND RELATIVES TO THE TUNE OF RS. 2,85,05,372/- AND THE INTEREST FREE ADVANCES, EVEN IF HELD TO BE FOR NON BUSINESS PURPOSES, ARE ONLY TO THE TUNE OF RS. 1,67,97,132/- . THIS MEANS THAT THE INTEREST BEARING FUNDS RAISED FOR THE PURPOSES OF BUSINESS H AVE NOT BEEN SPECIFICALLY DIVERTED FOR NON BUSINESS USE IN TERM OF ADVANCING INTEREST FREE AMOUNTS TO SISTER CONCERN. IT IS SEEN THAT THE ASSESSING OFFICER FOR A.Y. 2006-07 HAD CONSIDERED THIS ISSUE AND BROUGHT ON RECORD THE FACT THAT THE ASSES SEE COMPANY HAD INTEREST FREE FUNDS FROM DIRECTORS AND RELATIVES TO THE TUNE OF RS. 1,16,75,000/- AND THE INTEREST FREE ADVANCE WAS TO THE TUNE OF RS. 1,51,8 6,399/. THE ASSESSING OFFICER PROCEEDED TO HOLD THAT THE INTEREST FREE ADVANCES W ERE IN EXCESS BY AN AMOUNT OF RS. 38,61,399/- AND THEREFORE DISALLOWANCE WAS P EGGED ON THIS AMOUNT ONLY AND NOT ON THE ENTIRE AMOUNT ADVANCED FREE OF INTER EST. THE ACTION OF THE ASSESSING OFFICER IN THIS REGARD IS LOGICAL AND IN THE YEAR UNDER CONSIDERATION BEFORE THE UNDERSIGNED, THE INTEREST FREE AMOUNTS R AISED FROM DIRECTORS AND RELATIVES ARE ALMOST DOUBLE THE AMOUNT REMAINING AS INTEREST FREE ADVANCE TO SISTER CONCERN. IN THE CIRCUMSTANCES, THE ACTION OF THE ASSESSING OFFICER IN MAKING DISALLOWANCE ON THE ENTIRE AMOUNT ADVANCED FREE OF INTEREST IS AT VARIANCE WITH THE ACTION TAKEN IN ASSESSMENT YEAR 2006-07 WHICH I S ON LOGICAL FOOTING. THE DISALLOWANCE MADE DURING THE YEAR UNDER CONSIDERATI ON IS NOT CALLED FOR IN VIEW OF THE ABOVE LOGIC HIGHLIGHTED BY THE ASSESSING OFF ICER IN A.Y. 2006-07 WITH WHICH I AM IN AGREEMENT. IN THE CIRCUMSTANCES, THE DISALLOW ANCE MADE IS DIRECTED TO BE DELETED. 9. BEFORE US THE LD. AR SUBMITTED THAT THIS IDENTIC AL ISSUE HAD BEEN CONSIDERED BY THE CHANDIGARH BENCH OF TRIBUNAL IN A SSESSEES OWN CASE IN THE PRECEDING ASSESSMENT YEAR I.E; 2008-09 AND THE DISA LLOWANCE MADE HAD BEEN DELETED. THE LD. AR PLACED A COPY OF THE ORDER BEFO RE US. 10. THE LD. DR RELIED UPON THE ORDER OF THE AO. 11. WE HAVE HEARD THE ARGUMENTS OF BOTH THE PARTIES AND PERUSED THE DOCUMENTS PLACED BEFORE US AND ALSO THE ORDERS OF T HE AUTHORITIES BELOW. 12. WE FIND THAT THIS ISSUE HAS BEEN DECIDED IN FAV OUR OF THE ASSESSEE BY THE CHANDIGARH BENCH OF THE ITAT, IN THE ASSESSEE OWN C ASE FOR AY 2008-09, WHERE ON AN IDENTICAL SET OF FACT IT WAS HELD: 4 9.FROM THE ABOVE SET OF FACTS IT IS EVIDENT THAT IN ASSESSMENT YEAR 2006-07, THE ISSUE OF DISALLOWANCE OF INTERES T U/S 36(I)(III) OF THE ACT, ON INTEREST FREE ADVANCES MADE TO SISTE R CONCERNS WAS EXAMINED BY THE ASSESSING OFFICER AND IT WAS H ELD BY THE ASSESSING OFFICER THAT THE INTEREST FREE ADVANCES W ERE MADE OUT OF INTEREST FREE FUNDS TO THE EXTENT AVAILABLE. IT WAS ONLY THE EXCESS ADVANCES, WHICH WERE HELD TO BE MADE OUT OF INTEREST BEARING FUNDS AND THE PROVISIONS OF SECTIO N 36(I)(III) OF THE ACT WERE APPLIED THEREON. IN THE IMPUGNED ASSE SSMENT YEAR, ON THE VERY SAME ADVANCES, THE REVENUE SEEMS TO BE TAKING A DIFFERENT VIEW, BY HOLDING THAT THE ENTIRE INTEREST FREE ADVANCES ARE OUT OF INTEREST BEARING FUNDS. THERE H AS TO BE CONSISTENCY AND DEFINITENESS IN THE APPROACH OF THE REVENUE IN RECOGNIZING THE NATURE OF ANACCOUNT SO THAT THE BASIS OF A CONCLUDED ASSESSMENT WOULD NOT BE IGNORED. HAVING H ELD THE INTEREST FREE ADVANCES TO BE OUT OF INTEREST FREE F UNDS IN ASSESSMENT YEAR 2006-07, THE REVENUE CANNOT NOW TAK E A TOTALLY DIFFERENT VIEW AND HOLD THE SAME ADVANCES T O BE OUT OF INTEREST BEARING FUNDS IN THE IMPUGNED YEAR. THE KARNATAKA HIGH COURT IN CASE OF COMMISSIONER OF INCOME TAX VS . SRIDEV ENTERPRISES 192 ITR 165 HAS HELD : WE ARE IN AGREEMENT WITH THE VIEW EXPRESSED BY THE APPELLATE TRIBUNAL. THE STATUS OF THE AMOUNT OUTSTA NDING FROM NALANDA ON THE FIRST DAY OF THE ACCOUNTING YEAR IS THE AMOUNT THAT STOOD OUTSTANDING ON THE LAST DAY OF THE PREVI OUS ACCOUNTING YEAR AND, THEREFORE, ITS NATURE AND STAT US CANNOT BE DIFFERENT ON THE FIRST DAY OF THE CURRENT ACCOUN TING YEAR FROM ITS NATURE AND STATUS AS ON THE LAST DAY OF TH E PREVIOUS ACCOUNTING YEAR. REGARDING THE PAST YEARS, THE ASSE SSEES CLAIMS FOR DEDUCTION WERE ALLOWED IN RESPECT OF THE SUMS ADVANCED DURING THOSE YEARS; THIS COULD BE ONLY ON THE ASSUMPTION THAT THOSE ADVANCES WERE NOT OUT OF BORR OWED FUNDS OF THE ASSESSEE. THIS FINDING DURING THE PREV IOUS YEARS IS THE VERY BASIS OF THE DEDUCTIONS PERMITTED DURING T HE PAST YEARS, WHETHER A SPECIFIC FINDING WAS RECORDED OR N OT. A DEPARTURE FROM THAT FINDING IN RESPECT OF THE SAID AMOUNTS ADVANCED DURING THE PREVIOUS YEAR WOULD RESULT IN A CONTRADICTORY FINDING; IT WILL NOT BE EQUITABLE TO PERMIT THE REVENUE TO TAKE A DIFFERENT STAND NOW IN RESPECT OF THE AMOUNTS WHICH WERE THE SUBJECT-MATTER OF PREVIOUS YEARS AS SESSMENTS; CONSISTENCY AND DEFINITENESS OF APPROACH BY THE REV ENUE IS NECESSARY IN THE MATTER OF RECOGNIZING THE NATURE O F AN ACCOUNT MAINTAINED BY THE ASSESSEE SO THAT THE BASI S OF A CONCLUDED ASSESSMENT WOULD NOT BE IGNORED WITHOUT A CTUALLY REOPENING THE ASSESSMENT. THE PRINCIPLE IS SIMILAR TO THE CASES WHERE IT HAS BEEN HELD THAT A DEBT WHICH HAD BEEN T REATED BY THE REVENUE AS A GOOD DEBT IN A PARTICULAR YEAR CANNOT SUBSEQUENTLY BE HELD BY IT TO HAVE BECOME HAD PRIOR TO THAT YEAR. 10.EVEN ON MERITS IT IS CLEAR FROM THE FACTS STATED ABOVE, THAT THE ASSESSEE HAD ENOUGH INTEREST FREE FUNDS TO ADVA NCE INTEREST FREE SUMS TO ITS SISTER CONCERN. THE PRESU MPTION IN SUCH CASES IS THAT THE ADVANCES ARE OUT OF INTEREST FREE FUNDS. THE HON'BLE APEX COURT IN MUNJAL SALES CORPORATION VS. CIT AND ANOTHER 298 ITR 298(SC) HAS HELD : 5 HELD ALSO, THAT SINCE THE OPENING BALANCE OF THE PROFITS OF THE ASSESSEE-FIRM AS ON APRIL 1,1994, WAS 1.91 CROR ES, AND THE PROFITS WERE SUFFICIENT TO COVER THE LOAN GIVEN TO A SISTER CONCERN OF RS. 5 LAKHS ONLY, THE APPELLATE TRIBUNAL OUGHT TO HAVE HELD THAT THE LOAN GIVEN WAS FROM THE ASSESSEE S OWN FUNDS. 11.THE HON'BLE PUNJAB & HARYANA HIGH COURT IN CASE OF BRIGHT ENTERPRISES PVT. LTD. VS. CIT, JALANDHAR, IN ITA NO .224 OF 2013 DATED 24.7.2015 HAS HELD AS UNDER: 16. AS WE NOTED EARLIER, THE FUNDS/RESERVES OF THE APPELLANT WERE SUFFICIENT TO COVER THE INTEREST FREE ADVANCES MADE BY IT OF RS. 10.29 CRORES TO ITS SISTER COMPANY. WE ARE E NTIRELY IN AGREEMENT WITH THE JUDGMENT OF THE BOMBAY HIGH COUR T IN COMMISSIONER OF INCOME TAX VS. RELIANCE UTILITIES & POWER LTD., (2009) 313 ITR 340, PARA-10, THAT IF THERE ARE INTE REST FREE FUNDS AVAILABLE A PRESUMPTION WOULD ARISE THAT INVESTMENT WOULD BE OUT OF THE INTEREST FREE FUNDS GENERATED OR AVAILAB LE WITH THE COMPANY IF THE INTEREST FREE FUNDS WERE SUFFICIENT TO MEET THE INVESTMENT. 12.THE ASSESSES CASE IS ALSO SQUARELY COVERED BY T HE DECISION OF THE PUNJAB AND HARYANA HIGH COURT IN THE CASE OF CIT-I, LUDHIANA VS. RAKESH GUPTA IN ITA NO.37 OF 2014 DATE D 2.7.2015, WHEREIN ONE OF THE SUBSTANTIAL QUESTIONS WAS AS UNDER : '(I) WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE HON'BLE ITAT WAS RIGHT IN LAW IN UPHOLDING THE ORDE R OF THE ID. CIT(A) WHEREIN DISALLOWANCE MADE UNDER SECTION 36 (1) (III ) WAS DELETED IGNORING THE JUDGEMENT OF HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS ABHISHEK INDUSTRIES LTD. REPORTE D 286 ITR 1, RELIED UPON BY THE ASSESSING OFFICER? WHILE DECIDING THE ABOVE QUESTION, THE HON'BLE JURISDICTIONAL HIGH COURT HAS HELD AS UNDER : AS REGARDS QUESTION (I), THE APPELLANT'S CASE IS THAT AN AMOUNT OF RS. 8.89 CRORES WAS ADVANCED BY THE RESPONDENT/ASSESSEE TO HIS SON. THE RESPONDENT/ASS ESSEE ON THE OTHER HAND CONTENDS THAT DURING THE ASSESSMENT YEAR IN QUESTION 2008-2009, ONLY ABOUT RS.2.14 CRORES WAS A DVANCED BY HIM TO HIS SON. IT WOULD MAKE NO DIFFERENCE. TH E TRIBUNAL HAS RIGHTLY UPHELD THE DETAILED AND REASONED ORDER OF THE CIT(APPEALS). THE CIT(APPEALS) HAS ANALYZED THE CAS H AVAILABLE WITH THE RESPONDENT. FOR INSTANCE, THE OP ENING BALANCE OF CAPITAL AS ON 01.04.2007 WAS ABOUT RS. 1 3.45 CRORES AND THE CLOSING BALANCE AS ON 31.03.2008 WAS ABOUT RS. 10.40 CRORES. THE OPENING BALANCE AS ON 01.04.2007 WAS AB OUT RS. 73.57CRORES AND THE CLOSING BALANCE AS ON 31.03.200 8 WAS ABOUT RS. 86.60 CRORES. THE OPENING BALANCE OF INTE REST FREE UNSECURED LOANS FROM FAMILY AND FRIENDS AS ON 01.04 .2007 WAS ABOUT RS. 55.95 CRORES AND THE CLOSING BALANCE OF I NTEREST FREE UNSECURED LOANS FROM FAMILY AND FRIENDS AS ON 31.03 .2008 WAS ABOUT RS. 51.46 CRORES. IT WAS NOT THE CASE OF THE AO THAT THE ASSESSEE HAD DIVERTED THE FUNDS BORROWED ON INTERES T FOR THE PURPOSE OF ADVANCING THE SUM TO HIS SON FOR BUSINES S. THE TRIBUNAL NOTED THAT THE AO HAD IN FACT ACCEPTED THA T NO SUCH BORROWED FUNDS HAD BEEN DIVERTED / ADVANCED BY THE 6 ASSESSEE TO HIS SON. THERE WAS NO NEXUS BETWEEN THE FUNDS BORROWED BY THE ASSESSEE AND THE FUNDS DIVERTED/ AD VANCED TO HIS SON. THERE WERE FREE RESERVES AVAILABLE WITH THE ASSESSEE TO ADVANCE THE INTEREST FREE LOAN TO HIS S ON. IT IS NOT POSSIBLE TO HOLD THAT THE APPRECIATION OF THESE FACTS WAS PERVERSE OR ABSURD. NO QUESTION OF LAW, T HEREFORE, ARISES IN THIS REGARD EITHER. 13.IN THE ABOVE CASE,, THE SUBSTANTIAL QUESTION OF LAW RAISED BY THE REVENUE WAS THAT THE TRIBUNAL HAS PASSED THE ORDER IGNORING THE JUDGMENT OF HON'BLE PUNJAB & HARYANA H IGH COURT IN THE CASE OF CIT VS. M/S ABHISHEK INDUSTRIES LTD ., 286 ITR 1. IT APPEARS THAT WHILE DECIDING THE SUBSTANTIAL QUES TION OF LAW, THE HON'BLE HIGH COURT HAS CONSIDERED THE DECISION RENDERED IN THE CASE OF M/S ABHISHEK INDUSTRIES LTD. (SUPRA ). IN THE INSTANT CASE ALSO, THE REVENUE HAS CHALLENGED THE O RDER OF THE LEARNED CIT (APPEALS) ON THE GROUND THAT WHILE DECIDING THE ISSUE IN FAVOUR OF THE ASSESSEE, THE LEARNED CI T (APPEALS) HAS IGNORED THE JUDGMENT OF HON'BLE PUNJAB & HARYAN A HIGH COURT IN THE CASE OF M/S ABHISHEK INDUSTRIES LTD. ( SUPRA). IN MY OPINION, THE DECISION OF THE HON'BLE JURISDICTIO NAL HIGH COURT PASSED IN THE CASE OF RAKESH GUPTA (SUPRA) I S SQUARELY APPLICABLE TO THE FACTS OF PRESENT CASE. IN THAT VIEW OF THE MATTER, I DO NOT FIND ANY INFIRMITY IN THE FINDING S OF THE LEARNED CIT (APPEALS) ON THIS ISSUE AND ACCORDINGLY , I UPHOLD THE ORDER OF THE LEARNED CIT (APPEALS) AND DISMISS THE APPEAL OF THE REVENUE. 13. IN VIEW OF THE SAME WE CONCUR WITH THE FINDINGS OF THE LD. CIT(A) THAT THE DISALLOWANCE OF INTEREST OF RS. 19,17,931/- MADE U/ S 36(I)(III) IS UNCALLED FOR AND OUGHT TO BE DELETED. ACCORDINGLY APPEAL OF THE REVE NUE ON THIS GROUND IS DISMISSED. 14. GROUND NO. 2 IS AGAINST THE DELETION OF THE ADD ITION OF RS. 35,000/- MADE ON ACCOUNT OF WRITING OFF OF ISO EXPENSES. 15. DURING ASSESSMENT PROCEEDING THE ASSESSEE SUBMI TTED THAT IT HAD WRITTEN OFF 1/5 TH OF ISO 14001 EXPENSES DURING THE YEAR AS IN THE PA ST AS PER NORMAL ACCOUNTING PRACTICE AND PLEADED THAT THEY WERE ALLO WABLE EXPENSES. THE AO ON THE OTHER HAND HELD THAT THE EXPENDITURE INCURRE D ON ACQUISITION OF ISO CERTIFICATE WAS IN THE NATURE OF CAPITAL EXPENDITUR E WHICH COULD NOT BE ALLOWED AS DEFERRED EXPENDITURE AND THEREFORE DISALLOWED TH E AMOUNT OF RS. 35,000/- CLAIMED BY THE ASSESSEE ON ACCOUNT OF ISO EXPENSES. 7 16. IN APPEAL BEFORE THE LD. CIT(A) IT WAS HELD THA T THIS APPROACH OF THE ASSESSEE OF WRITING OFF 1/5 TH OF THE TOTAL ISO EXPENSES IN THE IMPUGNED AY WAS CORRECT AS THE SAME HAD BEEN ACCEPTED IN EARLIER YE AR AS WELL AND THEREFORE THE LD. CIT(A) DELETED THE DISALLOWANCE MADE. 17. BEFORE US THE LD. DR PLEADED THAT ISO EXPENSES WERE CAPITAL IN NATURE AND COULD NOT BE CLAIMED AS REVENUE EXPENSE. 18. LD. AR ON THE OTHER HAND RELIED UPON THE ORDER OF LD. CIT(A) AND STATED THAT IT HAD BEEN CONSISTENTLY FOLLOWING THE METHOD OF WRITING OFF 1/5 TH OF ISO EXPENSES WHICH HAD BEEN ACCEPTED IN THE PAST ALSO A ND THE ISO EXPENSES WERE REVENUE IN NATURE AND ALLOWABLE AS SUCH. 19. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL PLACED BEFORE US. 20. UNDISPUTEDLY ISO CERTIFICATION CHARGES ARE INCU RRED FOR CREATING A POSITIVE IMAGE OF THE PRODUCT OF THE ASSESSEE AND FOR THE SM OOTH CONDUCT OF ITS BUSINESS. THEY ARE THEREFORE REVENUE IN NATURE. THE JODHPUR B ENCH OF THE ITAT IN THE CASE OF ACIT VS. TIRUPATI MICROTECH(P) LTD. (2007)111 TT J 149 WHILE ADVERTING ON AN IDENTICAL ISSUE HELD AS FOLLOWS : THE ISO 9002 CERTIFICATE IS BASICALLY ISSUED AND R ENEWED FROM TIME TO TIME TO BRING FORTH THE FACT THAT THE SYSTEMS AND PROCEDURE S OF OPERATIONS IMPLEMENTED IN THE ORGANIZATION ARE IN ACCORDANCE WITH THE STAN DARDS LAID DOWN. THE AO HAS ALLOWED DEDUCTION @ 1/3RD OF THE TOTAL EXPENDITURE ON THE GROUND THAT ITS VALIDITY WAS FOR THREE YEARS. NOW THE QUESTION ARISES AS TO WHETHER ANY EXPENDITURE INCURRED FOR ENDURING BENEFIT SPREADING MORE THAN O NE YEAR IS ALWAYS TO BE TREATED AS CAPITAL EXPENDITURE OR CAN QUALIFY FOR D EDUCTION IF IT DOES NOT OPERATE IN THE CAPITAL FIELD. BY MAKING PAYMENTS FOR OBTAIN ING ISO 9002 CERTIFICATION, THE FIXED CAPITAL OF THE COMPANY HAS NOT ENHANCED IN AN Y MANNER. IT RATHER CREATED A POSITIVE IMAGE OF THE PRODUCTS OF THE ASSESSEE FO R THE SMOOTH CONDUCT OF THE BUSINESS. THE CIT(A) WAS JUSTIFIED IN TREATING THE ENTIRE AMOUNT AS REVENUE IN NATURE. EMPIRE JUTE CO. LTD. VS. CIT (1980) 17 CTR (SC) 113 : (1980) 124 ITR 1 (SC) RELIED ON. 21. IN VIEW OF THE ABOVE WE HOLD THE ISO EXPENSES T O BE REVENUE IN NATURE. 22. WE ALSO FIND THAT THE LD. CIT(A) HAS GIVEN A FI NDING OF FACT THAT THE APPROACH OF THE ASSESSEE IN WRITING OFF 1/5 TH OF THE TOTAL ISO EXPENSES HAS BEEN ACCEPTED IN THE EARLIER YEARS ALSO. 8 23. WE THEREFORE HOLD THAT THE CIT(A)WAS JUSTIFIED IN DELETING THE DISALLOWANCE OF ISO EXPENSES AMOUNTING TO RS. 35,000/-. 24. THE GROUND OF APPEAL OF THE REVENUE IS THEREFOR E DISMISSED. 25. IN THE RESULT APPEAL OF THE REVENUE IS DISMISSE D. ORDER PRONOUNCED IN THE OPEN COURT. SD/- SD/- (H.L. KARWA) (ANNAPURNA MEHROTRA) VICE PRESIDENT ACCOUNTANT MEMBER DATED :30/09/2015 AG COPY TO: THE APPELLANT, THE RESPONDENT, THE CIT, TH E CIT(A), THE DR