DCIT, Bangalore V. M/s. Kudremukh Iron and Steel Co.Ltd., Bangalore

ITA 55/BANG/2011

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 51338 (ITAT-BANGALORE)
• Duration Of Justice: 8 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-10-2011
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2002-2003
• Appeal Filed On: 19-01-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: KUMAR AJEET JT
• Assessee Lawyers: MURALIDHARA H
• Keywords: Principle of natural justice; Revenue expenditure; Capital expenditure
• Section: 143(3); 260A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : BANGALORE BEFORE SHRI N.K. SAINI, ACCOUNTANT MEMBER AND SHRI GEORGE GEORGE K., JUDICIAL MEMBER ITA NO.55 /BANG/2011 ASSESSMENT YEAR : 2002-03 THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 11(5), NO.14/3, 5 TH FLOOR, NRUPATHUNGA ROAD, BANGALORE 560 001. VS. M/S. KUDREMUKH IRON AND STEEL COMPANY LTD., II BLOCK, KORAMANGALA, BANGALORE 560 034. PAN : AAACK 8023A APPELLANT RESPONDENT APPELLANT BY : SHRI KUMAR AJEET, JT.CIT(DR) RESPONDENT BY : SHRI MURALIDHARA H., ADVOCATE DATE OF HEARING : 18.10.2011 DATE OF PRONOUNCEMENT : 18.10.2011 O R D E R PER N.K. SAINI, ACCOUNTANT MEMBER THIS APPEAL IS BY THE DEPARTMENT AGAINST THE ORDE R DATED 28.10.2010 OF THE CIT(APPEALS)-I, BANGALORE RELEVANT TO ASSESS MENT YEAR 2002-03. 2. THE FOLLOWING EFFECTIVE GROUNDS HAVE BEEN RAISED BY THE DEPARTMENT IN THIS APPEAL: ITA NO.55/BANG/2011 PAGE 2 OF 7 2. THE LEARNED CIT(A) HAS ERRED IN DELETING THE AD DITION OF RS.22,81,856/- CLAIMED BY THE ASSESSEE AS EXPENDITU RE INCURRED ON INAUGURATION, WHICH WAS DISALLOWED BY THE ASSESS ING OFFICER AS CAPITAL EXPENDITURE, WITHOUT APPRECIATING THE FA CTS AND CIRCUMSTANCES UNDER WHICH THE ADDITION WAS MADE BY THE ASSESSING OFFICER. 3. THE LEARNED CIT(A) WAS NOT JUSTIFIED IN ALLOWING THE EXPENDITURE INCURRED ON INAUGURATION AS REVENUE EXP ENDITURE WITHOUT APPRECIATING THAT THE EXPENSES OF SUCH NATU RE GIVES RISE TO AN ENDURING BENEFIT TO THE ASSESSEE AND IS THEREFOR E, IN THE NATURE OF A CAPITAL EXPENDITURE. 3. THE FACTS OF THE CASE IN BRIEF ARE THAT THE ASSE SSEE IS MANUFACTURER OF PIG IRON AND SALE THEREOF. FOR THE YEAR UNDER C ONSIDERATION, THE ASSESSEE FILED RETURN OF INCOME ON 31.10.2002 DECLA RING A LOSS OF RS.70,85,60,330. THE ASSESSMENT WAS COMPLETED U/S. 143(3) OF THE INCOME-TAX ACT, 1961 [HEREINAFTER REFERRED TO AS T HE ACT IN SHORT] ON 16.11.2004 ACCEPTING THE RETURNED LOSS. HOWEVER, T HE CASE WAS REOPENED U/S. 147 BY ISSUING NOTICE DATED 28.6.2006 U/S. 148 OF THE ACT. IN THE REOPENED ASSESSMENT THE AMOUNT OF RS.22,81,856 CLAI MED BY THE ASSESSEE AS EXPENDITURE INCURRED ON INAUGURATION WA S ADDED BY AO HOLDING THE SAME AS CAPITAL EXPENDITURE. AGAINST T HE SAID ADDITION, THE ASSESSEE PREFERRED AN APPEAL TO THE LD. CIT(APPEALS ) AND SUBMITTED THAT ALL DETAILS AS TO INCORPORATION, COMMENCEMENT AND ACTUA L MANUFACTURE OF PIG IRON AND THE DETAILED EXPENDITURE RELATING TO INAUG URATION HAD BEEN GIVEN TO THE AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS, WHICH WAS NOT APPRECIATED PROPERLY BY HIM. RELIANCE WAS PLACED O N THE JUDGMENT OF HONBLE KERALA HIGH COURT IN THE CASE OF ITO V. ALUMINIUM INDUSTRIES LTD. (1995) 214 ITR 541 (KER). ITA NO.55/BANG/2011 PAGE 3 OF 7 4. THE LD. CIT(APPEALS) AFTER CONSIDERING THE SUBMI SSIONS OF THE ASSESSEE DIRECTED THE AO TO TREAT THE EXPENDITURE A S REVENUE EXPENDITURE INSTEAD OF CAPITAL EXPENDITURE AND THE RELEVANT OBS ERVATIONS HAD BEEN GIVEN IN PARAS 5 & 6 OF THE IMPUGNED ORDER WHICH RE AD AS UNDER: 5. THE CASE LAW WAS PERUSED. THE FACTS OF THE CITE D CASE ARE VERY MUCH SIMILAR TO THE FACTS OF THE CASE ON HAND AND THEREFORE THE RATIO IS SQUARELY APPLICABLE. BESIDES THE A.O. HAS NOT DETAILED THE FACTS BASED ON WHICH IT HAD BEEN HELD THAT THE EXPENDITURE IS CAPITAL IN NATURE. IT IS BETTER TO QUOTE THE RELEVA NT PORTION OF THE ASSESSMENT ORDER THE ASSESSEES CONTENTIONS HAVE BEEN EXAMINED. HOWEVER, BASED ON THE FACTS OF THE CASE, IT IS CLEA R THAT THE EXPENSES ARE CAPITAL IN NATURE, AND HENCE NOT ELIGI BLE AS A REVENUE EXPENDITURE. ACCORDINGLY, THE AMOUNT OF RS.22,81,856/- IS HEREBY DISALLOWED. 6. .. I FIND THAT MANY VIPS AND MINISTERS HAVE ATTENDED THE INAUGURAL FUNCTION AS IN THE CITED CAS E LAW. IN FACT INAUGURATION IS A TYPE OF ADVERTISEMENT OF THE COMP ANY WHICH EVEN INVITES AND ALLURES MANY POTENTIAL CUSTOMERS L EADING TO MAKE A BASE FOR ITS NEWLY SET UP BUSINESS. THEREFO RE SUCH EXPENDITURE HAS TO BE HELD AS AN EXPENDITURE WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. SUCH INAUG URAL EXPENDITURE IS NOT FOR ACQUIRING ANY PROFIT MAKING APPARATUS NOR FOR ANY ENDURING BENEFIT AND THEREFORE CANNOT BE HE LD AS CAPITAL EXPENDITURE. SUCH INAUGURAL EXPENSES ARE INCURRED F OR INTRODUCING THE COMPANY IN A BIG WAY INTO FOR CARRY ING ON THE BUSINESS AND THEREFORE HAS TO BE HELD AS A REVENUE EXPENDITURE. 5. NOW THE DEPARTMENT IS IN APPEAL. THE LD. DR, AT THE VERY OUTSET, STATED THAT THE ORDER PASSED BY THE LD. CIT(APPEALS ) IS A NON-SPEAKING ORDER, BECAUSE HE HAS NOT GIVEN ANY REASON AND THE BASIS WHILE HOLDING THAT THE INAUGURAL EXPENDITURE INCURRED BY THE ASSE SSEE WAS REVENUE IN NATURE. ITA NO.55/BANG/2011 PAGE 4 OF 7 6. IN HIS RIVAL SUBMISSIONS, THE LD. COUNSEL FOR TH E ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE LD. CIT(APPEALS) AN D SUBMITTED THAT ALL THE DETAILS SOUGHT BY THE AO WERE FURNISHED BY THE ASSESSEE AND THE EXPENDITURE INCURRED WAS RELATING TO BUSINESS ACTIV ITY OF THE ASSESSEE, WHICH COULD NOT BE HELD TO BE CAPITAL IN NATURE AS THE EXPENSES WERE INCURRED IN THE REGULAR COURSE OF BUSINESS AT THE T IME OF INAUGURAL FUNCTION. THEREFORE THE LD. CIT(A) RIGHTLY DIRECTED THE AO TO TREAT THE SAME AS REVENUE EXPENDITURE. 7. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE P ARTIES AND CAREFULLY GONE THROUGH THE MATERIAL AVAILABLE ON RE CORD. IN THE PRESENT CASE, IT IS NOTICED THAT THE LD. CIT(APPEALS) ALTHO UGH STATED THAT THE FACTS OF THE CASE CITED BY THE ASSESSEE WAS VERY MUCH SIMILA R TO THE FACTS OF THE ASSESSEES CASE AND THEREFORE THE RATIO WAS SQUAREL Y APPLICABLE, HOWEVER, HE HAD NOT MENTIONED THE FACTS OF THE CASE CITED BY THE ASSESSEE VIS--VIS THE FACTS OF THE ASSESSEES CASE AND EVEN HE DID NO T POINT OUT WHAT RATIO WAS LAID DOWN IN THE CASE RELIED BY THE ASSESSEE. THEREFORE, IT IS NOT CLEAR THAT HOW THE LD. CIT(A) HELD THAT THE RATIO LAID DO WN IN THE CASE OF ITO V. ALUMINIUM INDUSTRIES LTD. (SUPRA) WAS SQUARELY APPLICABLE TO THE FACTS OF THE ASSESSEES CASE. FURTHERMORE, IN THE INSTANT C ASE, THE LD. CIT(APPEALS) OBSERVED THAT MANY VIPS AND MINISTERS HAD ATTENDED THE INAUGURAL FUNCTION AND INAUGURATION IS A TYPE OF ADVERTISEMENT OF THE COMPANY, BUT WE ARE UNABLE TO UNDERSTAND HOW HE CAME TO THE CONCLUSION THAT FOR THE ABOVE REASONS THE EXPENSES INCURRED BY THE ASSESSEE COULD BE CONSIDERED TO BE REVENUE IN NATURE, PARTICULARLY WHEN HE HAD NOT DIS CUSSED THE NATURE OF EXPENSES AND AMOUNT INVOLVED FOR DIFFERENT ITEMS, W HICH WERE INCLUDED IN ITA NO.55/BANG/2011 PAGE 5 OF 7 THE INAUGURAL EXPENDITURE. THEREFORE, THE ORDER PA SSED BY THE LD. CIT(APPEALS) IS A NON-SPEAKING ORDER IN THE EYES OF LAW. 8. IT IS WELL SETTLED THAT THE ORDER/JUDGMENT UNSUP PORTED BY REASON IS NOT A JUDGMENT IN THE EYES OF LAW. IT IS ALSO TRUE THAT THE REASONS ARE THE LINK BETWEEN THE MATERIAL ON RECORD AND THE CONCLUS ION THEREAFTER BY THE COURT/APPELLATE AUTHORITY. IN OUR VIEW THE LD. CIT (A) SHOULD HAVE PROPERLY CONSIDERED THE ARGUMENTS OF THE ASSESSEE AS WELL AS FINDINGS GIVEN BY THE ASSESSING OFFICER AND THEREAFTER HE SHOULD HAVE MAD E INDEPENDENT FINDINGS EITHER IN FAVOUR OR AGAINST THE ASSESSEE. CONSIDERING THE ENTIRE FACTS, WE ARE OF THE OPINION THAT THE LD. CIT(A) HA D NOT PASSED A PROPER ORDER IN THE EYES OF LAW. AT THIS STAGE, WE MAY REF ER TO THE DECISION OF ITAT AHMEDABAD BENCH IN THE CASE OF GUJARAT THEMIS BIOSYN LTD. VS. J.C.I.T., (2000) 74 ITD 339 (AHD) . THE ITAT AHMEDABAD BENCH, WHILE INTERPRETING THE PROVISIONS OF SECTION 250(6) OF THE I.T. ACT, 1 961 HELD AS UNDER: 'THE PROVISIONS OF SECTION 250(6) PROVIDES THAT THE APPELLATE ORDERS OF THE COMMISSIONER (APPEALS) ARE TO STATE T HE POINTS ARISING IN THE APPEAL, THE DECISION OF THE AUTHORIT Y THEREON AND THE REASONS FOR SUCH DECISION. THE UNDERLYING RATIONALE OF THE PROVISIONS IS THAT SUCH ORDERS ARE SUBJECT TO FURTH ER APPEAL TO THE TRIBUNAL. SPEAKING ORDER WOULD OBVIOUSLY ENABLE A PARTY TO KNOW PRECISE POINTS DECIDED IN HIS FAVOUR OR AGAINS T HIM. ABSENCE OF THE FORMULATION OF THE POINT FOR DECISIO N FOR WANT OF CLARITY IN A DECISION UNDOUBTEDLY PUTS A PARTY IN Q UANDARY. SECTION 250(6) EXPRESSLY EMBODIES THE PRINCIPLE OF NATURAL JUSTICE AND SUCH A PROVISION IS CLEARLY MANDATORY IN NATURE . THE IMPUGNED ORDER PASSED BY THE COMMISSIONER (APPEALS) IN VIOLATION OF THE PROVISIONS OF SECTION 250(6) COULD NOT, THEREFORE, BE SUSTAINED.' 9. THE RATIO LAID DOWN BY THE ITAT AHMEDABAD BENCH IN THE AFORESAID REFERRED TO CASE IS SQUARELY APPLICABLE TO THE FACT S OF THE PRESENT CASE. ITA NO.55/BANG/2011 PAGE 6 OF 7 10. THE HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT V PALWAL COOPERATIVE SUGAR MILLS LTD. (2006) 284 ITR 153 HAS HELD AS UNDER: 'EVERY JUDICIAL/QUASI JUDICIAL BODY / AUTHORITY MUS T PASS A REASONED ORDER WHICH SHOULD REFLECT THE APPLICATION OF MIND OF THE CONCERNED AUTHORITY TO THE ISSUES / POINTS RAIS ED BEFORE IT. THE REQUIREMENT OF RECORDING REASONS IS AN IMPORTANT SA FEGUARD TO ENSURE OBSERVANCE OF THE RULE OF LAW. IT INTRODUCES CLARIFY, CHECKS THE INTRODUCTION OF EXTRANEOUS OR IRRELEVANT CONSID ERATIONS AND MINIMIZES ARBITRARINESS IN THE DECISION MAKING PROC ESS. ANOTHER REASON WHICH MAKES IT IMPERATIVE FOR QUASI JUDICIAL AUTHORITIES TO GIVE REASONS IS THAT THEIR ORDERS ARE NOT ONLY SUBJ ECT TO THE FIGHT OF THE AGGRIEVED PERSONS TO CHALLENGE THEM BY FILING S TATUTORY APPEAL AND REVISION BUT ALSO BY FILING WRIT PETITION UNDER ARTICLE 226 OF THE CONSTITUTION. SUCH DECISIONS CAN ALSO BE CHALLE NGED BY WAY OF APPEAL UNDER ARTICLE 136 OF THE CONSTITUTION OF IND IA. THE HIGH COURTS HAVE THE POWER TO ISSUE WRITS OF CERTIORARI TO QUASH THE ORDERS PASSED BY QUASI JUDICIAL AUTHORITIES / TRIBU NALS. LIKEWISE IN APPEAL THE SUPREME COURT CAN NULLIFY SUCH ORDER / DECISION. THE POWER OF JUDICIAL REVIEW CAN BE EFFECTIVELY EXE RCISED BY THE SUPERIOR COURTS ONLY IF THE ORDER UNDER CHALLENGE C ONTAINS REASONS. IF SUCH ORDER IS CRYPTIC AND DEVOID OF REASONS, THE COURTS CAN NOT EFFECTIVELY EXERCISE THE POWER OF JUDICIAL REVIEW. 11. THE HON'BLE SUPREME COURT IN THE CASE OF MANGALORE GANESH BEEDI WORKS VS. CIT AND ANOTHER (2005) 273 ITR 56 HAS HELD AS UNDER: 'THOUGH IN AN ORDER OF AFFIRMATION IN AN APPEAL U/S 260A OF INCOME TAX ACT, 1961 REPETITION OF THE REASONS ELAB ORATELY MAY NOT BE NECESSARY, THE ARGUMENTS ADVANCED / POINTS U RGED HAVE TO BE DEALT WITH. REASONS FOR AFFIRMATION HAVE TO BE I NDICATED, THOUGH IN APPROPRIATE CASES THEY MAY BE BRIEF. IT HAS FURTHER BEEN HELD : 'RECORDING OF REASONS IS A PART OF FAIR PROCEDURE. REASONS ARE THE HARBINGER BETWEEN THE MIND OF THE MAKER OF THE DECI SION IN THE CONTROVERSY AND THE DECISION OR CONCLUSION ARRIVED AT. THEY ITA NO.55/BANG/2011 PAGE 7 OF 7 SUBSTITUTE SUBJECTIVITY WITH OBJECTIVITY. FAILURE T O GIVE REASONS AMOUNTS TO DENIAL OF JUSTICE. 12. AS WE HAVE ALREADY POINTED OUT THAT IN THE PRES ENT CASE, THE LD. CIT(A) HAS NOT RECORDED ANY REASON IN SUPPORT OF HI S DECISION, THEREFORE, THE FAILURE TO GIVE REASONS AMOUNTS TO DENIAL OF JU STICE AS PER THE RATIO LAID DOWN BY THE HON'BLE SUPREME COURT IN THE AFORESAID CASE AND THE PRESENT CASE REQUIRES READJUDICATION AT THE LEVEL OF LD. CI T(A). WE, THEREFORE, CONSIDERING THE TOTALITY OF THE FACTS, DEEM IT APPR OPRIATE TO REMAND THE ISSUE BACK TO THE FILE OF THE LEARNED CIT (A) FOR FRESH A DJUDICATION IN ACCORDANCE WITH LAW AFTER PROVIDING DUE AND REASONABLE OPPORTU NITY OF BEING HEARD TO THE ASSESSEE. PRONOUNCED IN THE OPEN COURT ON THIS 18 TH DAY OF OCTOBER, 2011. SD/- SD/- ( GEROGE GEORGE K. ) ( N.K. SAINI ) JUDICIAL MEMBER ACCOUNTANT MEMBER BANGALORE, DATED, THE 18 TH OCTOBER, 2011. DS/- COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE (1+1) BY ORDER ASSISTANT REGISTRAR ITAT, BANGALORE.