ATC LIMITED, HOSUR V. ITO COMPANY WARD 1 (1), CHENNAI

ITA 556/CHNY/2018

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 6439 (ITAT-CHENNAI)
• Duration Of Justice: 10 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-01-2019
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2008-2009
• Appeal Filed On: 16-02-2018
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: ARV SREENIVASAN JCIT
• Assessee Lawyers: G SEETHARAMAN
• Keywords: Capital asset; Depreciation; Business expenditure
• Section: 143(3); 37

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, CHENNAI . . . , , # BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI S. JAYARAMAN, ACCOUNTANT MEMBER /. I.T.A. NOS. 556 & 557/CHNY/2018 / ASSESSMENT YEARS : 2008-09 & 2014-15 M/S. ATC LTD., NO. 218, C/O, VENKATRAM & CO., TTK ROAD, ALWARPET, CHENNAI 18. [PAN: AAACA 3226D] VS. INCOME TAX OFFICER, COMPANY WARD I(1), CHENNAI 600 034. ( / APPELLANT) ( / RESPONDENT) % & / APPELLANT BY : SHRI. G. SEETHARAMAN, CA )*% & / RESPONDENT BY : SHRI. AR V SREENIVASAN, JCIT & /DATE OF HEARING : 02.01.2019 & /DATE OF PRONOUNCEMENT : 09.01.2019 / O R D E R PER S. JAYARAMAN, ACCOUNTANT MEMBER: THE ASSESSEE FILED THESE APPEALS AGAINST THE ORDER S OF THE COMMISSIONER OF INCOME TAX (APPEALS)-3, CHENNAI IN ITA NOS. 155/10- 11/A-3 & 460/16-17/A-3, BOTH, DATED 30.11.2017 FOR ASSESSMENT YEARS 2008-09 & 2014-15, RESPECTIVELY. :-2-: ITA NOS.556 & 557/CHNY/2018 2. M/S. ATC LTD., THE ASSESSEE, IS ENGAGED IN MANUF ACTURE OF CIGARETTES IN SIPCOT INDUSTRIAL ESTATE, HOSUR. IT HAD A SHOE UPPER MANUFACTURING UNIT IN GUMDIPOONDI WHICH WAS CLOSED DOWN DURING THE YEAR. WHILE MAKING THE ASSESSMENT FOR ASSESSMENT Y EAR 2008-09, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE CLAIMED RS. 23,03,000/- PAID TO MYRADA (AN ORGANIZATION FUNCTIONING THROUGH A NETWORK OF NGOS, SELF-HELP AFFINITY GROUP AND PRIVATE INSTITUT IONS) OPERATING IN HOSUR. WHEN THE AO ENQUIRED, THE ASSESSEE SUBMITTE D THAT THESE EXPENSES WERE INCURRED FOR PROVIDING VOCATIONAL SKI LLS TRAINING TO THE YOUTH, SUPPORT FOR THE EDUCATION OF POOR, SANITATIO N FACILITIES FOR RURAL HOMES TOWARDS IMPROVING PRIMARY EDUCATION, LIVELIHO OD AND HABITAT STATUS OF DISADVANTAGED COMMUNITIES LIVING IN AND A ROUND HOSUR. SINCE, IT HAS INCURRED THESE SUMS AS A GOOD CORPOR ATE CITIZEN AND AS AN MEASURE OF GOODWILL OF THE PEOPLE IN AND AROUND THIS INDUSTRY, THE ASSESSEE PLEADED TO ALLOW THIS CLAIM. THE AO DISAL LOWED, INTER ALIA, FOR THE REASON THAT THE IMPUGNED EXPENDITURE HAS NOT BR OUGHT ANY PROMOTION TO THE BUSINESS OF THE ASSESSEE. AGGRIEV ED, THE ASSESSEE FILED AN APPEAL BEFORE THE CIT(A) AND THE CIT(A) DI SMISSED THE APPEAL. 3. AGGRIEVED, THE ASSESSEE FILED THIS APPEAL WITH T HE FOLLOWING GROUNDS OF APPEAL: 1. THE COMMISSIONER OF INCOME TAX (APPEALS) ERRED BOTH IN LAW AND IN THE FACTS OF THE CASE IN SUSTAINING THE DISALLOW ANCE MADE BY THE :-3-: ITA NOS.556 & 557/CHNY/2018 ASSESSING OFFICER OF RS. 23,03,000 BEING AMOUNT EXP ENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS BY THE APPE LLANT IN NATURE OF COMMUNITY DEVELOPMENT ACTIVITIES IN THE VICINITY OF THE FACTORY OF THE APPELLANT. 2. THE COMMISSIONER OF INCOME TAX (APPEALS) FAILED TO APPRECIATE THE APPELLANT AS A GOOD CORPORATE CITIZEN AND AS A MEAS URE OF MAINTAINING GOODWILL OF THE PEOPLE LIVING IN AND AROUND ITS FAC TORY (WHICH IN TURN ENHANCES THE MORALE OF THE EMPLOYEES OF THE APPELLA NT) INCURRED THE COMMUNITY DEVELOPMENT EXPENDITURE (TOWARDS PRIMARY EDUCATION, IMPROVING LIVELIHOOD STATUS OF DISADVANTAGED COMMUN ITIES) AND HENCE SUCH EXPENDITURE IS ALLOWABLE U/S 37 OF THE ACT. 3. THE COMMISSIONER OF INCOME TAX (APPEALS) FAILED TO APPRECIATE THAT THE ABOVE EXPENDITURE HAS BEEN INCURRED PURELY FOR SOCIAL AND COMMUNITY WELFARE PURPOSES IN THE LOCALITY IN WHICH THE APPELLANT OPERATES WHICH BRINGS GOODWILL OF THE COMMUNITY AND BUILDS A POSITIVE PERCEPTION OF AN ORGANIZATION AND NOT FOR ANY PERSO NAL PURPOSES AND HENCE IS ALLOWABLE AS A BUSINESS EXPENDITURE. 4. THE COMMISSIONER OF INCOME TAX (APPEALS) ERRED I N NOT APPRECIATING THE FACT THE EXPENDITURE INCURRED ALSO PROMOTES GOOD EMPLOYEE RELATIONSHIPS WHICH INDIRECTLY PROMOTES TH E BUSINESS OF THE APPELLANT. 5. THE COMMISSIONER OF INCOME TAX (APPEALS) ERRED I N NOT CONSIDERING THE FACT THAT THE FOLLOWING DECISIONS OF THE JURISD ICTIONAL HONBLE COURTS/ INCOME TAX APPELLATE TRIBUNAL (ITAT) HAVE H ELD THAT THE COMMUNITY DEVELOPMENT EXPENDITURE INCURRED BY AN AS SESSEE IS AN ALLOWABLE EXPENDITURE AND ARE DIRECTLY APPLICABLE T O THE FACTS OF THE APPELLANTS CASE: A) DECISION OF THE MADRAS HIGH COURT IN THE CASE OF CIT VS. VELUMANICKAM LODGE (317 ITR 0338); B) DECISION OF THE MADRAS HIGH COURT IN THE CASE OF MADRAS REFINERIES LIMITED (266 ITR 170); C) DECISION OF THE MADRAS HIGH COURT IN THE CASE OF CHENNAI PETROLEUM CORPORATION LIMITED (2006-TIOL-107-HC-MAD -IT); :-4-: ITA NOS.556 & 557/CHNY/2018 D) DECISION OF THE MADRAS HIGH COURT IN THE CASE CO MMISSIONER OF INCOME-TAX V. CHEMICALS & PLASTICS INDIA LTD., ( 165 TAXMAN 158); E) DECISION OF ITAT BENCH B, CHENNAI IN THE CASE OF MADRAS REFINERIES LIMITED (2010-TIOL-341-ITAT-MAD); 6. THE APPELLANT, THEREFORE, PRAYS THAT THE DISALLO WANCE OF RS.23,03,000 MADE BY THE ASSESSING OFFICER AND CONF IRMED BY THE COMMISSIONER OF INCOME TAX (APPEALS) MAY BE DELETED . 4. THE LD. AR SUBMITTED THAT THE LD. CIT(A) FAILED TO APPRECIATE THAT THE ASSESSEE AS A GOOD COOPERATIVE CITIZEN AND AS A MEASURE OF MAINTAINING GOODWILL OF THE PEOPLE LIVING IN AND AR OUND ITS FACTORY INCURRED THE COMMUNITY DEVELOPMENT EXPENDITURE TOWA RDS PRIMARY EDUCATION, IMPROVING LIVELIHOOD STATUS OF DISADVANT AGED COMMUNITIES AND HENCE THIS EXPENDITURE IS ALLOWABLE U/S. 37. HE VEHEMENTLY ARGUED AND RELIED ON THE VARIOUS DECISIONS, INCLUDI NG THE DECISIONS OF THE JURISDICTIONAL HIGH COURT AND ITAT EXTRACTED IN GROUND 5 , SUPRA. PER CONTRA, THE LD. DR SUBMITTED THAT THE AO FOUND FROM THE ANNUAL REPORT OF THE ASSESSEE THAT THE OPERATIONS OF THE L EATHER DIVISION HAD BECOME UNVIABLE, THE ASSESSEE ALSO OFFERED VOLUNTAR Y RETIREMENT SCHEME TO WORKERS AT THE LEATHER FACTORY, A GROUP O F WORKMEN INDULGED IN ILLEGAL STRIKE AND OPERATIONS OF THE CO MPANY WERE SUSPENDED NEARLY FOR A PERIOD OF 8 MONTHS FROM 24.0 6.2007 TO 28.02.2008. FURTHER, THE AO FOUND THAT THE BUSINESS OF THE EXPORT OF SHOE UPPER HAS COME DOWN CLEARLY VIS-A-VIS THE SALE OF LEATHERS AT :-5-: ITA NOS.556 & 557/CHNY/2018 PREVIOUS YEAR, THEREFORE, THE EXPENDITURE INCURRED HAS NOT RESULTED IN PROMOTION OF ASSESSEES BUSINESS ACTIVITIES. FURTH ER, THE LD. CIT(A) HAS RECORDED A FINDING THAT IT IS AN ADMITTED FACT THAT THE EXPENDITURE IS NOT INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURP OSE OF ASSESSEES BUSINESS. THE AMOUNT WAS GIVEN TO A THIRD PARTY WH O HAD CARRIED OUT CERTAIN SOCIAL WELFARE ACTIVITIES, SUCH EXPENDITURE WHICH IS NOT RELATED TO THE ASSESSEES BUSINESS, AND HENCE IT IS NOT AL LOWABLE, THEREFORE, THE CIT(A) DISMISSED THE APPEAL. THUS, IT IS CLEAR THAT THE ASSESSEE HAS NOT ESTABLISHED ANY BUSINESS TO THE IMPUGNED EXPENDITURE. THE LD. DR FURTHER SUBMITTED THAT IRRESPECTIVE OF THE A BOVE FINDINGS MADE BY THE LOWER AUTHORITIES, THE ASSESSEE HAS NOT LAID ANY MATERIAL BEFORE THE ITAT TO PROVE THAT THE FINDINGS RECORDED BY THE THEM ARE FACTUALLY WRONG . THE FACTS AS TO WHETHER THE IMPUGNED EXPE NDITURE INCURRED BY THE THIRD PARTY WAS EVER ASSOCIATED WITH THE ASS ESSEES BUSINESS IS ALSO HAS NOT BEEN PROVED AND HENCE HE PLEADED THAT THE ASSESSEES APPEAL MAY BE DISMISSED. 5. WE HEARD THE RIVAL SUBMISSIONS AND GONE THROUGH THE RELEVANT MATERIAL. IT IS CLEAR FROM THE ABOVE FACTS AND CIR CUMSTANCES THAT THE IMPUGNED AMOUNT CLAIMED TO HAVE BEEN INCURRED BY TH E ASSESSEE THROUGH MYRADA (AN ORGANIZATION FUNCTIONING THROUGH A NETWORK OF NGOS, SELF-HELP AFFINITY GROUP AND PRIVATE INSTITUT IONS) HAS NOT BEEN :-6-: ITA NOS.556 & 557/CHNY/2018 ESTABLISHED TO HAVE BEEN CONNECTED WITH ASSESSEES BUSINESS. THE ASSESSEE HAS NOT LAID MATERIAL EITHER BEFORE THE L OWER AUTHORITIES OR BEFORE US AS TO WHETHER THE IMPUGNED INSTITUTION H AS OFFERED RELIEF TO THE SO CALLED BENEFICIARIES AS PART OF THE ASSES SEES BUSINESS PROMOTION ACTIVITIES ETC AS CANVASSED BY IT. IN THE FACTS AND CIRCUMSTANCES, WE DO NOT FIND ANY MERIT IN THE ASSE SSEES CLAIM AND HENCE THE ASSESSEES APPEAL IS DISMISSED. 6. WITH REGARD TO THE APPEAL IN ITA NO. 557/CHNY/20 18, THE FACTS IN BRIEF ARE THAT THE ASSESSEE HAD FREQUENT POWER C UT, IT HAD DEPENDED ON GENERATOR OFTEN, THE QUALITY OF POWER GENERATED BY THE GENERATOR WAS NOT GOOD. THEREFORE, ON THE ADVICE OF TAMIL NA DU ELECTRICITY BOARD (TNEB), IT AGREED TO PAY 50% OF THE EXPENDITU RE INCURRED TOWARDS LAYING THE UNDERGROUND CABLES FOR THE DE DICATED FEEDER LINE LAID FROM TNEB SUB-STATION TO ITS PREMISES. THE ASS ESSEE HAD TREATED THE AMOUNT INCURRED BY IT AS AN INTANGIBLE CAPITAL ASSET UNDER THE HEAD BUSINESS AND COMMERCIAL RIGHTS AND CLAIMED DEPRE CIATION @ 25% ON IT. THE AO REFUSED TO ALLOW THIS CLAIM STATING THAT THE EXCLUSIVE ELECTRICITY LINE FROM TNEB, BEING PHYSICAL IN NATUR E , CANNOT FIT INTO THE DEFINITION OF INTANGIBLE ASSETS TO ALLOW THE DEPREC IATION. SINCE, THE OWNERSHIP OF THE CABLE LIES WITH TNEB, THE ASSESSEE CANNOT CLAIM IT AS THEIR ASSETS AND THEREFORE, THE AO HELD THAT IT NOT ELIGIBLE CLAIM THE :-7-: ITA NOS.556 & 557/CHNY/2018 IMPUGNED DEPRECIATION. AGGRIEVED, THE ASSESSEE FIL ED AN APPEAL BEFORE THE CIT(A) AND THE CIT(A) DISMISSED THE APPE AL. AGGRIEVED, THE ASSESSEE FILED THIS APPEAL. 7. THE LD. AR INVITING OUR ATTENTION TO THE PAPER BOOK, WHEREIN THE LETTER ISSUED BY THE CHIEF ENGINEER/DISTRIBUTIO N, VELLORE REGION IN MEMO NO. CE/D/VLR/PLG/F.ATC/D.0043/2012-13 DATED 30 .01.2012, SUBMITTED THAT THE PROPOSAL FOR EXTENSION OF DEDICA TED FEEDER ARRANGEMENT WAS EXECUTED BY THE TNEB ON THE BASIS T HAT 50% OF THE EXPENDITURE IS BORNE BY THE TNEB AND 50% IS TO BE I NCURRED BY THE ASSESSEE. SINCE, THE FEEDER LINE IS DEDICATED AND IT CANNOT USED BY ANY OTHER PERSON, THE ASSESSEE HAS CAPITALISED THE 50% OF THE EXPENDITURE INCURRED BY IT AND CLAIMED DEPRECIATION @ 25% UNDER THE HEAD BUSINESS AND COMMERCIAL RIGHTS. THE LD. AR FURTHER SUBMITTED, INVITING OUR ATTENTION TO THE ORDERS PASSED BY THE AO U/S. 143(3) FOR ASSESSMENT YEARS 2015-16 & 2016-17 THAT THE SIMILAR CLAIM MADE BY THE ASSESSEE WAS ALLOWED BY AO IN THOSE YEARS, HOWE VER, FOR THIS ASSESSMENT YEAR THIS CLAIM WAS NOT ALLOWED. PER CO NTRA, THE LD. DR SUPPORTED THE ORDERS OF THE LOWER AUTHORITIES. 8. WE HEARD THE RIVAL SUBMISSIONS AND GONE THROUGH THE RELEVANT MATERIAL. WE FIND MERIT IN THE CONTENTION OF THE A SSESSEE. SINCE, THE :-8-: ITA NOS.556 & 557/CHNY/2018 DEDICATED LINES ARE EXCLUSIVELY LAID BY THE TNEB FO R ASSESSEES USE AND THE ASSESSEE HAS INCURRED 50% OF THE EXPENDITURE, T HOUGH THE LINE IS FULLY OWNED BY TNEB, THE ASSESSEES CLAIM OF DEPREC IATION @ 25% UNDER THE HEAD BUSINESS AND COMMERCIAL RIGHTS IS TENABLE. FURTHER, THE REVENUE HAS ALSO ACCEPTED THE ASSESSEES CLAIM IN THE SUBSEQUENT ASSESSMENT YEARS. HENCE, WE FIND MERIT IN THE ASSE SSEES PLEA AND DIRECT THE AO TO ALLOW DEPRECIATION @ 25% AS CLAIME D BY THE ASSESSEE. 9. IN THE RESULT, THE ASSESSEES APPEAL IN ITA NO. 556/CHNY/2018 FOR ASSESSMENT YEAR 2008-09 IS DISMISSED AND THE AP PEAL IN ITA NO. 557/CHNY/2018 FOR ASSESSMENT YEAR 2014-15 IS ALLOWE D. ORDER PRONOUNCED ON WEDNESDAY, THE 09 TH DAY OF JANUARY, 2019 AT CHENNAI. SD/- ( . . . ) (N.R.S. GANESAN) ! /JUDICIAL MEMBER SD/- ( ) (S. JAYARAMAN) ! /ACCOUNTANT MEMBER /CHENNAI, 0 /DATED: 09 TH JANUARY, 2019 JPV &)1232 /COPY TO: 1. %/ APPELLANT 2. )*% /RESPONDENT 3. 4 ) (/CIT(A) 4. 4 /CIT 5. 2) /DR 6. 7 /GF