ITO, New Delhi V. M/s. Gryphon Appliances Limited, New Delhi

ITA 5992/DEL/2014

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 3411 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-11-2017
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2010-2011
• Appeal Filed On: 05-11-2014
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Capital asset; Additional evidence; Revenue expenditure; Capital expenditure

Judgement Text

PAGE | 1 INCOME TAX APPELLATE TRIBUNAL DELHI BENCH A : NEW DELHI BEFORE SHRI H.S.SIDHU , JUDICIAL MEMBER AND SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER ITA NO. 5992/DEL/2014 (ASSESSMENT YEAR: 2010 - 11 ) ITO, WARD - 12(2), NEW DELHI VS. GRYPHON APPLIANCES LTD, D - 6/4, OKHLA INDUSTRIAL AREA, PHASE - I, NEW DELHI PAN:AABCG2898J (APPELLANT) (RESPONDENT) REVENUE BY : SHRI RAJEEV KUMAR, SR. DR ASSESSEE BY: NONE DATE OF HEARING 21/11 /2017 DATE OF PRONOUNCEMENT 2 2 / 11 /2017 O R D E R PER PRASHANT MAHARISHI , A. M. 1. THIS APPEAL IS FILED BY REVENUE AGAINST THE ORDER OF THE LD. CIT (APPEALS) VV, NEW DELHI. THE LD. CIT (A) ORDER DATED 28/8/2014 FOR ASSESSMENT YEAR 2010 - 11 , WHEREIN THE ADDITION MADE BY THE LD. INCOME TAX OFFICER , WARD 12 (2), NEW DELHI (THE LD. AO ) , ASSESSING OFFICER VIDE HIS ORDER DATED 28/03/2013 PASSED UNDER SECTION 143 (3) OF THE INCOME TAX ACT, 1961 (THE ACT) WHEREIN ON ACCOUNT OF THE EXPENDITURE INC URRED BY THE ASSESSEE ON D YES AND MOULDS WAS HELD TO BE CAPITAL EXPENDITURE, WAS DELETED BY THE LD. CIT (APPEAL) HOLDING THE SAME TO BE REVENUE IN NATURE. THE REVENUE WAS FURTHER AGGRIEVED THAT THE LD. CIT (A) HAS ADMITTED THE AGREEMENT BASED ON WHICH HE HAS ALLOWED THE CLAIM OF THE ASSESSEE AND THEREFORE THERE IS A VIOLATION OF RULE 46A OF THE INCOME TAX RULES , 1962. 2. THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF DISTRIBUTION OF BLACK AND DECKER AND GRYPHON HOME PRODUCTS. DURING THE YEAR IT IS ALSO ENTERED INTO DISTRIBUTION SHIP OFF HITKARI BRAND OF CROCKERY. IT FILED ITS RETURN OF INCOME ON 7/10/2010 DECLARING INCOME OF RS. 15,27,673/ . DURING THE ASSESSMENT PROCEEDINGS IT WAS NOTED THAT THE ASSESSEE HAS DEBITED THE SUM OF RS. 3658103/ UNDER THE HEAD DYES & MOULDS HENCE ASSESSEE WAS ASKED TO JUSTIFY THAT BY THIS EXPENDITURE SHOULD NOT BE TREATED AS A CAPITAL EXPENDITURE. THE ASSESSEE S UBMITTED BEFORE THE LD. ASSESSING OFFICER AND ASSESSEE IS HAVING AN EXCLUSIVE MARKETING FOR THE GOODS MANUFACTURED IN THE USA BY BLACK AND DECKER. THE ABOVE COMPANY NOT ONLY MANUFACTURES THESE PRODUCTS IN THE VARIOUS MANUFACTURING UNITS OWNED BY IT BUT ALS O IN ITO WARD 12 (2), NEW DELHI V GRYPHONE APPLIANCES LIMITED NEW DELHI ITA NO 5992 DEL 2014 A Y 2010 - 11 PAGE | 2 COUNTRIES OTHER THAN HOME COUNTRY. THEREFORE, THE COMPONENTS WHICH GO INTO MANUFACTURED THESE GOODS HAVE TO MEET STRINGENT SPECIFICATIONS. IT WAS SUBMITTED THAT EVEN AS TO DIFFERENCE CAN RENDER THE PRODUCT, DEFECTIVE AND UNUSABLE. IT WAS FURTHER STATE D THAT THESE PRODUCTS WHICH ARE SOLD IN INDIA TO BE SPECIFICALLY MODIFIED TO INDIAN REQUIREMENT AND THEREFORE THE CASE AND MOULDS FOR THESE COMPONENTS IS RESPONSIBILITY OF THE ASSESSEE AND THEREFORE IT IS PAID FOR THIS MOULDS AND DIES TO THAT PARTICULAR C OMPANY. THEREFORE, IT WAS STATED THAT THESE ARE THE REGULAR EXPENDITURE FOR MANUFACTURING GOODS FOR WHICH THE SALE IS BEEN SHOWN BY THE ASSESSEE IN THE PROFIT AND LOSS ACCOUNT AND THESE ARE THE MANUFACTURING EXPENSES AND NOT CAPITAL IN NATURE. HOWEVER, THE LD. ASSESSING OFFICER DID NOT ACCEPT THE CLAIM OF THE ASSESSEE AND STATED THAT THESE ARE REUSABLE ITEMS AND ARE CAPITAL EXPENDITURE. ACCORDINGLY, HE MADE AN ADDITION OF RS. 3658103/ TO THE TOTAL INCOME OF THE ASSESSEE. 3. THE ASSESSEE AGGRIEVED WITH THE ORDER OF THE LD. ASSESSING OFFICER PREFERRED AN APPEAL BEFORE THE LD. CIT (A) WHO DELETED THE DISALLOWANCE. HE FURTHER REFERRED TO THE AGREEMENT BETWEEN THE MANUFACTURER AND THE ASSESSEE ONE OF THE CONDITION AGREED TO BETWE EN THE PARTIES WAS THAT THE APPELLANT SHALL PASS THE SUPPLIER THE COST OF DIES AND MOULDS IS REQUIRED FROM TIME TO TIME FOR THE PURPOSE OF MAKING SUCH HOME PRODUCTS. HE FURTHER HELD THAT SINCE THE APPELLANT COMPANY IS NOT THE MANUFACTURER AND THE FACT THAT SUCH DIES AND MOULDS DO NOT HAVE A LONG LIFE AND MORE IMPORTANTLY THE AGREEMENT BETWEEN THE PARTIES DOES NOT PROVIDE FOR SUPPLY OF DEPRECIATED DIES AND MOULDS TO THE APPELLANT COMPANY THE EXPENSES CANNOT BE HELD TO BE CAPITAL EXPENDITURE. THEREFORE REVENU E IS IN APPEAL. 4. THE LD. DEPARTMENTAL REPRESENTATIVE VEHEMENTLY SUPPORTED THE ORDER OF THE LD. ASSESSING OFFICER . HE SUBMITTED THAT DIES AND MOULDS ARE NECESSARILY A CAPITAL ASSET ACQUIRED BY THE ASSESSEE AND THEREFORE THE EXPENDITURE THEREON SHOULD BE CON SIDERED AS CAPITAL EXPENDITURE. MOREOVER, HE SUBMITTED THAT THE LD. CIT(A) HAS ENTERTAINED THE AGREEMENT BETWEEN THE ASSESSEE AND ITS PRINCIPAL MANUFACTURER, WHICH WAS NOT AVAILABLE BEFORE THE LD. ASSESSING OFFICER AND THEREFORE CIT (A) HAS VIOLATED THE PRO VISIONS OF RULE 46A OF THE INCOME TAX RULES , 1962. 5. DESPITE NOTICE, NONE APPEARED ON BEHALF OF THE ASSESSEE AND THEREFORE THE ISSUE IS DECIDED ON THE BASIS OF THE EVIDENCES AVAILABLE ON RECORD ON MERITS. 6. WE HAVE CAREFULLY CONSIDERED THE CONTENTIONS OF THE L D. DEPARTMENTAL REPRESENTATIVE AND ALSO PERUSED THE ORDERS OF THE LOWER AUTHORITIES. UNDISPUTEDLY THE BUSINESS OF THE ASSESSEE IS MARKETING OF THE PRODUCT OF A US COMPANY. THAT COMPANY MANUFACTURES THE PRODUCTS WHICH ARE BEING SOLD IN INDIA BY THE ASSESSEE . ACCORDING TO THE AGREEMENT ENTERED INTO BETWEEN THE ITO WARD 12 (2), NEW DELHI V GRYPHONE APPLIANCES LIMITED NEW DELHI ITA NO 5992 DEL 2014 A Y 2010 - 11 PAGE | 3 ASSESSEE AS WELL AS THE US COMPANY. THE ASSESSEE WAS REQUIRED TO REIMBURSE THE COST OF DIES AND MOULDS TO THE US COMPANY. THEREFORE, ASSESSEE CLAIMED IT AS REVENUE EXPENDITURE, WHEREAS THE CLAIM OF THE REVENUE IS THAT IT IS A CAPITAL EXPENDITURE. DURING THE YEAR ASSESSEE COMPANY HAS CLAIMED THE EXPENSES OF RS. 3658103/ - ON ACCOUNT OF THIS. THE ASSESSEE SUBMITTED BEFORE THE LD. ASSESSING OFFICER THAT IT IS THE RESPONSIBILITY OF THE ASSESSEE TO GET THE PRO DUCT MODIFIED ACCORDING TO THE INDIAN REQUIREMENT AND THEREFORE THE DIES AND MOULDS FOR THESE COMPONENTS ARE REQUIRED TO BE PAID TO THE US COMPANY. IT WAS FURTHER SUBMITTED THAT THE BASIC STRUCTURE OF THE PRODUCT CHANGES EVERY YEAR IN KEEPING VIEW OF THE M ODERN MARKETING STRATEGIES AND CONSUMERS DEMAND. THEREFORE, IT WAS STATED THAT EVERY YEAR THE DESIGN EXPIRES AND THERE IS NO USE OF IT FOR THE FOLLOWING YEAR. HENCE, IT WAS CLAIMED AS REVENUE EXPENDITURE. THE LD. CIT (A) HAS, RELYING ON THE SUBMISSION AND AFTER CONSIDERING THE AGREEMENT BETWEEN THE ASSESSEE AND THE US COMPANY, HAS ALLOWED THE CLAIM OF THE ASSESSEE. HOWEVER, IT HAS BEEN CLAIMED BY THE REVENUE THAT THE COPY OF THE AGREEMENT WAS NOT AVAILABLE BEFORE THE ASSESSING OFFICER AND LD. CIT (A) HAS ENT ERTAINED THIS ADDITIONAL EVIDENCES WITHOUT FOLLOWING THE PROVISIONS OF RULE 46A OF THE INCOME TAX RULES, 1962 AND THEREFORE THIS ISSUE IS REQUIRED TO BE SET - ASIDE TO THE FILE OF THE LD. CIT (A) WITH A DIRECTION TO GIVE OPPORTUNITY TO THE LD ASSESSING OFFIC ER FOR VERIFICATION OF THIS AGREEMENT. WE DO NOT FIND ANY UNREASONABLENESS IN THE REQUEST OF THE REVENUE AS WELL AS WE ALSO FIND THAT THE AGREEMENT MENTIONED BY THE LD. CIT (A) WAS NOT CONSIDERED BY THE LD . ASSESSING OFFICER . THEREFORE, IN THE INTEREST OF THE JUSTICE WE SET ASIDE WHOLE ISSUE BACK TO THE FILE OF THE LD. CIT(A) TO GRANT AN OPPORTUNITY TO THE LD. ASSESSING OFFICER FOR EXAMINATION OF THE AGREEMENT BETWEEN THE ASSESSEE AND THE US COMPANY AND THEN DECIDE THE ISSUE AFRESH ABOUT THE NATURE OF THE E XPENDITURE ON DIES AND MOULDS. IN THE RESULT GROUND NO. 2 OF THE APPEAL OF THE REVENUE IS ALLOWED WITH ABOVE DIRECTION. 7. AS GROUND NO. 2 OF THE APPEAL OF THE REVENUE IS ALLOWED, GROUND NO. 1 WHICH IS DEPENDENT ON OUTCOME OF GROUND NO 1 , WE ALSO SET ASIDE IT TO THE FILE OF THE LD. CIT (A) FOR DECIDING THE ISSUE AFRESH, HENCE THE SAME IS ALSO ALLOWED SUBJECT TO ABOVE DIRECTION. 8. IN THE RESULT APPEAL FILED BY THE REVENUE IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 2 2 / 11 /2017 . - S D / - - S D / - ( H.S.SIDHU ) (PRASHANT MAHARISHI) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 2 2 / 11 /2017 A K KEOT ITO WARD 12 (2), NEW DELHI V GRYPHONE APPLIANCES LIMITED NEW DELHI ITA NO 5992 DEL 2014 A Y 2010 - 11 PAGE | 4 COPY FORWARDED TO 1. APPLICANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR:ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI