ITO 6(2)(2), MUMBAI V. DIL LTD, MUMBAI

ITA 617/MUM/2013

• Counselvise Citation: [2015] 134 COUNSELVISE.COM (IT) 3183 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 8 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-09-2015
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 25-02-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 23-01-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: P P BHANDARI
• Assessee Lawyers: CHANDRA VIJAY
• Keywords: Revenue expenditure; Capital expenditure
• Section: 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI D BENCH, MUMBAI BEFORE SHRI SHAILENDRA KUMAR YADAV, JUDICIAL MEMBER, AND SHRI ASHWANI TANEJA, ACCOUNTANT MEMBER. ITA. NO. 617/MUM/2013 (ASSESSMENT YEAR:2009-10) ITO 6(2)(2), MUMBAI APPELLANT VS. M/S. DIL LTD., DIL COMPLEX, GHODBUNDER ROAD, MAJIWADA THANE (WEST), MUMBAI 400 610 RESPONDENT PAN: AAACC2936J /BY APPELLANT : SHRI CHANDRA VIJAY, D.R. /BY RESPONDENT :SHRI P. P. BHANDARI, A.R. /DATE OF HEARING : 23.09.2015 /DATE OF PRONOUNCEMENT : 28.09.2015 ORDER PER SHAILENDRA KUMAR YADAV, J.M: THIS APPEAL HAS BEEN FILED BY REVENUE AGAINST THE O RDER OF COMMISSIONER OF INCOME-TAX (APPEALS)-12, MUMBAI, DA TED 12.10.2012 FOR A.Y. 2009-10 ON FOLLOWING GROUNDS: ITA NO.617/MUM/13 A.Y. 09-10 [ITO VS. DIL LTD.] PAGE 2 1. ON FACTS AND CIRCUMSTANCES OF CASE AND IN LAW, THE LD.CIT(A) ERRED IN TREATING CAPITAL EXPENDITURE INC URRED IN CONNECTION WITH CARRYING OUT ACQUISITION OF A NE W COMPANY AS REVENUE EXPENDITURE. 2. ON FACTS AND CIRCUMSTANCES OF CASE AND IN LAW, T HE LD.CIT(A) ERRED IN ALLOWING EXPENDITURE OF RS.98,68,564/- INCURRED UNDER THE HEAD LEGAL & PROFESSIONAL FEE AND RS.8,21,404/- INCURRED UNDER T HE HEAD TRAVELLING AS REVENUE EXPENDITURE, WITHOUT APPRECIATING THAT IT WAS ACTUALLY CAPITAL EXPENDITU RE WHICH WAS INCURRED IN CONNECTION WITH CARRYING OUT DUE DILIGENCE FOR ACQUIRING/TAKING OVER A FOREIGN COMPANY, ENGAGED IN SIMILAR BUSINESS AS THAT OF ASSESSEE. 3. THE APPELLANT PRAYS THAT THE ORDER OF LD. CIT(A) ON THE ABOVE GROUNDS BE SET ASIDE AND THAT OF THE ASSESSIN G OFFICER BE RESTORED. 2. FIRST ISSUE IS WITH REGARDS TO ACTION OF ASSESSI NG OFFICER IN DISALLOWING RS.98,68,564/- BEING EXPENDITURE INCURR ED IN CONDUCTING DUE DILIGENCE STUDY TREATING THE SAME AS CAPITAL EXPENDITURE. SIMILAR ISSUE AROSE IN A.Y. 2005-06. IN SAID YEAR LIKE IN THE CURRENT YEAR, ASSESSING OFFICER HAD TRE ATED DUE DILIGENCE STUDY EXPENSES AS CAPITAL EXPENDITURE. A GGRIEVED BY THE ACTION OF ASSESSING OFFICER, ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A) WHO HAS DECIDED THE ISSUE IN FAVO UR OF ASSESSEE BY OBSERVING AS UNDER: '4.3 I HAVE DULY CONSIDERED THE SUBMISSION OF THE A .R. OF THE APPELLANT AND I FIND THAT AO IS NOT JUSTIFIED IN TR EATING EXPENDITURE ON DUE DILIGENCE STUDY AS CAPITAL EXPEN DITURE. THE ASSESSEE HAS INCURRED EXPENDITURE TO INCREASE T HE PROFITABILITY AND EFFICIENCY OF ITS ESISTING BULK D RUG BUSINESS. HENCE THE EXPENDITURES ARE TO BE REGARDED AS REVENU E IN ITA NO.617/MUM/13 A.Y. 09-10 [ITO VS. DIL LTD.] PAGE 3 NATURE AS HELD IN THE CASE OF CIT VS. COROMANDAL FE RTILIZERS 220 ITR 298 (AP). THESE EXPENDITURES ARE NOT PRIOR PERIOD EXPENDITURE OR EXPENDITURE BEFORE THE COMMENCEMENT OF BUSINESS. HENCE THE CASE LAW CITED BY THE AO ARE NO T APPLICABLE TO THE FACTS OF THIS CASE. HENCE THE AO IS DIRECTED TO ALLOW THE CLAIM OF THE APPELLANT. THIS GROUND OF APPEAL IS ALLOWED. ' 2.1 AGAINST THE ORDER OF CIT(A) AS DISCUSSED ABOVE, THE DEPARTMENT HAD PREFERRED AN APPEAL BEFORE THE ITAT, MUMBAI. THE ITAT VIDE ITS ORDER DATED 11.08.2009 HAS STATED AS UNDER: '11. WE HAVE HEARD BOTH THE PARTIES. WE FIND THAT THE EXPENDITURE IS NOT PRIOR PERIOD EXPENDITURE BEFORE THE COMMENCEMENT OF BUSINESS. THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF MARKETING OF BULK DRUGS CHEMICALS AND INTERMEDIATES. THEREFORE, THE EXPENSE S ARE FOR ASCERTAINING/ STUDYING THE VIABILITY OF THE INVESTM ENT IN URL LTD. TO INCREASE THE PROFITABILITY AND EFFICIENCY O F THE BUSINESS OF MARKETING OF BULK DRUGS AND CHEMICALS AND IN THE NORMAL COURSE OF THE BUSINESS THOUGH IT PROVED TO BE ABORT IVE. IN OUR OPINION THE SUM OF RS.18,95,294/- IS EXPENDITURE IN CURRED WHOLLY AND EXCLUSIVELY INCURRED FOR THE PURPOSE OF BUSINESS AND ALLOWABLE U/S.37 OF THE I.T. ACT, 1961. 3. IN THIS BACKGROUND, CIT(A) OBSERVED THAT THE FAC TS OF THE CASE IN THE YEAR UNDER CONSIDERATION WAS SIMILAR OF THAT ABOVE YEAR I.E. A.Y. 2005-06. FACTS BEING SIMILAR, SO FO LLOWING SAME REASONING OF ITAT'S ORDER FOR AY 2005-06 IN ASSESSE ES OWN CASE CIT(A) WAS JUSTIFIED IN HOLDING THAT CONCERNED EXPENDITURE IS WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINE SS AND LIABLE FOR DEDUCTION U/S 37(1) OF THE ACT. ACCORDINGLY, TH IS REASONED FINDING OF CIT(A) NEEDS NO INTERFERENCE FROM OUR SI DE. WE UPHOLD THE SAME. ITA NO.617/MUM/13 A.Y. 09-10 [ITO VS. DIL LTD.] PAGE 4 4. NEXT ISSUE IN REVENUES APPEAL IS WITH REGARDS T O DISALLOWANCE OF RS.8,21,404/- INCURRED ON TRAVELLIN G. ASSESSEE CLAIMED THAT EXPENDITURE HAS BEEN INCURRED WHOLLY A ND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS DURING COU RSE OF DUE DILIGENCE STUDY. ASSESSING OFFICER HAS HELD THAT T RAVELLING EXPENSES OF RS.8,21,404/- DEBITED BY THE ASSESSEE O N ACCOUNT OF TRAVELLING EXPENSES INCURRED BY THE CONSULTANT I N CONNECTION WITH THE DUE DILIGENCE OPERATION NEED TO BE DISALLO WED AS HE HAS DISALLOWED MAIN EXPENDITURE SAID TO HAVE BEEN I NCURRED UNDER THE HEAD 'LEGAL & PROFESSIONAL EXPENSES' HOLD ING THAT THEY WERE NOT ALLOWABLE EXPENDITURE UNDER SECTION 3 7(1) OF THE ACT. AS DISCUSSED ABOVE, EXPENDITURE INCURRED AS DU E DILIGENCE EXPENDITURE BY ASSESSEE HAS BEEN HELD ALLOWABLE U/S . 37(1) OF THE INCOME TAX ACT, THEREFORE ANY EXPENDITURE INCUR RED IN RELATION TO SAME WOULD BE ALLOWABLE AS DEDUCTION U/ S.37(1) OF THE ACT. ASSESSING OFFICER HAS NOT DOUBTED THE EXP ENDITURE OR HELD IT TO BE NOT INCURRED. THE DISALLOWANCE HAS M AINLY BEEN MADE IN CONNECTION WITH DUE DILIGENCE OPERATIONS OF ASSESSEE AND ASSESSING OFFICER HAS HELD THAT ANY EXPENSE ON SUCH AN OPERATION IS NOT ALLOWABLE AS REVENUE EXPENDITURE. AS THE MAIN EXPENDITURE STANDS ALLOWED BY US IN PARA 2 & 3 U/S.37(1) OF THE ACT RELYING ON THE ORDER OF ITAT FOR A.Y. 20 05-06 AS DISCUSSED ABOVE, THE ADDITION ON ACCOUNT OF DISALLO WANCE OF TRAVELLING EXPENSES RELATED TO DUE DILIGENCE EXPENS ES MADE BY ASSESSING OFFICER WAS RIGHTLY DELETED BY CIT(A) AND THIS REASONED FINDING OF CIT(A) NEEDS NO INTERFERENCE FR OM OUR SIDE. ITA NO.617/MUM/13 A.Y. 09-10 [ITO VS. DIL LTD.] PAGE 5 WE UPHOLD THE SAME. 5. AS A RESULT, APPEAL FILED BY REVENUE IS DISMISSE D. PRONOUNCED IN THE OPEN COURT ON THIS THE 28 TH DAY OF SEPTEMBER, 2015. SD/- SD/- ( ASHWANI TANEJA ) (SHAILENDRA KUMAR YADAV) ACCOUNTANT MEMBER JUDICIAL MEMBE R MUMBAI: DATED 28/09/2015 TRUE COPY S.K.SINHA / COPY OF ORDER FORWARDED TO:- / REVENUE !# / ASSESSEE $ %&%'( ) / CONCERNED CIT * )+ / CIT (A) ,-./00'(1 '( 1 2 %& / DR, ITAT, MUMBAI 3/4567 / GUARD FILE. BY ORDER / #8 1 9: ;% 1 '( 12 %&<