DCIT 3(3)(1), MUMBAI V. RALLIS INDIA LTD, MUMBAI

ITA 6446/MUM/2017

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 3900 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 2 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-01-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Assessment Year: 2011-2012
• Appeal Filed On: 02-11-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Rectification of order; Revenue expenditure; Capital expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D , BENCH MUMBAI BEFORE SHRI M. BALAGANESH , AM & SHRI AMARJIT SINGH , JM ITA NO. 6446 / MUM/20 1 7 ( ASSESSMENT YEAR : 2011 - 12 ) DY. COMMISSIONER OF INCOME TAX - 3(3)(1) ROOM NO.609, 6 TH FLOOR AAYAKAR BHAVAN, M.K.ROAD, MUMBAI 400 020 VS. M/S. RALLIS INDIA LTD., 156/157, 15 TH FLOOR NARIMAN BHAVAN NARIMAN POINT MUMBAI 400 021 PAN/GIR NO. AABCR2657N ( APPELLANT ) .. ( RESPONDENT ) REVENUE BY MS. RIDDHI MISHRA ASSESSEE BY SHRI M.M. GOLVALA & SHRI HORMUZD JAMSHEDJI DATE OF HEARING 24 / 01 /201 9 DATE OF PRONOUNCEMENT 31 / 01 /201 9 / O R D E R PER M. BALAGANESH (A.M) : THIS IS AN APPEAL FILED BY REVENUE DIRECTED AGAINST THE ORDER OF CIT(A) - 8, MUMBAI DATED 21 ST AUGUST 2017 FOR A.Y.2011 - 12 IN THE M ATTER OF ORDER PASSED U/S.143(3) OF THE INCOME TAX ACT, 1961. 2. THE ONLY ISSUE TO BE DECIDED IN THIS APPEAL IS AS TO WHETHER THE LD CITA WAS JUSTIFIED IN TREATING THE LEGAL AND PROFESSIONAL FEES AMOUNTING TO RS 2,71,54,486/ - PAID TO ACCENTURE ON ACCOUNT OF IMPLEMENTING PROJECT EAGLE AS REVENUE IN NATURE IN THE FACTS AND CIRCUMSTANCES OF THE CASE. 3. THE BRIEF FACTS OF THIS ISSUE ARE THAT THE ASSESSEE PAID A SUM OF RS 2,71,54,486/ - TO ACCENTURE TOWARDS LEGAL AND PROFESSIONAL CHARGES ON ITA NO. 6446/MUM/2017 M/S. RALLIS INDIA LTD., 2 ACCOUNT OF IMPLE MENTING PROJECT EAGLE AND CLAIMED THE SAME AS REVENUE IN NATURE. THE ASSESSEE STATED THAT PURSUANT TO THE SUBJECT MENTIONED PAYMENT BEING MADE TO ACCENTURE , IT HAD HELPED THE ASSESSEE TO DERIVE SUSTAINABLE SALES GROWTH AND BUILDING LONG TERM CAPABILITI ES, IMPROVEMENT OF MARKET RESEARCH AND PENETRATION AND INCREASING COUNTER SHARE WITH DISTRIBUTORS AND RETAILERS. THE LD AO HOWEVER TREATED THE SAME AS CAPITAL IN NATURE ON THE GROUND THAT THE ASSESSEE BY INCURRENCE OF THE SAID EXPENDITURE HAD DERIVED EN DURING BENEFIT IN THE CAPITAL FIELD. ACCORDINGLY, THE LD AO DISALLOWED THE CLAIM OF REVENUE EXPENDITURE IN THE SUM OF RS 2,71,54,486/ - IN ASST YEAR 2011 - 12. THE LD AO ALSO OBSERVED THAT SIMILAR DISALLOWANCE WAS MADE IN ASSESSEES OWN CASE FOR ASST YEAR 2010 - 11. 4. THE LD CITA GRANTED RELIEF TO THE ASSESSEE BY HOLDING THE SAID EXPENDITURE TO BE REVENUE IN NATURE BY OBSERVING AS UNDER: - THE ISSUE RELATES TO THE ACTION OF THE ASSESSING OFFICER IN DISALLOWING THE SAID PROFESSIONAL FEES PAID TO ACCENTURE ON THE GROUND THAT IT CONSTITUTES CAPITAL EXPENDITURE IS ERRONEOUS. THE APPELLANT SUBMITS THE AMOUNT HAS BEEN PAID TO ACCENTURE TO HELP THE ASSESSEE DRIVE SUSTAINABLE SALES GROWTH. 5.1.4 A CAREFUL PERUSAL OF THE OUTCOME PARAMETERS OF THE PROJECT 'EAGLE' C LEARLY AS FOLLOWS: BUILDING LONG - TERM CAPABILITIES FOR SUSTAINED GROWTH. IMPROVEMENT OF MARKET REACH & PENETRATION. INCREASING COUNTER SHARE WITH DISTRIBUTORS & RETAILERS. 5.2.5 AS IS EVIDENT FROM THE ABOVE PARAMETERS, 'EAGLE' PROJECT IS NOTHING BU T A BUSINESS STRATEGY FOR EXPANSION OF BUSINESS BY IMPROVING DEFIVERABLES. IN CONTEMPORARY BUSINESSES INVOLVING DIVERSE PRODUCT AND GEOGRAPHIC MARKETS AND INVOLVING TECHNOLOGY, IT IS IMPORTANT TO 'MEET THE COMPETITION' THROUGH A WELL - STRUCTURED STRATEGY LI KE 'EAGLE'. SUCH INITIATIVES ARE AKIN TO CAPACITY DEVELOPMENT OR INITIATIVES LIKE HUMAN RESOURCE DEVELOPMENT OR ORGANISATIONAL DEVELOPMENT, WHICH ARE ALL AREAS OF THE SCIENCE OF BUSINESS MANAGEMENT. THESE INITIATIVES MAY, IN THE LONG RUN, HELP THE BUSINESS TO GROW BUT IN NO WAY CAN THEY BE CONSTRUED AS CREATING A 'LASTING BENEFIT' SUCH AS ACQUIRING AN INTELLECTUAL PROPERTY RIGHT. JUST AS A COST - CUTTING MEASURE MAY BENEFIT OVER A LONG PERIOD AND ITA NO. 6446/MUM/2017 M/S. RALLIS INDIA LTD., 3 JUST AS IN - HOUSE OR OUTSOURCED TRAINING PROGRAM FOR EMPLOYEES H ELP OPTIMISE EFFICIENCIES, BUT NEITHER CAN BE CONSIDERED A BENEFIT OR ASSET OF AN ENDURING NATURE. TO DO SO WOULD RENDER ALL MODERN BUSINESS INCENTIVES SUCH AS HRD, SKILL - UPGRADATION, ADOPTION OF INTERNATIONAL BEST PRACTICES, STRATEGISING CONSUMER - OUTREACH AS DISALLOWABLE EXPENDITURE. MODERN BUSINESSES ENGAGE SECTOR EXPERTS TO IMPROVE AND SUSTAIN ALL ASPECTS OF EFFICIENCIES AND MINIMISE AND AVOID INEFFICIENCIES. EXPENDITURE ON SUCH INITIATIVES IS PART OF THE VERY PROCESS OF DOING BUSINESS DAY - TO - DAY AND CAN NEVER HAVE ANY LASTING IMPACT FOR THE SIMPLE REASON THAT THESE INITIATIVES HAVE TO BE REPEATED CONTINUOUSLY TO KEEP THE BUSINESS RUNNING EFFICIENTLY. THE MOMENT THEY ARE STOPPED, THE BENEFITS START EVAPORATING. FOR EXAMPLE, IF A STRATEGY INVOLVES DOING SA MPLE DOOR - TO - DOOR CUSTOMER SURVEY, THE BENEFITS WOULD STOP AS SOON AS THE SURVEYS STOP. SOMETIMES, EVEN AN ONGOING STRATEGY MAY BE MODIFIED E.G. BY MAKING TELEPHONIC CONTACT. THEREFORE, APPLYING THE RATIO OF DECISIONS RELIED UPON BY MY PREDECESSOR AND BY T HE APPELLANT AND LOOKING AT THE NATURE OF 'EAGLE' PROJECT, I AM OF THE CONSIDERED OPINION THAT THE EXPENDITURE IS REVENUE IN NATURE AND RELATES TO ROUTINE DAY - TO - DAY RUNNING OF BUSINESS. 5.1.6 THE SAME ISSUE ALSO CAME UP IN APPEAL FOR A.Y.2012 - 13 BEFORE ME AND I HAVE DECIDED THE ISSUE IN THE FAVOUR OF THE APPELLANT. SINCE THE FACTS AND CIRCUMSTANCES RELATING TO THE ISSUE ARE SIMILAR IN THE INSTANT YEAR, I FIND NO REASON TO DIFFER FROM THE DECISION OF MY PREDECESSOR OR MY EARLIER ORDER. THE ASSESSING OFFICER IS DIRECTED TO TREAT THE EXPENDITURE AS REVENUE IN NATURE AND ALLOW THE SAME. THIS GROUND IS ALLOWED. ALLOWED 6. IN THE RESULT, THE APPEAL IS ALLOWED. 5. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE US. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS. THE LD D R VEHEMENTLY RELIED ON THE ORDER OF THE LD AO. WE FIND THAT THE ISSUE UNDER DISPUTE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE CO - ORDINATE BENCH DECISION OF THIS TRIBUNAL IN ASSESSEES OWN CASE FOR ASST YEAR 2010 - 11 IN ITA NO. 4316/MUM/2014 DATE D 8.11.2017 FOLLOWED BY MISCELLANEOUS APPLICATION ORDER IN MA NO. 170/M/2018 DATED 23.8.2018. WE FIND THAT THIS TRIBUNAL HAD MODIFIED ITS ORIGINAL ORDER PASSED IN ITA NO. 4316/MUM/2014 DATED 8.11.2017 IN THE RECTIFICATION ORDER PASSED IN MA NO. 170/M/201 8 DATED 23.8.2018, WHEREIN, THE GROUND RAISED ON THE ALLOWABILITY OF ISSUE OF PROFESSIONAL FEES PAID TO ACCENTURE IN CONNECTION WITH PROJECT EAGLE WAS ITA NO. 6446/MUM/2017 M/S. RALLIS INDIA LTD., 4 NOT ADJUDICATED BY THE TRIBUNAL IN THE ORIGINAL APPELLATE PROCEEDINGS AND THAT THE SAME WERE ADJUDICATE D ONLY IN THE MA PROCEEDINGS. WE FIND THAT THIS TRIBUNAL IN MA PROCEEDINGS ON THE IMPUGNED ISSUE FOR THE ASST YEAR 2010 - 11 HAD HELD AS UNDER: - 5. THE GROUND NO.4 IS REPRODUCED BELOW: 4. WHETHER ON THE FACTS & CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CITA) HAS ERRED IN DIRECTING THE ASSESSING OFFICER TO TREAT THE EXPENDITURE ON ACCOUNT OF IMPLEMENTING 'PROJECT EAGLE' AS REVENUE EXPENDITURE WITHOUT APPRECIATING THE FACT THAT IMPLEMENTATION OF THE SAID PROJECT HAS ENDURING BENEFIT TO THE ASSESSEE AND DESERVES TO BE TREATED AS CAPITAL EXPENDITURE. 6. THE FACTS IN BRIEF ARE THAT THE ASSESSEE INCURRED RS.3,90,00,000/ - UNDER THE HEAD LEGAL AND PROFESSIONAL FEES FOR A NEW INITIATIVE PROJECT CALLED EAGLE (EXPANSION AND AGGRESSIVE GROWTH THROUGH LEADER SHIP & EXCELLENCE) THIS PAYMENT WAS MADE TO ACCENTURE CONSULTING AND ACCOUNTED UNDER THE HEAD PROFESSIONAL FEES. THE PROJECT EAGLE WAS LAUNCHED ON 23.07.2008 AT MUMBAI AND IS MEANT FOR A NATIONWIDE TRANSFORMATIONAL GROWTH PROGRAMME UNDER DISHA UMBRELLA AND HAS BEEN INITIATED WITH THE HELP OF ACCENTURE CONSULTING WHO ARE GLOBAL EXPERT IN THIS AREA. THE PRIMARY OBJECTIVE OF THE SAID PROJECT WAS TO RE - GAIN THE LEADERSHIP POSITION IN THE FORMULATION BUSINESS AND WAS OF REVENUE IN NATURE AS THE PRIMARY OBJECTIVE IS TO FOCUS ON IMPROVING THE PERFORMANCE OF THE COMPANY IN INDIA. THE AO, HOWEVER, CAME TO THE CONCLUSION THAT PURPOSE OF THE SAID EXPENDITURE WAS INCURRED WITH THE OBJECT OF ACHIEVING SUSTAINABLE GROWTH BY THE COMPANY AND THEREFORE BENEFITS WOULD BE ACHI EVED OVER A PERIOD OF TIME AND ARE OF ENDURING NATURE AND ACCORDINGLY ADDED THE SAME TO THE INCOME OF THE ASSESSEE BY TREATING THE SAME AS CAPITAL EXPENDITURE. 7. THE LD. CIT(A) ALLOWED THE APPEAL OF THE ASSESSEE BY OBSERVING AND HOLDING AS UNDER: I FIN D THAT THE APPELLANT DURING THE YEAR UNDER CONSIDERATION HAS INCURRED LEGAL AND PROFESSIONAL FEES IN RESPECT OF A NEW INITIATIVE PROJECT CALLED ' E AG L E ' ( EXPANSION AND AGGRESSIVE GROWTH THROUGH LEADERSHIP AND EXCELLENCE). IN ALEMBIC CHEMICAL WORKS VS. CIT 177 ITR 377 (SC), THE HON'BLE SUPREME COURT HELD: 'THE IMPROVISATION IN THE PROCESS AND TECHNOLOGY IN SOME AREAS OF THE ENTERPRISE WAS SUPPLEMENTAL TO THE EXISTING BUSINESS AND THERE WAS NO MATERIAL TO HOLD THAT IT AMOUNTED TO A NEW OR FRESH VENTURE. T HE FURTHER CIRCUMSTANCE THAT THE AGREEMENT PERTAINED TO A PRODUCT ALREADY IN THE LINE OF THE ASSESSEE'S ESTABLISHED ITA NO. 6446/MUM/2017 M/S. RALLIS INDIA LTD., 5 BUSINESS AND NOT TO A NEW PRODUCT INDICATES THAT WHAT WAS STIPULATED WAS AN IMPROVEMENT IN THE OPERATIONS OF THE EXISTING BUSINESS AND ITS E FFICIENCY AND, PROFITABILITY NOT REMOVED FROM THE AREA OF THE DAY - TO - DAY BUSINESS OF THE ASSESSEE'S ESTABLISHED ENTERPRISE.' IN VIEW OF THE ABOVE DECISION AND THE RATIO LAID DOWN IN THE CASE OF INDO RAINA SYNTHETICS INDIA LTD, VS. CIT (333 ITR 18) (DELHI); CIT V. PRCZGA TOOLS LTD. (157 ITR 282) (AP); CIT VS. CROMPTON ENGINEERING CO. LTD. (242 ITR 317) (MAD); CIT V. JCT ELECTRONICS LTD. (P&H) (ITA 676 OF 2009); CIT V. ABBOTT LABORATORIES (I) P. LTD. (202 ITR 819) (BORN); EL FORGE LTD. V. DCIT (2013) 216 TAXM AN 114 (MAD); CIT V. CARBORANDUM UNIVERSAL LTD. (2008) 219 CTR 202 (MAD)., THE AO IS DIRECTED TO TREAT THE EXPENDITURE LEGAL AND PROFESSIONAL FEES AMOUNTING TO RS.3,90,00,000/ - AS REVENUE EXPENDITURE. 8. AFTER HEARING BOTH THE PARTIES AND PERUSING THE MA TERIAL ON RECORD, WE OBSERVE THAT THE OBJECT OF THE PROJECT EAGLE WAS IDENTICAL TO ONE PROJECT DISHA AND THE EXPENDITURES WERE INCURRED BY WAY OF LEGAL AND PROFESSIONAL FEE PAID TO ACCENTURE AND CONSULTANCY A LEADING FIRM IN THAT FIELD. THE PURPOSE OF THE PROJECT WAS TO ACHIEVE EXCELLENCE IN THE PROMOTION OF THE COMPANY ON A TRANSFORMABLE BASIS SO THAT THE COMPANY BECOMES LEADER IN THE FORMULATION BUSINESS. THE LD. CIT(A) HAS PASSED A VERY REASONED ORDER TREATING THE SAME AS REVENUE IN NATURE AND WE THE REFORE DO NOT FIND ANY REASON TO DEVIATE FROM THE FINDINGS OF LD. CIT(A).MOREOVER GROUND IS IDENTICAL TO GROUND NO 3 AS DECIDED BY US TREATING THE EXPENSES AS REVENUE. ACCORDINGLY, WE UPHOLD THE ORDER OF LD. CIT(A) ON THIS ISSUE BY DISMISSING THE GROUND NO .4 OF THE REVENUE. 9. THE ORDER DATED 08.11.2017 STANDS AMENDED AND MODIFIED TO THIS EXTENT AND MISCELLANEOUS APPLICATION OF THE ASSESSEE IS ALLOWED. RESPECTFULLY FOLLOWING THE AFORESAID DECISION, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD CIT A GRANTING RELIEF TO THE ASSESSEE. ACCORDINGLY, THE GROUND RAISED BY THE REVENUE IS DISMISSED. 7. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMISSED . ORDER PRONOUNCED IN THE OPEN COURT ON THIS 31 / 01 /201 9 SD/ - ( AMARJIT SINGH ) SD/ - ( M. BALAGANESH ) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED 31 / 01 /201 9 ITA NO. 6446/MUM/2017 M/S. RALLIS INDIA LTD., 6 KARUNA SR. PS COPY OF THE ORDER FORWARDED TO : BY ORDER, ( ASSTT. REGISTRAR) ITAT, MUMBAI 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY//