MAHARASHTRA STATE TEXTILE CORPORATION LTD, MUMBAI V. ADDL CIT 1(2), MUMBAI

ITA 6712/MUM/2013

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 0303 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 8 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-08-2017
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 14-10-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 19-11-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: SUMAN KUMAR LD
• Keywords: Business expenditure; Revenue expenditure; Capital expenditure
• Section: 143(3)

Judgement Text

ITA NO. 6712/M/2013 MAHARASHTRA STATE TEXTILE CORPORATION LIMITED ASSESSMENT YEAR-2009-10 IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, MUMBAI , , BEFORE SHRI JOGINDER SINGH, JM AND SHRI MANOJ KUMAR AGGARWAL, AM ./I.T.A. NO.6712/MUM/2013 ( / ASSESSMENT YEAR: 2009-10) MAHARASHTRA STATE TEXTILE CORPORATION LIMITED LOTUS HOUSE, 33A SIR VITHALDAS THACKERSEY MARG NEW MARINE LINES MUMBAI - 400 020 / VS. ADDITIONAL COMMISSIONER OF INCOME TAX 1(2) AAYKAR BHAVAN M.K.ROAD MUMBAI -400 020 ! ./ ./PAN/GIR NO. AAACM-4994-L ( !# /APPELLANT ) : ( $%!# / RESPONDENT ) A SSESSEE BY : NONE RE VENUE BY : SUMAN KUMAR, LD. DR / DATE OF HEARING : 03/08/2017 / DATE OF PRONOUNCEMENT : 04/08/2017 ITA NO. 6712/M/2013 MAHARASHTRA STATE TEXTILE CORPORATION LIMITED ASSESSMENT YEAR-2009-10 2 / O R D E R PER MANOJ KUMAR AGGARWAL (ACCOUNTANT MEMBER) 1. THE CAPTIONED APPEAL BY ASSESSEE FOR ASSESSMENT YEAR [AY] 2009-10 ASSAILS THE ORDER OF LD. COMMISSIONER OF IN COME TAX (APPEALS)-20 [CIT(A)], MUMBAI DATED 21/08/2013 QUA CONFIRMATION OF CERTAIN DISALLOWANCE OF RS.42.29 LACS. NONE HAS APP EARED ON BEHALF OF ASSESSEE DESPITE BEING PROVIDED WITH SUFFICIENT OPP ORTUNITIES OF BEING HEARD ON VARIOUS DATES AS PER ORDER SHEET ENTRY. NO VALID ADJOURNMENT APPLICATION IS ON RECORD. THEREFORE, LEFT WITH NO O THER OPTION, WE PROCEED TO DISPOSE-OFF THE SAME AFTER HEARING LD. DEPARTMEN TAL REPRESENTATIVE AND AFTER PERUSING MATERIAL AVAILABLE ON RECORD. 2.1 BRIEFLY STATED, THE ASSESSEE BEING RESIDENT CORPORATE ASSESSEE WAS ASSESSED FOR IMPUGNED AY U/S 143(3) ON 31/10/20 11 WHERE THE LOSS WAS DETERMINED AT RS.32.47 CRORES AFTER SOLE DISALL OWANCE OF RS.42.29 LACS AS AGAINST RETURNED LOSS OF RS.32.90 CRORES E-FILED BY THE ASSESSEE ON 30/09/2009. 2.2 IT WAS NOTED THAT THE ASSESSEE CLAIMED EXPENDIT URE OF RS.42.29 LACS IN CONNECTION WITH ESTABLISHMENT OF A GARMENT PARK AS MANDATED BY THE GOVT. OF MAHARASHTRA. THE ASSESSEE EXPLAINED THAT TO ESTABLISH THE GARMENT PARK, CONSULTANT WAS APPOINTED AND THE EXPENDITURE WAS MAINLY RELATED WITH ADVERTISEMENT FOR APPOINTMENT O F CONSULTANT AND FEES PAID TO CONSULTANTS. THE ESTABLISHMENT OF PARK WAS WITH A VIEW TO CONSTRUCT UNITS THROUGH DEVELOPER WHO WILL SELL THE UNITS TO GARMENT MANUFACTURERS ON LONG TERM LEASE BASIS AND THE ASSE SSEE, IN TURN, SHALL ITA NO. 6712/M/2013 MAHARASHTRA STATE TEXTILE CORPORATION LIMITED ASSESSMENT YEAR-2009-10 3 BE COMPENSATED FOR THE SAME. HOWEVER, LD. AO NOTED THAT THE ASSESSEE WAS ENGAGED IN DISPOSAL OF ASSETS OF OLD / SICK TEXTILE UNITS UNDER MAHARASHTRA GOVT. AND GARMENT PROJECT WAS ONE OF THE SCHEME WHERE THE ASSESSEE INTENDED TO EXPLOIT THE AVAILABL E LAND TO EARN CONSIDERATION IN THE NATURE OF CAPITAL GAINS. FURTH ER, THESE EXPENSES WERE NOTHING BUT IMPROVEMENT IN VALUE OF LAND ASSET S AND THEREFORE, CAPITAL IN NATURE AND HENCE NOT ALLOWABLE TO THE AS SESSEE. FINALLY, THE RETURNED LOSS WAS REDUCED TO THAT EXTENT. 3. AGGRIEVED, THE ASSESSEE CONTESTED THE SAME WITHO UT ANY SUCCESS BEFORE LD. CIT(A) VIDE IMPUGNED ORDER DATED 21/08/2 013 AND RAISED VARIOUS CONTENTIONS IN HIS SUPPORT. HOWEVER, THE LD . CIT(A) AFTER DUE CONSIDERATION CONCLUDED THE MATTER IN THE FOLLOWING MANNER:- 3.3 I HAVE CIRCUMSPECTED THE ENTIRE FACTS AND CIRCU MSTANCES OF THE CASE AND HAVE CAREFULLY CONSIDERED THE VARIOUS CASE LAWS RELIED U PON BY THE LD. A.R. AND HIS SUBMISSION AND ALSO FINDING OF THE ASSESSING OFFICE R. I FIND THAT THIS EXPENDITURE IS NOT AT ALL REVENUE IN NATURE BUT A CAPITAL EXPENDIT URE INCURRED FOR START OF NEW BUSINESS. HERE IT IS PERTINENT TO BRIEFLY STATE THE FACTS AND BACKGROUND OF THE NEW PROJECT SO THAT ONE CAN EASILY APPRECIATE THE ORIEN TATION AND NATURE OF EXPENDITURE. 3.4 MSTC, ESTABLISHED IN THE YEAR 1966, IS A PUBL IC SECTOR UNDERTAKING OF GOVERNMENT OF MAHARASHTRA, WHICH WAS RUNNING 9 (NIN E) TEXTILE MILLS WITHIN THE STATE OF MAHARASHTRA AT VARIOUS LOCATIONS INCLUDING THE O NE AT PROJECT SITE. THE LAND AT THE PROJECT SITE, OCCUPIED BY MSTC, IS ADMEASURING AROU ND 27.66 ACRES OR THEREABOUTS ('LAND') WITH CLASS II OCCUPANCY RIGHTS FROM THE ST ATE GOVERNMENT, REVENUE AND FOREST DEPARTMENT. THIS LAND INITIALLY HAS BEEN TRA NSFERRED TO MSTC UNDER GOVERNMENT RESOLUTION NO. TEX/L 075/ 24332/8-C DATE D 30TH JANUARY, 1976 ISSUED BY THE AGRICULTURE & CO-OPERATION DEPARTMENT W.E.F. 1ST APRIL, 1976. 3.5 PURSUANT TO THE DECISION TAKEN BY THE STATE GOVERNMENT, VIDE ITS LETTER, NO.MVM/3199/CR-78/TEX-4 DATED FEBRUARY1,2001, ALL T HE 9 (NINE) TEXTILE MILLS UNDER THE CONTROL OF MSTC, INCLUDING AT THE PROJECT SITE, HAVE BEEN CLOSED BY OBSERVING DUE PROCEDURE OF LAW. THE GOVERNMENT OF M AHARASHTRA HAS, IN THE YEAR 2005, DECIDED TO DEVELOP AN INTEGRATED TEXTILE COMP LEX (GARMENT PARK), ON THE LAND HELD/OCCUPIED BY MSTC AT VARIOUS LOCATIONS VIZ. NAG PUR, BADNERA, KOLHAPUR AND SOLAPUR, WHICH INCLUDES THE PROJECT SITE; IN THIS R EGARD STATE GOVERNMENT VIDE ITS LETTER NO MM 2006/CR 85/TEX 4 DATED APRIL. 17, 2007 HAS DIRECTED MSTC TO PREPARE PRELIMINARY FEASIBILITY REPORT FOR SETTING UP THE INTEGRATED TEXTILE PARKS AT VARIOUS LOCATION VIZ. NAGPUR, KOLHAPUR, SOLAPUR AND BADNERA. TO PREPARE THE PROJECT ITA NO. 6712/M/2013 MAHARASHTRA STATE TEXTILE CORPORATION LIMITED ASSESSMENT YEAR-2009-10 4 REPORTS FOR THEE INTEGRATED TEXTILE COMPLEX AT SOLA PUR, MSTC IN TURN HAD APPOINTED GHERZI EASTERN LIMITED ('GEL') AS A CONSULTANTS TO PREPARE THE PROJECT REPORT. THE PROJECT REPORT PREPARED BY GEL WAS PLACED - BEFORE THE COMMITTEE APPOINTED BY GOVERNMENT OF MAHARASHTRA AT THE MEETING HELD ON NO VEMBER 21, 2008. THE COMMITTEE HAS APPROVED THE PROJECT REPORT AND AUTHO RIZED MSTC VIDE LETTER NO.MVM2006/CR 85/TEX 4 DATED DECEMBER 29, 2008 TO I NVITE THE BIDS FOR DEVELOPING THE PROJECT IN ACCORDANCE WITH THE PROJE CT REPORT. THUS VERY OBVIOUS THAT ALL THE NINE UNITS OF THE APPELLANT CORPORATION WER E CLOSED BEFORE FEBRUARY 1, 2001 AND BUSINESS WAS DISCONTINUED. ONLY IN THE YEAR 200 5, GOVT. OF MAHARASHTRA HAS DECIDED TO GET DEVELOP AN INTEGRATED TEXTILE COMPLE TED (GARMENT PARK) ON THE LAND / SITES HELD BY THE APPELLANT AT VARIOUS LOCATIONS. T HUS, THE EXPENDITURE SHOWN BY THE APPELLANT FOR PREPARATION OF PROJECT REPORT OR EXPE NDITURE INCURRED FOR ADVERTISEMENT OF START OF GARMENT PARK OR OTHER RELATED EXPENDITU RE ARE OBVIOUSLY IN RESPECT OF SETTING OF NEW BUSINESS BEING INTEGRATED TEXTILE PA RKS, HENCE SUCH EXPENDITURES ARE EVEN MUCH BEFORE THE COMMENCEMENT OF BUSINESS. THER EFORE SUCH EXPENDITURE IS NOT ALLOWABLE FROM THREE ANGLES. FIRSTLY, SUCH EXPE NDITURE IS INCURRED IN RESPECT OF NEW PROJECTS WHICH CANNOT HE CLAIMED AS BUSINESS EX PENDITURE UNLESS NEW PROJECT IS CO-RELATED WITH THE CONTINUATION OF EARLIER BUSI NESS. HERE IT IS VERY EVIDENT THAT EARLIER BUSINESS WAS ALTOGETHER DIFFERENT THOUGH RE LATED TO TEXTILES BUT THAT WAS NOT AT ALL RELATED TO DEVELOPMENT OF GARMENT PARK) HENCE T HERE IS NO CO- RELATIONSHIP BETWEEN NEW PROJECT AND OLD AND STOPPED BUSINESS. THUS, THIS EXPENDITURE IS NOT ALLOWABLE AS BUSINESS EXPENDITURE VIDE KONORIA CHEM ICALS AND INDUSTRIES LTD. VS. CIT (1995) 78 TAXMAN 455, 462 (KOLKATA). SECONDLY, SUCH EXPENDITURE IS INCURRED BEFORE COMMENCEMENT OF ACTUAL BUSINESS AND IT IS FO R EXPLORING OF NEW BUSINESS POSSIBILITY HENCE IT CANNOT BE ALLOWED AS BUSINESS EXPENDITURE AT ALL. THE AMOUNT PAID TO CONSULTANTS FOR STARTING NEW LINES OF BUSIN ESS ACTIVITIES COULD NOT BE HELD TO BE AN ADMISSIBLE BUSINESS EXPENDITURE VIDE: VAZIR S ULTAN TOBACCO COMPANY LTD VS. CIT (1989) 175 ITR 55 (AP). FURTHER, REFERENCE MAY BE HAD IN THE CASE OF MINING MACHINERY AND EXPLOSIVE PVT. LTD. VS. CIT (1993) 20 2 ITR 710 (KOL). FURTHER, THERE ARE PLETHORA OF JUDGMENT OVER SUCH ISSUE WHICH IS N OT BEING QUOTED WITH A VIEW TO AVOID OVERBURDEN OF REASONING. THE THIRD ASPECT OF THE ISSUE IS THAT SUCH EXPENDITURE IS CAPITAL IN NATURE BECAUSE IT HAS BEE N INCURRED BEFORE THE START OF BUSINESS OR FOR START OF BUSINESS. THE EXPENDITURE INCURRED FOR ESTABLISHING INCOME EARNING FROM ASSETS OR ENTITY IS CAPITAL EXPENDITU RE VIDE DCLT VS. KHANDWALA FINANCE LTD. 2010) 122 ITAT MUMBAI. AS EVIDENT FROM THE SET OF FACTS THAT APPELLANT HAS TO START A NEW PROJECT AS A GARMENT PARK THAT W AS NOT AT ALL EARLIER BUSINESS NOR WAS ANY CONTINUATION OF THE SAME BUSINESS ACTIVITIE S, THERE IS A NEW PROJECT IN HANDS, HENCE THE EXPENDITURE INCURRED IN RESPECT OF SUCH PROJECT CANNOT BE REGARDED AS BUSINESS EXPENDITURE. 3.6 AS REGARDS, VARIOUS DECISIONS RELIED UPON BY THE LD. A.R., IT IS RELEVANT TO MENTION THAT NONE OF THE DECISION SUPPORTS THE CONT ENTION OF THE APPELLANT BECAUSE OF DISTINGUISHABLE FACTS. THIS IS NOT A CASE WHERE FEASIBILITY REPORT WAS PREPARED DURING THE COURSE OF BUSINESS ACTIVITIES HENCE DECI SION OF USHA ALLOYS STEELS LTD VS. DCIT 55 LTD 418, AND CIT VS. PRIYA VILLAGE ROAD SHO W 332 ITR 594 (DELHI) ARE NOT APPLICABLE. SIMILARLY, THE FACTS OF THE CASES OF EM PIRE JUTE CO. LTD. V. COMMISSIONER OF INCOME TAX REPORTED IN 124 ITR 1 (S C), USHA ALLOYS & STEELS LTD.V. DEPUTY COMM. OF INCOME TAX REPORTED I N 55 ITD 418, DELHI ITA NO. 6712/M/2013 MAHARASHTRA STATE TEXTILE CORPORATION LIMITED ASSESSMENT YEAR-2009-10 5 HIGH COURT CASE OF CIT VS. PRIYA VILLAGE ROADSHOW R EPORTED IN 332 ITR 594, DELHI HIGH COURT CASE OF CIT VS. HINDUSTAN TIMES (24.09.2 012), ANDHRA PRADESH HIGH COURT CASE OF CIT VS.COROMANDAL FA1IIIZERS REPORTED IN 247 ITR 417, GAUHATI HIGH COURT CASE OF CIT VS. INDIA CARBON LIMITED REPORTE D IN 221 ITR 264 ARE ALTOGETHER DIFFERENT. 3.7 THUS, IN THE LIGHT OF ABOVE NARRATION OF FACT S AND APPLICABILITY OF LAW OVER SUCH ISSUES. I REACH TO THE CONCLUSION THAT SUCH EXPENDI TURE OF RS.42,29,219/- IS A CAPITAL EXPENDITURE HENCE CANNOT BE ALLOWED AS BUSINESS OR REVENUE EXPENDITURE. AS REGARDS, CLAIM THAT IN THIS YEAR ONLY AN AMOUNT OF RS.25,07,629/- IS RELEVANT AND REST OF THE EXPENDITURE EARLIER YEAR OR OF SUBSEQUENT YE AR, IT MAY BE MENTIONED THAT BEFORE THE ASSESSING OFFICER APPELLANT HAS MENTIONE D VIDE LETTER DATED 10.10.2011 AS 'DURING THE YEAR 2008-09 THE MSTC HAS INCURRED EXPE NDITURE AMOUNTING TO RS.42.29 LACS IN CONNECTION WITH ESTABLISHMENT OF G ARMENT PARK AND IS PROPERLY CONSIDERED AS REVENUE EXPENDITURE AND FOR DEDUCTION'. THUS, IT IS EVIDENT FROM APPELLANT'S OWN ADMISSION THAT SUCH EX PENDITURE HAS BEEN INCURRED IN THIS YEAR, NEVERTHELESS IF SOME EXPENDITURE IS ALSO INCURRED IN ANY OTHER YEAR, SAME CAN ALSO HE DISALLOWABLE EXPENDITURE IN THAT YEAR. ASSESSING OFFICER CAN RECTIFY THE ASSESSMENT ACCORDINGLY AS PER LAW. FURTHER, I FIND NO REASON IN OTHER ARGUMENT THAT EXPENDITURE IS ALSO INCURRED IN EARLIER YEAR OR IN SUBSEQUENT YEAR WHICH IS FOR COMMENCEMENT OF ACTUAL BUSINESS. THUS, GROUNDS OF A PPEAL IS DISPOSED OFF ACCORDINGLY. 4. IN THE RESULT, APPEAL IS DISMISSED. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US. 4. THE LD. DEPARTMENTAL REPRESENTATIVE [DR] SUPPORT ED THE VIEW TAKEN BY LD. CIT(A) AND CONTENDED THAT THESE EXPEND ITURE WERE NOTHING BUT EXPENDITURE TOWARDS EXPLORATION OF NEW LINE OF BUSINESS AND CLEARLY CAPITAL IN NATURE. 5. WE HAVE HEARD THE CONTENTIONS AND PERUSED RELEVA NT MATERIAL ON RECORD. WE FIND THAT LD. CIT(A), AFTER DUE DELIBERA TIONS AND RELATED CASE LAWS, HAVE CLINCHED THE ISSUE IN THE RIGHT PERSPECT IVE. THE ASSESSEE WAS DEVELOPING A NEW LINE OF BUSINESS AND EXPLORING NEW BUSINESS OPPORTUNITIES AND THEREFORE, THE SAID EXPENDITURE B EING IN NATURE OF PRELIMINARY EXPENSES AND TOWARDS PRELIMINARY FEASIBILITY REPORT, WERE CAPITAL IN NATURE AND HENCE NOT ALLOWABLE TO THE AS SESSEE. RESULTANTLY, ITA NO. 6712/M/2013 MAHARASHTRA STATE TEXTILE CORPORATION LIMITED ASSESSMENT YEAR-2009-10 6 THE STAND OF LD. CIT(A) IS CONFIRMED AND ASSESSEES APPEAL STANDS DISMISSED. 6. IN NUTSHELL, THE ASSESSEES APPEAL STANDS DISMIS SED. ORDER PRONOUNCED IN THE OPEN COURT ON 04 TH AUGUST, 2017. SD/- SD/- (JOGINDER SINGH) (MANOJ KUMAR AGGARWAL) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; DATED : 04 .08.2017 SR.PS:- THIRUMALESH / COPY OF THE ORDER FORWARDED TO : 1. !# / THE APPELLANT 2. $%!# / THE RESPONDENT 3. + ( ) / THE CIT(A) 4. + / CIT CONCERNED 5. $'- , - , / DR, ITAT, MUMBAI 6. ./ / GUARD FILE / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI