KEJRIWAL PAPERS LTD, MUMBAI V. DCIT 3(2), MUMBAI

ITA 6957/MUM/2008

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 1581 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 5 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-06-2010
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 18-05-2010
• Assessment Year: 2005-2006
• Appeal Filed On: 05-12-2008
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S S RANA
• Assessee Lawyers: DHIRENDRA M SHAH
• Keywords: Revenue expenditure; Capital expenditure; TDS; Set aside
• Section: 37(1); 207

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH A, MUMBAI. BEFORE SHRI D. MANMOHAN, VICE PRESIDENT AND SHRI J. SUDHAKAR REDDY, ACCOUNTANT MEMBER I.T.A. NO. 6957 /MUM/2008. ASSESSMENT YEARS: 2005-06. M/S KEJRIWAL PAPERS LTD., DY. COMMISSIONER OF 14031, MAKER CHAMBER V, VS. INCO ME TAX 3(2), 221, NARIMAN POINT, MUMBAI. MUMBAI 400 021. PAN : AABCK2284Q APPELLANT RESPONDENT APPELLANT BY : SHRI DHIRENDRA M. SHAH. RESPONDENT BY : SHRI S.S. RANA, AND SHRI PIYUSH JAIN. O R D E R PER J. SUDHAKAR REDDY, A.M. THIS IS AN APPEAL FILED BY THE ASSESSEE DIRECTED AGAINST THE ORDER OF THE CIT(APPEALS)-III, MUMBAI DATED 21-09-2 008. 2. FACTS IN BRIEF : THE ASSESSEE IS IN THE BUSINESS OF TRADING IN DIF FERENT VARIETY OF PAPER AND NOTE BOOK. IT FILED ITS RETURN OF INCO ME ON 31-10-2005 DECLARING A TOTAL INCOME OF RS.25,41,977/-. THE AO PASSED THE ORDER U/S 143 ON 20-12-2007, INTER ALIA, DISALLOWING BROKERAG E PAYMENT OF RS.2,00,389/- ON THE GROUND THAT TDS HAS NOT BEEN R EMITTED WITHIN TIME AND DISALLOWING CLAIM FOR DEFERRED REVENUE EXPENDIT URE ON THE GROUND THAT THE ENTIRE EXPENDITURE IS INCURRED PRIOR TO TH E COMMENCEMENT OF 2 PRODUCTION AND HENCE IT IS REQUIRED TO BE CAPITALIZ ED U/S 35D OF THE ACT. AGGRIEVED, THE ASSESSEE CARRIED THE MATTER IN APPEA L. THE FIRST APPELLATE AUTHORITY CONFIRMED BOTH THESE DISALLOWANCES. AGGRI EVED, THE ASSESSEE IS IN APPEAL BEFORE US. 3. WE HAVE HEARD MR. DHIRENDRA M. SHAH, LEARNED CO UNSEL FOR THE ASSESSEE AND MR. S.S. RANA, LEARNED D.R. 4. AS FAR AS FIRST GROUND OF DISALLOWANCE OF BROKE RAGE EXPENDITURE BY INVOKING THE PROVISIONS OF SECTION 4 0(A)(IA) IS CONCERNED, THE LEARNED COUNSEL FOR THE ASSESSEE DEMONSTRATED T HAT THE TAX AT SOURCE WAS DEDUCTED WITHIN THE TIME PERMITTED UNDER RULE 3 1 OF THE I.T. RULES. HE SUBMITS THAT AS AN CREDIT ENTRY WAS PASSED, THE ASSESSEE HAD 60 DAYS TIME TO REMIT THE TAX DEDUCTED AT SOURCE FROM THE D ATE OF CREDIT OF BROKERAGE AND THAT ALL THE PAYMENTS WERE MADE IN TI ME. PRIMA FACIE THE CLAIM OF THE ASSESSEE SEEMS TO BE CORRECT. IN ANY E VENT, WE DEEM IT APPROPRIATE TO SET ASIDE THE ISSUE TO THE FILE OF T HE AO TO VERIFY THE DATES OF REMITTANCE AND GRANT DEDUCTION IN ALL CASES WHER E THE TDS HAS BEEN DEDUCTED AND PAID WITHIN THE TIME PROVIDED UNDER TH E ACT READ WITH RULES. 5. IN THE RESULT, GROUND NO. 1 IS ALLOWED FOR STAT ISTICAL PURPOSE. 6. COMING TO THE SECOND DISALLOWANCE, WE FIND THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURI NG OF NOTE BOOKS. THE EXPENSES IN QUESTION RELATE TO EXPANSION OF THE ACT IVITY OF MANUFACTURING OF NOTE BOOKS. THE ASSESSEE CAPITALIZED THESE EXPEN SES IN ITS BOOKS OF ACCOUNT. WHILE FILING THE RETURN OF INCOME, THE ASS ESSEE CLAIMED THESE EXPENSES AS DEFERRED REVENUE EXPENDITURE. THE AO DI SALLOWED THE SAME BY OBSERVING THAT, THE ASSESSEE HAS EXPLAINED THAT EXPENDITURE WAS INCURRED BEFORE COMMENCEMENT OF PRODUCTION AT ITS F ACTORY AND THUS IT 3 WOULD FALL U/S 35D OF THE ACT. AGGRIEVED, THE ASSE SSEE CARRIED THE MATTER IN APPEAL. THE FIRST APPELLATE AUTHORITY CALLED FOR THE REMAND REPORT FROM THE AO AND AS THE ASSESSEE HAD NOT FURNISHED THE RE QUIRED DETAILS, CONFIRMED THE ADDITION. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US. 7. AFTER HEARING THE RIVAL CONTENTIONS, WE NOTE TH AT THE DETAILS OF THE EXPENDITURE IN QUESTION ARE GIVEN AT PAGE 1 OF THE ASSESSEES PAPER BOOK WHICH IS EXTRACTED HEREIN BELOW FOR READY REFE RENCE : DETAILS OF DEFERRED REVENUE EXPENDITURE CONSIST OF : (I) BANK CHARGES BEING PROCESSING FEE 1,27,959 FOR WORKING CAPITAL 2,53,460 ------------ 3,81,41 9 (II) FOREIGN TRAVELLING FOR MARKET STUDY AND MEETING CUSTOMERS. 20,32,598 (III) PROJECT APPRAISAL FEES 4,50,000 (IV) SALES PROMOTION 87,682 (V) SALARY TO PREPRODUCTION 4,87,668 (VI) FACTORY RENT FOR NOV. & DEC.,04 4,02,000 (VII) LEGAL & PROFESSIONAL FEES 80,602 (IX) INLAND TRAVELLING 38,271 (X) LICENCE FEES 14,150 --- ---------- TOTAL : 41,62, 147 === ===== THE CLAIM OF THE ASSESSEE THAT THESE EXPENDITURE AR E DEFERRED REVENUE EXPENDITURE IS, IN OUR CONSIDERED OPINION, INCORREC T. THE ASSESSEE HAS NOT FURNISHED THE REQUIRED DETAILS EITHER BEFORE THE AO OR BEFORE THE FIRST APPELLATE AUTHORITY. THE ASSESSEE PRIMA FACIE, WAS OF THE OPINION THAT THE EXPENDITURE IN QUESTION IS CAPITAL EXPENDITURE AND HENCE HAS CAPITALIZED THE SAME IN THE BOOKS OF ACCOUNT. IF IT IS THE CASE OF THE ASSESSEE, THAT THE CAPITALIZATION OF THIS EXPENDITURE IN THE BOOKS OF ACCOUNT WAS WRONG, AND 4 THAT THE EXPENDITURE IS ONLY IN THE REVENUE FIELD, THEN THE BURDEN LIES ON THE ASSESSEE TO PROVE SO. THE HONBLE BOMBAY HIGH C OURT IN THE CASE OF CIBA OF INDIA VS, CIT 202 ITR 1 (BOM.), HELD THAT, WHERE THE ASSESSEE HAS SET UP A NEW PLANT AT BHANDUP FOR MANUFACTURING ADDITIONAL PHARMACEUTICAL GOODS AND HAD CLAIMED CERTAIN TRAVEL LING EXPENDITURE AS REVENUE NATURE, THEN THE EXPENDITURE WAS NOT IN THE REVENUE FIELD BUT IS IN THE CAPITAL FIELD. IN THE CASE OF CENTURY SPINNING AND MANUFACTURING CO. LTD. VS. CIT 121 CTR 417 (BOM), THE HONBLE JURISDI CTIONAL HIGH COURT HAD TAKEN A VIEW THAT EXPENDITURE INCURRED BY THE A SSESSEE ON THE FOREIGN TRAVEL OF THE EMPLOYEE FOR SETTING UP A NEW PLANT I N FOREIGN COUNTRY WAS CAPITAL EXPENDITURE. IN THE CASE OF CIT VS. J.K. CH EMICALS LTD. 207 ITR 985 THE HONBLE BOMBAY HIGH COURT CONSIDERED A CASE WHERE THE ASSESSEE OBTAINED PROJECT REPORT AND INCURRED CERTA IN EXPENDITURE FOR THE SAME. THE HONBLE COURT CONSIDERED A NUMBER OF DECI SIONS INCLUDING THAT OF THE HONBLE SUPREME COURT IN THE CASE OF ASSAM B ENGAL CEMENT CO. LTD. VS. CIT 27 ITR 34 AND HELD THAT THE AIM AND OB JECT OF THE EXPENDITURE WOULD, THEREFORE, DETERMINE THE CHARACT ER OF THE EXPENDITURE. IT LAID DOWN THAT THE NATURE OF EXPANSION WILL DET ERMINE WHETHER THE EXPENDITURE INCURRED IS OF A CAPITAL NATURE OR A RE VENUE NATURE. THE C- BENCH OF THE MUMBAI TRIBUNAL IN THE CASE OF ULTRAM ARINE & PIGMENTS LTD. IN ITA NOS. 2987 TO 2989 AND ITA NO. 2774/MUM/ 2005, ORDER DATED 2 ND SEPT., 2008, AT PARA 9.6 HELD AS FOLLOWS : COMING TO THE JUDGMENT OF THE DELHI HIGH COURT IN THE CASE OF JAY ENGINEERING WORKS LTD. VS. CIT 163 TAXMAN 15 (DEL) WE FIND THAT THE DECISION IS SLIGHTLY AT VARIANCE WITH THE DECISION OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF CIBA OF IN DIA LTD. VS CIT 202 ITR 1 (BOM) WHERE IT IS HELD THAT THE EXPENDITU RE ON THE TRAVEL OF FOREIGN EXPERT TO HELP IN SETTING UP A NEW PLANT IS A CAPITAL EXPENDITURE AND WHEREAS FOREIGN TRAVELLING IN THE C ASE OF JAY ENGINEERING WORKS LTD. (SUPRA) HAS ALSO HELD AS REV ENUE EXPENDITURE. SIMILAR IS THE DECISION OF THE HONBLE MADRAS HIGH 5 COURT IN THE CASE OF CIT VS. RANE (MADRS) LTD. 293 ITR 459 (MAD). IN OUR HUMBLE OPINION, THESE DECISIONS ARE AT VARIA NCE WITH THE JUDGMENT OF THE JURISDICTIONAL HIGH COURT IN THE CA SE OF CIBA OF INDIA LTD (SUPRA) AS WELL AS THE JUDGMENT IN THE CA SE OF CENTURY SPINNING & MANUFACTURING CO LTD VS CIT 128 CTR 417 (BOM). EVEN OTHERWISE THE HONBLE JURISDICTIONAL HIGH COUR T IN THE CASE OF THANE ELECTRICAL 206 ITR 727 HAS HELD THAT THE JUDG MENT OF NON JURISDICTIONAL HIGH COURT HAS PERSUASIVE VALUE AND IS NOT BINDING. FOR ALL THESE REASONS AND AS IN THIS CASE THE NATUR E OF EXPENDITURE INCURRED BY THE ASSESSEE ON SALARIES, TRAVELLING, A LLOWANCES, MOTOR CARS, ETC. EXCLUSIVELY FOR THE PURPOSE OF SETTING U P AND COMMENCING THE BUSINESS OF IT ENABLE SERVICES, ARE IN THE CAPI TAL FIELD AND SUO MOTU CLASSIFIED AS SUCH BY THE ASSESSEE, THE SAME C ANNOT BE ALLOWED AS A DEDUCTION U/S 37(1), THOUGH THERE IS U NITY OF CONTROL, MANAGEMENT, INTER-LACING AND INTER-MINGLING OF FUND S. THUS, WE UPHOLD THE ORDER OF THE FIRST APPELLATE AUTHORITY A ND REJECT THE GROUND OF THE ASSESSEE. IN THE SAME DECISION AT PAGE 9 THE DECISION OF THE TRIBUNAL IN THE CASE OF ACIT VS. SHRI VINDHYA PAPER MILLS LTD. IN ITA NO. 8 038, 8039, 5040/MUM/2003 DATED 21-05-2005 WAS QUOTED AND AT PA GE 9 LAST PARA IT IS HELD A FOLLOWS : 8.6 ONE OF THE IMPORTANT FACTORS IN THIS CASE IS W HETHER THE EXPENDITURE INCURRED IS OPERATIONAL EXPENDITURE FOR THE PURPOSE OF EARNING PROFITS OR NOT. IN OUR OPINION, THE MATCHIN G CONCEPT ALSO COMES INTO PLAY AND ONE OF THE FACTORS TO BE CONSID ERED WHILE ARRIVING AT A CONCLUSION WHETHER A PARTICULAR EXPEN DITURE IS CAPITAL EXPENDITURE OR REVENUE EXPENDITURE IN ADDITION TO T HE TESTS LAID DOWN AND CULLED OUT IN THE PARAGRAPHS ABOVE I WHETH ER THE EXPENDITURE IS OPERATIONAL EXPENDITURE OR FOR THE S ETTING UP OR FOR ACQUIRING A PROFIT MAKING APPARATUS AND ALSO WHETHE R THE PRINCIPLES OF MATCHING CONCEPT JUSTIFY THE ALLOWANCE OF THIS E XPENDITURE AS REVENUE EXPENDITURE FOR THE PURPOSE OF ARRIVING AT THE PROFITS OF THE ASSESSEE FOR THE PARTICULAR PERIOD. 8.7 AS WE ARE FOLLOWING THE JURISDICTIONAL HIGH COU RT DECISIONS ON THIS ISSUE, WE DO NOT DEEM IT NECESSARY TO DISTI NGUISH THE VARIOUS JUDGMENTS OF THE TRIBUNAL CITED BY THE LEARNED COUN SEL FOR THE ASSESSEE BEFORE US. 6 9. IN VIEW OF THE ABOVE DISCUSSION WE ARE OF THE CO NSIDERED OPINION THAT THE EXPENDITURE INCURRED ON ACCOUNT OF DEVELOPMENT EXPENSES, LEASE RENTAL, PLANT AND MACHINERY, SALARY & WAGES AND BONUS AND TRAVELLING EXPENSES ARE IN THE CAPITAL FI ELD AND ARE NOT ALLOWABLE AS REVENUE EXPENDITURE IN VIEW OF THE SPE CIFIC PROHIBITION IN 37(1) OF THE ACT. APPLYING THE PROPOSITION LAID DOWN THEREIN TO THE F ACTS OF THE CASE AND AS THE ASSESSEE HAD FAILED TO FURNISH THE NECESSARY DE TAILS TO ANY OF THE AUTHORITIES BELOW, WE REJECT HIS CONTENTIONS. THE A RGUMENT THAT THE ORDER OF THE CIT(APPEALS)-III, MUMBAI FOR THE ASSESSMENT YEAR 2006-07 ON THE VERY SAME ISSUE, HAS NOT BEEN CHALLENGED BY THE REV ENUE, AND THAT THE ISSUE SHOULD BE DECIDED IN FAVOUR OF THE ASSESSEE, WE HOLD THAT THE FACTS OF THAT CASE IS NOT BEFORE US AND RES JUDICATA DOES NO T APPLY IN INCOME TAX PROCEEDINGS. THUS, WE DISMISS THIS GROUND OF THE AS SESSEE. 8. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED IN PART. ORDER PRONOUNCED ON THIS 4 TH DAY OF JUNE, 2010. SD/- SD/- (D. MANMOHAN) (J. SUDHAKAR REDDY) VICE PRESIDENT. ACCOUNTANT MEMBER. MUMBAI, DATED : 04 TH JUNE, 2010. COPY FORWARDED TO : 1. APPELLANT. 2. RESPONDENT 3. C.I.T. 4. CIT(A) 5. DR, B-BENCH. (TRUE COPY) BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI BENCHES, MUMBAI. WAKODE