EXPRESS AIROTRONICS P.LTD, MUMBAI V. ACIT (OSD) CIR 2(1), MUMBAI

ITA 72/MUM/2013

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 6627 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 3 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-04-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Assessment Year: 2009-2010
• Appeal Filed On: 03-01-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R K SAHU
• Assessee Lawyers: RAHUL K HAKANI
• Keywords: Capital asset; Revenue expenditure; Capital expenditure
• Section: 143(3); 37(1)

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL E BENCH, MUMBAI . , , , BEFORE SHRI D. KARUNAKARA RAO, ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA , JUDI CIAL MEMBER . / ITA NO. 72 / MUM./ 2013 ( / ASSESSMENT YEAR : 20 0 9 10 ) M/S. EXPRESS AIROTRONICS PVT. LTD. B 14, VALMIKI APARTMENTS NEXT TO BOMBAY COLLEGE OF PHARMACY SUNDER NAGAR, KALINA, MUMBAI 400 098 .. / APPELL ANT V/S ASSTT. COMMISSIONER OF INCOME TAX (OSD), CIRCLE 2(1), AAYAKAR BHAVAN 101, M.K. ROAD, MUMBAI 400 020 .... / RESPONDENT . / PERMANENT ACCOUNT NUMBER AAACE0826H / ASSESSE E BY : MR. RAHUL K. HAKANI / REV ENUE BY : MR. R.K. SAHU / DATE OF HEARING 2 7 . 0 3 .201 4 / DATE OF ORDER 23.04.2014 / ORDER , / PER AMIT SHUKLA , J.M. THE PRESENT APPEAL HAS BEEN PREFERRED BY THE ASSESSEE CHALLENGING THE IMPUGNED ORDER DATED 11 TH OCTOBER 2012 , PASSED BY THE LEARNED COMMISSIONER (APPEALS) IV , MUMBAI, FOR THE QUANTUM OF ASSESSMENT PASSED UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 M/S. EXPRESS AIROTRONICS PVT. LTD. 2 (F OR SHORT 'THE ACT' ) FOR THE ASSESSMENT YEAR 20 09 10 , ON THE FOLLOWING GROUNDS: 1. DISALLOWANCE OF PROFESSIONAL FEES OF ` 16,54,500 THE ASSESSING OFFICER HAS DISALLOWED PROFESSIONAL FEES EXPENSES OF ` 16,54,500 OUT OF TOTAL PROFESSIONAL FEE EXPENSES OF ` 17,91,627 INCURRED DURING THE YEAR. THE REASONS FOR DISALLOWANCE CAN BE FOUND IN PARA 3.3 OF PAGE NO.3 OF THE ASSESSMENT ORDER. IN NUTSHELL, THE DISALLOWANCE HAS BEEN SUSTAINED HOLDING THE EXPENDITURE TO BE CAPITAL IN NATURE. 2. DISALLOWANCE OF INTEREST EXPENSES OF ` 6,00,000 THE ASSESSING OFFICER HAS DISALLOWED ` 6,00,000 OUT OF INTEREST EXPENSES AND FOR THIS PURPOSE THE ASSESSING OFFICER HAS COMPARED THE RATE OF INTEREST AT WHICH THE LOAN IS GIVEN BY THE COMPANY AND THE RATE AT WHICH INTEREST BEARING FUNDS WERE OBTAINED BY THE COMPANY . 2 . FACTS IN BRIEF : THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF TELECOM EQUIPMENT, COMPUTER HARDWARE AND SOFTWARE. FROM THE DETAILS OF PROFESSIONAL FEE FURNISHED BY THE ASSESSEE, THE ASSESSING OFFICER NOTED THAT HE ASSESSEE HAD SHOWN EXPENDITURE OF ` 17,91,672, ON ACCOUNT OF PROFESSIONAL FEES. OUT OF THE SAID AMOUNT, THE ASSESSEE HAS PAID ` 16,54,500 TO M/S. LEX C ORP ADVISORY SERVICES PVT. LTD. (LASPL), MUMBAI, ON ACCOUNT OF FEES FOR PROFESSIONAL AND TECHNICAL FEES WHICH HAS BEEN CLAIMED AS DEDUCTION UNDER SECTION 37(1) AS REVENUE EXPENDITURE. IN RESPONSE TO THE SHOW CAUSE NOTICE, THE ASSESSEE SUBMITTED THAT THE SERVICES OF LASPL WAS RETAINED TO PROVIDE VARIOUS PROFESSIONAL SERVICES LIKE CONSULTANCY AND DIRECT TAX , M ERGER AND ACQUISITION, PROJECT FINANCE SERVICES AND COMPANY LAW ADVISORY SERVICES. A LUMP SUM FEES OF ` 15 LAKHS WAS AGREED AS PROFESSIONAL CHARGES. THE SAID PAYMENT WAS MADE AFTER DEDUCTING TDS. FURTHER, THE ASSESSEE, VIDE SUBMISSION DATED 26 TH DECEMBER 2011, FILED A COPY OF LETTER DATED 9 TH FEBRUARY 2009 FROM LASPL GIVING THE PROOF OF SERVICES RENDERED BY M/S. EXPRESS AIROTRONICS PVT. LTD. 3 THEM. FROM THE SAID LETTER, THE ASSESSING OFFICER OBSERVED THAT THE PROFESSIONAL CHARGES WHICH HAVE BEEN PAID WERE WITH REGARD TO PROCESS OF AMALGAMATI ON OF ORCHID T ELELINK S ERVICES PVT. LTD. AND EON TECHNOSIS PVT. LTD. WITH EXPORTS AIRTRONICS PVT. LTD. THE LEGAL ADVISE RENDERED BY LASPL WAS FOR THE PURPOSE OF AMALGAMATION I.E., FOR ACQUISITION OF A CAPITAL ASSET. THUS, IT IS CAPITAL IN NATURE AND CANNOT BE TREATED AS DEDUCTIBLE EXPENDITURE UNDER SECTION 37(1). 3 . BEFORE THE LEARNED COMMISSIONER (APPEALS), IT WAS SUBMITTED THAT THE COMPANY WAS EXPLOITING THE POSSIBILITY OF ACQUIRING THE BUSINESS OF THE COMPANIES WHO WERE ENGAGED IN THE SAME BUSINESS ACTIVI TY AND FOR THAT PURPOSE THE SERVICES OF LASPL WAS ENGAGED TO ADVISE THE ASSESSEE COMPANY ON VARIOUS ASPECTS OF MERGER. SUCH INCURRING OF EXPENSES DID NOT RESULT INTO ACQUISITION OF ANY CAPITAL ASSET NOR DID IT RESULT IN SECURING ANY BENEFIT OF ENDURING NAT URE, THEREFORE, IT CANNOT BE TREATED AS CAPITAL EXPENDITURE. SUCH EXPENDITURE HAS BEEN INCURRED IN ORDINARY COURSE OF BUSINESS ACTIVITIES AND THE SAME, THEREFORE, FALLS IN THE REVENUE FIELD. RELIANCE WAS PLACED ON THE DECISION OF THE HON'BLE SUPREME COURT IN CIT V/S BOMBAY DY E ING AND MFG. CO. LTD., [ 1996 ] 219 ITR 521 (SC). HOWEVER, THE LEARNED COMMISSIONER (APPEALS) REJECTED THE ASSESSEES CONTENTION AND HELD THAT THE SAID EXPENDITURE HAD BEEN INCURRED FOR ACQUISITION OF NEW ASSET AND UPHELD THE ACTION OF T HE ASSESSING OFFICER. 4 . BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THIS ISSUE IS NOT ONLY COVERED BY THE DECISION OF THE HON'BLE SUPREME COURT IN BOMBAY DY EING AND MFG. CO. LTD. (SUPRA) BUT ALSO BY THE DECISION OF THE GUJARAT HIGH COURT IN DINESH MILLS LTD. V/S ITO, [ 2004 ] 268 ITR 502 (GUJ.) AND CIT V/S CENTURY SPINNING AND MFG . CO. LTD., [1994] 210 ITR 783 . HE SUBMITTED THAT THE PROFESSIONAL FEES PAID FOR MERGER / AMALGAMATION OF THE COMPANY WHICH ARE IN THE SAME LINE OF M/S. EXPRESS AIROTRONICS PVT. LTD. 4 BUSINESS IS PURE LY FOR EXPANSION OF THE SAME BUSINESS AND FOR THE GROWTH OF THE BUSINESS ACTIVITIES. THIS EXPENDITURE DOES NOT HAVE ANY IMPACT ON ACQUISITION OF A CAPITAL ASSET. 5 . THE LEARNED DEPARTMENTAL REPRESENTATIVE, ON THE OTHER HAND, RELIED UPON THE ORDERS OF THE LE ARNED COMMISSIONER (APPEALS) AND ALSO THE DECISION OF THE JURISDICTIONAL HIGH COURT IN GODFREY PHILIPS INDIA LTD. V/S CIT, [1994] 206 ITR 23 (BOM.). 6 . WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTIONS, PERUSED THE RELEVANT FINDINGS OF THE AUTHORITIES BELO W AND THE MATERIAL AVAILABLE ON RECORD. THE ASSESSEE HAS CLAIMED EXPENDITURE ON ACCOUNT OF PROFESSIONAL FEES OF ` 16,54,500 TO LASPL FOR THE ADVISE RENDERED BY THEM ON ACCOUNT OF MERGER / AMALGAMATION OF FEW COMPANIES WITH THE ASSESSEE. THE ASSESSEES CONT ENTION HAS BEEN THAT IT HAS BEEN EXPLORING ALL POSSIBILITIES OF ACQUIRING BUSINESS OF FEW COMPANIES WHO WERE ENGAGED IN THE SAME BUSINESS ACTIVITY FOR EXPENDING ITS BUSINESS ACTIVITIES. SUCH AN EXPENDITURE DOES NOT RESULT DIRECTLY OR INDIRECTLY ANY ACQUISI TION OF CAPITAL ASSET OR IN SECURING ANY BENEFIT OF ENDURING NATURE. THE HON'BLE SUPREME COURT IN CIT V/S BOMBAY DY E ING AND MFG. CO. LTD. (SUPRA), HAS PRECISELY DEALT WITH SIMILAR ISSUE OF PAYMENT OF PROFESSIONAL CHARGES PAID BY THE ASSESSEE COMPANY TO ITS SOLICITORS FOR EFFECTING THE AMALGAMATION. THE HON'BLE SUPREME COURT, AFTER FOLLOWI NG THE DECISION OF BOMBAY STEAM NAVIGATION, [1965] 56 ITR 52 (SC), HELD THAT SUCH PROFESSIONAL CHARGES TO SOLICITORS FOR SERVICES RENDERED IN CONNECTION WITH AMALGAMATION O F OTHER COMPANY WITH THE ASSESSEE COMPANY WHICH HAS BEEN DONE IN THE COURSE OF CARRYING ON THE BUSINESS WERE DEDUCTIBLE AS REVENUE EXPENDITURE. SIMILARLY, IN THE DINESH MILLS LTD. (SUPRA) , THE GUJARAT HIGH COURT, FOLLOWING THE DECISION OF THE HON'BLE SUPRE ME COURT IN BOMBAY DY E ING AND MFG. CO. LTD. (SUPRA) HAS HELD THAT LEGAL AND M/S. EXPRESS AIROTRONICS PVT. LTD. 5 PROFESSIONAL EXPENDITURE INCURRED IN CONNECTION WITH AMALGAMATION OF SISTER CONCERN WITH THE ASSESSEE COMPANY WAS ALLOWABLE AS REVENUE EXPENDITURE. THUS, ON THE FACTS OF THE ASSESS EES CASE ALSO, WE HOLD THAT SUCH PROFESSIONAL FEES PAID TO LASPL FOR THE PURPOSE OF AMALGAMATION HAVE TO BE TREATED AS REVENUE EXPENDITURE. COMING TO THE DECISION OF THE JURISDICTIONAL HIGH COURT IN GODFREY PHILIPS INDIA LTD. (SUPRA), AS RELIED UPON BY TH E LEARNED DEPARTMENTAL REPRESENTATIVE, IT IS SEEN THAT IN THAT CASE, THE ASSESSEE , AS A RESULT OF THE AMALGAMATION , THERE WAS A RADICAL ALTERATION IN THE ENTIRE FRAME WORK OF THE BUSINESS OF THE ASSESSEE. IT WAS IN THIS BACKGROUND, THE SAID PROFESSIONAL FE E WAS TREATED AS CAPITAL IN NATURE. MOREOVER, THE DECISION OF THE HON'BLE SUPREME COURT I S SUBSEQUENT DECISION , WHEREIN ON SIMILAR FACT S , THE HON'BLE SUPREME COURT HAS OPINED IN FAVOUR OF THE ASSESSEE BY HOLDING THAT SUCH PROFESSIONAL FEES ARE TO BE TREATE D AS REVENUE EXPENDITURE. CONSEQUENTLY, WE SET ASIDE THE IMPUGNED ORDER PASSED BY THE LEARNED COMMISSIONER (APPEALS) AND THE PROFESSIONAL FEE OF ` 16,54,500, AS CLAIMED BY THE ASSESSEE, IS TREATED AS REVENUE EXPENDITURE ALLOWABLE UNDER SECTION 37(1). THUS, THE GROUNDS RAISED BY THE ASSESSEE ARE ALLOWED. 7 . 7. IN THE RESULT, ASSESSEES APPEAL IS ALLOWED . 23 RD APRIL 2014 ORDER PRONOUNCED IN THE OPEN COURT ON 23 RD APRIL 2014 SD / - . D. KARUNAKARA RAO ACCOUNTANT MEMBER SD / - AMIT SHUKLA JUDICIAL MEMBER MUMBAI, DATED : 23 RD APRIL 2014 M/S. EXPRESS AIROTRONICS PVT. LTD. 6 / COPY OF THE ORDER FORWARDED TO : ( 1 ) / THE A SSESSEE ; ( 2 ) / THE REVENUE; ( 3 ) ( ) / THE CIT(A ) ; ( 4 ) / THE CIT, MUMBAI CITY CONCERNED ; ( 5 ) , , / THE DR, ITAT, MUMBAI ; ( 6 ) / GUARD FILE . / TRUE COPY / BY ORDER . / PRADEEP J. CHOWDHURY / SR. PRIVATE SECRETARY / / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI