KSR Eyecare, Hyderabad V. ACIT, Circle-6(1), Hyderabad

ITA 730/HYD/2013

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 5546 (ITAT-HYDERABAD)
• Duration Of Justice: 10 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-03-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2008-2009
• Appeal Filed On: 13-05-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: P SOMASEKHAR REDDY
• Assessee Lawyers: M P SANKARAN
• Keywords: Assessment record; Revenue expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A', HYDERABAD BEFORE SHRI B.RAMAKOTAIAH, ACCOUNTANT MEMBER AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER ITA NO.730/HYD/13 : ASSESSMENT YEAR 2008 - 09 M/S. KSR EYECARE , HYDERABAD ( PAN - AGHFK 7765 M) V/S. ASST. COMMISSIONER OF INCOME - TAX, WARD 6(1), HYDERABAD, (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI M. P. SANKARAN CA RESPONDENT BY : SHRI P.SOMA SEKHAR REDDY DR DATE OF HEARING 25.3.2014 DATE OF PRONOUNCEMENT 28.3.2014 O R D E R PER SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME - TAX III, HYDERABAD DATED 22.2.2013, PASSED UNDER S.263 OF THE INCOME - TAX ACT, 1961, FOR THE ASSESSMENT YEAR 208 - 09. 2. BRIEF FACTS OF THE CA S E LE A DING TO THE FILING O F TH E PRESENT APPEAL A R E THAT THE ASSESSEE, A FIRM TRADING IN OP TICAL AND REL A TED EYE - CARE PRODUCTS, FIL E D ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2008 - 09 ON 27.9.2008, DECLARING A LOSS OF R S .27,27,013. THE RETURN WAS ORIGINAL PROCESSED UNDER S .143(1) OF TH E ACT ON 23.3.2010, AND IN THE SCRUTINY ASSESSMENT , WHICH WAS COMPLETED LATER ALSO , THE LOSS RETURNED BY THE ASSESSEE WAS ACCEPTED, VIDE ORDER OF ASSESSMENT DATED 19.11.2010 PASSED UNDER S.143(3) OF THE ACT. SUBSEQUENTLY, WHILE PERUSING THE ASSESSMENT RECORD, THE COMMISSIONER OF INCOME - TAX NOTICED THAT THE ASS ESSEE FIRM HAS CLAIMED LIC E NSE FEES FOR SU RG ICAL M ACHINE AT R S .45,47,500 IN THE PROFIT & LOSS ACCOUNT. HOWEVER, ON VERIFICATION OF THE COPY OF THE AGREEMENT ENTERED INTO WITH M/S. INT R O OCULAR CARE PVT. LTD., IT WAS NOTICED THAT AN AMOUNT OF RS .40,0 0 ,000 PLUS VAT WAS ITA NO. 730/ HYD/20 12 M/S. KSR EYE CARE, HYDERABAD 2 PAID AS ADVANCE AND THE REMAININ G AMOUN T WAS PAID IN MONTHLY INSTALMENTS OF R S .2,56,875 ALONGWITH VAT IN 48 INSTALMENTS FROM THE MONTH OF DECE M BER, 2012. SIN C E THE ASSESSEE FIRM IS FOLLOWING MERCANTILE SYSTEM O F ACCOUNT ING , ACCORDING TO THE COMMISSIONER OF INCOME - TAX THE ASSESSEE FIRM , IS ELIGIBLE ONLY FOR THE PROPORTIONATE EXPENDITURE FOR THE PERIOD TH E SUR G ICAL MACHINE WAS USED DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER C O NS IDE R ATION. SINCE THE ASSESSING OFFICER FAILED TO EXAMIN E THIS ISSUE AND HAD NOT DISALLOW ED THE EXPENDITURE, W HICH IS NO T PERTAINING TO THE P R EVIOU S Y E AR RELEVANT TO ASSESSMENT YEAR UNDER APPEAL, FIN D IN G THE ASSESSMENT THUS MADE TO BE ERRONEOUS AND PREJUDICIAL TO THE IN T ERESTS OF THE REVENUE, TH E COMMI SSIONER INVOKED THE REVISIONARY JURI S DI C TION UN D ER S.263 OF THE AC T . THE COMMISSIONER OF INCOME - TAX, NOT CONVINCED WITH THE EXPLANATION OF THE ASSESSEE WITH REGARD TO THE DISALLOWANCE PROPOSED, CON C LU D ED THAT THE ASSESSEE FIRM HAS CLAIMED AN EXCESS AMOUNT OF RS.31,73,058. HE ACCORDINGLY DIRECTED THE ASSESSING OFFICER TO DISALLOW THE E X CESS CLAIM FOR THE ASSESSMENT YEAR 2008 - 09 AND ALSO PASS MODIFICATION ORDERS O F THE SUBSEQUENT Y EA R S BY ALLOWING THE PROPORTIONATE EXPENDITURE IN THE RESPECTIVE ASSESSMENT YEARS. HE ALSO DIRECTED THE ASSESSING OFFICER TO VERIFY THE DETAILS O F TDS ON THE PAYM E N T S OF LEASE RENTALS IN THE FORM OF LICENCE FEES, KEEPING IN VIEW THE PROVIS I ON S OF SECTION 40(A)(IA) OF THE ACT. RELE V ANT PO R TION OF THE IMPUGNED OR D ER DATED 22.2.2013 OF THE COMMISSIONER OF INCOME - TAX READS AS FOLLOWS - 3. THE ASSESSEE FIRM ENTERED INTO A LICENSE AGREEMENT WITH M/S. INT R O O C ULAR CARE PVT. LTD., ON 28.08.2007 FOR TH E US A GE OF THE EQUIPMENT(ESIRIS LAZER) FOR A PERIOD O F 48 MONTHS. AS PER THE LINC E NSE AGREEMENT THE ASSESSEE FIRM HAS TO PAY R S .40,00,000 PLUS VAT AS LICENSE FEES AND THEREAFTER, MONTHLY INSTALLMENTS OF RS. 2,56,875/ - PLUS VAT SHOULD BE PAID FOR 48 MONTHS FROM 07 TH DECEMBER, 2007. THE ASSESSEE FIRM HAS ALSO ENTERED INTO ANOTHER AGREEMENT W ITH M/S. INTRO OCULAR CARE PVT. LTD., UNDER THE NOMENCLATURE OF 'ADHERENCE AGREEMENT' DATED ,28.08.2007 FOR PURCHASE OF EQUIPMENT (ESIRIS LAZER) MANUFACTURED BY SCHWIND EYE T ECH SOLUTION, GERMANY. AS PER THE TERMS OF THE AGREEMENT, THE BUYER MAY OPT TO PUR CHASE THE SAID EQUIPMENT AT RS. 2,50,000/ - PLUS VAT AFTER THE COMPLETION OF LICENSE PERIOD. THE ASSESSE E 'S AUTHORISED REPRESENTATIVE HAS ALSO FILED A CONFIRMATION LETTER FROM THE COMPANY TO THE EFFECT THAT THE ASSESSEE FIRM HAS PAID AN ADVANCE OF RS. 40,00 ,00/ - PLUS VAT DURING THE PREVIOUS YEAR AND 48 INSTALLMENTS OF RS. 2,56,875/ - ITA NO. 730/ HYD/20 12 M/S. KSR EYE CARE, HYDERABAD 3 PLUS VAT FROM 07TH DECEMBER, 2007. IT WAS ALSO MENTIONED BY THE COMPANY THAT THE ADVANCE AS WELL AS INSTALLMENTS PAID BY THE ASSESSEE FIRM WAS TREATED AS LEASE RENTALS IN THEIR BOOKS OF ACCOUNTS. IN RESPECT OF THE CLAIM OF THE ADVANCE AMOUNT PAID BY THE ASSESSEE FIRM AS REVENUE EXPENDITURE, IT IS SUBMITTED BY THE ASSESSEE FIRM THAT THOUGH THE COMPANY HAS MENTIONED IT AS LICENSE FEES AND ADVANCE, IT WAS ONLY A DOWN PAYMENT FOR INS TALLATION OF THE TOTAL MACHINE IN THE CUSTODY OF THE ASSESSEE FIRM. THE INITIAL PAYMENT INCLUDES THE INSTALLATION AND COMMISSIONING OF THE INSTRUMENT. ON VERIFICATION OF THE DETAILS FURNISHED BY THE ASSESSEE'S AR, IT WAS NOTICED THAT THE ASSESSEE FIRM HAS UTILIZED THE MACHINE (ESIRIS LAZER) FOR 48 MONTHS W.E.F. 07 TH DECEMBER, 2007 AND THEREAFTER THE EQUIPMENT WAS TAKEN BACK BY THE M/S. INTRO OCULAR CARE PVT. LTD. SINCE THE EQUIPMENT WAS TAKEN OVER BY THE SUPPLIER COMPANY, THE AMOUNT PAID BY THE ASSESSEE FIRM IN THE FORM OF LICENSE FEES WAS TO BE TREATED AS LEASE RENTALS AND NOT PURCHASE OF EQUIPMENT. THE AMOUNT PAID AS ADVAN CE OF RS. 40,00,000/ - WAS TOWARDS LICENSE VALUE (LEASE RENTALS) AND THE TOTAL LICENSE VALUE PAID BY THE ASSESSEE FIRM FOR THE ENTIRE 48 MONTHS IN CL UDIN G ADVANCE, WAS RS.1.64,93,300/ - . THE TOTA L AMOUNT PAID OF R S . 1,64,93,300 WAS TOWARDS THE USAGE OF EQUIPME NT BY THE ASSESSEE FIRM FOR A PERIOD OF 48 MONTHS FROM 07.1 2 .2007. THEREFORE, THE ASSESSEE IS ELIGIBLE FOR CLAIM OF PROPORTIONATE EXPENDITURE FOR THE MONTHS USED DURING THE PREVIOUS YEAR. THE ADVANCE AMOUNT PAID OF RS. 40,00,000/ - WAS NOT A REVENUE EXPEND ITURE AND IT SHOULD BE TREATED AS PREPAID EXPENDITURE SINCE THE SAME WAS HAVING ENDURING BENEFIT FOR A PERIOD OF 48 MONTHS. DURING THE PREVIOUS YEAR, THE ASSESSEE FIRM HAS USED THE EQUIPMENT (ESIRIS LAZER) FOR 4 MONTHS COMMENCING FROM 07.12.2007 TO 31.03 .2008. THEREFORE, THE ASSESSEE FIRM IS ELIGIBLE FOR PROPORTIONATE EXPENDITURE OF RS. 13,74,441/ - (RS.L,64,93,300/48 MONTHS X 4 MONTHS). WHEREAS THE ASSESSEE FIRM HAS CLAIMED THE LEASE RENTALS FOR THE USAGE OF THE EQUIPMENT IN THE FORM OF LICENSE FEES AT RS . 45,47,500/ - . THUS, THE ASSESSEE FIRM HAS CLAIMED AN EXCESS CLAIM OF RS. 31,73,058/ - . THE ASSESSING OFFICER IS DIRECTED TO DISALLOW THE EXCESS CLAIM FO R THE A.Y. 2008 - 09 AND ALSO PASS MODIFICATION ORDERS FOR THE SUBSEQUENT YEAR BY ALLOWING THE PROPORTIONA TE EXPENDITURE IN THE RESPECTIVE ASSESSMENT YEARS. THE ASSESSING OFFICER IS ALSO DIRECTED TO VERIFY THE DETAILS OF TDS ON THE PAYMENTS OF LEASE RENTALS IN THE FORM0F LICENSE FEES, KEEPING IN VIEW OF THE PROVISION OF SECTION 40(A)(IA) OF THE I.T. ACT . 3. AGGRIEVE D , ASSESSEE PREFERRED THE PRE SE NT APPEAL BEFORE US. 4. THE LEARNED COUNSEL FOR THE ASSESSEE, REITERATING THE CONTENTIONS URGED BEFORE THE COMMISSIONER OF INCOME - TAX SUBMITTED THAT THE ASSESSING OFFICER HAS EXAMINED THE ISSUE WHILE FRAMING THE ASSESSMENT, WITHOUT MAKING ANY DISALLOWANCE IN THAT BEHALF. A S SUCH, THE ASSESSMENT SO MADE WAS NEITHER ERRONEOUS NOR PREJUDICIAL TO THE INTERESTS ITA NO. 730/ HYD/20 12 M/S. KSR EYE CARE, HYDERABAD 4 OF THE REVENUE AND THE COMMISSIONER WAS NOT JUSTIFIED IN INVOKING THE REVISIONARY JURISDICTION UNDER S.2 63 OF THE ACT. IN THIS BEHALF, HE PLACED RELIANCE ON THE DECISION OF GUJARAT HIGH COURT IN CIT V/S. ARVIND JEWELLERS(ITR NO.174 OF 1989), WHEREIN IT HAS BEEN HELD THAT ONCE THE RELEVANT MATERIAL WAS ON RECORD AND THE SAID MATERIAL WAS CONSIDERED BY TH E INCOME TAX OFFICER, AND A PARTICULAR VIEW WAS TAKEN, THE MERE FACT THAT DIFFERENT VIEW CAN B E TAKEN, SHOULD NO T BE THE BASIS FOR INITIATING THE ACTION UNDER S.263 OF THE ACT. HE FURTHER SUBMITTED THE ASSESSEE HAS PAID RS.45,4 7 ,500 TO THE LICENSOR DURIN G THE ASSESSMENT YEAR 2008 - 09 AND TH E SAME WAS TR E A T ED AS REVENUE EXPENDITURE IN THEIR BOOKS O F ACCOUNTS. T HE LINCE N SOR ALSO TREATED THE RECEIPT AS REVENUE INCOME IN THEIR BOOKS OF ACCOUNT. HE SUBMI T TED THAT THE SAID LINCENE FEE IS CLEARLY A REVENUE EXPENDITURE AND NO DISALLOWANCE COULD BE MADE TREATING THE SAME AS OF CAPITAL NATURE. IN ANY EVENT, IT IS SUBMITTED THAT THERE WAS NO PREJUDICE TO THE INTERESTS OF REVENUE ON ACCOUNT OF THE TREATMENT GIVEN BY THE ASSESSEE, TO SUCH EXPENDITURE, IN THE BO OKS OF ACCOUNT, SO AS TO WARRANT IN V OKING THE PROVISION S OF S.263 OF THE ACT. I N SUPPORT OF THESE CON T ENTION S , RELIANCE IS PL A CED ON THE DECISION OF THE DELHI HIGH COURT IN CIT V/S. CITI FINANCIAL CONSUMER FINANCE LTD. (335 ITR 29); AND OF THE APEX COURT IN THE CASE OF THE CIT V/S. MADRAS AUTO SERVICES ( P) LTD, (233 ITR 468). 5. THE LEARNED DEPARTMENTAL REPRESENTATIVE ON THE OTHER HAND, STRONGLY SUPPORTED THE O R DER OF THE COMMISSIONER OF INCOME - TAX PASSED UNDER S.263 OF THE ACT. 6. WE HEARD BOTH SID ES AND PERUSED THE MATERIAL ON RECORD, INCLUDING THE WRITTEN SUBMISSIONS FURNISHED BY THE ASSESSEE AND THE CASE - LAW RELIED UPON BY THE PARTIES. THE POINT IN DISPUTE RELATES TO THE NATURE OF EXPENDITURE INCURRED BY THE ASSESSEE BY WAY OF LICENCE FEE PAYABL E ON THE MACHINE SCHWIND ESIRIS ECLIMER LASER, TO M/S. INTRA OCULAR CARE PVT. LTD. AT PAGE 8, T HE ASSESSEE HAD GIVEN THE SCHEDULE OF PAYMENTS ITA NO. 730/ HYD/20 12 M/S. KSR EYE CARE, HYDERABAD 5 AGGREGATING TO RS.40,00,000 PLUS VAT , TO BE MADE DURING THE YEAR UNDER APPEAL, WHICH IS AS UNDER - RS.5,00,000 PLUS VAT ON 10.08.2007 RS.25,00,000 PLUS VAT ON 30.08.2007 RS.5,00,000 PLUS VAT ON 20.09.2007 RS.5,00,000 PLUS VAT ON 20.12.2007 RS.5,00,000 PLUS VAT ON 20.3.200 8 AND RS.2,56,875 PLUS VAT FOR 48 MONTHS STARTING FROM 7TH DECEMBER, 2007. IT IS THE CASE OF THE ASSESSEE THAT THE AMOUNTS AGGREGATING TO RS.45,47,500 PAID DURING THE YEAR ARE OF REVENUE NATURE AND HAVE TO BE ALLOWED AS DEDUCTION. BEFORE THE ASSESSING OFFICER, THE AMOUNT WAS SHOWN AS ADVANCE TO AN EXTENT OF RS.40,00,00, WHEREAS THE ASSES SEE FURNISHED THE LETTER DATED 20.01.2013 FROM THE LICENSOR THAT THE AMOUNT WAS MENTIONED AS ADVANCE INADVERTENTLY WHEREAS THE SAME WAS DOWNPAYMENT. WHILE THE SAID CLAIM OF THE ASSESSEE STOOD ACCEPTED BY THE ASSESSING OFFICER, THE COMMISSIONER OF INCOME - TAX WAS OF THE VIEW THAT IT IS ONLY THE PROPORTIONATE EXPENDITURE RELEVANT TO ASSESSMENT YEAR UNDER APPEAL, WHICH IS LIABLE TO BE ALLOWED AS DEDUCTION IN THE YEAR UNDER APPEAL FOR THE PERIOD OF USAGE DURING THIS YEAR, AND THE BALANCE AMOUNT HAS TO BE CONSI DERED FOR ALLOWANCE IN THE SUBSEQUENT YEARS OF USAGE RESPECTIVELY. SINCE THE ASSESSING OFFICER HAS NOT EXAMINED THE ISSUE FULLY, THE COMMISSIONER OF INCOME - TAX WAS CORRECT IN ASSUMING THE REVISIONARY JURISDICTION UNDER S.263 OF THE ACT . IN OUR OPINION, THE COMMISSIONER OF INCOME - TAX WAS NOT CORRECT IN DIRECTING TO DISALLOW WITHOUT EXAMINING THE ISSUE AND WITHOUT CONSIDERING THE ASSESSEES OBJECTIONS. THEREFORE, WE MODIFY THE DIRECTIONS OF THE COMMISSIONER OF INCOME - TAX IN THE IMPUGNED ORDER, AND DIRECT T HE ASSESSING OFFICER TO EXAMINE THE MATTER AFRESH . HE SHALL OF COURSE, REDECIDE THE ISSUE IN ACCORDANCE WITH LAW AND AFTER GIVING REASONABLE OPPORTUNITY O F H E ARING TO THE ASSESSEE. CONSEQUENTLY, ORDER OF THE COMMISSIONER OF INCOME - TAX IS MODIFIED TO THE EXTENT INDICATED ABOVE, ITA NO. 730/ HYD/20 12 M/S. KSR EYE CARE, HYDERABAD 6 AND THE GROUNDS OF THE ASSESSEE IN THIS APPEAL ARE PARTLY ALLOWED FOR STATISTICAL PURPOSES. 7. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES . ORDER PRONOUNCED IN THE COURT ON 28 TH MARCH, 2014 SD/ - SD/ - ( B.RAM AKOTAIAH ) (ASHA VIJAYARAGHAVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER DT/ - 28 TH M ARCH , 2014 COPY FORWARDED TO: 1. M/S. KSR EYECARE, 6 - 3 - 348/10/2, ROAD NO.1, BANJARA HILLS, HYDERABAD 2 . ASST. COMMISSIONER OF INCOME - TAX CIRCLE 6(1), HYDERABAD 3. COMMISSIONER OF INCOME - TAX III HYDERABAD 4. DEPARTMENTAL REPRESENTATIVE, ITAT, HYDERABAD. B.V.S