ACIT 12(3)(2), MUMBAI V. MONGA STRYFIELD P. LTD, MUMBAI

ITA 763/MUM/2016

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 9877 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-03-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2006-2007
• Appeal Filed On: 12-02-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: T A KHAN
• Assessee Lawyers: DR K SHIVARAM; SUSHANK DUNDU
• Keywords: Opportunity of being heard; Wholly owned subsidiary; Revenue expenditure; Capital expenditure

Judgement Text

IN THE INC OME TAX APPELLATE TRIBUNAL B BENCH, MUMBAI BEFORE SHRI G. S. PANNU , AM & SHRI SANDEEP GOSAIN, JM ./ I.T.A. NO. 763 /MUM/2016 ( / ASSESSMENT YEAR: 2006 - 07 ) ACIT 12(3)(2) R. NO. 147B, 1 ST FLOOR, AAYAKAR BHAVAN, M. K. ROAD, MUMBAI - 400020. / VS. MONGA STRAYFIELD PVT. LTD. 5 ARUN BAZAR, S. V. ROAD, MALAD(W), MUMBAI - 400064 & CROSS OBJECTION N O . 237/MUM/2017 ( / ASSESSMENT YEAR: 2006 - 07 ) MONGA STRAYFIELD PVT. LTD. 5 ARUN BAZAR, S. V. ROAD, MALAD(W), MUMBAI - 400064 / VS. ACIT 12(3)(2) R. NO. 147B, 1 ST FLOOR, AAYAKAR BHAVAN, M. K. ROAD, MUMBAI - 400020. ./ ./ PAN/GIR NO. A A BCM6205H / APPELLANT BY : SHRI T. A. KHAN, DR / RESPONDENTBY : DR. K. SHIVARA M & SHRI SUSHANK DUNDU , AR / DATE OF HEARING : 06/03 /2018 / DATE OF PRONOUNCEMENT : 07/03/2018 2 ITA NO 763 /M UM/201 6 & C.O. NO. 237/MUM/17 MONGA STRAYFIELD PVT. LTD. / O R D E R PER SHRI SANDEEP GOSAIN, JUDICIAL MEMBER : THE PRESENT A PPE AL AS WELL AS CROSS OBJECTION FILED BY THE REVENUE AS WELL AS ASSESSEE ARE AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS) 2 0 , MUMBAI DATED 12.11.15 FOR AY 2006 - 07 . 2. SINCE ALL THE ISSUES INVOLVED IN THE APPEAL AS WELL AS CROSS OBJECTION ARE COMMON, THEREFORE, THEY HAVE BEEN CLUBBED , HEARD TOGETHER AND A CONSOLIDATED ORDER IS BEING PASSED FOR THE SAKE OF CONVENIENCE AND BREVITY. I TA NO. 763 /MUM/2016 (AY 20 06 - 07 ) 3 . FIRST OF ALL WE TAKE UP REVENUE S APPEAL IN ITA NO. 763 /MUM/2016 FOR ASSESSMENT YEAR 2006 - 07 AS LEAD CASE . THE GROUND S OF APPEAL ARE MENTIONED HEREIN BELOW: - 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN TREATING IN THE EXPENDITURE INCURRED IN THE ACQUISITION OF SHARES IN THE 3 ITA NO 763 /M UM/201 6 & C.O. NO. 237/MUM/17 MONGA STRAYFIELD PVT. LTD. SUBSIDIARY COMPANY AS REVENUE EXPENDITURE RELYING ON THE DECISION OF THE DELHI HIGH COURT IN THE CASE OF JAY ENGINEERING WORKS LTD ( 311 ITR 405) AND IN NOT APPRECIATING THAT IN THE SAID CASE, EXPENDITURE WAS RELATED TO THE SETTING UP OF A NEW PROJECT UNLIKE THE EXPENDITURE INCURRED IN CONNECTION WITH TH E CAPITAL STRUCTURE OF A SUBSIDIARY COMPANY IN THIS INSTANT CASE.' 2. ' ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE ID CIT(A) ERRED IN IGNORING THE DECISION RENDERED BY THE HON'BLE SUPREME COURT IN THE CASE OF PUNJAB STATE INDUS DEV. CORPORA TION ( 1997) TAXMAN 5 (SC) WHEREIN IT WAS HELD THAT THE EXPENDITURE INCURRED ON CAPITAL BASE WAS A CAPITAL EXPENDITURE. 3. THE APPELLANT PRAYS THAT THE ORDER OF THE CIT(A) ON THE ABOVE GROUND BE SET ASIDE AND THAT OF THE A.O. BE RESTORED. 4. THE APPELLANT CRAVES LEAVE TO AMEND OR ALTER ALL OR ANY OF THE GROUNDS OF APPEAL. 4 . AS PER TH E FACTS OF THE PRESENT CASE, THE ASSESSEE IS A COMPANY WHICH IS ENGAGED IN THE BUSINESS OF MANUFACTURE AND SALE OF RADIO FREQUENCY TEXTILE YARN DRYER (R. F. DRYERS). T HE A.O ASSESSED THE TOTAL INCOME AT RS. 1,57,14,122/ - AS AGAINST THE 4 ITA NO 763 /M UM/201 6 & C.O. NO. 237/MUM/17 MONGA STRAYFIELD PVT. LTD. RETURNED INCOME OF RS. 81,60,389/ - . AGGRIEVED BY THE ADDITIONS MADE BY THE AO, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE LD. CIT(A), THE LD. CIT(A) GAVE RELIEF ON SOME ISSUES AND CONFIRMED THE REST OF THE ADDITIONS. OUT OF TH E TOTAL DISALLOWANCE ON ACCOUNT OF CAPITAL EXPENDITURE OF RS. 68,29,046/ - , THE CI T(A) HAS ALLOWED A RELIEF OF RS. 16,5 8,033/ - AND CONFIRMED THE ADDITION OF RS. 51,71,013/ - . THE ASSESSEE FILED FURTHER APPEAL BEFORE THE HON'BLE ITAT. TH E HON'BLE ITAT IN ITA NO. 4 606/MUM/2009 VIDE ORDER DATED 09.11.2011 HAS SET ASIDE THE ISSUE OF DISALLOWANCE OF EXPENSES AMOUNTING TO RS. 51,71,013/ - TO THE FILE OF THE A.O. FOR DECIDING THE SAME AFRESH IN ACCORDANCE WITH LAW AFTER GIVING TH E ASSESSEE AN OPPORTUNITY OF BEING HEARD. THE LD. A.O. WHILE GIVING EFFECT TO THE ORDER OF THE HON'BLE TRIBUNAL HAS AGAIN MADE ADDITION OF RS. 51,71,013/ - . AGGRIEVED BY THE ORDER OF AO, ASSESSEE PREFERRED APPEAL BEFORE LD. CIT( A) AND LD. CIT(A) AFTER CONSIDERING THE CASE OF BOTH THE PARTIES ALL OWED THE APPEAL OF THE ASSESSEE . AGGRIEVED BY THE O RDER OF LD. CIT(A), BOTH I.E. REVENUE AS WELL AS THE ASSESSEE HAVE FILED THE IR APPEAL AS WELL AS CROSS 5 ITA NO 763 /M UM/201 6 & C.O. NO. 237/MUM/17 MONGA STRAYFIELD PVT. LTD. OBJECTION BEFORE US. HOWEVER AT PRESENT WE ARE DEALING WITH THE APPEAL FILED BY THE REVENUE ON THE GROUND S MENTIONED HEREIN ABOVE . GROUND NO. 1 & 2 5 . THESE GROU ND GROUNDS RAISED BY THE ASSESSEE ARE INTER - CONNECTED AND INTER - RELATED AND RELATES TO CHALLENGING THE ORDER OF LD. CIT(A) IN TREATING IN THE EXPENDITURE INCURRED IN THE ACQUISITION OF SHARES IN THE SUBSIDIARY COMPANY AS REVENUE EXPENDITURE RELYING ON THE DECISION OF THE DELHI HIGH COURT IN THE CASE OF JAY ENGINEERING WORKS LTD ( 311 ITR 405) AND IN NOT APPRECIATING THAT IN THE SAID CASE, EXPENDITURE WAS RELATED TO THE SETTING UP OF A NEW PROJECT UNLIKE THE EXPENDITURE INCURRED IN CONNECTION WITH THE CAPITAL STRUCTURE OF A SUBSIDIARY COMPANY IN THIS INSTANT CASE , THEREFORE WE THOUGHT IT FIT TO DISPOSE OF BY THIS COMMON ORDER. 6 . WE HAVE HEARD COUNSELS FOR BOTH THE PARTIES AT LENGTH AND WE HAVE ALSO PERUSED THE MATERIAL PLACED ON RECORD AS WELL AS THE ORDERS PASSED BY REVENUE AUTHORITIES. 6 ITA NO 763 /M UM/201 6 & C.O. NO. 237/MUM/17 MONGA STRAYFIELD PVT. LTD. BEFORE WE DECIDE THE MERITS OF THE CASE, IT IS NECESSARY TO EVALUATE THE ORDERS PASSED BY LD. CIT(A). THE LD. CIT(A) HAS DEALT WITH THE ABOVE GROUNDS RAISED BY THE REVENUE IN ITS ORDER. THE OPERATIVE PORTION OF THE ORDER OF LD. CIT(A) IS CONTAINED IN PARA NO. 7 OF ITS ORDER AND THE SAME IS REPRODUCED BELOW: - 7. I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE, THE SUBMISSIONS OF THE APPELLANT AND ORDER OF HONBLE ITAT DATED 09.11.2011. IN THIS REGARD, IT IS NOTED THAT THE HON'BLE ITAT HAS CLEARLY BROUGHT O UT THE FACTS OF THE CASE THAT THE EXPENDITURE WAS INCURRED BY THE APPELLANT IN CONNECTION WITH SETTING UP OF A 100% SUBSIDIARY COMPANY NAMELY M/S. MONGA STRAYFIELD LTD. U.K. WHICH WAS TO OPERATE IN THE SIMILAR LINES OF BUSINESS AS THE ASSESSEE. THE HAS NOT ED THAT THE INVESTMENT WAS MADE IN RELATION TO SETTING UP OF SUBSIDIARY AND NOT FOR PURCHASE OF ANY EQUITY OR SHARES OF ANY OTHER COMPANY AS NOTED BY THE A.O. IT IS ALSO NOTED THAT LD. A.O. HAS NOT FULLY APPRECIATED THE FACTS AS HAVE BEEN CLEARLY BROUGHT O UT BY HON'BLE ITAT THAT ASSESSEE HAD MADE EXPENDITURE ONLY TO ACQUIRE STAKE IN ITS OWN SUBSIDIARY COMPANY IN THE SAME LINE OF BUSINESS. IN THIS REGARD IT IS PERTINENT TO NOTE THE FINDINGS OF THE HON'BLE ITAT DELHI IN THE CASE OF M/S. JAY ENGINEERING WORKS VS. CIT, DELHI AS REPORTED AT 7 ITA NO 763 /M UM/201 6 & C.O. NO. 237/MUM/17 MONGA STRAYFIELD PVT. LTD. [2008] 166 TAXMANN 115 (DELHI), WHERE IN IT IS HAS BEEN HELD THAT WHERE THERE WAS A UNITY CONTROL LEADING TO INTERCONNECTION INTER DEPENDENCE AND INTER LACING OF THE TWO VENTURES SUCH THAT IT COULD BE SAID THAT THE NEW VENTURE WAS ONLY AN EXTENSION OF THE EXISTING BUSINESS OF THE ASSESSEE, THE EXPENDITURE INCURRED I5Y THE ASSESSEE ON THE NEW VENTURE WAS REVENUE IN NATURE. IT IS SEEN THAT THE FACTS OF THE PRESENT CASE ARE CLEAR AS POINTED OUT BY THE HONBLE ITAT THAT THE ASSESSE E HAD INCURRED THE EXPENDITURE TO SET UP A SUBSIDIARY COMPANY M/S. MONGA STRAYFIELD LTD., U K, IN THE SAME LINE OF BUSINESS AS THE ASSESSEE. ONCE THESE FACTS ARE APPRECIATED THEN IT IS SEEN THAT THE RATIO OF THE CASE OF M/S. JAY ENGINEERING WORKS VS. CIT A S DISCUSSED ABOVE IS APPLICABLE AND THE EXPENDITURE INCURRED ON SETTING UP THE SUBSIDIARY COMPANY WAS IN THE NATURE OF EXPANSION OF THE EXISTING BUSINESS AND IS THUS REQUIRED TO BE TREATED AS REVENUE EXPENSES. IT IS NOTED THAT ASSESSEE HAD INCURRED EXPENSE S FOR DUE DILIGENCE, LEGAL FEES, TRAVELLING EXPENSES ETC. FOR SETTING UP OF SUBSIDIARY AND ACQUIRING R. F. DRYERS BUSINESS DIVISION, WHICH WERE MEANT FOR EXPANSION ASSESS EXISTING LINE OF BUSINESS. IN VIEW OF THIS DISCUSSION AND IN LIGHT OF THE FACTUAL FIN DINGS BY THE HON'BLE ITAT THE ADDITION MADE BY THE LD. A.O. CANNOT BE SUSTAINED IN 8 ITA NO 763 /M UM/201 6 & C.O. NO. 237/MUM/17 MONGA STRAYFIELD PVT. LTD. APPEAL AND IS DIRECTED TO BE DELETED. ACCORDINGLY THE GROUNDS OF APPEAL IN THIS REGARD ARE ALLOWED. AFTER HAVING GONE THROUGH THE FACTS OF THE PRESENT CASE AS WELL AS CONSI DERING THE ORDERS PASSED BY REVENUE AUTHORITIES AND SUBMISSIONS MADE BY BOTH THE PARTIES, WE FIND THAT LD. CIT(A) HAD CORRECTLY APPRECIATED THE FACT OF THE PRESENT CASE. EVEN WE ARE OF THE CONSIDERED VIEW THAT THE HONBLE ITAT IN THE FIRST ROUND OF LITIGAT ION IN THE PRESENT CASE HAD BROUGHT OUT THE FACTS THAT THE EXPENDITURE WAS INCURRED BY THE ASSESSEE IN CONNECTION WITH SETTING UP OF A 100% SUBSIDIARY COMPANY NAMELY M/S. MONGA STRAYFIELD LTD. U.K. WHICH WAS TO OPERATE IN THE SIMILAR LINES OF BUSINESS AS T HAT OF THE ASSESSEE. WE ALSO NOTICE TH AT THE INVESTMENT WAS MADE IN RELATION TO SETTING UP OF A SUBSIDIARY AND NOT FOR THE PURCHASE OF ANY EQUITY OR SHARES OF ANY OTHER COMPANY AS NOTED BY THE A.O. SINCE THE FACTUAL FINDINGS HAVE ALREADY BEEN RECORDED BY T HE COORDINATE BENCH OF HONBLE ITAT IN THE FIRST ROUND OF LITIGATION IN THE PRESENT CASE, THEREFORE WE ARE NOT DIVERTING OURSELVES FROM THOSE FINDINGS. 9 ITA NO 763 /M UM/201 6 & C.O. NO. 237/MUM/17 MONGA STRAYFIELD PVT. LTD. LD. CIT(A) WHILE REACHING TO THE CONCLUSION THAT THE EXPENDITURE INCURRED BY THE ASSESSEE WAS REVENUE IN NATURE HAD RELIED UPON THE DECISION OF THE COORDINATE BENCH OF HONBLE ITAT IN THE CASE OF M/S. JAY ENGINEERING WORKS VS. CIT, DELHI AS REPORTED AT [2008] 166 TAXMANN 115 (DELHI) , WHEREIN IT WAS HEL D THAT WHERE THERE WAS A UNITY CONTROL LEADING TO INTERCONNECTION INTER DEPENDENCE AND INTER LACING OF THE TWO VENTURES SUCH THAT IT COULD BE SAID THAT THE NEW VENTURE WAS ONLY AN EXTENSION OF THE EXISTING BUSINESS OF THE ASSES SEE, THE EXPENDITURE INCURRED B Y THE ASSESSEE ON THE NEW VENTURE WAS REVENUE IN NATURE. SINCE THE FACTS OF THE PRESENT CASE ARE ALSO POINTING TOWARDS THE FACT THAT THE EXPENSES INCURRED BY THE ASSESSEE TO SET UP A SUBSIDIARY COMPANY I.E. M/S. MONGA STRAYFIELD LTD., U K, OPERATING IN THE SAME LINE OF BUSINESS AS THE ASSESSEE. THEREFOR E, IN OUR VIEW ALSO, THE RATIO OF THE CASE AS DISCUSSED IN THE CASE OF M/S. JAY ENGINEERING WORKS VS. CIT ARE ALSO APPLICABLE IN THE PRESENT CASE AND THUS THE EXPENDITURE INCURRED ON SETTING UP THE SUBSIDIARY COMPANY WAS IN THE NATURE OF EXPANSION OF THE E XISTING BUSINESS AND WAS THUS REQUIRED TO BE TREATED AS REVENUE EXPENSES. 10 ITA NO 763 /M UM/201 6 & C.O. NO. 237/MUM/17 MONGA STRAYFIELD PVT. LTD. W E FURTHER NOTICED THAT ASSESSEE HAD INCURRED EXPENSES FOR DUE DILIGENCE, LEGAL FEES, TRAVELLING EXPENSES ETC. FOR SETTING UP OF SUBSIDIARY AND ACQUIRING R. F. DRYERS BUSINESS DIVIS ION, WHICH WERE MEANT FOR EXPANSION OF THE ASSESS EES EXISTING LINE OF BUSINESS. THEREFORE, WE ARE IN AGREEMENT WITH THE FINDINGS RECORDED BY LD. CIT(A) . MOREOVER, N O NEW FACTS OR CONTRARY JUDGMENTS HAVE BEEN BROUGHT ON RECORD BEFORE US I N ORDER TO CONTROVERT OR REBUT THE FINDINGS SO RECORDED BY LD CIT(A). THEREFORE, THERE ARE NO REASON S FOR US TO INTERFERE INTO OR DEVIATE FROM THE FINDINGS RECORDED BY THE LD.CIT(A). HENCE , WE ARE OF THE CONSIDERED VIEW THAT THE FINDINGS SO RECORDED BY THE LD. CIT (A) ARE JUDICIOUS AND ARE WE LL REASONED. RESULTANTLY, THESE GROUND S RAISED BY THE REVENUE STANDS DISMISSED . GROUND NO. 3 & 4 7. THESE GROUNDS RAISED BY THE REVENUE ARE GENERAL IN NATURE, THUS REQUIRES NO SPECIFIC ADJUDICATION. 11 ITA NO 763 /M UM/201 6 & C.O. NO. 237/MUM/17 MONGA STRAYFIELD PVT. LTD. CROSS OBJECTION NO. 237/MUM/2017 FOR AY 2006 - 07 . 8 . NOW WE TAKE UP ASSESSEE S REVISED GROUNDS IN CROSS OBJECTION NO. 237 /MUM/2017 FOR AY 2006 - 07. SINCE WE HAVE ALREADY UPHELD THE ORDER OF LD. CIT( A), THEREFORE IN VIEW OF OUR FINDINGS IN APPEAL FILED BY THE REVENUE IN ITA NO. 763/MUM/2016 FOR AY 2006 - 07 , THE CROSS OBJECTION RAISED BY THE ASSESSEE BECOMES ACADEMIC. 9 . IN THE NET RESULT, THE APPEAL AS WELL AS C.O. FILED BY THE REVENUE AS WELL AS ASS ESSEE STANDS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 7 TH MARCH . 2018. SD/ - SD/ - (G. S. PANNU ) (SANDEEP GOSAIN) / ACCOUNTANT MEMBER / JUDICIAL MEMBER MUMBAI ; DATED : 07 .03 .201 8 SR.PS . DHANANJAY 12 ITA NO 763 /M UM/201 6 & C.O. NO. 237/MUM/17 MONGA STRAYFIELD PVT. LTD. / 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 F I LE / BY ORDER, . / (DY./ASSTT.REGISTRAR) , / ITAT, MUMBAI