DCIT, New Delhi V. M/s. Bose Corporation India Pvt. Ltd., New Delhi

ITA 83/DEL/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 65599 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 8 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-10-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 30-08-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 07-01-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ANJALI CHAUDHARY ARS
• Assessee Lawyers: PIRTHI LAL
• Keywords: Gross profit estimation; Capital asset; Revision of order; Depreciation; Revenue expenditure; Capital expenditure
• Section: 145; 37; 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI A BENC H BEFORE SHRI HARI OM MARATHA , JM & SHRI A.N. PAHU JA, AM ITA NO.83/DEL/2011 WITH CO NO.35/DEL./2011 ASSESSMENT YEAR : 2006-07 DEPUTY C.I.T.,CIRCLE 3(1), NEW DELHI V/S . BOSE CORPORATION INDIA PVT. LTD., 4 TH FLOOR, SHRI RAM BHARTIYA KALA KENDRA, 1, COPERNICUS MARG, NEW DELHI [PAN :AAACB 3260 A] (APPELLANT) (RESPONDENT) APPELLANT BY S/SHRI TARAN DEEP SINGH, MANUSH UP NEJA & MS. ANJALI CHAUDHARY, ARS RESPONDENT BY SHRI PIRTHI LAL, DR DATE OF HEARING 30-08-2012 DATE OF PRONOUNCEMENT 01-10-2012 O R D E R A.N. PAHUJA:- THIS APPEAL FILED ON 07-01-2011 BY THE REVENUE AND THE CORRESPONDING CROSS OBJECTION[CO] FILED ON 11.02.20 11 BY THE ASSESSEE AGAINST AN ORDER DATED 15 TH NOVEMBER, 2011 OF THE LD. CIT(A)-VI, NEW DELHI, RA ISE THE FOLLOWING GROUNDS: I.T.A. NO.83/DEL./2011[REVENUE] 1. IN THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DIRECTING T O DELETE ADDITION OF ` `23,42,178/- ON ACCOUNT OF PROVISIONS OF WARRANTY EXPENSES IGNORING THAT: A) THE LIABILITY IS ONLY CONTINGENT AND UNCERTAIN W HICH MAY OR MAY NOT BE DISCHARGED. B) THE METHOD FOR CALCULATION OF PROVISIONS FOR WARRANTY IS NOT BASED ON ACTUARIAL VALUATION OR ANY ITA NO.83 /D/2011 & CO NO. 35/DEL ./2011 2 SCIENTIFIC METHOD WHICH ARE ACCEPTABLE METHODS AS PER THE DECISION OF VARIOUS COURTS. C) THE ASSESSEE COULD NOT PROVE THE ACTUAL INCURRENCE OF LIABILITY UNDER THE WARRANTY CLAUSE O N THE BASIS OF FIXED PERCENTAGE OF TURNOVER. 2. IN THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DIRECTING TO DELET E ADDITION OF ` ` 15,85,398/- ON ACCOUNT OF LOW GROSS PROFIT RATE IGNORING THAT THE ASSESSEE FAILED TO SUBSTANTI ATE ITS CLAIM OF ABNORMAL INCREASE IN SELLING AND ADMINISTR ATIVE EXPENSES BY NON SUBMISSION OF DOCUMENTARY EVIDENCE. 3. IN THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(A) HAS ERRED IN LAW AND ON FACTS IN DIRECTING T O DELETE ADDITION OF ` ` 15,86,400/- ON ACCOUNT OF CAPITALIZATION OF ADVERTISEMENT EXPENSES IGNORING THAT BENEFIT OF END URING NATURE WAS DRAWN ON THIS ACCOUNT. 4. IN THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(A) HAS ERRED IN LAW AND ON FACTS IN DIRECTING T O DELETION ADDITION OF ` 7,45,000/- ON ACCOUNT OF DISALLOWANCES OF SERVICE CHARGES RECEIVED IN ADVANC E IGNORING THAT EACH ASSESSMENT YEAR IS SEPARATE AND, THEREFORE, THE INCOME OF ONE ASSESSMENT YEAR CANNOT BE OFFERED TO THE SUBSEQUENT YEAR. MOREOVER, THE TAXA BILITY DEPENDS UPON THE METHOD OF ACCOUNTING ADOPTED BY TH E ASSESSEE AND HERE THE ASSESSEE IS FOLLOWING THE MERCANTILE SYSTEM OF ACCOUNTING. 5. THE APPELLANT CRAVES LEAVE FOR RESERVING THE RIG HT TO AMEND, MODIFY, ALTER, ADD OR FOREGO ANY GROUNDS OF APPEAL AT ANY TIME BEFORE OR DURING THE HEARING OF THIS APPEAL. C.O. NO.35/D/2011[ASSESSEE] 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) ERRED IN NOT ALLOWING THE EXPENDITURE INCURRED ON STAMP DUTY PAID FOR STORE S TAKEN ON LEASE AMOUNTING TO ` ` 136,000/- BY TREATING THE SAME AS CAPITAL EXPENDITURE WITHOUT APPRECIATING TH AT SUCH EXPENSES ARE INCURRED IN RELATION TO REVENUE EXPENDITURE. . ITA NO.83 /D/2011 & CO NO. 35/DEL ./2011 3 2. ADVERTING FIRST TO GROUND NO.1 IN THE APPEAL OF THE REVENUE, FACTS, IN BRIEF, AS PER RELEVANT ORDERS ARE THAT RETURN DECLA RING INCOME OF ` `3,93,02,030/- FILED ON 29.11.2006 BY THE ASSESSEE, ENGAGED IN THE BUSINESS OF TRADING IN SOUND//AUDIO SYSTEMS, WAS SELECTED FOR SCRUTINY WIT H THE SERVICE OF A NOTICE U/S 143(2)) OF THE INCOME-TAX ACT, 1961 (HEREINAFTER RE FERRED TO AS THE ACT) ISSUED ON 10.10.2007. DURING THE COURSE OF ASSESSMENT PROCEED INGS, THE ASSESSING OFFICER (A.O. IN SHORT) NOTICED THAT THE ASSESSEE MADE PROV ISION FOR WARRANTY EXPENSES OF ` `23,42,178/-. TO A QUERY BY THE AO, THE ASSESSEE E XPLAINED THAT PROVISION FOR WARRANTY WAS MADE @ 0.5% OF ANNUAL SALES IN THE FOLLOWING MANNER:- I) ON SPEAKERS: 5 YEARS AFTER THE DATE OF SALE; II) ON ELECTRONICS: ONE YEAR AFTER THE DATE OF SAL E. IT WAS EXPLAINED THAT PROVISION WAS MADE IN ACCORDA NCE WITH GLOBAL POLICY KEEPING IN VIEW PAST EXPERIENCE, TECHNICAL EVALUATI ON AND BEST ESTIMATES IN THIS REGARD. INTER ALIA, THE ASSESSEE RELIED ON VARIOUS DECISIONS IN CIT VS. HEWLETT PACKARD INDIA (P) LTD. (2008) 171 TAXMAN 13 (DEL);H ADEN INTERNATIONAL GROUP INDIA (P) LTD. VS. ACIT (2008) 20 SOT 305 (MUM);CIT VS. SONY INDIA (P) LTD. (2007) 160 TAXMAN 397 (DEL); CIT VS. M/S VINITEC CO RPORATION PVT. LTD. (2005) 196 CTR 369 (DELHI); BHARAT EARTH MOVERS VS. CIT, 1 12 TAXMAN 61 (SC);AND COMMISSIONER OF INLAND REVENUE VS. MITSUBISHI MOTOR S NEW ZEALAND LTD. (1995) 222 ITR 697( PRIVY COUNCIL).THE ASSESSEE POINTED OU T THAT IN THE ASSESSMENT YEAR 2003-04, THE ITAT VIDE ORDER DATED 7 TH APRIL, 2009 QUASHED THE PROCEEDINGS U/S 263 OF THE ACT. SINCE THE ASSESSEE WAS FOLLOWI NG MERCANTILE SYSTEM OF ACCOUNTING, THE ASSESSEE PLEADED THAT THEIR CLAIM M AY BE ALLOWED. HOWEVER, THE AO DID NOT ACCEPT THE SUBMISSIONS WHILE RELYING UPO N FINDINGS OF THE AO IN THE ASSESSMENT ORDER FOR THE AY 2005-06 ,WHEREIN DECIS IONS IN INDIAN MOLASSES CO. PVT. LTD. VS. CIT,37 ITR 66(SC);STANDARD MILLS CO. LTD. VS. CIT,229 ITR 366(BOM.); CIT VS. MOTOR INDUSTRIES CO. LTD.,229 IT R 137(KAR) AND CIT VS. ROTORK CONTROL INDIA LTD.,293 ITR 311(MAD.) WERE RE FERRED TO AND ,CONCLUDED THAT PROVISION FOR WARRANTY, NOT BEING ASCERTAINED ,IS N OT ALLOWABLE. ITA NO.83 /D/2011 & CO NO. 35/DEL ./2011 4 3. ON APPEAL, THE LD. CIT(A) ALLOWED THE CLAIM WHI LE RELYING UPON THE DECISIONS OF THE CIT(A) AND THE ITAT IN THE AYS 200 1-02,2003-04 AND 2005-06, IN THE FOLLOWING TERMS:- 2.3 I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS O F LEARNED AR AND HAVE GONE THROUGH THE ASSESSMENT ORD ER. SIMILAR ISSUE CAME UP BEFORE ME IN APPELLANTS OWN CASES FO R ASSESSMENT YEARS 2001-02 AND 2005-06 WHEREIN THE ADDITION WAS DELETED IN THE LIGHT OF THE OBSERVATIONS OF HONBLE DELHI ITAT IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2003-04 AND ALSO IN VIEW O F THE VARIOUS DECISIONS OF HONBLE DELHI HIGH COURT AND HONBLE S UPREME COURT. THE APPEAL ORDERS FOR ASSESSMENT YEAR 2001-02 AND 2 005-06 HAVE BEEN UPHELD BY HONBLE ITAT VIDE ORDER DATED 4.3.20 10 IN I.T.A. NO.4554 AND 4555/D/09. SINCE THERE IS NO CHANGE IN FACTS AND CIRCUMSTANCES OF THE CASE, RESPECTFULLY FOLLOWING T HE DECISION OF HONBLE TRIBUNAL, THE ADDITION IS DIRECTED TO BE DE LETED. 4. THE REVENUE IS NOW IN APPEAL BEFORE US AGAINST THE AFORESAID FINDINGS OF THE LD. CIT(A).THE LD. DR SUPPORTED THE ORDER OF THE AO WHILE THE LD. AR ON BEHALF OF THE ASSESSEE RELIED UPON THE FINDI NGS IN THE IMPUGNED ORDER. 5. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE FACTS OF THE CASE. INDISPUTABLY, THE CLAIM OF THE ASSESSEE HAS B EEN ALLOWED IN IDENTICAL CIRCUMSTANCES BY THE ITAT IN THEIR ORDER DATED 4.3. 2010 FOR THE AYS 2001-02 AND 2005-06 IN I.T.A. NOS.4554 & 4555/DEL./2009 . HON BLE SUPREME COURT IN THEIR DECISION IN ROTORK CONTROL INDIA LTD. VS. CIT,314 I TR 62(SC) WHILE ADJUDICATING A SIMILAR ISSUE, HELD THAT I) A PROVISION IS A LIABILITY WHICH CAN BE ME ASURED ONLY BY USING A SUBSTANTIAL DEGREE OF ESTIMATION. A PROVISION IS RECOGNIZED WHE N: (A) AN ENTERPRISE HAS A PRESENT OBLIGATION AS A RESULT OF A PAST EVENT; (B) IT IS PROBABLE THAT AN OUTFLOW OF RESOURCES WILL BE REQUIRED TO SETTLE THE OBLIGATION ; AND (C) A RELIABLE ESTIMATE CAN BE MADE OF THE AMOUNT OF THE OBLIGATION. IF THESE C ONDITIONS ARE NOT MET, NO PROVISION CAN BE RECOGNIZED; II) A LIABILITY IS DEFINED AS A PRESENT OBLIGATION ARISING FROM PAST EVENTS, THE SETTLEMENT OF WHICH IS EXPECTED TO RESULT IN AN OUT FLOW FROM THE ENTERPRISE OF RESOURCES EMBODYING ECONOMIC BENEFITS; ITA NO.83 /D/2011 & CO NO. 35/DEL ./2011 5 III) A PAST EVENT THAT LEADS TO A PRESENT OBLIGATI ON IS CALLED AS AN OBLIGATING EVENT. THE OBLIGATING EVENT IS AN EVENT THAT CREATE S AN OBLIGATION WHICH RESULTS IN AN OUTFLOW OF RESOURCES. IT IS ONLY THOSE OBLIGATIO NS ARISING FROM PAST EVENTS EXISTING INDEPENDENTLY OF THE FUTURE CONDUCT OF THE BUSINESS OF THE ENTERPRISE THAT IS RECOGNIZED AS PROVISION . FOR A LIABILITY TO QUALIFY FOR RECOGNITION THERE MU ST BE NOT ONLY PRESENT OBLIGATION BUT ALSO THE PROBABI LITY OF AN OUTFLOW OF RESOURCES TO SETTLE THAT OBLIGATION. WHERE THERE ARE A NUMBER OF OBLIGATIONS (E.G. PRODUCT WARRANTIES OR SIMILAR CONTRACTS) THE PROBABILITY TH AT AN OUTFLOW WILL BE REQUIRED IN SETTLEMENT, IS DETERMINED BY CONSIDERING THE SAID O BLIGATIONS AS A WHOLE ; IV) IN THE CASE OF A MANUFACTURE AND SALE OF ONE SINGLE ITEM THE PROVISION FOR WARRANTY COULD CONSTITUTE A CONTINGENT LIABILITY NO T ENTITLED TO DEDUCTION U/S 37 OF THE SAID ACT. HOWEVER, WHEN THERE IS MANUFACTURE AN D SALE OF AN ARMY OF ITEMS RUNNING INTO THOUSANDS OF UNITS OF SOPHISTICATED GO ODS, THE PAST EVENT OF DEFECTS BEING DETECTED IN SOME OF SUCH ITEMS LEADS TO A PRE SENT OBLIGATION WHICH RESULTS IN AN ENTERPRISE HAVING NO ALTERNATIVE TO SETTLING THAT OBLIGATION ; V) ON FACTS, THE ASSESSEE HAS BEEN MANUFACTURING AN D SELLING VALVE ACTUATORS IN LARGE NUMBERS SINCE 1983-84 ONWARDS. STATISTICAL DA TA INDICATES THAT EVERY YEAR SOME ACTUATORS ARE FOUND TO BE DEFECTIVE. THE DATA OVER THE YEARS ALSO INDICATES THAT BEING SOPHISTICATED ITEM NO CUSTOMER IS PREPAR ED TO BUY THE VALVE ACTUATOR WITHOUT A WARRANTY. THEREFORE, WARRANTY BECAME INTEGRAL PART OF THE SAL E PRICE OF THE VALVE ACTUATOR(S). IN OTHER WORDS, WARRANTY STO OD ATTACHED TO THE SALE PRICE OF THE PRODUCT AND A RELIABLE ESTIMATE OF THE EXPEN DITURE TOWARDS SUCH WARRANTY WAS ALLOWABLE . 5.1 . IN THE INSTANT CASE, INDISPUTABLY ,THE ASSESSEE PROVIDED FOR THE WARRANTY EXPENSES BASED ON TECHNICAL EVALUATION AND PAST EXP ERIENCE; WARRANTY STOOD ATTACHED TO THE SALE PRICE OF THE PRODUCT AND A REL IABLE ESTIMATE OF THE EXPENDITURE TOWARDS SUCH WARRANTY IS ALLOWABLE. MO REOVER, THE ITAT HAVE ALLOWED A SIMILAR CLAIM IN THE AYS 2001-02,2003-04 & 2005-06.CONSIDERING THE AFORESAID FACTS AND CIRCUMSTANCES OF THE CASE IN LIGHT OF THE VIEW TAKEN BY THE HON'BLE APEX COURT IN THE AFORESAID DECISION, ESPE CIALLY WHEN THE REVENUE HAVE NOT PLACED BEFORE US ANY MATERIAL CONTROVERTING THE AFORESAID FINDINGS OF THE LD. CIT(A) NOR BROUGHT TO OUR NOTICE ANY CONTRARY DECIS ION, SO AS TO ENABLE US TO TAKE A DIFFERENT VIEW IN THE MATTER, WE ARE NOT INC LINED TO INTERFERE. THEREFORE, GROUND NO.1 IN THE APPEAL OF THE REVENUE IS DISMISS ED.. ITA NO.83 /D/2011 & CO NO. 35/DEL ./2011 6 6. GROUND NO.2 IN THE APPEAL OF THE REVENUE RELAT ES TO TRADING ADDITION OF ` ` 15,85,398/-. ON PERUSAL OF PROFIT AND LOSS ACCOUNT , THE AO NOTICED THAT THE ASSESSEE REFLECTED GP @ 37.4% ON TURNOVER OF ` 39,44,53,585/-AS AGAINST 39.7% ON TURNOVER OF ` `27,49,08,363/- IN THE PRECEDING ASSESSMENT YEAR. SINCE THERE WAS FALL IN GP RATE, THE AO ASKED THE A SSESSEE TO EXPLAIN THE REASONS FOR DECLINE IN GP RATE. IN REPLY, THE ASSE SSEE SUBMITTED THAT THEIR TURNOVER INCREASED BY 40% VIS--VIS PRECEDING YEAR WHILE TOTAL COST OF GOODS SOLD INCREASED BY 46%; OTHER OPERATING EXPENSES BY 48% A ND TAX EXPENSES BY 306.62%, RESULTING IN FALL IN GP RATE BY 2.26%. HO WEVER, THE AO DID NOT ACCEPT THE SUBMISSIONS OF THE ASSESSEE ON THE GROUND THAT ASSESSEE FAILED TO ADDUCE ANY EVIDENCE IN SUPPORT OF REASONS FOR INCREASE IN EXPENSES. ACCORDINGLY, APPLYING GP RATE OF 39.50% ON ENHANCED TURNOVER OF ` ` 45 CRORES, THE AO ADDED AN AMOUNT OF ` ` 15,85,398/-. 7. ON APPEAL, THE LD. CIT(A) DELETED THE ADDITION, HOLDING AS UNDER:- 3.3 I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE LEARNED AR AND HAVE GONE THROUGH THE ASSESSMENT ORD ER. IN THE YEAR UNDER CONSIDERATION THE GROSS PROFIT HA S GONE DOWN AS COMPARED TO THE IMMEDIATELY PRECEDING YEAR FROM 39.73% TO 37.47%. BEFORE THE ASSESSING OFFICER THE APPELLANT HAD EXPLAINED THAT THOUGH TURNOVER HAS IN CREASED BY 40% BUT THE EXPENSES HAVE INCREASED AT A HIGHER RATE. AS PER THE INFORMATION REPRODUCED IN THE ASSESSMENT ORDER, TOTAL COST OF GOODS SOLD HAS INCREASED BY 46%; OTHE R OPERATING EXPENSES HAVE GONE UP BY 48% AND TAX EXPE NSES ARE INCREASED BY 306.62%. HOWEVER, THE ASSESSING O FFICER REJECTED THE ASSESSEES SUBMISSIONS ON THE GROUND T HAT NO EVIDENCE IS FILED TO SHOW THE REASON FOR INCREASE IN EXPENSES. IT IS NOT THE CASE OF THE ASSESSING OFFI CER THAT THE JUSTIFICATION GIVEN BY THE APPELLANT IS WRONG NOR A NY DEFECT OR DISCREPANCY IS POINTED OUT BY EXAMINING THE DETAILS AND BOOKS OF ACCOUNTS. IN SUCH CIRCUMSTANCES, THE ESTI MATED ADDITION BY APPLYING THE GP RATE OF 39.50% IS NOT J USTIFIED. THE SAME IS, THEREFORE, DIRECTED TO BE DELETED. ITA NO.83 /D/2011 & CO NO. 35/DEL ./2011 7 8. THE REVENUE IS NOW IN APPEAL BEFORE US AGAINST THE AFORESAID FINDINGS OF THE LD. CIT(A).THE LD. DR SUPPORTED THE ORDER OF THE AO WHILE THE LD. AR ON BEHALF OF THE ASSESSEE RELIED UPON THE FINDIN GS IN THE IMPUGNED ORDER. 9. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUG H THE FACTS OF THE CASE. AS IS APPARENT FROM THE FINDINGS OF THE AO, THE ONLY REASON GIVEN IN THE ASSESSMENT ORDER FOR AFORESAID TRADING ADDITION IS THAT THE ASSESSEE DID NOT FURNISH ANY EVIDENCE IN SUPPORT OF INCREASE IN EXPE NSES IN THE YEAR UNDER CONSIDERATION VIS-A-VIS EXPENSES IN THE PRECEDING Y EAR. IN NUTSHELL ,EXPENSES WAS NOT COMMENSURATE WITH TURNOVER . THE AO NOWHER E RECORDED ANY FINDINGS THAT THE BOOKS OF ACCOUNT MAINTAINED BY THE ASSESSE E WERE INCORRECT, RENDERING IT IMPOSSIBLE TO DEDUCE THE PROFIT AND DESPITE THAT HE PROCEEDED TO ESTIMATE THE PROFIT AND TURNOVER , INVOKING THE PRINCIPLES OF BE ST JUDGMENT. THE LD. CIT(A),ON THE OTHER HAND, CONCLUDED THAT THE ACTION OF THE A O TO MAKE ESTIMATED TRADING ADDITION WITHOUT POINTING OUT ANY DEFECTS IN THE BO OKS OF ACCOUNTS, IS TOTALLY UNJUSTIFIABLE AND THEREFORE, DELETED THE ADDITION. THE REVENUE HAVE NOT PLACED BEFORE US ANY MATERIAL, CONTROVERTING THESE FINDING S OF FACTS RECORDED BY THE LD. CIT(A). IN THE ABSENCE OF ANY DEFECTS IN THE BOOKS OF ACCOUNTS, AUDITED RESULTS COULD NOT BE REJECTED. HONBLE GAUHATI HIGH COURT IN ALUMINIUM INDUSTRIES (P) LTD. V. CIT (I.T.R. NO. 12 OF 1990) OBSERVED THAT A LOWER RATE OF GROSS PROFIT DECLARED BY THE ASSESSEE AS COMPARED TO THE PREVIOU S YEAR, WOULD NOT IN ITSELF BE SUFFICIENT TO JUSTIFY ANY ADDITION. THE MERE FAC T THAT THE PERCENTAGE OF LOSS OR GROSS PROFIT IS HIGH OR LOW IN A PARTICULAR YEAR DO ES NOT NECESSARILY LEAD TO INFERENCE THAT THERE HAS BEEN SUPPRESSION. LOW PROF IT OR LOWER YIELD IS NEITHER A CIRCUMSTANCE OR MATERIAL TO JUSTIFY ADDITION OF PRO FITS. THE RATIO OF THE JUDGMENTS IN DHAKESWARI COTTON MILLS LTD. V. CIT [1954] 26 ITR 775 (SC); RAGHUBIR MANDAL HARIHAR MANDAL V. STATE OF BIHAR [1957] 8 STC 770 ( SC); STATE OF KERALA V. C. VELUKUTTY [1966] 60 ITR 239 (SC); STATE OF ORISSA V. MAHARAJA SHRI B.P. SINGH DEO [1970] 76 ITR 690 (SC); BRIJ BHUSAN LAL PARDUMAN KUMAR V. CIT [1978] 115 ITR 524 (SC); CHOUTHMAL AGARWALLA V. CIT [1962] 46 ITR 262 (ASSAM); R.V.S. AND SONS DAIRY FARM V. CIT [2002] 257 ITR 764 (MAD); INTERNATIONAL FOREST CO. ITA NO.83 /D/2011 & CO NO. 35/DEL ./2011 8 V. CIT [1975] 101 ITR 721 (J & K) ; M. DURAI RAJ V. CIT [1972] 83 ITR 484 (KER); RAMCHANDRA RAMNIVAS V. STATE OF ORISSA [1970] 25 ST C 501 (ORISSA); ACTION ELECTRICALS V. DEPUTY CIT [2002] 258 ITR 188 (DELHI) AND KAMAL KUMAR SAHARIA V. CIT [1995] 216 ITR 217 (GAUHATI) INDICATE THAT THE AO IS NOT FETTERED BY ANY TECHNICAL RULES OF EVIDENCE AND PLEADINGS, AND HE I S ENTITLED TO ACT ON MATERIAL WHICH ARE NOT ACCEPTABLE IN EVIDENCE IN A COURT OF LAW, BUT WHILE MAKING THE ASSESSMENT UNDER THE PRINCIPLES OF BEST JUDGMENT, T HE INCOME-TAX OFFICER IS NOT ENTITLED TO MAKE A PURE GUESS WITHOUT REFERENCE TO ANY EVIDENCE OR MATERIAL. THERE MUST BE SOMETHING MORE THAN A MERE SUSPICION TO SUPPORT THE ASSESSMENT. LOW PROFIT IN A PARTICULAR YEAR IN ITSE LF CANNOT BE A GROUND FOR INVOKING THE POWERS OF BEST JUDGMENT ASSESSMENT WIT HOUT SUPPORT OF ANY MATERIAL ON RECORD. IN PANDIT BROS. V. CIT(1954) 26 ITR 159 (P & H) & SHANKAR RICE CO. VS. ITO,72 ITD 139(ASR)(SB), IT WAS CONCL UDED THAT REJECTION OF BOOK RESULTS WITHOUT POINTING OUT ANY DEFECTS IN BOOKS O F ACCOUNTS, COULD NOT BE SUSTAINED. THE HONBLE GUJARAT HIGH COURT IN THE CA SE OF CIT VS. AMITBHAI GUNWANTBHAI, 129 ITR 573 HELD THAT IF THERE WAS NO CHALLENGE TO THE TRANSACTIONS REPRESENTED IN THE BOOKS THEN IT IS NOT OPEN TO REV ENUE TO CONTEND THAT WHAT IS SHOWN BY THE ENTRIES IS NOT THE REAL STATE OF AFFAI RS. SECONDLY, EVEN IF FOR SOME REASON, THE BOOKS ARE REJECTED IT IS NOT OPEN TO TH E AO TO MAKE ANY ADDITION ON ESTIMATE BASIS OR ON PURE GUESS WORK. SINCE THE REVENUE HAVE NOT REFERRED US TO ANY MATERIAL CONTRARY TO THE AFORESAID FINDINGS OF THE LD. CIT(A), WE ARE OPINION THAT THE AO WAS NOT JUSTIFIED IN REJECTING THE BOOK RESULTS AND ADD AN ESTIMATED AMOUNT . HONBLE J & K HIGH COURT IN THE CASE OF INTERNATIONAL FOREST CO. V. CIT [1975] 101 ITR 721 HELD THAT IN THE CASE OF A FOREST COUPE, MERE LOW YIELD OF OUT-TURN COMPARED TO EARLIER YEARS WAS NOT SUFFICIENT TO MAKE AN ADDITION. NO SPECIFIC DISCREPANCIES OR DEFECTS IN THE BOOKS OF ACCOUNT OF THE ASSESSEE HAVE BEEN POINTED OUT BEFORE US NOR WAS ANY MATER IAL BROUGHT TO OUR NOTICE TO ESTABLISH THAT PURCHASES WERE INFLATED OR RECEIPTS SUPPRESSED. IN THESE CIRCUMSTANCES , WE ARE OPINION THAT THAT THERE WAS NO JUSTIFICATION IN INVOKING THE PROVISIONS OF SECTION 145 OF THE ACT [ VIKRAM PLAST ICS,239 ITR 161(GUJ)]. THE BURDEN OF SHOWING THAT THE APPARENT STATE OF AFFAIR S IS NOT THE REAL ONE IS VERY ITA NO.83 /D/2011 & CO NO. 35/DEL ./2011 9 HEAVY ON THE DEPARTMENT [BEDI & CO. PVT. LTD. VS. C IT,144 ITR 352(KARN) AFFIRMED BY HONBLE SUPREME COURT IN 230 ITR 580] W HILE NO OTHER MATERIAL HAS BEEN PLACED BEFORE US TO DOUBT THE NATURE OF THE T RANSACTIONS RECORDED IN THE BOOKS. IF THERE IS NO CHALLENGE TO THE TRANSACTIONS REPRES ENTED IN THE BOOKS, THEN IT IS NOT OPEN TO REVENUE TO CONTEND THAT WHAT IS S HOWN BY THE ENTRIES IS NOT THE REAL STATE OF AFFAIRS. IN THE LIGHT OF THESE OBSERV ATIONS OF THE HONBLE GUJRAT HIGH COURT, WE HAVE NO HESITATION IN UPHOLDING THE FINDI NGS OF THE LD. CIT(A). THEREFORE, GROUND NO.2 IN THE APPEAL OF THE REVENU E IS DISMISSED. 10. GROUND NO.3 IN THE APPEAL OF THE REVENUE RELAT ES TO DISALLOWANCE OF ` ` 15,85,400/- ON ACCOUNT OF CAPITALIZATION OF ADVERTI SEMENT EXPENSES. THE AO ASKED THE ASSESSEE TO EXPLAIN WHY EXPENDITURE OF ` 19,83,000/-INCURRED TOWARDS PAYMENT MADE TO ILLUSION FILMS BE NOT TREATED AS CA PITAL EXPENDITURE. THE ASSESSEE REPLIED THAT EXPENDITURE ON ADVERTISEMENT THROUGH ELECTRONIC MEDIA TO ADVERTISE THE PRODUCTS MANUFACTURED BY THE COMPANY IS REVENUE IN NATURE. INTER ALIA, THE ASSESSEE RELIED UPON DECISION OF THE HON BLE CALCUTTA HIGH COURT IN THE CASE OF CIT VS. M/S BERGER PAINS (I) LTD. (NO.2) 25 4 ITR 503 (CALCUTTA) AND THE DECISION OF THE ITAT IN THE ASSESSEES OWN CASE FOR THE AY 2003-04 . HOWEVER, THE AO DID NOT ACCEPT THE SUBMISSIONS OF THE ASSESS EE AND ALLOWED ONLY 1/5 TH OF THE AFORESAID EXPENDITURE WHILE RELYING UPON THE DE CISION OF THE HONBLE APEX COURT IN MADRAS INDUSTRIAL INVESTMENT CORPORATION LIMITED VS. CIT ,225 ITR 802(SC),RESULTING IN DISALLOWANCE ` 15,86,400/-. 11. ON APPEAL, THE LD. CIT(A) WHILE RELYING UPON D ECISION DATED 29 TH SEPTEMBER, 2009 THE ITAT IN THE ASSESSEES OWN CA SE IN THE AY 2003-04 IN I.T.A.NO. 2974/DEL./2009 ALLOWED THE CLAIM OF THE A SSESSEE IN THE FOLLOWING TERMS:- 5.3 I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS O F LEARNED AR AND HAVE GONE THROUGH THE ASSESSMENT ORD ER. I FIND THAT THE ISSUE IS COVERED BY THE DECISION OF HONBL E ITAT IN APPELLANTS OWN CASE FOR ASSESSMENT YEAR 2003-04 WH EREIN THE ITA NO.83 /D/2011 & CO NO. 35/DEL ./2011 10 REVENUES APPEAL ON THIS ISSUE HAS BEEN DISMISSED. RESPECTFULLY, FOLLOWING THE DECISION OF HONBLE TRIBUNAL, THE ASS ESSING OFFICER IS DIRECTED TO DELETE THE ADDITION. 12 THE REVENUE IS NOW IN APPEAL BEFORE US AGAINST THE AFORESAID FINDINGS OF THE LD. CIT(A).THE LD. DR SUPPORTED THE ORDER OF THE AO WHILE THE LD. AR ON BEHALF OF THE ASSESSEE RELIED UPON THE FINDIN GS IN THE IMPUGNED ORDER. 13. WE HAVE HEARD BOTH THE PARTIES AND GONE THROU GH THE FACTS OF THE CASE. INDISPUTABLY, THE EXPENDITURE OF ` ` 19,83,000/- WAS INCURRED ON ADVERTISEMENT OF THE PRODUCTS THROUGH ELECTRONIC ME DIA. SINCE THE EXPENDITURE IS INCURRED ON ADVERTISEMENT, THE AO ALLOWED ONLY 1 /5 TH OF THE EXPENDITURE IN THE LIGHT OF DECISION OF THE HONBLE SUPREME COURT IN M ADRAS INDUSTRIAL INVESTMENT CORPORATION LIMITED (SUPRA).APPARENTLY, THE AO TREA TED THE EXPENDITURE AS DEFERRED REVENUE IN NATURE .AS POINTED OUT BY THE L D. CIT(A),THE ITAT VIDE THEIR ORDER DATED 16 TH SEPTEMBER, 2009 IN I.T.A. NO.2974/DEL./2009 IN THE ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2003-04 ALLOWED A SIMI LAR CLAIM IN IDENTICAL CIRCUMSTANCES. IN ACIT VS. ASHIMA SYNTEX LTD.,310 I TRSP 1(SB, AHMEDBAD), IT WAS OBSERVED THAT THE CONCEPT OF DEF ERRED REVENUE EXPENDITURE IS ESSENTIALLY AN ACCOUNTING CONCEPT AND ALIEN TO T HE ACT. THE RELEVANT PROVISIONS OF THE ACT RECOGNISE ONLY CAPITAL OR REVENUE EXPEND ITURE. DEFERRED REVENUE EXPENDITURE DENOTES EXPENDITURE FOR WHICH A PAYMENT HAS BEEN MADE OR A LIABILITY INCURRED, WHICH IS ESSENTIALLY REVENUE IN NATURE BUT WHICH FOR VARIOUS REASONS LIKE QUANTUM AND PERIOD OF EXPECTED FUTURE BENEFIT ETC., IS WRITTEN OFF OVER A PERIOD OF TIME E.G., EXPENDITURE ON ADVERTIS EMENT, SALES PROMOTION ETC. THOUGH THE NATURE OF SUCH EXPENDITURE IS REVENUE, K EEPING IN VIEW THE FACT THAT THE BENEFITS ARISING THEREFROM ARE EXPECTED TO BE D ERIVED OVER A PERIOD OF TIME, STRETCHING SOMETIMES OVER SEVERAL ACCOUNTING YEARS, THE ASSESSEES HAVE BEEN AMORTISING THE SAME OVER THE EXPECTED TIME PERIOD O VER WHICH THE BENEFITS ARE LIKELY TO ACCRUE THEREFROM. ACCORDINGLY, ONLY A PRO PORTION OF SUCH EXPENDITURE IS AMORTISED IN THE PROFIT AND LOSS ACCOUNT BUT AN APP ROPRIATE ADJUSTMENT IS MADE IN THE COMPUTATION OF INCOME, CLAIMING THE ENTIRE A S ALLOWABLE REVENUE ITA NO.83 /D/2011 & CO NO. 35/DEL ./2011 11 EXPENDITURE IN TERMS OF PROVISIONS OF SECTION 37 (1 ) OF THE ACT. THE EXPENDITURE WHICH IS TREATED AS DEFERRED REVENUE IN THE BOOKS, ALMOST IN ALL CASES COMPRISES OF ITEMS, THE BENEFITS DERIVED WHEREFROM ARE EPHEME RAL AND TRANSITORY IN NATURE IN AS MUCH AS THESE ARE INCURRED AS A PART OF A CON TINUOUS PROCESS AND NEED TO BE EXPENDED IN ORDER TO GENERATE AND INCREASE THE B RAND RECALL AND SUSTAIN IT IN THE MINDS OF CUSTOMERS. MOREOVER, THE DEFERRED REV ENUE EXPENDITURE IS ESSENTIALLY REVENUE IN NATURE AND THE DECISION TO T REAT THE SAME AS DEFERRED REVENUE ONLY REPRESENTS A MANAGEMENT DECISION TAKEN IN VIEW OF THE MAGNITUDE OF THE EXPENDITURE INVOLVED. FOR THE PURPOSE OF ALL OWABILITY OF ANY EXPENDITURE UNDER THE ACT, WHAT IS MATERIAL IS THE CLASSIFICATI ON BETWEEN THE CAPITAL AND REVENUE AND THE SAME DOES NOT RECOGNISE OF ANY CONC EPT OF DEFERRED REVENUE EXPENDITURE. IN THE INSTANT CASE, EVEN IN THE AY 2 003-04, A SIMILAR CLAIM OF EXPENSES HAS BEEN ALLOWED. IN A NUMBER OF JUDGMENT S VIZ. AMAR RAJA BATTERIES LTD. V. ASSTT. CIT [2004] 91 ITD 280 (HYD.), JT. CI T V. MODI OLIVETTI LTD. [2005] 4 SOT 859 (DELHI), ASSTT. CIT V. MEDICAMEN BIOTECH LT D. [2005] 1 SOT 347 (DELHI), HERO HONDA MOTORS LTD. V. JT. CIT [2005] 3 SOT 572 (DELHI);& CHARAK PHARMACEUTICALS V. JT. CIT [2005] 4 SOT 393 (MUM.), IT HAS BEEN AFFIRMED THAT WHERE ANY EXPENDITURE IS TREATED AS A DEFERRED REVE NUE EXPENDITURE, IT PRESUPPOSES THAT THE CONCERNED EXPENDITURE, CREATIN G BENEFIT IS IN THE REVENUE FIELD AND IS A REVENUE EXPENDITURE, BUT CONSIDERING ITS ENDURING BENEFITS AS WELL AS THE FACT THAT IT DOES NOT RESULT IN THE CREATION OF ANY NEW ASSET OR ADVANTAGE OF ENDURING NATURE IN THE CAPITAL FIELD, THE SAME IS R EQUIRED TO BE TREATED DISTINCTLY FROM CAPITAL EXPENDITURE. HOWEVER, WHERE ANY IDENTI FIABLE CAPITAL ASSET, TANGIBLE OR INTANGIBLE COMES INTO EXISTENCE AS A RESULT OF T HE AMOUNT EXPENDED, THE SAME WILL HAVE TO BE TREATED AS A CAPITAL EXPENDITURE AN D DEPRECIATION ALLOWABLE THEREON AS PER THE PRESCRIBED RULES AND PROCEDURES UNDER THE ACT. IN THE INSTANT CASE, INDISPUTABLY, EXPENSES TOWARDS ADVERTISEMENT HAVE BEEN TREATED AS REVENUE IN NATURE IN THE PRECEDING YEARS NOR ANY M ATERIAL HAS BEEN PLACED BEFORE US BY THE REVENUE, SUGGESTING THAT ANY TANGI BLE OR INTANGIBLE ASSET HAS BEEN CREATED BY THE ASSESSEE. HONBLE JURISDICTIONA L HIGH COURT IN CIT VS. BONANZA PORTFOLIO LTD.,202 TAXMAN 545(DEL.) ALLOWED EXPENDITURE ON AD FILMS AS ITA NO.83 /D/2011 & CO NO. 35/DEL ./2011 12 REVENUE EXPENDITURE. IN VIEW OF THE FOREGOING, WE D O NOT FIND ANY MERIT IN THE GROUND RAISED BY THE REVENUE. THEREFORE, GROUND NO. 3 IN THE APPEAL OF THE REVENUE IS DISMISSED. 14. GROUND NO.4 IN THE APPEAL OF THE REVENUE RELAT ES TO ADDITION OF ` `7,45,000/- ON ACCOUNT OF SERVICE CHARGES, RECEIVED IN ADVANCE. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO ASKED THE ASSESSEE TO FURNISH DETAILS OF SERVICE CHARGES ACCRUED BUT NOT DUE AND SHOWN AS ADVANCE FROM CUSTOMERS. THE ASSESSEE REPLIED THAT THEY PROVIDED ANNUAL MAIN TENANCE SERVICE TO ITS CUSTOMERS IN RESPECT OF THEIR PRODUCTS FOR A TIME S PAN OF ONE YEAR OR SIX MONTHS AND THE SERVICE CHARGES WERE RECEIVED IN ADVANCE. SINCE THE TIME SPAN FOR EACH SERVICE MAY FELL IN BETWEEN TWO FINANCIAL YEARS, AC CORDINGLY, THE SERVICE CHARGES RECEIVED WERE CLASSIFIED BETWEEN CURRENT YEAR FEES AND THE FEES RECEIVED FOR NEXT YEAR. THEREFORE, THESE WERE SHOWN AS INCOME OF THE RELEVANT FINANCIAL YEAR. HOWEVER, THE AO DID NOT ACCEPT THE SUBMISSIONS ON T HE GROUND THAT THE ASSESSEE WAS FOLLOWING MERCANTILE SYSTEM OF ACCOUNT ING AND THE SERVICE CHARGES RECEIVED FOR THE YEAR UNDER CONSIDERATION, COULD NO T BE DEFERRED. ACCORDINGLY, WHILE RELYING UPON THE DECISION IN THE CASE OF TUTI CORIN ALKALIS CHEMICALS & FERTILISERS LTD. VS. CIT, 227 ITR 172(SC), THE AO T AXED THE AMOUNT IN THE YEAR UNDER, HOLDING ,INTER ALIA, THAT THE INCOME ACCRUED IN THE YEAR UNDER CONSIDERATION. 15. ON APPEAL, THE LD. CIT(A) DELETED THE ADDITION , FOLLOWING THE DECISIONS OF THE ITAT IN THE CASE OF M/S UGS INDIA PVT. LTD. VS. ACIT, , 4 ITAT INDIA 805 AND ACIT VS. MAHINDRA HOLIDAYS & RESORTS, 39 SOT 438(CHENNAI),IN THE FOLLOWING TERMS:- 6.3 I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS O F LEARNED AR AND HAVE GONE THROUGH THE ASSESSMENT ORD ER, I FIND THAT THE ISSUE IS SQUARELY COVERED BY THE DECISION OF HONBLE DELHI ITAT IN THE CASE OF M/S UGS INDIA PVT. LTD. VS. ACI T, WHEREIN IT HAS BEEN HELD THAT THE AMOUNT TREATED AS DEFERRED R EVENUE BY THE ASSESSEE IS TO BE TAXED IN THE YEAR WHEN SUCH SERVI CES ARE ITA NO.83 /D/2011 & CO NO. 35/DEL ./2011 13 RENDERED OR RECOGNIZED AS INCOME OF THE ASSESSEE. IT WAS OBSERVED BY HONBLE ITAT AS UNDER: THERE IS NOTHING LIKE DEVICE TO DEFER PAYMENT OF TA XES DUE BUT AS PER THE RECOGNIZED METHOD OF ACCOUNTING OF MATCHING REVENUE WITH COST, THE INCOME ACCRUES ONLY IN THE SUBSEQUENT YEAR WHEN SUCH SERVICES ARE PROVIDED. THIS IS IN FORM OF A PROVISION FOR WARRA NTY CLAIMS WHICH IS ALSO RECOGNIZED BY HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. VINTEC CORPORATION P. LTD., 278 ITR 337 WHEREIN IT WAS HEL D THAT PROVISION FOR WARRANTIES EMBEDDED IN THE SALE PRICE IS AN ASCERTA INED LIABILITY AND TO THAT EXTENT, REVENUE NEED NOT BE RECOGNIZED. WE AC CORDINGLY HOLD THAT THE AMOUNT TREATED AS DEFERRED REVENUE BY THE ASSES SEE IS NOT TO BE BROUGHT TO TAX IN THE YEAR UNDER CONSIDERATION BUT TO BE TAXED IN THE YEAR WHEN SUCH SERVICES ARE RENDERED OR RECOGNIZED AS IN COME BY THE ASSESSEE. RESPECTFULLY FOLLOWING THE DECISION OF HONBLE ITA T ON IDENTICAL FACTS, THE ASSESSING OFFICER IS DIRECTED TO DELETE THE ADDITION. 16. THE REVENUE IS NOW IN APPEAL BEFORE US AGAINST THE AFORESAID FINDINGS OF THE LD. CIT(A).THE LD. DR SUPPORTED THE ORDER OF THE AO WHILE THE LD. AR ON BEHALF OF THE ASSESSEE RELIED UPON THE FINDIN GS IN THE IMPUGNED ORDER. 17. WE HAVE HEARD BOTH THE PARTIES AND GONE THROU GH THE FACTS OF THE CASE. INDISPUTABLY, THE ASSESSEE PROVIDED ANNUAL M AINTENANCE SERVICE TO ITS CUSTOMERS IN RESPECT OF THEIR PRODUCTS FOR A TIME S PAN OF ONE YEAR OR SIX MONTHS AND THE SERVICE CHARGES WERE RECEIVED IN ADVANCE. SINCE THE TIME SPAN FOR SUCH SERVICE SOMETIMES FELL IN BETWEEN TWO FINANCIAL YEA RS, ACCORDINGLY, THE SERVICES CHARGES RECEIVED WERE CLASSIFIED BETWEEN CURRENT YE AR FEES AND THE FEES RECEIVED FOR NEXT YEAR, AND THE LATTER WERE ACCORD INGLY, SHOWN AS INCOME FOR THE RELEVANT FINANCIAL YEAR. AS IS APPARENT FROM THE FI NDINGS IN THE IMPUGNED ORDER, IN UGS INDIA PVT. LTD.(SUPRA),ITAT CONCLUDED THAT AMOU NT TREATED AS DEFERRED REVENUE IS TO BE TAXED IN THE YEAR IN WHICH SERVICE S ARE RENDERED OR RECOGNIZED AS INCOME OF THE ASSESSEE. FOR INCOME TO ACCRUE, IT IS NECESSARY THAT THE ASSESSEE MUST HAVE CONTRIBUTED TO ITS ACCRUING OR A RISING BY RENDERING SERVICES OR OTHERWISE, AND A DEBT MUST HAVE COME INTO EXIST ENCE AND HE MUST HAVE ITA NO.83 /D/2011 & CO NO. 35/DEL ./2011 14 ACQUIRED A RIGHT TO RECEIVE THE PAYMENT. IN THE PRE SENT CASE, THERE IS NOTHING TO SUGGEST THAT THE ASSESSEE HAS FULLY CONTRIBUTED TO ITS ACCRUING BY RENDERING SERVICES SO AS TO ENTITLE HIM TO RECEIVE THE ENTIRE AMOUNT IN THE YEAR UNDER CONSIDERATION. IN VIEW OF THE FOREGOING, ESPECIALLY WHEN THE REV ENUE HAVE NOT PLACED BEFORE US ANY MATERIAL NOR BROUGHT TO A CONT RARY DECISION SO AS TO ENABLE US TO TAKE A DIFFERENT VIEW IN THE MATTER, WE ARE NOT INCLINED TO INTERFERE. THEREFORE, GROUND NO.4 IN THE APPEAL OF THE REVENUE IS DISMISSED. 18. ADVERTING NOW TO SOLE GROUND IN THE CO, TH E AO NOTICED DURING THE COURSE OF ASSESSMENT PROCEEDINGS THAT THE ASSESSEE CLAIMED AN AMOUNT OF ` ` 1,36,000/- ON ACCOUNT OF STAMP DUTY PAID FOR STORES TAKEN ON L EASE. TO A QUERY BY THE AO, THE ASSESSEE EXPLAINED THAT THE COMPANY HAD ACQUIRE D STORES ON LEASE FOR THREE YEARS AND PAID STAMP DUTY OF ` `1,36,000/-. RELYING UPON THE DECISIONS IN CIT VS. HOECHST PHARMACEUTICALS LTD. (1977) 113 ITR 877 (BO M.); RICHARDSON HINDUSTAN LTD. VS. CIT (1987) 169 ITR 516 (BOM.); CIT VS. KAT IHAR JUTE MILLS PVT. LTD. (1978) 116 ITR 781 (CAL.); SRI KRISHNA TILES AND PO TTERIES PVT. LTD. VS. CIT (1988) 173 311 (CHENNAI) AND SHRI RAMA MULTI TECH L TD. VS. ACIT (2004) 92 TTJ 567 (AHM),THE ASSESSEE PLEADED THAT THEIR CLAIM WAS ALLOWABLE AS REVENUE . HOWEVER, THE AO DID NOT ACCEPT THE SUBMISSIONS OF T HE ASSESSEE ON THE GROUND THAT EXPENDITURE INCURRED ON STAMP DUTY FOR TAKING STORE ON LEASE WAS CAPITAL IN NATURE. INTER ALIA, THE AO RELIED UPON DECISION IN CIT VS. MADRAS AUTO SERVICE (P) LTD. (1998) 233 ITR 468 (SC). 19. ON APPEAL, THE LD. CIT(A) UPHELD THE DISALLOWA NCE, HOLDING AS UNDER:- 4.3 I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS O F LEARNED AR AND HAVE GONE THROUGH THE ASSESSMENT ORD ER. I FIND THAT THE SIMILAR ISSUE STANDS DECIDED BY HONBLE MU MBAI ITAT IN THE CASE OF UNIVERSAL CAPSULES (P) LTD. VS. DCIT 76 ITD 403 WHEREIN IN VIEW OF THE DECISION OF HONBLE SUPREME COURT IN GOBIND SUGAR MILLS LTD. VS. CIT 232 ITR 319, IT WAS HELD T HAT THE EXPENDITURE ON STAMP DUTY AND REGISTRATION CHARGES INCURRED TO SECURE LEASE ON FACTORY PREMISES WERE NOT ALLOWABLE AS REVENUE EXPENDITURE. ITA NO.83 /D/2011 & CO NO. 35/DEL ./2011 15 I FURTHER FIND THAT IN THE CASE OF GOBIND SUGAR MI LLS LTD., SUPRA, IT HAS BEEN HELD BY THE HONBLE SUPREME COUR T THAT THE EXPENDITURE INCURRED BY THE ASSESSEE FOR THE ACQUIS ITION OF A LEASEHOLD RIGHT FOR SETTING UP A SUGAR FACTORY WAS CLEARLY OF CAPITAL NATURE. LEARNED AR HAS RELIED ON THE CASES WHICH ARE PRIOR TO THE JUDGMENT OF HONBLE SUPREME COURT IN THE CASE OF GO BIND SUGAR MILLS LTD., SUPRA. IN THE LIGHT OF THE ABOVE SAID DECISION, THE ADDITION MADE BY THE ASSESSING OFFICER IS UPHELD. 20. THE ASSESSEE IS NOW IN APPEAL BEFORE US AGAINS T THE AFORESAID FINDINGS OF THE LD. CIT(A).THE LD AR ON BEHALF OF T HE ASSESSEE WHILE RELYING UPON THE DECISION IN CIT VS. GOPAL ESTATES, 326 ITR 413( HP) CONTENDED THAT THE IMPUGNED EXPENDITURE WAS REVENUE IN NATURE. ON THE OTHER HAND, THE LD. DR SUPPORTED THE FINDINGS IN THE IMPUGNED ORDER. 21. WE HAVE HEARD BOTH THE PARTIES AND GONE THROU GH THE FACTS OF THE CASE AS ALSO THE DECISIONS RELIED UPON BY THE LD. A R AND THE LD. CIT(A). THE ISSUE BEFORE US IS AS TO WHETHER AN AMOUNT OF ` ` 1,36,000/- INCURRED ON ACCOUNT OF PURCHASE OF STAMP PAPERS, STAMP DUTY AND REGISTRATI ON CHARGES, FOR STORES TAKEN ON LEASE IS REVENUE OR CAPITAL IN NATURE. THE AO R ELIED UPON A DECISION OF THE HONBLE APEX COURT IN MADRAS AUTO SERVICE (P) LTD.( SUPRA) WHILE THE LD. CIT(A) RELIED UPON ANOTHER DECISION IN GOBIND SUGAR MILLS LTD.(SUPRA) IN UPHOLDING THE FINDINGS OF THE AO. IN GOBIND SUGAR MILLS LTD.(SUP RA) RELIED UPON BY THE LD. CIT(A), THE ASSESSEE, HAD BEEN CARRYING ON BUSINESS OF RUNN ING A SUGAR MILL. UNDER A DEED OF LEASE EXECUTED ON THE 30TH AUGUST, 1969, IT OBTAINED A LEASE OF ANOTHER SUGAR FACTORY AT MATIHARI IN CONSIDERATION OF AN ANNUAL RENTAL OF NOT LESS THAN RS. 25 LAKHS FOR A PERIOD OF FIVE YEARS. FOR T HE EXECUTION OF THE SAID DEED, THE ASSESSEE HAD TO INCUR SOME EXPENDITURE ON ACCOU NT OF STAMP FEES, REGISTRATION CHARGES, SOLICITOR'S FEES, ETC., WHICH AGGREGATED RS. 54,824. IN THE ASSESSMENT YEAR 1971-72, THE RELEVANT PREVIOUS YEAR ENDING ON THE 30TH JUNE, ITA NO.83 /D/2011 & CO NO. 35/DEL ./2011 16 1970, THE ASSESSEE IN ITS ASSESSMENT CLAIMED DEDUC TION OF THE SAID AMOUNT AS A REVENUE EXPENDITURE INCURRED FOR THE PURPOSE OF BUS INESS. THE ITO REJECTED THE SAID CLAIM ON THE GROUND THAT THE SAME HAD BEEN INC URRED FOR ACQUIRING THE RIGHT TO RUN A FACTORY ON LEASE AND, THEREFORE, THE EXPEN DITURE WAS OF A CAPITAL NATURE. IN THE LIGHT OF THESE FACTS, HONBLE HIGH COURT HE LD THAT T HE ASSESSEE HAD OBTAINED THE RIGHT OF USER OF THE FACTORY AT MATIHA RI FOR A PERIOD OF FIVE YEARS, BUT UNDER THE LEASE THE ASSESSEE HAD ALSO OBTAINED SOME THING MORE. IT HAD OBTAINED A RIGHT OF PROPERTY UNDER THE TRANSFER OF PROPERTY ACT AND SUCH AN INTEREST WAS A CAPITAL ASSET. HONBLE APEX COURT UPHELD THE FINDINGS OF THE HIGH COURT, HOLDING THAT THE ASSESSEE INCURRED THE EXPENDITURE FOR THE PURPOSE OF OBTAINING A CAPITAL ASSET AND THEREFORE ,WAS CAPITAL IN NATURE. THE LD. AR ,WITHOUT DISTINGUISHING THE SAID DECISION SIMPLY RELIED UPON THE DECISION OF HO NBLE HP HIGH COURT IN GOPAL ASSOCIATES(SUPRA).AS IS APPARENT FROM A MERE GLANCE AT THE SAID DECISION IN GOPAL ASSOCIATES(SUPRA), THE OBSERVATIONS AND FIND INGS OF THE HONBLE APEX COURT IN THE DECISION RELIED UPON BY THE LD. CIT( A) ,WERE NOT BROUGHT TO THE NOTICE OF HONBLE HP HIGH COURT. IN FACT, HONBLE CALCUTTA HIGH COURT IN MATHER AND PLATT (INDIA) LIMITED. VS. CIT,168 ITR 533(CAL. ) IN THE CONTEXT OF EXPENDITURE INCURRED IN OBTAINING LEASE OF PREMISES HELD THAT T HE ASSESSEE INCURRED THE SAID EXPENDITURE WITH A VIEW TO BRINGING INTO EXISTENCE AN ASSET OR AN ADVANTAGE FOR THE ENDURING BENEFIT OF ITS BUSINESS. FOLLOWING THE VIEW TAKEN IN GOBIND SUGAR MILLS LTD. [1979] 117 ITR 747(CAL.), HONBLE HIGH C OURT HELD THAT THE EXPENDITURE INCIDENTAL TO THE ACQUISITION OF THE LEASE WOULD AL SO BE AN` EXPENDITURE OF CAPITAL NATURE. THE PRIMARY AND DOMINANT OBJECT OF THE ASSE SSEE IN INCURRING THE SAID EXPENDITURE WAS TO ACQUIRE BENEFITS OF A RIGHT TO P ROPERTY UNDER LEASEHOLDS . IN VIEW OF THE FOREGOING, FOLLOWING THE VIEW TAKEN BY THE HONBLE APEX COURT IN THEIR DECISION IN GOBIND SUGAR MILLS LTD.(SUPRA), WE HAVE NO HESITATION IN UPHOLDING THE FINDINGS OF THE LD. CIT(A).THEREFORE, GROUND RA ISED IN THE CO IS DISMISSED. 22. NO ADDITIONAL GROUND RAISED BEFORE US IN TERMS OF RESIDUARY GROUND NO.5 IN THE APPEAL OF THE REVENUE, ACCORDINGLY THIS GROUND IS DISMISSED. ITA NO.83 /D/2011 & CO NO. 35/DEL ./2011 17 23. NO OTHER PLEA OR ARGUMENT WAS MADE BEFORE US. 24.. IN RESULT, BOTH APPEAL OF THE REVENUE AND CO RRESPONDING CO ARE DISMISSED. SD/- SD/- (HARI OM MARATHA) (A.N. PAHUJA) (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) NS COPY OF THE ORDER FORWARDED TO :- 1 ASSESSEE 2. DEPUTY C.I.T.,CIRCLE 3(1), NEW DELHI 3. CIT CONCERNED. 4. CIT(A)-XIX, NEW DELHI 5. DR, ITAT,A BENCH, NEW DELHI 6. GUARD FILE. BY ORDER, DEPUTY / ASSTT.REGISTRAR ITAT, DELHI ORDER PRONOUNCED IN OPEN COURT