M/s. DCM Shriram Industries Ltd., New Delhi V. ACIT, New Delhi

ITA 883/DEL/2014

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 7468 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 3 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-06-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 03-05-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 17-02-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MANOJ KUMAR CHOPRA
• Keywords: Opportunity of being heard; Revenue expenditure
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: B NEW DELHI BEFORE SMT DIVA SINGH, JUDICIAL MEMBER AND SH.L.P.SAHU, ACCOUNTANT MEMBER I.T.A .NO. -883/DEL/2014 (ASSESSMENT YE AR-2010-11) DCM S H RIRAM INDUSTRIES LTD., 18, BARAKHAMBA ROAD, KANCHENJUNGA BUILDING, 6 TH FLOOR, NEW DELHI. PAN-AAACD0204C (APPELLANT) VS ACIT, CENTRAL CIRCLE-19, NEW DELHI. (RESPONDENT) APPELLANT BY SH. PRADEEP DINODIA, ADV. RESPONDENT BY SH. MANOJ KUMAR CHOPRA, SR.DR DATE OF HEARING 03.05.2016 DATE OF PRONOUNCEMENT 10 .0 6 .2016 O R D E R PER SMT. DIVA SINGH, JUDICIAL MEMBER THE PRESENT APPEAL HAS BEEN FILED BY THE ASSESSEE A SSAILING THE CORRECTNESS OF THE ORDER DATED 07.11.2013 OF CIT(A)-XII, NEW DELHI PER TAINING TO 2010-11 ASSESSMENT YEAR ON THE FOLLOWING GROUNDS. 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN U PHOLDING THE ACTION OF THE ASSESSING OFFICER IN NOT ALLOWING DEDUCTION OF RS.48,56,088/- HOLDING THE SAME AS OF CAPITAL IN NATURE. 2. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW THE LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN C ONFIRMING THE DISALLOWANCE OF RS.3,11,705/- MADE BY THE ASSESSING OFFICER BY INVOKING THE PROVISIONS OF RULE 8D(2)(III) OF THE INCOME TAX RUL ES READ WITH SECTION 14A OF THE INCOME TAX ACT. 3. THAT THE APPELLANT CRAVE LEAVE TO VARY, ALTER, ADD OR AMEND TO THE AFORESAID GROUNDS OF APPEAL EITHER AT OR BEFORE THE TIME OF H EARING. I.T.A .NO.-883/DEL /2014 PAGE 2 OF 7 2. THE RELEVANT FACTS OF THE CASE ARE THAT THE ASSE SSEE COMPANY WHICH IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF SUGAR, ORGANIC/FINE CH EMICALS, INDUSTRIAL FIBER, ALCOHOL AND GENERATION OF ELECTRICITY E-FILED ITS RETURN DECLA RING AN INCOME OF RS.12,45,22,457/- AND AFTER CLAIMING SET OFF OF RS.18,20,41,405/- ETC. THE AO IN THE SCRUTINY ASSESSMENT NOTES THAT SALES OF RS.837.62 CRORE AND PROFIT BEFORE TAX OF RS.57.1 9 CRORE WAS DECLARED IN THE YEAR UNDER CONSIDERATION AND THAT THE ASSESSEE COMPANY HAS CLA IMED THAT IT IS IN THE BUSINESS OF GENERATION OF POWER AND DURING THE YEAR, HAS SOLD S UBSTANTIAL PART OF POWER GENERATED TO UPSEB AND IT HAD ALSO FILED AUDITED ANNUAL ACCOUNTS OF THE UNDERTAKING ENGAGED IN GENERATION OF POWER. THE ISSUE IN THE PRESENT APPEA L PERTAINS TO THE EXPENDITURE OF RS.48.56 LACS WHICH WAS CLAIMED TO BE REPRESENTING COST OF L ABOUR AND OTHER REVENUE EXPENDITURE ON PUTTING UP STRUCTURE FOR INSTALLATION OF SPINNING M ACHINES. THE PROJECT WAS STATED TO BE ABANDONED DUE TO ITS NON-VIABILITY AND THE EXPENDIT URE HAD BEEN WRITTEN OFF TO THE P&L ACCOUNT AND ADDED BACK IN THE COMPUTATION OF TOTAL INCOME. BY WAY OF A NOTE APPENDED TO THE STATEMENT OF TOTAL INCOME IT WAS CLAIMED AS A R EVENUE EXPENDITURE. THE SAID CLAIM WAS REJECTED BY THE AO. 3. AGGRIEVED BY WHICH THE ASSESSEE CAME IN APPEAL B EFORE THE CIT(A WHO CONFIRMED THE ADDITION MADE BY WAY OF A DISALLOWANCE. 4. STILL AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFOR E THE ITAT. 5. LD. AR INVITING ATTENTION TO THE WRITTEN SUBMISS ION FILED BY THE CIT(A) WHICH ARE FOUND REPRODUCED IN PAGE 6 & 7 OF THE IMPUGNED ORDER SUBM ITTED THAT THOUGHT THE TWO JUDGEMENTS RELIED UPON BY THE ASSESSEE NAMELY (I) INDO RAMA SY NTHETICS INDIA LTD. V CIT [2011] 333 ITR 18 (DEL.) AND (II) CIT VS PRIYA VILLAGE ROADSHOWS L TD. [2011] 332 ITR 594 (DEL.) WERE CITED, THE CIT(A) WHILE COMING TO A CONCLUSION HAS FAILED TO CONSIDER THESE. CARRYING US THROUGH THE I.T.A .NO.-883/DEL /2014 PAGE 3 OF 7 DECISION RELIED UPON IT WAS HIS SUBMISSION THAT THE GROUNDS DESERVE TO BE ALLOWED. IN THE ALTERNATE IT WAS HIS PRAYER THAT THE ISSUE MAY BE R EMANDED. THE LD. SR. DR ON THE OTHER HAND RELIED UPON THE IMPUGNED ORDER. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. ON A CONSIDERATION OF THE SAME, IT IS SEEN THAT THE CL AIM OF THE ASSESSEE WAS REJECTED BY THE AO HOLDING AS UNDER:- THE ASSESSEE COMPANY, VIDE LETTER DATED 11.07.2012 HAS SUBMITTED THAT IT INCURRED AN EXPENDITURE OF RS.48.56 LAC REPRESENTIN G COST OF LABOUR/OTHER REVENUE EXPENDITURE ON PUTTING UP STRUCTURE FOR INSTALLATIO N OF SPINNING MACHINES. THE PROJECT WAS ABANDONED DUE TO ITS NON-VIABILITY AND THE EXPENDITURE INCURRED HAS BEEN WRITTEN OFF TO THE PROFIT AND LOSS ACCOUNT. W HILE COMPUTING THE TOTAL INCOME, THE SAME HAS BEEN ADDED BACK. HOWEVER, THE ASSESS EE COMPANY, VIDE NOTE APPENDED BELOW THE STATEMENT OF TOTAL INCOME FILED, HAS CLAIMED THE AFORESAID EXPENDITURE AS REVENUE EXPENSE SINCE INCURRED ON VA RIOUS ITEMS OF REVENUE NATURE AND ALSO CONTENDING THAT NO ASSET OF ENDURING NATUR E HAS COME INTO EXISTENCE. THE ASSESSEE COMPANY HAS RELIED UPON VARIOUS COURT CASE S INCLUDING THE ITAT DECISION IN ITS OWN CASE FOR THE ASSESSMENT YEAR 1992-93. I HAVE GONE THROUGH THE SUBMISSIONS BUT DO NOT AGREE WITH THE CONTENTIONS O F THE E ASSESSEE COMPANY. IT IS SEEN THAT THE ASSESSEE COMPANY HAS ITSELF IN EAR LIER YEARS DEBITED THE SAID EXPENDITURE WHICH HAS BEEN WRITTEN OFF DURING THE Y EAR, TO CAPITAL WORK IN PROGRESS. SINCE THE EXPENDITURE WAS OF CAPITAL NATU RE, ITS WRITE OFF DURING THE YEAR DOES NOT CHANGE THE CHARACTERISTIC, OF THE EXPENDIT URE. THE SAID EXPENDITURE IS NOT A DEDUCTIBLE EXPENDITURE IN COMPUTING THE INCOME F ROM PROFIT AND GAINS OF THE BUSINESS OR PROFESSION CARRIED ON BY THE ASSESSEE A T ANY TIME DURING FINANCIAL YEAR 2009-10. THUS, THE CLAIM OF THE ASSESSEE IS REJECTE D. 6.1. THE CIT(A) CONFIRMED THE VIEW HOLDING AS UNDER :- GROUND NO.2 I HAVE CONSIDERED THE FACTS STATED BY THE ASSESSEE IN HIS SUBMISSION AND THE GROUNDS RAISED IN APPEAL. THE ASSESSING OFFICER HAS NOT ALLOWED THE DEDUCTION OF RS.48,56,088/- CLAIMED FOR EXPENDITURE INCURRED IN PUTTING UP STRUCTURE FOR INSTALLATION OF MACHINERY HOLDING THE SAME AS CAPIT AL IN NATURE. IT IS SEEN FROM THE ASSESSMENT ORDER THAT ASSESSING OFFICER HAS OBSERVED THAT THE ASSESSEE COMPANY HAS ITSELF IN THE EARLIER YEARS DEBITED THE SAID EXPENDITURE WHICH HAS BEEN WRITTEN OFF DURING THE-Y EAR TO CAPITAL WORKING PROGRESS. SINCE THE EXPENDITURE WAS OF CAPITAL NATU RE ITS WRITE OFF DURING THE YEAR DOES NOT CHANGE THE CHARACTER OF THE EXPENDITURE. T HE SAID EXPENDITURE IS NOT A DEDUCTIBLE EXPENDITURE IN COMPUTING THE INCOME FROM PROFIT AND GAINS OF THE BUSINESS OR PROFESSION CARRIED ON BY THE ASSESSEE A T ANY TIME DURING THE F.Y.2009- 10. THE CLAIM OF THE ASSESSEE IS REJECTED BY THE AS SESSING OFFICER. IN VIEW OF THE I.T.A .NO.-883/DEL /2014 PAGE 4 OF 7 FACTS OF THE CASE I AM IN AGREEMENT WITH THE ASSESS ING OFFICER ON THE ISSUE. THERE IS NO NEED TO INTERFERE WITH THE ORDER OF ASSESSMEN T ON THIS GROUND. GROUND RAISED IN APPEAL IS DISMISSED. 6.2. IT IS SEEN THAT THE ASSESSEE BEFORE THE CIT(A) AS PER PAGE 7 AND 8 OF THE IMPUGNED ORDER HAD MADE THE FOLLOWING SUBMISSIONS ON FACTS A ND LAW:- DURING THE PREVIOUS YEAR THE ASSESSEE COMPANY HAS WRITTEN OFF A SUM OF RS.48.56 LACS REPRESENTING COST OF LABOUR/OTHER REV ENUE EXPENSES INCURRED ON PUTTING-UP STRUCTURE FOR INSTALLATION OF THE SPINNI NG MACHINES. THE PROJECT WAS ABANDONED DUE TO ITS NON-VIABILITY AND THE EXPENSES INCURRED HAS BEEN WRITTEN OFF TO THE PROFIT & LOSS A/C. WHILE COMPUTING THE TAXAB LE INCOME, THE SAME HAS BEEN ADDED BACK. HOWEVER, VIDE NOTE NO. 12 APPENDED BELO W THE STATEMENT OF INCOME FILED, IT HAS BEEN CLAIMED THAT THE SAME IS ALLOWAB LE AS BUSINESS EXPENSE SINCE EXPENSES INCURRED ON VARIOUS ITEMS OF REVENUE NATUR E. FOR THIS POSITION, WE RELY ON THE FOLLOWING CASES DECIDED BY THE JURISDICTIONAL D ELHI HIGH COURT AND IN THE CASE OF THE ASSESSEE FOR THE ASSESSMENT YEAR 1992-93 : (A) INDO RAMA SYNTHETICS INDIA LTD. V. CIT (201 11 333 ITR 18 (DEL.) IN THIS CASE, THE DELHI HIGH COURT WAS DEALING WITH THE ISSUE OF EXPENDITURE OF RS.64.48 LACS INCURRED ON EXPANSION OF BUSINESS WHICH PLANS WERE LATER ABANDONMENT. THE EXPENDITURE WAS INCURRED IN DIFFER ENT ASSESSMENT YEARS AND ON ABANDONMENT OF THE PROJECT, THE EXPENDITURE WAS CLA IMED AS REVENUE IN NATURE. THE CLAIM OF THE ASSESSEE WAS DISALLOWED. HOWEVER, THE DELHI HIGH COURT FOLLOWING ITS EARLIER JUDGEMENT IN THE CASE OF MODI INDUSTRIE S LTD. 200 ITR 341 HAS HELD THE EXPENDITURE AS REVENUE IN NATURE. IT HAS BEEN HELD THAT SINCE THE EXPENDITURE WAS INCURRED ON SALARIES, WAGES, REPAIR, MAINTENANCE, T RAVELLING / OTHER OTHER ADMINISTRATIVE EXPENDITURE, WHICH ARE UNDOUBTEDLY R EVENUE IN NATURE AND AS SUCH, NO ASSET OF ENDURING NATURE CAN BE SAID TO COME INT O EXISTENCE ON INCURRING THIS EXPENSE. WE MAY ALSO MENTION THAT THE HON'BLE SUPRE ME COURT ON FACTS HAS ALSO DISMISSED SPECIAL LEAVE PETITION FILED BY THE DEPAR TMENT AGAINST THE JUDGEMENT (2010) 328 ITR 9 (STATUTE). (B) CIT V. PRIYA VILLAGE ROADSHOWS LTD. (20111 3 32 ITR 594 (DEL.) IN THIS CASE, THE HON'BLE DELHI HIGH COURT HAS HELD THAT EXPENDITURE INCURRED ON FEASIBILITY STUDY FOR STARTING NEW BUSI NESS IN THE EXISTING LINE OF THE ASSESSEE WHERE THERE IS COMMON ADMINISTRATION / COM MON FUND AND UNITY OF CONTROL THE EXPENSE IS OF REVENUE IN NATURE. THE HI GH COURT HAS FOLLOWED VARIOUS OTHER DECISIONS ON THIS ISSUE INCLUDING THE MODI IN DUSTRIES LTD. DECISION. IT IS SUBMITTED THAT THE FACTS OF THE ASSESSEE ARE IDENTICAL TO THE FACTS CITED IN THE ABOVE CASES. THE ASSESSEE HAS INCURRED EXPEN DITURE OF RS.31.20 LACS ON SALARIES, WAGES, STORES & SPARES, TRAVELLING ETC. N O EXPENDITURE HAS BEEN INCURRED ON ANY ASSET OF THE NATURE FIXED ASSETS OR CAPITAL IN NATURE ,OR WHICH HAS RESULTED INTO ANY BENEFIT OF ENDURING NATURE. THE EXPENDITUR E HAD BEEN INCURRED FOR IMPROVEMENT AND ENHANCEMENT OF ITS EXISTING BUSINES S IN THE LINE OF CHEMICAL MANUFACTURING UNDER THE UNITY AND CONTROL OF SAME M ANAGEMENT WITH COMMON FUNDS ETC. THE RATIO OF THE AFORESAID JUDGEMENTS AR E SQUARELY APPLICABLE ON THE FACTS OF OUR CASE AND EVEN ON THIS BASIS NO DISALLO WANCE IS CALLED FOR EXPENDITURE I.T.A .NO.-883/DEL /2014 PAGE 5 OF 7 OF RS.31.20 LACS WHICH HAD BEEN ALLOWED AS REVENUE EXPENSE IN THE ASSESSMENT ORIGINALLY FRAMED U/S 143(3J OF THE ACT. (C) WE MAY ALSO MENTION THAT SIMILAR ISSUE HAS BEEN EXAMINED IN THE CASE OF THE PRESENT ASSESSEE I.E. DCM SHRIRAM INDUSTRIES LTD WH EREIN EXPENDITURE INCURRED ON A NEW PROJECT WAS EARLIER CHARGED TO CWIP AND ON AB ANDONMENT OF THE PROJECT THE ASSESSEE CLAIMED THE EXPENSE DEDUCTIBLE AS REVENUE EXPENSE. THE SAME HAS BEEN ALLOWED IN APPEALS BY THE CIT(A) / ITAT AND THE SAI D ORDER HAS BEEN ACCEPTED BY THE DEPARTMENT. RELEVANT EXTRACT FROM THE ORDER IS ATTACHED FOR YOUR HONOUR'S READY REFERENCE. IT IS THUS PRAYED THAT THE ASSESSEE COMPANY BE ALLO WED DEDUCTION FOR AMOUNT OF RS.48,56,088/- REPRESENTING THE COST OF VARIOUS REVENUE EXPENSES INCURRED AND WRITTEN OFF TO PROFIT & LOSS A/C DURING THE PREVIOUS YEAR.' WHILE COMPLETING THE ASSESSMENT THE ASSES SING OFFICER HAS NOT ACCEPTED THE CONTENTION OF THE APPELLANT HOLDING TH AT SINCE THE APPELLANT COMPANY HAD ITSELF DEBITED THE EXPENDITURE TO CAPITAL WORK- IN-PROGRESS IN EARLIER YEARS, THE EXPENDITURE IS OF CAPITAL IN NATURE. YOUR HONOUR WI LL PLEASE APPRECIATE THAT DEBITING AN EXPENSE TO A PARTICULAR HEAD DOES NOT DECIDE THE CHARACTER AND ALLOWABILITY OF THE EXPENDITURE. IN ALL THE CASE CITED ABOVE, INCLU DING INTER-ALIA IN THE CASE OF THE ASSESSEE ITSELF FOR A.Y. 1991-92, IT HAS BEEN HELD THAT ANY EXPENSE INCURRED FOR A PROJECT WHICH HAS BEEN ABANDONED DUE TO ITS NON-VIA BILITY, THE -EXPENSE IS AN ALLOWABLE REVENUE EXPENSE ESPECIALLY WHEN ALL THE I TEMS OF EXPENDITURE ARE OF REVENUE IN NATURE. IN THIS CASE CERTAIN EXPENSES ON SALARIES ETC. WERE INCURRED ON A HOTEL PROJECT, WHICH WAS LATER ON ABANDONED DUE TO ITS NON-VIABILITY. THE ITAT FOLLOWING THE DELHI HIGH COURT DECISION IN THE CASE OF MODI INDUSTRIES HELD THAT THERE WAS UNITY OF CONTROL / COMMAND / MANAGEMENT A ND ALSO THE EXPENSES OF THE REVENUE NATURE, AND AS SUCH, THE EXPENSE; WRITTEN OFF AND CLAIMED AS DEDUCTION IS PROPERTY ALLOWABLE. EXTRACT OF THE CASES CITED ABOVE ARE ENCLOSED - ANNEXURE 3. 6.3. ON A CONSIDERATION THEREOF IN THE LIGHT OF THE PLEADINGS OF THE PARTIES BEFORE THE BENCH, WE FIND THAT THE CONCLUSION ARRIVED AT IN PAGE 3 OF THE IMPUGNED ORDER CANNOT BE SUSTAINED. IT IS A MERE REPETITION OF THE CASE MADE OUT BY THE AO AND DOES NOT ADDRESS THE ARGUMENT ON FACTS AND LAW ADVANCED BY THE ASSESSEE. ACCORDINGL Y, SETTING ASIDE THE FINDING THE ISSUE IS RESTORED BACK TO THE LD.CIT(A) TO DECIDE THE SAME I N ACCORDANCE WITH LAW AFTER GIVING THE ASSESSEE A REASONABLE OPPORTUNITY OF BEING HEARD. 7. ADDRESSING THE NEXT ISSUE THE LD. AR SUBMITTED T HAT IN THE FACTS OF THE PRESENT CASE, THE ASSESSEE HAS MADE INVESTMENT OF SHARE OUT OF IT S FUND IN MID 1990 AND NO DIVIDEND HAS BEEN EARNED IN THE YEAR. IN THESE CIRCUMSTANCES RE LYING UPON CIT VS HOLCIM INDIA PVT. I.T.A .NO.-883/DEL /2014 PAGE 6 OF 7 LTD. [2014] 272 CTR 282 (DEL.) AND JOINT INVESTMENTS PVT.LTD. VS CIT [2015] 372 ITR 394 (DEL.). IT WAS HIS SUBMISSION THAT NO ADDITION SHOULD HAVE BEEN MADE. 8. THE LD. SR.DR ON CONSIDERING THE MATERIAL AVAILA BLE ON RECORD SUBMITTED THAT THE FACT THAT NO DIVIDEND IN THE YEAR UNDER CONSIDERATION W AS EARNED IS NOT COMING OUT EITHER FROM THE IMPUGNED ORDER OR FROM THE RECORD. ACCORDINGLY , IT WAS HIS PRAYER THAT AS IN THE FIRST ISSUE, THIS ISSUE MAY ALSO BE RESTORED FOR VERIFYIN G THE POSITION. 9. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. ON A PERUSAL OF THE ASSESSMENT ORDER, IT IS SEEN THAT THE ASSESSEE HAS CONSISTENTLY MADE A CLAIM THAT THE INVESTMENTS HAVE BEEN FROM ITS OWN FUNDS. BEFORE THE CIT(A), IT HAS ALSO BEEN STATED THAT THESE INVESTMENT IN SHARES WERE MADE IN EARLY 1990S OUT OF ITS OWN FUNDS. IT HAS BEEN ARGUED THAT IN THE YEAR UNDER CONSIDERATION, N O DIVIDEND HAS BEEN EARNED THEREON WHICH IS ESTABLISHED FROM PAGE 19-20 WHICH IS AN EX TRACT OF THE P&L ACCOUNT OF THE ASSESSEE. THE LD.AR CONSIDERING THE REQUEST OF THE REVENUE ST ATED THAT HE HAD NO OBJECTION IF THE ISSUE IS VERIFIED. ACCORDINGLY IN THE LIGHT OF THE SUBMIS SIONS OF THE PARTIES AND CONSIDERING THE MATERIAL AVAILABLE ON RECORD AND THE JUDICIAL PRECE DENT CITED, WE SET ASIDE THE ISSUE BACK TO THE FILE TO THE CIT(A) WITH THE DIRECTION TO VERIFY THE CLAIM OF THE ASSESSEE AND ALLOW NECESSARY RELIEF IF SO WARRANTED ON FACTS CONSIDERI NG THE JUDICIAL PRECEDENT CITED. 10. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWE D. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 10 TH OF JUNE, 2016. SD/- SD/- (L.P.SAHU) (DIVA SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER *AMIT KUMAR* I.T.A .NO.-883/DEL /2014 PAGE 7 OF 7 COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI