Bhagirath Tea & Chemicals Pvt. Ltd., Lucknow V. Asstt. Commissioner of Income Tax, Lucknow

ITA 915/LKW/2014

• Counselvise Citation: 91523714 RSA 2014
• Duration Of Justice: 7 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-08-2015
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 06-07-2015
• Assessment Year: 2010-2011
• Appeal Filed On: 24-12-2014
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Capital asset; Scheme of amalgamation; Revenue expenditure; Capital expenditure
• Section: 37

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL LUCKNOW BENCH A, LUCKNOW BEFORE SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI A.K. GARODIA, ACCOUNTANT MEMBER ITA NO.915/LKW/2014 ASSESSMENT YEAR 2010-11 ASST. COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-I, LUCKNOW- 226001 VS BHAGIRATH TEA & CHEMICALS PVT. LTD. 19 KM OF NH-25, KANPUR ROAD, DAROGA KHERA, LUCKNOW PAN AABCB 5993 P (RESPONDENT) (APPELLANT) SHRI J.J. MEHROTRA, CA APPELLANT BY NONE RESPONDENT BY 06/07/2015 DATE OF HEARING 20 /08/2015 DATE OF PRONOUNCEMENT O R D E R PER A. K. GARODIA, A.M. THIS IS AN ASSESSEES APPEAL DIRECTED AGAINST THE ORDER PASSED BY LEARNED CIT (A)-III, LUCKNOW DATED 30/10/2014 FOR T HE ASSESSMENT YEAR 2010-11. 2. THE GROUNDS RAISED BY THE ASSESSEE ARE AS UNDER: 1. THAT THE LD. CIT(A) HAS ERRED IN LAW AND ON FAC TS AND CIRCUMSTANCES OF THE CASE IN NOT ALLOWING THE CLAIM OF THE APPELLANT RELATING TO EXPENSES OF RS.4,46,984/- OF FABRIC UNIT OF THE APPELLANT COMPANY. 2. THAT THE LD. CIT(A) HAS FAILED TO APPRECIATE THA T THE EXPENSES RELATED TO BUSINESS WHICH THE APPELLANT COMPANY WAS DULY AUTHORIZED TO CARRY ON BY ITS MEMORANDUM OF ASSOCIATION AND, THEREFORE, THERE IS NO JUSTIFICATION IN REJECTING THE CLAIM OF EXPENSES BY TREATING THE SAME TO BE IN THE NATURE OF CAPITAL EXPENSES. 2 3. THAT THE APPELLANT HAS FAILED TO APPRECIATE THAT THE EXPENSES OF RS.4,46,984/- RELATING TO FABRIC UNIT W ERE FULLY ALLOWABLE BUSINESS DEDUCTION AS THE SAME WERE WRITTEN OFF SINCE THE BUSINESS COULD NOT TAKE OFF A S EXPECTED AND, THEREFORE, THE EXPENDITURE WAS INCURR ED IN THE COURSE OF CARRYING ON OF THE BUSINESS AND WAS ALLOWABLE DEDUCTION. 3. LEARNED A.R. OF THE ASSESSEE PLACED RELIANCE ON THE FOLLOWING DECISIONS:- 1. DCIT VS. ASSAM ASBESTOS LTD. 263 ITR 357 (GAU.) 2. PUNJAB STATE INDUSTRIAL DEVELOPMENT CORPORATION LTD. VS. DCIT 292 ITR (AT) 268 (CHD.) (SB) 3. AGRANI TELECOM LTD. VS. ACIT 150 ITD 34 (MUM) 4. CIT VS. TATA ROBINS FRASER LTD. 78 DTR (JHARKHAN D) 22 5. IDEA CELLULAR LTD. VS. ADDL. CIT 65 SOT 15 (MUM) (URO) 6. CIT VS. GRAPHIC INDIA LTD. 221 ITR 420 (CAL) 7. BENGAL & ASSAM INVESTORS LTD. VS. CIT 142 ITR 15 6 (CAL.) 4. NONE WAS PRESENT ON BEHALF OF THE REVENUE. HE NCE, THE APPEAL WAS HEARD EX-PARTE QUA THE REVENUE. 5. WE HAVE CONSIDERED THE SUBMISSION OF LD. AR OF T HE ASSESSEE. 6. THE BRIEF FACTS OF THE CASE TILL THE ASSESSMENT STAGE ARE NOTED BY THE CIT(A) AT PAGE 12 OF HIS ORDER AND THE SAME ARE REP RODUCED AS UNDER:- IN THESE GROUNDS OF APPEAL THE APPELLANT HAS OBJEC TED TO THE DISALLOWANCE OF A SUM OF RS.4,46,984/- BEING EX PENSES RELATABLE TO FABRIC UNIT OF THE APPELLANT COMPANY. THE FACTS OF THE ISSUE ARE THAT THE APPELLANT COMP ANY HAD STARTED A UNIT BY THE NAME OF FABRIC UNIT FOR MANUF ACTURING AND MARKETING OF FABRIC IN THE NAME AND UNDER THE STYLE OF LIFE STYLE FABRIC FROM THE FINANCIAL YEAR 2007-08 ONWARDS. IN ORDER TO VENTURE IN A NEW LINE OF BUSINESS NEEDFUL AMENDMENT S WERE 3 MADE TO THE OBJECTS CITED IN MEMORANDUM OF ASSOCIAT ION THEREBY GETTING THE AMENDMENT VETTED WITH THE REGIS TRAR OF THE COMPANIES. ONCE AN ACTIVITY AS LISTED IN THE OBJECTS OF THE C OMPANY, IT IS FULLY AUTHORIZED TO CARRY ON SUCH LINE OF BUSINE SS AND THE SAME CANNOT BE TERMED AS ANY BUSINESS NOT CONNECTED TO T HE APPELLANT. THE LD. ASSESSING OFFICER HAS TREATED THE EXPENSES RELATED TO FABRIC UNIT TO BE EXPENSES OF A NEW LINE OF BUSI NESS SEPARATE FROM THE EXISTING BUSINESS AND HAS PROCEEDED TO DIS ALLOW THE EXPENSES AND ACCORDING TO HIM THE SAME IS NOT ALLOW ABLE U/S 37 OF THE I.T. ACT. 7. BEFORE LD. CIT(A) ALSO, RELIANCE WAS PLACED BY T HE LD. A.R OF THE ASSESSEE ON THE SAME JUDICIAL PRONOUNCEMENTS AS HAS BEEN PLACED BEFORE US. LD. CIT(A) HAS CONSIDERED ALL THE JUDGMENTS AND THEREAFTER DECIDED THE ISSUE AGAINST THE ASSESSEE BY HOLDING THAT IN THE F ACTS OF THE PRESENT CASE, THE EXPENSES IN DISPUTE ARE CAPITAL EXPENDITURE TO START A NEW LINE OF BUSINESS AND THE SAME ARE NOT REVENUE EXPENDITURE A ND THEREFORE, IT IS OUTSIDE THE PURVIEW OF SECTION 37 OF THE I.T. ACT. REGARDING THE NATURE OF EXPENSES, THE ASSESSEE HAS FILED COPY OF THE LEDGER ACCOUNT ON PAGE 29 OF THE PAPER BOOK AND AS PER THE SAME, AN AMOUNT OF RS .278,529/- WAS DEBITED TO PRE OPERATIVE EXPENSES ACCOUNT DURING FI NANCIAL YEAR 2007-08 WITH THE NARRATION THAT EXPENSES ARE REGARDING THE WORK IN PROGRESS OF LIFESTYLE FABRIC AS PRE-OPERATIVE EXPENSES OF NEW P ROJECT. SIMILARLY AS PER LEDGER ACCOUNT ON PAGE 28 OF THE PAPER BOOK, FURTHE R AMOUNT OF RS.1,68,455/- WAS DEBITED TO PRE-OPERATIVE EXPENSES DURING FINANCIAL YEAR 2008-09 WITH THE SAME NARRATION AND TOTAL OF BOTH THESE AMOUNTS COMES TO RS.4,46,984/- WHICH WAS WRITTEN OFF BY THE ASSESSEE DURING THE FINANCIAL YEAR 2009-10 WITH THE NARRATION LOSSES BOOKED AS U NIT CLOSED. HENCE, IT IS SEEN THAT TRUE NATURE OF EXPENSES IS NOT AVAILABLE IN PAPER BOOK. 8. NOW IN THE LIGHT OF THESE FACTS, WE EXAMINE THE APPLICABILITY OF VARIOUS JUDGMENTS CITED BY THE LD. AUTHORIZED REPRESENTATIV E OF THE ASSESSEE. THE 4 FIRST JUDGMENT CITED BY HIM IS JUDGMENT OF THE HON BLE GUWAHATI HIGH COURT RENDERED IN THE CASE OF DCIT VS. ASSAM ASBESTOS LTD . (SUPRA). IN THAT CASE, THE FACTS WERE THAT THE ASSESSEE COMPANY WAS MANUFA CTURING ASBESTOS SHEETS AND THE ASSESSEE COMPANY WAS CONTEMPLATING S ETTING UP A MINI CEMENT PLANT AND FOR THIS PURPOSE, THE ASSESSEE GOT A FEASIBILITY REPORT PREPARED BUT THE GOVERNMENT DID NOT GRANT PERMISSIO N AND UNDER THESE FACTS, IT WAS HELD BY THE HONBLE GUWAHATI HIGH COU RT THAT EXPENSES INCURRED FOR PREPARATION OF FEASIBILITY REPORT IS REVENUE EX PENDITURE BECAUSE NO NEW CAPITAL ASSETS HAS COME INTO EXISTENCE. IN THE PRES ENT CASE, THE TRUE NATURE OF EXPENSES HAS NOT BEEN BROUGHT ON RECORD AND THER EFORE, THIS JUDGMENT IS NOT RENDERING ANY HELP TO THE ASSESSEE IN THE PRESE NT CASE. 9. THE SECOND JUDGMENT CITED IS A DECISION OF SPECI AL BENCH OF THE TRIBUNAL REFERRED IN THE CASE OF PUNJAB STATE INDUS TRIAL DEVELOPMENT CORPORATION LTD. VS. DCIT (SUPRA). IN THAT CASE, TH E FACTS WERE THAT PROMOTION OF PROJECTS WAS A MAJOR ACTIVITY OF ASSES SEE CORPORATION AND THE EXPENSES INCURRED ON SUCH PROJECTS DURING THE IMPLE MENTATION STAGE WAS CHARGED TO THE REVENUE FOR THE YEAR IN WHICH THE PA YMENTS ARE MADE AND WERE SHOWN UNDER THE HEAD PROJECT SURVEY EXPENSES AND RECOVERY OF SUCH EXPENSES EXCEPT THE ABANDONED PROJECTS WHERE NO REC OVERIES WAS MADE WAS CREDITED TO THE HEAD RECEIPTS ON ACCOUNT OF PR OJECTS MATURED IN THE YEARS OF MATURITY OF RESPECTIVE PROJECTS AND THIS P OLICY HAS BEEN ADOPTED BECAUSE PROMOTION OF PROJECT WAS A MAJOR ACTIVITY O F THE ASSESSEE CORPORATION. RECOVERY, IF ANY, MADE IN THE SUBSEQUE NT YEARS ON ACCOUNT OF ABANDONED PROJECTS IS CREDITED TO THE MISCELLANEOUS INCOME IN THE YEAR OF ACTUAL RECEIPT. UNDER THESE FACTS, IT WAS HELD BY T HE SPECIAL BENCH OF THE TRIBUNAL THAT SUCH EXPENSES ON SURVEY OF PROJECT IS REVENUE EXPENDITURE. IN OUR CONSIDERED OPINION, THIS DECISION OF SPECIAL BE NCH OF THE TRIBUNAL IS NOT APPLICABLE IN THE PRESENT CASE BECAUSE THE FACTS AR E DIFFERENT. IN THAT CASE, PROMOTION OF PROJECT WAS A MAJOR ACTIVITY BY THE AS SESSEE CORPORATION 5 WHEREAS IN THE PRESENT CASE, THIS IS NOT SO. HENCE, THIS TRIBUNAL DECISION IS NOT APPLICABLE IN THE PRESENT CASE. 10. THE THIRD DECISION ON WHICH RELIANCE HAS BEEN P LACED BY THE LD. AR OF THE ASSESSEE IS THE JUDGMENT OF THE HONBLE CALCUTT A HIGH COURT RENDERED IN THE CASE OF CIT VS. GRAPHITE INDIA LTD. (SUPRA). IN THAT CASE, THE AMOUNT WAS PAID BY THE ASSESSEE IN ORDER TO EXPLORE THE PO SSIBILITY OF SETTING UP A PETRO CHEMICAL PROJECT WHICH COULD PROVIDE A CAPTIV E PLANT FOR MANUFACTURE OF RAW MATERIAL AT THE ASSESSEES OWN FACTORY WHICH WOULD HELP THE ASSESSEE IN GETTING CONTINUOUS SUPPLY OF RAW MATERIAL EVEN D URING PERIODS OF ACUTE SHORTAGE. THE EXPENDITURE INCURRED ON SUCH PROJECT WHICH COULD NOT MATERIALIZE WAS HELD TO BE REVENUE EXPENDITURE BY H ONBLE CALCUTTA HIGH COURT IN THAT CASE. IN OUR CONSIDERED OPINION, THE FACTS OF THAT CASE ARE TOTALLY DIFFERENT BECAUSE IN THAT CASE, THE PROJECT WAS IN RESPECT OF EXPLORING AVAILABILITY OF RAW MATERIAL OF THE EXISTING PROJEC T AND THEREFORE, THE NEW PROJECT BEING SETUP WAS NOT INDEPENDENT OF THE EXIS TING PROJECT AS IN THE PRESENT CASE. THEREFORE, THIS JUDGMENT IS ALSO NOT RENDERING ANY HELP TO THE ASSESSEE IN THE PRESENT CASE. 11. THE NEXT JUDGMENT ON WHICH RELIANCE HAS BEEN PL ACED BY THE LD. AR OF THE ASSESSEE IS A JUDGMENT OF THE HONBLE CALCUT TA HIGH COURT RENDERED IN THE CASE OF BENGAL & ASSAM INVESTORS LTD. VS. CI T (SUPRA). IN THAT CASE, THE DISPUTE WAS REGARDING LITIGATION EXPENSES INCUR RED IN CONNECTION WITH A SCHEME OF AMALGAMATION WHICH DID NOT MATERIALIZE AN D IT WAS HELD BY THE HONBLE CALCUTTA HIGH COURT THAT SUCH EXPENDITURE I S CAPITAL EXPENDITURE. HENCE, THIS JUDGMENT IS IN FACT AGAINST THE ASSESSE E AND HENCE, NOT RENDERING ANY HELP TO THE ASSESSEE IN THE PRESENT C ASE. 12. THE NEXT JUDGMENT ON WHICH RELIANCE HAS BEEN PL ACED BY THE LD. AR OF THE ASSESSEE IS A JUDGMENT OF HONBLE JHARKHAND HIGH COURT RENDERED IN 6 THE CASE OF CIT VS. TATA ROBINS FRASER LTD. (SUPRA) . IN PARA 16 OF THIS JUDGMENT, THE NATURE OF EXPENSES HAVE BEEN TAKEN NO TE OF WHICH INCLUDED A FEE OF RS.2,57,335/- PAID TO THE ARCHITECT AND SOME EXPENSES OF RS.46,379/- INCURRED ON OLD CAPITAL WORK IN PROGRESS WHICH WAS ABANDONED AND COST OF DAMAGED CABINETS AMOUNTING TO RS.12,776/- TOTAL EXP ENDITURE OF RS.3,16,490/-. HENCE, IT IS SEEM THAT IN THAT CASE ALSO, THE DETAILS AND NATURE OF EXPENSES WAS BROUGHT ON RECORD WHICH INCL UDED FEE OF ARCHITECT ETC. BUT IN THE PRESENT CASE, THE DETAIL AND NATURE OF EXPENSES IS NOT MADE AVAILABLE BEFORE US AND THEREFORE, THIS JUDGMENT IS ALSO NOT RENDERING ANY HELP TO THE ASSESSEE IN THE PRESENT CASE. 13. THE NEXT JUDGMENT ON WHICH RELIANCE HAS BEEN PL ACED IS A TRIBUNAL DECISION RENDERED IN THE CASE OF AGRANI TELECOM LTD . VS. ACIT (SUPRA). IN THAT CASE, THE ASSESSEE WAS ALREADY IN THE BUSINESS OF TRADING AND TRANSPORTATION SERVICE FOR WHICH IT HAS SHOWN RECEI PTS AND OFFERED INCOME THERE FROM. IN THE YEAR UNDER CONSIDERATION, THE AS SESSEE HAD VENTURED INTO SERVICE INDUSTRIES IN FLEET MANAGEMENT SERVICE AND PROVIDING SECURITY PRODUCTS AND NETWORKING SOLUTIONS. FOR THE PURPOSE OF THIS SERVICE INDUSTRY, THE ASSESSEE HAS ENTERED INTO A CONSULTANCY AGREEME NT. THE EXPENSE IN DISPUTE WAS REGARDING RS.42.36 LAKH OUT OF CONSULTA NCY CHARGES AND RS.10.00 LACS OUT OF TRAVELLING EXPENSES. UNDER THE SE FACTS, WE FIND THAT THE CONSULTANCY AGREEMENT WAS FOR SUCH A NEW LINE OF BU SINESS WHICH IS VERY CLOSELY LINKED WITH EXISTING BUSINESS OF TRADING AN D TRANSPORTATION SERVICE. WHEN THE ASSESSEE IS ALREADY IN THE BUSINESS OF TRA NSPORTATION SERVICE, FLEET MANAGEMENT SERVICE AND PROVIDING SECURITY PRODUCTS ON NETWORKING SOLUTIONS IS VERY MUCH LINKED WITH THE EXISTING OF BUSINESS OF TRANSPORTATION SERVICE. BUT IN THE PRESENT CASE, THE NEW UNIT IS N OT SO LINKED WITH EXISTING BUSINESS AND THEREFORE, THIS TRIBUNAL DECISION IS A LSO NOT RENDERING ANY HELP TO THE ASSESSEE IN THE PRESENT CASE. 7 14. AS PER ABOVE DISCUSSION, WE HAVE SEEN THAT NONE OUT OF SEVEN JUDGMENTS CITED BY LD. AR OF THE ASSESSEE IS RENDER ING ANY HELP TO THE ASSESSEE IN THE PRESENT CASE. WE HAVE ALSO SEEN THA T THE ASSESSEE HAS NOT PROVIDED THE DETAILS AND NATURE OF EXPENSES INCURRE D IN THE PRESENT CASE. THEREFORE, WE DO NOT FIND ANY REASON TO INTERFERE I N THE ORDER OF THE LD. CIT(A). 15. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS DI SMISSED. (ORDER WAS PRONOUNCED IN THE OPEN COURT ON THE DATE MENTIONED ON THE CAPTION PAGE) SD/- SD/- (SUNIL KUMAR YADAV) (A.K. GARODIA ) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 20/08/2015 AKS COPY OF THE ORDER FORWARDED TO : 1.THE APPELLANT 2.THE RESPONDENT. 3.CONCERNED CIT 4.THE CIT(A) 5.D.R., I.T.A.T., LUCKNOW ASSTT. RE GISTRAR