DCIT, New Delhi V. M/s Malbro Appliances Pvt. Ltd., New Delhi

ITA 947/DEL/2011

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 53213 (ITAT-DELHI)
• Duration Of Justice: 8 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-11-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Next Hearing Date: 16-11-2011
• Assessment Year: 2007-2008
• Appeal Filed On: 18-02-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R S NEGI
• Assessee Lawyers: MRS RANO JAIN CAS
• Keywords: Capital expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH `E : NEW DELHI) BEFORE SHRI A.D. JAIN, JUDICIAL MEMBER AND SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER ITA NO.947/DEL./2011 (ASSESSMENT YEAR : 2007-08) DCIT, CIRCLE 6(1), VS. M/S MALBRO APPLIANCES PVT . LTD. NEW DELHI. K-91, UDYOG NAGAR, DELHI-110041. (PAN/GIR NO.AAACM7150N) (APPELLANT) (RESPONDENT) ASSESSEE BY : SH. VED JAIN & MRS. RANO JAIN, CAS. REVENUE BY : SHRI R.S. NEGI, SR.DR ORDER PER A.D. JAIN: JM THIS IS DEPARTMENTS APPEAL FOR AY 2007- 08 TAKING THE FOLLOWING GROUNDS: 1. THE ORDER OF CIT(A) IS ERRONEOUS AND CONTRARY T O FACTS AND LAW. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.1,88,61,595/- MADE BY THE ASSESSING OFFICER BY DISALLOWING THE DEDUCTION U/S 90IC OF TH E I.T. ACT, 1961. 2.1 THE CIT(A) IGNORED THE FINDING RECORDED BY THE ASSESSING OFFICER AND THE FACT THE ACKNOWLEDGEMENT FROM THE DEPARTMENT OF INDUSTRI ES WAS RECEIVED PARWANOO UNIT WAS RECEIVED VIDE LETTER DATED 06.12. 2006. 3. ON THE FACT AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) HAS ERRED IN DELETING OF RS.10,00,000/- MADE BY THE ASS ESSING OFFICER CAPITALIZING THE ENLISTMENT FEES. 3.1 THE CIT(A) IGNORED THE FINDINGS RECORDED BY ASS ESSING OFFICER AND ALSO THE FACT THAT THE ASSESSEE SHALL BE DERIVING LONG T ERM BENEFIT BY ENLISTING ITSELF WITH HPCL AND THE NATURE OF EXPENSE IS NOT R EVENUE. I.T.A. NO.947/DEL/2011 (A.Y : 2007-08 2 2. GROUND NO.1 IS GENERAL AND HENCE REQUIRES NO ADJ UDICATION. 3. GROUND NO.2 CHALLENGES THE DELETION OF THE ADDIT ION OF RS.1,88,61,595/- MADE U/S 80IC OF THE I.T. ACT, 1961, WHEREAS GROUND NO.3 CHA LLENGES THE DELETION OF THE AMOUNT OF RS.10,00,000/- MADE CAPITALIZING THE ENLI STMENT FEES. 4. THE ASSESSEE COMPANY IS INVOLVED IN MANUFACTURIN G AND TRADING OF LPG GAS STOVE AND RUBBER PIPES. DURING THE YEAR, IT ALLEGED TO H AVE STARTED A NEW UNIT AT PARWANOO, MANUFACTURING LPG GAS STOVE USING NEW MACHINERY. I T CLAIMED DEDUCTION U/S 80IC OF THE I.T. ACT, 1961. THE ASSESSING OFFICER, HOWEVER, DI SALLOWED THE CLAIM U/S 80IC OF THE ACT, OBSERVING THAT VIDE LETTER DATED 167.12.2009, ASSESSEE HAD ADMITTED THAT THE EXISTING UNIT OF THE ASSESSEE AT DELHI HAD BEEN SHIFTED TO P ARWANOO. THE ASSESSEE HAS ALSO CLAIMED ENLISTMENT EXPENSES OF RS.10 LAKHS, BUT THE ASSESSI NG OFFICER DISALLOWED THE CLAIM, OBSERVING THAT THE EXPENSES, WERE CAPITAL IN NATURE , HAVING BROUGHT IN AN ENDURING BENEFIT TO THE ASSESSEE. 5. THE CIT(A), BY VIRTUE OF THE IMPUGNED, ALLOWED B OTH THE CLAIMS OF THE ASSESSEE. 6. BEFORE US, THE LD.DR HAS CONTENDED THAT WHILE WR ONGLY DELETING THE DISALLOWANCE U/S 80IC OF THE ACT, THE CIT(A) HAS FAILED TO TAKE INTO CONSIDERATION, THE FACT THAT THE ASSESSEE HAD ADMITTEDLY SHIFTED ITS UNIT FROM DELHI TO PARWANOO; AND THAT NO NEW PLANT AND MACHINERY WAS PURCHASED FOR THE PARWANOO UNIT. SO FAR AS REGARDS THE ISSUE OF CAPITALIZING OF ENLISTMENT FEES, LD.DR HAS CONTENDE D THAT SUCH PAYMENT BROUGHT AN ENDURING BENEFIT TO THE ASSESSEE AND SO, THE SAME W AS CORRECTLY DISALLOWED BY THE ASSESSING OFFICER AS A REVENUE EXPENSES. 7. ON THE CONTRARY, THE LD.AR FOR THE ASSESSEE STRO NGLY SUPPORTED THE ORDER UNDER APPEAL, CONTENDING THAT IT IS COMPLETELY WRONG TO S TATE, AS OBSERVED BY THE ASSESSING OFFICER, THAT THE ASSESSEE HAD EVER ADMITTED HAVING SHIFTED ITS UNIT FROM DELHI TO PARWANOO; THAT ON THE OTHER HAND, IT HAS BEEN CATEG ORICALLY BROUGHT ON RECORD THAT A NEW UNIT WAS SET UP AT PARWANOO ATTRACTING ALLOWANCE U/ S 80IC OF THE ACT; THAT THE SETTING UP OF THE NEW UNIT STOOD AMPLY PROVED FROM THE CERTIFI CATE AND RECEIPT ISSUED BY THE ELECTRICITY DEPARTMENT, SINCE A NEW POWER CONNECTIO N HAD BEEN OBTAINED FOR THE SAID UNIT; THAT THE DETAILS OF EMPLOYEES AND PARTICULARS OF THEIR DOMICILE SHOWED THEM TO BE LOCAL RESIDENTS OF PARWANOO; THAT A DECLARATION HAD BEEN FILED BY THE ASSESSEE BEFORE THE EXCISE DEPARTMENT, CLAIMING EXEMPTION FROM EXCISE; AND THAT THE RENT AGREEMENT I.T.A. NO.947/DEL/2011 (A.Y : 2007-08 3 PRODUCED AMPLY ESTABLISHED THAT THE FACTORY PREMISE S WAS TAKEN ON LEASE, WHERE A NEW UNIT WAS SET UP, PRODUCTION STARTING IN SEPTEMBER, 2006. 8. CONCERNING THE ENLISTMENT EXPENSES, THE LD.AR. O F THE ASSESSEE HAS SUBMITTED THAT THE AMOUNT OF RS.10 LAKHS WAS PAID TO M/S HPCL AS FEES, PAID EVERY YEAR, TO PROVIDE ITS DISTRIBUTOR NETWORK/CHANNEL TO THE ASSESSEE SO AS TO ENABLE IT TO SELL ITS PRODUCT; THAT IT WAS MEANT ONLY FOR USING THE DISTRIBUTION NETWORK O F HPLC DURING FINANCIAL YEAR 2006- 07; THAT NO LONG TERM BENEFIT WAS EARNED FROM THE E XPENDITURE INCURRED; AND THAT IN FINANCIAL YEARS 2007-08 TO 2009-2010 ALSO, SIMILAR FEE OF RS.10 LAKHS EVERY YEAR HAS BEEN PAID. 9. WE HAVE HEARD BOTH THE PARTIES AND HAVE PERUSED THE MATERIAL ON RECORD. WE FIND THAT WHILE ALLOWING THE CLAIM U/S 80IC OF THE ACT, THE CIT(A) HAS DULY TAKEN THE ATTENDING FACTS INTO CONSIDERATION. THE FACTS ARE THAT THE ASSESSEE HAD INDEED SET UP A NEW UNIT IN PARWANOO, WHICH SETTING UP IS AMPLY PROVED FROM THE DOCUMENTARY EVIDENCE PRODUCED ON RECORD. THIS EVIDENCE COMPRISES OF THE RENT AGREEMENT, SHOWING THAT A FACTORY PREMISES WAS TAKEN ON LEASE WHERE THE NEW U NIT WAS SET UP AND PRODUCTION STARTED IN SEPTEMBER, 2006; THE CERTIFICATE AND RECEIPT FRO M THE ELECTRICITY DEPARTMENT SHOWING THE OBTAINING OF A NEW POWER CONNECTION; DETAILS OF EMPLOYEES AND PARTICULARS OF THEIR DOMICILE ESTABLISHING THEM TO BE LOCAL RESIDENTS OF PARWANOO AND THERE-ABOUTS; DECLARATION FILED WITH THE EXCISE DEPARTMENT FOR SE EKING EXCISE EXEMPTION QUA THE NEW UNIT; AND LIST OF NOTIFIED AREAS SUBSTANTIATING THA T DEDUCTION U/S 80IC OF THE ACT WAS AVAILABLE FOR NEW INDUSTRIAL UNDERTAKING SET UP IN THE CONCERNED AREA. THE ASSESSING OFFICER WAS SWAYED BY A NON-EXISTENT ALLEGED ADMIS SION BY THE ASSESSEE THAT ITS DELHI UNIT HAD BEEN SHIFTED TO PARWANOO. THE RELEVANT PO RTION OF THE ASSESSMENT ORDER IN THIS REGARD READS AS FOLLOWS: .THE A.R. OF THE ASSESSEE BY LETTER DATED 12.10.2009 SUBMITTED THAT THE ASSESSEE COMPANY HAS SHIFTED ITS UNIT DURING THE YEAR TO PARWANOO.. A COPY OF THE SAID LETTER DATED 12.10.2009 HAS BEEN PLACED ON RECORD BEFORE US, AT ASSESSEES PAPER BOOK (APB) 29-31. THE RELEVANT PORTION OF THE SAID LETTER READS AS FOLLOWS: DETAILED NOTE ON BUSINESS AT DELHI & PARWANOO I.T.A. NO.947/DEL/2011 (A.Y : 2007-08 4 THE ASSESSEE RUNS ITS BUSINESS OF MANUFACTURING GAS STOVES AND RUBBER HOSE FROM THE FOLLOWING TWO UNITS: 1. K-91, UDYOG NAGAR, NEW DELHI-110041. 2. 90/1, 1 ST FLOOR, SECTOR 4, AMBOTA, OLD KASOLI ROAD, PARWANOO , DISTT. SOLAN, HIMACHAL PRADESH. THE COMPANY WAS INVOLVED IN MANUFACTURING OF L.P. G AS STOVS AND RUBBER HOSE AT ITS DELHI UNIT UP TO SEPTEMBER, 2006. AFTER THA T, THE ASSESSEE ENTERED INTO A TIE- UP WITH HPCL, BPCL AND OIC. THESE THREE COMPANIES HAD DEVELOPED A CONSORTIUM BRAND CALLED SURAKSHA. THE ASSESSEE C OMPANY THEN STARTED MANUFACTURING SURAKSHA RUBBER HOSE AT ITS DELHI U NIT AND L.P. GAS STOVES AT ITS PARWANOO UNIT. THE GAS STOVES MANUFACTURING FR OM THIS UNIT IS SUPPLIED TO GAS OUTLETS MAINTAINED BY BPCL, HPCL AND IOC. WE HAVE PERUSED THE LETTER IN ITS ENTIRETY. NOWHERE IN THIS LETTER HAS THE ASSESSEE ADMITTED/SUBMITTED HAVING SHIFTED ITS UNIT FROM DEL HI TO PARWANOO. RATHER, THE AFORE- QUOTED PORTION OF THE LETTER CATEGORICALLY SHOWS TH AT THE COMPANY HAD TWO UNITS, ONE AT DELHI AND THE OTHER HAVING BEEN STARTED AT PARWANOO . 10. IN VIEW OF THE ABOVE, THERE BEING NO MERIT THE REIN, GROUND NO.2 RAISED BY THE DEPARTMENT IS REJECTED. 11. SO FAR AS REGARDS GROUND NO.3, UNDISPUTEDLY, TH E PAYMENT OF RS.10 LAKHS WAS MADE BY THE ASSESSEE TO HPCL. THIS WAS FEES PAID A S ENLISTMENT EXPENSES FOR HPCL HAVING PROVIDED ITS DISTRIBUTION NETWORK TO THE ASS ESSEE TO ENABLE THE ASSESSEE TO SELL ITS PRODUCT. A COPY OF THE AGREEMENT BETWEEN THE ASSES SEE AND HPCL IS AT APB 68-98. A COPY OF THE LEDGER ACCOUNT SHOWING THE ENLISTMENT E XPENSES IS AT APB 99-101. AS PER THE AGREEMENT, THE PAYMENT IS MADE ON AN YEAR TO YE AR BASIS AND THE BENEFIT OF THE DISTRIBUTOR NETWORK OF HPCL IS MADE AVAILABLE TO TH E ASSESSEE ONLY FOR THE YEAR OF PAYMENT. SIMILAR PAYMENTS HAVE BEEN MADE FOR FINAN CIAL YEARS 2007-08 TO 2009-10. THESE FACTS WERE NOWHERE CONSIDERED BY THE ASSESSIN G OFFICER IN THAT ASSESSMENT ORDER. THESE FACTS SHOW THAT THERE WAS NO ENDURING BENEFIT MADE AVAILABLE TO THE ASSESSEE BY HPCL BY PROVIDING ITS DISTRIBUTOR NETWORK. IT WAS ONLY THAT THE ASSESSEE WAS FACILITATED IN CARRYING OUT ITS BUSINESS MORE EFFECTIVELY AND E FFICIENTLY. THE FIXED CAPITAL WAS LEFT UNTOUCHED. AS PER THE MOUS SIGNED BETWEEN THE ASSE SSEE AND HPCL, THE ENLISTMENT FEES I.T.A. NO.947/DEL/2011 (A.Y : 2007-08 5 WAS EXCLUSIVELY AND SPECIFICALLY FOR THE PERIOD FRO M 1.4.2006 TO 31.3.2007. THE PAYMENT THEREOF WAS ESSENTIAL FOR RUNNING THE ASSESSEES BU SINESS PROFITABLY DURING THE YEAR. FOR THE PAYMENTS MADE FOR FINANCIAL YEARS 2007-08 TO 09 -10, THE AGREEMENT HAD HAD TO BE RENEWED. THE EXPENDITURE FOR ENLISTMENT FEE THUS C ANNOT BE TERMED AS AN EXPENDITURE OF CAPITAL NATURE, AS RIGHTLY HELD BY THE CIT(A). 12. THEREFORE, THE VIEW OF THE CIT(A) IN THIS REGAR D IS ALSO UPHELD, REJECTING GROUND NO.3. 13. IN THE RESULT, THE APPEAL FILED BY THE DEPARTME NT IS DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON THE CONCLUSION O F THE HEARING ON 16.11.2011. SD/- SD/- (SHAMIM YAHYA) (A.D. JAIN) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED, NOV. 16, 2011. SKB COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT(A)-IX, NEW DELHI. 5.CIT(ITAT), NEW DELHI. AR/ITAT