Venco Research & Breeding Farm Pvt., Pune V. DCIT,Cir-7, Pune, Pune

ITA 967/PUN/2009

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 7403 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 7 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-03-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2004-2005
• Appeal Filed On: 12-08-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ABHAY DAMLE
• Keywords: Gift; Business expenditure; Revenue expenditure; Capital expenditure
• Section: 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A , PUNE BEFORE SHRI SHAILENDRA KUMAR YA DAV J UDICIAL MEMBER AND SHRI D. KARUNAKARA RAO A CCOUNTANT M EMBER ITA NO. 967 /PN/ 20 0 9 ( ASSTT. YEAR : 2004 - 05 ) VENCO RESEARCH AND BREEDING FARM PVT. LTD. , APPELLANT VENKATESHWARA HOUSE, S.NO. 114/A/2/, PUNE SINHAGAD ROAD, PUNE 411030 PAN : AAACV9885H VS. DCIT - CIRCLE 7 - PUNE RESPONDENT PRAPTIKAR SADAN , PRABHAT ROAD, PUNE APP ELLANT BY : SHRI NIKHIL PATHAK RESPONDENT BY : SHRI ABH AY DAMLE ORDER PER D KARUNAKARA RAO AM 1. THIS THE APPEAL FILED BY ASSESSEE ARISING OUT OF THE ORDER OF CIT(A) - III, PUNE DATED 30.3.2009. 2. ASSESSEE HAS RAISED FOLLOWING GROUNDS OF APPEAL : 1. THE L D C IT ERRED IN CONFIRMING THE DIS ALLOWANCE OF RS.2,32,765/ - BY HOLDING THAT EXPENDITURE INCURRED ON FENCING IS NOT REVENUE EXPENDITURE. 2. THE L D C IT ERRED IN CONFIRMING THE DISALLOWANCE OF RS.1,16,309/ - BY HOLDING THAT ADVERTISEMENT EXPENDITURE IS OF PERSONAL NATURE. 3. THE L D C IT ER RED IN CONFIRMING THE DISALLOWANCE OF RS.16,802/ - BY HOLDING THAT EXPENDITURE ON MARRIAGE GIFT TO STAFF IS NOT ALLOWABLE AS BUSINESS EXPENDITURE. 4. THE L D C IT ERRED IN CONFIRMING THE DISALLOWANCE OF RS. 4,59,277/ - BEING LONG TERM CAPITAL LOSS INCURRED ON SALE OF ASSETS USED FOR SCIENTIFIC RESEARCH ACTIVITY. 3. GROUND NO. 1 RELATES TO WHETHER THE SUM OF RS.2,32,765/ - SPENT ON FENCING CONSTITUTES REVENUE EXPENDITURE OR CAPITAL EXPENDITURE. AT THE OUTSET, LD. COUNSEL MENTIONED THAT THE SAID ISSUE IS COV ERED IN FAVOUR OF THE ASSESSEE BY THE TRIBUNAL ORDER IN ITANO. 1399/PN/2006 (A.Y. 2003 - 04) DATED 30 TH APRIL 2008 IN THE CASE OF VENKATESWARA RESEARCH & BREADING FARM PVT. LTD., ONE OF THE GROUP CONCERN. IN THIS REGARD, HE REFERRED TO PARA 2 TO 4 OF THIS O RDER. ITA 967 /PN/ 2009 VENCO RESEARCH AND BREEDING FARM PVT.LTD. A.Y. 2004 - 05 2 4. WE HAVE PERUSED THE SAME AND THESE READ AS UNDER : 2. THE GROUND NO.1 IS IN RESPECT OF DISALLOWANCE OF EXPENDITURE INCURRED ON FENCING. THE A.O TREATED THE EXPENSES ON FENCING AS CAPITAL EXPENDITURE . IN APPEAL, THE CIT(A) CONFIRMED THE ACT ION OF THE A.O. 3. WE FIND THAT SIMILAR ISSUE HAS COME UP FOR CONSIDERATION BEFORE THIS BENCH OF THE TRIBUNAL IN THE CASE OF VENCO RESEARCH AND BREEDING FARM LTD. IN ITA NO. 501/PN/1999 FOR A.Y. 1995 - 96 AND THE I.T.A.T VIDE ITS ORDER DATED 7 TH APRIL 2006 DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE BY CONCLUDING AS UNDER : GROUND NO. 4 IS AGAINST THE DECISION OF THE LD. CIT(A) TO THE EFFECT THAT EXPENDITURE OF RS.3,37,178/ - INCURRED ON FENCING IS A CAPITAL EXPENDITURE. IT WAS POINTED OUT BEFORE US BY THE LD. COUNSEL THAT SIMILAR ISSUE WAS DECIDED IN FAVOUR OF THE ASSESSEE BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF ZENITH STEEL PIPES LTD (NO.1)(NOW ZENITH LTD.) VS. CIT (1990) 185 SITR 126. IN THAT CASE THE ASSESSEE PUT A BARBED WIRE FENCING AT I TS FACTORY PREMISES TO KEEP STRA Y ANIMALS AND OUTSIDERS AT BAY, TO REGULATE THE ENTRY OF THE EMPLOYEES AND ALSO TO AVOID DISPUTE WITH THE NEIGHBORS. THE HONBLE COURT POINTED OUT THAT SUCH FENCING WOULD NOT LAST FOR MANY YEARS . IN VIEW THEREOF, THE EXPENDI TURE WAS HELD TO BE REVENUE EXPENDITURE. IT WAS ALSO POINTED OUT THAT EVEN THE AO HAS DECIDED THIS MATTER IN FAVOUR OF THE ASSESSEE IN THE PROCEEDINGS OF A.Y. 1995 - 96, IN WHICH NO DISALLOWANCE WAS MADE ON THIS ACCOUNT. NO PARTICULAR ARGUMENT WAS MADE BY THE LD. DR IN THIS MATTER. 4. RESPECTFULLY FOLLOWING THE AFORESAID DECISION OF THE I.T.A.T. IN THE CASE OF VENCO RESEARCH AND BREEDING FARM LTD (SUPRA) WE DECIDE THIS ISSUE IN FAVOUR OF THE ASSESSEE. FROM THE ABOVE, IT IS EVIDENT THAT THE ISSUE IS COV ERED IN FAVOUR OF THE ASSESSEE IN THE ASSESSEES OWN CASE. NOTHING IS BROUGHT TO OUR NOTICE THAT THE FENCE IN QUESTION IS A PERMANENT STRUCTURE UNLIKE THE BARBED WIRE AS DISCUSSED BY THE MUMBAI BIGH COURT IN THE CASE OF THE ZENITH STEEL PIPES (SUPRA) . IN A NY CASE, THE ISSUE IN DISPUTE IS ALREADY DECIDED IN FAVOUR OF THE ASSESSEE BY THE TRIBUNAL IN ITS GROUP CASES AS DISCUSSED ABOVE. THEREFORE, THE ORDER OF THE CIT(A) HAS TO BE REVERSED IN THIS REGARD. ACCORDINGLY, GROUND NO. 1 IS ALLOWED . 4. GROUND NO. 2 RELATES TO ALLOWABILITY OF ADVERTISEMENT EXPENDITURE AMOUNTING TO RS 1,16,309/ - . LD COUNSEL FOR ASSESSEE TOOK US THROUGH PARA 5 & 6 OF THE ABOVE REFERRED ORDER OF THE TRIBUNAL AND MENTIONED THAT THE ISSUE IS IDENTICAL ON FACTS AND THEREFORE , IT SHOULD BE HELD COVERED IN FAVOUR OF THE ASSESSEE . WE HAVE PERUSED THE SAME AND SAID PARAGRAPHS READ AS FOLLOWS : 5. THE GROUND NO. 2 IS IN RESPECT OF DISALLOWANCE OF ADVERTISEMENT EXPENSES. THE A.O OBSERVED THAT THE ASSESSEE REIMBURSED TO VENKATESHWARA HATCHERI ES LTD., AN EXPENDITURE OF RS. 29,66,005/ - ON ACCOUNT OF ITS SHARE OF COMMON CORPORATE EXPENSES . ONE OF THE CONSTITUENTS OF THE COMMON CORPORATE EXPENSES WAS THE EXPENDITURE INCURRED ON PAPER ADVERTISEMENT GIVEN BY THE GROUP ON THE OCCASION OF DEATH ANNI VERSARY OF DR. B.V. RAO, THE FOUNDER AND LATE CHAIRMAN OF ITA 967 /PN/ 2009 VENCO RESEARCH AND BREEDING FARM PVT.LTD. A.Y. 2004 - 05 3 THE GROUP. THE SHARE OF THE ASSESSEE WAS OF RS. 25,148/ - . THE A.O HOWEVER, DISALLOWED THE SAME. ON APPEAL, THE CIT(A) HAS ALSO CONFIRMED THE SAME. 6. HAVING HEARD BOTH THE PARTIES AND PERUSING THE ORDERS OF THE AUTHORITIES BELOW, WE FIND THAT THE ASSESSEE IS ENTITLED TO CLAIM DEDUCTION U/S 37(1) IN RESPECT OF ADVERTISEMENT EXPENSES AMOUNTING TO RS . 25,148/ - . THE ADVERTISEMENT GIVEN ON DEATH ANNIVERSARY OF FOUNDER AND LATE CHAIRMAN OF THE ASSES SEE ENHANCED THE IMAGE OF THE COMPANY IN THE EYE OF PUBLIC APART FROM BOOSTING THE MORALE OF THE MANAGEMENT . IN THIS VIEW OF THE MATTER, WE HOLD THAT THE CIT(A) WAS NOT JUSTIFIED IN CONFIRMING THE DISALLOWANCE OF ASSESSEES SHARE IN EXPENSES ON ADVERTISEM ENT ON THE DEATH ANNIVERSARY OF DR. B.V. RAO AND DECIDE THIS ISSUE IN FAVOUR OF THE ASSESSEE. 5. CONSIDERING THE ABOVE SETTLED NATURE OF ISSUE WHERE ADVERTISEMENT EXPENSES THE ABOVE KIND ARE FOUND TO BE ALLOWABLE, WE FIND NO REASON TO DEVIATE FROM THE AB OVE SETTLED POSITION. ACCORDINGLY, ORDER OF THE CIT(A) IS REVERSED IN THIS REGARD. GROUND 2 IS ALLOWED . 6. GROUND NO. 3 IS NOT PRESSED BY THE LD. COUNSEL. ACCORDINGLY, THE SAME IS DISMISSED AS NOT PRESSED. 7. GROUND NO. 4 RELATES TO DISALLOWANCE OF RS . 1,36,504/ - SPENT IN CONNECTION WITH THE FOREIGN TRAVEL OF THE WIFE OF THE MANAGING DIRECTOR. IN THIS REGARD, LD. COUNSEL FAIRLY RELIED ON THE SUBMISSIONS MADE BEFORE THE REVENUE AUTHORITIES AND ALSO CERTAIN DECISIONS ENLISED AT PAGE 8 OF THE PAPER BOOK. IN RESPONSE, LD. D.R. FOR REVENUE RELIED HEAVILY ON THE DECISION IN THE CASE OF ESKAYEF LTD., REPO RTED AT 71 ITD PAGE 419(BANG), WHERE BANGALORE BENCH OF TRIBUNAL HELD THAT THE COST OF AIR TICKET OF THE WIFE OF THE MANAGING DIRECTOR IS REQUIRED TO BE D ISALLOWED. CONSIDERING THE HOMOLOGY OF THE FACTS OF THIS CASE WITH THAT OF THE CASE OF ESKAYEF LTD (SUPRA), WE ARE OF THE OPINION THIS PART OF THE CIT(A) ORDER DOES NOT CALL FOR ANY INTERFERENCE. ACCORDINGLY, THE GROUND 4 OF THE ASSESSEE IS DIMISSED. 8. GROUND NO.5 RELATES TO THE APPLICABILITY OF PROVISIONS OF SECTION 41(3) OF THE ACT IN RESPECT OF LONG TERM CAPITAL LOSS EARNED ON SALE OF ASSETS WHICH WERE OTHERWISE CLAIMED EXEMPTION U/S. 35 OF THE ACT. BOTH THE PARTIES HAVE AGREED TO THE PROPOSITION THAT THE ISSUE HAS TO BE SENT TO THE FILES OF THE A.O FOR EXAMINING THE ISSUE AFRESH IN THE L IGHT OF THE REPORTED JUDGMENT IN THE CASE OF PHARMSON PHARMA CEUTICALS LTD., 87 ITD 668 (AHD ) AND THE RELEVANT PROVISIONS OF THE ACT . A.O. SHALL ALSO TAKE INTO ACCOUNT THE SUBMISSIONS MADE BY THE ASSESSEE WHILE ITA 967 /PN/ 2009 VENCO RESEARCH AND BREEDING FARM PVT.LTD. A.Y. 2004 - 05 4 PASSING A SPEAKING ORDER ON THE ISSUE . CONSIDERING THE CONCURRENCE OF BOTH THE PARTIES FOR SENDING THE ISSUES TO THE FILE OF THE A.O, THE GROUND NO. 5 IS SET ASIDE . 9. IN THE RESULT, APPEAL OF THE ASSESSEE IS P ARTLY ALLOWED . ORDER PRONOUNCED IN OPEN COURT ON 31ST MARCH , 201 1 SD/ - SD/ - ( SHAILENDRA KUMAR YADAV ) (D. KARUNAK ARA RAO) JUDICIAL MEMBER ACCOUNTANT MEMBER PUNE DATED THE 31ST MARCH , 201 1 US COPY OF THE ORDER IS FORWARDED TO : 1. THE A PP ELLANT 2. THE RESPONDENT 3. THE CIT(A) - I I I , PUNE 4. THE CIT - I V , PUNE 5. THE D.R. ITAT A BENCH 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL PUNE