RALLIS INDIA LIMITED , MUMBAI V. DEPUTY COMMISSIONER OF INCOME TAX CIRCLE 3(3), MUMBAI

MA 170/MUM/2018

• Counselvise Citation: [2018] 124 COUNSELVISE.COM (IT) 7074 (ITAT-MUMBAI)
• Duration Of Justice: 5 month(s) 15 day(s)
• Appeal Type: Miscellaneous Application
• Pronouncement Date: 23-08-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2010-2011
• Appeal Filed On: 09-03-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAM TICOORI
• Keywords: Revenue expenditure; Capital expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH D, MUMBAI BEFORE SHRI SAKTIJIT DEY, JUDICIAL MEMBER AND SHRI RAJESH KUMAR, ACCOUNTANT MEMBER MA NO.170/M/2018 (ARISING OUT OF ITA NO.4316/M/2014) ASSESSMENT YEAR: 2010-11 M/S. RALLIS INDIA LTD. 156/157 NARIMAN BHAVAN, NARIMAN POINT, MUMBAI 400 001 PAN: AABCR 2657N VS. DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 3(3), MUMBAI (APPELLANT) (RE SPONDENT) PRESENT FOR: ASSESSEE BY : SHRI JITENDRA JAIN, A.R. REVENUE BY : SHRI RAM TICOORI, D.R. DATE OF HEARING : 27.07.2018 DATE OF PRONOUNCEMENT : 23.08.2018 O R D E R PER RAJESH KUMAR, ACCOUNTANT MEMBER: VIDE THIS APPLICATION, THE ASSESSEE SEEKS THE RECTI FICATION OF THE ORDER DATED 08.11.2017 PASSED IN ITA NO.4316 /M/2014. 2. THE LD. A.R. SUBMITTED THAT THE REVENUE IN ITS A PPEAL RAISED GROUND NOS.3 & 4 AS REGARDS EXPENSES ON IMPL EMENTING THE PROJECT DISHA AND PROJECT EAGLE WHICH WERE TREATED BY THE LD. CIT(A) AS REVENUE IN NATURE WHILE THE SAME W ERE TREATED AS CAPITAL IN NATURE BY THE AO. THE TRIBUN AL WHILE DISPOSING OF THE APPEAL OF THE REVENUE TOOK UP THE GROUND NO.3 AND 4 TOGETHER HOWEVER ONLY GROUND NO.3 WAS DI SPOSED MA NO.170/M/2018 (ARISING OUT OF ITA NO.4316/M/2014) M/S. RALLIS INDIA LTD. 2 OF WHEREAS THE GROUND NO.4 WAS INADVERTENTLY LEFT OU T FROM BEING DECIDED AND THUS THERE WAS NO FINDING OF THE TRIBUNAL ON THE GROUND NO.4 THOUGH BOTH THE GROUNDS ARE OF ID ENTICAL NATURE. THE LD. A.R. SUBMITTED THAT SINCE THIS IS A MISTAKE APPARENT IN THE ORDER PASSED BY ITAT WITHIN THE MEA NING OF SECTION 254(2) OF THE ACT AND THEREFORE THE SAME SH OULD BE RECTIFIED. 3. THE LD. D.R., ON THE OTHER HAND, SUBMITTED BEFORE THE BENCH THAT THE REVENUE HAS TAKEN A SEPARATE GROUND AS REGARDS TREATING THE EXPENSES ON PROJECT EAGLE VIDE GROUND NO.4 WHICH WAS NOT DISCUSSED BY THE TRIBUNAL WHILE PASSING THE ORDER AND THEREFORE UNLESS THE ORDER OF THE TRI BUNAL IS RECALLED THE SAME CAN NOT BE DECIDED IN LIMINE. 4. WE HAVE HEARD THE RIVAL SUBMISSIONS OF BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. WE FIND, AFTER PERUSING THE ORDER OF THE TRIBUNAL AND GROUNDS OF APPEAL AS REFERRED TO ABOVE ,THAT GROUND NOS.3 & 4 ARE OF IDENTICAL IN NA TURE . BOTH ARE AGAINST THE DIRECTION OF LD. CIT(A) TO THE AO TO TREAT THE EXPENDITURE ON IMPLEMENTING PROJECT DISHA AND P ROJECT EGALEA S REVENUE IN NATURE AS AGAINST THE TREATMEN T BY THE AO OF THIS EXPENDITURE AS CAPITAL IN NATURE. IT IS APPARENT FROM THE ABOVE THAT THE GROUND NO.4 HAS NOT BEEN DEC IDED AT ALL WHILE PASSING THE ORDER AND THEREFORE IT IS A P RIMA-FACIE MISTAKE WITHIN THE MEANING OF SECTION 254(2) OF THE ACT WHICH SHOULD BE RECTIFIED AND ACCORDINGLY WE RECTIFY THE SAME IN THE FOLLOWING PARAS. MA NO.170/M/2018 (ARISING OUT OF ITA NO.4316/M/2014) M/S. RALLIS INDIA LTD. 3 5. THE GROUND NO.4 IS REPRODUCED BELOW: 4. WHETHER ON THE FACTS & CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD CITA) HAS ERRED IN DIRECTING THE ASSESSING OFFICER TO TREAT T HE EXPENDITURE ON ACCOUNT OF IMPLEMENTING 'PROJECT EAGLE' AS REVENUE EXPENDITURE WITHOUT APPRECIATING THE FACT THAT IMPLEMENTATION OF THE SAID PROJECT HAS ENDURIN G BENEFIT TO THE ASSESSEE AND DESERVES TO BE TREATED AS CAPITAL EXPENDITURE. 6. THE FACTS IN BRIEF ARE THAT THE ASSESSEE INCURRE D RS.3,90,00,000/- UNDER THE HEAD LEGAL AND PROFESSIO NAL FEES FOR A NEW INITIATIVE PROJECT CALLED EAGLE (EXPANS ION AND AGGRESSIVE GROWTH THROUGH LEADERSHIP & EXCELLENCE) THIS PAYMENT WAS MADE TO ACCENTURE CONSULTING AND ACCOUN TED UNDER THE HEAD PROFESSIONAL FEES. THE PROJECT EAGL E WAS LAUNCHED ON 23.07.2008 AT MUMBAI AND IS MEANT FOR A NATION- WIDE TRANSFORMATIONAL GROWTH PROGRAMME UNDER DISHA UMBRELLA AND HAS BEEN INITIATED WITH THE HELP OF AC CENTURE CONSULTING WHO ARE GLOBAL EXPERT IN THIS AREA. THE PRIMARY OBJECTIVE OF THE SAID PROJECT WAS TO RE-GAIN THE LE ADERSHIP POSITION IN THE FORMULATION BUSINESS AND WAS OF REV ENUE IN NATURE AS THE PRIMARY OBJECTIVE IS TO FOCUS ON IMPR OVING THE PERFORMANCE OF THE COMPANY IN INDIA. THE AO, HOWEVER , CAME TO THE CONCLUSION THAT PURPOSE OF THE SAID EXP ENDITURE WAS INCURRED WITH THE OBJECT OF ACHIEVING SUSTAINAB LE GROWTH BY THE COMPANY AND THEREFORE BENEFITS WOULD BE ACHI EVED OVER A PERIOD OF TIME AND ARE OF ENDURING NATURE AN D ACCORDINGLY ADDED THE SAME TO THE INCOME OF THE ASS ESSEE BY TREATING THE SAME AS CAPITAL EXPENDITURE. 7. THE LD. CIT(A) ALLOWED THE APPEAL OF THE ASSESSE E BY OBSERVING AND HOLDING AS UNDER: MA NO.170/M/2018 (ARISING OUT OF ITA NO.4316/M/2014) M/S. RALLIS INDIA LTD. 4 5.5 GROUND NO. 11: I FIND THAT THE APPELLANT DURING THE YEAR UNDER CON SIDERATION HAS INCURRED LEGAL AND PROFESSIONAL FEES IN RESPECT OF A NEW INITIATIVE PROJECT CALLED 'EAGLE' (EXPANSION AND AGGRESSIVE GR OWTH THROUGH LEADERSHIP AND EXCELLENCE). IN ALEMBIC CHEMICAL WORKS VS.CIT 177 ITR 377 (SC), THE HON'BLE SUPREME COURT HELD: 'THE IMPROVISATION IN THE PROCESS AND TECHNOLOGY IN SOME AREAS OF THE ENTERPRISE WAS SUPPLEMENTAL TO THE EXISTING BUSINES S AND THERE WAS NO MATERIAL TO HOLD THAT IT AMOUNTED TO A NEW OR FR ESH VENTURE. THE FURTHER CIRCUMSTANCE THAT THE AGREEMENT PERTAINED T O A PRODUCT ALREADY IN THE LINE OF THE ASSESSEE'S ESTABLISHED B USINESS AND NOT TO A NEW PRODUCT INDICATES THAT WHAT WAS STIPULATED WAS AN IMPROVEMENT IN THE OPERATIONS OF THE EXISTING BUSINESS AND ITS EFFICIENCY AND, PROFITABILITY NOT REMOVED FROM THE AREA OF THE DAY-TO-DAY BUSINES S OF THE ASSESSEE'S ESTABLISHED ENTERPRISE.' IN VIEW OF THE ABOVE DECISION AND THE RATIO LAID DO WN IN THE CASE OF INDO RAINA SYNTHETICS INDIA LTD, VS. CIT (333 ITR 18) (DELHI); CIT V. PRCZGA TOOLS LTD. (157 ITR 282) (AP); CIT VS. CROMPTON ENGINEERING CO. LTD. (242 ITR 317) (MAD); CIT V. JCT ELECTRONICS LTD. (P&H) (ITA 676 OF 2009); CIT V. ABBOTT LABORATORIES (I) P. LTD. (202 ITR 819) (BORN); EL FORGE LTD. V. DCIT (2013) 216 TAXMAN 114 (MAD); CIT V. CARBORANDUM UNIVERSAL LTD. (2008) 219 CTR 202 (MAD)., THE AO IS DIRECTED TO TREAT THE EXPENDI TURE LEGAL AND PROFESSIONAL FEES AMOUNTING TO RS.3,90,00,000/- AS REVENUE EXPENDITURE. 8. AFTER HEARING BOTH THE PARTIES AND PERUSING THE MATERIAL ON RECORD, WE OBSERVE THAT THE OBJECT OF THE PROJECT EAGLE WAS IDENTICAL TO ONE PROJECT DISHA AND THE EXPEND ITURES WERE INCURRED BY WAY OF LEGAL AND PROFESSIONAL FEE PAID TO ACCENTURE AND CONSULTANCY A LEADING FIRM IN THAT F IELD. THE PURPOSE OF THE PROJECT WAS TO ACHIEVE EXCELLENCE IN THE PROMOTION OF THE COMPANY ON A TRANSFORMABLE BASIS SO THAT THE COMPANY BECOMES LEADER IN THE FORMULATION BUSIN ESS. THE LD. CIT(A) HAS PASSED A VERY REASONED ORDER TREATING THE SAME AS REVENUE IN NATURE AND WE THEREFORE DO NOT F IND ANY REASON TO DEVIATE FROM THE FINDINGS OF LD. CIT(A).MO REOVER GROUND IS IDENTICAL TO GROUND NO 3 AS DECIDED BY U S TREATING MA NO.170/M/2018 (ARISING OUT OF ITA NO.4316/M/2014) M/S. RALLIS INDIA LTD. 5 THE EXPENSES AS REVENUE. ACCORDINGLY, WE UPHOLD THE ORDER OF LD. CIT(A) ON THIS ISSUE BY DISMISSING THE GROUND NO .4 OF THE REVENUE. 9. THE ORDER DATED 08.11.2017 STANDS AMENDED AND MODIFIED TO THIS EXTENT AND MISCELLANEOUS APPLICATI ON OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 23.08.2018. SD/- SD/- (SAKTIJIT DEY) (RAJESH KUMAR) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED: 23.08.2018. * KISHORE, SR. P.S. COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT (A) CONCERNED, MUMBAI THE DR CONCERNED BENCH //TRUE COPY// [ BY ORD ER DY/ ASSTT. REGISTRAR, ITAT, MUMBAI.