NARAINGARH SUGAR MILLS LTD V. CIT

ITA/51/2011

AI Insights

The case involves Naraingarh Sugar Mills Ltd., the appellant, contesting the disallowance of a claim for deferred revenue expenditure by the Commissioner of Income Tax, the respondent. The primary legal issue was whether the assessee could treat certain expenditures, including interest on loans and directors' foreign travel, as deferred revenue expenditure and amortize it over five years. The Assessing Officer disallowed this claim, leading to appeals that were initially favorably decided by the CIT (A) but later reversed by the ITAT, which restored the Assessing Officer's decision. The High Court upheld the ITAT's decision, rejecting the concept of deferred revenue expenditure in this context.

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 670737 (HC-DELHI)
• Appeal Type: Others
• Pronouncement Date: 30-09-2011
• Assessment Year: misc
• Other Referred Cases: Modros Industrial Investment Corporation vs. CIT, Commissioner of Income Tax vs. Industrial Finance Corporation of India Ltd.
• Laws Referred To: Income Tax Act
• Result in Favour of: Revenue
• Court: HIGH COURT
• Department Lawyers: SURUCHI AGGARWAL
• Assessee Lawyers: C S AGGARWAL; PRAKASH KUMAR
• Keywords: Assessment Year; Deferred revenue expenditure; Income Tax; Merchants system of accounting
• Section: 143(3); 143(2); 143(1)(a); 31

Judgement Text

"* JN THE HIGH COURT OF DELHI AT NEW DELHI + ITA 51 0F 2011 ITA 52 0F 2011 rTA s8 0F 2011 Judgntent Reserved On: 12.09.2011 % Judgment Pronouncect On:30.9.2011 (1) rTA sl OF 2011 NARAINGARH SUGAR MILLS LTD. . . . APPELLANT fhroueh : Mr. C.S. Aggarr.val, Sr. Advocate with Mr. Prakash Kumar. Advocate. VEITSUS COMMISSIONER OF INCOME TAX . .RESPONDENT Throueh: Ms. Suruchi Aggarwal, Sr.Standing Counsel. (2) ITA 52 OF 2011 NARAINGARH SUGAR MILLS LTD. . . . APPEI,LANT Throueh : Mr. C.S. Aggarwal, Sr. Aclvocatc rvith Mr. Prakash Kurnar'. Advocate. VEITSUS COMMISSIONER OF INCOME TAX . . .RESPONDENT Through:. Ms. Suruchi Aggarwal, Sr.Standing Counsel. ITA Nos.51,52, & 58 of 20t 1 Page L of 2 Digitally Signed By:AMULYA Certify that the digital file and physical file have been compared and the digital data is as per the physical file and no page is missing. Signature Not Verified i (3) rTA s8 OF 2011 NARAINGARH SUGAR MILLS LTD. COMMISSIONER OF INCOME TAX SEPTEMBER 30,2011 skb ITA Nos.51,52, & 58 of zOLL . . . APPELLANT Throush : Mr. C.S. Aggarwal, Sr. Advocate with Mr. Prakash Kumar. Advocate. VERSUS . ..RESPONDENT Aggarwal, Sr.Standing Through: Ms. Suruchi Counsel. CORAM:- HON'BLE MR. JUSTICE A.K. SIKRI HON'BLE MR. JUSTICE SIDDHARTH MRIDUL l- Whether Reporters of Local newspapers may be allorved ' to see the Judgrnent? 2. To be referred to the Reporter or not? 3. Whether the Judgrnent should bc reported in the Digest? A.K. SIKRI. J. 1. For orders, see ITA 57/2011. (SIDDHARTH MRIDUL) JUDGE (A.K.SrKRr) Page 2 oI 2 C( IN TIIE IIIGII COUITT OF DELFII AT NIIW DIII,X.{T @ + IT'A 57 0F 2011 ITA s1 0F 2011 ITA s2 0F 2011 ITA s8 C)F 2011 Judgment Resen,ed On: 12.09.2011 % Judgment Pron.ourtcecl Ort:30.9.201I (1) ITA 5',7 OF 2011 NARAINGARH SUGAR MILLS LTD. . . . AI'I'trIN,LANT 'I.luough : Mr. C.S. Aggarwal, Sr. Aclvocatc with Mr. Prakash I(umar. Advocatc. VEI].SUS ,f COMJWISSIONIII{ OF Ii COME TAX . . .IItr'SPONDIi,NII Throuqh: Ms. Suruchi Aggaru'al, Sr.Stancling Counscl. (z) IrA s1 oF 2011 NAIIAINGAI{H SUGAIT MILLS LTD. . . . ApI'trtL,t,AI T 'fhrouqh : Mr. C.S. Aggarwal, Sr'. Acivocatc witli Mr. Prakash Kumar. Advocatc. VI]RSUS COMIYIISSIONIIR OF INCOME TAX . . .ITESI'ONDENT .'I'liloueh: Ms. Suruchi Aggarwal, Sr.Stancling h. Counsel. fTA Nosr5J.,52,57 &.58 of 2oLL Page L of L3 t- (3) ITA s2 OF 20L1 NARAINGARII SIIGAR MILLS LTD. 4' ) Through : Mr. C.S. Aggarwal, Sr. Advocale rvith Mr:. - Prakash l(utnar. Advocatc. VERSUS COMMISSIONEIT OF INCOME TAX . . .REST'ONDI'NT ' Throuqh: Ms. Sunrchi Aggarwal, Sr.Stancling Counsel. (4) rTA s8 OF 2011 NARAINGARFI SUGAIT MILLS LTD. . . . APPII],I,ANT' Thrclugh : Mr. C.S. Aggarrval, Sr. Aclvocatc r,vith Mr:. Prakash l(nmar. Advocatc. V]]RSUS COMMISSIONER OF INCOME TAX , . .XTESI'ONDENT Tluough: Ms. Suruciri Agganval, Sr.Standing Counsel. CORAM:- ItrON'BLE MR. JUSTICE A.K. SIKI{tr }TON'BLIT MR. JUSTICE SIDEIIAI{TII MRIDI.]L 1. 'Whether l{eporters of Local newspapers lray be allorvccl to see the Juclgment? 2. To be referred to the Reporter or not? 3. Wrether the Judgmcnt should bc reportcd in thc Digcst? . . . API'EI.I,ANT Page 2 of 13 ITA Nos.51,52,57 &.58 of 2OLL A.Ii SIKITI, J. 1. 'l'liough thc Assessing Officer while fiarning the asscssmcrlt l.or the assessltlent year 2003-04, had rnade tluee additions we ate conceruecl in tltcse appeals with only one item namely disallowance of claim of clcl-erred rcvetrue expcnditure which :uiscs in these four appeals ancl pcrtains to assessureut ycar 2003-04 to 2006-07. 'l-he question has initially arisen in the assesslncrlt year 2003- 04 font of which l'I'A 5712011 arises] and in other years it is spill over of that very issuc and, thcreforc, we rvould like to tarke note of thc facts zrppearing o1'I'LA 57DAn. We rnay also clarify that tlie fhcts pertaining to the aforesaicl issr-rc ouly J are recapitulated by us. 2. I'he appellant is a public lirnited colltpzlrly rvhich was incorlroratccl nnclcr the Companies Act in the ycar 1991. fhe appeliant is cngaged in proclucittg sttgat', nrolasses ancl bagasse. For the instant asscssmellt ycar 2003-04, thc appcllant cornpally filed its return of income declaring total loss of { 9,58,51,0J61-. flie tctuln oI incorne was processecl on 3''d Iiebrurary,2004 rurclcr Scction 143 (1) (a) ol' tlic Act at the leturnccl loss. 'Ihelealler, the case rvas selectcd for scrutiny and ngtice nnder Section I43 (2) of the Act lvas issued. Tlie Assessing Officer ltatncd an assesslrlert under Section 143 (3) of the Act detennining thc lclss at - ,, {6,81 ,51,7 501-. The Assessing Officer, inter alia rnacle tlie fblloiving clisallowiulcc:- ITA Nos.5L,52,57 &.58 of 2oLL Page 3 of 13 (i). clisallowaltce of claim of cleferred levcuuc cxpcudittttc of T 1,08,43,8721-. We may point out in this bchalf that the asscssec hacl takcn loaus tou'arcls working capital as rvcll as temr loans from various banks. On thesc loittts, cluriug tlre ycar in question, the assessce paid a total inlerest of < 6,23,73,947l-. I{ou'cvel', eltire interest paicl was not shorvn as reverluc expenditure in this year. Insteacl the assessee booketl a surlt of T 1,06,68,2471- to profit ancl loss iiccount as l'cvclltle exponcliture adopting the formula of 26 clays : 150 days.. 'fhe balanoe amor.tut o1- { 5,16,99,7001- was transferred by the assessee'to defcrrecl revenuc cxpeuclitttre. The aforesaicl apploach of tleating the intercst paid as clclblrccl rcvcnne cxpctlclitttre r clict not gel r.vith the Asscssing Officer'. IIe askecl the alssessec to substantiatc accuracy ancl gcmrilleness of the claim supportecl by docr.rmeutzrry evidcucc. In reply the assessee liad statecl that the defemed revenue expetlditur:c itlcludccl expcnses of Director foreign travel utd excess of intercst on tertl loatl and rvorking capital taken proportionately to the periocl of operatiott itt currcnt ysiu' as courparecl to the previous year. According to the Assessing Officer, as llo cloctturcutaty evidence was furnishecl, he clisallou'ed the claim of { i,08,43,8721- and acldecl thc satne i1the ilcorne of the assessee The asscssee prcfcrred .rppeal against this ordor . raisilg a grievalce that no aclequate opportunitl' rvas givcn to the assessec fot furlishing thc eviclcnce in support of the clairn. The asscsscc gavc thc clctails r, before the CII (A). fTA Nos.5L,52, 57 &.58 of 2011 Page 4 of 13 lTvtr'-\"-- 'I'[ese cletails of the interest paicl to variclns bauks on r.vorkitrg capital a:j rvcll as tcr-n loa1 ancl cletails of thc expcnditure in thc manncr statccl abovo is reflcctecl in the folloi.ving chart:- Details of the Intercst for tlie pcliod 01.-04-02 to 3 1-0 Intcrest on Working CaPital (SBI, SBOP, OBC and Canara Banks) _ Interest ou'fertl Loan: IDBI bank <4,15,14,312 <95,60,352 FISIDC <30,48,267 ICICI IJank T66,67,384 SBI bank