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DCIT, Circle 10(1), New Delhi. Vs. M/s Daurala Organic Ltd. 6th Floor, Kanchanjunga Building 18, Barakhamba Road, New Delhi.
December, 17th 2014
                   DELHI BENCH : `B : NEW DELHI

                            ITA No.5179/Del /2012
                           Assessment Year : 2004-05

DCIT, Circle 10(1),                Vs.               M/s Daurala Organic Ltd.(Since
New Delhi.                                           Merged with DCM Shriram
                                                     Industries Ltd.)
                                                     6th Floor, Kanchanjunga Building
                                                     18, Barakhamba Road,
                                                     New Delhi.
                               C.O No.439/Del/2012

M/s Daurala Organic Ltd.(Since       Vs.             DCIT, CO. CIR.10(1)
Merged with DCM Shriram                              New Delhi.
Industries Ltd.)
6th Floor, Kanchanjunga Building
18, Barakhamba Road,
New Delhi.

(PAN AAACD 0229 M)

      (Appellant)                                 (Respondent)

              Appellant by :     Shri Parwinder Kaur, Sr.D.R.
              Respondent by:     Shri Pradeep Dinodia, Advocate And
                                 Shri R.K. Kapoor, CA.



1.      This appeal by the Revenue and cross objection by the assessee arises out

of the CIT(A)'s order dated 04.07.2012. The relevant assessment year is 2004-

                                                              ITA No.5179/Del /2012   2
                                                              CO No.439/Del/2012

2.       In Revenue's appeal, the solitary ground that is raised is whether the

CIT(A) is justified in deleting a sum of Rs.31,20,439/-. In the assessee's cross

objection, all the grounds raised relates to the issue of validity of reopening of

assessment u/s 147 of the I.T. Act.

3.       We shall first take up for adjudication the Revenue's appeal. The brief

facts of the case are as follows.

         The assessment u/s 143(3) was completed vide order dated 24.11.2006,

fixing total income of Rs.6,98,23,196/-. The assessment was reopening on

30.08.2011 by issuance of notice u/s 148 of the Act and reassessment u/s 143(3)

r.w.s. 147 of the Act was completed on 30.08.2011. In the reassessment, the AO

made an addition of Rs.31.20 lakhs. The assessee had claimed deduction of an

amount of Rs.31.20 lakhs as Revenue expenditure. These expenses were

incurred for development of certain products. The AO in the reassessment

disallowed the expenditure, as according to him, development of any new

products will give an enduring benefit to the assessee and same is in the capital


4.       Aggrieved by the reassessment order, assessee filed an appeal before the

First Appellate Authority raising issues with reference to reopening of

assessment and on merits of disallowance of expenditure. The CIT(A) decided

the issue on merits in favour of the assessee and did not adjudicate the issue of

reopening of assessment. The CIT(A) after examining the details of expenditure
                                                             ITA No.5179/Del /2012   3
                                                             CO No.439/Del/2012

held that "the expenditure incurred of Rs.31.20 lacs on salary, wages stores,

spares and travelling was revenue in nature. By incurring such expenditure

appellant has not created any asset which is capital in nature. The expenditure

was incurred for improvement of product and enhancement of its existing

business in the line of chemical manufacturing under the unity and control of

same management with common funds. Hence, the disallowance made by the

Assessing Officer was not justified and same is are allowed as revenue

expenditure".          The CIT(A) followed the judgment of the Hon'ble

jurisdictional High Court in the case of Indo Rama Synthetics (I) Ltd. Vs. CIT

reported in 333 ITR 18 (Del).

5.       The Revenue being aggrieved is in appeal before us. Ld. D.R. relied on

the order of the Assessing Officer. On the other hand, Ld. AR reiterated the

submission made before the Income Tax Authorities and relied on the findings

of the CIT(A).

6.       We have heard rival submissions and perused the material on record. The

details of expenditure claimed by the assessee as Revenue's expenditure are as


         Particulars                               Amount

         Cost of stores consumed                     11.73
         Wages & Salaries                            15.13
         Cost of steam & power                         2.80
         Misc. expenses                                1.54
                                   Total             31.02___
                                                             ITA No.5179/Del /2012   4
                                                             CO No.439/Del/2012

7.    The above expenditure was incurred in the earlier years for

improvement/diversification of assessee's chemical products including the new

products in the same line. The entire expenses were of revenue in nature, being

incurred on cost of stores consumed/wages & salary/power and other

miscellaneous expenses. The assessee had treated the aforesaid expenditure as

CWIP in its annual accounts for the different years and did not claim the same as

an expense. During the previous year under consideration, on reviewing the

progress made on development of this new product, assessee was of the opinion

that it would not give desired economic benefits and as such the amounts were

written off in P&L account. This fact was duly explained by the Tax Auditors in

Form 3CA.

8.    The Assessing Officer had treated the expenditure of Rs.31.2 lakhs as

capital nature holding that the assessee has not given specific reply as to the

nature of the expenditure. The assessee vide its letter dated 09.08.2011had

furnished details of these expenditure to the AO, which clearly established that

the expenditure comprises of various expenses, which are revenue in nature.

9.    Similar issue was examined in the case of DCM Shriram Industries Ltd.

(assessee had merged with DCM Shriram Industries Ltd.) wherein expenditure

incurred on a new project was earlier charged to CWIP and on abandonment of

the project, the assessee has claimed the expenses as Revenue. The CIT(A) had
                                                                ITA No.5179/Del /2012   5
                                                                CO No.439/Del/2012

allowed the appeal of the assessee, which was confirmed by the ITAT and same

was accepted by the Department and no further appeal was preferred. Copy of

the order of the CIT(A) for the AY. 1991-92 is placed on record at Pages 52 to

56 paper filed by the assessee. The following two case laws are also identical to

the facts of this case:

       i).    Indo Rama Synthetics India Ltd. Vs. CIT reported in (2011)
              333 ITR 18 (Del).
       ii).   CIT Vs. Priya Village Roadshows Ltd. reported in (2011) 322
              ITR 594 (Del).

10.    Now let us examine the facts of the Hon'ble jurisdiction High Court


i).    Indo Rama Synthetics India Ltd. Vs. CIT

      In this case, the Delhi High Court was dealing with the issue of
      expenditure of Rs.64.48 lacs incurred on expansion of business which
      plans were later abandonment. The expenditure was incurred in
      different assessment years and on abandonment of the project the
      expenditure was claimed as revenue in nature. The claim of the
      assessee was disallowed. However, the Delhi High Court following its
      earlier judgment in the case of Modi Industries Ltd. 200 ITR 341 has
      held the expenditure as revenue in nature. It has been held that since the
      expenditure was incurred on salaries wages, repair, maintenance
      travelling/ other administrative expenditure, which are undoubtedly
      revenue in nature and as such no asset of enduring nature can be said to
      come into existence on incurring this expense. The Hon'ble Supreme
      Court has dismissed Special Leave Petition filed by the Department
      against the judgment of Hon'ble Delhi High Court.
                                                                 ITA No.5179/Del /2012   6
                                                                 CO No.439/Del/2012

ii).     CIT Vs. Priya Village Roadshows Ltd.

        In this case, the Hon'ble Delhi High Court has held that expenditure
        incurred on feasibility study for starting new business in the existing
        line of the assessee where there is common administration common
        fund and unity of control the expense is of revenue in nature. The High
        Court has followed various other decisions on this issue including the
        Modi Industries Ltd. decision.

11.      The facts of instant case is identical to the facts of above cited case. The

assessee has incurred expenditure of Rs.31.20 lacs on salaries, wages, stores &

sapares, travelleing etc. No expenditure has been incurred on any asset of the

nature fixed assets or capital in nature or which has resulted into any benefit of

enduring nature. The expenditure had been incurred for improvement and

enhancement of its existing business in the line of chemical manufacturing

under the unity and control of same management with common funds etc. The

ratio of the aforesaid judgments are squarely applicable on the facts of instant


12.      In view of the aforesaid reasoning, we hold that the CIT(A) is justified in

deleting the disallowance of Rs.31.2 lakhs and we affirm the order of the CIT(A)

and reject the ground of the Revenue.

13.      Since the Revenue's appeal is dismissed, the assessee's company is not

                                                               ITA No.5179/Del /2012   7
                                                               CO No.439/Del/2012

14.     In the result, appeal of the Revenue and cross objection of the assessee

are dismissed.

        The decision was pronounced in the open court on 12th December, 2014.

     Sd/-                                                        Sd/-
 (J.S. REDDY)                                         (GEORGE GEORGE K.)
Accountant Member                                       Judicial Member

Dated: 12th December, 2014.


Copy forwarded to
1.   Appellant
2.   Respondent
3.   CIT
4.   CIT(A)
5.   DR
                                                Asst. Registrar, ITAT, New Delhi
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