IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH : `B : NEW DELHI
BEFORE SHRI J.S. REDDY, ACCOUNTANT MEMBER
AND
SHRI GEORGE GEORGE K., JUDICIAL MEMBER
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
A.Y.2004-05
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.
ORDER
PER SHRI GEORGE GEORGE K, JM:
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-
05.
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
field.
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
under:
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
judgments.
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
case.
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
adjudicated.
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.
Aks/-
Copy forwarded to
1. Appellant
2. Respondent
3. CIT
4. CIT(A)
5. DR
Asst. Registrar, ITAT, New Delhi
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