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ITO 6(2)(2), Mumbai Vs. M/s. Dil Ltd., DIL Complex, Ghodbunder Road, Majiwada Thane (West), Mumbai 400 610
September, 29th 2015
                MUMBAI "D" BENCH, MUMBAI


                     ITA. No. 617/Mum/2013
                    (Assessment Year:2009-10)

ITO 6(2)(2),
Mumbai                                               Appellant


M/s. Dil Ltd.,
DIL Complex, Ghodbunder
Road, Majiwada Thane (West),
Mumbai ­ 400 610                                    Respondent


         /By Appellant : Shri Chandra Vijay, D.R.
          /By Respondent :Shri P. P. Bhandari, A.R.
         /Date of Hearing
                                     : 23.09.2015
        /Date of
     Pronouncement                   : 28.09.2015



     This appeal has been filed by Revenue against the order of
Commissioner of Income-Tax (Appeals)-12, Mumbai, dated
12.10.2012 for A.Y. 2009-10 on following grounds:
I TA N o . 6 1 7 / M u m / 1 3 A . Y . 0 9 - 1 0 [ I T O v s . D i l L t d . ]   Page 2

           "1.         On facts and circumstances of case and in law, the
                       Ld.CIT(A) erred in treating capital expenditure incurred
                       in connection with carrying out acquisition of a new
                       company as revenue expenditure.

           2.          On facts and circumstances of case and in law, the
                       Ld.CIT(A)    erred   in   allowing   expenditure   of
                       Rs.98,68,564/- incurred under the head legal &
                       professional fee and Rs.8,21,404/- incurred under the
                       head travelling as revenue expenditure, without
                       appreciating that it was actually capital expenditure
                       which was incurred in connection with carrying out
                       due diligence for acquiring/taking over a foreign
                       company, engaged in similar business as that of

           3.          The appellant prays that the order of Ld. CIT(A) on the
                       above grounds be set aside and that of the Assessing
                       Officer be restored."

2.         First issue is with regards to action of Assessing Officer in
disallowing Rs.98,68,564/- being expenditure incurred in
conducting due diligence study treating the same as capital
expenditure. Similar issue arose in A.Y. 2005-06. In said year
like in the current year, Assessing Officer had treated due
diligence study expenses as capital expenditure. Aggrieved by
the action of Assessing Officer, assessee preferred an appeal
before the CIT(A) who has decided the issue in favour of
assessee by observing as under:
        "4.3 I have duly considered the submission of the A.R. of the
        appellant and I find that AO is not justified in treating
        expenditure on due diligence study as capital expenditure.
        The assessee has incurred expenditure to increase the
        profitability and efficiency of its esisting bulk drug business.
        Hence the expenditures are to be regarded as revenue in
I TA N o . 6 1 7 / M u m / 1 3 A . Y . 0 9 - 1 0 [ I T O v s . D i l L t d . ]   Page 3

        nature as held in the case of CIT vs. Coromandal Fertilizers
        220 ITR 298 (AP). These expenditures are not prior period
        expenditure or expenditure before the commencement of
        business. Hence the case law cited by the AO are not
        applicable to the facts of this case. Hence the AO is directed
        to allow the claim of the appellant. This ground of appeal is
        allowed. "

2.1 Against the order of CIT(A) as discussed above, the
Department had preferred an appeal before the ITAT, Mumbai.
The ITAT vide its order dated 11.08.2009 has stated as under:

        "11. We have heard both the parties. We find that the
        expenditure is not prior period expenditure before the
        commencement of business. The assessee company is
        engaged in the business of marketing of bulk drugs
        chemicals and intermediates. Therefore, the expenses are for
        ascertaining/ studying the viability of the investment in URL
        Ltd. to increase the profitability and efficiency of the business
        of marketing of bulk drugs and chemicals and in the normal
        course of the business though it proved to be abortive. In our
        opinion the sum of Rs.18,95,294/- is expenditure incurred
        wholly and exclusively incurred for the purpose of business
        and allowable u/s.37 of the I.T. Act, 1961.

3.             In this background, CIT(A) observed that the facts of the
case in the year under consideration was similar of that above
year i.e. A.Y. 2005-06. Facts being similar, so following same
reasoning of ITAT's order for AY 2005-06 in assessee's own
case CIT(A) was justified in holding that concerned expenditure
is wholly and exclusively for the purpose of business and liable
for deduction u/s 37(1) of the Act. Accordingly, this reasoned
finding of CIT(A) needs no interference from our side.                                    We
uphold the same.
I TA N o . 6 1 7 / M u m / 1 3 A . Y . 0 9 - 1 0 [ I T O v s . D i l L t d . ]   Page 4

4. Next issue in Revenue's appeal is with regards to
disallowance of Rs.8,21,404/- incurred on travelling. Assessee
claimed that expenditure has been incurred wholly and
exclusively for the purpose of business during course of due
diligence study.                            Assessing officer has held that travelling
expenses of Rs.8,21,404/- debited by the assessee on account
of travelling expenses incurred by the consultant in connection
with the due diligence operation need to be disallowed as he
has disallowed main expenditure said to have been incurred
under the head 'Legal & Professional Expenses' holding that
they were not allowable expenditure under section 37(1) of the
Act. As discussed above, expenditure incurred as due diligence
expenditure by assessee has been held allowable u/s. 37(1) of
the Income Tax Act, therefore any expenditure incurred in
relation to same would be allowable as deduction u/s.37(1) of
the Act. Assessing Officer has not doubted the expenditure or
held it to be not incurred. The disallowance has mainly been
made in connection with due diligence operations of assessee
and Assessing Officer has held that any expense on such an
operation is not allowable as revenue expenditure.                                        As the
main expenditure stands allowed by us in para 2 & 3 u/s.37(1)
of the Act relying on the order of ITAT for A.Y. 2005-06 as
discussed above, the addition on account of disallowance of
travelling expenses related to due diligence expenses made by
Assessing Officer was rightly deleted by CIT(A) and this
reasoned finding of CIT(A) needs no interference from our side.
I TA N o . 6 1 7 / M u m / 1 3 A . Y . 0 9 - 1 0 [ I T O v s . D i l L t d . ]      Page 5

We uphold the same.

5.         As a result, appeal filed by Revenue is dismissed.

           Pronounced in the open Court on this the 28th day of
September, 2015.

      Sd/-                                                                           Sd/-
 (ASHWANI TANEJA)                                                         (SHAILENDRA KUMAR YADAV)
ACCOUNTANT MEMBER                                                             JUDICIAL MEMBER
Mumbai: Dated 28/09/2015

                                              True Copy
                        / Copy of Order Forwarded to:-
1.   / Revenue
2.  / Assessee
3.      / Concerned CIT
4.   -  / CIT (A)
5.    ,     ,  /
   DR, ITAT, Mumbai
6.   / Guard file.
                                                                                             By order/  ,

                                                                                             / ,
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