ALFA DISTILLERIES P.LTD, MUMBAI v. ITO 2(1)(1), MUMBAI

ITA 2578/MUM/2010 | 2006-2007
Pronouncement Date: 30-09-2011 | Result: Allowed

Appeal Details

RSA Number 257819914 RSA 2010
Assessee PAN AAACA5488K
Bench Mumbai
Appeal Number ITA 2578/MUM/2010
Duration Of Justice 1 year(s) 5 month(s) 24 day(s)
Appellant ALFA DISTILLERIES P.LTD, MUMBAI
Respondent ITO 2(1)(1), MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 30-09-2011
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted A
Tribunal Order Date 30-09-2011
Date Of Final Hearing 30-06-2011
Next Hearing Date 30-06-2011
Assessment Year 2006-2007
Appeal Filed On 05-04-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH A MUMBAI BEFORE SHRI PRAMOD KUMAR (AM) AND SMT. ASHA VIJAYARAGHAVAN (JM) ITA NO. 2578/MUM/2010 ASSESSMENT YEAR 2006-07 M/S. ALFA DISTILLERIES PVT. LTD. ALFA HOUSE 5 GROUND FLOOR VARMA CHAMBERS HOMJI STREET FORT MUMBAI-400 001 PAN-AAACA 5488K VS. THE ITO 2(1)(1) MUMBAI (APPELLANT) (RESPONDENT) APPELLANT BY: DR. K. SHIVARAM RESPONDENT BY: SHRI P.K.B. MENON DATE OF HEARING : 6.9.2011 DATE OF PRONOUNCEMENT: O R D E R PER ASHA VIJAYARAGHAVAN (JM) THIS APPEAL PREFERRED BY THE ASSESSEE IS DIRECTED A GAINST THE ORDER DATED 18.1.2010 PASSED BY THE LD. CIT(A)-4 FOR THE ASSESSMENT YEAR 2006-07. 2. THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF INDIAN MADE FOREIGN LIQUOR. THE ASSESSEE IS HOLDING PLL & RS2 LICENSES FOR MANUFACTURE OF IMFL THIS LICENSES ARE ISSUED BY MAH ARASHTRA STATE GOVERNMENT. THE ASSESSEE IS HOLDING THE LICENCE SI NCE YEAR 1990. 3. THE ASSESSEE FILED E-RETURN OF INCOME ON 22.11.2 006 DECLARING TOTAL INCOME OF RS. 3 71 296/-. THE RETURN WAS PROCESSED U/S. 143(1) OF THE I.T. ITA NO. 2578/M/2010 2 ACT. SUBSEQUENTLY THE CASE WAS SELECTED FOR SCRUT INY AND THE ASSESSMENT WAS COMPLETED U/S. 143(3) OF THE I.T. ACT 1961. 4. THE ASSESSING OFFICER WHILE PASSING THE ORDER WA S OBSERVED THAT THE EXPENDITURE INCURRED ON RENEWAL OF LICENCE WAS CAPI TAL IN NATURE. THE AO ALSO DISALLOWED LICENCE FEE LABOUR CHARGES SALES TAX CONVEYANCE AND CAR HIRE ALSO THAT THERE WAS NO TRADING ACTIVITY DURING THE YEAR. 5. THE AUTHORIZED REPRESENTATIVE OF THE ASSESSEE CO NTENDED BEFORE THE LD. CIT(A) AS FOLLOWS: THE ASSESSEE IS HOLDING PLL & RS2 LICENSES FOR MANU FACTURE OF IMFL THIS LICENSES ARE ISSUED BY MAHARASHTRA STATE GOVERNMENT. THE ASSESSEE IS HOLDING THE LICENCE SI NCE YEAR 1990. DUE TO LITIGATION PENDING IN HIGH COURT OF B OMBAY AND DUE TO LULL IN BUSINESS THE ASSESSEE COMPANY HAS NO T BEEN ABLE TO GET ANY BUSINESS DURING THE RELEVANT YEAR. HOWE VER TO KEEP THE LICENSE ALIVE THE ASSESSEE HAS TO RENEW THE LIC ENSE EVERY YEAR. THE RENEWAL OF STATUTORY LICENSES FROM VARIO US GOVERNMENT BODIES IS COMPULSORY. THE ASSESSEE IS B EING RENEWING THE LICENSING SINCE LAST 2 DECADES. THERE IS NO DISALLOWANCE MADE BY DEPARTMENT IN ANY OF THE EARLI ER YEARS. DURING THE YEAR UNDER CONSIDERATION ALSO THE ASSESS EE HAD FILED ITS APPLICATION FOR RENEWAL OF ITS LICENSE. THIS L ICENSE FEE IS PAYABLE ON YEARLY BASIS AND VALID FOR ONE YEAR. TH US THE ABOVE EXPENDITURE IS INCURRED WHOLLY AND EXCLUSIVELY FOR THE BUSINESS OF THE ASSESSEE COMPANY TO KEEP THE LICENSE ALIVE. THE ASSESSING OFFICER PASSED THE ORDER OBSERVING TH AT THE EXPENDITURE INCURRED ON RENEWAL OF LICENCE WAS CAPI TAL IN NATURE WITHOUT APPRECIATING THAT THE EXPENDITURE OF ` 13 6 0 696/- WAS YEARLY RENEWAL FEE AND NOT FOR ACQUISITION OF ANY N EW LICENSE. THEREFORE THE CONCLUSION ARRIVED BY THE ASSESSING O FFICER AND DECISION RELIED BY THE ASSESSING OFFICER ARE NOT AP PLICABLE TO THE FACTS OF THE PRESENT CASE. THE SECOND REASON STATED BY THE ASSESSING OFFICER I S THAT THERE WAS NO TRADING ACTIVITY DURING THE YEAR. THEREFORE THE AMOUNT UTILIZED FOR PURCHASE OF THIS LICENCE FEE WAS FROM CAPITAL ACCOUNT AND THEREFORE THE EXPENSE ON LICENSE FEE IS TAKEN A S CAPITAL EXPENDITURE. ITA NO. 2578/M/2010 3 THE ASSESSEE RESPECTFULLY SUBMITS THE ASSESSING OFF ICER ERRED IN OBSERVING THAT THE ASSESSEE HAD PURCHASED THE LICEN SE DURING THE YEAR. THE LICENSE WAS ACQUIRED WAY BACK IN YEA R 1990 AND NOT IN THE RELEVANT YEAR. DURING THE YEAR EXPENSES INCURRED IS ONLY FOR RENEWAL OF THE LICENSE THEREFORE THE SAME CANNOT BE TREATED AS CAPITAL IN NATURE. THIRDLY MERELY BECAUSE THERE IS LULL IN THE BUSINES S DUE TO THE LITIGATION PENDING IN HIGH COURT WHEREIN STAY WAS G RANTED THE NECESSARY EXPENSES INCURRED TO KEEP ALIVE THE BUSIN ESS ASSETS CANNOT BE DISALLOWED. THE ASSESSEE IS A PRIVATE LT D. COMPANY AND THERE ARE CERTAIN NECESSARY EXPENSES TO BE INCU RRED TO KEEP THE FUTURE PROSPECTS OF THE COMPANY ALIVE. THE ASSESSEE COMPANY WAS NOT COMPLETELY DORMANT BUT IT WAS ACTIVELY INVOLVED LOOKING FOR BUSINESS. AS PER THE ASSESSING ORDER ITSELF IS REVEALED THAT LIQUOR LILCENSE WAS L AST ISSUED IN YEAR 1984 AND THIS LICENSE IS NOT READILY AVAILABLE THER EFORE THE ASSESSEE HAD GOOD PROSPECT OF GETTING SOME GOOD BUS INESS BUT DUE TO LITIGATION PENDING IN HIGH COURT AND THE STA Y ORDER THE ASSESSEE WAS NOT ABLE TO GET ANY BUSINESS. THEREFORE THE EXPENSE OF ` 13 60 969/- INCURRED ON RENEWAL OF LICENSE MAY BE ALLOWED AS BUSINESS EXPENSES. SIMILARLY THE OTHER DISALLOWANCE OF LABOUR CHARGES ` 1 10 108/- SALES TAX ` 91 760/-. CONVEYANCE AND CAR HIRE ` 40 980/- WAS INCURRED EXCLUSIVELY FOR ASSESSEE BUSINESS ACTIVITY FOR NORMAL OPERATION MAINTENANCE AND CONTINUATION OF THE COMP ANY MERELY NOT HAVING ANY BUSINESS DOES NOT DENY COMPANY TO CL AIM ABOVE LEGITIMATE AND RELEVANT BUSINESS EXPENSES. IT IS RESPECTFULLY SUBMITTED THAT THERE MAY BE TEMPO RARY LULL OR LONG INTERVALS OF INACTIVITY IN A BUSINESS BUT STIL L IT MAY BE A GOING CONCERN AND THE EXPENDITURE INCURRED DURING T HE LULL OR INACTIVITY MUST BE ALLOWED AS BUSINESS EXPENDITURE. THE ASSESSEE COMPANY HAS TO INCUR ESTABLISHMENT OF EXPE NSES AND OTHER BASIC AND NECESSARY EXPENSES TO MAINTAIN THE ASSETS OF THE COMPANY AND KEEP IT FUNCTIONING TILL THE LULL O R INACTIVITY IS OVER AND THE BUSINESS STARTS AGAIN. THUS THE ESTAB LISHMENT EXPENSES AND OTHER BASIC AND NECESSARY EXPENSES ARE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF ASSESSEE S BUSINESS IN THE HOP OF REVIVING THE BUSINESS AGAIN. THUS THE EXPENSES ARE NECESSARY FOR KEEPING THE BUSINESS OF THE ASSESSEE IN ACTIVITY CONDITION AND FOR PRESERVING AND MAINTAIN THE BUSIN ESS SET UP. IN VIEW OF THE ABOVE FACTS IT IS SUBMITTED THAT THE ASSESSEE COMPANY HAD NEVER CLOSED DOWN ITS BUSINESS. THE BU SINESS WAS ITA NO. 2578/M/2010 4 ONLY TEMPORARILY SUSPENDED DUE TO REASON BEYOND ITS CONTROL. THE LULL IN THE BUSINESS WAS DUE TO THE LITIGATION PENDING BEFORE HIGH COURT. HOWEVER THE OTHER EXPENSES WERE INCUR RED TO MAINTAIN AND PRESERVE THE BUSINESS NAME REPUTATION AND ASSET IN THE MARKET. IN THIS CONNECTION YOUR HONOURS KIND ATTENTION IS IN VITED TO THE DECISION OF THE BOMBAY HIGH COURT IN THE CASE OF HI NDUSTAN CHEMICALS WORKS LTD. VS. D.C.I.T. (124 ITR 561) WHE REIN THEIR LORDSHIPS OBSERVED THAT THERE IS A MARKED DISTINCTI ON BETWEEN LULL IN BUSINESS AND GOING OUT OF BUSINESS. A TEMPORARY DISCONTINUANCE OF BUSINESS MAY IN CERTAIN CIRCUMST ANCES GIVE RISE TO AN INFERENCE THAT A BUSINESS IS GOING THROU GH A LEAN PERIOD OF TRANSACTION AND IT COULD BE REVIVED IF PR OPER CIRCUMSTANCES ARISE. 6. FURTHER THE ASSESSEE ALSO FILED ADDITIONAL EVIDE NCE BEFORE THE LD. CIT(A) SHOWING THAT CERTAIN ACTIVITY OF MANUFACTURE OF DEMINERALISED WATER WAS CARRIED ON. THE AR ALSO ATTACHED COPIES OF BIL LS WHILE FILING THE ADDITIONAL EVIDENCE. 7. THE LD. CIT(A) HELD AS FOLLOWS: I HAVE DULY CONSIDERED THE SUBMISSIONS OF THE AR. I HAVE ALREADY DISCUSSED THIS ISSUE AND I HOLD THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE THERE WAS NO BUSINESS AT ALL. THE LULL IN BUSINESS COULD BE FOR A BRIEF PERIOD AND NOT FOR A PERIOD OF 5- 6 YEARS. HENCE I HOLD THAT THERE WAS NO BUSINESS I N THE YEAR IN QUESTION AND NO EXPENDITURE IS ALLOWABLE AS THIS EX PENDITURE IS NOT RELATED TO ANY OF THE BUSINESS OF THE ASSESSEE. HENCE THE DISALLOWANCE IS CONFIRMED AND APPEAL ON THIS GROUND IS DISMISSED. 8. AGGRIEVED ASSESSEE IS IN APPEAL BEFORE US. THE LD. COUNSEL FOR THE ASSESSEE SHRI SHIVRAM SUBMITTED THAT THE LICENCE FE E IS PAYABLE ON YEARLY BASIS AND VALID FOR ONE YEAR AND THE EXPENSES OF RS . 13 60 969/- ON RENEWAL OF LICENSE MAY BE ALLOWED AS BUSINESS EXPENSES. HE SUBMITTED THAT IN THE ASSESSMENT ORDER IT IS REVEALED THAT THE LIQUOR LIC ENSE WAS LAST ISSUED IN THE YEAR 1974 AND THE LICENCE IS NOT READILY AVAILABLE THEREFORE THE ASSESSEE HAD TO KEEP THE LICENCE ALIVE. SIMILARLY THE OTHER DIS ALLOWANCE OF LABOUR CHARGES ITA NO. 2578/M/2010 5 RS./ 1 10 108/- SALES TAX RS. 91 760/-. CONVEYANCE AND CAR HIRE RS. 40 980/- DEPRECIATION OF RS. 1 00 108/- WAS INCURRED EXCLUSI VELY FOR ASSESSEES BUSINESS ACTIVITY FOR NORMAL OPERATION MAINTENANCE AND CONT INUATION OF THE COMPANY MERELY NOT HAVING ANY BUSINESS DOES NOT DENY COMPAN Y TO CLAIM LEGITIMATE AND RELEVANT BUSINESS EXPENSES. HE RELIED ON THE DE CISION IN THE CASE OF BHARTI AIRTEL VS ACIT (2010) 41 SOT 175/ 48 DTR 416 (TRIB.) AND PRAYED THAT THE RATIO OF THE DECISION SHOULD BE FOLLOWED IN THE PRESENT CASE. 10. THE LD. COUNSEL FOR THE ASSESSEE FURTHER SUBMIT TED THAT MERELY BECAUSE THERE IS LULL IN THE BUSINESS DUE TO THE LI TIGATION PENDING IN HIGH COURT WHEREIN STAY WAS GRANTED AND THE NECESSARY EXPENSES INCURRED TO KEEP ALIVE THE BUSINESS ASSETS CANNOT BE DISALLOWED. HE SUBMIT TED THAT THE ASSESSEE IS A PVT. LTD. COMPANY AND THERE ARE CERTAIN NECESSARY E XPENSES TO BE INCURRED TO KEEP THE FUTURE PROSPECTS OF THE COMPANY ALIVE. THE ASSESSEE COMPANY WAS NOT COMPLETELY DORMANT BUT IT WAS ACTIVELY INVOLVED LOOKING FOR BUSINESS. THE ASSESSEE HAS TO INCUR RE-ESTABLISHMENT EXPENSES AND OTHER BASIC AND NECESSARY EXPENSES TO MAINTAIN THE ASSETS OF THE CO MPANY AND KEEP IT FUNCTIONING TILL THE LULL OR INACTIVITY IS OVER AND THE BUSINESS STARTS AGAIN. THEREFORE THE ESTABLISHMENT EXPENSES AND OTHER BASI C AND NECESSARY EXPENSES ARE INCURRED WHOLLY AND EXCLUSIVELY FOR TH E PURPOSE OF ASSESSEES BUSINESS IN THE HOPE OF REVIVING THE BUSINESS AGAIN . THUS THE EXPENSES ARE NECESSARY FOR KEEPING THE BUSINESS OF THE ASSESSEE IN ACTIVITY CONDITION AND FOR PRESERVING AND MAINTAIN THE BUSINESS SET UP. T HE LD. COUNSEL FOR THE ASSESSEE FURTHER SUBMITTED THAT THE ASSESSEE COMPAN Y HAD NEVER CLOSED DOWN ITS BUSINESS. THE BUSINESS WAS ONLY TEMPORARI LY SUSPENDED DUE TO REASON BEYOND ITS CONTROL. HE FURTHER RELIED ON TH E DECISION OF THE BOMBAY HIGH COURT IN THE CASE OF HINDUSTAN CHEMICALS WORKS LTD. VS DCIT (124 ITR 561) WHEREIN THEIR LORDSHIPS OBSERVED THAT THERE IS A MARKED DISTINCTION BETWEEN LULL IN BUSINESS AND GOING OUT OF BUSINE SS. A TEMPORARY DISCONTINUANCE OF BUSINESS MAY IN CERTAIN CIRCUMSTA NCES GIVE RISE TO AN INFERENCE THAT A BUSINESS IS GOING THROUGH A LEAN P ERIOD OF TRANSACTION AND IT COULD BE REVIVED IF PROPER CIRCUMSTANCES ARISE. HOW EVER TO KEEP THE LICENCE ITA NO. 2578/M/2010 6 ALIVE THE ASSESSEE HAS TO RENEW THE LICENSE EVERY YEAR AND TO KEEP THE MACHINERY ACTIVE THE ABOVE EXPENDITURE WAS INCURRE D WHOLLY AND EXCLUSIVELY FOR THE BUSINESS OF THE COMPANY. 11. THE LD. COUNSEL FOR THE ASSESSEE RELIED ON THE FOLLOWING CASE LAWS: CIT VS G.R. SHIPPING LTD. HIGH COURT ORDER DT. 28.7 .2009 FOLLOWED I) WHITHE ANDERSON LTD. VS CIT 79 ITR 613 (BOM) II) CIT VS G.N. AGRAWAL (INDIVIDUAL) 217 ITR 250 A) CIT VS PEPSU ROAD TRANSPORT CORPN. (2002) 253 ITR 3 03 (P&H). 12. THE LD. COUNSEL FOR THE ASSESSEE POINTED OUT TH AT DURING THE APPELLATE PROCEEDINGS THE AR FILED ADDITIONAL EVIDENCE IN THE SHAPE OF COPIES OF CORRESPONDENCE WITH VARIOUS PARTIES BILLS E.P.F A ND P.F. CHALLANS TO SHOW THAT THE ASSESSEE COMPANY HAS NOT STOPPED THE BUSIN ESS. 13. THE LD. DEPARTMENTAL REPRESENTATIVE ON THE OTHE R HAND RELIED ON THE ORDER OF THE LOWER AUTHORITIES. 14. WE HEARD BOTH THE PARTIES. AS HELD BY THE MADRA S HIGH COURT IN THE CASE OF VAIRAVAN CHETTIAR VS CIT 72 ITR 114 WHEREI N IT HAS BEEN HELD AS FOLLOWS: THE QUESTION WHETHER A BUSINESS WAS BEING CARRIED ON OR DISCONTINUED MUST DEPEND IN EACH CASE ON ITS OWN FA CTS. IT IS NOT NECESSARY THAT BUSINESS TO BE IN EXISTENCE SHOULD H AVE WORK ALL THE TIME. THERE MAY BE LONG INTERVALS OF INACTIVITY AND A CONCERN MAY STILL BE A GOING CONCERN THOUGH IT MAY FOR SOME TIME BE Q UIET AND DORMANT. 15. THEREFORE LULL IN BUSINESS WOULD NOT AMOUNT TO CLOSURE. THIS ISSUE IS SUPPORTED BY THE DECISION OF THE APEX COURT IN THE CASE OF CIT VS VIKRAM ITA NO. 2578/M/2010 7 COTTON MILLS LTD. (169 ITR 597). THE EXPENSES INCU RRED SHOULD BE ALLOWED AGAINST THE TAXABLE INCOME EARNED BY THE ASSESSEE. 16. IN THE RESULT THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED ON THIS 30 TH DAY OF SEPTEMBER 2011 SD/- SD/- ( PRAMOD KUMAR) (ASHA VIJAYARAGHAVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI DATED 30 TH SEPTEMBER 2011 RJ COPY TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT-CONCERNED 4. THE CIT(A)-CONCERNED 5. THE DR A BENCH TRUE COPY BY ORDER ASSTT. REGISTRAR I.T.A.T MUMBAI