ACIT, Faridabad v. Smt. Darshana Sethi, Prop., Faridabad

ITA 264/DEL/2010 | 2006-2007
Pronouncement Date: 19-07-2011 | Result: Partly Allowed

Appeal Details

RSA Number 26420114 RSA 2010
Bench Delhi
Appeal Number ITA 264/DEL/2010
Duration Of Justice 1 year(s) 6 month(s)
Appellant ACIT, Faridabad
Respondent Smt. Darshana Sethi, Prop., Faridabad
Appeal Type Income Tax Appeal
Pronouncement Date 19-07-2011
Appeal Filed By Department
Order Result Partly Allowed
Bench Allotted B
Tribunal Order Date 19-07-2011
Date Of Final Hearing 19-07-2011
Next Hearing Date 19-07-2011
Assessment Year 2006-2007
Appeal Filed On 18-01-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH BDELHI) BEFORE SHRI A.D. JAIN AND SHRI SHAMIM YAHYA ITA NOS. 264 & 1309(DEL)2010 ASSESSMENT YEARS: 2006-07 & 2007-08 ASSTT.COMMISSIONER OF INCOME TAX SMT. DA RSHANA SETHI PROP. CIR.1 NH-4 FARIDABAD. V. M/S. S.D. ENGG. WORKS SEC.15 FARIDABAD. (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI ROHIT GARG SR. DR RESPONDENT BY: S/SHRI S.D. KAPILA R.R. MAURYA ADV.& SANJAY KAKKAR CA ORDER PER A.D. JAIN J.M . THESE ARE DEPARTMENTS APPEALS FOR ASSESSMENT YEARS 2006-07 & 2007-08. THE FOLLOWING COMMON GROUNDS HAVE BEEN T AKEN:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE THE LD. CIT(A) HAS ERRED ON FACTS AND IN LAW IN DELETING THE ADDIT ION OF ` 10 00 000/- MADE BY THE ASSESSING OFFICER ON ACCOUNT OF DEFERRE D REVENUE EXPENDITURE DISREGARDING THE FACTS THAT THE EXPENDI TURE WAS CAPITAL IN NATURE AND NOT PERTAINED TO THE YEARS UNDER CONSIDE RATION AND NO SUCH SPECIFIC PROVISION IN THE INCOME TAX ACT 1961 EXIST. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE THE LD. CIT(A) HAS ERRED ON FACTS AND IN LAW IN DELETING THE ADDIT ION OF ` 1 69 227/- ITA NOS.264 & 1309(DEL)2010 2 (IN A.Y. 2006-07) AND ` 1 01 536 (IN A.Y. 2007-08) MADE BY THE ASSESSING OFFICER ON ACCOUNT OF EXCESS DEPRECIATION CLAIMED BY THE ASSESSEE EVEN THOUGH THE ASSESSEE WAS NOT ENTITLED TO HIGHER RATE OF DEPRECIATION ON USING OWNED VEHICLE FOR ITS OWN BUS INESS PURPOSES AND NOT FOR OTHERS/COMMERCIAL PURPOSES. 2. FOR CONVENIENCE THE FACTS ARE BEING TAKEN FROM ITA NO. 264(DEL)2010. 3. THE AO OBSERVED THAT THE ASSESSEE HAD DEBITED AN AMOUNT OF ` 10 00 000/- IN HER PROFIT AND LOSS ACCOUNT ON ACCO UNT OF DEFERRED REVENUE EXPENDITURE. IT WAS OBSERVED THAT THE EXPENSES REL ATED TO COMPENSATION FOR NON COMPETITION INCURRED FOR FINANCIAL YEAR 2003-0 4 RELEVANT TO ASSESSMENT YEAR 2004-05; THAT THE TOTAL EXPENDITURE CLAIMED TO HAVE BEEN INCURRED WAS OF ` 50 00 000/-; THAT THE ASSESSEE WRITTEN OFF THIS EXP ENDITURE OF ` 50 00 000/- IN THE FIVE ASSESSMENT YEARS STARTING F ROM ASSESSMENT YEAR 2004- 05; THAT THE DEDUCTION OF ` 10 00 000/- AS CLAIMED FOR ASSESSMENT YEAR 2006- 07 WAS INCORRECT SINCE THE EXPENDITURE WAS CAPITAL IN NATURE AND COULD NOT BE WRITTEN OFF IN THE PROFIT AND LOSS ACCOUNT IN THE ABSENCE OF ANY SPECIFIC PROVISION TO THIS EFFECT IN THE INCOME TAX ACT AND THAT THE EXPENSES DID NOT RELATE TO THE RELEVANT ASSESSMENT YEAR AND NO PRIOR PERIOD ADJUSTMENT COULD ITA NOS.264 & 1309(DEL)2010 3 BE MADE AS SOUGHT TO BE DONE BY THE ASSESSEE. TH E ADDITION WAS ACCORDINGLY MADE. 4. THE LEARNED CIT(A) DELETED THIS ADDITION GIVING RISE TO GROUND NO.1 BEFORE US. 5. THE LEARNED DR HAS CONTENDED THAT THE LD. CIT(A) HAS ERRED IN DELETING ADDITION OF ` 10 00 000/- EACH ON ACCOUNT OF DEFERRED REVENUE EXPENDITURE; THAT WHILE DOING SO THE LD. CIT(A) HA S FAILED TO CONSIDER THAT THE EXPENDITURE WAS OF CAPITAL NATURE AND DID NOT P ERTAIN TO THE CONCERNED ASSESSMENT YEARS; THAT THE LD. CIT(A) HAS ALSO FAIL ED TO APPRECIATE THE OBSERVATION OF THE AO THAT THERE IS NO PROVISION IN THE I.T. ACT TO WRITE OFF SUCH EXPENDITURE IN THE PROFIT AND LOSS ACCOUNT AS SOUGHT TO BE DONE BY THE ASSESSEE. 6. THE LEARNED COUNSEL FOR THE ASSESSEE ON THE OTH ER HAND HAS STRONGLY RELIED ON THE IMPUGNED ORDER CONTENDING THAT THE E XPENDITURE HAD BEEN CLAIMED U/S 32(1)(II) OF THE I.T. ACT AND RULE 5(I ) OF THE I.T. RULES; THAT THE EXPENDITURE WAS ALLOWABLE AS AGGREGATE DEDUCTION IN RESPECT OF DEPRECIATION OF ANY OTHER BUSINESS OR COMMERCIAL RIGHTS BEING T ANGIBLE ASSETS LIKE PATENTS OR COPY RIGHTS AS AGREED BETWEEN THE SELLE R AND BUYER; THAT THE FACTS REMAINING THE SAME FOR THE TWO YEARS UNDER CONSIDER ATION AS IN THE EARLIER ITA NOS.264 & 1309(DEL)2010 4 YEARS THE AO WAS WRONG IN DEVIATING FROM THE EARLI ER ACCEPTANCE OF SUCH EXPENDITURE BY THE DEPARTMENT. 7. THE ASSESSEE IT IS SEEN IN THE YEARS UNDER CON SIDERATION WAS IN THE BUSINESS OF MANUFACTURE OF AUTO COMPONENTS. IT WAS DEVELOPING NUMEROUS COMPONENTS BY ITSELF OR WAS ACQUIRING THE READY BUS INESS FOR ITS CUSTOMERS AND THEREBY LOOKING FOR GROWTH. IN ASSESSMENT YEA R 2004-05 SHE HAD ENTERED INTO TWO AGREEMENTS WITH M/S. PUNE HEAT TRE AT LTD. FOR PURCHASING THEIR ENTIRE BUSINESS ALONG WITH TECHNICAL KNOW-HOW AND TOOLS AND DYES FOR THE MANUFACTURE OF SUB-SHAFT SHAFT TUBE UPPER OUT ER JACKET AND STEERING TUBE. IT HAS PAID A TOTAL CONSIDERATION OF ` 50 00 000/- FOR THE ACQUISITION OF THE SAID TECHNICAL KNOW-HOW AND SOLE RIGHTS ON N ON-COMPETE BASIS OF THE ENTIRE PARTICULAR BUSINESS OF THE SAID SPECIFIC COM PONENTS FROM THE SELLER. M/S. PUNE HEAT TREAT LTD. WAS AN EXISTING OEM SUPP LIER AND WAS HAVING ITS ENTIRE BUSINESS WITH M/S. SONA KOYO STEERING SYSTEM S LTD. FOR THE SUPPLY OF SUCH COMPONENTS. THE ACQUISITION BY THE ASSESS EE WAS ON AN EXCLUSIVE BASIS. THESE FACTS REMAINED UNDISPUTED. UNDENIAB LY THE PAYMENT WAS OF A REVENUE NATURE AND THE ASSESSEE COULD HAVE CLAIMED THE ENTIRE EXPENDITURE IN ASSESSMENT YEAR 2004-05 ITSELF. HOWEVER THE ASSES SEE THOUGHT IT EXPEDIENT TO APPORTION SUCH EXPENDITURE OVER THE NEXT FIVE YE ARS AND CLAIM IT AS ITA NOS.264 & 1309(DEL)2010 5 DEFERRED REVENUE EXPENDITURE SINCE THE BENEFITS OF THE ACQUISITION OF THE BUSINESS OF M/S. PUNE HEAT TREAT LTD. ON A NON-COMP ETE BASIS WOULD ACCRUE TO THE ASSESSEE IN FUTURE ALSO. THE DEPARTMENT AC CEPTED THE CLAIM OF THE ASSESSEE IN THE PRIOR YEARS UNDER SCRUTINY. IT WAS ONLY FOR THE YEARS UNDER CONSIDERATION I.E. ASSESSMENT YEARS 2006-07 AND 2 007-08 THAT THE ADDITIONS WERE MADE. HOWEVER WHILE MAKING THE ADDITIONS A S RIGHTLY OBSERVED BY THE LD. CIT(A) NO FRESH MATERIAL WAS BROUGHT ON RE CORD BY THE AO THAT THE FACTS WERE ANY DIFFERENT FROM THE PRIOR YEARS. SI NCE THE ASSESSEE HAD DERIVED BENEFITS FROM THE BUSINESS ACQUISITION THE EXPENDITURE IS UNDOUBTEDLY REVENUE EXPENDITURE. THE DEFERMENT OF THE REVENUE EXPENDITURE BY THE ASSESSEE CANNOT BE CALLED IN QUE STION AS THE BASIS OF SUCH DECISION OF THE ASSESSEE WAS THAT OF A PRUDENT BUSI NESS MAN AND THE DEPARTMENT CANNOT SEEK TO REPLACE HER. THE LD. CI T(A) HAS CORRECTLY OBSERVED THAT THE EXPENDITURE AMOUNTED TO CUSTOMER INTRODUCTION CHARGES. IN CIT V. JAI PARABOLIC SPRING LTD. 306 ITR 42(DE L) UNDER SIMILAR CIRCUMSTANCES THE HONBLE HIGH COURT UPHELD THE TR EATMENT OF EXPENDITURE AS REVENUE EXPENDITURE. THE ORDER OF THE LD. CIT( A) IS THEREFORE UNASSAILABLE AND IS UPHELD ON THIS ISSUE. 8. ACCORDINGLY GROUND NO.1 FOR BOTH THE YEARS IS R EJECTED. ITA NOS.264 & 1309(DEL)2010 6 9. APROPOS GROUND NO.2 THE AO OBSERVED THAT AS PER THE DETAILS CONTAINING DEPRECIATION CHART OF THE ASSESSEE SHE OWNED A TRUCK WHICH WAS USED FOR HER BUSINESS PURPOSE. DEPRECIATION @ 40% HAD BEEN CLAIMED THEREON. THE AO HOWEVER WAS OF THE VIEW THAT DE PRECIATION WAS ALLOWABLE ON THE TRUCK @ 15% AND NOT 40% AS CLAIME D. THE AO THUS DISALLOWED THE ALLEGED EXCESS DEPRECIATION CLAIMED ON THE VALUE OF THE TRUCK. THE DISALLOWANCE AMOUNTED TO ` 1 69 227/- FOR ASSESSMENT YEAR 2006-07 AND ` 1 01 536/- FOR ASSESSMENT YEAR 2007-08. 10. THE LD. CIT(A) DELETED THE DISALLOWANCE. THE DEPARTMENT HAS AS SUCH COME UP BY WAY OF GROUND NO.2 FOR BOTH THE YE ARS. 11. IT IS SEEN THAT WHILE DELETING THE DISALLOWANCE THE LD. CIT(A) HAS OBSERVED THAT THE VEHICLE INVOLVED WAS A COMMERCIA L VEHICLE MEANS A TRUCK ENTITLED TO THE HIGHER RATE OF DEPRECIATION UNDER THE SCHEDULE TO RULE 5(I) OF THE I.T. RULES. UNDENIABLY THE SCHEDULE T O RULE 5(I) OF THE RULES ENTITLES A TRUCK FOR HIGHER RATE OF DEPRECIATION B EING A COMMERCIAL VEHICLE. THEREFORE NO ERROR IS FOUND IN THE ACTION OF THE L D. CIT(A) IN DELETING THE DISALLOWANCE. 12. WE FIND THAT THE NEW APPENDIX-I TO THE I.T. RUL ES 1962 WHICH IS EFFECTIVE FROM ASSESSMENT YEAR 2006-07 I.E. THE Y EAR UNDER CONSIDERATION ONWARDS CONTAINS A TABLE OF RATES AT WHICH DEPRECI ATION IS ADMISSIBLE. PART- A THEREOF DEALS WITH DEPRECIATION ON TANGIBLE ASSET S. ITEM III CONCERNS ITA NOS.264 & 1309(DEL)2010 7 MACHINERY AND PLANT. SUB-ITEM (III) PROVIDES FOR ALLOWANCE OF 40% DEPRECIATION OF THE WRITTEN DOWN VALUE OF A COMMERC IAL VEHICLE ACQUIRED BY THE ASSESSEE ON OR AFTER 1.10.98 BUT BEFORE 1.4.99 AND PUT TO USE FOR ANY PERIOD BEFORE 1.4.99 FOR THE PURPOSE OF BUSINESS OR PROFESSION IN ACCORDANCE WITH THE THIRD PROVISO TO CLAUSE (II) OF SECTION 32 (1) OF THE I.T. ACT. IT IS UNDER THIS CLAUSE OF DEPRECIATION TABLE THAT THE AS SESSEE CLAIMS DEPRECIATION @ 40% OF THE WRITTEN DOWN VALUE OF THE TRUCKS. AS PER NOTE VI BELOW THE DEPRECIATION TABLE(SUPRA) COMMERCIAL VEHICLE MEAN S INTER ALIA HEAVY GOODS VEHICLE. A TRUCK UNDOUBTEDLY IS A HEAVY GOODS VEHICLE AND IS THEREFORE A COMMERCIAL VEHICLE FOR THE PURPOSES OF THE TABLE OF RATES AT WHICH DEPRECIATION IS ADMISSIBLE (SUPRA). HOWEVER SUB-ITEM (I) TO ITEM III OF PART-A OF THE TABLE OF RATES OF DEPRECIATION PRO VIDES FOR 15% DEPRECIATION AS ADMISSIBLE TO PLANT AND MACHINERY OTHER THAN THO SE COVERED BY INTER ALIA SUB-ITEM (III) (SUPRA). THAT BEING SO IT WAS FOR THE ASSESSEE TO ESTABLISH SO AS TO BE ENTITLED TO DEPRECIATION @ 40% OF THE WRIT TEN DOWN VALUE OF THE TRUCK THAT IT WAS ACQUIRED IN THE PERIOD FROM 1.10 .98 TO 1.4.99 AND PUT TO USE BEFORE 1.4.99 FOR THE PURPOSE OF HER BUSINESS OR PR OFESSION IN ACCORDANCE WITH THE THIRD PROVISO TO SECTION 32(1)(II) OF THE I.T. ACT WHEREIN IT HAS BEEN PROVIDED THAT WHERE AN ASSET BEING A COMMERCIAL VEH ICLE IS ACQUIRED BY THE ASSESSEE ON OR AFTER 1.10.98 BUT BEFORE 1.4.98 AND IS PUT TO USE BEFORE 1.4.99 ITA NOS.264 & 1309(DEL)2010 8 FOR THE PURPOSES OF BUSINESS OR PROFESSION THE DED UCTION IN RESPECT OF SUCH ASSET SHALL BE ALLOWED ON SUCH PERCENTAGE ON THE WR ITTEN DOWN VALUE THEREOF AS MAY BE PRESCRIBED I.E. AS PER SUB-ITEM (III) O F ITEM III OF PART-A OF THE DEPRECIATION TABLE CONTAINED IN THE NEW APPENDIX-I TO THE I.T. RULES(SUPRA). HOWEVER THE ASSESSEE HAS NOT BEEN A BLE TO DISCHARGE THIS REQUIREMENT OF LAW AND IT HAS NOT BEEN ESTABLISHED THAT THE TRUCK WAS ACQUIRED ON OR AFTER 1.10.98 BUT BEFORE 1.4.99 AND WAS PUT TO USE FOR ANY PERIOD BEFORE 1.4.99 FOR HER BUSINESS PURPOSES. THAT BEING SO THE PROVISIONS OF SUB-ITEM (I) TO ITEM III OF PART A OF THE TABLE BEING RESIDUE IN NATURE SOFAR AS CONCERNING SUB-ITEM(III) COMES INT O PLAY ON WHICH DEPRECIATION IS BEING SOUGHT IS NOT COVERED BY SUB -ITEM (III) TO ITEM III OF PART A OF THE DEPRECIATION TABLE AND ACCORDING TO S UB-ITEM (I) THEREON THE RATE AT WHICH DEPRECIATION IS ADMISSIBLE IS 15%. 13. THE LD. CIT(A) THEREFORE HAS EVIDENTLY ERRED IN ALLOWING THE ASSESSEES CLAIM OF DEPRECIATION @ 40% OF THE WRITT EN DOWN VALUE OF THE TRUCK. 14. SOFAR AS REGARDS THE DEPRECIATION ALLOWED @ 15% BY THE AO THIS DEPRECIATION RATE HAS BEEN CORRECTLY APPLIED. HOWEV ER IT WAS USED BY THE ASSESSEE FOR HER OWN BUSINESS PURPOSES. THIS IT IS SEEN IS NOT THE CORRECT REASON FOR MAKING THE DISALLOWANCE SINCE IT WAS UN DER SUB-ITEM(1A) OF ITA NOS.264 & 1309(DEL)2010 9 ITEM III OF PART A OF DEPRECIATION TABLE AS CONTAIN ED IN OLD APPENDIX I TO I.T. RULES 1952 WHICH WAS APPLICABLE TO ASSESSMENT YEARS 1984-85 TO 1987- 88. THERE-UNDER THE PROVISION WAS FOR ALLOWANCE OF 40% DEPRECIATION. HOWEVER THE REASON FOR APPLYING THIS RATE WAS FAUL TY INASMUCH AS THE AO HAS APPLIED IT FOR THE STATED REASON (AO PARA 8) T HAT THE TRUCK WAS OWNED BY THE ASSESSEE AND IT WAS USED BY HER FOR HER OWN BUS INESS PURPOSES. NOW THIS IS NOWHERE THE REQUIREMENT OF THE NEW APPENDIX I(SUPRA) WHICH IS THE RELEVANT PROVISION APPLICABLE TO THE YEARS UNDER CO NSIDERATION I.E. ASSESSMENT YEARS 2006-07 AND 2007-08 AS DISCUSSED HEREINABOVE. 15. THEREFORE THE ASSESSEE IS HELD ENTITLED TO DEP RECIATION @ 15% OF THE WRITTEN DOWN VALUE OF THE TRUCK UNDER THE AFORESAID DISCUSSED PROVISIONS OF THE NEW APPENDEX-I TO THE I.T. RULES. 16. IN THIS MANNER GROUND NO.2 RAISED BY THE DEPAR TMENT IN BOTH THE YEARS IS ACCEPTED. 17. IN THE RESULT BOTH THE APPEALS FILED BY THE DE PARTMENT ARE PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 19.07.2011. SD/- SD/- (SHAMIM YAHYA) (A.D. JAIN) ACCOUNTANT MEMBER JUDICIAL MEMBER ITA NOS.264 & 1309(DEL)2010 10 DATED: 19.07.2011 *RM COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR TRUE COPY BY ORDER DEPUTY REGISTRAR