DCIT, New Delhi v. M/s Naraingarth Sugar Mills Limited,

IN THE INCOME TAX APPELLATE TRIBUNAL [ DELHI BENCH F DELHI ] BEFORE SHRI A. D. JAIN JM SHRI K. D. RANJAN AM I. T. APPEAL NOS. 472 550 551 & 3038 (DEL) OF 2009. ASSESSMENT YEARS : 2003 04 2004-05 2005-06 & 2006-07 DY. COMMISSIONER OF INCOME-TAX M/S. NA RAINGARH SUGAR MILLS LTD. C I R C L E : 13 (1) VS. C/O . HARRY RICKY ADVOCATE N E W D E L H I. 1573 SEC TOR : 18 - D C H A N D I G A R H - 160 018. P A N / G I R NO. AAA CN 0454 G. ( APPELLANT ) ( RESPONDEN T ) ASSESSEE BY : SHRI HARRY RICKY ADV.; DEPARTMENT BY : SHRI RAJEEV MEHROTRA [CIT]-D.R.; & SHRI RAJEEV RANKA SR. D. R.; O R D E R. PER K. D. RANJAN AM : THESE APPEALS BY THE REVENUE FOR ASSESSMENT YEARS 2003-04 TO 2006-07 ARISE OUT OF SEPARATE ORDERS OF THE LD. COMMISSIONER OF INCOME T AX (APPEALS)-XVI NEW DELHI. 2. THE FIRST ISSUE FOR CONSIDERATION IN ASSESSMENT YEAR 2003-04 RELATES TO DELETING THE ADDITION OF EMPLOYER'S CONTRIBUTION TO PROVIDENT FU ND [PF] AMOUNTING TO RS.3 99 811/-. THE FACTS OF THE CASE STATED IN BRIEF ARE THAT DURING T HE COURSE OF ASSESSMENT THE ASSESSING OFFICER 2 I. T. APPEAL NOS. 472 550 551 & 3038 (DEL) OF 2009. NOTED THAT EMPLOYEES CONTRIBUTION TO PF TO THE EXTE NT OF RS.5 43 450/- WAS PAID BEYOND THE DUE DATE EVEN AFTER GRACE PERIOD OF 5 DAYS. SIMILA RLY A SUM OF RS.5 94 476/- ON ACCOUNT OF EMPLOYER'S CONTRIBUTION WAS ALSO PAID BEYOND THE DU E DATE. IN RESPONSE TO A QUERY RAISED BY THE ASSESSING OFFICER IT WAS STATED BY THE ASSESSEE THAT GRACE PERIOD FOR PAYMENT WAS 15 DAYS FROM THE DUE DATE AND NOT 5 DAYS. THIS CONTENTION OF THE ASSESSEE WAS REJECTED BY THE ASSESSING OFFICER. HE DISALLOWED THE EMPLOYEES CONT RIBUTION TO PF AT RS.3 65 359/- AND EMPLOYER'S CONTRIBUTION OF RS.3 99 811/- WHICH WAS PAID AFTER THE DUE DATE OF PAYMENT. THUS THE TOTAL DISALLOWANCE OF RS.7 65 170/- WAS M ADE. 3. ON APPEAL THE LD. CIT (APPEALS) OBSERVED THAT EM PLOYEES CONTRIBUTIONS IF NOT PAID IN TIME WILL BE TREATED AS INCOME UNDER SECTION 2(24)( X) READ WITH SECTION 36(1)(VA) AND EMPLOYER'S CONTRIBUTION WILL BE DISALLOWABLE UNDER SECTION 43-B OF THE ACT IF THE SAME IS NOT PAID WITHIN THE DUE DATE PRESCRIBED IN THE RESPECTI VE STATUTE INCLUDING THE GRACE PERIOD. HE FURTHER NOTED THAT SECOND PROVISO TO SECTION 43-B O F THE ACT HAS BEEN OMITTED BY THE FINANCE ACT 2003 AND THEREFORE EMPLOYER'S CONTRIBUTION T O PF ESI SHALL BE ALLOWED AS DEDUCTION ON DUE BASIS IF THE PAYMENT OF THE SAME IS MADE ON OR BEFORE THE DUE DATE OF FURNISHING OF DUE DATE PRESCRIBED UNDER SECTION 139(1) OF THE ACT. H OWEVER THERE WAS NO SUCH CHANGE IN THE PROVISIONS RELATING TO EMPLOYEES CONTRIBUTION TO SU CH WELFARE FUND. THE LD. CIT (APPEALS) ACCORDINGLY ALLOWED EMPLOYER'S CONTRIBUTION OF RS.3 99 811/- AND CONFIRMED THE DISALLOWANCE IN RESPECT OF EMPLOYEES CONTRIBUTION. 4. BEFORE US THE LD. SR. DR SUBMITTED THAT EMPLOYER 'S CONTRIBUTIONS HAVE NOT BEEN PAID WITHIN THE DUE DATE AND THEREFORE THE ASSESSING O FFICER WAS JUSTIFIED IN MAKING DISALLOWANES. ON THE OTHER HAND THE LD. AR OF THE ASSESSEE SUPPO RTED THE ORDER OF THE LD. CIT (APPEALS). 5. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. WE FIND THAT THIS ISSUE IS COVERED BY THE DECISION OF JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. P.M. ELECTRONICS LTD. 220CTR 635(DEL). IN THIS CASE HONBLE DELHI HIGH COURT HAS FOLLOWED THE DECISION OF HONBLE MADRAS HIGH COURT IN THE CASE OF CIT VS. NEXUS 3 I. T. APPEAL NOS. 472 550 551 & 3038 (DEL) OF 2009. COMPUTERS PVT. LTD. DATED 18/08/2008 PASSED IN TAX CASE (A) NO. 1192 / 2008 WHEREIN THE HONBLE COURT HAD DISCUSSED THE IMPACT OF DISMISSA L OF SPECIAL LEAVE PETITION BY HON'*BLE SUPREME COURT IN THE CASE OF CIT VS. GEORGE WILLIAM SON (ASSAM) LTD. 284 ITR 613 (GAU.) AND CIT VS. VINAY CEMENT 213 ITR 268. THE DIVISION BENCH OF HONBLE MADRAS HIGH COURT HAD EXPLAINED THE EFFECT OF DISMISSAL OF SPECIAL LE AVE PETITION BY A SPEAKING ORDER BY RELYING UPON THE JUDGEMENT OF HONBLE SUPREME COURT IN THE CASE OF KUNHAYAMMED AND OTHERS VS. STATE OF KERALA AND ANOTHER 119 STC 505 (KER). HON BLE DELHI HIGH COURT ALSO CONSIDERED THE DECISION OF DIVISION BENCH IN THE CASE OF CIT V S. DHARMENDRA SHARMA 297 ITR 320. IT HAS BEEN HELD THAT THE ASSESSEE WILL BE ENTITLED FO R DEDUCTION ON ACCOUNT OF DELAYED PAYMENT OF EMPLOYEES/ EMPLOYERS CONTRIBUTION TOWARDS PROV IDENT FUND WHERE PAYMENTS WERE MADE AFTER DUE DATE PRESCRIBED UNDER RESPECTIVE STATUTE BUT BEFORE THE DUE DATE OF FURNISHING THE RETURN OF INCOME UNDER SECTION 139(1) OF THE ACT. SINCE THE PAYMENT HAS BEEN MADE BEFORE THE DUE DATE OF FILING OF THE RETURN UNDER SECTION 139(1) OF THE ACT RESPECTFULLY FOLLOWING THE PRECEDENT IT IS HELD THAT THE ASSESSEE WILL BEEN E NTITLED FOR DEDUCTION U/S 43B OF THE ACT IN RESPECT OF EMPLOYER'S CONTRIBUTION. ACCORDINGLY IN OUR CONSIDERED OPINION THE LD. CIT (A) WAS JUSTIFIED IN DELETING THE ADDITION OF RS.3 99 8 11/- ON ACCOUNT OF EMPLOYER'S CONTRIBUTION TO PROVIDENT FUND. 6. THE NEXT ISSUE FOR CONSIDERATION WHICH IS COMMO N IN ALL THE ASSESSMENT YEARS RELATES TO DELETING THE ADDITION ON ACCOUNT OF DEFERRED REV ENUE EXPENDITURE. EXCEPT DIFFERENCE IN THE FIGURES THE FACTS ARE IDENTICAL IN ALL THE YEARS. THE FACTS OF THE CASE IN ASSESSMENT YEAR 2003- 04 IN BRIEF ARE THAT THE ASSESSING OFFICER FROM PRO FIT AND LOSS ACCOUNT NOTED THAT THE ASSESSEE HAD DEBITED A SUM OF RS.1 08 43 872/- UNDER THE HEA D 'DEFERRED REVENUE EXPENDITURE'. ON A QUERY RAISED BY THE ASSESSING OFFICER IT WAS EXPLAI NED BY THE ASSESSEE THAT THE DEFERRED REVENUE EXPENDITURE INCLUDE EXPENSES ON DIRECTORS F OREIGN TRAVEL AND EXCESS OF INTEREST ON TERM LOAN AND WORKING CAPITAL TAKEN PROPORTIONATELY TO THE PERIOD OF OPERATION IN THE CURRENT 4 I. T. APPEAL NOS. 472 550 551 & 3038 (DEL) OF 2009. YEAR AS COMPARED TO THE PRECEDING YEAR. HOWEVER N O DOCUMENTARY EVIDENCE WAS FURNISHED IN SUPPORT OF THE CLAIM. THE ASSESSING OFFICER ACC ORDINGLY DISALLOWED THE AMOUNT OF RS.1 08 43 872/-. 7. ON APPEAL IT WAS SUBMITTED BY THE ASSESSEE THAT THE ASSESSEE HAD TREATED THE EXPENDITURE ON ACCOUNT OF INTEREST ON TERM LOAN AND WORKING CAPITAL AND FOREIGN TRAVEL EXPENSES AS DEFERRED REVENUE EXPENDITURE AND HAD WR ITTEN OFF THE SAID AMOUNT AS EXPENDITURE OVER A PERIOD OF FIVE YEARS I.E. 1/5TH EACH YEAR. SUCH A DECISION OF THE COMPANY WAS APPROVED BY THE DIRECTORS AND AUDITORS OF THE COMPA NY AS IT WAS AN ACT OF BUSINESS PRUDENCE IN ORDER TO AVAIL CREDIT FACILITY FROM THE BANK. T HE SAME HAS BEEN MENTIONED IN THE NOTES ON ACCOUNTS WHICH FORMED PART OF THE AUDITED BALANCE S HEET ATTACHED WITH THE RETURN OF INCOME. THE SPREADING OF THE EXPENDITURE OVER THE PERIOD OF FIVE YEARS WAS MADE BY THE ASSESSEE IN ACCORDANCE WITH THE ACCEPTED ACCOUNTING PRACTICE AP PROVED BY ICAI AND HON'BLE SUPREME COURT IN THE CASE OF MADRAS INDUSTRIAL INVESTMENT C ORPORATION VS. CIT 225 ITR 802 (SC). RELIANCE WAS ALSO PLACED ON CERTAIN DECISIONS OF IT AT IN SUPPORT OF THEIR CLAIM. THE LD. CIT (APPEALS) EXAMINED THE CONTENTION OF THE ASSESSEE. HE NOTED THAT THE ASSESSEE HAD TO PAY INTEREST ON TERM LOAN AND WORKING CAPITAL LOAN OF R S.6 23 73 947/-. OUT OF THIS THE ASSESSEE HAD BOOKED RS.1 06 68 247/- AS REVENUE EXPENDITURE WHICH WAS ALLOWED BY THE ASSESSING OFFICER. THE REMAINING INTEREST EXPENDITURE OF RS. 5 16 99 700/- WAS TRANSFERRED TO DEFERRED REVENUE EXPENDITURE ACCOUNT. BESIDES THIS THERE W AS OPENING BALANCE OF DEFERRED REVENUE EXPENDITURE OF RS.4 42 000/- AND THE ASSESSEE HAD A LSO INCURRED AN EXPENDITURE OF RS.7 39 660/- ON ACCOUNT OF DIRECTORS FOREIGN TRAVE LLING. ALL THESE EXPENDITURE WAS TAKEN TO DEFERRED REVENUE EXPENDITURE ACCOUNT AND 1/5TH OF T HIS EXPENDITURE WAS AMORTIZED DURING THE YEAR. THE LD. CIT (APPEALS) AFTER GOING THROUGH TH E BANK STATEMENT AND THE COPIES OF ACCOUNT OF HSIDC NOTED THAT MOST OF THE EXPENDITURE RELATED TO INTEREST ON TERM LOAN AND WORKING CAPITAL AND WAS OF REVENUE NATURE AND THEREFORE T HE SAME WAS ALLOWABLE DURING THE YEAR UNDER CONSIDERATION. THE DIRECTORS OF THE COMPANY ALONG WITH AUDITORS OF THE ASSESSEE DECIDED TO DEFER THE CLAIM OF THESE EXPENSES IN ORD ER TO SHOW THE IMPROVED AND REALISTIC POSITION OF THE COMPANY WHICH IN TURN WOULD HAVE H ELPED IN AVAILING THE CREDIT FACILITIES FROM THE BANK. HE ALSO NOTED THAT IF THE ASSESSEE HAD CLAIMED ENTIRE EXPENDITURE DURING THE YEAR UNDER CONSIDERATION THE POSITION OF FINANCIAL STATEMENT WOULD HAVE DISTORTED. RELYING ON 5 I. T. APPEAL NOS. 472 550 551 & 3038 (DEL) OF 2009. THE DECISION OF HON'BLE SUPREME COURT DECISION IN T HE CASE OF MADRAS INDUSTRIAL INVESTMENT CORPORATION (SUPRA) HELD THAT THE INTEREST ON TERM LOAN WAS DEFERRED ACCORDINGLY OVER THE PERIOD IN ORDER TO REFLECT THE TRUE AND FAIR VIEW O F THE BOOKS OF ACCOUNTS OF THE ASSESSEE AND THEREFORE THE SAME WAS ALLOWABLE AS DEDUCTION. 8. BEFORE US THE LD. SR. DR SUBMITTED THAT THE ASSE SSEE IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING AND THEREFORE THE EXPENDITURE CANNOT B E DEFERRED FOR SUBSEQUENT YEARS. HE ALSO SUBMITTED THAT THE DECISION OF HON'BLE SUPREME COUR T IN THE CASE OF MADRAS INDUSTRIAL INVESTMENT CORPORATION IS DISTINGUISHABLE ON FACTS AS IN THAT CASE THE EXPENDITURE WAS INCURRED IN RELATION TO DEBENTURES ISSUED AND ACCOR DINGLY THE EXPENDITURE WAS AMORTIZED OVER THE PERIOD OF 12 YEARS. IN THE CASE OF ASSESSEE TH E EXPENDITURE HAS BEEN INCURRED IN THE YEAR ITSELF AND THEREFORE THE AMOUNT CANNOT BE DEFERRE D AND CLAIMED IN THE SUBSEQUENT YEARS. ON THE OTHER HAND THE LD. AR OF THE ASSESSEE SUPPORTE D THE ORDER OF THE LD. CIT (APPEALS). 9. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE MATERIAL PLACED ON RECORD. THERE IS NO DISPUTE THAT THE ASSESSEE IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING. THEREFORE THE LIABILITY INCURRED ON ACCOUNT OF INT EREST PAYABLE ON TERM LOAN AND WORKING CAPITAL AS WELL AS OTHER EXPENDITURE BY WAY OF DIRE CTORS FOREIGN TRAVEL EXPENSES ARE ALLOWABLE AS DEDUCTION IN THE YEAR IN WHICH SUCH LIABILITY IS INCURRED. THERE IS NO CONCEPT OF DEFERRED REVENUE EXPENDITURE IN INCOME-TAX ACT. THE ASSESSE E HAD TAKEN A DECISION TO CLAIM 1/5TH OF SUCH EXPENDITURE IN THE YEAR IN WHICH THE EXPENDITU RE IS INCURRED AND THE BALANCE EXPENDITURE HAS BEEN CLAIMED IN FOUR SUBSEQUENT YEARS EQUALLY. THE EXPENDITURE WHICH HAD BEEN CLAIMED IN SUBSEQUENT YEARS CONSTITUTES THE PART OF PREVIOU S YEARS' EXPENDITURE WHICH IS NOT ALLOWABLE AS DEDUCTION. IT IS NOT A CASE WHERE THE EXPENDITU RE WAS INCURRED IN RELATION TO CERTAIN INVESTMENTS THE EFFECT OF WHICH WOULD BE SPREAD O VER IN MORE THAN ONE YEAR. THEREFORE THE ASSESSEE CANNOT BE ALLOWED DEDUCTION UNDER SECTION 37 IN RESPECT OF EXPENDITURE WHICH WAS INCURRED IN EARLIER YEARS ON THE PRINCIPAL OF DEFER RED REVENUE EXPENDITURE AS CLAIMED BY THE ASSESSEE. THE INCOME OF THE ASSESSEE HAS TO BE DET ERMINED ON THE BASIS OF FACTS OF EACH YEAR. IF THE CONTENTION OF THE ASSESSEE IS ACCEPTED THAT EXPENDITURE SHOULD BE ALLOWED ON THE BASIS OF DECISION TAKEN BY THE ASSESSEE IT WILL OPEN FLO OD GATES FOR LITIGATIONS UNDER WHICH THE 6 I. T. APPEAL NOS. 472 550 551 & 3038 (DEL) OF 2009. ASSESSEE CAN DEFER ANY EXPENDITURE THE WAY THEY LIK E AND CLAIM THE SAME IN THE YEAR IN WHICH IT BECOMES MORE CONVENIENT AND BENEFICIAL TO THEM. THEREFORE WE DO NOT APPROVE THE CONTENTION OF THE ASSESSEE THAT REVENUE EXPENDITURE WHICH HAS BEEN INCURRED IN A PARTICULAR YEAR SHOULD BE DEFERRED TO SUBSEQUENT YEARS. THERE FORE NO DEDUCTION OUT OF DEFERRED REVENUE EXPENDITURE WHICH HAS COME FROM EARLIER YEARS CAN BE ALLOWED AS DEDUCTION IN THE YEAR S UNDER CONSIDERATION AS THE SAME WILL CONSTITUTE THE PRIOR PERIOD EXPENDITURE. THE DECISION RELIED UPON BY THE LD. CIT (APPEALS) IN THE CASE OF MADRAS INDUSTRIAL INVESTMENT CORPORATION (SUPRA) IS NOT APPLICABLE TO THE FACTS AS POINTED O UT BY THE LD. SR. DR. ACCORDINGLY IN OUR CONSIDERED OPINION THE LD. CIT (APPEALS) WAS NOT J USTIFIED IN ALLOWING THE CLAIM OF ASSESSEE IN RESPECT OF DEFERRED REVENUE EXPENDITURE. WE TH EREFORE SET ASIDE THE ORDER OF THE LD. CIT (APPEALS) AND RESTORE THAT OF THE ASSESSING OFFICER . THE GROUND RELATING TO DEFERRED REVENUE EXPENDITURE IN ALL THE YEARS IS ALLOWED IN FAVOUR O F THE REVENUE. 10. THE NEXT ISSUE FOR CONSIDERATION WHICH IS COMMO N IN ASSESSMENT YEARS 2003-04 AND 2006-07 RELATES TO DELETING THE DISALLOWANCE OF RS. 1 60 90 285/- IN ASSESSMENT YEAR 2003-04 AND RS.3 60 167/- IN ASSESSMENT YEAR 2006-07 ON ACC OUNT OF REBATES AND DISCOUNTS BY ADMITTING FRESH EVIDENCE DURING THE COURSE OF APPE LLATE PROCEEDINGS. THE FACTS OF THE CASE STATED IN BRIEF ARE THAT FROM THE PROFIT AND LOSS A CCOUNT THE ASSESSING OFFICER NOTED THAT AN AMOUNT OF RS.1 60 90 285/- IN ASSESSMENT YEAR 2003- 04 AND RS.3 60 167/- IN ASSESSMENT YEAR 2006-07 WAS CLAIMED ON ACCOUNT OF REBATES AND DISCO UNTS ALLOWED TO THE CUSTOMERS SUO MOTU. IN RESPONSE TO A QUERY IT WAS SUBMITTED THAT AT THE TIME OF SALE THE ASSESSEE COMPANY RAISED BILLS ON THE PARTY FOR THE GROSS AMOUNT. LATER ON ACCOUNT OF DAMAGED STOCK IF ANY THE ASSESSEE HAD TO OFFER A REBATE OR DISCOUNT AS A US UAL PRACTICE. THE ASSESSEE RECEIVED PAYMENT FOR THE SAME AND THE BALANCE PAYMENT WAS REBATE AND DISCOUNT. IT WAS ALSO EXPLAINED THAT THE REBATE AND DISCOUNT ARE ALLOWED TO COMPENSATE THE C USTOMERS ON ACCOUNT OF DEFECTS / DAMAGED GOODS. THIS CONTENTION OF THE ASSESSEE WAS NOT FOU ND ACCEPTABLE TO THE ASSESSING OFFICER ON THE GROUND THAT NO SUPPORTING EVIDENCE WAS MADE AVA ILABLE TO THE ASSESSING OFFICER. THE ASSESSING OFFICER ACCORDINGLY MADE ADDITIONS IN RES PECTIVE ASSESSMENT YEARS. 11. ON APPEAL IT WAS SUBMITTED THAT THE ASSESSING O FFICER HAD IGNORED THE SUBMISSIONS MADE AND THE DETAILS GIVEN. IT WAS ALSO SUBMITTED THAT THE SUGAR IS PRONE TO GET SPOILED IN THE 7 I. T. APPEAL NOS. 472 550 551 & 3038 (DEL) OF 2009. INDUSTRY WHEN THE STOCK WAS LYING FOR A LONGER TIME . IN THE NORMAL COURSE OF BUSINESS THE CUSTOMER COMES TO MILL AND PURCHASES THE SUGAR AND THE ASSESSEE ACCORDINGLY RAISES THE GROSS BILL ON THE CUSTOMERS. IN SOME CASES IT HAPPENS TH AT THE CUSTOMER CALLS UPON THE COMPANY AFTER IT FINDS OUT DEFECTS IN THE SUGAR PURCHASED. THEN THE COMPANY ON THE CALL OF THE CUSTOMERS SENDS AN INSPECTION TEAM. ON INSPECTION OF THE TEAM THE REBATE OR DISCOUNT IS ALLOWED. DURING THE COURSE OF APPELLATE PROCEEDING S THE ASSESSEE FILED DOCUMENTARY EVIDENCE IN FORM OF CREDIT NOTES INSPECTION REPORTS ACCOU NT OF DIFFERENT PARTIES TO WHOM DISCOUNT WAS ALLOWED COPIES OF BILLS RAISED ON WHICH DISCOUNT W AS ALLOWED ETC. IN SUPPORT OF THE ABOVE CONTENTION. THE LD. CIT (APPEALS) BEFORE ADMITTING THE CLAIM UNDER RULE 46-A OF THE I. T. RULES FORWARDED THE SAME TO THE AO FOR HIS COMMENTS . THE ASSESSING OFFICER IN HIS REPORT DATED 17/10/2008 REPORTED THAT THE ASSESSEE HAD FUR NISHED THE SUPPORTING EVIDENCE FOR ITS CLAIM UNDER THE HEAD REBATE AND DISCOUNT CREDIT NO TES INSPECTION REPORT LEDGER ACCOUNT OF RESPECTIVE PARTIES. THE ASSESSING OFFICER ON THE B ASIS OF ADDITIONAL DETAILS VERIFIED THE CLAIM OF THE ASSESSEE ON TEST CHECK BASIS. SINCE THE AO ACCEPTED THE GENUINENESS OF THE CLAIM ON THE BASIS OF DOCUMENTS / EVIDENCE FURNISHED BY THE ASSESSEE THE LD. CIT (A) ADMITTED THE DOCUMENTS AS ADDITIONAL EVIDENCE AND ALLOWED THE CL AIM OF THE ASSESSEE AS THE SAME WAS SUPPORTED BY DOCUMENTARY EVIDENCE. 12. WE HAVE HEARD BOTH THE PARTIES. FROM THE ORDER OF THE LD. CIT (A) IT IS CLEAR THAT IN THE REMAND PROCEEDINGS THE LD. CIT (A) HAD PROVIDE D THE ASSESSEE AN OPPORTUNITY BEFORE ADMITTING THE ADDITIONAL EVIDENCE. THE CLAIM OF TH E ASSESSEE HAS BEEN FOUND TO BE VERIFIABLE ON TEST CHECK BASIS. SINCE THE AO IN THE REMAND PR OCEEDINGS HAD NOT DOUBTED THE GENUINENESS OF THE CLAIM IN OUR CONSIDERED OPINION THE LD. CIT (A) WAS JUSTIFIED IN DELETING THE ADDITION IN BOTH THE YEARS. ACCORDINGLY WE DO NOT FIND ANY INFIRMITY IN THE ORDER PASSED BY THE LD. CIT (A) DELETING THE ADDITION ON ACCOUNT OF REBATE AND DISCOUNTS IN ASSESSMENT YEARS 2003-04 AND ASSESSMENT YEAR 2006-07. 13. THE NEXT ISSUE FOR CONSIDERATION WHICH IS COMMO N IN ASSESSMENT YEARS 2004-05 2005-06 AND 2006-07 RELATES TO DELETING THE DISALLO WANCE OF DEPRECIATION ON ACCOUNT OF AMOUNT CAPITALIZED OUT OF DEFERRED REVENUE EXPENDIT URE. EXCEPT DIFFERENCE IN THE FIGURES THE 8 I. T. APPEAL NOS. 472 550 551 & 3038 (DEL) OF 2009. FACTS ARE IDENTICAL IN ALL THE YEARS. THE ASSESSEE OUT OF THE DEFERRED REVENUE EXPENDITURE A PART OF THE EXPENDITURE WAS CAPITALIZED TO THE FIXED ASS ETS I.E. ON LAND BUILDING AND MACHINERY; AND DEPRECIATION WAS CLAIMED ACCORDINGLY. THE AO D ID NOT ALLOW THE CLAIM OF THE ASSESSEE ON THE GROUND THAT THE DEFERRED REVENUE EXPENDITURE WAS INCURRED IN EARLIER YEARS. THE EXPENDITURE WAS DEFERRED TO SUBSEQUENT YEARS AND HA S BEEN CAPITALIZED AGAINST CERTAIN ASSETS. THE ASSESSING OFFICER NOTED THAT PROVISIONS OF SECT ION 37 OF THE ACT DID NOT ALLOW THE EXPENSES PERTAINING TO EARLIER YEARS TO BE CLAIMED / ALLOWED IN THE PROFIT AND LOSS ACCOUNT OF COMING YEARS AS PER THE CONVENIENCE OF THE ASSESSEE. SECT ION 37 OF THE ACT CLEARLY SPECIFIED THAT ONLY REVENUE EXPENSES PERTAINING TO RELEVANT PREVIOUS YE AR WERE ALLOWABLE AS EXPENSES. ALSO SECTION 37 DID NOT ALLOW THE EXPENDITURE IN QUESTIO NS TO BE AMORTIZED AND CLAIMED IN THE YEAR UNDER CONSIDERATION. THE ASSESSING OFFICER ALSO NO TED THAT THE ASSESSEE HAD NOT MADE ANY ADDITION TO THE FIXED ASSETS AND NO NEW INVESTMENT HAD BEEN MADE DURING THE YEAR UNDER ASSESSMENTS. THE EXPENSES INCURRED IN EARLIER YEAR S WERE CAPITALIZED DURING THE YEAR UNDER CONSIDERATION WITHOUT ANY REASON ON WHICH DEPRECIAT ION WAS CLAIMED. THERE WAS NO PROPER EXPLANATION FURNISHED BY THE ASSESSEE WHICH COULD JUSTIFY THAT THE DECISION OF THE ASSESSEE REGARDING CAPITALIZATION OF THE EXPENSES WHICH HAVE BEEN DEFERRED IN EARLIER YEARS WAS IN ORDER. HE ACCORDINGLY DISALLOWED DEPRECIATION ON T HE EXPENSES WHICH WERE DEFERRED IN EARLIER YEARS AND CAPITALIZED AGAINST THE FIXED ASS ETS IN THE YEARS UNDER CONSIDERATION. 14. ON APPEAL IT WAS SUBMITTED THAT THE INTEREST ON LOANS WHICH HAD BEEN CAPITALIZED WERE BASICALLY THE LOANS TAKEN BY THE ASSESSEE COMPANY A T ITS INCEPTION WITH THE PURPOSE OF BUYING THE LAND BUILDING AND PLANT AND MACHINERY AND ACCO RDINGLY THE INTEREST WAS CAPITALIZED PROPORTIONATELY. IT WAS ALSO SUBMITTED THAT THERE WAS NO LOSS OF REVENUE AS THE ASSESSEE HAD CLAIMED ONLY DEPRECIATION OR OTHERWISE IT WAS TO TH E CARRY FORWARD OF THE HEAVY LOSSES. THE LD. CIT (A) AFTER CONSIDERING THE REPLY OF THE ASSE SSEE OBSERVED THAT ASSESSEE HAD CAPITALIZED THE ACCRUED INTEREST ON TERM LOAN IN THE RESPECTIVE HEADS AND HAD CLAIMED DEPRECIATION AS PER RULES. WORKING OF CAPITALIZATION OF PART OF INTERE ST AND THE EXPENDITURE INCURRED ON FOREIGN TRAVEL BY THE DIRECTORS HAS BEEN DONE IN ACCORDANCE WITH THE ACCEPTED ACCOUNTING PRACTICE APPROVED BY INSTITUTE OF CHARTERED ACCOUNTANTS OF I NDIA. THEREFORE THE LD. CIT(A) CAME TO THE CONCLUSION THAT THE CLAIM OF DEPRECIATION ON AM OUNT CAPITALIZED WAS IN ORDER. 9 I. T. APPEAL NOS. 472 550 551 & 3038 (DEL) OF 2009. 15. BEFORE US THE LD. SR. DR SUBMITTED THAT THE INT EREST WHICH WAS DEFERRED IN EARLIER YEARS CANNOT BE CAPITALIZED IN THE YEARS UNDER CONSIDERAT ION AND THEREFORE THE LD. CIT (A) IS NOT JUSTIFIED IN ALLOWING THE DEPRECIATION ON THE DEFER RED REVENUE EXPENDITURE CAPITALIZED UNDER HEAD LAND BUILDING AND MACHINERY. ON THE OTHER HA ND THE LD. AR OF THE ASSESSEE SUPPORTED THE ORDER OF THE ASSESSING OFFICER. 16. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. FROM THE FACTS STATED ABOVE ONE MAY NOTE THAT THE A SSESSEE HAD TREATED THE INTEREST INCURRED ON TERM LOAN AND WORKING CAPITAL AS PART OF DEFERRED R EVENUE EXPENDITURE WHICH WE HAVE NOT APPROVED IN EARLIER PARAGRAPHS. SUBSEQUENTLY THE INTEREST HAS BEEN CAPITALIZED OUT OF DEFERRED EXPENDITURE IN PROPORTIONATE TO THE COST O F ASSETS. IT IS A SETTLED LAW THAT THE AMOUNT INCURRED ON ACQUISITION OF AN ASSET IS CAPITAL EXPE NDITURE AND THE INTEREST PAID/PAYABLE ON LOAN TAKEN FOR ACQUISITION OF SUCH AN ASSET IS ALLOWABLE REVENUE EXPENDITURE. THE INTEREST ON LOANS BORROWED FOR THE PURPOSE OF ACQUISITION OF ASSETS I S REVENUE EXPENDITURE AND CANNOT BE CAPITALIZED AT THE SWEET WILL OF THE ASSESSEE TO TH E ASSETS ACQUIRED. IT IS IMMATERIAL WHETHER THE ASSESSEE CLAIMS A LOWER AMOUNT OR A HIGHER AMOU NT BUT IN NO CASE THE EXPENDITURE INCURRED ON ACCOUNT OF INTEREST PAYABLE ON TERM LOA N OR WORKING CAPITAL CAN BE CAPITALIZED IN SUBSEQUENT YEARS AND DEPRECIATION CAN BE CLAIMED ON SUCH CAPITALIZED AMOUNT. IN FACT THE ASSESSEE HAD NOT ACQUIRED ANY CAPITAL ASSET IN THE YEAR UNDER CONSIDERATION TO WHICH THE CAPITALIZATION OF INTEREST COULD BE ALLOWED. MOREO VER THE INTEREST AND OTHER EXPENDITURE COULD HAVE BEEN CAPITALIZED IF SUCH EXPENDITURE WA S INCURRED BEFORE SETTING UP OF THE BUSINESS OR BEFORE PUTTING THE ASSET TO USE. SINCE IT IS NOT A CASE OF SETTING UP OF A NEW BUSINESS OR ACQUISITION OF A DEPRECIABLE ASSET THE INTEREST DEFERRED IN EARLIER YEARS CANNOT BE CAPITALIZED IN SUBSEQUENT YEARS EVEN THOUGH THE LOA NS WERE TAKEN FOR ACQUISITION OF SUCH ASSETS. ACCORDINGLY IN OUR CONSIDERED OPINION TH E LD. CIT (A) WAS NOT JUSTIFIED IN HOLDING THAT ASSESSEE COULD CAPITALIZE THE INTEREST WHICH W AS DEFERRED FROM EARLIER YEARS TO THE ASSETS AND CLAIM DEPRECIATION ON THE SAME. WE ACCORDINGLY SET ASIDE THE ORDER OF THE LD. CIT (A) AND RESTORE THE ORDER OF THE AO FOR BOTH ASSESSMEN T YEARS. 10 I. T. APPEAL NOS. 472 550 551 & 3038 (DEL) OF 2009. 17. IN THE RESULT THE APPEALS FILED BY THE REVENUE FOR ASSESSMENT YEARS 2003-04 AND 2006-07 ARE PARTLY ALLOWED. THE APPEALS FOR ASSESS MENT YEARS 2004-05 AND 2005-06 ARE ALLOWED. THE ORDER PRONOUNCED IN THE OPEN COURT ON : 08TH JANUARY 2010. SD/- SD/- [ A. D. JAIN ] [ K. D. RANJAN ] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 08TH JANUARY 2010. *MEHTA * COPY OF THE ORDER FORWARDED TO : - 1. APPELLANT. 2. RESPONDENT. 3. CIT 4. CIT (APPEALS) 5. DR ITAT NEW DELHI. TRUE COPY. BY ORDER. ASSISTANT REGISTRAR ITAT. 11 I. T. APPEAL NOS. 472 550 551 & 3038 (DEL) OF 2009.