DCIT, New Delhi v. M/s Escorts Construction Equipment Ltd., New Delhi

IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL NEW DELHI BENCH B NEW DELHI BENCH B NEW DELHI BENCH B NEW DELHI BENCH B BEFORE SHRI A. D. JAIN JUDICIAL MEMBER AND SHRI K. D. RANJAN ACCOUTANT MEMBER ITA NO. 5687 & 5688/DEL/2010 (ASSESSMENT YEARS 2005-06 & 2006-07) DCIT CIRCLE 11(1) VS. M/S. ESCORTS CONSTRUCTION NEW DELHI EQUIPMENTS LTD. 11 SCINDIA HOUSE CONNAUGHT CIRCUS NEW DELHI (APPELLANTS) (RESPONDENTS) PAN / GIR NO. AAACE2339R APPELLANT BY: SHRI H K LAL SR. DR RESPONDENT BY: SHRI R M MEHTA ADV. & SHRI ARUN K. BHATIA AR ORDER ORDER ORDER ORDER PER K. D. RANJAN AM: PER K. D. RANJAN AM: PER K. D. RANJAN AM: PER K. D. RANJAN AM: 1. THESE APPEALS BY THE REVENUE FOR THE ASSESSMENT YEARS 2005-06 & 2006-07 ARISE OUT OF SEPARATE ORDERS OF L D. CIT(A) XIII NEW DELHI. THESE APPEALS WERE HEARD TOGETHER AND F OR THE SAKE OF CONVENIENCE ARE DISPOSED OF BY THIS CONSOLIDATED O RDER. THE GROUNDS OF APPEAL IN BOTH THE YEARS ARE IDENTICAL E XCEPT DIFFERENCE IN AMOUNT. IN THE ASSESSMENT YEAR 2005-06 THE ISS UE RELATES TO DELETION OF ADDITION OF ` 33 21 429/- ON ACCOUNT OF DEVELOPMENT EXPENSES AND IN ASSESSMENT YEAR 2006-07 THE AMOUNT INVOLVED IS ` 32 01 030/-. 2. THE ONLY ISSUE FOR CONSIDERATION WHICH IS COMMO N IN BOTH THE APPEALS RELATES TO DELETING OF ADDITIONS ON ACCOUNT OF DEVELOPMENT EXPENSES. THE A.O. WHILE COMPLETING ASSESSMENT D ISALLOWED DEVELOPMENT EXPENSES FOLLOWING HIS ORDER FOR THE AS SESSMENT YEAR 2003-04. ON APPEAL LD. CIT(A) DELETED THE ADDITIO N IN BOTH THE I.T.A. NO. 5687 5688/DEL/2010 2/2 YEARS FOLLOWING THE DECISION OF ITAT FOR THE ASSESS MENT YEAR 2002- 03. 3. BEFORE US WHEN THE CASE COME UP FOR HEARING LD . A.R. FOR THE ASSESSEE SUBMITTED THAT THE ISSUE IS COVERED BY THE DECISION OF ITAT DELHI BENCH FOR THE ASSESSMENT YEAR 2002-03 WHICH WAS FOLLOWED IN ASSESSMENT YEAR 2003-04. ON THE OTHER HAND LD. SR . DR SUPPORTED THE ORDER OF THE A.O. 4. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. ITAT DELHI BENCH C IN I.T.A. NO. 3925/DEL/2007 FOR THE ASSESSMENT YEAR 2003-04 DELET ED THE ADDITION BY OBSERVING AS UNDER: 2. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANU FACTURE AND SALE OF LOADERS ROLLERS CRANES AND OTHER EART HMOVING EQUIPMENTS. IN ORDER TO MODERNIZE ITS PRODUCTS LIN E AND KEEPING IN VIEW THE MARKET DEMAND THE ASSESSEE KEEP S ON ADDING NEW PRODUCTS NEW MODELS AND HENCE TO EXPA ND ITS BUSINESS AND DIVERSIFY THE PRODUCT LINE THE ASSESS EE HAS INCURRED A SUM OF `24 36 293/- TOWARDS THE DEVELOPM ENT OF NEW PRODUCTS NAMELY HIGH SPEED 51 TONNE PICK AND CARRY TRAY HIGH SPEED 10 PICK AND CARRY RECOVERY CRANE VIBRATORY COMPACTORS AND SLEW CRANES. THE DETAILS OF THESE E XPENSES REVEALS THAT THESE EXPENSES REVEAL THAT THESE WERE ON ACCOUNT OF SALARY ALLOWANCES AND TRAVELING OF EMPL OYEES WHO ARE CONNECTED WITH THE DEVELOPMENT OF NEW PRODUCTS AND ARE ROUTINE BUSINESS EXPENSES. AS SUCH TYPE OF EXPENDI TURE WERE CLAIMED BY THE ASSESSEE IN EARLIER YEAR ALSO AS REV ENUE EXPENDITURE THESE WERE CLAIMED AS REVENUE EXPENDIT URE. IT WAS SUBMITTED BY THE ASSESSEE THAT THERE IS A COMPL ETE UNITY INTERLACING INTER DEPENDENCE AND INTERCONNECTION O F THE MANAGEMENT FINANCIAL ADMINISTRATIVE AND PRODUCTIO N ASPECT AMONG ALL DIVISIONS OF EACH UNIT AND AMONGST ALL UN ITS OF THE BUSINESS AS A WHOLE AND THUS IT IS THE CLAIM OF T HE ASSESSEE THAT THESE ARE ALLOWABLE. THE ASSESSING OFFICER TR EATED THEM CAPITAL EXPENDITURE AND AFTER ALLOWING DEPRECIATION A SUM OF `19 49 054/- WAS ADDED BACK TO THE INCOME OF THE AS SESSEE. IT WAS SUBMITTED BEFORE THE ASSESSING OFFICER THAT THE CIT(A) HAS ALLOWED SIMILAR CLAIM OF THE ASSESSEE FOR ASSESSMEN T YEAR 2002-03. HOWEVER THE A.O. HAS MENTIONED THAT THE S AID ORDER OF THE CIT(A) HAS NOT BEEN ACCEPTED BY THE REVENUE AND AN I.T.A. NO. 5687 5688/DEL/2010 3/3 APPEAL HAS BEEN FILED AGAINST THAT ORDER. THE CIT(A ) HAS ADMITTED THE CLAIM OF THE ASSESSEE FOLLOWING THE OR DER OF THE CIT(A) FOR ASSESSMENT YEAR 2002-03 AND FOR ASSESSME NT YEAR 200102. THE REVENUE IS AGGRIEVED HENCE IN APPEAL. AT THE OUTSET IT WAS SUBMITTED BY LD. COUNSEL THAT FOR AS SESSMENT YEAR 2002-03 SIMILAR GROUND OF REVENUE HAS BEEN DIS MISSED FOLLOWING THE ORDER OF THE TRIBUNAL IN ASSESSEES O WN CASE FOR ASSESSMENT YEAR 2001-02 AND HE HAS PRODUCED BEFORE US THE COPY OF THE SAID ORDER AND IT WAS PLEADED THAT THE ISSUE IS COVERED BY THE SAID ORDER OF THE TRIBUNAL DATED 8 TH OCTOBER 2007 PASSED IN I.T.A. NO.4185/DEL/2005. COPY OF THE SAID ORDER WAS ALSO GIVEN TO LD. DR. THE CONTENTS OF THE SAID ORDER IS AS UNDER:- THIS APPEAL HAS BEEN FILED BY THE REVENUE AGAINST THE ORDER OF COMMISSIONER OF INCOME-TAX(APPEALS) DATED 4.8.2005 BY TAKING THE FOLLOWING EFFECTIVE GROUND O F APPEAL:- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.73 22 427/- MADE BY THE ASSESSING OFFICER ON ACCOUNT OF EXPENDITURE INCURRED FOR DEVELOPMENT OF NEW PRODUCTS WHICH BROUGHT AN ENDURING BENEFIT TO THE BUSINESS OF THE ASSESSEE. 2. WE HEARD THE RIVAL SUBMISSIONS AND CAREFULLY CON SIDERED THE SAME ALONG WITH ORDER OF THE COMMISSIONER OF I NCOME- TAX(APPEALS). WE FIND THAT THE GROUND TAKEN BY THE REVENUE IS DULY COVERED BY THE DECISION OF THIS TRI BUNAL IN I.T.A.2649/DEL/2005 FOR THE ASSESSMENT YEAR 2001-02 IN THE CASE OF THE ASSESSEE IN WHICH THIS TRIBUNAL VIDE OR DER DATED 28.2.2007 HAS HELD AS UNDER:- 5. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE RECORDS. IT MAY BE MENTIONED THAT THE JURISDICTIONAL DELHI HIGH COURT IN THE CASE OF CIT VS. MODI INDUSTRIES LTD. 200 ITR 3 41 HAS HELD THAT THE EXPENDITURE INCURRED BY THE ASSESSEE IN THE YEAR IN WHICH THE UNIT HAD NOT STARTED WORKING IS ALLOWABLE AS A BUSINESS EXPENDITURE SINCE THE MANAGEMENT OF THE NEW UNIT AND THE EARLIER BUSINESS WERE THE SAME AND THERE WAS UNIT OF CONTROL AND A COMMON FUND. IT HAS FURTH ER BEEN HELD THAT THE MANUFACTURING OF ANOTHER PRODUCT IS ONLY THE EXTENSION OF ASSESSEES BUSINESS AND NO T A NEW BUSINESS. IT IS FURTHER MENTIONED THAT THE I.T.A. NO. 5687 5688/DEL/2010 4/4 IDENTICAL ISSUE CAME UP FOR CONSIDERATION BEFORE TH E INCOME-TAX APPELLATE TRIBUNAL DELHI BENCH E IN T HE CASE OF DALMIA CEMENT (BHARAT) LTD. IN I.T.A. NOS. 685/DEL/97 & 4/DEL/97 FOR ASSESSMENT YEAR 1991-92 WHEREIN THE TRIBUNAL HAS HELD THAT 3. AFTER HEARING BOTH THE PARTIES WE FIND THAT THE EXPENDITURE HAS BEEN INCURRED BY THE ASSESSEE FOR EXPLORING THE SETTING UP OF A NEW PROJECT I.E. SUGAR PLANT PIG IRON PLANT USING THE IRON ORE MINED ETC. ADMITTEDLY THE PRESENT BUSINESS OF THE ASSESSEE IS IN THE FIELD OF MANUFACTURING OF VARIOUS PRODUCTS AT DIFFERENT LOCATIONS. THE IMPUGNED EXPENDITURE HAS BEEN INCURRED BY THE ASSESSEE WITH THE OBJECT OF STUDYING AND IDENTIFYING NEW AREAS OF ACTIVITIES WHICH WOULD RESULT IN INCREASED PROFITS FROM BUSINESS OF MANUFACTURING. THE EXPENDITURE ON FEASIBILITY STUDY DOES NOT MEAN THAT IT IS INCURRED TOWARDS ANY NEW BUSINESS. WE FIND THAT THE TRIBUNAL IN THE ASSESSEES OWN CASE IN ASSESSMENT YEAR 88-89 VIDE I.T.A. NO.3698/DEL/98 CONSIDERED SIMILAR EXPENDITURE AND HELD THAT THE EXPENDITURE WAS ALLOWABLE AS REVENUE EXPENDITURE. IN VIEW OF THE AFORESAID DISCUSSION WE REVERSE THE ORDERS OF THE LOWER AUTHORITIES AND ALLOW THE CLAIM OF THE ASSESSEE ON THIS ISSUE. 6. IN VIEW OF THE AFORESAID LEGAL POSITION WE FIND NO INFIRMITY IN THE ORDER PASSED BY THE COMMISSIONE R OF INCOME-TAX(APPEALS) DELETING THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. WE THEREFORE CONFIRM THE ORDER OF COMMISSIONER OF INCOME-TAX (APPEALS). 4. IN THE RESULT THE APPEAL OF THE REVENUE STANDS DISMISSED. PRONOUNCED IN THE OPEN COURT DURING THE COURSE OF HEARING ON 8 TH OCTOBER 2007. 3. IN THIS VIEW OF THE SITUATION AFTER HEARING BOT H THE PARTIES WE FIND THAT THE ISSUE IS COVERED IN FAVOU R OF THE ASSESSEE BY THE AFOREMENTIONED ORDER OF THE TRIBUNA L FOR ASSESSMENT YEAR 2001-02 AND 2002-03 AND THIS GROUND OF THE REVENUE IS DISMISSED. I.T.A. NO. 5687 5688/DEL/2010 5/5 5. SINCE THE ISSUE IS COVERED BY THE DECISION OF IT AT IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2001-02 TO 2003-04 AND THE FACTS OF THE CASE ARE IDENTICAL TO THE FACT S OF EARLIER YEARS RESPECTFULLY FOLLOWING THE DECISION OF ITAT IN ASSE SSEES OWN CASE WE CONFIRM THE ORDER OF LD. CIT(A). 6. IN THE RESULT APPEALS FILED BY THE REVENUE FOR BOTH THE YEARS ARE DISMISSED. 7. PRONOUNCED IN THE OPEN COURT ON 25 TH FEB. 2011. SD./- SD./- (A. D. JAIN) (K. D. RANJAN) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED:25 TH FEB. 2011 SP. COPY FORWARDED TO 1. APPELLANT 2. RESPONDENT 3. CIT TRUE COPY: BY ORDER 4. CIT(A) 5. DR DY. REGISTRAR ITAT NEW DELHI