Income Tax Appellate Tribunal - Delhi
M/S. Voith Paper Fabrics India Ltd., ... vs Addl.Cit, Faridabad on 28 May, 2018
INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH "C ": NEW DELHI
BEFORE SHRI AMIT SHUKLA, JUDICIAL MEMBER
AND
SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER
ITA No. 6603/Del/2014
(Assessment Year: 2009-10)
ACIT, Vs. Voith Paper Fabrics India
Circle-II, Ltd, Plot No. 113-114,
Faridabad Sector-24, Faridabad.
PAN: AABCPO441Q
(Appellant) (Respondent)
ITA No. 6923/Del/2014
(Assessment Year: 2009-10)
Voith Paper Fabrics India Ltd, Vs. ACIT,
Plot No. 113-114, Sector-24, Circle-II,
Faridabad. Faridabad
PAN: AABCPO441Q
(Appellant) (Respondent)
Revenue by : Shri Amit Jain, Sr. DR
Assessee by: Shri Shanntosh Kumar
Aggarwal, Adv
Date of Hearing 01/03/2018
Date of pronouncement 28/05/2018
ORDER
PER PRASHANT MAHARISHI, A. M.
1. These are the appeals filed by the revenue and the assessee against the order of the ld CIT (A)-2, Faridabad dated 31.10.2014 for the Assessment Year 2009-10.
2. The revenue has raised the following grounds of appeal:-
"1 Whether on the facts and in the circumstances of the case, the Ld. CIT(A) was right on facts and in law in deleting the additions of Rs. 40,59,000/-by the AO on account of capitalizing the expenses claimed as revenue expenses, holding that expenses were incurred for construction of building. Since the assessee will get enduring benefit from it, the expenditure was rightly treated as capital expenditure by the AO.
Page | 1 2 Whether on the facts and in the circumstances of the case, the Ld. CIT(A) was right on facts and in law in deleting the additions of Rs. 40,59,000/- following the decision of Hon'ble Punjab & Haryana High Court in the assessee's case for assessment year 2001-02 even though facts were different in the A Y 2001-02. The issues in that year related to expenses on repair, on rain water gutter, water proofing of roof and renovation outside main shed building. 3 Whether on the facts and in the circumstances of the case, the Ld. CIT(A) was right on facts and in law in deleting the additions of Rs. 98,19,356/- which was made by the AO capitalizing the expenses of Technical Know How Fees paid to its parent company M/s Voith Paper Fabrics Gmbh & Co. KG even when it is apparent from the aim and objective of the technical knowhow agreement and the nature of services rendered that right to use of the know-how was an integral part of profit making process and brought enduring benefits to its business.
4 That the appellant craves for the permission to add, delete or amend the grounds of appeal before or at the time of hearing of appeal."
3. The assessee has raised the following grounds of appeal:-
"1. That the order of the Commissioner of Income-tax (appeals)-2, Faridabad, dated 31.10.2014 is wrong on facts and bad in law.
2. That the Commissioner (Appeals) erred in upholding the disallowance of shifting expenses of Rs. 2398255/- as capital expenditure.
3. That the commissioner (Appeals) erred in not deleting the addition of Rs. 5141585/- comprising of provisions for leave compensation of Rs. 4439790/- and warranty for claims of Rs. 701795/-.
4. That the conclusions and inferences of the Assessing Officer and / or Commissioner (Appeals) are based on suspicions, conjectures, surmises and extraneous and irrelevant consideration.
5. That the reliefs prayed for may kindly be allowed and the orders(s) of the Assessing Officer and/ or Commissioner (Appeals) may kindly be quashed, set aside, annulled or modified."
4. Assessee is a company engaged in the business of selling of the clothing for pulp paper and board industry. It filed its return of income on 20/9/2009 declaring income of Rs. 1003739/-. Assessment under section 143 (3) of the act was passed on 28/12/2000 at Rs. 121430797/-. The Ld. assessing officer made an addition of Rs. 2038517/- on account of shifting expenses for shifting of boiler and cylinder holding them same to be capital expenditure in nature. The Ld. assessing officer allowed Page | 2 depreciation on it. Further disallowance of Rs. 4059000/- was made on account of repair expenditure to the building holding that these expenditure are capital in nature. Certain other disallowances with respect to the provision of leave encashment and warranty expenditure were also made. The assessee paid technical know-how fees which was also held by the Ld. assessing officer as capital in nature and therefore same was disallowed. The assessee aggrieved with the order of the Ld. assessing officer preferred an appeal before the Ld. CIT (A). The Ld. CIT appeal upheld the addition of shifting expenses, allowed the claim of repair expenditure of buildings shed. With respect to the disallowance of the claim of leave compensation and warranty expenditure incurred assessing officer was directed to verify same with the computation of assessee where it has disallowed the above expenditure or not. With respect to the technical know-how fees paid to its parent company he held that same is revenue expenditure in nature. Therefore aggrieved with the order of the Ld. CIT (A) both the parties are in appeal before us.
5. Now we 1st come to the appeal of the assessee. Ground No. 1, 4 - 7 are stated to be general in nature. No specific arguments were advanced before us. Hence same are dismissed.
6. The ground No. 2 of the appeal of the assessee is with respect to the confirmation of disallowance made by the Ld. CIT (A) on account of shifting of boiler and cylinder. It is claimed that the work started in February 2009 expense of Rs. 3 09700/- was incurred for shifting in the preceding assessment year. It was further stated that the same were allowed in case of the assessee by the coordinate bench while deciding the appeal of the assessee for assessment year 2008 - 09. Therefore it was stated that this issue is squarely covered in favour of the assessee.
7. The Ld. departmental representative vehemently relied on the order of the Ld. lower authorities.
8. We have carefully considered the rival contentions and also the order of the Ld. lower authorities. The above issue has already been decided by the coordinate bench in case of the assessee for assessment year 2008- Page | 3 2009 vide para No. 2 - 5 of the order. The coordinate bench in para No. 5 has held as under:-
"5. We have carefully gone through the record. No error in the assessment order in the order of the 1st appellate authority, it is stated that by sitting the boiler any additional asset is created. It is only because of the business convenience, stating that in order to save heavy capital expenditure in the shape of construction of the bigger said, the assessee sifted the existing boiler to a convenient place to vote operation of the arena profitability. It is not the case of the authority deducted the expenditure at by the assessee resulted in bringing into existence of any new state. In the absence of such agreement, we find it difficult to return of finding that any enduring benefit result into the assessee so as to hold that the sifting on capital purposes and thereby the expenditure is capital in nature. The decisions relied upon by the assessee is squarely applicable to the facts of the case and facts of these cases are similar in nature. We therefore hold that mere shifting of boiler from one place to another in the case on hand did not result in creation of any additional and the benefit of the assessee. We, therefore, hold that the expenditure in question is revenue in nature. We, therefore allow ground No. 2."
9. In view of above facts we respectfully following the decision of the coordinate bench allow the ground No. 2 of the appeal of the assessee.
10. The ground No. 3 of the appeal of the assessee was not pressed and hence same is dismissed.
11. In the result appeal of the assessee in ITA No. 6923/del/2014 for assessment year 2009 - 10 is partly allowed.
12. The revenue has challenged the deletion of the addition of Rs. 4059000/-
on account of repairs expenditure by the ground No. 1 and 2 of the appeal.
13. The Ld. departmental representative relied upon the orders of the lower authorities.
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14. The Ld. authorized representative relied upon the order of the Ld. CIT (A) and submitted that assessee has not created a new asset therefore the expenditure incurred by the assessee is not capital in nature.
15. We have carefully considered the rival contention. The brief facts of the issue is that assessee has incurred an expenditure of Rs. 2028916/- on account of repairs to the building. Further expenditure of Rs. 2481089/- was also incurred for the new scrapyard incurred on finishing and consultancy charges. Therefore, the above expenditure were incurred by the Ld. assessing officer and it was submitted that the same are repair expenditure. However the Ld. Assessing officer rejected the contention of the assessee and held that payment made to construction company after obtaining consultancy from a technical person which is a one-time payment is no doubt capital expenditure in nature. He further held that it is without doubt that the building material such as cement and bricks were used to construct a new building and therefore the such expenditure needs to be capitalized. In the result the total expenditure amounting to Rs. 4510005/- was held to be not a revenue expenditure in nature and the Ld. assessing officer allowed the depreciation at the rate of 10% thereon and thereby making a disallowance of Rs. 4059000/-. The assessee agitated the issue before the Ld. CIT (A) who respectfully following his earlier order has allowed the claim of the assessee. Therefore, revenue is in appeal before us. The identical issue has been considered by the coordinate bench in the case of the assessee for assessment year 2008 - 09 wherein the expenditure on fresh rainwater drainage system was allowed as revenue expenditure relying upon the decision of the Hon'ble Punjab and Haryana High Court in assessee's own case for assessment year 2001 - 02. The revenue could not show us any reason to deviate from the decision of the Hon'ble Punjab and Haryana High Court in assessee's own case wherein the expenses on repair waterproofing groups and renovation outside the main shed building were allowed as revenue expenditure. Therefore respectfully following the decision of the coordinate bench following the decision of the Hon'ble Punjab and Haryana High Court in assessee's own case we find no Page | 5 infirmity in the order of the Ld. CIT (A) in allowing the claim of the assessee holding that repairs and renovation expenditure with respect to the shed is revenue in nature. In the result ground No. 1 and 2 of the appeal of the revenue are dismissed.
16. The 3rd ground in the appeal of the revenue was against the order of the Ld. CIT (A) deleting the addition of Rs. 9819356/- on account of technical know-how is fees paid to the parent company of the assessee which was held by the Ld. AO as capital expenditure and whereas the claim of the assessee is that it is revenue expenditure .
17. The Ld. departmental representative vehemently relied upon the order of the Ld. assessing officer. It was vehemently contested that technical know-how fees paid by the assessee is a capital expenditure in nature the assessee in exploiting it for the purpose of manufacturing of the goods. It was therefore submitted that the technical know-how is purchased by the assessee from its company.
18. The Ld. authorized representative relied upon order of the Ld. CIT (A). He further relied upon the agreement dated 18/4/2008 which is placed at page No. 132 - 149 of the paper book. He further stated that the statement of the production, sales and the claims is also placed at page No. 150 of the paper book which proves that expenditure is related with the sales of the assessee. He further stated that in the annual accounts of the assessee placed at page No. 1632.82 of the paper book the assessee has also treated the technical know-how expenditure is revenue in nature. The brief facts shows that the assessee is already engaged in the business of manufacturing paper machine fabrics and other industrial fabrics and related products. The assessee obtained a technical know-how in respect of manufacturing of paper maker felts and other industrial fabrics. According to the agreement entered into by the assessee the remuneration was paid for at the rate of 5% on the sale price of the product. The Ld. CIT (A) has considered the various clauses of the agreement and held that the know-how was to remain the sole and exclusive property of the provider and the appellant company is required to fully exploit the same. Further the technical know-how was also to be Page | 6 paid in relation to the sales affected by the assessee company. It is also required to be noted that assessee is engaged in the same business for which technical know-how is by the assessee and it is not at its an altogether a new line of business which is developed. The Ld. departmental representative could not point out any infirmity in the order of the Ld. CIT (A). In view of above facts we do not find any reason to disturb the finding of the Ld. CIT (A) in allowing the claim of the assessee of technical know-how fees paid to its parent company as revenue in nature. In the result ground No. 3 of the appeal of the revenue is dismissed.
19. In the result appeal of the revenue is dismissed.
20. Therefore as above the appeal of the assessee for assessment year 2009
- 10 is partly allowed and appeal of the revenue for the same assessment year is dismissed.
Order pronounced in the open court on 28/05/2018.
-Sd/- -Sd/-
(AMIT SHUKLA) (PRASHANT MAHARISHI)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Dated: 28/05/2018
A K Keot
Copy forwarded to
1. Applicant
2. Respondent
3. CIT
4. CIT (A)
5. DR:ITAT
ASSISTANT REGISTRAR
ITAT, New Delhi
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