Income Tax Appellate Tribunal - Mumbai
Dcit 3(3)(1), Mumbai vs Rishiroop Polymers P.Ltd, Mumbai on 27 June, 2018
आयकर अपीलीय अिधकरण मुबं ई डी खंडपीठ , " "
Income-tax Appellate Tribunal "D"Bench Mumbai लेखा एवं सी एन सव ी राजे , सद य . . साद, याियक सद य Before S/Sh. Rajendra, Accountant Member & C. N. Prasad, Judicial Member आयकर अपील सं ./I.T.A.7384/Mum/2016, िनधा रण वष /Assessment Year: 2012-13 Dy. Commissioner of Income Tax 3(3)(1) M/s. Rishiroop Polymers Pvt. Ltd.
Room No.609, 6th Floor, 65, Atlanta, Nariman Point,
Aayakar Bhavan, M.K.Road, Vs. Mumbai - 400021
Mumbai - 400020 PAN:AAACR1789G
(अपीलाथ /Appellant) ( यथ / Respondent)
Revenue by: Shri Ram Tiwari-DR
Assessee by: Shri Jayesh Dadia-AR
सुनवाई क तारीख / Date of Hearing: 12/06/2018
घोषणा क तारीख / Date of Pronouncement:27/06/2018
आयकर अिधिनयम ,1961 क धारा
254(1) अ
तग त के आदे श
Order u/s.254(1)of the Income-tax Act,1961(Act) लेखा सद य,राजे के अनुसार /PER RAJENDRA, AM-
Challenging the order of the CIT(A)-8, Mumbai, dated 28.09.2016 the Assessing Officer (Assessing Officer) has filed the present appeal. Assessee-company, engaged in the business of manufacturing of polymer compounds and trading in synthetic rubber, petroleum, resins and chemicals, filed its return of income on 18.09.2012 declaring total income of Rs.14.80 crores. The AO completed the assessment u/s.143(3) of the Act, on 31.03.2015 determining its income at 15.31 crores.
2. First ground of appeal is about treating the expenditure of Rs.11.23 lacs as revenue expenditure. It was agreed by the representatives of both the sides that the issue stands covered by the order of the Tribunal (ITA 1725/Mum/2015 & ITA 1028/Mum/2015-A.Y.2011-12, dated 15.11.2016). We are reproducing the relevant portion of said order and it reads as under para 2 to 7 copy.
"2. The first issue in this appeal of Revenue is against the order of CIT(A) deleting the addition made by Assessing Officer by treating the Revenue expenditure as capital amounting to Rs.32,54,413/-. For this Revenue has raised the following ground no.1:-
1. Whether on the facts and circumstances of the case and in law, the Ld. Commissioner of Income tax(Appeals) was justified in directing the Assessing Officer to treat the expenditure of Rs.32,54,413/- as Revenue expenditure without appreciating the fact that the nature of expenditure shown is undoubtedly capital in nature as the expenditure incurred is ITA 7384.M.2016 M/S. Rishiroop Polymers P. Ltd.
nothing but replacement or old structure with new structure which is permanent in nature and gives the assessee enduring benefit.
3. We have heard rival contentions and gone through the fact s and circumstances of the case. The assessee claimed a sum of Rs.29,32,172/- in respect of factory building repair and maintenance and also claimed expenditure in respect of repair of office building amounting to Rs.3,22,241/-. According to the Assessing Officer, the repair and maintenance expenses for the year under consideration was increased from Rs.3,31,166/- during the A.Y.2010-11 to Rs.32,54,413/- in A.Y.2011-12, the year under consideration. The AO required the assessee to explain the nature of such expenses and assessee explain that these includes labour charges for AC sheets removing, old pipes dismantling, pipe line fabrications, fittings, purchase of tiles, purchase of paints, labour charges etc. According to Assessing Officer, the expenditure claimed are purely in the nature of Capital and accordingly, disallowed the entire expense of Rs.32,54,413/- and allowed depreciation as per applicable rates. Aggrieved assessee preferred appeal before CIT(A). The CIT(A) deleted the addition and held the expenditure as Revenue in nature by observing as under:-
"5. I find that the appellant company has incurred expenditure of Rs.25,84,047/- for repairs of existing factory building at Vapi to strengthen the beam of the existing building. Similarly, Rs.3,48,125/- was spent on repair of the boundary wall at Nashik factory. It is also found that Rs.16,32,302/- was spent on purchase of steel and cement sheets. These sheets were purchased to protect the existing building and support the existing structure. It is also seen that labour charges of Rs.2,92,889/- was also paid. Replacement or repair of old wall cannot lead to a conclusion that new capital assets came into existence. I refer here to the decision in the case of New Shorroc Spg. & Mfg. Co.Ltd. v. VIT so ITR 338 (Bom); Addl.CIT v. Desai Bros -.108 ITR 14 (Guj); CIT v. Chowgule & C0. (P) Ltd. 81 Taxman 384/214 ITR 523(Bom); CIT v. Saravana Sp. Mills (P) Ltd. 163 Taxman 201215293 IT'R 201(SC); CIT v. Janakiram Mills Ltd. 275 ITR 403(Madras); CIT v. Madras Auto Service (P) Ltd. 99 Taxman 575 (SC); CIT v. Manohar Lal Him Ltd. 219 Taxman 161; CIT v. Jawahar Mills Ltd. 226 ITR 230 - Madras High Court.
In View of the above, the expenditure of Rs.32,54,413/- made by the appellant company is treated as revenue expenditure. Thus, the addition of Rs.30,75,581/- made by the AO is deleted.
Aggrieved Revenue is in second appeal before Tribunal
4. We find that the assessee has carried repair to the existing factory building at Vapi and to strengthen the beam of the existing building. The assessee also carried out repair of boundary walls of factory at Nasik. Once this is repair, the expenditure is Revenue in nature, hence, we agree with the findings of CIT (A) and confirmed the same. This issue of Revenue's appeal is dismissed.
Respectfully following the above order, we decide first Ground of appeal against the AO, as the facts for both the years are similar
3. Next ground of appeal is about deleting the addition of Rs.12.66 lacs being work in progress. The Authorised Representative (AR) & the Departmental Representative (DR) agreed 2 ITA 7384.M.2016 M/S. Rishiroop Polymers P. Ltd.
that while adjudicating the appeal for the year 2011-12(supra) the Tribunal has dealt with the issue at para no.8 to 10:-
8. The next Issue in this appeal of Revenue is against the order of CIT (A) deleting the addition made by AO being work-in-progress amounting to Rs.11,80,812/-. For this Revenue has raised following ground No.4:
"4. Whether on the facts and circumstances of the case and in law, the Ld. CIT (A) was justified in deleting the Addition made by the A.O. of Rs.11,80,812/- being work in progress without appreciating the fact that the assessee has failed to demonstrate with any supporting evidences the 'yield of finished goods' in respect of 'raw material utilized' and also the 'bye- products' if any produced during the course of manufacturing process."
9. We have heard rival contentions and gone through the facts and circumstances of the case. The facts of the case are that the AO noticed from working in progress & material consumed and finished goods production ratio that the assessee has not disclose any closing work in progress despite having consumed raw material amounting to Rs.11,80,81,229/-. The assessee explained before the AO that its manufacturing process involves various materials to be blended together and blending process planned during the day and completed within that day and thereafter there is no work in progress at any point of time. The AO estimated the deployment of material for manufacturing of finished goods at 1% and estimated work in progress amounting to Rs.11,80,812/-. Aggrieved assessee preferred appeal before CIT (A), who deleted the addition made by AO by observing as under: -
"I find that the manufacturing process of the appellant company Involves imported material to be blended. In the past assessment years also the appellant-company has never shown work in progress since It never had work in progress in its audited accounts. The AG has not brought any material on record to justify that the appellant company has not disclosed work in progress. The finding of the AO that "not having any raw material/semi- finished goods in the machinery itself in the manufacturing process at any particular point of time cannot be ruled out" is not based on any reasoning. Therefore, the adhoc disallowance of 1% of raw materials deployed for manufacturing of finished goods which has been made by the (AC) and which comes to Rs.11,80,812/- is deleted."
Aggrieved Revenue is in second appeal before Tribunal.
10. We have considered the submissions of both the sides and find that the AO has made adhoc disallowance of 1% on raw material and CIT (A) deleted the same as there is no evidence. We find no infirmity in the order of CIT (A) and hence deletion is confirmed. This issue of Revenue's appeal is dismissed.
4. Respectfully following the said we decide the second ground of appeal against the AO.
5.Last ground of appeal is about deleting the addition of Rs.8.91 lacs on account of foreign travel expenses. We would like to reproduce the portion of the letter, dated 03.02.2015 addressed to the AO and same reads as above (page no.25 to 28).
" The assessee company always incurs foreign travel expenses in view of its business activities i.e import and sale of goods to Rubber & Coating Industry. The 3 ITA 7384.M.2016 M/S. Rishiroop Polymers P. Ltd.
Assessee Company is a very old Assessee and is in the business for more than 30 years. The Assessee Company earns substantial income in foreign exchange i.e. on account of indenting commission. In fact during the year under assessment the Assessee Company has received indenting commission of ₹17,12,62,483/-. The Assessee Company also import material and sell in India. The total amount spent on import of material is ₹10,02,63,140/-. Directors are required to undertake foreign tours for meeting existing suppliers and to also they have to visit and explore new business opportunities and development. They have to visit and meet new customers related to coating and rubber industries, attend trade fair and International conferences. The entire foreign travel expenses of ₹35,67,732/- has been incurred wholly and exclusively for the purpose of business and more particularly have been incurred by Mr. Arvind Kapoor and Mr. Aditya Kapoor, the Directors of the Assessee Company.
A statement showing complete details in respect of foreign travel containing names the person, place of visit, purpose of visit and expenses spent on every individual trip is enclosed.
From the details you will observe that Z 13,24,804/- was spent on seven foreign trips of Mr. Arvind Kapoor and Mr. Aditya Kapoor who travelled to Seoul, South Korea where the Assessee Company's principal i.e. Kumho Petrochemicals Co. Ltd is located. The Assessee Company is an official indenting agent of the said Korea Company from whom the company has received almost Z 17 crore as indenting commission which has been offered to tax. Directors are required to visit principals office to hold discussions on market situation, pricing strategies and price negotiations for contracts with the companies. Expenses incurred on similar trips in past, have always been allowed including in the immediate preceding assessment years.
₹5,48,791/- was spent on Dubai trip of Mr. Arvind Kapoor and Mr. Aditya Kapoor. These trips were made in connection with business of the Assessee Company i.e. purchase of Synthetic Rubber from Rishichem Mideast Ltd. The Assessee Company has purchased material worth Z 9.24 crore from Rishichem Mideast Ltd situated in Dubai. These Dubai trips were also for the purpose of the business. Kindly note that similar expenses incurred on Dubai trips in past have always been allowed including immediate preceding assessment year.
₹1,42,379/- was spent on Thailand trip where Mr. Aditya Kapoor and Mr. Vinay Acharya, senior executive of the company have gone to attend Thailand Rubber Expo. You will appreciate that attending such conference related to business are necessary and must for latest update and therefore it has been incurred wholly and exclusively for the purpose of business.
₹5, 26, 60 5/- was sp ent o n S ha nghai tri p wa s ag ai n i ncur re d for atte nding conference in Shanghai China Coat show. This again related to the business of the Assessee Company.
₹4,84,400/- was incurred on trip to Sau Paulo,Brazil where Mr. Arvind Kapoor attended International Rubber Conference. Relevant documents in this connection are enclosed. Thus, the trip to Sau Paulo, Brazil was wholly and exclusively for the purpose of business of the Assessee Company.4
ITA 7384.M.2016 M/S. Rishiroop Polymers P. Ltd.
₹2,49,565/- was incurred on trip to Frankfurt, Amsterdam was again incurred on Mr. Arvind Kapoor who visited Frankfurt Amsterdam to meet business associates and to explore business opportunity.
₹1,88,098/- was incurred on trip to Hong Kong was to attend Forbes Award Ceremony.
₹44,606/- on USA trip of Mr. Aditya Kapoor was spent was related to exploring new business and to understand various new products relating to business in which the Assessee Company is engaged.
Similarly, ₹58,485/- was spent on trip to Srilanka where Senior Executives Jaykumar Ruparel visited to meet the executive of Ceat Kelani International Pvt Ltd relating to business activity. You will appreciate that Ceat Kelani International Pvt Ltd is also manufacturers of rubber tyres.
Under the circumstances, the entire expenses of Z 35,67,732/- incurred on foreign travel was wholly and exclusively for the purpose of business.
Your predecessor has disallowed certain trips in immediate preceding assessment year where he felt the Assessee company did not give proper justification. However, the year under assessment which is pending before you, we have justified each and every foreign trip and therefore entire expenses incurred on foreign trip should be allowed in full.
For your information, upto assessment year 2010-11 foreign travel expenses have always been allowed in full while doing the assessment under section 143(3) of the Act. For your perusal a chart is enclosed."
We find the assessee had furnished all the details, including the purpose of foreign visits of the Directors,that in the earlier years details were not furnished,that because of non availability of the details disallowance was made under the head foreign travel,that facts for the year under consideration are different from the facts of the earlier year. Therefore, we hold that the order of the FAA does not suffer from any legal or factual infirmity. Confirming his order we decide the last effective ground against the AO.
As a result appeal filed by the AO stands dismissed.
फलतः िनधा रती अिधकारी ारा दािखल क गई अपील नामंजूर क जाती है .
Order pronounced in the open court on 27th June, 2018.
आदेश क घोषणा खुले यायालय म दनांक 27 जून, 2018 को क गई ।
Sd/- Sd/-
(सी.एन. साद /C.N.PRASAD)
सी.एन. (राजे / RAJENDRA)
याियक सद य / JUDICIAL MEMBER लेखा सद
य / ACCOUNTANT MEMBER
मुब
ं ई Mumbai; दनांक/Dated : 27/06/2018.
MP/JV,Sr.PS
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ITA 7384.M.2016
M/S. Rishiroop Polymers P. Ltd.
आदेश क ितिलिप अ ेिषत/Copy of the Order forwarded to :
1.Appellant /अपीलाथ 2. Respondent / यथ
3.The concerned CIT(A)/संब अपीलीय आयकर आयु , 4.The concerned CIT /संब आयकर आयु
5.DR " D " Bench, ITAT, Mumbai /िवभागीय ितिनिध, खंडपीठ,आ.अिध.मुंबई
6.Guard File/गाड फाईल स यािपत ित //True Copy// आदेशानुसार/ BY ORDER, उप/सहायक पंजीकार Dy./Asst. Registrar आयकर अपीलीय अिधकरण, मुंबई /ITAT, Mumbai.6