Income Tax Appellate Tribunal - Mumbai
Acit 1(3)(1), Mumbai vs Rosmerta Technologies Pvt. Ltd., ... on 7 December, 2018
IN THE INCOME TAX APPELLATE TRIBUNAL
MUMBAI BENCHES "D", MUMBAI
BEFORE SHRI R.C. SHARMA (AM) AND SHRI RAM LAL NEGI (JM)
ITA No. 2664/MUM/2016
Assessment Year: 2007-08
The Assistant Commissioner of M/s Rosmerta Technologies
Income Tax 1(3)(1), Pvt. Ltd.,
Room No. 540, 5th Floor, Unit No. 401, 4th Floor,
Aayakar Bhawan, M.K. Road, Vs. Tower-2, One Indiabulls
Mumbai - 400020 Business Centre,
Senapati Bapat Marg,
Elphinstone Road (W),
Mumbai - 400013
PAN: AADCR2917D
(Appellant) (Respondent)
Revenue by : Shri Chaitnya Anjaria (DR)
Assessee by : Shri Vartik Choksi (AR)
Date of Hearing: 12/09/2018
Date of Pronouncement: 07/12/2018
ORDER
PER RAM LAL NEGI, JM
This appeal has been filed by the revenue against the order dated 22.01.2016 passed by the Commissioner of Income Tax (Appeals)-3 (for short 'the CIT (A), Mumbai, for the assessment year 2007-08, whereby the Ld. CIT(A) has partly allowed the appeal filed by the assessee against the assessment order passed u/s 143 (3) of the Income Tax Act, 1961 (for short the 'Act').
2. Brief facts of the case are that the assessee company engaged in the business of issuing vehicle registration certificate on smart optical cards in various State Govt. projects, filed its return of income of the assessment year under consideration declaring nil income. Since, the case was selected for scrutiny, the AO issued notices u/s 143 (2) and 142 (1) of the Act calling for details and produce evidence in support of the claims made in the return. In 2 ITA No. 2664/ MUM/2016 Assessment Year: 2007-08 response thereof, the authorized representative of the assessee appeared before AO and submitted the details called for. It was noticed that the assessee company had claimed an expenditure of Rs. 19,42,420/- on account of filing fees. The AO after hearing of the assessee disallowed the same and added the amount to the income of the assessee holding that the expenses incurred is capital expenditure. It was further observed that the assessee had claimed expenditure amounting to Rs. 2,18,97,000/- on account of legal and professional fees. The AO after hearing the assessee disallowed the expenditure and added the said amount to the income of the assessee. Accordingly, the AO inter alia making other disallowance determined the total income of the assessee at Rs. 1,60,45,629/-. The assessee challenged the assessment order before the Ld. CIT (A). The Ld. CIT (A) partly allowed the appeal of the assessee and decided issue regarding filing fees in favour of the assessee holding that in view of the provisions of section 35D(2)(c)(iv) of the Act, the assessee is entitled to amortize the preliminary expenses of capital nature, which is required to be amortize to the extent of 1/5th of the expenditure claimed. Accordingly, he directed the AO to amortized 1/5th of the expenditure incurred for filing fees for increasing authorized share capital as expenditure of capital nature.
3. So far as the second disallowance is concerned, the CIT (A) deleted the disallowance of Rs. 1,86,10,958/- out of the total disallowance of Rs. 2,18,97,000/- made by the AO holding that the remaining expenses are not related to the business activities carried out by the project of the company.
4. Aggrieved by the order of Ld. CIT (Appeals), the revenue has preferred this appeal before the Tribunal on the following effective grounds:-
1. "Whether on the facts and circumstances of the case and on law, the Ld. CIT (A) erred in not considering filing fees expenses as capital expenditure for increase in share capital, which was held 3 ITA No. 2664/ MUM/2016 Assessment Year: 2007-08 as capital expenditure by the Hon'ble Supreme Court in the case of PSIDC Vs. CIT in 140 CTR 594 (S.C.)/225 ITR 792 (S.C.), therefore, the same is not covered by section 35D(2)(iv) as held by the Ld. CIT (A).
2. Whether on facts and in circumstances of the case and in law, the Ld. CIT (A) erred in deleting Rs. 1,86,10,958/- considering as revenue expenditure on account of legal and professional fees as incurred at the pre-implementation stage for obtaining new licenses in other states and therefore, the expenditure should be capitalized and could not be claimed as revenue expenditure."
5. The Ld. Departmental Representative (DR) submitted before us that the findings of the Ld. CIT (A) is contrary to the judgment of the Hon'ble Supreme Court in the case of Punjab State Industrial Development Corporation Ltd. vs. Commissioner of Income Tax 225 ITR 0792 (SC) in which it has been held that amount paid to the Registrar of Companies as filing fee for enhancement of capital is a capital expenditure. Therefore, the findings of the Ld. CIT (A) are liable to be set aside.
6. On the other hand, the Ld. counsel for the assessee relied on the order passed by the Ld. CIT (A).
7. We have heard the rival submissions and gone through the material on record including the case relied upon by the revenue. As pointed out by the Ld. DR in the case of Punjab State Industrial Development Corporation Ltd. vs. Commissioner of Income Tax (supra), the question before the Hon'ble Supreme Court was whether in the facts and circumstances of the case, the Tribunal was right in law in holding that the amount of Rs. 1,50,000/- paid to the Registrar of Companies as filing fee for enhancement of capital was not revenue expenditure. The Hon'bel Court decided this issue in favour of the revenue holding as under:-
"5. We do not consider it necessary to examine all the decisions in extenso because we are of the opinion that the fee paid to the Registrar for expansion of the capital base of the company 4 ITA No. 2664/ MUM/2016 Assessment Year: 2007-08 was directly related to the capital expenditure incurred by the company and although incidentally that would certainly help in the business of the company and may also held in profit-making, it still retains the character of a capital expenditure since the expenditure was directly related to the expansion of the capital base of the company. We are, therefore, of the opinion that the view taken by the different High Court in favour of the Revenue in this behalf is the preferable view as compared to the view based on the decision of the Madras High Court in Kisenchand Chellaram's case (supra). We, therefore, answer the question raised for our determination in the affirmative, i.e. in favour of the Revenue and against the assessee."
8. Since, the issue involved in the case is squarely covered in favour of the revenue by the judgment of the Hon'ble Supreme Court in the aforesaid case, we set aside the findings of the Ld. CIT (A) and allow this ground of appeal of the revenue.
9. Vide Ground No. 2, the revenue has challenged the action of the Ld.CIT (A) in deleting Rs. 1,86,10,958/- treating the expenditure on legal and professional fees incurred for obtaining new license in other states as revenue expenditure. The Ld. DR submitted that since the company had claimed an expenditure amounting to Rs. 2,18,97,000/- on account of legal and professional fees. The assessee was asked to show cause as to why the expenditure claimed under the head legal and professional fees should not be capitalized. In response thereof the assessee submitted that since the expenditure has been incurred for the purpose of business, the same are allowable as revenue expenditure. Moreover, most of the fee was paid towards monthly consultancy charges, therefore, the same is revenue expenditure. During the appellate proceedings, the Ld. CIT (A) disallowed Rs. 32,86,042/- out of the total amount claimed, holding that the said expenses are not related to the business activities.
10. On the other hand, the Ld. counsel for the assessee relying on the order passed by the Ld. CIT (A) submitted that since the Ld. CIT (A) has excluded the 5 ITA No. 2664/ MUM/2016 Assessment Year: 2007-08 expenditure which were not related to the business, there is no infirmity in the findings of the Ld. CIT (A).
11. We have heard the rival submissions and also gone through the material on record in the light of the rival contentions. The Ld. CIT (A) has deleted Rs. 1,86,10,958/- out of the total addition of Rs. 2,18,97,000/- made by the AO. The relevant para of the findings of the Ld. CIT (A) is reproduced as under:-
"9.3 I have carefully perused the detail of legal and professional expenses amounting to Rs. 2,18,97,000/-. I find that all the expenses incurred after the acquisition of license rights and in the nature of business expenditure and hence a revenue expenditure. However, number of expenses incurred does not relate to the project carried out by the appellant and no justification has been given by the appellant for debiting such expenses. Therefore, the same deserve to be disallowed. The details of such expenses are given as under:-
S. Name Nature of services Amount (In
N rendered Rs.)
o
.
1. Rashme Oberoi Provided business develop 7,81,315/-
consultancy services
2. Paras Kuhad & Legal charges paid for U P 67,000/-
Associates VRC project
3. Gopal Jain Monthly retainership for legal 7,58,400/-
Advocate services paid on monthly
basis.
4. Abhishek Manu Professional charges towards 14,00,000/
Singhvi legal services for VRC project -
6
ITA No. 2664/ MUM/2016
Assessment Year: 2007-08
5. Arunabh Legal charges paid for UP VRC 57,500/-
Chaudhery project
6. Kochi Kunnel Legal services for Kerala VRC 71,000/-
Associates project
7. Zion Express Cargo Services paid for 28,377/-
Cargo Pvt. Ltd. importing smart card
8. Santeesh Kumar Legal services for VRC Project 75,000/-
in the state of UP
9. Smriti Mishra Legal services for VRC project 47,450/-
in the state of UP
Total 32,86,042/
-
Since, the above mentioned expenses are not related to the business activities carried out by the project of the company, therefore, amount of Rs. 32,86,042/- is disallowed. Therefore, Ground No.l 4 is partly allowed."
12. The Ld. CIT (A) has observed that the expenses amounting to Rs. 1,86,10958/- have been incurred after the acquisition of license rights by the assessee and the same are in the nature of business expenditure and therefore revenue expenditure. Moreover, the Ld. CIT (A) has disallowed the expenditures which do not relate to the project carried out by the appellant/assessee. The Ld. CIT (A) has worked out the said expenditure to the tune of Rs. 32,86,042/-. We further notice that the assessee has incurred the expenditure for the services availed by it and deducted the tax at source while making each and every payment in accordance with the provisions of the Act. We further notice that the payments have been made through account payee cheques and all the expenses have been properly vouched and entered in the books of account. We therefore do not find any reason to interfere with the findings of the Ld. CIT (A).
7 ITA No. 2664/ MUM/2016Assessment Year: 2007-08 Hence, we uphold the findings of the Ld. CIT (A) and dismiss this ground of appeal of the revenue.
In the result, appeal filed by the revenue for assessment year 2007-2008 is partly allowed.
Order pronounced in the open court on 7th December, 2018.
Sd/- Sd/-
(R.C. SHARMA) (RAM LAL NEGI)
ACCOUNTANT MEMBER JUDICIAL MEMBER
मुंबई Mumbai; दिन ुं क Dated: 07/12/2018
Alindra, PS
आदे श प्रतितिति अग्रेतिि/Copy of the Order forwarded to :
1. अपील र्थी / The Appellant
2. प्रत्यर्थी / The Respondent.
3. आयकर आयक्त(अपील) / The CIT(A)-
4. आयकर आयक्त / CIT
5. दिभ गीय प्रदिदनदि, आयकर अपीलीय अदिकरण, मुंबई / DR, ITAT, Mumbai
6. ग र्ड फ ईल / Guard file.
आदे शानुसार/ BY ORDER, सत्य दपि प्रदि //True Copy// उि/सहायक िंजीकार (Dy./Asstt. Registrar) आयकर अिीिीय अतिकरण, मुंबई / ITAT, Mumbai