Income Tax Appellate Tribunal - Delhi
Bose Corporation India Pvt. Ltd., New ... vs Department Of Income Tax on 15 November, 2011
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI 'A' BENCH
BEFORE SHRI HARI OM MARATHA , JM & SHRI A.N. PAHUJA, AM
ITA no.83/Del/2011
With
CO no.35/Del./2011
Assessment year : 2006-07
Deputy C.I.T.,Circle 3(1), V/s. Bose Corporation India
New Delhi Pvt. Ltd., 4 t h Floor, Shri
Ram Bhartiya Kala Kendra,
1, Copernicus Marg, New
Delhi
[PAN :AAACB 3260 A]
(Appellant) (Respondent)
Appellant by S/Shri Taran Deep Singh, Manush Upneja
& Ms. Anjali Chaudhary, ARs
Respondent by Shri Pirthi Lal, DR
Date of hearing 30-08-2012
Date of pronouncement 01-10-2012
ORDER
A.N. PAHUJA:- This appeal filed on 07-01-2011 by the Revenue and the corresponding cross objection[CO] filed on 11.02.2011 by the assessee against an order dated 15th November, 2011 of the ld. CIT(A)-VI, New Delhi, raise the following grounds:
I.T.A. No.83/Del./2011[Revenue]
1. "In the facts and circumstances of the case, the ld.
CIT(A) has erred in law and on facts in directing to delete addition of ``23,42,178/- on account of provisions of warranty expenses ignoring that:
a) the liability is only contingent and uncertain which may or may not be discharged.
b) The method for calculation of provisions for warranty is not based on actuarial valuation or any
2 ITA no.83/D/2011 & CO no. 35/Del./2011 scientific method which are acceptable methods as per the decision of various courts.
c) The assessee could not prove the actual incurrence of liability under the warranty clause on the basis of fixed percentage of turnover.
2. In the facts and circumstances of the case, the ld. CIT(A) has erred in law and on facts in directing to delete addition of ``15,85,398/- on account of low gross profit rate ignoring that the assessee failed to substantiate its claim of abnormal increase in selling and administrative expenses by non submission of documentary evidence.
3. In the facts and circumstances of the case, the learned CIT(A) has erred in law and on facts in directing to delete addition of ``15,86,400/- on account of capitalization of advertisement expenses ignoring that benefit of enduring nature was drawn on this account.
4. In the facts and circumstances of the case, the learned CIT(A) has erred in law and on facts in directing to deletion addition of `7,45,000/- on account of disallowances of service charges received in advance ignoring that each assessment year is separate and, therefore, the income of one assessment year cannot be offered to the subsequent year. Moreover, the taxability depends upon the method of accounting adopted by the assessee and here the assessee is following the mercantile system of accounting.
5. The appellant craves leave for reserving the right to amend, modify, alter, add or forego any grounds of appeal at any time before or during the hearing of this appeal."
C.O. No.35/D/2011[Assessee]
1. "That on the facts and circumstances of the case and in law, the learned CIT(A) erred in not allowing the expenditure incurred on 'stamp duty' paid for stores taken on lease' amounting to ``136,000/- by treating the same as capital expenditure without appreciating that such expenses are incurred in relation to revenue expenditure'."
.
3 ITA no.83/D/2011 & CO no. 35/Del./2011
2. Adverting first to ground no.1 in the appeal of the Revenue, facts, in brief, as per relevant orders are that return declaring income of ``3,93,02,030/- filed on 29.11.2006 by the assessee, engaged in the business of trading in sound//audio systems, was selected for scrutiny with the service of a notice u/s 143(2)) of the Income-tax Act, 1961 (hereinafter referred to as the Act) issued on 10.10.2007. During the course of assessment proceedings, the Assessing Officer (A.O. in short) noticed that the assessee made provision for warranty expenses of ``23,42,178/-. To a query by the AO, the assessee explained that provision for warranty was made @ 0.5% of annual sales in the following manner:-
i) On speakers: 5 years after the date of sale;
ii) On electronics: one year after the date of sale.
It was explained that provision was made in accordance with global policy keeping in view past experience, technical evaluation and best estimates in this regard. Inter alia, the assessee relied on various decisions in CIT Vs. Hewlett Packard India (P) Ltd. (2008) 171 Taxman 13 (Del);Haden International Group India (P) Ltd. Vs. ACIT (2008) 20 SOT 305 (Mum);CIT Vs. Sony India (P) Ltd. (2007) 160 Taxman 397 (Del); CIT Vs. M/s Vinitec Corporation Pvt. Ltd. (2005) 196 CTR 369 (Delhi); Bharat Earth Movers Vs. CIT, 112 Taxman 61 (SC);and Commissioner of Inland Revenue Vs. Mitsubishi Motors New Zealand Ltd. (1995) 222 ITR 697( Privy Council).The assessee pointed out that in the assessment year 2003-04, the ITAT vide order dated 7th April, 2009 quashed the proceedings u/s 263 of the Act. Since the assessee was following mercantile system of accounting, the assessee pleaded that their claim may be allowed. However, the AO did not accept the submissions while relying upon findings of the AO in the assessment order for the AY 2005-06 ,wherein decisions in Indian Molasses Co. Pvt. Ltd. vs. CIT,37 ITR 66(SC);Standard Mills Co. Ltd. vs. CIT,229 ITR 366(Bom.); CIT vs. Motor Industries Co. Ltd.,229 ITR 137(Kar) and CIT vs. Rotork Control India Ltd.,293 ITR 311(Mad.) were referred to and ,concluded that provision for warranty, not being ascertained ,is not allowable.
4 ITA no.83/D/2011 & CO no. 35/Del./2011
3. On appeal, the ld. CIT(A) allowed the claim while relying upon the decisions of the CIT(A) and the ITAT in the AYs 2001-02,2003-04 and 2005-06, in the following terms:-
"2.3 I have carefully considered the submissions of learned AR and have gone through the assessment order. Similar issue came up before me in appellant's own cases for assessment years 2001-02 and 2005-06 wherein the addition was deleted in the light of the observations of Hon'ble Delhi ITAT in assessee's own case for assessment year 2003-04 and also in view of the various decisions of Hon'ble Delhi High Court and Hon'ble Supreme Court. The appeal orders for assessment year 2001-02 and 2005-06 have been upheld by Hon'ble ITAT vide order dated 4.3.2010 in I.T.A. No.4554 and 4555/D/09. Since there is no change in facts and circumstances of the case, respectfully following the decision of Hon'ble Tribunal, the addition is directed to be deleted."
4. The Revenue is now in appeal before us against the aforesaid findings of the ld. CIT(A).the ld. DR supported the order of the AO while the ld. AR on behalf of the assessee relied upon the findings in the impugned order.
5. We have heard both the parties and gone through the facts of the case. Indisputably, the claim of the assessee has been allowed in identical circumstances by the ITAT in their order dated 4.3.2010 for the AYs 2001-02 and 2005-06 in I.T.A. nos.4554 & 4555/Del./2009 . Hon'ble Supreme Court in their decision in Rotork Control India Ltd. vs. CIT,314 ITR 62(SC) while adjudicating a similar issue, held that " i) A provision is a liability which can be measured only by using a substantial degree of estimation. A provision is recognized when: (a) an enterprise has a present obligation as a result of a past event; (b) it is probable that an outflow of resources will be required to settle the obligation; and (c) a reliable estimate can be made of the amount of the obligation. If these conditions are not met, no provision can be recognized;
ii) A Liability is defined as a present obligation arising from past events, the settlement of which is expected to result in an outflow from the enterprise of resources embodying economic benefits;
5 ITA no.83/D/2011 & CO no. 35/Del./2011
iii) A past event that leads to a present obligation is called as an obligating event. The obligating event is an event that creates an obligation which results in an outflow of resources. It is only those obligations arising from past events existing independently of the future conduct of the business of the enterprise that is recognized as provision. For a liability to qualify for recognition there must be not only present obligation but also the probability of an outflow of resources to settle that obligation. Where there are a number of obligations (e.g. product warranties or similar contracts) the probability that an outflow will be required in settlement, is determined by considering the said obligations as a whole;
iv) In the case of a manufacture and sale of one single item the provision for warranty could constitute a contingent liability not entitled to deduction u/s 37 of the said Act. However, when there is manufacture and sale of an army of items running into thousands of units of sophisticated goods, the past event of defects being detected in some of such items leads to a present obligation which results in an enterprise having no alternative to settling that obligation;
v) On facts, the assessee has been manufacturing and selling Valve Actuators in large numbers since 1983-84 onwards. Statistical data indicates that every year some Actuators are found to be defective. The data over the years also indicates that being sophisticated item no customer is prepared to buy the Valve Actuator without a warranty. Therefore, warranty became integral part of the sale price of the Valve Actuator(s). In other words, warranty stood attached to the sale price of the product and a reliable estimate of the expenditure towards such warranty was allowable. "
5.1 . In the instant case, indisputably ,the assessee provided for the warranty expenses based on technical evaluation and past experience; warranty stood attached to the sale price of the product and a reliable estimate of the expenditure towards such warranty is allowable. Moreover, the ITAT have allowed a similar claim in the AYs 2001-02,2003-04 & 2005-06.Considering the aforesaid facts and circumstances of the case in light of the view taken by the Hon'ble Apex Court in the aforesaid decision, especially when the Revenue have not placed before us any material controverting the aforesaid findings of the ld. CIT(A) nor brought to our notice any contrary decision, so as to enable us to take a different view in the matter, we are not inclined to interfere. Therefore, ground no.1 in the appeal of the Revenue is dismissed..
6 ITA no.83/D/2011 & CO no. 35/Del./2011
6. Ground no.2 in the appeal of the Revenue relates to trading addition of ``15,85,398/-. On perusal of profit and loss account, the AO noticed that the assessee reflected GP @ 37.4% on turnover of `39,44,53,585/-as against 39.7% on turnover of ``27,49,08,363/- in the preceding assessment year. Since there was fall in GP rate, the AO asked the assessee to explain the reasons for decline in GP rate. In reply, the assessee submitted that their turnover increased by 40% vis-à-vis preceding year while total cost of goods sold increased by 46%; other operating expenses by 48% and tax expenses by 306.62%, resulting in fall in GP rate by 2.26%. However, the AO did not accept the submissions of the assessee on the ground that assessee failed to adduce any evidence in support of reasons for increase in expenses. Accordingly, applying GP rate of 39.50% on enhanced turnover of ``45 crores, the AO added an amount of ``15,85,398/-.
7. On appeal, the ld. CIT(A) deleted the addition, holding as under:-
"3.3 I have carefully considered the submissions of the learned AR and have gone through the assessment order. In the year under consideration the gross profit has gone down as compared to the immediately preceding year from 39.73% to 37.47%. Before the Assessing Officer the appellant had explained that though turnover has increased by 40% but the expenses have increased at a higher rate. As per the information reproduced in the assessment order, total cost of goods sold has increased by 46%; other operating expenses have gone up by 48% and tax expenses are increased by 306.62%. However, the Assessing Officer rejected the assessee's submissions on the ground that no evidence is filed to show the 'reason' for increase in expenses. It is not the case of the Assessing Officer that the justification given by the appellant is wrong nor any defect or discrepancy is pointed out by examining the details and books of accounts. In such circumstances, the estimated addition by applying the GP rate of 39.50% is not justified. The same is, therefore, directed to be deleted."
7 ITA no.83/D/2011 & CO no. 35/Del./2011
8. The Revenue is now in appeal before us against the aforesaid findings of the ld. CIT(A).The ld. DR supported the order of the AO while the ld. AR on behalf of the assessee relied upon the findings in the impugned order.
9. We have heard both the parties and gone through the facts of the case. As is apparent from the findings of the AO, the only reason given in the assessment order for aforesaid trading addition is that the assessee did not furnish any evidence in support of increase in expenses in the year under consideration vis-a-vis expenses in the preceding year. In nutshell ,expenses was not commensurate with turnover . The AO nowhere recorded any findings that the books of account maintained by the assessee were incorrect, rendering it impossible to deduce the profit and despite that he proceeded to estimate the profit and turnover , invoking the principles of best judgment. The ld. CIT(A),on the other hand, concluded that the action of the AO to make estimated trading addition without pointing out any defects in the books of accounts, is totally unjustifiable and therefore, deleted the addition. The Revenue have not placed before us any material, controverting these findings of facts recorded by the ld. CIT(A). In the absence of any defects in the books of accounts, audited results could not be rejected. Hon'ble Gauhati High Court in Aluminium Industries (P) Ltd. v. CIT (I.T.R. No. 12 of 1990) observed that a lower rate of gross profit declared by the assessee as compared to the previous year, would not in itself be sufficient to justify any addition. The mere fact that the percentage of loss or gross profit is high or low in a particular year does not necessarily lead to inference that there has been suppression. Low profit or lower yield is neither a circumstance or material to justify addition of profits. The ratio of the judgments in Dhakeswari Cotton Mills Ltd. v. CIT [1954] 26 ITR 775 (SC); Raghubir Mandal Harihar Mandal v. State of Bihar [1957] 8 STC 770 (SC); State of Kerala v. C. Velukutty [1966] 60 ITR 239 (SC); State of Orissa v. Maharaja Shri B.P. Singh Deo [1970] 76 ITR 690 (SC); Brij Bhusan Lal Parduman Kumar v. CIT [1978] 115 ITR 524 (SC); Chouthmal Agarwalla v. CIT [1962] 46 ITR 262 (Assam); R.V.S. and Sons Dairy Farm v. CIT [2002] 257 ITR 764 (Mad); International Forest Co.
8 ITA no.83/D/2011 & CO no. 35/Del./2011 v. CIT [1975] 101 ITR 721 (J & K) ; M. Durai Raj v. CIT [1972] 83 ITR 484 (Ker); Ramchandra Ramnivas v. State of Orissa [1970] 25 STC 501 (Orissa); Action Electricals v. Deputy CIT [2002] 258 ITR 188 (Delhi) and Kamal Kumar Saharia v. CIT [1995] 216 ITR 217 (Gauhati) indicate that the AO is not fettered by any technical rules of evidence and pleadings, and he is entitled to act on material which are not acceptable in evidence in a court of law, but while making the assessment under the principles of best judgment, the Income-tax Officer is not entitled to make a pure guess without reference to any evidence or material. There must be something more than a mere suspicion to support the assessment. Low profit in a particular year in itself cannot be a ground for invoking the powers of best judgment assessment without support of any material on record. In Pandit Bros. v. CIT(1954) 26 ITR 159 (P & H) & Shankar Rice Co. vs. ITO,72 ITD 139(ASR)(SB), it was concluded that rejection of book results without pointing out any defects in books of accounts, could not be sustained. The Hon'ble Gujarat High Court in the case of CIT Vs. Amitbhai Gunwantbhai, 129 ITR 573 held that if there was no challenge to the transactions represented in the books then it is not open to Revenue to contend that what is shown by the entries is not the real state of affairs. Secondly, even if for some reason, the books are rejected it is not open to the AO to make any addition on estimate basis or on pure guess work. Since the Revenue have not referred us to any material contrary to the aforesaid findings of the ld. CIT(A), we are opinion that the AO was not justified in rejecting the book results and add an estimated amount . Hon'ble J & K High Court in the case of International Forest Co. v. CIT [1975] 101 ITR 721 held that in the case of a forest coupe, mere low yield of out-turn compared to earlier years was not sufficient to make an addition. No specific discrepancies or defects in the books of account of the assessee have been pointed out before us nor was any material brought to our notice to establish that purchases were inflated or receipts suppressed. In these circumstances , we are opinion that that there was no justification in invoking the provisions of section 145 of the Act [ Vikram Plastics,239 ITR 161(Guj)]. The burden of showing that the apparent state of affairs is not the real one is very 9 ITA no.83/D/2011 & CO no. 35/Del./2011 heavy on the Department [Bedi & Co. Pvt. Ltd. Vs. CIT,144 ITR 352(Karn) affirmed by Hon'ble Supreme Court in 230 ITR 580] while no other material has been placed before us to doubt the nature of the transactions recorded in the books. If there is no challenge to the transactions represented in the books, then it is not open to Revenue to contend that what is shown by the entries is not the real state of affairs. In the light of these observations of the Hon'ble Gujrat High Court, we have no hesitation in upholding the findings of the ld. CIT(A). Therefore, ground no.2 in the appeal of the Revenue is dismissed.
10. Ground no.3 in the appeal of the Revenue relates to disallowance of ``15,85,400/- on account of capitalization of advertisement expenses. The AO asked the assessee to explain why expenditure of `19,83,000/-incurred towards payment made to illusion films be not treated as capital expenditure. The assessee replied that expenditure on advertisement through electronic media to advertise the products manufactured by the company is revenue in nature. Inter alia, the assessee relied upon decision of the Hon'ble Calcutta High Court in the case of CIT Vs. M/s Berger Pains (I) Ltd. (No.2) 254 ITR 503 (Calcutta) and the decision of the ITAT in the assessee's own case for the AY 2003-04 . However, the AO did not accept the submissions of the assessee and allowed only 1/5th of the aforesaid expenditure while relying upon the decision of the Hon'ble Apex Court in Madras Industrial Investment Corporation Limited Vs. CIT ,225 ITR 802(SC),resulting in disallowance `15,86,400/-.
11. On appeal, the ld. CIT(A) while relying upon decision dated 29th September, 2009 the ITAT in the assessee's own case in the AY 2003-04 in I.T.A.no. 2974/Del./2009 allowed the claim of the assessee in the following terms:-
"5.3 I have carefully considered the submissions of learned AR and have gone through the assessment order. I find that the issue is covered by the decision of Hon'ble ITAT in appellant's own case for assessment year 2003-04 wherein the 10 ITA no.83/D/2011 & CO no. 35/Del./2011 revenue's appeal on this issue has been dismissed. Respectfully, following the decision of Hon'ble Tribunal, the Assessing Officer is directed to delete the addition."
12 The Revenue is now in appeal before us against the aforesaid findings of the ld. CIT(A).The ld. DR supported the order of the AO while the ld. AR on behalf of the assessee relied upon the findings in the impugned order.
13. We have heard both the parties and gone through the facts of the case. Indisputably, the expenditure of ``19,83,000/- was incurred on advertisement of the products through electronic media. Since the expenditure is incurred on advertisement, the AO allowed only 1/5th of the expenditure in the light of decision of the Hon'ble Supreme Court in Madras Industrial Investment Corporation Limited (supra).Apparently, the AO treated the expenditure as deferred revenue in nature .As pointed out by the ld. CIT(A),the ITAT vide their order dated 16th September, 2009 in I.T.A. no.2974/Del./2009 in the assessee's own case for assessment year 2003-04 allowed a similar claim in identical circumstances. In ACIT vs. Ashima Syntex Ltd.,310 ITRSP 1(SB, Ahmedbad), it was observed that the concept of deferred revenue expenditure is essentially an accounting concept and alien to the Act. The relevant provisions of the Act recognise only capital or revenue expenditure. Deferred revenue expenditure denotes expenditure for which a payment has been made or a liability incurred, which is essentially revenue in nature but which for various reasons like quantum and period of expected future benefit etc., is written off over a period of time e.g., expenditure on advertisement, sales promotion etc. Though the nature of such expenditure is revenue, keeping in view the fact that the benefits arising therefrom are expected to be derived over a period of time, stretching sometimes over several accounting years, the assessees have been amortising the same over the expected time period over which the benefits are likely to accrue therefrom. Accordingly, only a proportion of such expenditure is amortised in the Profit and Loss Account but an appropriate adjustment is made in the computation of income, claiming the entire as allowable revenue 11 ITA no.83/D/2011 & CO no. 35/Del./2011 expenditure in terms of provisions of section 37 (1) of the Act. The expenditure which is treated as deferred revenue in the books, almost in all cases comprises of items, the benefits derived wherefrom are ephemeral and transitory in nature in as much as these are incurred as a part of a continuous process and need to be expended in order to generate and increase the brand recall and sustain it in the minds of customers. Moreover, the deferred revenue expenditure is essentially revenue in nature and the decision to treat the same as deferred revenue only represents a management decision taken in view of the magnitude of the expenditure involved. For the purpose of allowability of any expenditure under the Act, what is material is the classification between the capital and revenue and the same does not recognise of any concept of deferred revenue expenditure. In the instant case, even in the AY 2003-04, a similar claim of expenses has been allowed. In a number of judgments viz. Amar Raja Batteries Ltd. v. Asstt. CIT [2004] 91 ITD 280 (Hyd.), Jt. CIT v. Modi Olivetti Ltd. [2005] 4 SOT 859 (Delhi), Asstt. CIT v. Medicamen Biotech Ltd. [2005] 1 SOT 347 (Delhi), Hero Honda Motors Ltd. v. Jt. CIT [2005] 3 SOT 572 (Delhi);& Charak Pharmaceuticals v. Jt. CIT [2005] 4 SOT 393 (Mum.), it has been affirmed that where any expenditure is treated as a deferred revenue expenditure, it presupposes that the concerned expenditure, creating benefit is in the revenue field and is a revenue expenditure, but considering its enduring benefits as well as the fact that it does not result in the creation of any new asset or advantage of enduring nature in the capital field, the same is required to be treated distinctly from capital expenditure. However, where any identifiable capital asset, tangible or intangible comes into existence as a result of the amount expended, the same will have to be treated as a capital expenditure and depreciation allowable thereon as per the prescribed rules and procedures under the Act. In the instant case, indisputably, expenses towards advertisement have been treated as revenue in nature in the preceding years nor any material has been placed before us by the Revenue, suggesting that any tangible or intangible asset has been created by the assessee. Hon'ble jurisdictional High Court in CIT vs. Bonanza Portfolio Ltd.,202 taxman 545(Del.) allowed expenditure on ad films as 12 ITA no.83/D/2011 & CO no. 35/Del./2011 revenue expenditure. In view of the foregoing, we do not find any merit in the ground raised by the Revenue. Therefore, ground no. 3 in the appeal of the Revenue is dismissed.
14. Ground no.4 in the appeal of the Revenue relates to addition of ``7,45,000/- on account of service charges, received in advance. During the course of assessment proceedings, the AO asked the assessee to furnish details of service charges accrued but not due and shown as advance from customers. The assessee replied that they provided annual maintenance service to its customers in respect of their products for a time span of one year or six months and the service charges were received in advance. Since the time span for each service may fell in between two financial years, accordingly, the service charges received were classified between current year fees and the fees received for next year. Therefore, these were shown as income of the relevant financial year. However, the AO did not accept the submissions on the ground that the assessee was following mercantile system of accounting and the service charges received for the year under consideration, could not be deferred. Accordingly, while relying upon the decision in the case of Tuticorin Alkalis Chemicals & Fertilisers Ltd. Vs. CIT, 227 ITR 172(SC), the AO taxed the amount in the year under, holding ,inter alia, that the income accrued in the year under consideration.
15. On appeal, the ld. CIT(A) deleted the addition, following the decisions of the ITAT in the case of M/s UGS India Pvt. Ltd. Vs. ACIT, , 4 ITAT INDIA 805 and ACIT vs. Mahindra Holidays & resorts,39 SOT 438(Chennai),in the following terms:-
"6.3 I have carefully considered the submissions of learned AR and have gone through the assessment order, I find that the issue is squarely covered by the decision of Hon'ble Delhi ITAT in the case of M/s UGS India Pvt. Ltd. Vs. ACIT, wherein it has been held that the amount treated as deferred revenue by the assessee is to be taxed in the year when such services are 13 ITA no.83/D/2011 & CO no. 35/Del./2011 rendered or recognized as income of the assessee. It was observed by Hon'ble ITAT as under:
"There is nothing like device to defer payment of taxes due but as per the recognized method of accounting of matching revenue with cost, the income accrues only in the subsequent year when such services are provided. This is in form of a provision for warranty claims which is also recognized by Hon'ble Delhi High Court in the case of CIT Vs. Vintec Corporation P. Ltd., 278 ITR 337 wherein it was held that provision for warranties embedded in the sale price is an ascertained liability and to that extent, revenue need not be recognized. We accordingly hold that the amount treated as deferred revenue by the assessee is not to be brought to tax in the year under consideration but to be taxed in the year when such services are rendered or recognized as income by the assessee."
Respectfully following the decision of Hon'ble ITAT on identical facts, the Assessing Officer is directed to delete the addition."
16. The Revenue is now in appeal before us against the aforesaid findings of the ld. CIT(A).The ld. DR supported the order of the AO while the ld. AR on behalf of the assessee relied upon the findings in the impugned order.
17. We have heard both the parties and gone through the facts of the case. Indisputably, the assessee provided annual maintenance service to its customers in respect of their products for a time span of one year or six months and the service charges were received in advance. Since the time span for such service sometimes fell in between two financial years, accordingly, the services charges received were classified between current year fees and the fees received for next year, and the latter were accordingly, shown as income for the relevant financial year. As is apparent from the findings in the impugned order, in UGS India Pvt. Ltd.(supra),ITAT concluded that amount treated as deferred revenue is to be taxed in the year in which services are rendered or recognized as income of the assessee. For income to accrue, it is necessary that the assessee must have contributed to its accruing or arising by rendering services or otherwise, and a debt must have come into existence and he must have 14 ITA no.83/D/2011 & CO no. 35/Del./2011 acquired a right to receive the payment. In the present case, there is nothing to suggest that the assessee has fully contributed to its accruing by rendering services so as to entitle him to receive the entire amount in the year under consideration. In view of the foregoing, especially when the Revenue have not placed before us any material nor brought to a contrary decision so as to enable us to take a different view in the matter, we are not inclined to interfere. Therefore, ground no.4 in the appeal of the Revenue is dismissed.
18. Adverting now to sole ground in the CO, the AO noticed during the course of assessment proceedings that the assessee claimed an amount of ``1,36,000/- on account of stamp duty paid for stores taken on lease. To a query by the AO, the assessee explained that the company had acquired stores on lease for three years and paid stamp duty of ``1,36,000/-. Relying upon the decisions in CIT Vs. Hoechst Pharmaceuticals Ltd. (1977) 113 ITR 877 (Bom.); Richardson Hindustan Ltd. Vs. CIT (1987) 169 ITR 516 (Bom.); CIT Vs. Katihar Jute Mills Pvt. Ltd. (1978) 116 ITR 781 (Cal.); Sri Krishna Tiles and Potteries Pvt. Ltd. Vs. CIT (1988) 173 311 (Chennai) and Shri Rama Multi tech Ltd. Vs. ACIT (2004) 92 TTJ 567 (Ahm),the assessee pleaded that their claim was allowable as revenue . However, the AO did not accept the submissions of the assessee on the ground that expenditure incurred on stamp duty for taking store on lease was capital in nature. Inter alia, the AO relied upon decision in CIT Vs. Madras Auto Service (P) Ltd. (1998) 233 ITR 468 (SC).
19. On appeal, the ld. CIT(A) upheld the disallowance, holding as under:-
"4.3 I have carefully considered the submissions of learned AR and have gone through the assessment order. I find that the similar issue stands decided by Hon'ble Mumbai ITAT in the case of Universal Capsules (P) Ltd. Vs. DCIT 76 ITD 403 wherein in view of the decision of Hon'ble Supreme Court in Gobind Sugar Mills Ltd. Vs. CIT 232 ITR 319, it was held that the expenditure on stamp duty and registration charges incurred to secure lease on factory premises were not allowable as revenue expenditure.
15 ITA no.83/D/2011 & CO no. 35/Del./2011 I further find that in the case of Gobind Sugar Mills Ltd., supra, it has been held by the Hon'ble Supreme Court that the expenditure incurred by the assessee for the acquisition of a leasehold right for setting up a sugar factory was clearly of capital nature.
Learned AR has relied on the cases which are prior to the judgment of Hon'ble Supreme Court in the case of Gobind Sugar Mills Ltd., supra. In the light of the above said decision, the addition made by the Assessing Officer is upheld."
20. The assessee is now in appeal before us against the aforesaid findings of the ld. CIT(A).The ld AR on behalf of the assessee while relying upon the decision in CIT Vs. Gopal Estates, 326 ITR 413(HP) contended that the impugned expenditure was revenue in nature. On the other hand, the ld. DR supported the findings in the impugned order.
21. We have heard both the parties and gone through the facts of the case as also the decisions relied upon by the ld. AR and the ld. CIT(A). The issue before us is as to whether an amount of ``1,36,000/- incurred on account of purchase of stamp papers, stamp duty and registration charges, for stores taken on lease is revenue or capital in nature. The AO relied upon a decision of the Hon'ble Apex Court in Madras Auto Service (P) Ltd.(supra) while the ld. CIT(A) relied upon another decision in Gobind Sugar Mills Ltd.(supra) in upholding the findings of the AO. In Gobind Sugar Mills Ltd.(supra) relied upon by the ld. CIT(A), the assessee, had been carrying on business of running a sugar mill. Under a deed of lease executed on the 30th August, 1969, it obtained a lease of another sugar factory at Matihari in consideration of an annual rental of not less than Rs. 25 lakhs for a period of five years. For the execution of the said deed, the assessee had to incur some expenditure on account of stamp fees, registration charges, solicitor's fees, etc., which aggregated Rs. 54,824. In the assessment year 1971-72, the relevant previous year ending on the 30th June, 16 ITA no.83/D/2011 & CO no. 35/Del./2011 1970, the assessee in its assessment claimed deduction of the said amount as a revenue expenditure incurred for the purpose of business. The ITO rejected the said claim on the ground that the same had been incurred for acquiring the right to run a factory on lease and, therefore, the expenditure was of a capital nature. In the light of these facts, Hon'ble High Court held that the assessee had obtained the right of user of the factory at Matihari for a period of five years, but under the lease the assessee had also obtained something more. It had obtained a right of property under the Transfer of Property Act and such an interest was a capital asset. Hon'ble Apex Court upheld the findings of the High Court, holding that the assessee incurred the expenditure for the purpose of obtaining a capital asset and therefore ,was capital in nature. The ld. AR ,without distinguishing the said decision simply relied upon the decision of Hon'ble HP High Court in Gopal Associates(supra).As is apparent from a mere glance at the said decision in Gopal Associates(supra), the observations and findings of the Hon'ble Apex Court in the decision relied upon by the ld. CIT(A) ,were not brought to the notice of Hon'ble HP High Court. In fact, Hon'ble Calcutta High Court in Mather And Platt (India) Limited. Vs. CIT,168 ITR 533(Cal.) in the context of expenditure incurred in obtaining lease of premises held that the assessee incurred the said expenditure with a view to bringing into existence an asset or an advantage for the enduring benefit of its business. Following the view taken in Gobind Sugar Mills Ltd. [1979] 117 ITR 747(Cal.), Hon'ble High Court held that the expenditure incidental to the acquisition of the lease would also be an` expenditure of capital nature. The primary and dominant object of the assessee in incurring the said expenditure was to acquire benefits of a right to property under leaseholds . In view of the foregoing, following the view taken by the Hon'ble Apex Court in their decision in Gobind Sugar Mills Ltd.(supra), we have no hesitation in upholding the findings of the ld. CIT(A).Therefore, ground raised in the CO is dismissed.
22. No additional ground raised before us in terms of residuary ground no.5 in the appeal of the Revenue, accordingly this ground is dismissed.
17 ITA no.83/D/2011 & CO no. 35/Del./2011
23. No other plea or argument was made before us.
24.. In result, both appeal of the Revenue and corresponding CO are dismissed.
Order pronounced in open Court
Sd/- Sd/-
(HARI OM MARATHA) (A.N. PAHUJA)
(Judicial Member) (Accountant Member)
NS
Copy of the Order forwarded to:-
1 Assessee
2. Deputy C.I.T.,Circle 3(1), New Delhi
3. CIT concerned.
4. CIT(A)-XIX, New Delhi
5. DR, ITAT,'A' Bench, New Delhi
6. Guard File.
BY ORDER,
Deputy/Asstt.Registrar
ITAT, Delhi