Income Tax Appellate Tribunal - Chennai
Treads Direct Ltd., Coimbatore vs Department Of Income Tax on 3 December, 2012
IN THE INCOME TAX APPELLATE TRIBUNAL
'C' BENCH, CHENNAI
BEFORE SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER
AND SHRI CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER
I.T.A. No. 14/Mds/2012
Assessment Year: 2008-09
The Deputy Commissioner of M/s Treads Direct Ltd.,
Income Tax, No.2000, Tiruchy Road,
Company Circle I(3), v. Ramanathapuram,
63-A, Race Course Road, Coimbatore - 641 005.
Coimbatore.
PAN : AABCE9328C
(Appellant) (Respondent)
Appellant by : Shri T.N. Betgiri, Sr. AR
Respondent by : Shri Philip George, Advocate
Date of Hearing : 03.12.2012
Date of Pronouncement : 06.12.2012
O R D E R
PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER :
In this appeal filed by the Revenue, its grievances are that CIT(Appeals) deleted additions of ` 31,55,328/- and ` 11,92,520/- made by the Assessing Officer.
2. Facts apropos are that assessee, engaged in manufacture of tyre and rubber products, had filed its return for impugned assessment year declaring an income of ` 8,33,56,010/-. During the course of assessment proceedings, it was noted by the Assessing Officer that the expenditure 2 I.T.A. No. 14/Mds/12 claimed by the assessee included a sum of ` 31,55,328/- incurred for professional charges paid to one M/s Harkey Dugam LLP, U.K. Explanation of the assessee was that such professional charges were made for rendering services in connection with acquisition of a new company. Assessing Officer, considering the outgo to be capital in nature, disallowed the claim of the assessee.
3. In its appeal before CIT(Appeals), argument of the assessee was that the professional charges made to M/s Harkey Dugam LLP, U.K. were for their work in connection with services rendered for expansion of its existing business. As per the assessee, it was not for any new line of business. Submission of the assessee was that the proposed project was discontinued and outgo was claimed as revenue expenditure. Assessee also filed a copy of manual provided by M/s Harkey Dugam LLP, U.K., for justifying its claim before CIT(Appeals). CIT(Appeals) was appreciative of this contention. According to him, the feasibility study done by M/s Harkey Dugam LLP, U.K. clearly showed that it was in connection with acquisition of a new foreign company in the line of same business as that of assessee. Relying on the decision of Hon'ble Gujarat High Court in the case of DCIT v. Assam Asbestos Limited (263 ITR 357), CIT(Appeals) came to a conclusion that no enduring benefit was received by the assessee and no capital asset was created. Further, as per CIT(Appeals), Hon'ble Andhra Pradesh High Court in the 3 I.T.A. No. 14/Mds/12 case of Coromondel Fertilizers Limited v. CIT (247 ITR 417) had held that expenditure incurred on technical feasibility study for expansion of existing business was not capital expenditure. In this view of the matter, he deleted the disallowance made by the A.O.
4. Now before us, learned D.R., strongly assailing the order of CIT(Appeals), submitted that the payment made to M/s Harkey Dugam LLP, U.K. for acquisition of a new company by the assessee, could not be treated as an expense for expansion of its own business. There was nothing on record to show that the said company was in the same line of business as that of assessee. The records stated to be produced by the assessee before the CIT(Appeals), were not before the Assessing Officer. According to him, the disallowance was erroneously deleted by the CIT(Appeals).
5. Per contra, learned A.R. submitted that the new company, which was contemplated to be taken over, was in the same field of business as that of assessee. The details filed before the CIT(Appeals) were very much available before the A.O. also. Relying on the decision of Hon'ble Guwahati High Court in the case of DCIT Vs. Assam Asbestos Ltd. (263 ITR 357), learned A.R. submitted that expenses incurred for preparation of feasibility report, especially when it was for expansion in the same line of business, had to be considered as revenue outgo. 4 I.T.A. No. 14/Mds/12
6. We have perused the orders and heard the rival submissions. No doubt, Hon'ble Gujarat High Court in the case of Assam Asbestos Ltd. (supra), had held that expenditure incurred for preparation of feasibility report for a mini cement plant, which could not be established for want of permission from Government, was a revenue outgo. There, the assessee concerned was already in the line of manufacturing of asbestos sheet and proposed mini cement plant was for supplying of essential raw material for asbestos plant, namely, cement. Here, admittedly, the expenses incurred by the assessee were for a feasibility study for taking over a new company. There is nothing coming out from assessment order as to whether the feasibility study done by M/s Harkey Dugam LLP, U.K., which was relied on by the CIT(Appeals) for deleting disallowance, was available before the A.O. or not. The question whether the company, which was contemplated to be taken over, was in the same line of business and even if it was in the same line of business, whether it could still be considered as an outgo which was in the revenue field, has not been examined by the Assessing Officer or the CIT(Appeals). We are, therefore, of the opinion that the matter requires a fresh visit by the Assessing Officer.
7. Coming to the other issue taken up by the Revenue, which is regarding disallowance of professional charges paid for an 5 I.T.A. No. 14/Mds/12 amalgamation, the finding of the A.O. was that such expenditure of ` 11,92,520/- was a capital outgo. The claim was with regard to three payments as under:-
Sl.No. Name of the person to whom payment is made Amount paid `
1. M/s Deolite 8,87,520/-
2. Shri P.H. Pandian 2,80,000/-
3. K. Vaideeswaran 25,000/-
Before the CIT(Appeals), argument of the assessee was that amounts paid to solicitors in connection with amalgamation was revenue expenditure. Reliance was placed on the decision of Hon'ble Apex Court in the case of CIT v. Bombay Dyeing and Manufacturing Co. Ltd. (219 ITR 521). CIT(Appeals) was appreciative of this contention and deleted the disallowance.
8. Now before us, learned D.R., strongly assailing the order of CIT(Appeals), submitted that in the result, the decision rendered by Hon'ble Apex Court in Bombay Dyeing and Manufacturing Co. Ltd.'s case (supra) was in Civil Nos.593-594 of 1978 and therefore, the concerned assessment year was prior to 1978. According to him, Section 35DD of the Act was introduced by Finance Act, 1999 with effect from 1.4.2000 and once the said Section came into statute, the question whether professional charges paid to solicitors, in connection with services rendered to an amalgamation, could be allowed as revenue 6 I.T.A. No. 14/Mds/12 outgo in one stroke, stood clearly answered by the Legislature. According to him, Section 35DD was applicable for impugned assessment year. The claim of expenditure could not be considered in one outgo.
9. Per contra, learned A.R. strongly supported the order of CIT(Appeals).
10. We have perused the orders and heard the rival submissions. No doubt, Hon'ble Apex Court in the case of Bombay Dyeing and Manufacturing Co. Ltd. (supra) had held that professional charges to solicitors for service rendered in connection with amalgamation, was deductible as revenue expenditure. As pointed out by the learned D.R., the said decision related to an year prior to1978. Section 35DD of the Act was introduced by Finance Act, 1991. Section 35DD reads as under:-
Amortisation of expenditure in case of amalgamation or demerger. 35DD. (1) Where an assessee, being an Indian company, incurs any expenditure, on or after the 1st day of April, 1999, wholly and exclusively for the purposes of amalgamation or demerger of an undertaking, the assessee shall be allowed a deduction of an amount equal to one-fifth of such expenditure for each of the five successive previous years beginning with the previous year in which the amalgamation or demerger takes place. (2) No deduction shall be allowed in respect of the expenditure mentioned in sub-section (1) under any other provision of this Act.] The above Section clearly stipulates that any expenditure incurred for the purpose of amalgamation has to be amortized through a five-year 7 I.T.A. No. 14/Mds/12 period commencing from previous year in which the amalgamation had taken place. Neither the CIT(Appeals) nor the A.O. considered this Section while making the disallowance. We are, therefore, of the opinion that this issue also requires a re-look by the Assessing Officer, and he has to consider the relevance of Section 35DD of the Act in considering the claim of the assessee in relation to amalgamation.
11. We, therefore, set aside the orders of lower authorities and remit both the issues back to the file of the A.O. for de novo consideration.
12. In the result, appeal filed by the Revenue is allowed for statistical purposes.
The order was pronounced in the Court on Thursday, the Sixth of December, 2012, at Chennai.
sd/- sd/-
(Challa Nagendra Prasad) (Abraham P. George)
Judicial Member Accountant Member
Chennai,
Dated the 6th December, 2012.
Kri.
Copy to: Appellant/Respondent/CIT(A)-I, Coimbatore/
CIT-I, Coimbatore/D.R./Guard file