Income Tax Appellate Tribunal - Mumbai
Stationery Point India Ltd, Mumbai vs Department Of Income Tax on 10 April, 2012
IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH "E",
MUMBAI
BEFORE SHRI P.M.JAGTAP (A.M) & SHRI N.V.VASUDEVAN(J.M)
ITA NO. 1162/MUM/2010(A.Y.2006-07)
The ACIT 9(3), M/s. Stationery Point India
Room No.229, Aaykar Bhavan, Ltd., A-7/60, Saraf Choudhary
MK Marg, Mumbai - 400 020 Vs. Nagar, Thakur complex,
(Appellant) Kandivali (East),
Mumbai 400 101
PAN:AAFCS 3137G
(Respondent)
Appellant by : Shri D.S.Sunder Singh
Respondent by : Shri Haresh P.Shah
Date of hearing : 10/04/2012
Date of pronouncement : 18/04/2012
ORDER
PER N.V.VASUDEVAN, J.M
This is an appeal by the revenue against the order dated 3/12/2009 of CIT(A)-20, Mumbai relating to the assessment year 2006-07. Ground No.1 raised by the revenue reads as follows:
1. On the facts and in the circumstances of the case and in law, the ld.CIT(A) erred in holding that no addition can be made u/s.68 as unexplained cash credits of Rs.42,93,350/- of share application money and the department is free to proceed to reopen their individual assessments in accordance with law."
2. The assessee is a company engaged in the business of manufacture and sale of stationery and allied products. During the previous year the assessee had received share application money to the tune of Rs.
74,19,000/- from nine persons including two closely held companies towards assessee's equity shares. The AO made an addition of Rs.
2 ITA NO. 1162/MUM/2010(A.Y.2006-07)42,93,350/- in respect of application money received from four persons as per following details.
(i) Smt. Sharmila Kashid Rs. 5,00,000/-
(ii) Shri Shankar Kashid Rs. 17,75,700/-
(iii) M/s. Pushkraj Packaging (India) Pvt. Ltd. Rs. 15,17,650/-
(iv) Shri Jeevan Visram Sawant Rs. 5,00,000/-
-------------------
Total Rs. 42,93,350/-
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Of the above, Shri Shankar Kashid is the Managing Director of the Assessee company and Smt. Sharmila Kashid is his wife. On being asked to prove the genuineness of the claim, the assessee produced before the AO the Income tax particulars and copy of the relevant bank account of the above persons besides producing the above individuals for examination of the AO. The AO, however, was not satisfied and added an aggregate sum of Rs.42,93,350/- as unexplained cash credit u/s. 68 of the Act.
2.1. According to the AO the financial capacity of Smt. Sharmila Kashid and the genuineness of the transaction could not be established by the assessee. In this regard the AO has made a reference to the fact that this share applicant had explained source of investment out of funds lying in her bank account with Satara Jilla Madhyavarti Sahakari Bank Ltd.,(Satara), Kaledhon Branch. On scrutiny of the bank account AO noticed cash deposit in this bank account. The share applicant explained that she earned income from conducting tuitions as well as working as beautician beside other interest income. The AO was of the view that there was no evidence to show the aforesaid source of earning. The AO also noticed that this person was living in Mumbai and had deposited the cash in bank account with Kaledhon Branch. For all these reasons the AO did not believe the creditworthiness of Smt. Sharmila Kashid.
3 ITA NO. 1162/MUM/2010(A.Y.2006-07)2.2 With regard to share application money received from Shri Jeevan Visram Sawant the AO on perusal of the copy of the bank account of the share applicant with the Deccan Merchant Co-operative Bank Ltd., Dahisar Branch, noticed that there was a deposit by way of cheques in the bank account to the extent of Rs. 4,63,340/-. According to the AO the details of these cheques were not given. The AO also made a reference to the fact that the said amount was a loan sanctioned by Kotak Mahindra Bank Ltd., but the purpose of the loan had not been brought on record by the assessee. Besides the above the AO also was of the view that there were cash deposits in the bank account which had not been properly explained by the assessee. The AO also was of the view that PAN and confirmation of this share applicant was not furnished. For all the above reasons the AO treated the credit in the form of share application money as unexplained.
2.3 The assessee had shown a receipt of Rs. 15,17,650/- as share application money from M/s. Pushkaraj Packaging (India) Pvt. Ltd. as share application money. The reasons given by the AO for not accepting the explanation of the credit in respect of this share application from this party were that on perusal of the bank account of this party it was seen that there was negative balance through out the year. Further, the AO was of the view that it was also not clear how the share application money was paid on different dates in varying sums. More importantly, he was of the view that there were credits of like amounts just before the debit entry towards the share application money. He also referred to the fact that the same issue arose in the assessment in the assessee's case for immediately preceding year i.e. A.Y. 2005-06 and an addition was made on the ground that the share application money was nothing but unproved cash credits in the A/cs. of the assessee company. The AO also made a reference to the fact that the said assessment has been upheld in 1st appeal. In the circumstances and as the genuineness of the transactions according to the AO was not 4 ITA NO. 1162/MUM/2010(A.Y.2006-07) established, the amount of Rs.15,17,650/- was added as unproved cash credits u/s.68 of the I.T.Act.
2.4 A sum of Rs. 17,75,000/- was received as share application money from Shri Shankar Kashid. The AO on perusal of the copy of his A/c. No. 010428 with the Deccan Merchant Co-op. Bank Ltd., Dahisar, noticed credits in the said account from particular accounts belonging to the assessee group. The details of which were as under
Date Credits Debits (Share application money) 13.04.2008 4,21,000 4,57,000 13.04.2008 5,86,000 10,07,000 5,50,000 10,07,000 08.07.2005 6,94,700 3,22,400 08.07.2005 _________ 6,94,700 3,71.378 6,93,718 21.7.2005 50.000 50,000 22.7.2008 50,000 50,000 8.9.2005 Cash 10,000 9.9.2005 Cash 15,000 25,000 25,000 25,000 17,75,718 The AO found that in the above said account of Shri Shankar Kashid, the opening balance as on 1.4.2005 was only Rs.891/- and the closing balance as on 18.03.2006 was only Rs. 2,226/-. He was of the view that the credits mentioned above were coming from particular accounts and the amount thereof was shown as paid to the assessee company either on the same day or on the following day by splitting the amounts in such a way that the debit / credit entries could not be easily linked with each other. He also found in September there was a cash deposit of like amount before issuing cheque of Rs. 25,000/- in favour of the assessee. Thus, the AO concluded that the above account is used only as a channel for showing the payments made to the assessee company but the real source has not come to surface. The AO 5 ITA NO. 1162/MUM/2010(A.Y.2006-07) also referred to the fact in the immediately preceding assessment year, in the assessees's case, the addition made on account of similar unproved cash credits in the names of Shri Shankar Kashid and others and were upheld in the first appeal. Taking into account all these factors the AO was of the view that the s genuineness of the credit entries has not been established and the amount of Rs. 17,75,700/- was assessed as unproved cash credit u/s. 68.
3. On appeal by the assessee the CIT(A) deleted the additions made by the AO for the following reasons.
"3.2 Without going into claims and counterclaims, I am of the opinion that the law is well settled now that in the case of a company, no addition can be made u/s 68 as unexplained credits on account any money received towards subscriptions of its share capital more so when the identity of the subscribers are established as is the case in the present appeal. The authority is the decision of the Apex Court in CIT v. Lovely Exports Ltd. 216 CTR 195 (SC) wherein the Apex Court while dismissing the SLP against the decision of Hon'ble Delhi High Court ordered as under:
"Can the amount of share money be regarded as undisclosed income under s. 68 of IT Act, 1961? We find no merit in this Special Leave Petition for the simple reason if the share application money is received by the assessee company from alleged bogus shareholders, whose names are given to the AO, then the Department is free to proceed to reopen their individual assessments in accordance with law. Hence, we find no infirmity with the impugned judgment."
In view of the above, I delete the addition made of Rs.42,93,350/- as unexplained share application money. The ground is allowed."
4. Before us the ld. D.R submitted that the CIT(A) fell into an error in not examining the capacity of the share applicants and also genuineness of the transactions. According to him merely establishing the identity of share applicant is not sufficient and the assessee was bound to explain the capacity of the share applicant(creditworthiness) and also the genuineness of the transactions. The ld. Counsel for the assessee brought to our notice the various documents submitted before AO in the course of assessment 6 ITA NO. 1162/MUM/2010(A.Y.2006-07) proceedings and submitted that the assessee had duly discharged its burden under section68 of the Act and the CIT(A) was justified in deleting the addition made by the AO.
5. We have considered the rival submissions. As far as Smt. Sharmila Kashid is concerned the share application signed by her disclosing the PAN had been filed. Her Income Tax return for A.Y 2006-07 alongwith computation of income copies had been filed. The bank account from which the payment had been made had also been filed. In our view the reasons assigned by the AO for making the impugned addition cannot be sustained. The law is well settled that the assessee is not obliged to prove the source of source. The evidence filed by the assessee prima facie establishes the receipt of share application money by the assessee and therefore, the order of the CIT(A) has to be sustained for the above reasons.
5.1 Shri Jeewan Vishram Sawant: As far as this share applicant is concerned the share application signed by him disclosing the PAN had been filed. The Income Tax return for A.Y 2006-07 alongwith computation of income copies had been filed. The bank account from which the payment had been made had also been filed. In our view the reasons assigned by the AO for making the impugned addition cannot be sustained. The law is well settled that the assessee is not obliged to prove the source of source. The evidence filed by the assessee prima facie established the receipt of share application money by the assessee and therefore, the order of the CIT(A) has to be sustained for the above reasons. Out of Rs.5.00 lacs received by this person Rs. 4,63,000/- had been received by way of cheque. This share applicant had taken as a loan from M/s. Kotak Mahindra Bank Ltd. prior to issue of cheque for purchase of shares of the assessee company. The purpose of the loan cannot be enquired into by the AO in this proceedings.
7 ITA NO. 1162/MUM/2010(A.Y.2006-07)5.2 M/a. Pushakraj Packaging (India) Pvt. Ltd. As far as this share applicant is concerned the share application duly signed disclosing the PAN had been filed. The Income Tax return for A.Y 2006-07 alongwith computation of income copies had been filed. The bank account from which the payment had been made had also been filed. In our view the reasons assigned by the AO for making the impugned addition cannot be sustained. The law is well settled that the assessee is not obliged to prove the source of source. The evidence filed by the assessee prima facie establishes the receipt of share application money by the assessee and therefore, the order of the CIT(A) has to be sustained for the above reasons. In assessment year 2005- 06 this share applicant had given share application money for purchase of the assessee's shares. Similar addition was made in assessment year 2005-
06. The Tribunal set aside the order of the revenue authorities and remanded the issue to the AO for fresh consideration. The AO made the addition in the set aside proceedings but the CIT(A) on appeal by the assessee deleted the addition made by the AO holding that the assessee has furnished satisfactory explanation with regard to this share applicant. We are of the view that in the light of the evidence filed by the assessee prima facie the receipt of share application money has been satisfactorily explained.
5.3 Shri Shankar Kashid: As far as this share applicant is concerned the share application signed by her disclosing the PAN had been filed. Her Income Tax return for A.Y 2006-07 alongwith computation of income copies had been filed. The bank account from which the payment had been made had also been filed. In our view the reasons assigned by the AO for making the impugned addition cannot be sustained. The law is well settled that the assessee is not obliged to prove the source of source. The evidence filed by the assessee prima facie establishes the receipt of share application money by the assessee and therefore, the order of the CIT(A) has to be sustained for 8 ITA NO. 1162/MUM/2010(A.Y.2006-07) the above reasons. The reasons given by the AO for making the impugned addition in our view are merely based on assumptions and surmises. In this regard we also find that this share applicant had appeared before the AO on 14/11/2008 but was not examined by the AO. In our view if the AO entertained any doubt on the entries in the bank account he ought to have cross examined the share applicant and cannot draw adverse inference against the assessee.
6. For the reasons given above we confirm the order of the CIT(A) and dismissed Ground N0.1 raised by the revenue.
7. Ground No.2 raised by the revenue reads as follows:
"2. On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in directing Assessing Officer to delete disallowance of depreciation of Rs.48,34,428/- being 50% depreciation disallowed on additions made to plant & machineries. Sufficient proof of installation of machinery and putting them to use before 30.09.2005 has not been filed."
8. The assessee had claimed deprecation of Rs. 1,19,42,747/- on plant and machinery. During the previous year there was an addition to the plant and machinery of Rs.5,02,78,011/-. The assessee was able to furnish the details of additions of the plant and machinery only to the extent of Rs. 3,60,96,984/-. In respect of the aforesaid plant and machinery the question before the AO was whether the said machineries had been installed and put to use before 30/9/2005 or after 30/9/2005. As per the provisions of Sec.32 of the Act, if the machineries were used for less than 180 days during the previous year then only 50% of the admissible depreciation can be allowed as deduction. It is in this context that the aforesaid question came up for consideration before the AO. According to the AO the assessee had filed a certificate issued by the Village Panchayat Office of Kaledhon regarding no 9 ITA NO. 1162/MUM/2010(A.Y.2006-07) objection for commencing of production of flexible packaging in assessee's factory from 31/8/2005. The AO was however of the view that except the aforesaid certificate there was no evidence to show installation of the machinery and use of the machinery prior to 30/9/2005. The AO therefore, disallowed the depreciation to the extent of Rs. 48,34,428/- as follows:
Opening WDV 29,340,301 15% 4,401,045
Addition 36,096,984 7.5% 2,707,274
TOTAL 7,108,319
Accordingly, the excess depreciation of Rs. 48,34,428/-(11942747 - 7108319) was disallowed.
9. On appeal by the assessee the CIT(A) deleted the addition made by the AO for the following reasons:
"4.3.3 The other dispute is on admissibility of full depreciation claimed on the additions made. The appellant contends that the added machineries were put to use in the first half of the year and it began commercial production of flexible packaging materials in August, 2005. The AC disbelieved this and allowed only 50% of the depreciation. It is seen from the details of fixed assets filed before the AO that the appellant had incurred trial run expenses which appear in the work in progress capitalized prior to 30/9/2005. There are invoices in those details which show sale of packaging materials in the month of September'05. I notice that the appellant has credited total sales of Rs.27,26,97,968/- to the P&L A/c. this year. It seen that it had sales ranging between Rs.1.11 crores and Rs.1.34 crores during April'05 to August,05. The sales rose to Rs.2.02 crores in September'05 and remained around that touching Rs.2.28 crores in December'05. The sales shot to Rs.3.68 crores in January'06 and peaked to Rs.4.32 crores the next month. The spurt in sales from Rs. 1.11 crores to Rs.2.02 crores evidence that the machineries added were used on before 30/9/2005. The AO does not dispute that all the items added were purchased prior to 30/09/2005. He also does not dispute the authenticity of the NCC issued by the Panchayat Authority permitting additional production much prior to 30/9/2005. All these evidence that the machineries added were at least ready for use prior to 30/09/2005 and the usage is evidenced from the invoice 8/9/2005 for Rs.4,23,364/- showing sales of printing and laminating 10 ITA NO. 1162/MUM/2010(A.Y.2006-07) films to M/s Puskaraj Packaging India Pvt. Ltd of Navale, Vasai, Thane, Maharashtra. Similar sales were made vide invoices dated 10/09/05 and 11/09/05 for Rs.1,08,092/- and Rs.58,218/-, respectively to M/s Alfa Agencies, Kandivali, Mumbai and Saavi Packers & Printers P Ltd, Sangli. The AC does not dispute these sales. The disallowance of depreciation of Rs.48,34,428/- has, therefore, no legs to stand. The addition made of the matching sum on that score is deleted. The ground is allowed."
Aggrieved by the order of the CIT(A) the revenue has raised Ground No.2 before the Tribunal.
10. We have heard the rival submissions. The assessee commenced the new activity of manufacture of flexible packaging materials during the previous year. The AO does not dispute the fact that new machinery were purchased in connection with the new activity. The point of dispute is with regard to user of the machinery prior to 30/9/2005. In this regard we find that the assessee has filed a chart giving details of trial production conducted by the assessee in respect of flexible packaging material. The said chart is at page No.53 to 57 of the assessee's paper book. A perusal of the same shows that the machineries which were added to the block of assets during the previous year comprised of printing machines and allied machinery. Erection of these machinery requires laying of found and erection. The bills evidencing laying of found and erection and also the purchase of raw materials for carrying out trial run production are available at page No.58 to 161 of the assessee's paper book. To quote an example at page 59 we find that the assessee had effected sale of printing lamination films and raised an invoice dated 8/9/2005. Apart from the above we find that the expenses incurred for erection of the machinery had been in the month of July. The purchase of the machinery and its arrival in the assessee's premises prior to 30/9/2005 had not been disputed by the AO. In our view the AO has not considered any of the aforesaid evidence and has rejected the claim of the assessee for no valid reasons. In our view the CIT(A) 11 ITA NO. 1162/MUM/2010(A.Y.2006-07) was fully justified in deleting the addition made by the AO. The order of the CIT(A) is, therefore, confirmed and Ground No.2 raised by the revenue is dismissed.
11. Ground No.3 raised by the revenue reads as follows:
3. On the facts and in the circumstances of the case and in law, the ld.CIT(A) erred in deleting the addition of Rs.30,35,408/- being cash deposits added as unexplained income and the Ld. CIT(A) failed to appreciate how cash of Rs.50 lakhs was generated in school's counter in rural area.
12. The AO noticed the following cash deposits in the three bank accounts maintained by the assessee.
S.No. Name of the Bank Place Total amount
deposited in cash
1. State Bank of India (IFB),( Current Mumbai Rs. 53,91,000
A/c.) Worli, Mumbai
2. The Cosmos Co.Op. Bank Ltd. , Mumbai Rs. 8,45,222
Kandivali(West), Mumbai
3. The Satara Dist. Central Co-op. Bank Kaledhon Rs. 6,85,250
Ltd. (Current A/c.) At Kaledhon, Dist. (Satara)
Satara
Total Rs. 69,21,472
When asked to explain the source of such cash deposit the assessee explained that the stationary items which were sold by the assessee in School at Vidya Vikas Mandir, Kaledhon were deposited in the various bank accounts. In this regard the assessee had filed a detailed evidence regarding the cash deposited in State Bank of India, the copy of the same is at pages 258 & 259 of the paper book. The said statement is duly supported by individual sales done at the respective premises of the various schools. The supporting evidence is available at page 260 to 559 of the assessee's 12 ITA NO. 1162/MUM/2010(A.Y.2006-07) paper book. The AO however did not accept the explanation of the assessee and he made addition of Rs. 30,35,408/- for the following reasons.
"7.2 I have considered the explanations. In regard to cash deposits in the account State Bank of India, Mumbai the assessee has furnished some details of cash sales stated to be effected at counters of a school, namely Vidya Vikas Mandir, Kaledhon. The point for consideration is whether sales of over Rs. 50 lacs were made at counter of a school situated in a rural area. Strength of students, no. of classes etc. of the school are not available. It is also not explained satisfactorily as to how cash of over Rs.50 lacs was generated in a school's counter in a rural area. It is further explained that cash collected from sales was transferred from factory to the head office in Mumbai and the same was deposited in the Bank A/c. In this connection, it may also be stated here that the assessee is having a bank a/c. in Kaledhon itself and yet, cash of large sums is stated to be brought from factory to Mumbai, instead of depositing there and thereafter transferring through DD or other means to Mumbai Bank a/cs. Looking to the peculiar circumstances of the case, the explanations are not fully convincing.
7.2 As regards cash deposits of Rs.8,45,222/- in the Cosmos Co-op Bank, Kandiwali, the assessee has submitted Xerox copies of invoices as per which sales of Rs.6,79,816/- were made in Kaledhon and balance sales of Rs. 1,65,406/- were made in Mumbai. From this also it is not clear as to why the cash of considerable sums was brought to Mumbai as claimed instead of depositing in the bank account in Kaledhon.
7.3 As mentioned earlier, cash sales of Rs. 6,85,250/- are stated to be deposited in bank account in Kaledhon, representing cash sales of the area, whereas cash of Rs. 62,36,222/- is deposited in Mumbai A/cs. Of the latter, an amount of Rs. 1,65,406/- is stated to be the sales made in Mumbai / suburbs. It may also be mentioned here that in scrutiny assessment proceedings for the immediately preceding year wherein an addition at 50% of cash deposits in Mumbai's bank a/c was made on account of unexplained deposits in bank accounts of Mumbai.
Under these circumstances and after careful consideration of the case, I hold that 50% of the cash deposits in Mumbai's Bank a/cs excluding Mumbai's sales of Rs.1,65,406/-, is out of undisclosed sources of the assessee. The addition comes to Rs.30,35,408/.. i.e. 1/2 ( 6236222- 165406)."13 ITA NO. 1162/MUM/2010(A.Y.2006-07)
13. On appeal by the assessee the CIT(A) deleted the addition made by the AO for the following reasons.
"5.3 I have considered the issue. It is not the case of the AO that the bank accounts were not disclosed. There were authorizations/permissions from various schools to carry out sales at their school counters. The appellant furnished challans in support of dispatch of goods sold there. There was date wise correlation of the cash sales with the cash deposits. The fact that the AO doubted only 50% of the cash sales shows that the AO himself does not dispute that such cash sales did take and found way into cash deposits in the bank accounts of course only a part thereof. It is, however, not understood as to how only half of the cash sales co1d go into the bank accounts and not the other half. The appellant has recorded the cash sales in the cash book and there is outflow of the cash so generated simultaneously to the bank accounts. All these sales are credited to the P&L A/c. It is not the case of the AO that the appellant has suppressed any sales. The accounts are audited both under the companies Act and u/s 44AB of the Income tax Act. The auditors have not adversely reported on these sales. Even if the conclusion of the AO is accepted that the impugned amount is from undisclosed sources the fact remains that the amount represents sales credited to the P/L A/c. No question, therefore, arises to treat any portion of the sales or the cash deposits as unaccounted income. The impugned amount has been offered to tax even if its source remains questionable. This has resulted in taxing the same receipt twice in the same hands. The addition made of Rs.30,35,408 has no basis. The same is deleted. The ground is allowed."
14. Aggrieved by the order of the CIT(A), the revenue has raised Gr.No.3 before the Tribunal. We have heard the rival submissions. The learned DR relied on the order of the AO. We have considered his submission. We find that for cash deposit of Rs.53,91,000/- in SBI (IFB), Worli, Mumbai, the Assessee has given date wise sales made at various schools and the cash deposited in the Bank A/C. This statement is at page-258 & 259 of Assessee's paper book. The sales are duly disclosed and the same is not disbelieved. The supporting evidence in the form of challans evidencing dispatch of books to various centres had also been filed. The AO has not found any defect in the evidence filed by the Assessee but has proceeded to 14 ITA NO. 1162/MUM/2010(A.Y.2006-07) make the addition purely on surmises and conjectures. The other reasons for disbelieving the source of cash deposited in the other two accounts are also vague and in any event cannot be the basis to disregard documentary evidence filed on behalf of the Assessee. We are of the view that the CIT(A) had rightly deleted the addition made by the AO. Consequently, Gr.No.3 raised by the Revenue is dismissed.
15. Ground No.4 raised by the assessee reads as follows:
"4. On the facts and in the circumstances of the case and in law, the ld.CIT(A) erred in deleting two expenses of Rs.9,66,592/- without appreciating that expenses were religious and expenses would not amount to advertisement."
16. The assessee had claimed advertisement expenses totalling Rs.31,66,584/-. Out of the same a sum of Rs. 3,51,350/- was incurred on distribution of free note books to poor students and Rs.6,15,342/- on arranging mahaprasad on festive occasion like Ganesh Chaturthi Pooja. The AO was of the view that free distribution of note book is a philanthropic work and in such case the name of the assessee is displayed on such note book and expenditure will not be advertisement expenditure. Similarly in respect of Mahaprasad expenses the AO was of the view that the same was purely religious and cannot be allowed as deduction.
17. On appeal by the assessee CIT(A) deleted the addition made by the AO for the following reasons.
"6.3 .2 As regard the other two expenses totaling Rs.9,66,592/-, it is no denying that the appellant displayed its brands and names either on the textbook distributed or by way of banners on the occasion of Mahaprasad distribution. It is a common sight these days that even the religious festivities are not spared by one or more business houses. They publicize their brands and/or products by sponsoring such events. These occasions are even telecast to very wide viewership. Display of brands and products through banners on such occasions is simply wide publicity and business promotion. There is no dispute on 15 ITA NO. 1162/MUM/2010(A.Y.2006-07) the genuineness of the expenses. I, therefore, delete the total additions made of Rs.9,66,592. The ground is allowed."
Aggrieved by the order of the CIT(A), the Revenue has raised Gr.No.4 before the Tribunal.
18. We have heard the submissions of the learned DR who relied on the order of the AO. We are of the view that the order of the CIT(A) does not call for any interference. Both the aforesaid expenses would in our view bring publicity to the Assessee. The distribution of free note books is directly connected to the business of the Assessee. The expenses on religious functions would also bring publicity to a business house and would have advertisement value. We therefore uphold CIT(A)'s order and dismiss Gr.No.4 raised by the Revenue.
19. Ground No.5 raised by the revenue reads as follows:
"5. On the facts and in the circumstances of the case and in law, the ld.CIT(A) erred in deleting Rs.7,19,500/- disallowance out of expenses claimed on repair to building without appreciating fact that the amount of Rs.5,53,980/- & Rs.1,65,420/- were pertaining to concrete flooring and replacement of shutters was part of fixed assets of the business."
20. The assessee claimed to have incurred Rs.18,91,179/- on repairs. The AO observed that expenses of Rs.5,53,980/- pertained to concrete flooring and that of Rs.1,65,420/- on replacement of shutters. He held that durability was of more than one year and such expenses were on capital circumstances, he disallowed Rs.7,19,400/- out of Rs.18,91,179/- claimed as repairs expenses, subject to depreciation. However, the AO did not allow any depreciation.
21. Being aggrieved, the assesee submitted before CIT(A) full details of expenses which were also given during the assessment proceedings 16 ITA NO. 1162/MUM/2010(A.Y.2006-07) showing that the impugned expenses were in the nature of normal repairs and maintenance of the factory building. The Assessee claimed that the expenses could not be said to have resulted in any enduring benefit or created any capital asset and should be allowed as revenue expenses u/s 37(1) of the Act. Alternatively and without prejudice, the Assessee submitted that depreciation may be allowed on the disallowance.
22. The CIT(A) held that the expenditure was revenue expenditure for the following reasons:
"7.3 I have considered the issue. The only reason given by the AO for treating the impugned expenses as capital in nature is that concrete flooring and shutters endure for more than one year. Firstly, this is his mere assumption. If the logic of the AO is accepted then the expenditure on white washing of a building which also generally lasts for more than a year can be termed capital expenditure. In my opinion no time frame can be applied in order to treat any expenditure on capital account. The requirement for the purpose is enduring advantage and/or creation of a capital asset. In my opinion, if an expenditure say on building is incurred on capital account, it should result in an advantage which endures at least the life of the building, or result in an asset akin to the building. No such event has occurred in the case of the appellant by incurring of the impugned expense. The addition made of Rs.7,19,400/- is, therefore, deleted. The ground is allowed."
23. Aggrieved by the order of the CIT(A), the revenue has raised Gr.No.5 before the Tribunal. We have heard the submission of the learned DR who relied on the order of the AO. We are of the view that the reasons given by the AO for treating the expenditure as capital cannot be sustained. The expenses were incurred merely to preserve the asset and cannot be regarded as capital expenditure. We therefore uphold order of CIT(A) and dismiss Gr.No.5 raised by the Revenue.
24. Ground No.6 raised by the assessee reads as follows:
"6. On the facts and in the circumstances of the case and in law, the ld.CIT(A) erred in deleting expenses incurred in 'ISO Certification' 17 ITA NO. 1162/MUM/2010(A.Y.2006-07) without appreciation of fact that the certificates confers certain special status for the assessee company and goodwill in the market."
25. The assessee had claimed expenses of Rs. 29,500/- for obtaining ISO Certification. The certification was stated to be valid for 3 years. The AO observed that the ISO Certification conferred certain special status to the assessee company in the market or amongst consumers or the public at large. In these circumstances, he held that the expenses were of capital nature and disallowed the same.
26. Being aggrieved, the assessee submitted before CIT(A) that benefit of obtaining such certification is immediate and, therefore, the said expenses are wholly and exclusively for the purpose of business. The assessee submitted that the certification is for the quality management system. The expenses should, therefore, be allowed as business expenditure.
27. The CIT(A) deleted the addition made by the AO for the following reasons:
"9.3 I have considered the dispute. On going through the certificate in question I observe that the institution giving the certificate states that the certificate holder operates a quality management system which has been assessed as confirming to ISO 9001-2000 standards. I do not understand what led the AO to conclude that the certification brought any enduring advantage or creation of any capital asset. Validity of such a certificate for only 3 years shows that it does not bring any enduring advantage. The addition made of Rs.29,500/- is, therefore, disallowed."
28. Aggrieved by the order of the CIT(A), the revenue has raised Gr.No.6 before the Tribunal. We have heard the submission of the learned DR who relied on the order of the AO. We are of the view that the reasons given by the AO for treating the expenditure as capital cannot be sustained. The expenses results in immediate benefit to the Assessee and cannot be 18 ITA NO. 1162/MUM/2010(A.Y.2006-07) regarded as capital expenditure. We therefore uphold order of CIT(A) and dismiss Gr.No.6 raised by the Revenue.
29. In the result, the appeal by the revenue is dismissed.
Order pronounced in the open court on the 18th day of April 2012 Sd/- Sd/-
(P.M.JAGTAP ) (N.V.VASUDEVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai, Dated 18th April 2012
Copy to: 1. The Appellant 2. The Respondent 3. The CIT City -concerned
4. The CIT(A)- concerned 5. The D.R"E" Bench.
(True copy) By Order
Asst. Registrar, ITAT, Mumbai Benches
MUMBAI.
Vm.