TaxTMI 
TaxTMI 
2018 (11) TMI 1607
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....o. 3113/Del/2013 is the assessee's appeal for assessment year 2005-06 and is preferred against the order dated 28.02.2013 which has been passed by the Ld. CIT (A)-IV, New Delhi. ITA No. 3114/Del/2013 is the assessee's appeal for assessment year 2005-06 and is preferred against the order dated 28.02.2013 which has been passed by the Ld. CIT (A)-IV, New Delhi. 1.1 All the five appeals were heard together and for the sake of convenience, they are being disposed of through this consolidated order. 2.0 Brief facts of the case for assessment year 2001-02 in ITA No. 5847/Del/2010 are that the assessee company was set up in March 1999 as a joint venture of M/s Chambal Fertilizers Ltd. and Technico Pty. Ltd. to produce tissue culture based high yielding seed potatoes. The assessee's business commenced on 14.09.2000, i.e. during the assessment year 2001-02. Out of the total net pre-operative/pre-commencement expenditure of Rs. 8,97,91,659/-, the assessee had capitalized an amount of Rs. 2,88,77,659/- allocated to the fixed assets viz. building and plant and machinery. The amount of fixed assets on which depreciation was claimed was Rs. 2,57,95,922/- and depreciation of Rs. 50,81,747/- ....
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....ds of appeal in ITA No. 5847/Del/2010:- "1. That the impugned order passed by the learned CIT (A) is contrary to the law and facts of the case. 2. That the learned CIT (A) erred in sustaining the adhoc depreciation disallowance of Rs. 50,81,747/- on the total pre-operative expenditure of Rs. 2,57,95,922/- (incurred by the appellant company before 14 September 2000 i.e. the date of commencement of commercial production) allocated to fixed assets. 3. That the learned CIT (A) also failed to appreciate that complete details as asked were provided to the learned AO. That a specific offer to submit all documents again was also made before the learned CIT (A) by the assessee, which was ignored. 4. That the learned CIT (A) failed to appreciate that the details of legitimate expenditure of Rs. 2,57,95,922/- incurred to set up the project, has direct nexus with the purchase and installation of Plant and Machinery and construction of Building. 5. That the learned CIT (A) also erred in failing to notice that the learned AO completely disregarded the instructions/ order of Hon'ble ITAT vide its order dated 21.11.2008, advising the learned AO to capit....
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....learned CIT (A) is contrary to the law and facts of the case. 2. That the learned CIT (A) erred in law and in facts in sustaining the addition of Rs. 3,478,817/- on account of alleged excess depreciation claimed by the appellant. 3. That the learned CIT (A) erred in law and in facts in disallowing 4/5th of the Agronomy Management Fee amounting to Rs. 47,86,525/- paid by the appellant company. 4. That the learned CIT (A) further erred in law and in facts in disallowing 4/5th of the Production Facility Management Fee amounting to Rs. 17,62,065/- paid by the appellant company. 5. That the learned CIT (A) further erred in law and in facts in disallowing 4/5th of the Technology Enhancement Fee amounting to Rs. 1,18,77,353/- paid by the appellant company. 6. That the learned CIT (A) further erred in upholding the above expenditure incurred on Agronomy Management Fee, Production Facility Management Fee and Technology Enhancement Fee to have an enduring benefit. 7. That the learned CIT (A) further erred in law and in facts in holding the loose tools amounting to Rs. 55,036/- to be of capital nature and accordingly upholding that the dep....
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....tion of Rs. 1,97,96,000/- on pro-rata basis on account of upfront fee paid by the appellant for reducing rate of interest on loan taken by the company from ICICI Bank. 4. That the learned CIT (A) further erred in law and in facts in holding the loose tools to be of capital nature and accordingly upholding that the depreciation is allowable @ 25% on the same. Without prejudice to the above the learned CIT (A) erred in upholding the addition of Rs. 6,181/- after allowing depreciation @ 25%, as the actual cost of loose tools is Rs. 22,000/-. 5. That the learned CIT (A) erred in law and in facts in sustaining the disallowance of the Agronomy Management Fee paid by the appellant company in A/Y 2003- 04 amounting to Rs. 47,86,525/- and charging l/5th of Agronomy Management Fee in the current A/Y. 6. That the learned CIT (A) erred in law and in facts in sustaining the disallowance of the Production Facility Management Fee paid by the appellant company in A/Y 2003-04 amounting to Rs. 17,26,065/- and charging 1/5th of Production Facility Management Fee in the current A/Y. 7. That the learned CIT (A) erred in law and in facts in sustaining the disallowance....
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....04 amounting to Rs. 17,26,065/- and charging l/5th of Production Facility Management Fee in the current A/Y. 6. That the learned CIT (A) erred in law and in facts in sustaining the disallowance of the Technology Enhancement Fee paid by the appellant company in A/Y 2003-04 amounting to Rs. 1,18,77,353/- and charging l/5n of Technology Enhancement Fee in the current A/Y. 7. That the learned CIT (A) further erred in upholding the above expenditure incurred on Agronomy Management Fee, Production Facility Management Fee and Technology Enhancement Fee to have an enduring benefit. 8. That the said action of the learned CIT (A) was arbitrary,conjectural and against law & facts of the case. 9. The appellant craves leave to add, delete, alter or modify the above grounds of appeal." 6.0 In assessment year 2006-07, in ITA No. 3114/Del/2013, again the issues are identical. Ground no. 2 is against the order of the ld. CIT (A) in sustaining the disallowance of Rs. 1,508,014/- on account of alleged excess depreciation on capitalization of preoperative expenses. Further, the assessee is also challenging the upholding the disallowances of Rs. 47,86,525/-, Rs. 1....
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....AT, the Assessing Officer had required the assessee to furnish details in respect of expenses along with bills and vouchers of amounts above Rs. 1 lakh and the assessee had filed complete details of the preoperative expenses capitalised to the fixed assets and explained the nature of each expense establishing the nexus with fixed assets. Our attention was drawn to assessee's reply dated 20.11.2009 which was placed at pages 76-97 of the paper Book filed by the assessee. The Ld. AR also submitted that the fact that the details were filed by the assessee was also recorded in the order sheet entry dated 20.11.2009. Our attention as drawn to copy of the order sheet placed at pages 99 and 99A of the assessee's Paper Book in this regard. It was submitted by the Ld. AR that, however, the Assessing Officer observed that the relevant details were not filed by the assessee and in appeal before the Ld. Commissioner of Income Tax (A) also, the Ld. Commissioner of Income Tax (A), after calling for the assessment record, had observed that the assessee had duly complied by filing all the details but observed that the details were not backed by invoices and vouchers and had, thereafter, upheld the ....
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.... no. 2 in ITA No. 3114/Del/2013 stand allowed for statistical purposes. 10.0 With respect to ground nos. 3, 4, 5 and 6 in assessment year 2003-04 pertaining to disallowance of 4/5th of the Agronomy Management fee, Production Facility Management Fee and Technology Enhancement fee by treating the same as deferred revenue expenditure, the Ld. AR submitted that the licence fee was paid for granting licence to carry out operations for operating horticulture and agronomic commercial production, marketing and distribution of miniature potato seeds. It was submitted that in view of the licence agreement, all the technology, IPRs, trademark etc. vested with M/s Technico Pty. Ltd. and the assessee was merely granted licence to use the mark in the prescribed manner. The Ld. AR further submitted that the licence fees paid in lump sum was capitalised by the assessee and the same was accepted by the revenue also. However, apart from the licence fee, the assessee was also obliged to pay technology enhancement fee which was for providing/sharing improvements in the existing technology as a result of Research and Development activities by M/s Technico Pty. Ltd. It was also submitted that the pay....
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.... 7 & 8 in assessment year 2004-05, ground no. 4, 5, 6 and 7 in assessment year 2005-06 and ground no. 3, 4, 5, 6 in assessment year 2006-07 and the arguments would be identical in all these years. 10.2 In response, the Ld. Sr. DR placed heavy reliance on the orders of both the authorities below and vehemently argued that the disallowance had been rightly made in this regard. 10.3 With respect to ground no. 7 in assessment year 2003- 04, the Ld. AR submitted that this ground challenged the action of the Assessing Officer in capitalizing the expenses incurred on loose tools. It was submitted that the lower authorities had failed to appreciate that the loose tools were consumable in nature and did not have a span of life which was more than one year. It was also submitted that the assessee had also categorised loose tools as part of inventory and not as capital assets in the books of accounts and the accounting treatment had been approved by the statutory auditors who had not made any adverse comments on the same. It was prayed that the action of the Assessing Officer in capitalizing the expenditure and allowing depreciation @25% thereon deserves to be set aside. 10.4 The Ld.....
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....iding and sharing improvements in technology, training of staff, production facility management, technology review etc. It is seen that the Assessing Officer, while making the disallowance, has observed that technical services and training provided by M/s Technico to the assessee company had provided enduring advantage to the assessee company which would benefit the assessee over a number of years and, therefore, allowing the entire expenditure in one year might give a distorted picture of profits in a particular year. While making the disallowance, the Assessing Officer has also placed reliance on the judgment of the Hon'ble Apex Court in the case of Madras Industrial Investment Corporation vs. Commissioner of Income Tax reported in 225 ITR 802 (SC). The Ld. Commissioner of Income Tax (A), while upholding the disallowance, also seconded the view taken by the Assessing Officer. Thus, apart from observing that the impugned fees gave an enduring benefit to the assessee company and, therefore, the allowability of expenditure had to be spread over 5 years, the lower authorities have not given any cogent reason for making the disallowance. Undisputedly, the factum of the fees having bee....
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....t the Assessing Officer to allow the entire expenditure in the assessment year in which it is claimed. Accordingly, ground nos. 3, 4, 5 and 6 in assessment year 2003- 04 and identical ground nos. 5, 6, 7, and 8 in assessment year 2004-05, ground nos. 4, 5, 6, 7 in assessment year 2005-06 and ground nos. 3, 4, 5, and 6 in assessment year 2006-07 stand allowed. 11.1 Ground no. 7 in assessment year 2003-04 challenges the action of the Assessing Officer in holding the expenditure with respect to loose tools as being capital in nature and allowing depreciation @25% thereon. A perusal of the assessment order shows that the Assessing Officer has simply mentioned that the expenditure on loose tools is of capital nature, the same was to be capitalized and depreciation had to be allowed thereon. The Ld. Commissioner of Income Tax (A), while upholding the disallowance, has noted that the assessee had submitted before the Assessing Officer that the depreciated value of loose tools was arrived at on the basis of amortisation of cost over a period of three years as per the regular accounting policy being followed by the assessee company. The Ld. Commissioner of Income Tax (A) went on to hold ....
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....nciple of 'Matching Concept' to support this conclusion. 11. Insofar as the first reason, namely, non-convertible debentures were issued for a period of five years is concerned, that is clearly not tenable. While taking this view, the AO clearly erred as he ignored by ignoring the terms on which debentures were issued. As noted above, there were two methods of payment of interest stipulated in the debenture issued. Debenture holder was entitled to receive periodical interest after every half year @ 18% per annum for five years, or else, the debenture holder could opt for upfront payment of Rs. 55 per debenture towards interest as one time payment. By allowing only l/5th of the upfront payment actually incurred, though the entire amount of interest is actually incurred in the very first year, the AO, in fact, treated both the methods of payment at par, which was clearly unsustainable. By doing so, the AO, in fact, tampered with the terms of issue, which was beyond his domain. It is obvious that on exercise of the option of upfront payment of interest by the subscriber in the very first year, the assessee paid that amount in terms of the debenture issue and by doing ....
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....al Investment Corpn. Ltd. v. CIT [1997] 225 ITR 802/91 Taxman 340 (SC) was cited by the learned counsel for the Revenue to justify the decision taken by the courts below. We find that the Court categorically held even in that case that the general principle is that ordinarily revenue expenditure incurred wholly and exclusively for the purpose of business is to be allowed in the year in which it is incurred. However, some exceptional cases can justify spreading the expenditure and claiming it over a period of ensuing years. It is important to note that in that judgment, it was the assessee who wanted spreading the expenditure over a period of time and had justified the same. It was a case of issuing debentures at discount; whereas the assessee had actually incurred the liability to pay the discount in the year of issue of debentures itself. The Court found that the assessee could still be allowed to spread the said expenditure over the entire period of five years, at the end of which the debentures were to be redeemed. By raising the money collected under the said debentures, the assessee could utilise the said amount and secure the benefit over number of years. This is discernible ....