TaxTMI 
TaxTMI 
2022 (8) TMI 1619
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....t drinks / aerated water etc. The return of income for assessment year 2012-13 (ITA No. 475/Chd/2019) was filed declaring income of Rs. 32,71,954/- and the assessment was completed at an income of Rs. 2,05,25,890/- after making an addition of Rs. 9,92,069/- on account of disallowance of expenses relating to advertisement and publicity, sales promotion, commission and incentive @ of 25% of the total of such expenses on estimate basis and a further addition of Rs. 1,62,61,867/- being disallowance of amount of Conversion Charges of Land Use paid to the Chandigarh Administration and claimed as Revenue expenditure by the assessee. In assessment year 2013-14 (ITA 476/Chd/2019,) the return of income was filed declaring a loss of Rs. 16,74,952/- and the assessment was completed at an income of Rs. 1,50,72,323/- after making a disallowance of Rs. 4,85,408/- being 25% of expenditure disallowed on estimate basis with respect to advertisement and publicity and sales promotion and a further disallowance of Rs. 1,62,61,867/- being the charges paid towards Conversion of Land Used (CLU) paid to Chandigarh Administration and claimed by the assessee as being Revenue in nature. In assessment year 201....
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....- treating the Principal amount paid to Chandigarh Administration towards CLU to be a capital expenditure as against revenue expense which is arbitrary and unjustified. 2. That the Ld. Commissioner of Income Tax (Appeals) has without appreciating the facts as placed before him in the right perspective upheld the addition which is arbitrary and unjustified. 3. That the order of the Ld. CIT(A) is erroneous, arbitrary, opposed to the facts of the case and thus untenable. ITA No. 477/Chd/2019 1. That the Ld. Commissioner of Income Tax (Appeals) has erred in law as well as on facts in sustaining the addition of Rs.1,21,56,285/- treating the Principal amount paid to Chandigarh Administration towards CLU to be a capital expenditure as against revenue expense which is arbitrary and unjustified. 2. That the Ld. Commissioner of Income Tax (Appeals) has without appreciating the facts as placed before him in the right perspective upheld the addition which is arbitrary and unjustified. 3. That the order of the Ld. CIT(A) is erroneous, arbitrary, opposed to the facts of the case and thus untenable." 3.0 At the outset, the Ld. Authorized Re....
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.... (identical in all the three years) before us, the Ld. AR submitted that in all the three assessment years, the AO has disallowed the assessee's claim of expenditure of Rs. 1,62,61,867/- as being capital in nature which was incorrect application of law on the facts and circumstances of the case. It was submitted that the assessee had paid these charges for Conversion of Land Use from industrial to commercial only on being required by the Chandigarh Administration to do so. It was submitted that the Chandigarh Administration had on his own decided to change the policy which had been earlier in place for approximately forty years and had re-classified the assessee's business activity as commercial activity requiring the assessee to pay charges for Conversion of Land Use. It was submitted that, thus, this payment was thrust upon the assessee and the conversion was not made at the behest and request of the assessee and, therefore, the assessee had no option but to comply with the directions of the Chandigarh Administration for the simple reason that had the assessee not accepted and complied with the directions of the Chandigarh Administration, the plot of land might have been taken ov....
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....e as Revenue expenditure, the circumstances under which the same is incurred is necessarily to be considered. It was emphasized that in the present case the business was being run by the assessee since 1969 and since the nature of the business had changed from manufacturing to trading, therefore, in view of the notification issued by the Chandigarh Administration, the assessee was bound to pay fees towards Change in Land Use in order to retain the possession of the plot and for removal of any restrictions / obstructions or disabilities. 6.3 The Ld. AR also submitted that even the Income Tax Department, in earlier assessment year 2009-10, had examined this issue and had specifically allowed the assessee's claim in assessment proceedings completed u/s 143(3) of the Act. It was submitted that, therefore, even on the basis of principle of consistency, the assessee's case deserved to be allowed. 6.4 The Ld. AR also placed reliance on numerous case laws in support of his contention that since no capital asset had been created or acquired and the expenditure had a direct nexus / connection and relation to the carrying on of the business and the same was an integral part of the profi....
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....siness has changed from manufacturing to trading once Parle India Bottlers were acquired by Coca Cola (India). It is also undisputed that the assessee had never applied for Change in Land Use at its non behest and it was only when the Chandigarh Administration changed its policy regarding Industrial Plots and notified that all enterprises carrying on trading business should apply for Change in Land Use from industrial to commercial that the assessee applied for Change in Land Use. It is also undisputed that the assessee, when it was operating a bottling plant, qualified under an Industrial Activity and it is only for the purpose of retaining the possession of the plot that the assessee had to apply for Change in Land Use. Although, the charges for Change in Land Use are considered to be a one time payment, all the same, the essential question that arises is as to whether the assessee has acquired any capital asset by paying charges for conversion of land use. Although, it cannot be denied that an enduring benefit in the form of permission to continue with the possession of the plot accrues to the assessee, but all the same, by no stretch of imagination can it be inferred that any c....
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....e present case. The Hon'ble Punjab & Haryana High Court was considering the question whether the Municipal Taxes paid for a plot of land although the business had yet to be commenced would qualify as Revenue expenditure or capital expenditure and the Hon'ble High Court held that the Municipal Tax paid was not for acquisition of any business asset but for retention of the same and, therefore, would be allowable as business expenditure u/s 37 of the Act. 8.3 We are also guided by the judgement of the Hon'ble Apex Court in the case of Bikaner Gpysums Ltd. Vs. CIT reported in (1991) 187 ITR 39 (SC) wherein, the Hon'ble Apex Court held that where the assessee has an existing right to carry on the business, any expenditure made by it during the course of business for the purpose of removal of any restriction or obstruction or disability would be on Revenue account, provided the expenditure does not result in acquiring any capital asset. The Hon'ble Apex Court went on to hold that payments made for removal of restrictions, obstruction or disability may result in acquiring benefits to the business, but that by itself would not acquire any capital asset. The Hon'b....
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....ading operation of the company, the expenditure was on income account. The House of Lords considered the test laid down by Lord Cave L. C. in British Insulated Company's case [1926] AC 205 (HL), and held that the payments made by the company were for the purpose of removing the disability in the company's trading operation which prejudiced its operation. This was achieved without the acquisition of any tangible or intangible asset or without creation of any new branch of trading activity. From a commercial and business point of view, nothing in the nature of an additional fixed capital asset was thereby achieved. The court pointed out that there is a sharp distinction between the removal of a disability on the one hand, payment for which is a revenue payment, and the bringing into existence of an advantage, payment for which may be a capital payment, on the other. Since, in the case before the court, the company had made payments for removal of the disabilities which confined their business under the out of date charter of 1773, the expenditure was on revenue account. In Empire Jute Co. v. CIT [1980] 124 ITR 1, this court held that the expenditure incurred by an assessee fo....