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TMI Blog2018 (11) TMI 1607X X X X Extracts X X X X X X X X Extracts X X X X ..... er with the direction to examine the documents and the submissions of the assessee, keeping in mind the directions of the ITAT in the first round of proceedings and, thereafter, adjudicate the issue as per law after giving due opportunity to the assessee. 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 - HELD THAT:- We find that the instant case is squarely covered by the judgment of the Hon ble Apex Court in the case of Taparia Tools Ltd. vs JCIT [ 2015 (3) TMI 853 - SUPREME COURT] wherein it has been laid down by the Hon ble Apex Court that normally the revenue expenditure incurred in a particular year has to be allowed in the year the assessee claims that expenditure and the department cannot deny the same. The Hon ble Apex Court went on to hold that even the fact that the assessee had deferred the expenditure in the books of account would be irrelevant. We are unable to concur with the findings of the CIT(A) in this regard and while setting aside the order of the Ld. CIT (A) on this issue, we direct the Assessing Officer to allow the entire expenditur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... preferred by the assessee. ITA 5847/Del/2010 is the assessee s appeal for assessment year 2001-02 and is preferred against the order dated 4.11.2010 which has been passed by the Ld. CIT (A)-IV, New Delhi. ITA No. 3111/Del/2013 is the assessee s appeal for assessment year 2003-04 and is preferred against the order dated 28.2.2013 passed by the Ld. CIT (A)-IV, New Delhi. ITA No. 3112/Del/2013 is the assessee s appeal for assessment year 2004-05 and is preferred against the order dated 28.02.2013 which has been passed by the Ld. CIT (A)-IV, New Delhi. ITA No. 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 u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nces/bills and vouchers were submitted by the assessee. The assessee again approached the Ld. CIT (A) and submitted that all the details required by the Assessing Officer were duly furnished before the Assessing Officer and were also examined by the Assessing Officer. However, the Ld. CIT (A) upheld the disallowance on depreciation on preoperative expenses capitalized to fixed assets on the ground that the details filed by the assessee were not backed by proper bills and vouchers. 2.2 Now, the assessee has approached the ITAT challenging the order of the Ld. CIT (A) and has raised the following grounds 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 ₹ 50,81,747/- on the total pre-operative expenditure of ₹ 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 provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hree years. The Assessing Officer, however, held the same to be capital in nature and allowed depreciation thereon @25%. Apart from this, the Assessing Officer also made a disallowance of ₹ 34,78,817/- on account of alleged excess depreciation claimed by the assessee with respect to the preoperative expenditure which had been capitalized by the assessee in assessment year 2001-02 but was not allowed by the AO. This action of the Assessing Officer was affirmed by the Ld. CIT (A). 3.1 Now, the assessee has approached the ITAT against the impugned order and has raised the following grounds of appeal:- 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 law and in facts in sustaining the addition of ₹ 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 ₹ 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 Pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction facility management fee and ₹ 1,18,77,353/- pertaining to technology enhancement fee paid by the assessee. The Assessing Officer allowed only 1/5th of these amounts. The ld. CIT(A) upheld the action of the Assessing Officer and now, the assessee is before the ITAT challenging the adjudication by the ld. CIT(A) and has raised the following grounds of appeal:- 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 law and in facts in sustaining the addition of ₹ 27,53,533/- on account of alleged excess depreciation claimed by the appellant. 3. That the learned CIT (A) erred in law and in facts in sustaining the addition of ₹ 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... above, that the learned CIT (A) erred in upholding the addition of ₹ 11,250 after allowing depreciation @ 25%, as the actual cost of loose tools is ₹ 15,000. 3. That the learned CIT (A) erred in law and in facts in sustaining the addition of ₹ 2,481,635/- on account of alleged excess depreciation claimed by the appellant on Pre- Operative expenses. 4. 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 ₹ 47,86,525/- and charging l/5th of Agronomy Management Fee in the current A/Y. 5. 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 ₹ 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 ₹ 1,18,77,353/- and charging l/5n of Technology Enhancement Fee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ring benefit. 7. That the said action of the learned CIT (A) was arbitrary, conjectural and against law facts of the case. 8. The appellant craves leave to add, delete, alter or modify the above grounds of appeal. 7.0 At the outset, the Ld. AR drew our attention to the application submitted by the assessee for admission of additional evidence in terms of Rule 29 of the ITAT Rules, 1963. The Ld. AR submitted that the details of preoperative expenses capitalised to fixed assets along with the invoices, bills and vouchers were being sought to be admitted as additional evidences. It was submitted that these additional evidences were relevant for adjudication of the issue relating to capitalization of certain preoperative expenses to fixed assets and consequential allowability of depreciation thereon. The Ld. AR submitted that after the set aside by the ITAT, the Assessing Officer had required the assessee to furnish details in respect of expenses along with bills and vouchers of amounts above ₹ 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 es ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he parties to lead evidence at the appropriate stage. Accordingly, we deem it fit to admit the additional evidence which has been placed in the form of paper book before us. 9.1 In view of this Bench admitting the additional evidences filed by the assessee, the issue in dispute must necessarily be set aside to the file of the Assessing Officer so as to enable him to examine and verify the same. Accordingly, we restore this issue to the file of the Assessing Officer with the direction to examine the documents and the submissions of the assessee, keeping in mind the directions of the ITAT in the first round of proceedings and, thereafter, adjudicate the issue as per law after giving due opportunity to the assessee. Accordingly, ground nos. 2, 3 and 4 in ITA No. 5847/Del/2010, ground no. 2 in ITA No. 3111/Del/2013, ground no. 2 in ITA No. 3112/Del/2013, ground no. 3 in ITA No. 3113/Del/2013 and ground 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 Enhan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubmitted that this fee did not result in creation of any new capital asset and was for services rendered in connection with operations and production facilities and being so, they were purely revenue in nature and were to be allowed as business deduction in the year in which they were claimed. It was also submitted that there was no concept of deferred revenue expenditure under the Act and further these payments were accepted by the revenue as an allowable deduction in assessment year 2001-02 initially u/s 143(3) of the Act and also in assessment year 2003-04. The Ld. AR also submitted that in view of the judgment of the Hon ble Apex Court in the case of Taparia Tools Ltd. vs. JCIT reported in 372 ITR 605(SC), the impugned payments were allowable as deduction in the year in which they were claimed/spent. 10.1 The Ld. AR also submitted that the grounds in assessment year 2003-04 were identical to ground no. 5, 6, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esponse, the Ld. Sr. DR placed reliance on the findings and observations of both the lower authorities. 11.0 Having heard the rival submissions, we take up the issues one by one. In assessment year 2003-04, the assessee has challenged the 4/5th disallowance out of Technology Enhancement Fee, Agronomy Management Fee and Production Facility Management Fee and has raised the issue in grounds 3,4,5 and 6. The Ld. AR has drawn our attention to the Licence Fee Agreement as well as the Service Agreement and has emphasised that the amounts paid had been paid under the terms of the two agreements. It is the contention of the Ld. AR that although the licence fee paid by the assessee has been accepted by the department in earlier years, the other fees were not allowed on the ground that the benefit was of enduring nature and could not be said to have accrued only in one year. It is the contention of the Ld. AR that the impugned fees have been paid for the purpose of providing 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 technica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lar year has to be allowed in the year the assessee claims that expenditure and the department cannot deny the same. The Hon ble Apex Court went on to hold that even the fact that the assessee had deferred the expenditure in the books of account would be irrelevant. In this judgment, the Hon ble Apex Court has also taken note of its earlier judgment rendered in the case of Madras Industrial Investment Corporation Ltd. vs. C.I.T. (supra) and has, thereafter, held that the Income Tax Act enables and entitles the assessee to claim entire expenditure in the manner it is claimed u/s 37(1) of the Act as long as the same is not capital in nature. Therefore, respectfully following the ratio of the judgment of the Hon ble Apex Court in the case of Taparia Tools Ltd. vs. JCIT (supra), we are unable to concur with the findings of the Ld. Commissioner of Income Tax (A) in this regard and while setting aside the order of the Ld. Commissioner of Income Tax (A) on this issue, we direct 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 as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... udgment of the Hon ble Apex Court in the case of Taparia Tools Ltd. vs. JCIT (supra) wherein the Honble Apex Court held that the treatment in the books of accounts was not determinative of the taxability. The relevant observations of the Hon ble Apex Court are contained in Para, 10,11,12,15,16, 18, 19 20 and 21 and the same are being reproduced hereunder for a ready reference:- 10. The only reason which persuaded the AO to stagger and spread the interest over a period of five years was that the term of debentures was five years and that the assessee had itself given this very treatment in the books of account, viz, spreading it over a period of five years in its final accounts by not debiting the entire amount in the first year to the Profit and Loss account and it has, in fact, debited l/5th of the interest paid to the Profit and Loss account from the second year onwards. The High Court, in its impugned judgment, has based its reasoning on the second aspect and applied the principle 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, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed counsel pointed out that in the instant case the assessee had filed the income tax return claiming the entire deduction which was allowable to it under the provisions of Section 36(l)(iii) of the Act as all the conditions thereof were fulfilled and, thus, it was exercising the statutory right which could not be denied. 15. What is to be borne in mind is that the moment second option was exercised by the debenture holder to receive the payment upfront, liability of the assessee to make the payment in that very year, on exercising of this option, has arisen and this liability was to pay the interest @ ₹ 55 per debenture. In Bharat Earth Movers v. CIT [2000] 245 ITR 428/112 Taxman 61 (SC), this Court had categorically held that if a business liability has arisen in the accounting year, the deduction should be allowed even if such a liability may have to be quantified and discharged at a future date. . 16. Judgment in Madras Industrial 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 categ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tries in the books of account are not determinative or conclusive and the matter is to be examined on the touchstone of provisions contained in the Act [See - Kedarnath Jute Mfg. Co. Ltd. v. CIT[1971] 82 ITR 363 (SC); Tuticorin Alkali Chemicals Fertilizers Ltd. v. CIT [1997] 227 ITR 172/93 Taxman 502 (SC); Sutlej Cotton Mills Ltd. v. CIT [1979] 116 ITR 1 (SC) and United Commercial Bank v. CIT [1999] 240 ITR 355/106 Taxman 601 (SC). 20. At the most, an inference can be drawn that by showing this expenditure in a spread over manner in the books of account, the assessee had initially intended to make such an option. However, it abandoned the same before reaching the crucial stage, inasmuch as, in the income tax return filed by the assessee, it chose to claim the entire expenditure in the year in which it was spent/paid by invoking the provisions of Section 36(l)(iii) of the Act. Once a return in that manner was filed, the AO was bound to carry out the assessment by applying the provisions of that Act and not to go beyond the said return. There is no estoppel against the Statute and the Act enables and entitles the assessee to claim the entire expenditure in the manner it i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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