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Income Tax Appellate Tribunal, DELHI BENCHES “H” : DELHI
Before: SHRI ANIL CHATURVEDI & SHRI N.K. CHOUDHARY
ORDER PER ANIL CHATURVEDI, A.M.
This appeal by Revenue has been directed against the Order of the Ld. CIT(A)-2, New Delhi, dated 14.09.2020 in Appeal No.10607/19-20 relating to the A.Y. 2017-2018.
2 ITA.No.353/Del./2021 M/s. Central Warehousing Corporation, New Delhi.
Briefly, the facts of the case, are that the assessee company is stated to be engaged in the business of warehousing and other related activities as prescribed under the Warehousing Corporations Act, 1962. The assessee filed its return of income for the A.Y. 2017-18 on 20.10.2017 declaring income of Rs.2,07,14,10,340/-. The case was selected for scrutiny and thereafter, assessment was framed under section 143(3) of the I.T. Act, 1961 vide order dated 28.12.2019 and the total income of the assessee company was determined at Rs.2,08,80,89,375/-. Aggrieved by the order of the A.O, the assessee carried the matter in appeal before the Ld. CIT(A) who vide order dated 14.09.2020 decided the issue in favour of the assessee.
Aggrieved by the order of the Ld. CIT(A), the Revenue is in appeal before the Tribunal and has raised the following grounds :
1. “On the facts and circumstances of the case, whether the Ld. CIT(A) has erred on facts and in law to delete the disallowance made towards Dunnage expenses
3 ITA.No.353/Del./2021 M/s. Central Warehousing Corporation, New Delhi. and not treating the expenses as capital in nature [Tax effect Rs.56,69,200/-]. 2. The appellant craves leave for reserving the right amend, modify, alter, add or forgo any ground(s) of appeal at any time before or during the hearing of this appeal.”
During the course of assessment proceedings and on perusal of the Balance-sheet filed by the assessee, it was noticed that the assessee company had shown the H E F. Dunnage under the head “Capital Asset” and had claimed depreciation on the same. He also noted that in the Profit & Loss Account, the assessee company has debited a sum of Rs.1,85,32,261/- as revenue expenses on account of expenses made for consumption/purchase of Dunnage. The assessee company was, therefore, asked as to why the Dunnage shown as a revenue expenses should not be disallowed as the Dunnage has been capitalized. The assessee company made it’s submissions which were not found acceptable to A.O. The A.O. was of the view that the assessee company is basically treating the same expenditure as both capital as well as revenue which were 4 ITA.No.353/Del./2021 M/s. Central Warehousing Corporation, New Delhi. not acceptable. He was of the view that Dunnage was capital assets and the expenses debited by the assessee in P & L A/c on the account of investment made in ordinary Dunnage was of capital nature and not allowable as revenue expenses. The A.O. accordingly disallowed the claim of Dunnage expenses aggregating to Rs.1,85,32,261/- as revenue expenditure, but, however, allowed depreciation at 10% amounting to Rs.18,53,226/- and thus, made net disallowance of Rs.1,66,79,035/- and made its addition accordingly.
4.1. Aggrieved by the order of the A.O. the assessee carried the matter in appeal before the Ld. CIT(A). The Ld. CIT(A) while deciding the issue in favour of the assessee noted that identical issue arose in assessee’s own case in appeal filed by the Revenue before the ITAT for the A.Y. 2012-2013 and the Tribunal vide order dated 12.02.2020 in ITA.No.5449/Del./2017 deleted the addition made by the A.O.
5 ITA.No.353/Del./2021 M/s. Central Warehousing Corporation, New Delhi. 5. Aggrieved by the order of the Ld. CIT(A), the Revenue is now in appeal before the Tribunal.
Before us, at the outset, the Learned Counsel for the Assessee submitted that the issue raised in the present appeal by the Revenue also arose in assessee’s own case for the A.Ys. 2006-07, 2007-08, 2008-09, 2010-11 and 2012- 13. He submitted that the Coordinate Bench of the Tribunal while deciding the issue in assessee’s own case for the A.Y. 2012-13 has held the expenditure to be allowable. He further submitted that there is no change in the facts of the case in the year under consideration and that of earlier years. He, therefore, submitted that in such circumstances, the grounds of Revenue needs to be dismissed.
The Ld. D.R. on the other hand did not controvert the factual submissions made by Ld. A.R. but however supported the order of A.O.
We have heard the rival submissions and perused the material on record. We find that an identical issue arose in assessee’s own case for the A.Y. 2012-13 before the 6 ITA.No.353/Del./2021 M/s. Central Warehousing Corporation, New Delhi. Tribunal and the Tribunal vide order dated 12.02.2020 in ITA.No.5449/Del./2017 allowed the claim of assessee. The relevant observations of the Tribunal are as under :
“7. The ld. DR submitted that on perusal of the records submitted by the assessee, the Assessing Officer felt that the assessee had adopted their own method of accounting and such method is arbitrary and without any basis. As rightly held by the Assessing Officer, both the Dunnage are capital assets and expenditure debited by the assessee in the profit and loss account on investment in ordinary Dunnage are of capital nature and therefore, cannot be allowed as Revenue expenditure.
8. So also, it is the submission of the ld. DR that even though the amount of Rs.50 crores was paid towards license/registration fee, such benefits under the license/registration fee are likely to be accrued during the period of 20 years and therefore, it has to be treated as deferred revenue expenditure in the books of the assessee. Since the benefit under the license feel is for a 7 ITA.No.353/Del./2021 M/s. Central Warehousing Corporation, New Delhi. determined period of 20 years, the assessee should have claimed deduction of such Rs.50 crores over a period of 20 years @ 2.5 crores per year and therefore, the excess amount claimed by the assessee was rightly disallowed by the Assessing Officer.
9. Per contra, the ld. AR contended that it was submitted before the Assessing Officer that the assessee corporation has been using two types of Dunnages - ordinary Dunnage and special Dunnage and there is perceptible difference in the basic ingredient, life expectancy and the nature of these two types of Dunnages. The ordinary Dunnage once used cannot be re-used whereas the special Dunnage is high efficiency flooring Dunnage wherein jute impregnated with coal tar and poly film is used as Dunnage to prevent the floor seepage having its life expectancy of over five years. The practice of the assessee has been that there is capitalization of expenditure for special Dunnage whereas debiting the expenditure for ordinary Dunnage to the profit and loss account and claimed the 8 ITA.No.353/Del./2021 M/s. Central Warehousing Corporation, New Delhi. same to be revenue expenditure. For the earlier years also, the first appellate authority gave relief to the assessee on this count, which the ld. CIT(A) followed in this case and therefore, there is no perversity in the findings returned by the ld. CIT(A).
He further submitted that it is settled principle of law that license/registration fee paid to acquire the right to run the business is a commercial right to carry on the business of the assessee and therefore, it falls within the meaning of asset u/s. 32(1)(ii) of the Act whereon the assessee is entitled to claim depreciation. Since the ld. CIT(A) followed the decision of the Tribunal on these two aspects, the ld. AR submits that there is no perversity in the findings of the ld. CIT(A) and the same cannot be disturbed.
We have perused the record in the light of submissions made on either side. At the outset, there is no dispute that the assessee has been using two types of Dunnage, though for the same purpose, but with two
9 ITA.No.353/Del./2021 M/s. Central Warehousing Corporation, New Delhi. different life times, namely, the special Dunnage having life time of more than five years, whereas the ordinary Dunnage has to be used only for one year and un- usable thereafter. It is also not in dispute that the assessee has capitalized the expenditure on the special Dunnage in their accounts and has been claiming depreciation @ 16% per annum over the useful period and on the same analogy in respect of ordinary Dunnage, they are treating the expenditure for one year and debiting the same to the profit and loss account to claim it as revenue expenditure. It is also not in dispute that the Revenue has been accepting the capitalization of special Dunnage and allowing depreciation @ 16% per annum over the period of life expectancy of such Dunnage.
Having regard to this fact that the life expectancy is taken as the determining factor for the separate treatment to the Dunnage, we do not find any illegality or irregularity in the view taken by the ld. CIT(A) that because of the single use within a year in respect of 10 ITA.No.353/Del./2021 M/s. Central Warehousing Corporation, New Delhi. ordinary Dunnage, the expenditure thereon has to be taken as revenue expenditure and no addition on that score could be made. This finding of the ld. CIT(A) cannot be said to be illegal or irregular or perverse. We, therefore, find the ground No. 1 of appeal of the Revenue as devoid of merits.”
8.1. Before us no distinguishable facts in the year under consideration than that of in earlier assessment years has been pointed-out by the Revenue Therefore, we find no reason to interfere with the order of the Ld. CIT(A). Thus, the grounds of Revenue are dismissed.
In the result, appeal of the Revenue is dismissed.
Order pronounced in the open court on 08.08.2022.