ACIT 12(3)(2), MUMBAI vs. MONGA STRYFIELD P. LTD, MUMBAI
In favour of the assessee: the Revenue's appeal was dismissed. From the AI summary of this appeal.
What did the Tribunal hold?
The Tribunal held that the expenditure incurred in setting up a subsidiary company in the same line of business, which was an extension of the existing business, was revenue in nature. Therefore, the addition made by the AO was not sustainable.
What were the facts?
The assessee incurred expenditure in acquiring shares in a subsidiary company operating in the same line of business. The AO treated this as capital expenditure, while the CIT(A) allowed it as revenue expenditure. The revenue appealed against the CIT(A)'s order.
What were the issues?
Whether expenditure incurred in acquiring shares of a subsidiary company operating in the same business is capital or revenue expenditure.
Which sections of the Income-tax Act were involved?
Not explicitly mentioned in the provided text, but the core issue relates to capital vs. revenue expenditure.
AI-generated summary — verify with the full judgment below
Cases cited in this judgment(2)Show listHide list
Detected automatically from the text. Citations are also linked where they appear in the judgment. The count shows how many other judgments on BharatTax rely on the same authority.
- 4 ITO v. Abdul G Nadiadwala29 citing311 ITR 405 · 2009 · HC
- Jay Engg. Works Ltd. v. CIT11 citing166 Taxmann 115 · 2008 · HC
Income Tax Appellate Tribunal, “B”
Before: SHRI G. S. PANNU, AM & SHRI SANDEEP GOSAIN, JM
Heard together (2 matters)
Read from the judgment's own cause title. This page is filed under one of them.
C.O. No. 237/Mum/17 Monga Strayfield Pvt. Ltd. आदेश / O R D E R
Per Shri Sandeep Gosain, Judicial Member:
The present appeal as well as cross objection filed by the revenue as well as assessee are against the order of Commissioner of Income Tax (Appeals) – 20, Mumbai dated 12.11.15 for AY 2006-07.
Since all the issues involved in the appeal as well as cross objection are common, therefore, they have been clubbed, heard together and a consolidated order is being passed for the sake of convenience and brevity.
(AY 2006-07) 3. First of all we take up revenue’s appeal in for assessment year 2006-07 as lead case. The grounds of appeal are mentioned herein below:-
1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in treating in the expenditure incurred in the acquisition of shares in the C.O. No. 237/Mum/17 Monga Strayfield Pvt. Ltd. subsidiary company as revenue expenditure relying on the decision of the Delhi High Court in the case of Jay Engineering Works Ltd ( 311 ITR 405) and in not appreciating that in the said case, expenditure was related to the setting up of a new project unlike the expenditure incurred in connection with the capital structure of a subsidiary company in this instant case."
2. " On the facts and circumstances of the case and in law, the Id CIT(A) erred in ignoring the decision rendered by the Hon'ble Supreme Court in the case of Punjab State Indus Dev. Corporation ( 1997) Taxman 5 (SC) wherein it was held that the expenditure incurred on capital base was a capital expenditure.
3. The appellant prays that the order of the CIT(A) on the above ground be set aside and that of the A.O. be restored.
The appellant craves leave to amend or alter all or any of the grounds of appeal.
4. As per the facts of the present case, the assessee is a company which is engaged in the business of manufacture and sale of Radio frequency textile yarn Dryer (R. F. Dryers). The A.O assessed the total income at Rs. 1,57,14,122/- as against the C.O. No. 237/Mum/17 Monga Strayfield Pvt. Ltd. returned income of Rs. 81,60,389/-. Aggrieved by the additions made by the AO, the assessee preferred an appeal before the Ld. CIT(A), The Ld. CIT(A) gave relief on some issues and confirmed the rest of the additions. Out of the total disallowance on account of capital expenditure of Rs. 68,29,046/-, the CIT(A) has allowed a relief of Rs. 16,58,033/- and confirmed the addition of Rs. 51,71,013/-. The assessee filed further appeal before the Hon'ble ITAT. The Hon'ble ITAT in vide order dated 09.11.2011 has set aside the issue of disallowance of expenses amounting to Rs. 51,71,013/- to the file of the A.O. for deciding the same afresh in accordance with law after giving the assessee an opportunity of being heard. The Ld. A.O. while giving effect to the order of the Hon'ble Tribunal has again made addition of Rs. 51,71,013/-. Aggrieved by the order of AO, assessee preferred appeal before Ld. CIT(A) and Ld. CIT(A) after considering the case of both the parties allowed the appeal of the assessee. Aggrieved by the order of Ld. CIT(A), both i.e. revenue as well as the assessee have filed their appeal as well as cross C.O. No. 237/Mum/17 Monga Strayfield Pvt. Ltd. objection before us. However at present we are dealing with the appeal filed by the revenue on the grounds mentioned herein above.
Ground No. 1& 2 5. These ground grounds raised by the assessee are inter- connected and inter-related and relates to challenging the order of Ld. CIT(A) in treating in the expenditure incurred in the acquisition of shares in the subsidiary company as ‘revenue expenditure’ relying on the decision of the Delhi High Court in the case of Jay Engineering Works Ltd ( 311 ITR 405) and in not appreciating that in the said case, expenditure was related to the setting up of a new project unlike the expenditure incurred in connection with the capital structure of a subsidiary company in this instant case, therefore we thought it fit to dispose of by this common order.
We have heard counsels for both the parties at length and we have also perused the material placed on record as well as the orders passed by revenue authorities.
C.O. No. 237/Mum/17 Monga Strayfield Pvt. Ltd. Before we decide the merits of the case, it is necessary to evaluate the orders passed by Ld. CIT(A). The Ld. CIT(A) has dealt with the above grounds raised by the revenue in its order. The operative portion of the order of Ld. CIT(A) is contained in para no. 7 of its order and the same is reproduced below:-
7. I have carefully considered the facts of the case, the submissions of the appellant and order of Hon’ble ITAT dated 09.11.2011. In this regard, it is noted that the Hon'ble ITAT has clearly brought out the facts of the case that the expenditure was incurred by the appellant in connection with setting up of a 100% subsidiary company namely M/s. Monga Strayfield Ltd. U.K. which was to operate in the similar lines of business as the assessee. The has noted that the investment was made in relation to setting up of subsidiary and not for purchase of any equity or shares of any other company as noted by the A.O. It is also noted that Ld. A.O. has not fully appreciated the facts as have been clearly brought out by Hon'ble ITAT that assessee had made expenditure only to acquire stake in its own subsidiary company in the same line of business. In this regard it is pertinent to note the findings of the Hon'ble ITAT Delhi in the case of M/s. Jay Engineering Works vs. CIT, Delhi as reported at C.O. No. 237/Mum/17 Monga Strayfield Pvt. Ltd. [2008] 166 Taxmann 115 (Delhi), where in it is has been held that where there was a unity control leading to interconnection inter dependence and inter lacing of the two ventures such that it could be said that the new venture was only an extension of the existing business of the assessee, the expenditure incurred I5y the assessee on the new venture was revenue in nature. It is seen that the facts of the present case are clear as pointed out by the Hon’ble ITAT that the assessee had incurred the expenditure to set up a subsidiary company M/s. Monga Strayfield Ltd., U K, in the same line of business as the assessee. Once these facts are appreciated then it is seen that the ratio of the case of M/s. Jay Engineering Works vs. CIT as discussed above is applicable and the expenditure incurred on setting up the subsidiary company was in the nature of expansion of the existing business and is thus required to be treated as revenue expenses. It is noted that assessee had incurred expenses for due diligence, legal fees, travelling expenses etc. for setting up of subsidiary and acquiring R. F. Dryers business division, which were meant for expansion assess existing line of business. In view of this discussion and in light of the factual findings by the Hon'ble ITAT the addition made by the Ld. A.O. cannot be sustained in C.O. No. 237/Mum/17 Monga Strayfield Pvt. Ltd. appeal and is directed to be deleted. Accordingly the grounds of appeal in this regard are allowed.
After having gone through the facts of the present case as well as considering the orders passed by revenue authorities and submissions made by both the parties, we find that Ld. CIT(A) had correctly appreciated the fact of the present case. Even we are of the considered view that the Hon’ble ITAT in the first round of litigation in the present case had brought out the facts that the expenditure was incurred by the assessee in connection with setting up of a 100% subsidiary company namely M/s. Monga Strayfield Ltd. U.K. which was to operate in the similar lines of business as that of the assessee. We also notice that the investment was made in relation to setting up of a subsidiary and not for the purchase of any equity or shares of any other company as noted by the A.O. Since the factual findings have already been recorded by the Coordinate Bench of Hon’ble ITAT in the first round of litigation in the present case, therefore we are not diverting ourselves from those findings.
C.O. No. 237/Mum/17 Monga Strayfield Pvt. Ltd. Ld. CIT(A) while reaching to the conclusion that the expenditure incurred by the assessee was ‘revenue in nature’ had relied upon the decision of the Coordinate Bench of Hon’ble ITAT in the case of M/s. Jay Engineering Works vs. CIT, Delhi as reported at [2008] 166 Taxmann 115 (Delhi), wherein it was held that where there was a unity control leading to interconnection inter dependence and inter lacing of the two ventures such that it could be said that the new venture was only an extension of the existing business of the assessee, the expenditure incurred by the assessee on the new venture was revenue in nature. Since the facts of the present case are also pointing towards the fact that the expenses incurred by the assessee to set up a subsidiary company i.e. M/s. Monga Strayfield Ltd., U K, operating in the same line of business as the assessee. Therefore, in our view also, the ratio of the case as discussed in the case of M/s. Jay Engineering Works vs. CIT are also applicable in the present case and thus the expenditure incurred on setting up the subsidiary company was in the nature of expansion of the existing business and was thus required to be treated as revenue expenses.
C.O. No. 237/Mum/17 Monga Strayfield Pvt. Ltd. We further noticed that assessee had incurred expenses for due diligence, legal fees, travelling expenses etc. for setting up of subsidiary and acquiring R. F. Dryers business division, which were meant for expansion of the assessees existing line of business. Therefore, we are in agreement with the findings recorded by Ld. CIT(A). Moreover, no new facts or contrary judgments have been brought on record before us in order to controvert or rebut the findings so recorded by Ld CIT(A). Therefore, there are no reasons for us to interfere into or deviate from the findings recorded by the Ld.CIT(A). Hence, we are of the considered view that the findings so recorded by the Ld. CIT (A) are judicious and are well reasoned. Resultantly, these grounds raised by the revenue stands dismissed. Ground No. 3 & 4
7. These grounds raised by the revenue are general in nature, thus requires no specific adjudication.
C.O. No. 237/Mum/17 Monga Strayfield Pvt. Ltd. Cross Objection No. 237/Mum/2017 for AY 2006-07. 8. Now we take up assessee’s revised grounds in cross objection No. 237/Mum/2017 for AY 2006-07. Since we have already upheld the order of Ld. CIT(A), therefore in view of our findings in appeal filed by the revenue in for AY 2006-07 , the Cross Objection raised by the assessee becomes academic.
In the net result, the appeal as well as C.O. filed by the revenue as well as assessee stands dismissed.
Order pronounced in the open court on 7th March. 2018. Sd/- Sd/- (G. S. Pannu) (Sandeep Gosain) लेखासदस्य / Accountant Member न्याययकसदस्य / Judicial Member मुंबई Mumbai;यदनांकDated : 07.03.2018 Sr.PS. Dhananjay C.O. No. 237/Mum/17 Monga Strayfield Pvt. Ltd. आदेशकीप्रनिनलनपअग्रेनर्ि/Copy of the Order forwarded to : 1. अपीलाथी/ The Appellant 2. प्रत्यथी/ The Respondent आयकरआयुक्त(अपील) / The CIT(A) 3. 4. आयकरआयुक्त/ CIT- concerned 5. यवभागीयप्रयतयनयध, आयकरअपीलीयअयधकरण, मुंबई/ DR, ITAT, Mumbai 6. गार्डफाईल / Guard File आदेशधिुसधर/ BY ORDER,
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