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Income Tax Appellate Tribunal, MUMBAI BENCHES, ‘D’ MUMBAI
Before: Shri Joginder Singh, & Shri D. Karunakar Rao
आदेश / O R D E R
Per Joginder Singh(Judicial Member) This appeal is by the assessee challenging the impugned order dated 15/03/2013 passed by the ld. First Appellate Authority, Mumbai. The first ground raised by the assessee is as under:-
On the facts and circumstances of the case and in law, the CIT(A) erred in confirming the action of Additional Commissioner of Income Tax ("AO") in invoking section 145A of the Act and upholding the addition made thereof.
2. The Appellate prays that the aforesaid addition be deleted as there is no effect in profits of the Appellant as per detailed working in clause 12(b) of tax audit report.
During hearing of this appeal, Shri Manish Shah along with Shri Chintan Shah, ld. counsel for the assessee contended that this ground is covered in favour of the assessee by the order of the Tribunal dated 05/10/2015 (ITA No.1376/Mum/2014), for Assessment year 2005-06. The assessee also placed reliance upon the CIT vs Mahavir Aluminum Ltd.(297 ITR 77) (Del.), Hawkins Cookers Ltd. vs ITO (26 DTR 206)(TMum), Ram Ratan Wires Ltd. vs ACIT (ITA No. 2180/M/2012 & 8503/M/2011)(TMum), DCIT v. M/s Wartsila India Ltd. (ITA No. 7926/M/2004)(TMum), ITO vs M/s Ikon Multipack (ITA No.438/Ahd./2011)(TAhd.) and M/s Alpanil vs. ACIT(ITA No.169 & 170/AHD/2005)(AHD). This factual matrix was not controverted by the ld. DR, Shri Sujit Bangar.
2.1. We have considered the rival submissions and perused the material available on record. In view of the above, we are reproducing hereunder the relevant portion from the aforesaid order of the Tribunal dated 05/10/2015 for ready reference:-
“2. This appeal filed by the assessee on 27.02.2014 is against the order of the CIT(A)-13, Mumbai dated for the AY 2005-06. IN this appeal, assessee raised the following ground which read as under:-
I. On the facts and circumstances of the case and in law, the CIT (AJ erred in confirming the action of AO in making an addition u/s 145A on the alleged ground that not following of "inclusive" method of accounting has resulted in short assessment of profits to the tune of Rs. 33,24,676/-.
Without prejudice to Ground No. 1
II. On the facts and circumstances of the case and in Law, if the aforesaid action of the CIT (AJ is upheld- AO be directed to reduce the Excise Duty / VA T on the opening stock in computing the addition u/s 145A of the Act."
This appeal arises from the fresh assessment order passed by the AO u/s 143(3) r.w.s 263 of the Act. The revision order passed by the CIT is affirmed by the Tribunal. The ITAT confirmed the assessee's failure to follow the inclusive method of accounting so far as the excise duty / VAT is concerned. Thus, the assessee is under obligation to follow this method u/s 145A of the Act statutorily. In the assessment an addition of Rs. 33,24,676/- was made and the same was confirmed by the CIT CA) and therefore, the assessee is in appeal before the Tribunal.
During the proceedings before us, at the outset, Ld Counsel for the assessee demonstrated that the said provisions of section 145A mandates for the adjustments to the inventories ie sales account, purchase account, opening stock account, finished goods account etc. However, the AO did not adjust all the said accounts and the same is evident from the assessment order. He further mentioned that it is the requirement of the law/ judgmental law, vide the Hon'ble Delhi High Court judgment in the case of CIT vs. Mahavir Aluminimum Ltd (297 ITR 77) (Del.) and other, that all the accounts connected with the sales, purchases, inventories, the closing account of the finished goods are required to be adjusted. In this regard, Ld counsel for the assessee relied on the coordinate Bench decision in the case of Hawkins Cookers Ltd vs. ITO [2008] 14 DTR. (Mumbai) (Trib.) 206 and others cited above.
After hearing both the parties, we have perused the contents of para 5.4 of the impugned order and it is an obvious omission that all the inventory accounts concerned are not adjusted. Therefore, the distortion exists in these orders of the revenue. Therefore, in our opinion, matter should be remanded to the file of the AO for removal of the anomalies in the light of the above cited binding judgment of the Delhi High Court in the case of Mahavir Aluminimum Ltd (supra) as well as the cited orders of the Tribunal (supra). Accordingly we order and it is needless to say that the Assessing Officer shall provide a reasonable opportunity of being heard to the assessee. Thus, Ground No. I and II raised by the assessee are allowed for statistical purposes.”
2.2. In view of the above, in our opinion, the matter should be remanded back to the file of the ld. Assessing Officer for removal of anomalies, in the light of the aforementioned decisions and more specifically from Hon’ble Delhi High Court in the case of Mahavir Aluminium Ltd. (supra). Needless to mention here that due opportunity of being heard with further liberty to furnish evidence, if any, to substantiate its claim, be provided to the assessee, thus, these grounds are allowed are statistical purposes only.
3. The next ground raised by the assessee is that On the facts and circumstances of the case and in law, the Ld. Assessing Officer erred in upholding the action of the AO in disallowing expenditure incurred by Appellant towards legal and professional fees amounting to Rs. 7,87,776/- on the ground that the said expenses resulted in enduring benefit to the Appellant and were incurred for new business.
“2. The Appellant prays that disallowance of legal and professional fees be deleted.”
3.1. The crux of argument on behalf of the assessee is reliance upon the following decisions:-
Carrying out due diligence i. CIT vs. Priya Village Roadshow Ltd (185 Taxman 44) (Del.) ii. Onmobile Global Ltd. v. Addl. CIT (45 Taxmann.com 346) (TBang.) Expenses incurred for Expansion of existing business i. CIT v. Shakti Sugars Ltd. (ITA No.411 of 2004)(Mad) ii. ACIT v. Upper India Steel Mfg. & Engg. Co. (150 Taxman 51) (TCHD.) iii. Reliance Footprints Ltd. v. ACIT (63 SOT 124) (TMum.) Expenses for carrying out ISO Certification i. CIT v, Infosys Technologies Ltd. (349 ITR 606) (Kar.) ii. Dishman Pharmaceuticals & Chemical Ltd. v. DCIT (45 SOT 37) (TAhd.) iii. ITO vs. Rexnord Electronics & Control Ltd (2009 TIOL 27 ITAT Mum) iv. Climate Systems India Ltd vs. ACIT (ITA No 1698/Del/2009) Expenses incurred for Feasibility Study i. CIT vs. United Breweries Ltd. (321 ITR 546) (Kar.) ii. CIT v. Priya Village Roadshow Ltd (185 Taxman 44) (Del.) iii. Polyplex Corpn. Ltd v. ITa (122 TTJ 949) (TDel.) iv. Maharaja Shri Umaid Mills Ltd. (175 ITH. 72) (Raj.)
3.2. On the other hand, the ld. DR, defended the conclusion arrived at in the impugned order. In reply, the ld. counsel for the assessee contended that the Assessing Officer may be directed to examine the claim of the assessee, in the light of the aforesaid judicial pronouncements.
3.3. We have considered the rival submissions and perused the material available on record. The facts, in brief, are that the assessee is engaged in the business of manufacturing and treading of telecommunication and power cable accessories etc. The assessee claimed Rs.7,87,776/- towards legal and professional fees. The ld. Assessing Officer disallowed the said expenses on the plea that such expenses resulted in enduring benefit to the assessee and were incurred for new business. The assessee furnished the details of such expenses vide letter dated 06/11/2009 (as has been reproduced at page 21 (para 9.1) of the impugned order. The ld. Assessing Officer was of the view that very description of the expenditure establishes that these are of capital in nature. The professional fee for setting up of new EOU unit, fusibility study for acquisition due diligence study are clearly expenses of new business and expenditure on approval of quality management system is also in the nature of advantage of enduring nature, thus, the impugned amount was added to the income of the assessee.
On appeal, before the ld. Commissioner of Income Tax (Appeals), the matter was examined in detail as is evident from para 9.2 onwards and found that such expenses were not for the existing business but pertains to setting up of a new line of business. The stand taken in the assessment order was affirmed. Before us, the assessee has relied upon certain judicial pronouncements. There is a finding in the assessment order that necessary details were not furnished by the assessee evidencing that the expenses were incurred for the existing business. In view of these facts, we direct the ld. Assessing Officer to examine the claim of the assessee afresh in accordance with law, in the light of the decisions relied upon by the assessee. The assessee is also at liberty to furnish evidence, if any, to substantiate its claim for which due opportunity of being heard be provided to the assessee, thus, as agreed by the ld. AR, this ground is also allowed for statistical purposes.
Finally, the appeal of the assessee is allowed for statistical purposes.
This order was pronounced in the open court in the presence of the ld. representative from both sides at the conclusion of the hearing on 29/12/2015.
Sd/- Sd/- (D. Karunakar Rao) (Joginder Singh) लेखा सद�य / ACCOUNTANT MEMBER �या�यक सद�य /JUDICIAL MEMBER मुंबई Mumbai; �दनांक Dated : 01/01/2016 f{x~{tÜ? P.S/.�न.स. आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant (Respective assessee) 2. ��यथ� / The Respondent. 3. आयकर आयु�त(अपील) / The CIT, Mumbai. 4. आयकर आयु�त / CIT(A)- , Mumbai, 5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, मुंबई / DR, ITAT, Mumbai 6. गाड� फाईल / Guard file. आदेशानुसार/ BY ORDER, स�या�पत ��त //True Copy//