Case Law Details
M/s. Theis Precision Steel India Private Limited Vs ITO (ITAT Mumbai)
From perusal of Section 37 of the Act, we find that all expenditure incurred in the course of business of the assessee is allowable except personal expenditure and capital expenditure. Admittedly, professional fee has been paid for valuation of know-how of business and, therefore, the same is not in the nature of personal expenditure.
Now, we need to determine whether the expenditure incurred for valuation of know-how can be treated as in capital In this regard, we find that to term the expenditure as capital expenditure we need to find out whether the incurrence of expenditure has resulted into any generation of capital asset or any right or benefit of enduring nature has been created by incurrence of the expenditure.
From the nature of expenditure incurred, we find that the expenditure is not incurred for the acquisition of know-how; it is incurred only for the purpose of valuation of the know-how. Admittedly, the expenditure in isolation has not created any asset nor has it added any value in the know-how of the assessee, benefit of which can be said to have accrued to the assessee over a longer period. Further, valuation of know-how was in the course of business of the assessee as know-how pertained to the business of the assessee.
Further, assessee has placed before us the detailed valuation report obtained by him for valuation of know-how and the copies of invoices for professional fee paid for carrying out the valuation exercise. Thus, we find that the said expenditure is not in the nature of capital expenditure but is in the revenue field; and, thus is allowable under Section 37(1) of the Act. The order of CIT(A) is accordingly set aside and the Assessing Officer is directed to delete the addition made on account of professional fee paid for valuation of know-how.
FULL TEXT OF THE ITAT JUDGEMENT
The captioned appeals filed by the assessee are directed against the orders passed by the CIT(A)-14, Mumbai dated 27.03.2017 and 19.07.2016, which in turn, have arisen out of orders passed by the Assessing Officer under Sections 143(3) and 154 of the Income Tax Act, 1961 (in short ‘the Act’) dated 30.12.2011 and 25.06.2012 respectively for the assessment year 2009-10.
2. First, we may take-up appeal of assessee in ITA No. 4665/Mum/2017. In this appeal, the assessee has raised the following Grounds of appeal:-
“1. The learned Commissioner of Income-tax (Appeals) erred in rejecting the appellant’s application for condonation of delay in filing appeal against the order under section 143(3) of the Income Tax Act, 1961.
2. The learned Commissioner of Income-tax (Appeals) failed to consider the reasons advanced by the appellant for the delay, in its affidavit, in their right perspective.
3. The appellant submits that the Learned Commissioner (Appeal) failed to consider that professional fees amounting to Rs.7,50,000/- paid by the company to N. Dastur & Co. were disallowed, inspite of voluminous evidence led before the Assessing Officer.
4. Without prejudice to Ground No. 2 above, the appellant submits that even assuming, though not conceding, that the Assessing Officer was correct, he was required to allow depreciation on the professional fees treated as capital in nature.”
3. Briefly put, the relevant facts are that assessee is a company incorporated under the Companies Act, 1956 and is, inter-alia, engaged in the business of running a cold rolling plant and hot profile plant. It filed its return of income on 24.09.2009 declaring a loss of Rs. 1,56,50,245/-. In the course of assessment proceedings, the Assessing Officer noted that the assessee has made payment of Rs. 7,50,000/- towards professional fees to M/s. M. N. Dastur & Co. for valuation of know-how on cold rolled steel strips and rolled profile sections. The assessee was asked to submit the details of nature of services rendered by the recipient and how the same is related to the business of the assesse. In this regard, the assessee submitted the copy of confirmation, proposal given to M/s. M. N. Dastur & Co. and copy of invoices. The Assessing Officer without commenting upon the documents produced by the assessee, simply stated that details submitted by the assessee was not acceptable and disallowed the expenditure of Rs. 7,50,000/- incurred by the assessee. The assessee moved an application under Section 154 of the Act vide letter dated 11.01.2012 requesting the Assessing Officer to treat the professional fees of Rs. 7,50,000/- as capital expenditure and allow depreciation on the same. The Assessing Officer vide an order dated 25.06.2012 rejected the assessee’s request for rectification under Section 154 of the Act holding that the said request of the assessee cannot be treated as ‘mistake apparent from records’ and, therefore, the same cannot be taken up in proceedings under Section 154 of the Act. Aggrieved by the order passed under Section 143(3) and Section 154 of the Act, the assessee preferred a single appeal before the CIT(A) against both the orders on 14.08.2012. In the course of the proceedings before the CIT(A), it was pointed out that two separate appeals were required to be filed for the two orders passed under Section 143(3) and Section 154 of the Act. Since the appeal already filed by the assessee against the order passed under Section 154 of the Act was well within the time limit, the assessee preferred an appeal against the order under Section 143(3) of the Act dated 30.12.2011 after a delay of 1625 days and filed an affidavit explaining that based on the advice of the Finance and Accounts Chief of the company, who felt that rectification would be more easier, quicker and economical than appeal, they did not prefer filing the appeal and proceeded with the rectification under Section 154 of the Act before the Assessing Officer. The appeal filed against the order rejecting the application under Section 154 of the Act by the Assessing Officer was well within the time. However, as the CIT(A) insisted for separate appeals for both the orders, assessee filed separate appeal against the order under Section 143(3) of the Act. It was also further stated in the affidavit that the delay was not intentional or wilful, but it was due to pursuing a remedy which was possibly not correct and the company does not have vested interest in the delay and requested for condonation of delay in filing the appeal against the order under Section 143(3) of the Act. However, CIT(A) rejected the assessee’s application for condonation of delay of 1625 days in filing the appeal and dismissed the appeal on this ground without discussing the merits of the case. In the appeal filed by the assessee against the order passed under Section 154 of the Act, the CIT(A) upheld the order of the Assessing Officer and held that there was no mistake apparent from record which can be rectified under Section 154 of the Act. Aggrieved by the same, assessee is in appeal before us against the two orders of CIT(A).
4. Before us, the Learned Representative for the assessee referred to the affidavit filed with CIT(A) for condonation of delay in filing the appeal. It was submitted that the delay in filing the appeal was not intentional or willful. The decision to file rectification application under Section 154 of the Act instead of appeal was taken by the Chief Accountant as he felt that it would be more easier, quicker and economical. Further, assessee had preferred the appeal against the order under Section 154 of the Act well within the time and it is in the course of hearing before CIT(A) assessee was asked to file separate appeal against both the orders, which assessee had filed. As such, there was reasonable ground for delay in filing the appeal and, therefore, the same should be condoned. The CIT(A) has also recorded the fact that in the course of hearing it was pointed that two separate appeals were required against the orders of Assessing Officer and as such, explanation given by the assessee for condonation of delay is supported by the order of CIT(A).
5. On merits, the assessee submitted that copy of confirmation, proposal given to M/s. M. N. Dastur & Co, copy of invoices and copy of valuation report for valuation of Know-how were submitted before the Assessing Officer. However, the Assessing Officer without assigning any reason and without finding any fault in the documents produced before him, disallowed the said expenditure stating that the same is not acceptable. It was submitted that the said expenditure was incurred in the course of business of the assessee and, therefore, the same is deductible as business expenditure under Section 37(1) of the Act. Alternatively, it was argued that if the same is treated as capital in nature, then deprecation on the same be allowed.
6. The ld. DR, on the other hand, relied on the order of CIT(A) to state that delay of 1625 days is unreasonable and thus, the appeal of the assessee should not be allowed, and that the relief sought by the assessee was not permissible within the limited scope of the proceedings under Section 154 of the Act.
7. We have carefully considered the rival submissions. Ground of appeal 1 and 2 raised by the assessee pertains to condonation of delay in filing the appeal. In this regard, it is pertinent to refer to the decision of the Pune Bench of the Tribunal in the case of Atlas Copco (India) Ltd vs. DCIT in ITA No. 1669/Pun/2014 wherein the Tribunal has discussed the ratio laid down by the Hon’ble Supreme Court in the case of Ram Nath Sao @ Ram Nath Sahu and Others vs. Gobardhan Sao and Others reported as 2002 AIR 1201 with respect to condonation of delay and condoned the delay of 878 days in filing cross objections. The relevant extract of the said decision is reproduced hereunder:
“4.1 After examining the reasons for delay in filing of Cross Objections we are satisfied that the delay in filing of Cross Objections is unintentional and bonafide. The Hon’ble Supreme Court of India in the case of Ram Nath Sao @ Ram NathSahu and Others Vs. Gobardhan Sao and Others reported as 2002 AIR 1201 has held that acceptance of explanation furnished seeking condonation of delay should be the rule and refusal an exception, more so when no negligence or inaction or want of bonafide can be imputed to the defaulting parties. Taking a pedantic and hyper technical view of the matter, the explanation furnished should not be rejected when stakes are high and/or arguable points of facts and law are involved in the case, causing enormous loss and irreparable injury to the party against whom the lis terminates either by default or inaction.
4.2 The Hon’ble Apex Court in various other decisions has taken similar view in accepting the explanation furnished by the assessee for condoning the delay in filing of appeal. Taking into consideration facts of the case, the law laid down by the Hon’ble Apex Court and the reasons furnished by the assessee/appellant, the delay of 878 days in filing of Cross Objections is condoned and the same is taken for adjudication on merits along with other appeals.”
(underlined for emphasis by us)
8. In the present case also, there was no negligence or inaction on the part of the assessee in filing the appeal. It was only the advice of the Chief Accountant based on which assessee acted upon. However, on being pointed out by the CIT(A) that two separate appeals need to be filed, the assessee without further delay filed the appeal against the order under Section 143(3) of the Act. The circumstances leading to delay in filing the appeal does not reveal that the act of the assessee is intentional or that there was some other motive behind in delay in filing the appeal.
9. Thus, following the ratio laid down by the Hon’ble Supreme Court in the case of Ram Nath Sao @ Ram NathSahu and Others (supra) followed by the Pune Bench of the Tribunal in the case of Atlas Copco (supra), we hereby condone the delay in filing of appeal by the assessee.
10. In Ground of appeal no. 3, assessee has challenged the addition of Rs. 7,50,000/- paid by the assessee towards professional fees for valuation of know-how. In this regard, we find that the CIT(A) has not decided the appeal on this ground. Further, the Assessing Officer has also not recorded his findings apart from stating that the expenditure claimed by the assessee is not Before us, the Learned Representative submitted the copy of invoices, copy of valuation report obtained from M/s. M. N. Dastur & Co. for valuation of know-how and submitted that the said expenditure was incurred in the course of business of the assessee and, therefore, the same is allowable as revenue expenditure under Section 37(1) of the Act.
11. From perusal of Section 37 of the Act, we find that all expenditure incurred in the course of business of the assessee is allowable except personal expenditure and capital expenditure. Admittedly, professional fee has been paid for valuation of know-how of business and, therefore, the same is not in the nature of personal expenditure. Now, we need to determine whether the expenditure incurred for valuation of know-how can be treated as in capital In this regard, we find that to term the expenditure as capital expenditure we need to find out whether the incurrence of expenditure has resulted into any generation of capital asset or any right or benefit of enduring nature has been created by incurrence of the expenditure. From the nature of expenditure incurred, we find that the expenditure is not incurred for the acquisition of know-how; it is incurred only for the purpose of valuation of the know-how. Admittedly, the expenditure in isolation has not created any asset nor has it added any value in the know-how of the assessee, benefit of which can be said to have accrued to the assessee over a longer period. Further, valuation of know-how was in the course of business of the assessee as know-how pertained to the business of the assessee. Further, assessee has placed before us the detailed valuation report obtained by him for valuation of know-how and the copies of invoices for professional fee paid for carrying out the valuation exercise. Thus, we find that the said expenditure is not in the nature of capital expenditure but is in the revenue field; and, thus is allowable under Section 37(1) of the Act. The order of CIT(A) is accordingly set aside and the Assessing Officer is directed to delete the addition made on account of professional fee paid for valuation of know-how.
12. Since we have already allowed the appeal of the assessee, as above, the appeal of the assessee in ITA No. 5525/Mum/2016 against the order passed under Section 154 of the Act is of no relevance inasmuch as in the same appeal, assessee has appealed for allowing depreciation on the professional fee paid by the assessee if the same is treated as capital in nature. Thus, the appeal of the assessee in ITA No. 5525/Mum/2016 is dismissed as infructuous.
13. Resultantly, the appeal of the assessee in ITA No. 4665/Mum/2017 is allowed, and in ITA No. 5525/Mum/2016 is dismissed as infructuous.
