Ita/26/2013 Of M/S.apollo Tyres Ltd v. The Deputy Commissioner Of Income Tax

IN THE HIGH COURT OF KERALA AT ERNAKULAMPRESENT THE HONOURABLE MR.JUSTICE S.V.BHATTI & THE HONOURABLE MR. JUSTICE BECHU KURIAN THOMASTHURSDAY, THE 29 DAY OF JULY 2021 / 7TH SRAVANA, 1943 ITA NO. 26 OF 2013 AGAINST THE ORDER IN ITA 430/2006 OF I.T.A.TRIBUNAL,COCHIN BENCH,ERNAKULAM APPELLANT/S: M/S.APOLLO TYRES LTD.6TH FLOOR, CHERUPUSHPAM BUILDINGS, KOCHI-31, (PAN AAACA 69900) BY ADVS.SRI.JOSEPH MARKOSE (SR.)SRI.V.ABRAHAM MARKOSSRI.BINU MATHEWSRI.MATHEWS K.UTHUPPACHANSRI.TERRY V.JAMESSRI.TOM THOMAS KAKKUZHIYIL RESPONDENT/S: THE DEPUTY COMMISSIONER OF INCOME TAXCIRCLE-1(1), ERNAKULAM, KOCHI-682018. BY ADVS.SRI.P.K.R.MENON,SENIOR COUNSEL, GOI(TAXES)SRI.P.K.R.MENONSR.COUNSEL GOITAXESJOSE JOSEPH, SC, FOR INCOME TAXCHRISTOPHER ABRAHAM, INCOME TAX DEPARTMENT THIS INCOME TAX APPEAL HAVING COME UP FOR HEARING ON 29.07.2021, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: I.T.A. No.26/2013 J U D G M E N T S.V.Bhatti, J. Heard learned Senior Counsel Mr. Joseph Markos and learned Standing Counsel Mr. Christopher Abraham for parties.2. M/s.Apollo Tyres Ltd., Kochi/Assessee is theappellant. The Deputy Commissioner of Income Tax/Revenue isthe respondent. The subject appeal is at the instance ofAssessee from the order of Income Tax Appellate Tribunal (forshort ‘the Tribunal') Cochin Bench in ITA No.430/Coch/2006dated 24.08.2012. The substantial questions stated in theinstant tax appeal relate to the Assessment Year 2003-04. Theassessee challenges the order of Tribunal in rejecting theassessee's claim made towards showroom expenses; disalloweddepreciation in respect of portion of Gurgaon building rented I.T.A. No.26/2013 out by assessee in favour of its sister concern ApolloInternational Ltd; expenditure on club payment towards cost ofservices and finally advances written off from the amountadvanced by the assessee for purchase of capital items. Thesubstantial questions are considered in the same order they areframed in the appeal. 3.The first question relates to assessee's claim ofexpenditure for purchasing equipments such as wheel balancer,wheel aligner, wheel changer and tyre changer for the use bydealers of assessee at Apollo Tyre World showroom. Theassessee claimed that the expenditure incurred for purchasingthe equipment is an expenditure for refurbishing theshowrooms of the company, hence an expenditure incurred toexpand the business opportunities. The Assessing Officer, byreferring to the audit report of assessee/company, found thatthe expenditure is in the nature of purchase of equipment, but I.T.A. No.26/2013 not an expenditure incurred by the assessee for refurbishing itsshowroom. Having regard to the nature of expenditure, theAssessing Officer treated the expenditure as capital expenditureand allowed depreciation of Rs.8,05,009/- and declined theclaim of assessee as revenue expenditure amounting toRs.64,40,068/-. The Assessing Officer, while disallowing theclaim, has further noted that the assessee has failed to prove, asa matter of fact, that the ownership of the equipment wastransferred to the dealer at the time of installation of theequipment in the respective showrooms. Further, it is recordedby the Assessing Officer that as long as the ownership iscontinued with the assessee, the dealer can merely enjoy theequipment. The further reasoning is that the equipment is inthe nature of movable property and it is capable of beingreinstalled in any other showroom upon cancellation of originaldealership at a place where the equipment was established. I.T.A. No.26/2013 I.T.A. No.26/2013 3.1The crucial conclusion recorded by the AssessingOfficer is that the ownership of the equipment purchased,amounting to Rs.64,40,068/-, remained with the assessee.Therefore, the claim of total amount spent as revenueexpenditure cannot be accepted, but was treated as capitalexpenditure and thereon granted depreciation on the amountclaimed by the assessee. The Commissioner of Income Tax(Appeals), on appeal by the assessee, in Annexure-A2 orderallowed the total claim of assessee as revenue expenditure. Thebasis for accepting the claim as revenue expenditure by thelearned Commissioner reads as follow: “The ownership of these assets will change hands from dealer todealer and the assessee company no longer has any right on theseassetsonce they are erected. (sic) These being the facts of theclaim, I am inclined to accept the claim of the assessee thateven these expenses were initially capital in nature i.e.,creating of asset of enduring nature but the ownership hasbeen passed on to the dealer and in the hands of the company it has to be treated as a sale or publicity expenses and henceshould be allowed as a revenue expense.” (sic installed) Thus, the total claim has been allowed. 3.2The Tribunal, on appeal by the Revenue, hasexamined the crucial aspect in the finding recorded by theCommissioner namely, whether, in the manner stated by theassessee, circumstances as noted by the Assessing Officer andexpanded by the CIT (Appeals), the ownership of equipment, infact, is transferred to the dealers. The Tribunal uponexamination of the record has held as follows: “4. However, from the rival submissions made, it transpiresthat the ownership of these assets would continue to remainwith the assessee only. Hence, the view of the Ld CIT(A) iscontrary to the facts. The Ld Counsel placed reliance on thecommon order dated 09-09-2009 rendered by this bench in theassessee's own case in ITA Nos. 538/Coch/2005, ITANo.273/Coch/05 and ITA No.25/Coch/04 and submitted that theTribunal has considered an identical issue in paragraphs 21-23of the said order and has taken the view that the expenditure I.T.A. No.26/2013 incurred on renovation of the show rooms is revenueexpenditure. 5. We have carefully considered the Tribunal's order reliedupon by the Ld A.R. In the said order, the Tribunal has actuallyconsidered the nature of expenditure incurred on interiordecoration of the show rooms and took the view that they aretemporary structures, which cannot be retrieved back.Accordingly, the Tribunal took the view that the expenditureincurred on interior decoration is revenue in nature. However,in the instant case, the assessee has installed equipments,which can be removed and also can be taken back and reused insome other place. Hence the facts prevailing in the instant caseis totally different and accordingly the decision of the Tribunalrelied upon by the assessee, in our view, is not applicable.Further we notice that the assessee would continue to be theowner of these equipments, though they were installed in thepremises of the dealers'. Hence, we are of the view that theyhave to be considered as the Capital assets of the assesseecompany. Accordingly, we set aside the order of the Ld CIT(A)on this issue and restore the disallowance made by the AO.” 4.The assessee challenges the said finding by framingthe following question of law: I.T.A. No.26/2013 “Whether on the facts and in the circumstances of thecase, the Tribunal is justified in law in holding theexpenditure of Rs.56,35,059/- incurred by the assessee,in the showroom of its dealers for the purpose ofpromoting the sale of products of the company ascapital expenditure on the ground that ownership ofthese assets was retained by the assessee?” 5. Senior Counsel Mr. Joseph Markos argues that the 4.The assessee challenges the said finding by framingthe following question of law: I.T.A. No.26/2013 “Whether on the facts and in the circumstances of thecase, the Tribunal is justified in law in holding theexpenditure of Rs.56,35,059/- incurred by the assessee,in the showroom of its dealers for the purpose ofpromoting the sale of products of the company ascapital expenditure on the ground that ownership ofthese assets was retained by the assessee?” 5. Senior Counsel Mr. Joseph Markos argues that the Tribunal fell in serious error by verifying the ownership of theequipment when this fact was concluded by the well consideredorder by the CIT (Appeals). According to him, the expenditureincurred by the assessee towards purchase of equipment, in thecircumstances of the case, partakes the character of revenueexpenditure. The amount was spent by the assessee torefurbish the showroom of the dealers known as Apollo TyreWorld and this expense is in the nature of enhancing the salesand turnover of the assessee. By drawing the analogy of I.T.A. No.26/2013 circumstances considered by this Court in ITA No.280/2013Rajan Jewellery case, it is argued that the total expenditureclaimed by the assessee should be allowed as revenueexpenditure but not a portion of it as depreciation by treatingthe expenditure as capital expenditure. 6.Per contra, Standing Counsel Mr. ChristopherAbraham argues that the crucial aspect in determining theexpenditure is the nature of investment or utility derived bythe assessee. It is stated, it is one aspect of the matter to statethat the existing showroom has been refurbished by changingthe interiors and providing aesthetic value to a showroom. Soexpenses incurred on account of such commercialcontingencies/designs once are met by the assessee the returnof asset, on which amount was expended, is not possible finallyinto the hands of the assessee. These expenses are more or lesstreated as expenses incurred as revenue expenditure. In the Per contra, Standing Counsel Mr. Christopher case on hand, the expenses incurred are towards purchase and establishment of equipment, such as wheel balancer/wheelaligner/wheel changer/tyre changer. The equipment, as rightlynoted by the Tribunal, is movable equipments. The ownershipis an important aspect in such expenditure. The equipment isalso used by the respective dealers over a period of time but notbooked against one year. Unless and until the ownership isstated to have been transferred in favour of the dealer and theassessee claims to have any interest in the movable property;according to him, the finding recorded by the Tribunal isjustifiable in the circumstances of the case and any other viewvirtually amounts to reappreciating the findings of fact withoutany material on record. 7.The substantial question of law as framed refers towhether the Tribunal is correct in treating the expenditure ascapital expenditure on the ground that ownership of these I.T.A. No.26/2013 assets was retained by the assessee. The question, in our considered view, begs the conclusion recorded by the Tribunalwithout actually pointing out the infirmity or error committedby the Tribunal in this behalf. It is not the case of assessee thatexpenditure is treated as revenue expenditure inasmuch as theexpenditure is made over for utility by respective dealers uponpurchase of equipment. 7.1The findings of fact recorded by the Tribunal arebased on record and warranted. The case relied on by theassessee in Rayan Jewellery case is distinguishable oncircumstances to consideration. So the decision does not assistthe assessee to treat the entire expenditure as revenueexpenditure. The auditor’s report is referred to by theAssessing Officer for coming to the conclusion that theexpenditure made by the assessee towards purchase ofequipment, such as wheel balancer/wheel aligner/wheel I.T.A. No.26/2013 7.1The findings of fact recorded by the Tribunal arebased on record and warranted. The case relied on by theassessee in Rayan Jewellery case is distinguishable oncircumstances to consideration. So the decision does not assistthe assessee to treat the entire expenditure as revenueexpenditure. The auditor’s report is referred to by theAssessing Officer for coming to the conclusion that theexpenditure made by the assessee towards purchase ofequipment, such as wheel balancer/wheel aligner/wheel I.T.A. No.26/2013 changer/tyre changer, is capital expenditure but not revenueexpenditure. The spreadover utility or utilization of equipmentover a period of a few years is not disputed. The location ofequipment could be in the shops of respective dealers or thedealers were allowed to use the equipment, that cannot beunderstood as divesting the ownership of assessee on theequipment. The Commissioner, as rightly pointed out by theTribunal, assumed something more than what is eitheravailable in the circumstances of the case or made out literally anew case in favour of the assessee. For the above reasons weare of the view that the question does not fall within the scopeof Section 260A of the Act. Hence the question is answered infavour of the Revenue and against the assessee. 8.Next question deals with expenditure incurred onaccount of payments towards club membership and servicecharges amounting to Rs.1,48,212/- by the assessee. The extent Next question deals with expenditure incurred on I.T.A. No.26/2013 to which the expenses can be claimed by the assessee is considered by this Court in the case of assessee for theAssessment year 2002-2003 reported in Commissioner of Income- Tax v. Apollo Tyres Ltd[1]. At page 106 of the judgment of this Courtin ITA No.1347/2009, the issue was considered and answeredagainst the assessee. The operative portion which has bearingfor answering the question of law reads as follows: “The finding arrived at by the Tribunal is well supported byreasons. The amount spent for acquiring membership in theclubs stands on a different pedestal from the amounts incurredfor availing materials supplied or service provided in the clubs.This Court finds that the said issue is to be answered in favourof the assessee. It is declared accordingly.” 8.1The assessee is entitled to claim only the membership fee but not the amount spent by the assessee for availing the services of goods etc. in the club. In the case on hand, thefinding is that it is not for membership. Having regard to the1(2019) 419 ITR 100 I.T.A. No.26/2013 -14- findings of fact recorded, the question is answered in favour ofthe Revenue, against the assessee. 9.Substantial question no.3 relates to disallowance of part depreciation claimed by the assessee of Gurgaon building aggregating to Rs.25,27,505/- in relation to the let out portionto Appolo International Ltd. The assessee challenges thefollowing finding recorded by the Tribunal. “13.We notice that the AO had made similar disallowance inrespect of claim of bonus payment in assessment year 2002-03,i.e., provision created for the year ending 31.3.2001 was paidduring the year relevant to the assessment year 2002-03 andwas claimed in that year. The matter was taken to Tribunal andthe Tribunal, after considering the provisions of sec. 438, hasheld as under in the assessee's own case in ITANo.429/Coch/2006 & 377/Coch/2009 in its order dated 05-10-2002. "57. The proviso to sec. 438 gives further concession thatif payment in respect of any of the items referred in sec.438 is made in a particular year before the due date of “13.We notice that the AO had made similar disallowance inrespect of claim of bonus payment in assessment year 2002-03,i.e., provision created for the year ending 31.3.2001 was paidduring the year relevant to the assessment year 2002-03 andwas claimed in that year. The matter was taken to Tribunal andthe Tribunal, after considering the provisions of sec. 438, hasheld as under in the assessee's own case in ITANo.429/Coch/2006 & 377/Coch/2009 in its order dated 05-10-2002. "57. The proviso to sec. 438 gives further concession thatif payment in respect of any of the items referred in sec.438 is made in a particular year before the due date of filing of the income tax return, then such claim can bemade in the earlier year also for which return is due to befiled. This seems to be only a further concession andcannot be read as a restriction that necessarily deductionhas to be claimed in the earlier year which AO hadinterpreted. We fail to understand that as to how AO hasreferred to the decision of McDowell by observing that inearlier year, Le. AY 2001-02 there was a loss and that iswhy assessee has not claimed any deduction. Even if it isa case of loss, such loss would have been carried forwardto next year and allowed accordingly. Simply becauseassessee has not claimed a particular deduction, it cannotbe said to be a colourable device as envisaged by thedecision of McDowell case. The deduction relates topayment of bonus which has actually been paid in thepresent year and deduction has been claimed as per sec.43B. Such deduction has been claimed on consistent basisin the year of payment and, therefore, no adverseinference should have been taken. In thesecircumstances, we find nothing wrong in the order of theLd CIT(A) and confirm the same." The facts relating to this issue is identical in nature andaccordingly, by following the decision of the co-ordinate bench I.T.A. No.26/2013 referred supra, which was rendered in the assessee's own case,we uphold the order of Ld CIT(A) on this issue. 14. The next issue pertains to disallowance of depreciationand repair charges aggregating to Rs.27,27,505/- relating to thelet out properties. Both the parties have pointed out that asimilar disallowance made in preceding year was confirmed bythe Tribunal in ITA No.426/Coch/2006. By the immediatelyfollowing the said order of the Tribunal, we set aside the orderof Ld CIT(A) on this issue and restore the addition made by theAO.” 9.1 The excerpted finding of the Tribunal in the case on hand takes us to the consideration of similar issue by theTribunal in ITA No.429/Coch/2006. It is not in dispute that theassessee has accepted the said finding of the Tribunal andallowed the finding to become final. The Tribunal has merelyfollowed its earlier view and rejected the claim of petitionerunder this head. No other ground is argued before us tocontend that the view taken, at any rate, is impermissible in I.T.A. No.26/2013 law. By taking note of the circumstances stated by the assessee in respect of this particular claim, and the consideration by theTribunal, we are of the view that the Tribunal has rightlymaintained consistency in this behalf for the Assessment Years2002-03 and 2003-04. The question raised is answered in favourof the Revenue and against the assessee. 10.Substantial question No.4 is rejection of claim ofassessee in writing off bad debts. The substantial questionreads as follows: “Whether on the facts and in the circumstances of thecase, the Tribunal is justified in law in holding that thedebts and advances relating to acquisition of capitalassets written off in the books of accounts aggregatingto Rs.28,67,407/- are not allowable as revenueexpenditure on the ground these are of the nature ofcapital loss outside the purview of Section 37(1) or 36(1)(vii) read with Section 36(2).” 10.Substantial question No.4 is rejection of claim ofassessee in writing off bad debts. The substantial questionreads as follows: “Whether on the facts and in the circumstances of thecase, the Tribunal is justified in law in holding that thedebts and advances relating to acquisition of capitalassets written off in the books of accounts aggregatingto Rs.28,67,407/- are not allowable as revenueexpenditure on the ground these are of the nature ofcapital loss outside the purview of Section 37(1) or 36(1)(vii) read with Section 36(2).” The appeal filed by the Revenue for the AY 2003-2004 as againstthe allowance granted under Section 37 towards the bad debtswritten off against the advances given for acquisition ofrevenue items and dismissed the appeal filed by the Revenue.The assessee claims that the advances made for acquisition ofcapital assets have been written off and they have to be treatedas bad debt. The consideration of this issue by the AssessingOfficer is independent and has completely explained thecircumstances why the claim of assessee cannot be accepted inthis behalf. The Tribunal has considered the scope of applicablesection and also recorded that the expenditure amounting toRs.28,67,407/- does not satisfy the test laid down by theSupreme Court in CIT v. Mysore Sugar Company Ltd[2]. We keep inperspective the principle laid down by the Supreme Court inMysore Sugar Company Ltd case and also the circumstances in thecase on hand. We are in full agreement with the reasoning of2(1962) 46 ITR 649 (SC) the Tribunal while considering the writing off bad debts fromadvances made towards capital asset acquisition of the assessee.The appeal filed by the Revenue, insofar as it related to revenueexpenditure was dismissed and we do not see any other reasonnow while applying the same test to accept the claim of theassessee made towards bad debts written off on advances made.The question of law does not arise within the scope of appealprovision, accordingly answered in favour of the Revenue,against the assessee. For the above reasons, the appeal filed by the assessee failsand accordingly dismissed. No order as to costs. Sd/- S.V.BHATTIJUDGE Sd/- BECHU KURIAN THOMASJUDGE I.T.A. No.26/2013 APPENDIX OF ITA 26/2013 PETITIONER ANNEXURE ANNEXURE a1 TRUE COPY OF ASSESSMENT ORDER DATED 27-3-2006 OF THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 1(1), ERNAKULAM ANNEXURE A2TRUE COPY OF APPELLATE ORDER DATED 25-04-2006 OF THE COMMISSIONER OF INCOME TAX (APPEALS)-II, KOCHI ANNEXURE A3 CERTIFIED COPY OF ORDER DATED 24-08-2012 OF THE INCOME TAX APPELLATE TRIBUNAL, COCHIN BENCH, COCHIN IN ITA. NO. 430/COCH/2006