Pr. Commissioner Of Income Tax, Kota Rajasthan v. M/S Manglam Cement Ltd., Aditya Nagar

HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH AT JAIPUR D.B. Income Tax Appeal No.359/2017 Pr. Commissioner Of Income Tax, Kota Rajasthan. ----Appellant Versus M/s Manglam Cement Ltd., Aditya Nagar-326520, Morak, TehsilRamganjmandi, Distt Kota Rajasthan. ----Respondent For Appellant(s) : Ms. Parinitoo JainFor Respondent(s): Mr. Sanjay Jhanwar with Ms. Archana HON'BLE MR. JUSTICE K.S.JHAVERI HON'BLE MR. JUSTICE VIJAY KUMAR VYASJudgment 03/04/2018 1.By way of this appeal, the department has assailed thejudgment and order of the tribunal whereby tribunal has allowedthe appeal of the assessee and dismissed the appeal of thedepartment. 2.Counsel for the appellant has framed following substantialquestions of law:- Appeal No.359/2017 “1. Whether the Tribunal was legally justifiedin deleting the addition of Rs.1,62,85,105/-made on account of disallowance of variousexpenses (staff welfare, general charges,gifts, sales promotion and social welfare) notincurred wholly and exclusively for thepurposes of business and also the same wereneitherexplainedsatisfactorilynorsupporting evidences were provided by theassessee specifically when Rs.52,82,432/-was confirmed by the CIT(A)? 2.Whether the Tribunal was legally justifiedindeletingthedisallowanceofRs.2,75,00,000/- made on account ofconstruction of railway over bridge by holdingit to be revenue expenditure u/s 37(1)specifically when the same was in the natureof capital expenditure? 3. Whether the Tribunal was legally justifiedindeletingthedisallowanceofRs.1,36,29,693/- made on account ofpayment of compensation to farmers foracquisition of their land by holding it to be arevenue expenditure specifically when as perthe registered deeds the seller did not haveany right of ownership after the transfer ofland to the assessee company so it was acapital expenditure? 4. Whether the Tribunal was legally justifiedindeletingthedisallowanceofindeletingthedisallowanceof Rs.3,02,13,331/- made on account of payment of demurrage specifically when theassessee company was not under anobligation to incur the expenditure in termsof agreement with another party?assessee company was not under anobligation to incur the expenditure in termsof agreement with another party? 5. Whether the Tribunal was legally justifiedindeletingthedisallowanceofRs.28,29,670/- made on account of expensesincurred for railway siding as revenueexpenditure specifically when the assesseeitself has shown it as part of fixed asset in itsbalance sheet? 3.The facts of the case are that the return of income was filedby the assessee which was processed u/s.143(1) and the case wasselected for scrutiny. A notice u/s.143(2) was issued. Theassessee company is a private company engaged in the businessof manufacturing of cement and generation of power throughcapital power plants and wind mills. The Assessing Officer, duringthe course of assessment proceedings made various additions.The assessing Officer disallowed the social welfare expensesu/s.371(1) of Rs.32,39,757/- by relying on the decision of Hon'bleSupreme Court in the case of Arvind Mills Limited vs. CIT (197 ITR 3.The facts of the case are that the return of income was filedby the assessee which was processed u/s.143(1) and the case wasselected for scrutiny. A notice u/s.143(2) was issued. Theassessee company is a private company engaged in the businessof manufacturing of cement and generation of power throughcapital power plants and wind mills. The Assessing Officer, duringthe course of assessment proceedings made various additions.The assessing Officer disallowed the social welfare expensesu/s.371(1) of Rs.32,39,757/- by relying on the decision of Hon'bleSupreme Court in the case of Arvind Mills Limited vs. CIT (197 ITR 422) which was spent by the assessee as contribution made togram panchayat towards its welfare fund, repair of police stationat Morak/Dara, supply of sweets for Budhkhan Gram Panchayatand the assessee had claimed it as business expenditure. TheAssessing Officer made additions by disallowing the expensesincurred by the assessee which has claimed to be incurred for thepurpose of business under the heads staff welfare expenses(Rs.58,08,465/-) general expenses(Rs.7,12,561/-) gift expenses(Rs.19,32,432/-) sales promotion expenses (Rs.45,91,890/-) andtaxi hiring expenses etc. As the assessee has not produced propersupporting evidence/details of the expenditure during the courseof assessment proceedings which could prove its claim. TheAssessing Officer disallowed the expenditure incurred amountingto Rs.1,36,29,693/- as the assessee had claimed the same to becompensation of land to farmers for mining use. The expenditurewas claimed as revenue expenditure which was disallowedu/s.37(1) and treated as capital expenditure by the AssessingOfficer. During the year under consideration the assessee hasdebited a sum of Rs.2,75,00,000/- under the head "social welfareexpenses" on account of contribution towards approach road andROB in Morak which was claimed by the assessee as revenueexpenditure. The Assessing Officer disallowed the claim u/s.37(1)and treated it as capital expenditure by relying on the judgment ofSupreme Court in the case of Arvind Mills Ltd. vs. CIT (197 ITR422) in which it was stated that the question of voluntary and/orinvoluntary payment is not material for deciding capital/revenuenature of expenditure. During the year under consideration theassessee had claimed demurrageof Rs.3,02,13,331/- under the main head "Freight Expenses" on account of claims lodged by thedifferent clearing agents. The Assessing Officer disallowed theexpenditure claimed by the assessee by stating that in theagreement between the assessee and the clearing agents it hasbeen mentioned that responsibility of any loss due to shortageand/or damages at railway station as well as transit wagonposition would be the responsibility of the clearing agent. There isno clause that reimbursement of demurrage paid by the clearingagents would be made by the assessee company. Moreover,demurrage has been levied in the form of fine for not adhering tothe rules/byelaws established by the railways. Hence, theexpenditure being fine in nature was disallowed by the AssessingOfficer. During the year under consideration the assessee hasdebited an amount of Rs.28,29,670/- under the head "RailwaySiding Expenses"claiming it to be of revenue expenditure innature. 3.1The Assessing Officer disallowed the claim of the assesseeand treated the expenditure as capital in nature by stating that asthe work for maintenance of the railway siding was entrusted toM/s. Khandelwal Construction, Kota vide work order dated01.04.2009 and the expenditure on the work of railway sidingresulted in enduring benefit to the assessee company, theseexpenses were considered as capital in nature. Further, theassessee had shown railway siding under the head Fixed assets inthe balance sheet. The Assessing Officer allowed depreciation @10% on total payment and disallowed the remaining expenditure. 3.1The Assessing Officer disallowed the claim of the assesseeand treated the expenditure as capital in nature by stating that asthe work for maintenance of the railway siding was entrusted toM/s. Khandelwal Construction, Kota vide work order dated01.04.2009 and the expenditure on the work of railway sidingresulted in enduring benefit to the assessee company, theseexpenses were considered as capital in nature. Further, theassessee had shown railway siding under the head Fixed assets inthe balance sheet. The Assessing Officer allowed depreciation @10% on total payment and disallowed the remaining expenditure. Counsel for the respondent has relied on thedecision of Gujarat High Court in CIT-I vs.Indian Petrochemical Corporation Ltd. (2016)74 Taxmann.com 163 (Gujarat), it has beenheld as under:- 8. We have heard both the learned counseland perused the record. We have also gonethrough the decisions cited before us. TheTribunal has followed its own decision in thecase of Gujarat Narmada Valley FertilizersCo. Ltd. and held in favour of the assessee.This Court in the case of Gujarat State ExportCorporation Ltd. (supra) has held thatpayment of surtax was not an allowablededuction and that by paying the entrancefee to the sports club the assessee had nointention to acquire any capital asset or takeadvantage for the enduring benefit of thebusiness and that by common sensestandards, it could be stated that it was forrunning the business or for bettering theconduct of its business and therefore theamount paid as entrance fee was deductible.In view of the said decision, we find that thequestion raised is required to be answered infavour of the assessee.11.Taking into account the same, thetribunal has confirmed the finding arrived atby the CIT(A)observing as under:- 10.3 We have heard the rival contentions,perused the material available on record. TheLd. CIT(A) has given a finding on fact byobserving as under:- “In my opinion, the main purpose ofacquiring the land was to extract lime stoneswhich is the raw material for assessee. Afterthe extraction the land becomes unusable forany other purpose. The assessee cannot usethis land perpetually as in the case of anormal agricultural or residential land, thisland can be used till its deposit (i.e. limestone) lasts. Therefore, I agree with thefinding of the AO in AY 2008-09 wherein heallowed such expenditure in 20equalinstallments. Considering the above, the AOis directed to allow this expenditure equallyin 20 years including the current year.Therefore, addition of Rs. 46,56,887/- is confirmed. The AO is directed to allowexpenditure of Rs. 2,45,099/-.” There is no dispute with regard to the factthat the AO himself had allowed expenditurein 20 equal installments in AY 2008-09. Inthe year under appeal, the Revenue has notdemonstrated the change into the facts andthe reason for changing the stand. Therefore,we do not see any reason to interfere intothe order of the Ld. CIT(A), same is herebyaffirmed. This ground is dismissed. 12.We are of the opinion that expenseswhich are done for the business purpose wasrightly allowed by the CIT(A), therefore, thisissue will not arise. 5.Issue no.2 is covered by the decision in ITA No.358/2017 where while considering issue no.4, this court has held as under:- 14.In our considered opinion, the expensesincurred are held to be revenue expenseswhich has been upheld by the tribunal. Weare in complete agreement with the viewtaken by the CIT(A) and the tribunal on thisissue. Therefore, this question does notarise. 6.Issue no.3 is covered by the decision in ITA No.358/2017 where while considering issue no.5, this court has held as under:- 16.The counsel for the respondent hasrelied upon the decision of Gujarat HighCourt in Indian Petrochemical (supra). 12.We are of the opinion that expenseswhich are done for the business purpose wasrightly allowed by the CIT(A), therefore, thisissue will not arise. 5.Issue no.2 is covered by the decision in ITA No.358/2017 where while considering issue no.4, this court has held as under:- 14.In our considered opinion, the expensesincurred are held to be revenue expenseswhich has been upheld by the tribunal. Weare in complete agreement with the viewtaken by the CIT(A) and the tribunal on thisissue. Therefore, this question does notarise. 6.Issue no.3 is covered by the decision in ITA No.358/2017 where while considering issue no.5, this court has held as under:- 16.The counsel for the respondent hasrelied upon the decision of Gujarat HighCourt in Indian Petrochemical (supra). 17.The tribunal has upheld the finding ofCIT(A). We are in complete agreement withthe view taken by the tribunal. Therefore,this question will not arise. 7. Issue no.4 is covered by the decision in ITA No.358/2017 where while considering issue no.6, this court has held as under:- 19.The counsel for the respondent hasrelied upon on the following decisions:- 19.1 In Mahalakshmi Sugar Mills CompanyLtd. vs. CIT (1984) 19 Taxmann 447(Delhi), it has been held as under:- Payment of demurrage is not in the natureof damage or penalty and it is merely acharge made by the railway administrationto compensate itself for keeping the goodsof the assessee in its custody beyond aparticular time. Payment of demurrage isincidental to business and its impact is toincrease the cost to the assessee, of thegoodstransported.Therefore,theexpenditure on this account can be said tobe laid out wholly any exclusively for theassessee's business. 19.2 In Nanhoomal Jyoti Prasad vs. CIT,(1980) 123 ITR 269 (Allahabad), it hasbeen held as under:- 1. Demurrage charged by part authoritiesis in the nature of compensation for delayin clearing the goods from the godowns ofthe port authorities. It includes amountchargeable for storage and safe custody ofthe goods by the port authorities beyondthe free period allowed under port rules. Inthe instant case, the demurrage paid bythe assessee was not a fine paid for anycriminal act but compensation for use ofthe port facilities beyond the permissiblefree period. 2. once the unauthorized import of goodshad been regularized on payment of fine,commercial expediency dictated the assessto take delivery of the goods after payingthe demurrage failing which its stock-in-trade would have been auctioned by theport authorities to realize their dues. Thepayment was, thus, made by the assesseeto preserve its stock-in-trade and to utilizeit for its manufacturing business. 3.The impugned expenditure was,therefore, held to be a permissible revenuededuction under Section70(2) both theparties had drawn the High Court'sattention to cases of various types dealingwith litigation costs, penalty paid forbreach of contract, expenses incurred forcarrying on illegal business, money 'lostthrough theft, amount paid as fine forinfraction of law, etc., where questionsregarding the admissibility of expensesarose. The High Court, however, observedthat no useful purpose could be served by referring to decisions in those cases asnone of them dealt with a case of thepresent type.20.In our considered opinion, thedemurrage which has been considered wasnot expenses under Section 37 of theIncome Tax Act and the CIT(A) as well asTribunal while considering the same hasrightly observed as under:- referring to decisions in those cases asnone of them dealt with a case of thepresent type.20.In our considered opinion, thedemurrage which has been considered wasnot expenses under Section 37 of theIncome Tax Act and the CIT(A) as well asTribunal while considering the same hasrightly observed as under:- 15.3 We have heard the rival contentions,perused the material available on record.We find that the Ld. CIT(A) has given afinding on fact that there is no clause bywhich the demurrages was required to bepaid by the C & F Agent not by theassessee. It is also not brought on recordby the revenue that the assessee hadclaimed such expenditure from C & Fagent. Under these facts, we are of theview that the Ld. CIT(A) has rightlyfollowed the decision of the Hon’ble DelhiHigh court in the case of Mahalaxmi SugarMills Co. Ltd. Vs. CIT and Hon’bleAllahabad High Court in the case ofNanhoomal Jyoti Prasad Vs. CIT (supra).We do not see any merit into the ground ofrevenue’s appeal, same is hereby affirmed.This ground is dismissed. 8.Issue no.5 is covered by the decision in ITA No.358/2017where while considering issue no.7, this court has held as under:- 16.3 We have heard the rival contentions,perused the material available on record.The issue which required to be adjudicatedis whether the AO was justified indisallowaning the claim of the expenditureincurred on maintenance of railway trackat the railway siding. The AO whiledisallowing the expenditure as relied uponthe judgment of the Hon’ble Madras HighCourt in the case of CIT vs. Madura Coats205 Taxman 357. The contention of theassessee is that the judgment of theHon’ble Madras High Court is notapplicable as the fact is that the caseswere with regard to replacement of oldmachinery and renovation of the buildings. We find that in the case of CIT vs. MaduraCoats (supra) the AO disallowed the claimin respect of replacement of Auto Corneretc by holding that replacement of oldmachinery cannot be treated as therevenue expenditure. This view of the AOwas upheld by the Hon’ble High Court. Inthe present case, it is not the case ofreplacement of old machinery by newmachinery and repair of rented buildings.In the present case the expenditure isincurred on the day to day maintenance ofthe railway tracks at the railway siding.Therefore, we do not see any reason tointerfere into the order of the Ld. CIT(A),same is hereby affirmed. This ground ofRevenue’s appeal is dismissed. 23. In our considered opinion, it was notfor laying new railway lineand the tribunalhas rightly recorded the finding asreproduced above. 9.In view of the above, no substantial question of law arises. 10.The appeal stands dismissed. (VIJAY KUMAR VYAS),JBrijesh 23. (K.S.JHAVERI),J