Eskay Dyestuff & Organic Chemicals P. ... vs Assessee

BEFORE SHRI JOGINDER SINGH, JM & SHRI R.C.SHARMA, AM ITA No.1625/Mum/2013 ( Assessment Year :2009-2010) Eskay Dyestuff & Organic Vs. ACIT, Cir.2(1)(OSD), Chemicals Pvt. Ltd., 22D, S.A. Mumbai Brevli Road, Fort, Mumbai- 400 001 PAN/GIR No. : AAACE 1232 H ( Appellant) .. ( Respondent)

/Assessee by : Shri Pankaj Toprani & Krupa Toprani /Revenue by : Shri Neil Philip

Date of Hearing : 17th December, 2014 Date of Pronouncement 19/01/2015

ORDER

PER R.C.SHARMA (A.M):

This is an appeal filed by assessee against the order of CIT(A),

dated 20-12-2012 for the assessment year 2009-2010, in the matter of

order passed under Section 143(3) of the I.T. Act.

2. The assessee in its appeal has taken the following grounds :-

1. The honourable CIT has erred in concluding in the impugned order that the amalgamation was completed w.e.f. 1-4-2005 and therefore whatever expenditure, was to be incurred in particular during the F.Y. 2004-05 and 2005-06. His honour has failed to appreciate that although amalgamation was w.e.f. 1-4-

2005 the High Court Order was dated 20-4-2006 and the process and expenses had to be incurred after the High Court Order.

2. The honourable CIT had erred in concluding that the title to the property is defective. His honour has failed to appreciate that 2 ITA No.1625/13

on amalgamation all assets and liabilities vest and get transferred to the acquiring company.

3. The honourable CIT has erred in concluding that the stamp duty on property has nothing to do with the amalgamation procedure or to give effect to amalgamation. The fact of the case is very clear that the stamp duty of Rs.11,72,6501- is paid as a result of amalgamation.

4. The honourable CIT has erred in not allowing stamp duty of Rs.

56,800/- on bank documentation. He has failed to appreciate that such expenses can only go to revenue account.

The appellant pleads before the honourable members of the IT AT that the stamp duty on property amounting to Rs. 11,72,6501- paid on amalgamation and Rs. 56,800/- paid for bank documentation be allowed on revenue account.

The assessee has also filed additional ground vide its letter dated 6-12-

2014, as under :-

1. The lower authorities erred in law and on facts in disallowing a sum of Rs.11,72,650/- being stamp duty payable on lease deed as per the directions of MIDC on amalgamation of Surya Kiran Organic (I) Pvt. Ltd. with the assessee company.

2. Without prejudice to the above ground of appeal, the lower authorities erred in not allowing proportionate deduction of 1/5 th amount as per Section 35DD of the Act in respect of stamp duty paid of Rs.11,72,650/- which the assessee had to pay consequent on amalgamation of Surya Kiryan Organic (I) Pvt.

Ltd. with the assessee company.

3. We have considered rival contentions and perused the record. The

facts in brief are that the assessee company is engaged in the business of

manufacture of Optical Brightener, which is a chemical used in the textile

industry. As per the order of the Hon'ble High Court, M/s Surya Kiran

Organic India Pvt. Ltd. merged/amalgamated with the assessee company

and the amalgamation became effective from 1.4-2005. After

amalgamation, all the assets and liabilities as per the directions of the

hon'ble High Court, stood transferred to the assessee company. It was 3 ITA No.1625/13

noted by the AO that the amalgamating company M/s Surya Kiran

Organic India Pvt. Ltd. was owning an industrial plot allotted by MIDC

under a lease deed, which also claimed to have been transferred to the

assessee company w.e.f 1-4-2005, whereas the assessee got it

transferred in its own name in the period relevant to A.Y. under

consideration by making payment of stamp duty of Rs.12,29,450/-. The

assessee claimed it as revenue expenditure claiming that the expenditure

relates to the amalgamation. However, the AO did not convince with the

submission of the assessee and disallowed the said expenses of

Rs.12,29,450/- on the ground that the expenses are in the nature of

capital expenditure as stamp duty expenses have been incurred to

acquire capital assets.

4. By the impugned order, the CIT(A) dismissed the appeal of the

assessee after having the following observations :-

"5. I have considered the facts of the case and submissions of the assessee. The amalgamation had completed w.e.f. 1/4/05 and, therefore, whatever expenditure was to be incurred for amalgamation had already been incurred in earlier years earlier to the year under consideration and in particular in F.Y. 04-05 or 05-

06. Even the property stood transferred and possessed by the assessee after the merger. But the title regarding the property was not with the assessee without registration and, therefore, the title was defective. Hence, assessee got it transferred by way of registered deed in its name, on which the stamp duty has to be paid. The stamp duty is clearly paid to make the title perfect regarding the property and it has nothing to do with the amalgamation procedure or to give effect to the amalgamation order. Therefore, the stamp duty paid needs to be added to the cost of the property only. The stamp duty payment is neither related to the conduct of the business of the assessee, nor for giving effect to the merger order of Hon'ble High Court. It does not add to the revenue earning capacity of the assessee also and, therefore, it has to be treated as capital expenditure only, therefore, the action of the A.O. is confirmed and the grounds of appeal are rejected. 4 ITA No.1625/13

5.1 The case laws relied by the assessee relate to the revenue expenses for giving effect to the order of amalgamation/merger, whereas in the case of the assessee the amalgamation had already completed w.e.f. 1/4/05 and even the plot for which stamp duty has been paid was in the possession of the assessee. it is only to better its title on the plot that assessee has got it registered in its name and, therefore, the expenditure is for making its title better and not for effecting amalgamation of the companies, therefore, the stamp- duty paid by the assessee has to be capitalized with the cost of the plot of land. In result, the grounds of appeal are rejected."

4. We have considered rival contentions, carefully gone through the

orders of the authorities below and found from the record that the lower

authorities were justified in disallowing the expenditure incurred on stamp

duty. As per our considered view, since the expenditure was incurred on

amalgamation, the assessee is entitled for proportionate deduction of 1/4th

amount as per Section 35DD of the Act in respect of stamp duty paid. We

direct accordingly.

5. In the result, appeal of the assessee is allowed in part for

statistical purposes.

Order pronounced in the open court on this 19/01/2015.

19/01/2015 Sd/- Sd/- ( ) ( ) (JOGINDER SINGH) (R.C.SHARMA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER Mumbai; Dated 19/01/2015 /pkm, PS Copy of the Order forwarded to : 1. / The Appellant 2. / The Respondent. 3. / The CIT(A), Mumbai. 4. / CIT 5. / DR, ITAT, Mumbai 5 ITA No.1625/13

6. Guard file. //True Copy//

/ BY ORDER,

(Asstt. Registrar) / ITAT, Mumbai