M/s Sree Venkateswara Enterprises, Secunderabad V. ITO, Hyderabad

CO 50/HYD/2009

• Counselvise Citation: [2010] 122 COUNSELVISE.COM (IT) 4500 (ITAT-HYDERABAD)
• Duration Of Justice: 2 month(s) 25 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 05-02-2010
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 21-01-2010
• Assessment Year: 2001-2002
• Appeal Filed On: 10-11-2009
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: K V N CHARYA
• Keywords: Business expenditure; Reasonable cause; Tax effect; Commercial expediency; Revenue expenditure; Capital expenditure
• Section: 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A , HYDERABAD BEFORE SHRI G.C. GUPTA, VICE PRESIDENT AND SHRI CHANDRA POOJARI ACCOUNTANT MEMBER ITA NO.350/HYD/2005 ASSTT. YEAR 2001-02 ITO, WARD 10(3), HYDERABAD M/S SREE VENKATESWARA ENTERPRISES, SECUNDERABAD (AANFS 3651 A) (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI K.V.N. CHARYA, DR RESPONDENT BY : SHRI RAGHAVENDRA RAO C.O.NO: 50/HYD/2009 ASSTT. YEAR 2 001-02 (IN ITA NO.350/HYD/2005) M/S SREE VENKATESWARA ENTERPRISES, SECUNDERABAD (AANFS 3651 A) VS ITO, WARD 10(3), HYDERABAD (APPELLANT) (RESPONDENT) O R D E R PER : CHANDRA POOJARI, ACCOUNTANT MEMBER THE APPEAL BY THE REVENUE AND THE CROSS APPEAL BY T HE ASSESSEE ARE DIRECTED AGAINST THE ORDER OF THE CIT(A) VI, HYDE RABAD DATED 7.2.2005 FOR THE ASSESSMENT YEARS 2001-02. 2. FIRST WE WILL TAKE UP THE APPEAL OF THE REVENU E WHEREIN THE FOLLOWING GROUNDS ARE RAISED: 1. THE CIT(A) ERRED IN DELETING THE DISALLOWANCE OF RS .8,30,241/- 2. THE CIT(A) ERRED IN HOLDING THAT THE EXPENDITURE OF RS.8,30,241/- WAS REVENUE IN NATURE. 2 3. THE CIT(A) OUGHT TO HAVE SEEN THAT THE ASSESSEE HAD NOT ADMITTED ANY RECEIPTS AGAINST WHICH THE EXPENDITURE OF RS.8,30,2 41 COULD BE HELD AS ALLOWABLE AS DEDUCTION. 3. THE DR SUBMITTED THAT THE CONTENTION OF THE ASSESSEE BEFORE THE CIT(A) IS ENTIRELY NEW VERSION WHICH WAS NOT AT ALL TAKEN BEFORE THE ASSESSING OFFICER AND ALSO NO MOU ENTERED BY THE ASSESSEE W ITH ITS SISTER CONCERN M/S VENKATESWARA ENTERPRISES, R.R APPARAO S T., VIJAWAYAWADA NOT AT ALL FURNISHED TO THE ASSESSING OFFI CER. THIS MOU DATED 11.12.2000 IS SELF SERVING DOCUMENT. BEFORE THE ASSESSING OFFICER THE ASSESSEE MADE A CLAIM THAT THE ASSESSEE INCURRED EXPENDIT URE ON ITS OWN FOR ITS PROJECT. HE SUBMITTED THAT THIS FACT IS EVI DENT FROM THE CORRESPONDENCE MADE BY THE ASSESSEE WITH THE VARIOUS AUTHO RITIES. HE DREW OUR ATTENTION TO THE LETTER DATED 8.9.2003 PLA CED AT THE DEPARTMENTAL PAPER BOOK AT PAGE NO.6 & 7 SPECIFICALLY IN PARA 2 AT PAGE 6, WRITTEN BY THE ASSESSEE TO ASSESSING OFFICER AND T O THE LETTER DATED 8/4/2003 FROM HIMURJA (HP GOVT. ENERGY DEVELOP MENT AGENCY), URJA BHAVAN, KASUMATI, SIMLA TO THE CHIEF E NGINEER, C&A, HIMACHAL PRADESH STATE ELECTRICITY AND A COPY TO M/S SVEV JA, 128/10/HILL ST. SECUNDERABAD REGARDING SUBMISSION OF TH E PROJECT REPORT BY THE ASSESSEE PLACED AT DEPARTMENTAL PAPER BOOK PAGE NO.8. SIMILARLY HE DREW OUR ATTENTION TO THE LETTER DATED 18.7.02 WRITTEN TO M/S VENKATESWARA ENTERPRISES, I.E., ASSESSEE BY M/S HPSCB, KUSUMATI SIMLA PLACED AT DEPARTMENTAL PAPER BOOK 9 AND 10 AN D ALSO DETAILS OF CORRESPONDENCE MADE BY ASSESSEE WITH HPSCB, SIMLA PLACED AT D. PAPER BOOK 11, 12 AND 14. HE ALSO SUBMITTED THE PLEA OF THE ASSESSEE IS MIS REPRESENTATION OF THE FACTS AND WHICH CANNOT BE CONSI DERED. FURTHER HE SUBMITTED THAT THERE IS NO EVIDENCE TO SHOW THAT THE CONTRACT WAS CARRIED OUT ON BEHALF OF THE ASSESSEES SISTER CONCERN. FURTHER HE SUBMITTED THAT EVEN IF THE EXPENDITURE INCURRED ON BE HALF OF THE SISTER CONCERN, IT CANNOT BE ALLOWED AS BUSINESS EXPENDITURE SINCE THERE IS NO COMMERCIAL EXPEDIENCY TO INCUR THIS EXPENDITURE AND THE RE WAS NO NEXUS TO THE BUSINESS ACTIVITY OF THE ASSESSEE . 3 4. THE AR SUBMITTED THAT THE ASSESSEE CLAIMED EXPENDITU RE SUCH AS TRAVELING, CONSULTATION, PROCESSING FEES ETC. AMOUNT ING TO TOTAL AT RS.8,30,241 IN CONNECTION WITH ESTABLISHMENT OF A HY DEL POWER PROJECT AT SIMLA ALLOTTED BY THE STATE GOVT. OF HIMACH AL TO ITS SISTER CONCERN AND THE SAME AMOUNT WAS DEBITED TO PROFIT AND LOSS ACCOUNT. IT WAS HELD BY THE ASSESSING OFFICER THAT SINCE THE ESTABLISHME NT OF HYDEL POWER PROJECT IS ENTIRELY A NEW LINE OF BUSINESS FOR THE ASSESSEE, ALL THE EXPENDITURE INCURRED IN THE COURSE OF SETTING UP OF A NEW LINE OF BUSINESS NOT ALLOWABLE AS REVENUE EXPENDITURE. 5. HE FURTHER SUBMITTED THAT THE ASSESSEE IS ENGAGED IN CIVIL, ELECTRICAL AND MECHANICAL CONTRACTS ON TURN KEY BASIS. THE RETURN OF INCOME FOR THE ASSESSMENT YEARS 2001-02 WAS FILED ON 31.1 0.2001 DECLARING A LOSS OF RS.2,45,060, ON VERIFICATION OF THE EXPENSES DEBITED TO PROFIT AND LOSS ACCOUNT IT WAS OBSERVED BY THE ASSESSING O FFICER THAT PART OF EXPENSES UNDER CERTAIN HEADS SUCH AS TRAVELING, CO NSULTATION, PROCESSING FEES ETC. AMOUNTING TO TOTAL OF RS.8,30,241 WE RE INCURRED IN CONNECTION WITH ESTABLISHMENT OF A HYDEL POWER PROJECT AT SIMLA ALLOTTED BY THE STATE GOVT. OF HIMACHAL. THE AR SUBMITTED THAT T HE CONTRACT TO SET UP A HYDEL POWER PROJECT AT SIMLA WAS ALLOTTED BY THE GOVT. OF HIMACHAL TO M/S SREE VENKATESWARA ENTERPRISES, VIJAYAWADA WHICH IS A SISTER CONCERN OF THE ASSESSEE. THAT FIRM IS A INDEPENDENT ENTITY HAVING ITS REGISTERED OFFICE AT DOOR NO.12-11-24, RR APPARAO ST. VIJAYAWADA AND SEPARATELY ASSESSED TO INCOME TAX AT VIJAYAWADA. THE ASSESSEE FIRM WAS GIVEN A CONTRACT BY SVEJA TO PREPARE DETAILED FEASIBILITY REPORT OF THE SAID HYDRO ELECTRICAL PROJECTS ALLOTTED BY THE GO VT. OF HIMACHAL. TO THIS EFFECT, THE ASSESSEE FIRM HAS SIGNED/ENTERED INTO A MEMORANDUM OF UNDERSTANDING ON 11.12.2000 WITH SVEVJA. THE ASSESSI NG OFFICER HAS WRONGLY INTERPRETED AND MISUNDERSTOOD THAT THE POWER PROJECTS WERE 4 ALLOTTED TO THE ASSESSEE FIRM AND THE ASSESSEE FIRM HAS EN TERED INTO AGREEMENT WITH THE GOVT. OF HIMACHAL. THE AR DREW OUR ATTENTION TO THE COPIES OF MOU BETWEEN SVEVJA AND THE GOVT. OF HIMA CHAL AND THE MOU BETWEEN SVEVJA AND THE ASSESSEE FIRM. HE RELIED ON F OLLOWING JUDGEMENTS: 1. CIT VS.CALVARY MOUNT ESTATES (P) LTD. (41 ITR 755 ) (SC) 2. CIT VS. INDIAN BANK LTD. (56 ITR 77) (SC) 6. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL ON RECORD. THE CIT(A) ALLOWED EXPENDITURE THAT ASSESSEE HAS GOT A CONTRACT WORK FROM M/S VENKATESWARA ENTERPRISES, VIJAYAW ADA AND TO DO THIS WORK, THE ASSESSEE SIGNED MOU WITH M/S VENKATESWARA ENTERPRISES, VIJAYAWADA ON 11/12/2000. HOWEVER, THERE IS NOTHING ON RECORD TO SHOW THAT THIS MOU WAS PRODUCED BEFORE THE ASSE SSING OFFICER. FURTHER, THERE IS NO RECORD REGARDING THE DISCLOSURE OF THE INCOME EARNED FROM THIS EXPENDITURE OR RECEIPT OF ANY INCOME FROM THE SISTER CONCERN. THERE IS NO EVIDENCE TO SHOW THAT THE EXPENDI TURE INCURRED FOR THE PURPOSE OF BUSINESS. THE EXPENDITURE INCURRED FOR THE BUSINESS OF SOME OTHER PERSON CANNOT BE ALLOWED AS BUSINESS EXPEND ITURE U/S 37(1) OF THE ACT. AN EXPENDITURE U/S 37(1) COULD BE ALLOWED WHEN IT IS NOT A CAPITAL EXPENDITURE OR PERSONAL EXPENDITURE, L AID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. IN THE PRESENT CASE, SINCE THERE IS NO OBLIGATION TO INCUR THIS EXPENDITURE A ND EXPENDITURE INCURRED FOR THE PURPOSE OF BUSINESS OF SISTER CONCERN COULD NOT BE ALLOWED AS BUSINESS EXPENDITURE OF THE ASSESSEE. THERE SHOULD BE NEXUS BETWEEN EXPENDITURE AND THE PURPOSE OF THE BUSIN ESS SINCE THE ASSESSEE NOT ABLE TO SHOW THE PURPOSE FOR WHICH THE EXPEND ITURE WAS INCURRED. IN OUR OPINION, EXPENDITURE NOT INCURRED FROM THE POINT OF VIEW OF COMMERCIAL EXPEDIENCY. FURTHER, ALL THE CORRESPO NDENCES AND RECORDS SHOW THAT THE CONTRACT WAS AWARDED TO THE ASSESSEE ON LY BY 5 HIMACHAL PRADESH STATE ELECTRICITY BOARD AND NOT TO THE ASSESSEES SISTER CONCERN M/S VENKATESWARA ENTERPRISES, VIJAYAWADA. F URTHER, THE ASSESSEE THOUGH PRODUCED A COPY OF MOU ENTERED WITH SECRE TARY TO THE GOVT. OF HIMACHAL PRADESH BY M/S VENKATESWARA ENTERPRISES, VIJAYAWADA, THIS AGREEMENT CANNOT BE RELIED UPON WIT HOUT EXAMINATION. THOUGH THE ASSESSEE HAS TAKEN A PLEA THAT M/S VENKATESW ARA ENTERPRISES, VIJAYAWADA IS A LIMITED COMPANY, THE DOCU MENTS DOES NOT SHOW THE RELEVANT FACTS. THE NAME OF THE COMPANY DOES N OT REFLECT THE WORD LIMITED . AS SUCH, IN OUR OPINION THE MATTER REQUIRED TO B E EXAMINED BY THE ASSESSING OFFICER REGARDING THE CORRECTNESS OF THE DOCUMENTS PRODUCED BY THE ASSESSEE BEFORE CIT(A) AND THERE AFTER THE ASSESSING OFFICER DIRECTED TO DECIDE THE ISSUE IN DISPUTE AN D ALLOW THE EXPENDITURE IF IT IS INCURRED FOR THE PURPOSE OF THE BUSINESS OF THE ASSESSEE. 7. NOW COMING TO THE CROSS APPEAL PREFERRED BY THE A SSESSEE IN CO NO.50/HYD/2009, THE ASSESSEE RAISED THE FOLLOWING G ROUND THAT THE REVENUE HAS ERRED IN FILING THE APPEAL IN VIOLAT ION OF BOARDS INSTRUCTIONS THAT APPEALS BEFORE THE TRIBUNAL SHOULD N OT BE FILED WHERE THE TAX EFFECT IS LESS THAN RS.2,00,000/- AND THE SAME TO BE DISMISSED. 8. IN THE FIRST PLACE, THERE WAS A DELAY OF 961 DAYS IN FILING THE CROSS APPEAL BY THE ASSESSEE AND THE ASSESSEE NOT SHOWN ANY REASONABLE CAUSE FOR NOT FILING THE CROSS APPEAL IN TIME . IN VIEW OF THE INORDINATE DELAY OF 961 DAYS, WITHOUT REASONABLE CAUSE, THE APPEAL FILED BY THE ASSESSEE CANNOT BE CONSIDERED ACCORDINGLY, THE CROSS A PPEAL DISMISSED AS UN-ADMITTED. 9. FURTHER THE ASSESSEE COUNSEL RELIED FOLLOWING JUDGE MENT: 1. CIT VS. NANAK RAM JAISINGHANIA (317 ITR 302) (DELH I) 6 10. HE FURTHER, RELIED ON THE ORDER OF THE TRIBUNAL IN THE CASE OF DCIT VS.M/S SANGHI POLYESTERS LTD. IN ITA NO.447/HYD/200 1 FOR THE ASSESSMENT YEARS 1995-96 DATED 5 TH OCTOBER, 2007 AND ORDER DATED 27/12/2006 IN THE CASE OF M/S PADMAVATHI MANSION (P) LTD., HYDERABAD FOR THE ASSESSMENT YEAR 1999-2000 IN ITA NO.993/HYD/200 3 FOR THE PROPOSITION THAT WHEN THERE WAS A LOSS, THE TAX EFFECT LESS THAN TWO LAKH, THE DEPARTMENT CANNOT FILE APPEAL BEFORE THE TRIBUN AL. SINCE WE HAVE DISMISSED THE CROSS APPEAL AS UN-ADMITTED, WE REFRAIN FRO M GOING INTO THE MERIT OF THE ARGUMENTS OF THE ASSESSEE COUNSEL. 11. IN THE RESULT THE REVENUE APPEAL IN ITA NO.350 /HYD/2005 IS ALLOWED FOR STATISTICAL PURPOSE AND THE CROSS APPEAL FIL ED BY THE ASSESSEE IN CO.NO.50/HYD/2009 STANDS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT 5. 2.2010 SD/- SD/- G.C. GUPTA CHANDRA POOJARI VICE PRESIDENT ACCOUNTANT MEMBER DATED 5 TH FEBRUARY,2010 COPY FORWARDED TO: 1. 1. SRI. VENKATESWARA ENTERPRISES, 4-3-128/10, TOBACCO BAZAR, SECUNDERABAD. 2. 1. ITO, WARD 10(3), HYDERABAD 2. THE ACIT, CIRCLE 1, KARIMNAGAR 3. CIT(A)-III, VI, HYDERABAD. 4. CIT, HYDERABAD 5. THE D.R., ITAT, HYDERABAD. NP