Rave Entertainment Private Ltd., Kanpur V. Dy.Commissioner of Income Tax, Kanpur

ITA 106/LKW/2012

• Counselvise Citation: 10623714 RSA 2012
• Duration Of Justice: 2 year(s) 8 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-11-2014
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 23-09-2014
• Assessment Year: 2005-2006
• Appeal Filed On: 07-03-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: ALOK MITRA
• Keywords: Business expenditure; Principle of natural justice; Capital expenditure
• Section: 37

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL LUCKNOW BENCH A, LUCKNOW BEFORE SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI A.K. GARODIA, ACCOUNTANT MEMBER ITA NO.106/LKW/2012 ASSESSMENT YEAR:2005 - 06 DY.C.I.T., RANGE - 6, KANPUR. VS M/S RAVE ENTERTAINMENT PVT. LTD., JAGRAN BUILDING, 2, SARVODYA NAGAR, KANPUR. PAN:AABCR5768A (RESPONDENT) (APPELLANT) SHRI P. K. KAPOOR, C.A. APPELLANT BY SHRI ALOK MITRA, D. R. RESPONDENT BY 23/09/2014 DATE OF HEARING 28 /11/2014 DATE OF PRONOUNCEMENT O R D E R PER A. K. GARODIA, A.M. THIS IS AN ASSESSEES APPEAL DIRECTED AGAINST THE ORDER PASSED BY LEARNED CIT(A) - I, KANPUR DATED 06/12/2011 FOR THE ASSESSMENT YEAR 2005 - 2006. 2. THE GROUNDS RAISED BY THE ASSESSEE ARE AS UNDER: 1. BECAUSE SELECTION OF THE CASE ON 'CASS SYSTEM ON AST MODULE' IS CONTRARY TO THE LAW RELATED TO ISSUANCE OF NOTICE UNDER SECTION 143(2) FOR INITIATING SCRUTINY RELATED ASSESSMENT PROCEEDINGS AND ACCORDINGLY, THE 'VARIATION' BETWEEN THE RETURNED INCOME AND T HE ASSESSED INCOME WHICH INCLUDED THE DISALLOWANCES OF; (A) RS.4,93,650 ON ACCOUNT OF CONSULTANCY CHARGES PAID TO ARCHITECTS FOR THE PROJECT IN THE NAME OF 'NOVELTY RAVE ENTERTAINMENT PVT. LTD.'; 2 (B) RS.1,58,000 PAID TOWARDS FEES OF REGISTRAR OF COMPANIES FOR REGISTRATION OF THE NEW PROJECT IN THE NAME OF 'NOVELTY RAVE ENTERTAINMENT PVT. LTD . (C) RS.50,000 PAID TO SHRI VIVIAN BRAGANZA AS CONSULTANCY CHARGES IS WHOLLY ILLEGAL AND UNJUSTIFIED. 2. BECAUSE OTHERWISE ALSO, NOTICE UNDER SECTION 143(2), ON THE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE CANNOT BE SAID TO HAVE BEEN ISSUED AND SERVED IN ACCORDANCE WITH THE PROVISIONS OF LAW AND ACCORDINGLY THE ABOVE REFERRED DISALLOWANCES ARE WHOLLY ILLEGAL, AS THE APPELLANT ALR EADY STOOD ASSESSED WITH THE PROCESSING OF THE RETURN UNDER SECTION 143(1). WITHOUT PREJUDICE TO THE AFORESAID 3. BECAUSE THE AUTHORITIES BELOW HAVE ERRED IN LAW AND ON FACTS IN MAKING/UPHOLDING THE DISALLOWANCES OF; (A) RS.4,93,650 CONSULTANCY CHARGES PAID TO ARCHITECTS IN RELATION TO THE PROJECT NAMELY 'NOVELTY RAVE ENTERTAINMENT PVT. LTD. (B) RS.1,58,000 FEE PAID TO THE REGISTRAR OF COMPANIES FOR REGISTRATION OF NOVELTY RAVE ENTERTAINMENT PVT. LTD. ON THE GROUNDS THAT: ( A ) THE EXPENDITURE IN QUESTION WAS OF CAPITAL NATURE; AND ( B ) IN ANY CASE THE EXPENDITURE IN QUESTION COULD NOT HAVE BEEN HELD TO HAVE BEEN INCURRED FOR THE PURPOSES OF APPELLANT'S OWN BUSINESS. 4. BECAUSE THE EXPENDITURE IN QUESTION HAVE BEEN INCURRED BY THE APPELLANT DURING COURSE OF CARRYING ON OF ITS EXISTING BUSINESS AND OBSERVATIONS MADE, TO THE CONTRARY, ARE WHOLLY ERRONEOUS, BOTH ON FACTS AS WELL AS IN LAW. 3 5. BECAUSE THE PROJECT IN THE NAME OF 'NOVELTY RAVE ENTERTAINMENT PVT. LTD.' HAD BEEN UNDER TAKE N BY THE APPELLANT, BY WAY OF EXPANSION OF ITS EXISTING BUSINESS AND BY APPLICATION OF RULE OF 'UNITY OF CONTROL AND MANAGEMENT' AND 'INTERLACING OF FUNDS', THE SAID BUSINESS ENTITY FELL IN THE CATEGORY OF 'SIMILAR BUSINESS' AND EXPENDITURE INCURRED ON THE SAME WAS ALLOWABLE AS DEDUCTION UNDER SECTION 37 OF THE ACT. 6. BECAUSE ALTHOUGH PAYMENT MADE BY THE APPELLANT TO SHRI VIVIAN BRAGANZA COVERED THE PERIOD FROM NOVEMBER 2003 TO OCTOBER 2004, THE SAME HAD ACCRUED AS LIABILITY IN THE YEAR UNDER APPEAL ITSEL F, ON THE SAME BEING QUANTIFIED, AND WHOLE OF THE SAME WAS ALLOWABLE AS DEDUCTION IN THE ASSESSMENT YEAR 2005 - 06 ITSELF. 7. BECAUSE THE AMOUNT PAYABLE TO SHRI VIVIAN BRAGANZA COULD NOT HAVE BEEN APPORTIONED BETWEEN THE 'PERIOD FALLING IN THE PRECEDING YEA R' AND 'PERIOD FALLING IN THE CURRENT YEAR' AND DISALLOWANCE OF A SUM OF RS.50,000 AS MADE/SUSTAINED BY THE AUTHORITIES BELOW IS WHOLLY ERRONEOUS AND CONTRARY TO THE LAW AS IS APPLICABLE IN THE MERCANTILE SYSTEM OF ACCOUNTING. 8. BECAUSE THE ORDER APPEALED AGAINST IS CONTRARY TO THE FACTS, LAW AND PRINCIPLES OF NATURAL JUSTICE. 3. REGARDING GROUND NO. 1 & 2, IT WAS FAIRLY CONCEDED BY LEARNED A.R. OF THE ASSESSEE THAT THE ISSUE IS COVERED AGAINST THE ASSESSEE BY A RECENT TRIBUNAL ORDER OF LUCKNOW BENCH IN WHICH IT WAS HELD THAT SELECTION OF A CASE FOR SCRUTINY UNDER CASS IS ALSO VALID . HE FURTHER SUBMITTED THAT INSPITE OF THIS, THE FOLLOWING JUDICIAL PRONOUNCEMENTS SHOULD BE CONSIDERED BY THE TRIBUNAL: ( I ) COMMISSIONER OF INCOME - TAX VS RAJ EEV SHARMA [2011] 336 ITR 678 (ALL) ( II ) NATIONAL THERMAL POWER CO. LTD. VS COMMISSIONER OF INCOME - TAX [1998] 229 ITR 383 (SC) ( III ) MOHAN DAIRY VS. UOI AND OTHERS [2006] U.P.T.C. - 461] 4 4. LEARNED D.R. OF THE REVENUE SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. SINCE THE ISSUE INVOLVED IN GROUND NO. 1 & 2 IS COVERED AGAINST THE ASSESSEE BY A RECENT TRIBUNAL DECISION OF LUCKNOW BENCH CONSTITUTED BY THIS VERY COMBINATION , WE DO NOT FIND ANY REASON TO TAKE A CONTRARY VIEW IN THE PRESENT CASE. HENCE, THESE GROUNDS ARE REJECTED. 6. REGARDING GROUND NO. 3 TO 6, IT WAS SUBMITTED BY LEARNED A.R. OF THE ASSESSEE THAT ONLY ONE ISSUE IS INVOLVED IN THESE GROUND WHICH IS REGARDING PAYMENT OF RS.4,93,650/ - ON ACCOUNT OF CONSULTANCY CHARGED PAID TO ARCHITECTS IN RELATION TO THE PROJECT NAMELY NOVELTY RAVE ENTERTAINMENT PVT. LTD. AND RS.1,58,000/ - BEING FEE PAID TO THE REGISTRAR OF COMPANIES FOR REGISTRATION OF NOVELTY RAVE ENTERTAINMENT PVT. LTD. HE ALSO SUBMITTED THAT THE LOI/MOU D ATED 19/02/2004 EXECUTED BETWEEN RAVE ENTERTAINMENT GROUP AND NOVELTY RESTAURANT GROUP IS APPEARING ON PAGES 8 TO 14 OF THE PAPER BOOK AND THE RELEVANT BOARD RESOLUTION PASSED BY THE COMPANY RAVE ENTERTAINMENT PVT. LTD. IS AVAILABLE ON PAGE NO. 15 OF THE P APER BOOK. HE PLACED RELIANCE ON THE FOLLOWING JUDICIAL PRONOUNCEMENTS: ( I ) COMMISSIONER OF INCOME - TAX VS SAKTHI SOYAS LTD. [2006] 283 ITR 194 (MAD) ( II ) COMMISSIONER OF INCOME - TAX VS PRIYA VILLAGE ROADSHOWS LTD. [2011] 332 ITR 594 (DEL) ( III ) INDO RAMA SYNTHETICS INDIA LTD. VS COMMISSIONER OF INCOME - TAX [2011] 333 ITR 18 (DEL) ( IV ) ONGC VIDESH LTD. VS. DY.CIT [2010] 33 DTR (A.T.) 22 ( V ) DEPUTY COMMISSIONER OF INCOME - TAX VS ASSAM ASBESTOS LTD. [2003] 263 ITR 357 (GAU) 7. IN THE REJOINDER, IT WAS SUBMITT ED BY LEARNED D.R. OF THE REVENUE THAT IN NONE OF THE CITED CASES , ANY NEW COMPANY WAS FORMED AND THEREFORE, THESE JUDGMENTS ARE NOT RELEVANT IN THE PRESENT CASE. 5 8. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WE FIND THAT THIS ISSUE WAS DECIDED BY CIT(A) AS PER PARA 3.3 OF HIS ORDER, WHICH IS REPRODUCED BELOW FOR THE SAKE OF READY REFERENCE: - 3.3 DECISION: AS REGARDS EXPENDITURE INCURRED ON THE INCORPORATION OF A NEW COMPANY IS CONCERNED, THE SAME IS CLEARLY A CAPITAL EXPENDITURE. SIMILARLY, THE PAYMENT MADE TO THE ARCHITECT FOR CALCULATION OF FAR FOR A NEW PROJECT, THAT TOO OWNED BY A DIFFERENT COMPANY, CAN NEVER BE A BUSINESS EXPENDITURE OF THE APPELLANT COMPA NY AND IN ANY CASE, SINCE FAR CALCULATION BY THE SAID ARCHITECT IS TOTALLY RELATED TO THE CONSTRUCTION OF A NEW BUILDING, THE SAID EXPENDITURE HAS TO BE TREATED AS A CAPITAL EXPENDITURE. THE ADDITIONS ARE, THEREFORE, CONFIRMED. 8.1 FROM THE ABOVE PARA F ROM THE ORDER OF CIT(A), WE FIND THAT A CLEAR FINDING IS GIVEN BY HIM THAT THE EXPENDITURE INCURRED ON INCORPORATION OF A NEW COMPANY IS CLEARLY CAPITAL EXPENDITURE AND S IMILARLY, THE PAYMENT MADE TO THE ARCHITECT FOR CALCULATION OF FAR FOR A NEW PROJECT, THAT TOO OWNED BY A DIFFERENT COMPANY, CAN NEVER BE A BUSINESS EXPENDITURE OF THE ASSESSEE COMPANY . IN THE LIGHT OF THESE FACTS, WHEN WE EXAMINE THE VARIOUS JUDGMENTS CI TED BEFORE US AS ABOVE , WE FIND FORCE IN THE SUBMISSIONS OF LEARNED D.R. OF THE REVENUE THAT SINCE IN NONE OF THE JUDGMENTS CITED , ANY NEW COMPANY WAS INCORPORATED FOR UNDERTAKING A NEW PROJECT, THESE JUDGMENTS ARE NOT RELEVANT IN THE PRESENT CASE. SINCE THE CLEAR FINDING OF CIT(A) COULD NOT BE CONTROVERTED BY LEARNED A.R. OF THE ASSESSEE, WE DO NOT FIND ANY REASON TO INTERFERE IN THE ORDER OF CIT(A) ON THIS ISSUE ALSO. GROUND NO. 3 TO 6 ARE REJECTED. 9. REGARDING GROUND NO. 7 OF THE APPEAL, LEARNED A.R. OF THE ASSESSEE REITERATED THE SAME CONTENTIONS WHICH WERE RAISED BEFORE CIT(A). 10. LEARNED D.R. OF THE REVENUE SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 6 11. WE HAVE CONSIDERED THE RIVAL SUBMISSI ONS. WE FIND THAT IT IS THE SUBMISSIONS OF LEARNED A.R. OF THE ASSESSEE BEFORE THE CIT(A) THAT AN AMOUNT OF RS.1.20 LAC IN RESPECT OF CONSULTANCY CHARGES @RS.10,000/ - PER MONTH WAS PAID AND THE SAME WAS PAYABLE ON COMPLETION OF 12 MONTHS TENURE. IT WAS A LSO SUBMITTED THAT THE BILL WAS RAISED ONLY ON 06/10/2004 I.E. IN THE CURRENT YEAR AND THEREFORE, THIS IS THE CLAIM OF THE ASSESSEE THAT THE EXPENSES CRYSTALLIZED DURING PRESENT YEAR BUT WE DO NOT FIND ANY MERIT IN THIS CONTENTION OF THE LEARNED A.R. OF TH E ASSESSEE BECAUSE THE EXPENSES DO NOT ACCRUE AND CRYSTALLIZE ON RECEIPT OF BILL. WHEN THE SERVICES ARE BEING RENDERED EVERY MONTH AND THE AMOUNT IS PAYABLE ON MONTHLY BASIS AS PER AN EARLIER AGREEMENT , IT ACCRUES EVERY MONTH AND THEREFORE, THE ASSESSEE S HOULD HAVE ACCOUNTED FOR THE EXPENSES UPTO 31/03/2004 DURING ASSESSMENT YEAR 2004 - 05 AND THE EXPENSES INCURRED BY THE ASSESSEE UPTO THAT DATE IS NOT ALLOWABLE IN THE PRESENT YEAR BECAUSE THE ASSESSEE IS ADMITTEDLY FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING. UNDER THESE FACTS, WE DO NOT FIND ANY REASON TO INTERFERE IN THE ORDER OF CIT(A). THIS GROUND IS ALSO REJECTED. 12. IN THE RESULT, THE APPEAL OF THE ASSESSEE STANDS DISMISSED. (ORDER WAS PRONOUNCED IN THE OPEN COURT ON THE DATE MENTIONED ON THE CAPTIO N PAGE) SD/. SD/. (SUNIL KUMAR YADAV) ( A. K. GARODIA ) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 28 /11/2014. *C.L.SINGH COPY OF THE ORDER FORWARDED TO : 1.THE APPELLANT 2.THE RESPONDENT. 3.CONCERNED CIT 4.THE CIT(A) 5.D.R., I.T.A.T., LUCKNOW ASSTT. REGISTRAR