LANDMARC LEISURE CORPORATION LTD, MUMBAI V. ACIT CIR 6(3), MUMBAI

ITA 108/MUM/2011

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 83997 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 9 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-10-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 06-08-2014
• Assessment Year: 2006-2007
• Appeal Filed On: 06-01-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SACHIDANAND DUBE
• Assessee Lawyers: K SHIVARAM
• Keywords: Depreciation; Principle of natural justice; Additional evidence; Capital expenditure
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH A , MUMBAI BEFORE SHRI H.L. KARWA, PRESIDENT AND SHRI D. KARUNAKARA RAO, ACCOUNTAT MEMBER I.T.A.NO. 108/M/2011 ( AY: 2006 - 2007) M/S. LANDMARC LEISURE CORPORATION LTD., SHREE RAM MILLS COMPOUND, GANPAT KADAM MARG, LOWER PAREL, MUMBAI 400 013. VS. ASST. COMMISSIONER OF INCOME TAX, CIRCLE - 6(3), AAYAKAR BHAVAN, MUMBAI. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI K. SHIVARAM RESPONDENT BY : SHRI SACHIDANAND DUBE DATE OF HEARING: 29.9.2014 DATE OF ORDER:29 .10.2014 O R D E R PER D. KARUNAKARA RAO, AM : THIS APPEAL FILED BY THE ASSESSEE ON 6.1.2011 IS AGAINST THE ORDER OF THE CIT (A) - 12, MUMBAI DATED 20.9.2010 FOR THE ASSESSMENT YEAR 2006 - 2007. 2. IN THIS APPEAL, ASSESSEE RAISED THE FOLLOWING GROUNDS WHICH READ AS UNDER: 1. THE CIT (A) HAS ERRED IN CONFIRMING THE ORDER OF THE AO IN REGARD TO DISALLOWING TRAINING EXPENSES OF RS. 14,73,350/ - INCURRED BY THE ASSESSEE COMPANY ON THE PRETEXT THAT THE EXPENSES ARE NOT INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF THE BUSINESS WITHOUT CONSIDERING THE DETAILS / DOCUMENTS SUBMITTED. IT IS PRAYED THAT SUCH ADDITION SHOULD BE DELETED. 2. THE CIT (A) HAS ERRED IN CONFIRM ING THE ORDER OF THE AO IN REGARD TO DISALLOWING OF REPAIRS AND MAINTENANCE EXPENSES OF RS. 35,00,000/ - PAID IN VIEW OF THE ARBITRATION AWARD ON THE PRETEXT THAT THE SUCH LIABILITY OF THE EXPENSES OF THE ASSESSEE COMPANY WAS PERTAINING TO AY 2000 - 2001. FU RTHER, SUCH EXPENSES ARE CONSIDERED TO BE CAPITAL EXPENDITURE. IT IS SUBMITTED THAT THE SAID COMPENSATION IS PAID AND CLAIMED IN VIEW OF THE AWARD AND SUCH CLAIM OF THE ASSESSEE SHOULD BE ALLOWED IN FULL. 3. THE CIT (A) HAS ERRED IN CONFIRMING THE ORDER O F THE AO IN REGARD TO DISALLOWANCE OF LEGAL AND PROFESSIONAL FEES OF RS. 79,375/ - PAID TO M/S. LITTLE & CO. BEING FEES IN CONNECTION WITH THE ABOVE MENTIONED ARBITRATION AWARD MATTER BY CONSIDERING THE SAME AS CAPITAL EXPENDITURE. IT IS SUBMITTED THAT SUC H FEES SHOULD BE ALLOWED IN FULL. 3. BRIEFLY STATED RELEVANT FACTS OF THE CASE ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF INFRASTRUCTURE PROJECTS, HOTELS, LEISURE CENTRE, SHOPPING COMPLEX, RETAILS SHOW ROOMS, INVESTMENT ETC. ASSESSEE FILED THE R ETURN OF INCOME DECLARING 2 THE LOSS OF RS. 60,58,070/ - . ASSESSMENT WAS COMPLETED U/S 143(3) OF THE ACT AND THE ASSESS ED INCOME WAS DETERMINED AT TOTAL LOSS OF RS. 5,81,497/ - . IN THE ASSESSMENT, AO MADE VARIOUS ADDITIONS I.E., DISALLOWANCE ON ACCOUNT OF TRA INING EXPENSES, ARBITRATION AWARD ETC. RELEVANT FACTS RELATING TO EACH OF THE ABOVE SAID ADDITIONS ARE GIVEN AS UNDER. I N CONNECTION WITH CLAIM OF TRAINING EXPENSES, AO MADE DISALLOWANCE AMOUNTING TO RS.14,73,350/ - . T H E SAID EXPENSES WERE CLAIMED B Y THE AS SESSEE ON ACCOUNT OF TRAINING OF MS. VIDHI KASLIWAL, DIRECTOR OF THE COMPANY. IN THIS REGARD, IT WAS MENTIONED THAT MS. VIDHI KASLIWAL WAS SENT TO USA FOR STUDIES / TRAINING IN THE MEDIA RELATED FIELD OF EDUCATION. DURING THE ASSESSMENT PROCEEDINGSM, A SSESSEE FAILED TO FURNISH THE REQUISITE DETAILS OF THE STUDIES, RELATIONSHIP OF THE SAME TO THE ASSESSEES BUSINESS, MINUTES OF THE BOARD APPROVING THE SAID EXPENDITURE, EVIDENCES FOR INCURRING OF THE SAID EXPENDITURE ETC . T HE EXPLANATION OF THE ASSESSEE , IN THIS REGARD , WAS FOUND TO BE VERY GENERAL IN NATURE . THEREFORE, AO REJECTED THE CLAIM OF THE ASSESSEE AND MADE ADDITION OF RS. 14,73,350/ - TO THE INCOME OF THE ASSESSEE. AGGRIEVED, ASSESSEE FILED AN APPEAL BEFORE THE CIT (A). 4. DURING THE PROCEEDINGS BEFORE THE CIT (A), ASSESSEE COULD NOT IMPROVE ITS CAS E. A FTER GIVING REASONABLE OPPORTUNITY TO THE ASSESSEE , CIT (A) CONFIRMED THE ADDITION MADE BY THE AO. AGGRIEVED WITH THE DECISION OF THE CIT (A), ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL BY RAISING THE GROUND NO.1. 5. AT THE OUTSET, LD COUNSEL FOR THE ASESSEE BROUGHT OUR ATTENTION TO THE ASSESSEES LETTER DATED 3.9.3014 ADDRESSED TO THE TRIBUNAL AND THE PAPER BOOK ENCLOSED TO THE SAID LETTER CONTAINING 20 PAGES AND SUBMITTED THAT THE SAME CONSTITUTE AN ADDITIONAL EVIDENCES. BRINGING OUR ATTENTION TO EACH OF THE SAID ADDITIONAL EVIDENCES, LD COUNSEL MENTIONED THAT THESE PAPERS ARE REQUIRED TO BE ADMITTED AS THEY GO INTO THE ROOT OF THE MATTER AND IF ADMITTED, THEY SHALL ESTABILSH THE BUSINESS CONNECTI ON OF THE SAID EXPENDITURE INCURRED ON MS. VIDHI KASLIWAL TO THE BUSINESS OF THE ASSESSEE . 6. LD DR OPPOSED THE PRAYER OF THE ASSESSEE DUTIFULLY. 7 . ON HEARING BOTH THE PARTIES, WE FOUND THAT ADMITTING OF THESE EVIDENCES SHALL BE IN THE INTEREST OF THE JUS TICE AND RENDER HELP IN ADJUDICATING THE ISSUE UNDER CONSIDERATION MEANINGFULLY . THEREFORE , WE ADMIT THE SAME CONSIDERING THE SETTLED 3 PRINCIPLES OF NATURAL JUSTICE . ACCORDINGLY, WE REMAND THE ISSUE UNDER CONSIDERATION TO THE FILE OF THE AO FOR FRESH ADJUDICATION AND DECISION IN THE MATTER. ACCORDINGLY, GROUND NO.1 RAISED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 8 . GROUND NO.2 RELATES TO THE CLAIM OF DEDUCTION RS. 35 LAKHS PAID BY THE ASSESSEE CONSEQUENT TO THE ARBI TRATION AWARD DATED 15.3 .2005 FROM THE ARBITRAL TRIBUNAL. ON FACTS, T HERE WAS A CONTRACT BETWEEN THE ASSES SEE AND M/S. P.D. CONSTRUCTIONS AND ACCORDINGLY THE LATER PARTY WAS TO EXECUTE CERTAIN CONTRACTS FOR THE ASSESSEE. M/S. P.D. CONSTRUCTIONS RAISED RUNNING ACCOUNT BILL S NO. 1 TO 6 AND THE DETAILS OF THESE BILLS, AMOUNTS, DESCRIPTION OF THE WORKS EXECUTED BY THE P.D. CONSTRUCTIONS ARE DES CRIBED IN PAGES 13 TO 15 (PARA 15) OF THE IMPUGNED ORDER. A D ISPUTE AROSE BETWEEN THE PARTIES AND M/S. P.D. CONSTRUCTIONS APPROACHED THE ARB ITRAL TRIBUNAL AND THE TRIBUNAL PASSED ITS ORDER VIDE ARBITRATION AWARD DATED 15 .3.2005. IN COMPLIANCE OF THE SAID ORDER, ASSESSEE PAID RS. 35 LAKHS, WHICH WAS PART OF THE AWARD AND CLAIMED DEDUCTION . IT IS THE SUBJECT MATTER OF DISPUTE IN THE PRESENT AP PEAL . AO DENIED THE SAME STATING THAT THE SAID PAYMENT CONSTITUTES CAPITAL EXPEN DITURE . ALTERNATIVELY, ASSESSING OFFICER IS OF THE OPINION THAT ALTHOUGH THE EXPENDITURE WAS ACTUALLY INCURRED IN THE CURRENT YEAR, THE LIABILITY TO INCUR SUCH EXPENDITURE PE RTAINS TO AY 2000 - 2001. AGGRIEVED WITH THE ABOVE SAID DECISION OF THE AO, ASSESSEE FILED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY. 9 . DURING THE PROCEEDINGS BEFORE THE FIRST APPELLATE AUTHORITY, AFTER GOING THROUGH THE SUBMISSIONS MADE BY THE ASSESSEE, CIT (A) HELD THAT THE CLAIM OF THE ASSESSEE I.E THE SAID AMOUNT IS ACCRUED IN THE YEAR UNDER CONSIDERATION , WAS ACCEPTED. HOWEVER, THE CIT (A) CONCURRED WITH THE FINDING OF THE AO THAT THE EXPENDIT URE IN QUESTION IS CAPITAL IN NATURE AND THEREFORE, HE CONFIRMED THE ORDER OF THE AO. CIT (A) , HOWEVER , GRANTED DEPRECIATION ON THE CAPITALIZED AMOUNTS. IN ADDITION, THERE WAS ANOTHER ISSUE RELATING TO CLAIM OF LEGAL EXPENSES AMOUNTING TO RS.79,375/ - PAI D TO M/S. LITTLE & CO. IN THIS REGARD, IT IS THE VIEW OF THE AO THAT THE SAID EXPENSES CONSTITUTE CAPITAL IN NATURE. CIT (A) CONFIRMED THE SAME AND ALLOWED FOR CAPITALIZATION AND DIRECTED THE AO TO GRANT DEPRECIATION IN THE WHOLE OF THE AMOUNT OF RS. 35, 79,375/ - (RS. 35,00,000/ - + 79,375/ - ). AGGRIEVED WITH THE DIRECTIONS OF THE CIT (A) BOTH ON THE ISSUE OF RS. 35 LAKHS AS WELL AS THE LEGAL 4 EXPENSES OF RS. 79,375/ - PAID TO M/S. LITTLE & CO, ASSESSEE RAISED GROUND NOS.2 AND 3 BEFORE THE TRIBUNAL. 10 . DURIN G THE PROCEEDINGS BEFORE US, AT THE OUTSET, SHRI K. SHIVARAM , LD COUNSEL FOR THE ASSESSEE FAIRLY MENTIONED THAT THE ISSUE RAISED IN GROUND NOS. 2 AND 3 MAY BE DECIDED BY THE BENCH AS DEEMED FIT. 11 . ON THE OTHER HAND, LD DR BROUGHT OUR ATTENTION TO THE DET AILS OF THE CONTRACTS AND EXPENSES CLAIMED BY THE ASSESSEE AND MENTIONED THAT THE CONTRACTS INVOLVED ARE OF CAPITAL IN NATURE AND THE WORKS COMPLETED BY M/S. P.D. CONSTRUCTIONS ARE OF THE CAPITAL NATURE. 12 . WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE ORDERS OF THE REVENUE AUTHORITIES. WE HAVE ALSO GONE THROUGH THE FACTS OF THE CASE AND CONSIDERED THE ARGUMENTS OF THE PARTIES. ON PERUSAL OF THE CIT (A)S ORDER, WE FIND, PARAS 17 AND 18 ARE RELEVANT IN THIS REGARD. THEREFORE, CONSIDERING THE IMPORTAN CE OF THE SAID PARAS 17 & 18, THEY ARE EXTRACTED WHICH READ AS UNDER: 17. IN VIEW OF THE ABOVE LEGAL MENTIONED OPINIONS AND RESPECTFULLY FOLLOWING THE SAID DECISIONS , I FIND THAT IN THE INSTANT CASE THE APPELLANTS CONTENTION THAT THE CLAIM IS RELATED TO AY 2006 - 2007 IS ACCEPTABLE AS THE ARBITRATION AWARD HAS BEEN DELIVERED IN THE PREVIOUS YEAR CONCERNED AND THE APPELLANT HAS ALSO MADE THE SAID PAYMENTS IN P.Y. 2005 - 06. TO THIS EXTENT THE CONTENTION OR GROUNDS OF APPEAL OF THE APPELLANT IS UPHELD AND ALL OWED. 18. REGARDING THE ISSUE WHETHER THE EXPENSE WOULD FALL UNDER THE HEAD REVENUE OR CAPITAL, IT IS SEEN THAT THE ASSESSEE HAS STATED THAT WHAT WAS TO BE CONSTRUCTED AND SET UP WAS A VIDEO PARLO U R RELATED TO THE BUSINESS. THEREFORE, IT CAN BE SAID THAT THE EXPENSE RELATED TO THIS ACTIVITY I.E., THE EXPENDITURE RELATED WAS INCURRED IN THE FIELD OF FIXED AS S ETS AND BROUGHT TO EXISTENCE AN AS S ET AND ADVANTAGE OF ENDURING NATURE. THE APPELLANT HAS INDULGED IN CIVIL CONSTRUCTION WORK INVOLVING MASSIVE CONST RUCTION TO BRING INTO EXISTENCE A NEW VIDEO PARLOUR. THESE EXPENSES CANNOT BE TAKEN TO BE CURRENT REPAIRS. THE AIM AND OBJECT OF THE EXPENDITURE IS TO BRING INTO EXISTENCE A PROFIT MAKING BUSINESS ASSET OF AN ENDURING NATURE. THE EXPENDITURE INCURRED IS NOT A RECURRING ONE. THE ASSESSING OFFICER, I FIND, HAS RIGHTLY OBSERVED THAT THEY FALL UNDER THE HEAD CAPITAL EXPENSES AND ARE TO BE TREATED AS SUCH. THE DISALLOWANCE MADE BY THE ASSESSING OFFICER ON THIS GROUND IS UPHELD. HOWEVER, AS THE EXPENSES H AVE BEEN CAPITALIZED, RELATED DEPRECIATION IS TO BE ALLOWED. THE ASSESSING OFFICER IS DIRECTED TO CALCULATE ACCORDINGLY. 13 . ON PERUSAL OF THE ABOVE DISCUSSION MENTIONED ABOVE, WE FIND THE CONCLUSIONS DRAWN BY THE CIT (A) ARE FAIR AND REASONABLE AND THEY DO NOT CALL FOR ANY INTERFERENCE. ACCORDINGLY, GROUND NOS. 2 AND 3 RAISED BY THE ASSESSEE ARE PARTLY DISMISSED . 14 . IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. 5 ORDER PRON OUNCED IN THE OPEN COURT ON 29 TH OCTOBER, 2014. SD/ - SD/ - (H.L. KARWA) (D. KARUNAKARA RAO) PRESIDENT ACCOUNT ANT MEMBER DATE: 29 .10.2014. AT :MUMBAI OKK COPY TO : 1. APPELLANT 2. RESPONDENT 3. THE CIT (A), CONCERNED. 4. THE CIT CONCERNED. 5. THE DR A, BENCH, ITAT, MUMBAI. 6. GUARD FILE. // TRUE COPY// BY ORDER ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI