ACIT, New Delhi V. M/s Gulab Farms Pvt. Ltd., New Delhi

ITA 1249/DEL/2011

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 4006 (ITAT-DELHI)
• Duration Of Justice: 2 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-05-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 10-05-2011
• Assessment Year: 2007-2008
• Appeal Filed On: 10-03-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MONA MOHANTY
• Keywords: Depreciation; Rule of consistency; Revenue expenditure; Capital expenditure
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL [ DELHI BENCH C DELHI ] BEFORE SHRI I. P. BANSAL, JM AND SHRI K. D. RA NJAN, AM I. T. APPEAL NO. 1249 (DEL) OF 2011. ASSESSMENT YEAR : 2007-08. ASSTT. COMMISSIONER OF INCOME-TAX, M/S. GULAB FARMS PVT. LTD., C I R C L E : 12 (1), VS. 21, COMMERCIAL COMPLEX, MALCHA MARG, N E W D E L H I. D I P L O M A T I C E N C L A V E, N E W D E L H I 110 021. P A N / G I R NO. AAA CG 3777 D. ( APPELLANT ) ( RESPONDENT ) ASSESSEE BY : SHRI K. V. S. R. KRISHNA, C. A. ; DEPARTMENT BY : MS. MONA MOHANTY, SR. D. R. O R D E R. PER K. D. RANJAN, AM : THIS APPEAL BY THE REVENUE FOR ASSESSMENT YEAR 200 7-08 ARISES OUT OF ORDER OF THE LD. CIT (APPEALS)XVI, NEW DELHI. 2. THE GROUNDS OF APPEAL RAISED BY THE REVENUE READ AS FOLLOWS :- 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE ORDER OF THE LD. CIT (APPEALS) IS ERRONEOUS, PERVERSE, ILLEG AL AND AGAINST THE PROVISIONS OF LAW WHICH IS LIABLE TO BE SET ASIDE; 2 I. T. APPEAL NO. 1249 (DEL) OF 2011. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT (APPEALS) HAS ERRED IN DELETING THE ADDITION OF RS. 1,59,04,986/- MADE BY THE ASSESSING OFFICER TREATING PROJECT MANAGEMENT FEE A S CAPITAL EXPENDITURE; 3. ON THE FACTS AND CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT (APPEALS) HAS ERRED IN DELETING THE ADDITION OF RS. 75,000/- OUT OF THE ADDITION OF RS.1,50,000/- MADE BY THE ASSESSING OFFICER ON ACCO UNT OF REPAIR AND MAINTENANCE EXPENSES. 3. THE FIRST ISSUE FOR CONSIDERATION RELATES TO DEL ETING THE ADDITION OF RS.1,59,04,986/- MADE BY THE ASSESSING OFFICER TREATING THE PROJECT MANAG EMENT FEE AS CAPITAL EXPENDITURE. THE FACTS OF THE CASE STATED IN BRIEF ARE THAT THE ASSESSEE PAID PROJECT MANAGEMENT FEE AMOUNTING TO RS.1,59,04,986/- TO M/S. GASCO CORPORATION LTD. THE ASSESSING OFFICER OBSERVED THAT THE AGREEMENT HAD BEEN ENTERED INTO WITH M/S. GASCO COR PORATION LTD., WORLD TRADE CENTRE I, 8 TH FLOOR, CUFFE PARADE, MUMBAI WITH ITS OFFICE AT A-6, HIRA MAHAL APARTMENTS, 44, AMRITA SHERGILL MARG, NEW DELHI, WHEREAS AS PER COPY OF ACCOUNT, TH E MANAGEMENT FEE HAD BEEN PAID TO MAHINDRA GASCO DEVELOPERS LTD., MAHINDRA TOWERS, 2- A. BHIKAJI CAMA PLACE. THE AO TREATED THE EXPENDITURE AS CAPITAL IN NATURE. ON APPEAL, T HE LD. CIT (APPEALS) RELYING HIS ORDER FOR ASSESSMENT YEAR 2004-05 HELD THAT PROJECT MANAGEMEN T FEE WAS IN THE NATURE OF REVENUE EXPENDITURE. HE ACCORDINGLY DELETED THE ADDITION. 4.1 BEFORE US THE LD. AR OF THE ASSESSEE SUBMITTED THAT THE ISSUE IS COVERED BY THE DECISION OF THE ITAT FOR ASSESSMENT YEAR 2004-05 IN ITA. NO. 76 (DEL) OF 2011 DATED 18 TH MARCH, 2011. ON THE OTHER HAND LD SR. D.R. RELIED ON THE ORDER OF THE ASSESSING OFFICER. 4.2 WE HAVE HEARD BOTH THE PARTIES AND GONE THROUG H THE MATERIAL AVAILABLE ON RECORD. WE HAVE ALSO GONE THROUGH THE ORDER OF ITAT. THE ITAT DELHI BENCH C IN ORDER DATED IN ITA NO 76 /DEL /2011DATED 18.03.2011 HAD CONFIRMED THE DEL ETION OF THE ADDITION BY THE LD. CIT (APPEALS) BY OBSERVING AS UNDER :- 3 I. T. APPEAL NO. 1249 (DEL) OF 2011. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND HAVE GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. THE ISSUE IN QUESTION WAS DECI DED BY LD CIT(A) IN FAVOUR OF THE ASSESSEE IN PARA NO. 5 TO 5.4. OF HIS ORDER WHI CH ARE REPRODUCED BELOW:- 5. I HAVE CONSIDERED THE SUBMISSIONS OF THE LD COU NSEL AS WELL AS THE FACTS ON RECORD. THE LD ASSESSING OFFICER HAS STATED THAT TH E EXPENDITURE IS CAPITAL IN NATURE FOR THE REASON THAT ASSESSEE HAS APPOINTED T HE PROJECT MANAGER TO RECEIVE TECHNICAL ADVICE. THIS WOULD RESULT IN THE ASSESSEE ACQUIRING TECHNICAL COMPETENCE WHICH WILL BE PUT TO USE IN FURTHER PROJECTS THEREB Y RESULTING IN ENDURING BENEFIT TO THE ASSESSEE. ACCORDINGLY, HE TREATED THE ENTIRE AM OUNT OF `.20506900 AS CAPITAL EXPENDITURE. AFTER GIVING 25% DEDUCTION ON ACCOUNT OF DEPRECIATION AT `.5126725 HE DISALLOWED THE BALANCE OF `.15380175. 5.2. IN MY VIEW THE FINDING OF THE ASSESSING OFFICE R CANNOT BE SUSTAINED. THE PAYMENT OF THE PROJECT MANAGEMENT FEE IS NOT MERELY FOR TECHNICAL ADVICE AS UNDERSTOOD BY THE LD ASSESSING OFFICER BUT IS FOR T HE EXECUTION OF THE ENTIRE PROJECT NAMELY THE CENTRAL PAIK-1, PROJECT RELATING TO CONSIDERATION OF RESIDENTIAL FLATS. THE ASSESSEE COMPANY ALONG WITH ITS SISTER C ONCERN M/S SWEET PEAS FARMS (P) LTD. IS THE OWNER OF THE LAND. BOTH THE COMPANI ES HAVE JOINTLY ENGAGED M/S MOHINDRA GESCO DEVELOPERS LTD., A COMPANY ENGAGED I N THE BUSINESS OF PROPERTY DEVELOPMENT AND CONSTRUCTION OF GROUP HOUSING PROJE CT ON THEIR LAND TO FACILITATE TIMELY DEVELOPMENT OF GROUP HOUSING SCHEME. AS PER THE MAIN TERMS OF THE AGREEMENT REFERRED TO IN PARA 4 IT IS SEEN THAT THE PROJECT MANAGER HAS BEEN ENGAGED TO PROCURE CAPITAL FOR THE PROJECT, TO PREP ARE FEASIBILITY REPORT, TO MANAGE AND CONSTRUCT THE WHOLE PROJECT TO OBTAIN NECESSARY CLEARANCE FROM THE VARIOUS GOVT. AGENCIES, TO ENGAGE ARCHITECT/CONSULTANTS AND TO COORDINATE THEIR DESIGN, CONCEPT AND DETAILING, TO DEVELOP MARKETING & PROMO TIONAL STRATEGIES AND ALSO SELL THE FLATS. IN OTHER WORDS, THE PROJECT MANAGERS HAV E BEEN ENGAGED TO EXECUTE THE ENTIRE PROJECT. THEY ARE ALSO TO ENSURE SALES AND R ECEIPT OF SALE PROCEEDS RELATING TO THE PROJECT. WHEN THE WORK DISCHARGED BY THEM IS OF SUCH DETAILED NATURE, IT IS NEITHER CORRECT NOR JUSTIFIED TO RESTRICT THEIR FUN CTIONS TO THAT OF BEING TECHNICAL EXPERTS ONLY. THEREFORE, IN MY VIEW, THE CONTENTIO N OF THE LD COUNSEL THAT THE EXPENDITURE IS NOT CAPITAL IN NATURE IS CORRECT. TH E PROJECT MANAGERS HAVE CHARGED A FEE FOR EXECUTING THE CONSTRUCTION OF THE FLATS. THE CHARACTERISTICS OF SUCH EXPENDITURE IS REVENUE IN NATURE. IT HAS CARRIED OU T THE WORK WHICH WOULD ORDINARILY HAVE BEEN CARRIED OUT BY THE ASSESSEE IT SELF HAD IT NOT ENGAGED THE PROJECT MANAGER. 5.3. IT IS FURTHER OBSERVED THAT IN THE CASE OF THE SISTER CONCERN I.E. M/S SWEET PEAS FARMS PVT. LTD. THE EXPENDITURE HAS BEEN ALLOWED AS REVENUE EXPENDITURE U/S 143(3) FOR ASSESSMENT YEAR 2004-05, 2006-07 AND 200 7-08. SIMILARLY, IN THE CASE 4 I. T. APPEAL NO. 1249 (DEL) OF 2011. OF THE APPELLANT ALSO FOR ASSESSMENT YEAR 2005-06 A ND 2006-07 THE EXPENDITURE HAS BEEN ALLOWED U/S 143(3) AS REVENUE EXPENDITURE. IN THE ASSESSMENT YEAR 2007- 08 AND 2008-09, THE CLAIM MADE HAS SO FOR NOT BEEN DISTURBED. THUS EVEN ON THE PRINCIPLE OF CONSISTENCY THE CLAIM OF THE APPELLANT THAT THE EXPENDITURE IS REVENUE IN NATURE DESERVES TO SUCCEED. 5.4. IN VIEW OF THE ABOVE, I HOLD THAT FOR THE ASSE SSMENT YEAR 2004-05 THE EXPENDITURE IS REVENUE IN NATURE. IN THE FIRST ASSE SSMENT YEAR I.E. 2001-02 LOOKING TO THE TERMS OF AGREEMENT DATED 12.9.2000 THERE ARE CERTAIN ITEMS OF EXPENDITURE TO WHICH SECTION 35D WOULD HAVE APPLIED, HOWEVER, I N ASSESSMENT YEAR 2004-05, THE ENTIRE PAYMENT OF PROJECT MANAGEMENT FEE IS HEL D TO BE REVENUE IN NATURE. ASSESSING OFFICER TO GIVE EFFECT ACCORDINGLY. 7. LD DR OF THE REVENUE COULD NOT POINT OUT AN Y SPECIFIC MISTAKE IN THE ORDER OF LD CIT(A) WHICH IS AFTER DETAILED DISCUSSI ON AND AFTER CONSIDERING ALL FACTS. A CLEAR FINDING IS GIVEN BY LD CIT(A) THAT W HEN THE WORK ENTRUSTED TO THE PROJECT MANAGER IS OF DETAILED NATURE AS NOTED BY H IM, IT IS NEITHER CORRECT NOR JUSTIFIED TO RESTRICT THEIR FUNCTION TO THAT OF BEI NG TECHNICAL EXPERTS ONLY. CONSIDERING ALL THESE FACTS OF THE PRESENT CASE, WE DO NOT FIND ANY REASON TO INTERFERE IN THE ORDER OF LD CIT(A) BECAUSE NO CASE HAS BEEN MADE OUT BY THE ASSESSING OFFICER OR BY THE LD DR OF THE REVENUE FO R TREATING THE PROJECT MANAGEMENT FEES PAID BY THE ASSESSEE IN THE PRESENT YEAR AS A CAPITAL EXPENDITURE. IN SUBSEQUENT YEARS, THE A.O. HIMSELF HAS ALLOWED SIMILAR EXPENSES UNDER SIMILAR FACTS IN COURSE OF SCRUTINY ASSESSMEN T AND NO DIFFERENCE IN FACTS COULD BE POINTED OUT BY LD. DR OF THE REVENUE. WE , THEREFORE, DECLINE TO INTERFERE IN THE ORDER OF LD CIT(A). 4.2 SINCE THE ISSUE IS SQUARELY COVERED BY THE DECI SION OF THE ITAT IN ASSESSEES OWN CASE IN FAVOUR OF THE ASSESSEE, WE DO NOT FIND ANY INFIRMIT Y IN THE ORDER PASSED BY THE LD. CIT (A) DELETING THE ADDITION. 5. THE NEXT ISSUE FOR CONSIDERATION RELATES TO DELE TING THE ADDITION OF RS.75,000/- OUT OF ADDITION OF RS.1,50,000/- MADE BY THE ASSESSING OFF ICER ON ACCOUNT OF REPAIR AND MAINTENANCE EXPENSES. THE ASSESSING OFFICER FROM PROFIT AND LO SS ACCOUNT NOTICED THAT AN AMOUNT OF RS.12,64,071/- WAS INCURRED TOWARDS REPAIRS AND MAI NTENANCE AS AGAINST RS.9,53,593/- WHEREAS THE SALES HAVE BEEN DECLINED TO RS.25,79,37,831/- F ROM RS.29,80,33,906/- IN THE PRECEDING YEAR. 5 I. T. APPEAL NO. 1249 (DEL) OF 2011. THE ASSESSING OFFICER NOTED THAT VOUCHERS PRODUCED SHOWED THAT MOST OF THE EXPENSES WERE MADE IN CASH AND THE VOUCHERS WERE SELF GENERATED. THE ASSESSING OFFICER DISALLOWED RS.1,50,000/- ON ESTIMATED BASIS. ON APPEAL, THE LD. CIT (A) RESTRI CTED THE DISALLOWANCE TO RS.75,000/- AS THE EXPENDITURE WAS INCURRED IN CASH AND THROUGH SELF-G ENERATED VOUCHERS, WHICH RELATED TO CAR/VEHICLE EXPENSES TO THE EXTENT OF RS.6,24,121/ -. SINCE THE ASSESSEE HAD NOT MAINTAINED LOG BOOK AND BILLS AND VOUCHERS ARE SELF GENERATED THE LD. CIT (A) RESTRICTED THE DISALLOWANCE AT RS.75,000/-. 6. BEFORE US WHEN THE CASE CAME UP FOR HEARING, THE LD. SR. DR SUPPORTED THE ORDER OF THE ASSESSING OFFICER WHEREAS THE LD. AR OF THE ASSESSE E RELIED ON THE ORDER OF THE LD. CIT (A). 7. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. DURING THE COURSE OF HEARING, THE LD. SR. DR COULD NOT BRING ANY MATERIAL TO JUSTIFY THE DELETION OF ADDITION OF RS.75,000/- OUT OF RS.1,50,000/- MADE B Y THE ASSESSING OFFICER. THE LD. CIT (A) HAS DISALLOWED THE AMOUNT OF RS.75,000/- ON THE GROUND THAT THE BILLS AND VOUCHERS WERE SELF GENERATED, THE AUTHENTICITY THEREOF COULD NOT BE VE RIFIED. IN VIEW OF THESE FACTS, WE DO NOT FIND ANY REASON TO INTERFERE WITH THE DECISION OF THE LD . CIT (A) RESTRICTING THE DISALLOWANCE TO THE EXTENT OF RS.75,000/- OUT OF REPAIRS AND MAINTENANC E. 8. IN THE RESULT, THE APPEAL FILED BY THE REVENUE I S DISMISSED. THE ORDER PRONOUNCED IN THE OPEN COURT ON : 20 TH MAY, 2011. SD/- SD/- [ I. P. BANSAL ] [ K. D. RANJAN ] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 20 TH MAY, 2011. *MEHTA * 6 I. T. APPEAL NO. 1249 (DEL) OF 2011. COPY OF THE ORDER FORWARDED TO : - 1. APPELLANT. 2. RESPONDENT. 3. CIT, 4. CIT (APPEALS), 5. DR, ITAT, NEW DELHI. TRUE COPY. BY ORDER. ASSISTANT REGISTRAR, ITAT.