ITO 24(2)(2), MUMBAI V. SHREE SHAKTI CONSTRUCITON CO,., MUMBAI

ITA 1313/MUM/2011

• Counselvise Citation: 131319914 RSA 2011
• Duration Of Justice: 3 year(s) 2 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-04-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: H
• Next Hearing Date: 25-02-2014
• Assessment Year: 2006-2007
• Appeal Filed On: 11-02-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: KAILASH MANGAL
• Assessee Lawyers: VIPUL JOSHI
• Keywords: Depreciation; Additional evidence; Unabsorbed depreciation

Judgement Text

, ,P ,P,P ,P INCOME TAX APPELLATE TRIBUNAL,MUMBAI - H BENCH. , MK0 ,L VH ,E IKOYU MK0 ,L VH ,E IKOYU MK0 ,L VH ,E IKOYU MK0 ,L VH ,E IKOYU BEFORE S/SH. RAJENDRA,ACCOUNTANT MEMBER & DR. S.T.M . PAVALAN,JUDICIAL MEMBER /. ITA NO.1313/MUM/2011, ! ! ! ! / ASSESSMENT YEAR-2006-07 ITO 24(2)(2), R.NO. 604, 6 TH FLOOR, PRATYAKSHSAKAR BHAVAN, BANDRA-KURLA COMPLEX, MUMBAI-400051 VS SHREE SHAKTI CONSTRUCTION CO., 21 SHAKTI NIWAS, RAMCHANDR LANE EXTENSION, MALAD (W), MUMBAI-400064 PAN:AAAFS6793A ( '# / APPELLANT) ( $%'# / RESPONDENT) ' ( / REVENUE BY : SHRI KAILASH MANGAL )* ' ( / ASSESSEE BY : SHRI VIPUL JOSHI ' '' ' *+ *+ *+ *+ / DATE OF HEARING : 16-04-2014 ,-! ' *+ / DATE OF PRONOUNCEMENT : 16-04-2014 , 1961 ' '' ' 254 )1( *.* *.* *.* *.* / / / / ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) PER RAJENDRA,AM : CHALLENGING THE ORDER DATED 02.12.2010 OF THE CIT(A )-34, MUMBAI ASSESSING OFFICER(AO) HAS RAISED FOLLOWING GROUNDS OF APPEAL: 1.ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE ARID IN LAW, THE LD. CIT(A) ERRED IN DELETING THE ADDITION OF RS. 30,00,000/- CLAIMED AS NON-COMPETE FEE PAID TO RETIRING PARTNERS BY THE ASSESSEE, WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE FAI LED TO FILE DETAILS OF ANY PROJECT OF RETIRING PART NERS BECAUSE OF WHICH ITS BUSINESS IS LIKELY TO GET AFFE CTED AND THERE IS ANY NEED TO PAY NO COMPETE FEES. MOREOVER, FACT OF THIS CASE ARE DIFFERENT FROM THE FACTS IN THE CASE OF TECUMESH INDIA PVT. LTD. 2.THE APPELLANT PRAYS THAT THE ORDER OF THE CIT(A) ON THE GROUND BE SET ASIDE AND MATTER MAY BE DECIDED ACCORDING TO LAW. THE APPELLANT CRAVES LEAV E TO AMEND OR ALTER ANY GROUND OR ADD NEW GROUND WHICH MAY BE NECESSARY. 2. ASSESSEE-FIRM,ENGAGED IN THE BUSINESS OF DEVELOPMEN T AND CONSTRUCTION, FILED ITS RETURN OF INCOME ON 30.10.2006,DECLARING TOTAL INCOME OF RS.(-)1.82 LAKHS.AO FINALISED THE ASSESSMENT U/S.143(3) OF THE ACT DETERMINING THE TOTAL INCOME OF THE ASSESSE E AT RS. 10.94 LAKHS,AFTER ALLOWING THE UNABSORBED DEPRECIATION AND UNABSORBED BUSINESS LOS SES OF THE EARLIER YEARS. 3. DURING THE ASSESSMENT PROCEEDINGS,AO FOUND THAT THE ASSESSEE HAD DEBITED AN EXPENSE OF RS. 30 LAKHS ON ACCOUNT OF NON-COMPETE FEE. CONSIDERING TH E NATURE OF PAYMENT MADE BY THE FIRM TO RETIRING PARTNERS UNDER THE HEAD NON-COMPETE FEE, H E DIRECTED THE ASSESSEE TO FILE FURTHER DETAILS IN THIS REGARD. AFTER CONSIDERING THE SUBMISSIONS, HE HELD THAT ASSESSEE HAD FAILED TO GIVE DETAILS OF NEGOTIATIONS HELD WITH THE PARTNERS,THAT ASSESSEE H AD FAILED TO PROVE THAT EXPENDITURE WAS INCURRED WHOLLY AND EXCLUSIVELY FOR THE BUSINESS PURPOSES, T HAT ASSESSEE HAD NOT FILED ANY DETAILS,THAT EXPLANATION FURNISHED BY THE ASSESSEE WAS NOT ACCEP TABLE AND JUSTIFIABLE FOR PAYMENT OF NON- COMPETE FEE AMOUNTING TO RS. 30 LAKHS,THAT ASSESSEE HAD NOT PROVED THE NECESSITY OF INCURRING THE EXPENDITURE. 2 ITA NOS. 1313/MUM/2011 SHREE SHAKTI CONSTRUCTION CO. 4. ASSESSEE PREFERRED AN APPEAL BEFORE THE FIRST APPEL LATE AUTHORITY (FAA). BEFORE HIM CERTAIN ADDITIONAL EVIDENCES AS PER THE PROVISIONS OF RULE 46A OF THE INCOME-TAX RULES 1962, (RULES) WERE FURNISHED. HE SENT THE DOCUMENTS TO THE AO FOR CONS IDERATION AND PASSED HIS ORDER AFTER OBTAINING REPLY FROM THE AO.BEFORE HIM IT WAS SUBMITTED THAT ASSESSEE-FIRM CONSISTED OF FIVE PARTNERS, THAT PARTNERSHIP DEED WAS EXECUTED ON 01.04.1992, THAT D URING THE YEAR UNDER APPEAL THREE PARTNERS HAD RETIRED FROM THE PARTNERSHIP AND TWO NEW PARTNERS W ERE ADMITTED IN TERM OF DEED OF RETIREMENT AND PARTNERSHIP DEED DATED 15.12.2005, THAT THE COPY OF THE SAID DEED WAS PRODUCED BEFORE THE AO, THAT AS PER THE TERMS OF THE SAID DEED THE ACCOUNTS OF T HE PARTNERSHIP WERE FULLY SETTLED BY THE CONTINUING PARTNERS, THAT THE RETIRING PARTNERS WERE PAID RS. 30 LAKHS IN THE AGGREGATE ON THEIR CONSENT IN NOT COMPETING WITH THE SWAPNA LOK II PROJECT (SLP), THA T THE SAID RESTRICTION WAS VALID FOR A PERIOD OF THREE YEARS, THAT THE SAID EXPENSES WERE TREATED AS PART OF WORK-IN-PROGRESS OF THE SLP, THAT THE TREATMENT GIVEN IN THE BOOKS OF ACCOUNTS ABOUT THE EXPENDITURE WAS INCONFORMITY WITH GENERALLY ACCEPTED ACCOUNTING PRACTICE, THAT THE EXPENSES TO THE TUNE OF RS. 48 LAKHS APPROXIMATELY; INCLUDING RS. 30 LAKHS PAID TO THE RETIRING PARTNER; WERE CAR RIED TO BALANCE-SHEET OF THE ASSESSEE UNDER THE HEAD SLP EXPENSES, THAT DURING THE YEAR UNDER CONSI DERATION ASSESSEE HAD NEVER CLAIMED THE EXPENDITURE OF RS.30 LAKHS ON ACCOUNT OF NON-COMPET E FEE. 5. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE-F IRM AND THE ASSESSMENT ORDER, FAA HELD THAT AO HAD EXAMINED THE DOCUMENTS SUBMITTED BY THE ASSE SSEE DURING THE REMAND PROCEEDINGS, THAT AO HAD NOT GIVEN ANY FINDING OF FACT, IN HIS ASSESS MENT ORDER, THAT DEED OF RETIREMENT DATED 15.12.2005 WAS MADE A VIEW TO DEFRAUD THE REVENUE, THAT THE PAYMENT OF NON-COMPETE FEE TO THE RETIRING PARTNERS COULD NOT BE CONSIDERED AS A NON- ALLOWABLE EXPENDITURE, THAT THE EXPENDITURE WAS INCURRED DURING THE REGULAR COURSE OF BUSINESS,THAT RETIRING PARTNERS HAD BEEN ASSESSED TO TAX ON THE RECEIPT OF NON-COMPETE FEE. FINALLY, HE DELETED THE ADDITION MADE BY THE AO AND HELD THAT ASSESSEE WAS ENTITLED TO INCLUDE THE AMOUNT IN QUESTION IN W ORK-IN-PROGRESS. HE RELIED UPON THE ORDER OF THE TRIBUNAL DELIVERED IN THE CASES OF AMITABH BACHCHAN 97 TTJ 516 AND M/S TECUMSEH INDIA PVT. LTD. (ITA NO. 3759/DEL/2003-1998-99), 6. BEFORE US, DEPARTMENTAL REPRESENTATIVE (DR) SUPPORT ED THE ORDER OF THE AO. AUTHORISED REPRESENTATIVE (AR) SUBMITTED THAT ASSESSEE HAD NOT CLAIMED ANY EXPENDITURE UNDER THE HEAD NON- COMPETE FEE DURING THE YEAR UNDER CONSIDERATION, TH AT IT WAS PART OF WORK-IN-PROGRESS OF SLP, THAT PAYMENT WAS MADE FOR AVOIDING COMPETITION WITH REGA RD TO SLP, THAT IT WAS WHOLLY AND EXCLUSIVELY INCURRED FOR BUSINESS PURPOSES. 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US. WE FIND FROM THE ORDER OF THE FAA THAT ASSESSEE HAD NOT CLAIMED THE EXPEND ITURE OF RS.30 LAKHS IN THE PROFIT & LOSS ACCOUNT, THAT PAYMENT MADE BY IT WAS CONSIDERED AS WORK-IN-PROGRESS AND WAS SHOWN IN THE BALANCE-SHEET ONLY. CONSIDERING THE ABOVE FINDING O F FACT GIVEN BY THE FAA, WE ARE OF THE OPINION THAT HIS ORDER DOES NOT SUFFER FROM ANY LEGAL INFIR MITY. IT IS A SETTLED PRINCIPLE OF TAX JURISPRUDENC E THAT DISALLOWANCE ON AN EXPENDITURE CAN BE MADE ONL Y IF ASSESSEE CLAIMS IT. ON SPECIFIC QUERY BY THE BENCH, DR COULD NOT CONTROVERT THE FACT THAT EX PENDITURE INCURRED BY THE ASSESSEE UNDER THE HEAD NON-COMPETE FEE WAS PART OF THE BALANCE-SHEET NOT OF THE PROFIT & LOSS ACCOUNT FOR THE YEAR UNDER APPEAL. THEREFORE, UPHOLDING THE ORDER OF THE FAA, WE DECIDE THE EFFECTIVE GROUND OF APPEAL AGAINST THE AO. AS A RESULT APPEAL FILED BY THE AO STANDS DISMISSED. 0*1 )* VF/KDKJH VF/KDKJH VF/KDKJH VF/KDKJH 2 3 ) ' * 45. ORDER PRONOUNCED IN THE OPEN COURT ON 16 TH APRIL,2014 . / ' ,-! 7 8 16 VIZSY VIZSY VIZSY VIZSY , 201 4 - ' . 9 SD/- SD/- ( MK MKMK MK0 00 0 ,L VH ,E IKOYU ,L VH ,E IKOYU ,L VH ,E IKOYU ,L VH ,E IKOYU / DR. S.T.M.PAVALAN) ( / RAJENDRA) / JUDICIAL MEMBER /ACCOUNTANT MEMBER / MUMBAI, 8 /DATE: 16.04.2014. 3 ITA NOS. 1313/MUM/2011 SHREE SHAKTI CONSTRUCTION CO. SK / / / / ' '' ' $*: $*: $*: $*: ;:!* ;:!* ;:!* ;:!* / COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE / '# 2. RESPONDENT / $%'# 3. THE CONCERNED CIT(A)/ < = , 4. THE CONCERNED CIT / < = 5. DR H BENCH, ITAT, MUMBAI / :>. $* ,P ,P,P ,P , . . . 6. GUARD FILE/ . 0 %:* %:* %:* %:* $* $*$* $* //TRUE COPY// / / BY ORDER, ? / 4 DY./ASST. REGISTRAR , /ITAT, MUMBAI