DY.C.I.T., CENTRAL CIRCLE-23, MUMBAI V. M/S. RUNAWAL CONSTRUCTIONS, MUMBAI

ITA 1376/MUM/2009

• Counselvise Citation: [2009] 115 COUNSELVISE.COM (IT) 2753 (ITAT-MUMBAI)
• Duration Of Justice: 9 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-12-2009
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Assessment Year: 2006-2007
• Appeal Filed On: 02-03-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: T T JACOB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH D MUMBAI BEFORE SHRI T.R. SOOD (AM) AND SMT. ASHA VIJAYARAG HAVAN (JM) ITA NO. 1376/MUM/2009 ASSESSMENT YEAR- 2006-07 THE DY. CIT, CENTRAL CIRCLE-23, AAYAKAR BHAVAN, MUMBAI-A400 020 VS. RUNWAL CONSTRUCTIONS, B-5, RUNAWAL CHAMBERS, 1 ST ROAD, CHEMBUR(E), MUMBAI-400 071 PAN - AAAFR1211Q (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI T.T. JACOB RESPONDENT BY: SHRI RAKESH JOSHI O R D E R PER SMT. ASHA VIJAYARAGHAVAN (JM) THIS APPEAL PREFERRED BY THE REVENUE IS DIRECTED A GAINST THE ORDER DT. 8.12.2008 PASSED BY THE LD. CIT(A)-V, MUMBAI FO R THE ASSESSMENT 2006-07. 2. THE ONLY GROUND OF APPEAL BEFORE THE LD. CIT(A) WAS THAT THE AO HAS ERRED IN DISALLOWING THE CLAIM OF INDIRECT EXPE NSES AMOUNTING TO RS. 15,97,107/- ON PROPORTIONATE BASIS ON THE GROUND TH AT THE SAME SHOULD BE CAPITALIZED AS WIP FOR ONGOING PROJECTS IF THE S AME WERE INCURRED FOR THAT PROJECT WITHOUT CONSIDERING THE FACTS AND CIRC UMSTANCES OF THE CASE. 3. THE ASSESSING OFFICER HELD THAT THE ASSESSEE HAS CLAIMED THE INDIRECT EXPENSES INSTEAD OF CAPITALIZING THEM FOR ALL THE ONGOING PROJECTS AND BY SO, HAS UNDERSTATED ITS PROFITS. HE ALSO PO INTED OUT THAT DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE DID NOT OFFER ANY INCOME FROM ANY OF THESE PROJECTS. ACCORDINGLY, HE ALLOWED 25% OF THE INDIRECT EXPENSES AND CAPITALIZED THE BALANCE 75% AS WIP. ITA NO.1376 /M/09 2 4. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED BEFOR E THE LD. CIT(A) AS FOLLOWS: IN ADHERENCE TO PROJECT COMPLETION METHOD OF ACCOU NTING, THE APPELLANT HAD BEEN ADDING THE EXPENSES DIRECTLY INC URRED FOR THE PURPOSE OF THE PROJECT TO THE WIP IN CASE THE P ROJECT REMAINED INCOMPLETE DURING THE SAME ACCOUNTING YEAR . IN THIS BACKGROUND, IT WAS POINTED OUT THAT THE INDIRECT ADMINISTRATIVE AND OTHER EXPENSES CLAIMED DURING TH E YEAR HAD NO DIRECT NEXUS TO THE PROJECTS BEING UNDERTAKE N. IT WAS PARTICULARLY EMPHASIZED THAT THESE EXPENSES ARE BOU ND TO BE INCURRED EVEN WHEN NO PROJECTS ARE UNDERWAY. RELIA NCE WAS PLACED ON THE DECISIONS OF THE HONBLE SUPREME COUR T IN THE CASES RAJASTHAN STATE WAREHOUSING CORPN. VS CIT 242 ITR 450, CIT BOMBAY CITY-1 VS MAHARASHTRA SUGAR MILLS L TD. 82 ITR 452 AND CIT MADRAS VS INDIAN BANK LTD. 5. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THERE IS NO NEXUS BETWEEN THE INDIRECT EXPENSES CLAIMED AND THE PROJE CTS BEING UNDERTAKEN. ELABORATING, IT WAS SUBMITTED THAT THE SE ARE COMMON EXPENSES LIKE INTEREST ON BORROWINGS, OFFICE EXPENS ES, STAFF SALARY, AUDIT FEES ETC. IT WAS ARGUED THAT THESE EXPENSES ARE BO UND TO BE INCURRED EVEN IN THE CASE OF THERE BEING NO PROJECT UNDERWAY AND THAT THESE EXPENSES CANNOT BY THEIR VERY NATURE BE ALLOCATED O R APPORTIONED TO THE INDIVIDUAL ACTIVITY OR THE INDIVIDUAL PROJECT. IN SUPPORT, A COMPARATIVE CHART FOR THE BASIC COMMON EXPENSES INCURRED BY THE APPELLANT FOR THE LAST 6 YEARS WAS SUBMITTED ALONG WITH A COMPARATIVE CHART FOR THE EXPENSES INCURRED DURING THE YEAR VIS--VIS THE SAM E EXPENSES BEING INCURRED/ALLOCATED TO THE PROJECTS. IT WAS SUBMITTED THAT THE INDIRECT EXPENSES ARE SUC H WHICH ARE BEING INCURRED EVERY YEAR IRRESPECTIVE OF THE S CALE OF ACTUAL OPERATIONS AND FURTHER THAT ONLY THE COMMON EXPENSES ARE DEBITED TO THE PROFIT & LOSS ACCOUNT. ON THE B ASIS OF THE FOREGOING, IT WAS SUBMITTED THAT THE ADDITION OF RS . 15,97,107/- MAY BE DELETED. 6. THE LD. CIT(A) HELD AS FOLLOWS: ITA NO.1376 /M/09 3 I HAVE CONSIDERED THE ASSESSMENT ORDER AND THE SUB MISSIONS OF THE APPELLANT. AS I FIND, WHILE ON THE ONE HAND , THE AO HAS DISALLOWED 75% OF THE INDIRECT EXPENSES HOLDING THA T THESE EXPENSES SHOULD HAVE BEEN ALLOCATED TO THE PROJECTS ON WHICH PROFIT HAS NOT BEEN DECLARED. ON THE OTHER, THE AP PELLANT HAS POINTED OUT THAT THE INDIRECT EXPENSES DEBITED ARE IN THE NATURE OF COMMON EXPENSES INDEPENDENT OF THE PROJEC TS. LOOKING INTO THE DETAILS, CHARACTER AND VOLUME OF T HE EXPENSES, I AGREE WITH THE APPELLANT. TO THIS END, I FIND THAT THE INDIRECT EXPENSES DEBITED COMPRISE EXPENSES LIK E ADVERTISEMENT, BANK CHARGES, EXCHANGE FLUCTUATIONS, GARDEN EXPENSES, REPAIRS AND MAINTENANCE, POSTAGE AND TELE GRAM, WATCH AND WARD EXPENSES, TRAVELLING EXPENSES AND OT HER LIKE EXPENSES AS MENTIONED BY THE AO IN PARA 3.10 OF HIS ASSESSMENT ORDER. AS MAY BE SEEN, THESE ARE UNIVER SAL EXPENSES WHICH HAVE TO BE INCURRED FOR THE GENERAL RUNNING OF THE BUSINESS IRRESPECTIVE OF WHETHER OR NOT PROJECT S ARE ON WHEELS. THE AO HAS ALSO NOT BROUGHT ANYTHING SPECI FIC ON RECORD TO SHOW THAT THESE EXPENSES ARE INDIRECTLY A TTRIBUTABLE TO THE PROJECTS REMAINING INCOMPLETE DURING THE YEA R. FURTHER, FROM THE COMPARATIVE CHART OF THE BASIC COMMON EXPE NSES SUBMITTED BY THE APPELLANT, I ALSO FIND THAT SEVERA L ITEMS OF THESE INDIRECT EXPENSES DEBITED TO THE PROFIT & LOS S ACCOUNT HAVE ALSO BEEN INDEPENDENTLY DEBITED TO THE PROJECT S. THESE INCLUDE EXPENSES UNDER THE HEADS ADVERTISEMENT (RS. 51,61,240/-, ELECTRICITY CHARGES (RS. 25,45,157/-), MISCELLANEOUS ITEMS (RS. 1,96,505/-), OFFICE GARDEN (RS. 11,74,180/-), THE RATES AND TAXES (RS. 2,28,61,722/ -), WATCH AND WARD EXPENSES (RS. 22,84,966/-). THIS PARALLEL DEBITING OF INDIRECT EXPENSES LIKE ITEMS TO THE PROJECTS WOU LD INDICATE THAT APPELLANT HAS PLAYED FAIR BY ALLOCATING INDIRE CT EXPENSES BOTH TO PROJECTS AS WELL AS TO COMMON REQUIREMENTS. IN ABSENCE OF ANYTHING SPECIFIC TO THE CONTRARY, I FIN D THIS FREE FROM ANY ELEMENT OF SUSPICION. FROM THE DETAILS OF COMMON INDIRECT EXPENSES DEBITED, I FIND THAT THEY ARE NEC ESSARY FOR RUNNING ANY BUSINESS. TO ILLUSTRATE, THESE EXPENSE S INCLUDE EXPENSES ON ACCOUNT OF SUPPLY OF PLASTIC PLATES AT OFFICE, MAINTENANCE OF GARDENS, COMPREHENSIVE MAINTENANCE C ONTRACT FOR COMPUTERS, PRINTERS AND OTHER PERIPHERALS, PETT Y EXPENSES, HOARDING DISPLAY AT OFFICE ETC. FURTHER, I ALSO DO NOT FIND ANYTHING UNUSUAL IN THE VOLUME OF THE EXPENSES DEBI TED TO THE PROFIT & LOSS ACCOUNT WHEN COMPARED AGAINST THE VOL UME OF SOME OF THE SAME EXPENSES DEBITED TO THE PROJECTS. 7. THE LD. CIT(A) FURTHER HELD AS FOLLOWS: ITA NO.1376 /M/09 4 THE AO HAS MADE THE DISALLOWANCE ONLY ON INFERENTI AL PRESUMPTION IGNORING THE FACT THAT THE EXPENSES UND ER THE SAME HEADS HAD ALSO BEEN DEBITED TO THE PROJECTS. HE HAS ALSO NOT BROUGHT OUT ANYTHING ON RECORD TO SHOW THA T THE EXPENSES DISALLOWED BY HIM ARE DIRECTLY CONNECTED T O THE PROJECTS. IN THIS LIGHT. I ALSO FIND THE APPELLAN TS RELIANCE ON THE DECISIONS QUOTED BY IT APT AND APPROPRIATE. 8. AGGRIEVED, THE DEPARTMENT IS IN APPEAL BEFORE US . 9. THE LD. DEPARTMENTAL REPRESENTATIVE SHRI T.T. JA COB RELIED ON THE ORDER OF THE AO. 10. THE LD. COUNSEL FOR THE ASSESSEE SHRI RAKESH JO SHI RELIED ON THE DECISION IN THE CASE OF CIT VS MANGAL TIRTH ESTATES LTD. 303 ITR 366 (MAD.). 11. WE FIND THAT THE EXPENSES UNDER THE SAME HEADS HAVE ALSO BEEN DEBITED TO THE PROJECTS BY THE ASSESSEE. THEREFORE THE ASSESSEE HAS BEEN REASONABLE IN ALLOCATING INDIRECT EXPENSES BOTH TO PROJECTS AS WELL AS TO COMMON REQUIREMENTS. THEREFORE, WE FIND NO INFIRMI TY IN THE ORDER OF THE LD CIT(A) IN ALLOWING THE CLAIM OF INDIRECT EXPENSE S MADE BY THE ASSESSEE AMOUNTING TO 15,97,107/-. 12. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. ORDER PRONOUNCED ON THIS 4 TH DAY OF DECEMBER, 2009 SD/- SD/- (T.R. SOOD) (ASH A VIJAYARAGHAVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED 4 TH DECEMBER,2009 RJ ITA NO.1376 /M/09 5 COPY TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT-CONCERNED 4. THE CIT(A)-CONCERNED 5. THE DR D BENCH ` TRUE COPY BY ORDER ASSTT. REGISTRAR, I.T.A.T, MUMBAI ITA NO.1376 /M/09 6 DATE INITIALS 1 DRAFT DICTATED ON: 1.12.09 SR. PS/PS 2. DRAFT PLACED BEFORE AUTHOR: 2 .12 .09 ______ SR. PS/PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER: _________ ______ JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER: _________ ______ JM/AM 5. APPROVED DRAFT COMES TO THE SR. PS/PS: _________ ______ SR. PS/PS 6. KEPT FOR PRONOUNCEMENT ON: _________ ______ SR. PS/PS 7. FILE SENT TO THE BENCH CLERK: _________ ______ SR. PS/PS 8. DATE ON WHICH FILE GOES TO THE HEAD CLERK: _________ ______ 9. DATE OF DISPATCH OF ORDER: _________ ______