M/s.Kalpaka builders P. Ltd, Cochin V. The ADCIT, Cochin

ITA 139/COCH/2015

• Counselvise Citation: [2016] 121 COUNSELVISE.COM (IT) 2937 (ITAT-COCHIN)
• Duration Of Justice: 1 year(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-03-2016
• Appeal Filed By: Assessee
• Bench Allotted: DB
• Next Hearing Date: 14-03-2016
• Assessment Year: 2007-2008
• Appeal Filed On: 24-02-2015
• Court: TRIBUNAL
• Department Lawyers: K P GOPAKUMAR
• Assessee Lawyers: BIJU T B
• Keywords: Business expenditure; Corroborative evidences; Revenue expenditure; Capital expenditure
• Section: 143(3); 80IB; 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH C OCHIN BEFORE S/SHRI B.P. JAIN, AM AND GEORGE GEOR GE K., JM I.T.A. NO. 139/COCH/2015 ASSESSMENT YEAR : 2007-08 M/S. KALPAKA BUILDERS PVT. LTD., 1 ST FLOOR, CASAGRANTE BUILING, DESHABHIMANI JUNCTION KALOOR, KOCHI-682 017. [PAN:AACCK 6261C] VS. THE ADDL. COMMISSIONER OF INCOME TAX OFFICER, RANGE-1, KOCHI. (ASSESSEE -APPELLANT) (REVENUE-RESPONDENT) ASSESSEE BY SHRI BIJU T.B., CA REVENUE BY SHRI K.P. GOPAKUMAR, SR. DR DATE OF HEARING 03/02/2016 DATE OF PRONOUNCEMENT 22/03/2016 O R D E R PER B.P.JAIN, ACCOUNTANT MEMBER: THIS APPEAL AT THE INSTANCE OF THE ASSESSEE IS DIRECTED AGAINST THE CIT(A)-II, KOCHIS ORDER DATED 10/10/2014. THE REL EVANT ASSESSMENT YEAR IS 2007-08. 2. ELABORATE AND EXHAUSTIVE GROUNDS ARE RAISED IN R ESPECT OF THREE ISSUES. THE GIST / CRUX OF THE THREE ISSUES RAISED IN THIS APPEAL READ S AS FOLLOWS: I) DISALLOWANCE OF DEDUCTION U/S. 80IB (RS.42,60, 841). I.T.A. NO.139/COCH/2015 2 II) DISALLOWANCE OF COMPENSATION EXPENSE OF RS.8, 65,000/- III) DISALLOWANCE OF WEBSITE EXPENSE OF RS.27,500 /-. 3. WE SHALL TAKE UP FOR ADJUDICATION ISSUEWISE AS UNDER:- I) DISALLOWANCE OF DEDUCTION U/S. 80IB (RS.42,60,841) . 4. THE BRIEF FACTS IN RESPECT OF THE ABOVE ISSUE A RE AS FOLLOWS: THE ASSESSEE IS A COMPANY WHICH IS ENGAGED IN THE BUSIN ESS OF CONSTRUCTION AND DEVELOPMENT OF RESIDENTIAL AND HOUSING PROJECTS. T HE RETURN OF INCOME WAS FILED ON 31/10/2007 DECLARING A TOTAL INCOME OF RS. 23,34,800/-. THE ASSESSMENT WAS COMPLETED U/S. 143(3) OF THE ACT VID E ORDER DATED 16/12/2009 FIXING THE TOTAL INCOME AT RS.76,52,478/ -. IN THE SCRUTINY ASSESSMENT, THE ASSESSING OFFICER HAD DISALLOWED TH E CLAIM OF DEDUCTION U/S. 80IB AMOUNTING TO RS.42,60,841/- STATING THAT THE ASSESSEE HAD NOT FULFILLED CERTAIN CONDITIONS PRESCRIBED FOR CLAIMIN G THE BENEFIT OF DEDUCTION U/S. 80IB. THE RELEVANT OBSERVATIONS OF THE ASSESS ING OFFICER FOR DENYING THE BENEFIT OF DEDUCTION U/S. 80IB IS AS FOLLOWS:- THE SAID ASSESSEE COMPANY HAS CLAIMED DEDUCTION UN DER SECTION 80IB OF RS.42,60,841/-. DURING THE ASSESSMENT PROCEEDINGS, THE FOLLOWING FACTUAL AND LEGAL DEFECTS ARE NOTED FROM THE DETAILS/EXPLAN ATIONS SUBMITTED FOR SUCH CLAIM OF DEDUCTION: FIRSTLY, THE SAID ASSESSEE HAS NOT COMPLIED FULLY AND SATISFACTORILY THE PROVISIONS OF RULE 18BBB ALONGWI TH FORM NO. 10CCB FOR EXAMPLE, THE SAID F.10CCB IS NOT SIGNED BY THE APPR OPRIATE ACCOUNTANT AND NOT SUBMITTED BY DUE DATE OF FILING OF RETURN U/S. 139(1) OF IT ACT. SECONDLY, I.T.A. NO.139/COCH/2015 3 ASSESSEE HAS NOT SUBMITTED ANY COPY OF APPROVAL AND COMPLETION CERTIFICATE FROM APPROPRIATE LOCAL AUTHORITY PROJECT-WISE THE E LIGIBLE BUSINESS FROM WHICH SUCH DEDUCTION IS CLAIMED. THIRDLY, THE SAID ASSESS EE COMPANY IS NOT AN EXCLUSIVE UNDERTAKING FOR, DEVELOPING AND BUILDING HOUSING PROJECTS APPROVED BY A LOCAL AUTHORITY- BUT A COMPANY ACTING AS A BUI LDER AND DOING CIVIL CONTRACT WORKS AS FOUND FROM AUDIT REPORT IN F. 3(1 ). FOURTHLY, NONE OF ASSESSEES HOUSING PROJECTS HAS BEEN DULY APPROVED BY ANY AUTHORITY OF GOVERNMENT, EXCEPT THE MANDATORY APPROVAL OF ASSESS EES CONSTRUCTION PLAN FOR SUCH COMMERCIAL HOUSING PROJECTS; FIFTHLY, IT I S SEEN FROM DETAILS THAT ASSESSEE HAS UNDERTAKEN THREE PROJECTS ON THE BASIS OF SHARE-AGREEMENT WITH THE LANDOWNERS SEPARATELY, ALTHOUGH, THE TOTAL AREA OF SAID LAND IS MORE THAN ONE ACRE (EACH SUCH PROJECT ON LES THAN ONE ACRE OF LAND); AND, SIXTHLY, ASSESSEE COMPANY HAS NOT EXPLAINED SATISFACTORILY H OW THE CONDITIONS AS PER (C)/(D) OF SUB-SEC. O OF S.80-IB OF IT ACT HAVE BEE N DULY FULFILLED. SO, CONSIDERING ABOVE, THE CLAIM OF DEDUCTION U/S. 80IB OF RS.42,60,841/- IS NOT ALLOWED, BEING NOT ADMISSIBLE. 4.1 AGGRIEVED, THE ASSESSEE PREFERRED AN APPEAL B EFORE THE FIRST APPELLATE AUTHORITY. THE CIT(A) CONFIRMED THE ASSESSMENT ORD ER IN DENYING THE BENEFIT OF DEDUCTION U/S. 80IB OF THE ACT. THE FIN DING OF THE CIT(A) IS AS FOLLOWS: 5.5 AS BROUGHT OUT IN THE REMAND REPORT AS ALSO I N THE ASSESSMENT ORDER BY THE ASSESSING OFFICER, IT IS SEEN THAT THIS PROJECT IS NOT REGISTERED IN THE NAME OF THE ASSESSEE. SINCE THE PROJECT IS NOT IN THE NA ME OF THE ASSESSEE, THE ASSESSEE CANNOT BE TREATED AS A DEVELOPER OF THE PR OJECT AND AT BEST IT CAN BE SAID THAT THE MAJOR RISK DEVELOPING THE PROJECT IS TAKEN BY THE PERSON IN WHOSE, NAME THE LAND IS REGISTERED. SECONDLY, IT IS SEEN THAT EVEN IN THE AUDIT REPORT THE ASSESSEE HAS BEEN SHOWN AS HAVING BUSINESS OF CIVIL CONTRACT WORK AND NOT THE BUILDER OF THE PROJECT. AS PER THE CONDITIONS OF PROJECT BEING LOCATED IN MINIMUM 1 ACRE OF AREA, ALTHOUGH THE ASS ESSEE HAS CONTENDED THAT IT HAS ONLY ONE PROJECT VIZ. KALPAKA GARDENS W ITH THREE BLOCKS AND THE TOTAL AREA OF THIS PROJECT IS MORE THAN 1 ACRE, BUT IT IS SEEN FROM THE APPROVALS GIVEN BY THE LOCAL AUTHORITY AS HAS ALSO BEEN EMPHASIZED BY THE ASSESSING OFFICER, THAT THE APPROVALS OF LOCAL AUTH ORITY ARE DIFFERENTLY TAKEN FOR THE THREE BLOCKS I.E., RED RUBY, BLUE DIAMOND A ND THE GREEN EMERALD AND THAT THE DATES OF SUCH APPROVALS BY THE LOCAL A UTHORITY ARE ALSO DIFFERENT FOR ALL THE THREE BLOCKS. THE SAME IS TRUE FOR THE OCCUPANCY/COMPLETION CERTIFICATE WHERE THE COMPLETION OF EACH BLOCK IS G IVEN ON THE DIFFERENT DATES. IN VIEW OF THESE CONDITIONS UNDER CLAUSE (B) OF SEC TION 80-IB FOR HAVING THE SIZE OF A PLOT OF LAND WHICH HAS A MINIMUM AREA OF 1 ACRE IS NOT SATISFIED. IN I.T.A. NO.139/COCH/2015 4 ADDITION TO THIS, ONCE THE PROJECT IS IN THE NAME O F MANAGING DIRECTOR OF THE COMPANY, IT CANNOT BE SAID THAT THE PROJECT IS BEIN G UNDERTAKEN BY THE ASSESSEE AS A BUILDER AND HENCE EXPLANATION TO SECT ION 80-IB COMES INTO THE PICTURE. IN VIEW OF THE MENTION IN THE AUDIT REPORT AS ALSO POINTED OUT BY THE ASSESSING OFFICER, THE ASSESSEE IS ACTUALLY TAKING UP CIVIL CONTRACT WORK/WORK CONTRACT FROM ITS MANAGING DIRECTOR AND ON BEHALF O F THE INDIVIDUAL FLAT OWNERS AND, THEREFORE, IN TERMS OF THIS EXPLANATION 10 ALSO, THE ASSESSEE IS NOT ELIGIBLE FOR DEDUCTION U/S. 80-IB. IT IS SEEN THAT ASSESSEE HIMSELF HAS NOT CLAIMED DEDUCTION U/S. 80IB IN THE SUBSEQUENT YEAR I.E. IN THE A.Y. 2008-09. ALSO FOR THE A.Y. 2009-10 IT IS SEEN THAT NO CLAIM U/S. 80IB HAS BEEN MADE AS ACCORDING TO THE ASSESSEE THEY WERE NO ELIGIBLE PROFITS. IN THIS CONNECTION IT IS HELD THAT ONCE THE ASSESSEE HAS CLAIMED DEDUCTION U/S. 80IB IN THE FIRST YEAR I .E. AY 2007-08 PROPER AUDIT REPORT AS REQUIRED U/S. 80-IB SHOULD HAVE ALSO BEEN FILED IN THE SUBSEQUENT YEARS EVEN THOUGH THEY WERE NO ELIGIBLE PROFITS FRO M THE PROJECTS. IN VIEW OF THE FOREGOING, IT IS HELD THAT ASSESSEE HAS NOT COM PLIED WITH ALL THE CONDITIONS AND REQUIREMENTS OF SECTION 80-IB TO CLAIM DEDUCTIO N UNDER THIS SECTION AND HENCE ASSESSING OFFICER IS CORRECT IN LAW IN MAKING THIS DISALLOWANCE. 4.2 AGGRIEVED BY THE CIT(A)S ORDER, THE ASSESSEE IS IN APPEAL BEFORE US. THE LD. AR REITERATED THE SUBMISSIONS MADE BEFORE T HE ITAT. ON THE OTHER HAND, THE LD. DR SUPPORTED THE FINDINGS/CONCLUSIONS OF THE ASSESSING OFFICER AND THE CIT(A). 4.3 WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUS ED THE MATERIAL ON RECORD. THE FIRST REASON FOR THE CIT(A) TO CONFIRM THE DENIAL OF BENEFIT OF DEDUCTION U/S. 80IB WAS THAT PROJECT IN QUESTION IS NOT REGISTERED IN THE NAME OF THE ASSESSEE. THE CIT(A) HAS STATED THAT AS THE PROJECT IS NOT REGISTERED IN THE NAME OF THE ASSESSEE, THE ASSESSE E CANNOT BE TREATED AS A DEVELOPER OF THE PROJECT AND AT BEST IT CAN BE SAID THAT THE MAJOR RISK OF DEVELOPING THE PROJECT IS TAKEN BY THE PERSON IN WH OSE NAME THE LAND IS REGISTERED. SECTION 80-IB(1)) STATES THE AMOUNT OF DEDUCTION I N THE CASE I.T.A. NO.139/COCH/2015 5 OF AN UNDERTAKING DEVELOPING AND BUILDING HOUSING P ROJECTS APPROVED BY A LOCAL AUTHORITY SHALL BE 100% OF THE PROFIT DERIVED . NOWHERE IN THE INCOME TAX ACT/RULES THERE IS A CONDITION THAT THE PROJEC T SHOULD BE REGISTERED IN THE NAME OF THE ASSESSEE OR THE LAND BE OWNED BY TH E DEVELOPER. NO NEED FOR SEPARATE APPROVAL IN THE NAME OF THE ASSESSEE W HO UNDERTAKES THE DEVELOPMENT OF THE BUILDING, THE ASSESSEE CAN DEVE LOP AND BUILD HOUSING PROJECT EITHER ON OWN LAND OR ON THE LAND OF OTHERS . IT IS NOT SINCE QUA NON FOR A DEVELOPER TO BECOME THE DE JURE OWNER OF THE LAND. THERE IS NOTHING WRONG TO DEVELOP THE PROPERTY WITH THE CONSENT OF T HE OWNER OF THE LAND. IN THE CASE OF RADHE DEVELOPERS & ORS. VS. ITO & OR S. (2008) 23 SOT 420 (AHD), IT WAS HELD THAT DEDUCTION UNDER S. 80-IB IS ALLOWABLE TO AN UNDERTAKING DEVELOPING AND BUILDING HOUSING PROJECT , WHETHER IT IS DEVELOPED BY IT AS A CONTRACTOR OR AS AN OWNER. IT WAS ALSO HELD THAT THE TERM CONTRACTOR IS NOT CONTRADICTORY TO THE TERM DEVELOPER. 4.3.1 IN THIS CASE LAND WAS NOT REGISTERED IN ASS ESSEES NAME. CONTENTION OF THE REVENUE WAS THAT IN ORDER TO CLAIM DEDUCTION UNDER S.80-IB(10) THE ASSESSEE MUST BE THE OWNER OF THE LAND ON WHICH THE HOUSING PROJECT IS CONSTRUCTED. IT WAS HELD THAT THERE IS NO SUCH CON DITION IN THE PROVISIONS OF S. 80-IB(10). THE ABOVE ITAT DECISION WAS AFFIRMED BY THE GUJARAT HIGH COURT IN THE CASE OF CIT VS. RADHE DEVELOPERS REPOR TED IN 341 ITR 403. IN SAROJ SALES ORGANISATION VS. ITO (2008) 115 TTJ 485 IT WAS HELD THAT EVEN I.T.A. NO.139/COCH/2015 6 THE SUB DEVELOPER IS ELIGIBLE FOR DEDUCTION U/S. 80 IB. WHERE AN UNDERTAKING DEVELOPING AND BUILDING HOUSING PROJECT IS ENGAGED AS A SUB-DEVELOPER AND ALL THE SANCTIONS ARE OBTAINED BY THE DEVELOPER, TH E SUB-DEVELOPER WOULD BE ELIGIBLE FOR THE DEDUCTION. 4.3.2 THE HIGH COURT OF KARNATAKA IN THE CASE OF THE COMMISSIONER OF INCOME-TAX, CENTRAL CIRCLE VS. SHRAVANEE CONSTRUCTI ON (I.T.A. NO. 21/2009 2003-04 AND I.T.A. NO. 422/2009 2004-05) HELD THA T TO CLAIM DEDUCTION U/S. 80IB(10), IF THE LAND OWNER, DEVELOPER AND BUI LDER ARE DIFFERENT, A MEMORANDUM OF UNDERSTANDING BETWEEN THE LAND OWNER AND THE ASSESSEE AND A JOINT DEVELOPMENT AGREEMENT BETWEEN THE ASSE SSEE AND THE BUILDER IS SUFFICIENT. 4.3.3 THE SECOND REASON FOR THE CIT(A) TO DENY TH E BENEFIT OF DEDUCTION U/S. 80IB WAS BY STATING THAT EVEN IN THE AUDIT RE PORT THE ASSESSEE HAS BEEN SHOWN AS HAVING BUSINESS OF CIVIL CONTRACT WOR K AND NOT THE BUILDER OF THE PROJECT THE CIT(A) REMARK IS CONTRADICTORY TO THE REMARK MADE BY THE ASSESSING AUTHORITY. THE ASSESSING AUTHORITY HAS ST ATED THAT THE ASSESSEE COMPANY IS A COMPANY ACTING AS BUILDER AND DOING C IVIL CONTRACT WORKS AS FOUND FROM THE AUDIT REPORT IN FORM 3D. A S PER CLAUSE 8(A) OF FORM NO. 3 CD (EXHIBIT -2), THE NATURE OF BUSINESS O R PROFESSION OF THE ASSESSEE IS SHOWN AS BUILDER. MOREOVER IN THE CAS E OF RADHE I.T.A. NO.139/COCH/2015 7 DEVELOPERS (SUPRA) IT HAS BEEN HELD THAT SEC. 80IB BENEFIT IS AVAILABLE TO A CONTRACTOR OR THE OWNER OF LAND. IT WAS FURTHER HEL D BY THE HONBLE HIGH COURT THAT THE TERM CONTRACTOR IS NOT CONTRADICTO RY TO THE TERM DEVELOPER. IN VIEW OF AFORESAID REASONING, THE SECOND CONTENTI ON OF THE CIT(A) TO DENY THE BENEFIT OF DEDUCTION IS ALSO WITHOUT MERIT. 4.3.4 THE THIRD REASON FOR THE CIT(A) TO HOLD AG AINST THE ASSESSEE IS THAT THE SIZE OF THE PLOT OF LAND IS LESS THAN 1 ACRE AN D THEREFORE THE ASSESSEE HAS NOT SATISFIED THE CONDITION UNDER CLAUSE (B) OF SEC. 80IB(10) OF THE ACT. THE CIT(A) CONSIDERED THAT THE ELIGIBLE PROJECT KA LPAKA GARDENS CONSISTS OF 3 RESIDENTIAL BLOCKS NAMELY:- BLOCK 1 KALPAKA RED RUBY BLOCK 2 KALPAKA GREEN EMERALD AN BLOCK 3 KALPAKA BLUE DIAMOND THE ASSESSING OFFICER AND THE CIT(A) CONSIDERED EAC H OF THE BLOCK AS A SEPARATE RESIDENTIAL UNIT AND IN THIS CONTEXT, THE ASSESSEE HAD NOT FULFILLED THE CONDITION MENTIONED IN CLAUSE (B) OF SECTION 80 IB(10) OF THE ACT. THE TERM PROJECT IS NOT DEFINED IN THE INCOME TAX ACT O R RULES. THE DICTIONARY MEANING OF THE TERM HOUSING PROJECT IS AN INDIVID UAL OR COLLABORATIVE ENTERPRISE THAT IS CAREFULLY PLANNED TO ACHIEVE A P ARTICULAR AIM. FROM THE APPROVED BUILDING PLANS (EXHIBIT-3), TITLE DEEDS OF LANDS (EXHIBIT-4), PHOTOS OF THE BUILDING (EXHIBITS-5) ETC, IT IS QUITE EVIDEN T THAT 3 BUILDINGS ARE SPREAD I.T.A. NO.139/COCH/2015 8 IN 117.131 CENTS OF LAND WITH COMMON ACCESS, COMMON INSIDE ROADS, COMMON FACILITY LIKE CAR PARK, PLAY AREA, GARDEN ET C. THEREFORE, THREE BLOCK OF APARTMENTS HAVE ONLY COLLECTIVE EXISTENCE AND IN DIVIDUALLY THEY CANNOT EXIST AND SERVE THE PURPOSE OF BEING A DWELLING UNI T BY ITSELF. THE HONOURABLE HIGH COURT OF MADRAS IN THE CASE OF VISW AS PROMOTERS (P.) LTD. VS. ASSISTANT COMMISSIONER OF INCOME-TAX T.C. (APPE AL) NOS. 1014 OF 2009, 857 OF 2010 & 190 TO 192 OF 2012, W.A. NO. 471 OF 2 010, IT IS HELD THAT IN THE CASE OF A COMPOSITE HOUSING PROJECT, WHERE THER E ARE ELIGIBLE AND INELIGIBLE UNITS, THE ASSESSEE CAN CLAIM DEDUCTION U/S. 80IB (10) IN RESPECT OF ELIGIBLE UNITS IN THE PROJECT AND EVEN WITHIN TH E BLOCK, THE ASSESSEE IS ENTITLED TO CLAIM PROPORTIONATE RELIEF IN THE UNITS SATISFYING THE EXTENT OF THE BUILT-UP AREA. 4.3.5 THE FOURTH CONTENTIONS OF THE CIT(A) IS TH AT THE ASSESSEE IS ACTUALLY TAKING UP CIVIL CONTRACT WORK/WORK CONTRACT FROM IT S MANAGING DIRECTOR AND ON BEHALF OF THE INDIVIDUAL FLAT OWNERS AND, THEREF ORE, IN TERM OF THIS EXPLANATION 10 ALSO, THE ASSESSEE IS NOT ELIGIBLE F OR DEDUCTION U/S. 80IB(10) IS FACTUALLY INCORRECT. THE ASSESSEE KALPAKA BUIL DERS PVT. LTD. IS A BUILDER/DEVELOPER AND HAS ALREADY DEVELOPED MANY HO USING PROJECTS INCLUDING KALPAKA GARDENS. THE ASSESSEE COMPANY HAS SINGLE HANDEDLY DEVELOPED THE PROJECT KALPAKA GARDENS. THE MANAG ING DIRECTOR OF THE COMPANY HAS NOT ENTRUSTED ANY CIVIL WORK TO THE COM PANY. IF THE MANAGING I.T.A. NO.139/COCH/2015 9 DIRECTOR HAD ENTRUSTED CIVIL WORK TO THE COMPANY, T HE ASSESSING AUTHORITY ON SCRUTINY OF THE BOOKS OF ACCOUNTS OF THE COMPANY SHOULD HAVE NOTED THAT FACT AND THE ACCOUNTING ENTRIES SHOULD HAVE SUPPORT ED THAT. HENCE THE CIT(A)S CONCLUSIONS ARE NOT SUPPORTED BY FACTS, RE CORDS BOOKS OF ACCOUNTS, AGREEMENTS ETC. THE CIT(A) HAS EVEN IGNORED THE FA CT THAT A COMPANY IS A SEPARATE LEGAL ENTITY. 4.3.6 THE LAST REASONING OF THE CIT(A) TO DENY DE DUCTION U/S. 80IB WAS BY STATING THAT THE ASSESSEE HIMSELF HAS NOT CLAIMED DEDUCTION U/S . 80IB IN THE SUBSEQUENT YEAR I.E., IN AY 2008-09 AND HAVE NO T FILED PROPER AUDIT REPORT AS REQUIRED U/S. 80IB IN THE SUBSEQUENT YEAR S EVEN THOUGH THEY WERE NO ELIGIBLE PROFITS FROM THE PROJECTS, HENCE IT IS HELD THAT THE ASSESSEE HAS NOT COMPLIED WITH ALL THE CONDITIONS AND REQUIREMEN TS OF SECTION 80IB TO CLAIM DEDUCTION UNDER THIS SECTION AND HENCE THE AS SESSING OFFICER IS CORRECT IN LAW IN MAKING THIS DISALLOWANCE . THE ABOVE CONTENTION OF THE CIT(A) IS ALSO LEGALLY UNTENABLE FOR THE FOLLOWING REASONING:- I) DEDUCTION U/S. 80IB IS OPTIONAL AND IT IS PRERO GATIVE OF THE ASSESSEE TO CLAIM OR NOT TO CLAIM DEDUCTION U/S. 80IB. I.T.A. NO.139/COCH/2015 10 II) 9 CONDITIONS PUT FORWARD IN SECTION 80IB OR RU LE 18BBB DOES NOT DEMAND COMPULSORY FILING OF PROPER AUDIT REPORT U/S . 80IB IN YEARS IN WHICH THE ASSESSEE IS NOT CLAIMING DEDUCTION UNDER THE SAID SECTION. III) AS PER CLAUSE (3) TO RULE 18BBB A SEPARATE REPORT IS TO BE FURNISHED BY EACH UNDERTAKING OR ENTERPRISE OF THE ASSESSEE CLAIMING DEDUCTION U/S. 80I OR 80IA OR 80IB OR 80IC AND SHALL BE ACCO MPANIED BY THE PROFIT & LOSS ACCOUNT AND BALANCE SHEET OF THE UNDERTAKING OR ENTERPRISE AS IF THE UNDERTAKING OR THE ENTERPRISE WERE A DISTANT EN TITY. HENCE THE REQUIREMENT TO FILE AUDIT REPORT IF AND ONLY THE AS SESSEE IS CLAIMING DEDUCTION U/S. 80IB. 4.3.7 FOR AFORESAID REASONING AND JUDICIAL PRONOU NCEMENTS CITED SUPRA, WE HOLD THAT THE CIT(A) IS NOT JUSTIFIED IN CONFIRMING THE ASSESSING OFFICERS ORDER IN DENYING THE BENEFIT OF DEDUCTION U/S. 80IB OF THE ACT. II) DISALLOWANCE OF COMPENSATION EXPENSE OF RS.8,65,000 . 5. THE SUM OF RS,8,65,000/- WAS DISALLOWED BY THE ASSESSING OFFICER. THE FINDINGS OF THE ASSESSING OFFICER READS AS FOLLOWS: ASSESSEE HAS DEBITED RS.865000/- AS COMPENSATION E XPENSE PAID TO PATTATH RESIDENTS ASSOCIATION. THE ONE-TIME PAYMENT WAS MA DE TO RESOLVE/SETTLE DISPUTE WITH THE ASSESSEE AND, AS SUCH NOT IN THE N ATURE OF ADMISSIBLE REVENUE EXPENSE AND BEING NOT EXPENDED OR, LAID OUT , WHOLLY AND EXCLUSIVELY, I.T.A. NO.139/COCH/2015 11 FOR THE BUSINESS PURPOSE. SO THE SAID EXPENSE OF RS .865000/- IS DISALLOWED AND ADDED BACK TO INCOME. 5.1 ON FURTHER APPEAL, THE CIT(A) CONFIRMED THE F INDINGS OF THE ASSESSING OFFICER. THE RELEVANT OBSERVATION OF THE CIT(A) REA DS AS FOLLOWS: 7.3 I HAVE GONE THROUGH THE ASSESSMENT ORDER AND THE SUBMISSIONS OF THE ASSESSEE. IT IS SEEN THAT IT IS ONE TIME COMPENSATI ON PAID TO DIFFERENT PEOPLE AND RESIDENTS ASSOCIATION FOR GETTING OBSTRUCTION O N THE CONSTRUCTION OF BUILDING REMOVED. IN ADDITION TO THIS, THE AMOUNTS WERE PAID TO SOME OTHER PEOPLES FLATS TO WHOM DAMAGE WAS BEING CAUSED BY T HE ASSESSEES PROJECT. I AGREE WITH THE STAND OF THE ASSESSING OFFICER THAT SUCH PAYMENTS OF COMPENSATION CANNOT BE TREATED AS REVENUE EXPENSES AS THEY ARE ONE TIME PAYMENTS AND HENCE THE ASSESSING OFFICER IS CORRECT IN DISALLOWING THE SAME. 5.2. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US. THE LD. AR REITERATED THE SUBMISSIONS MADE BEFORE THE CIT(A). ON THE OTH ER HAND, THE LD. DR SUPPORTED THE ORDERS OF THE INCOME TAX AUTHORITIES. 5.3 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERU SED THE MATERIAL ON RECORD. THE ASSESSEE HAD PAID COMPENSATION OF RS.8 ,65,000/- TO PATTATH RESIDENTS ASSOCIATION, FOR THE SETTLEMENT OF A CAS E FILED BY THEM IN THE MUNSIFF COURT, ERNAKULAM (O.S. NO. 1279, 2006). THE ASSOCIATION HAD CLAIMED THAT THE CONSTRUCTION WORK DONE BY THE ASSE SSEE CAUSED DAMAGES TO THEIR BUILDINGS. THE COMPENSATION OF RS.8,65,00 0/- IS PAID TO THE RESIDENT ASSOCIATION AS PER THE AGREEMENT MADE WITH THEM ON 18.11.2006 IN ORDER TO SETTLE THE CASE. THIS EXPENDITURE IS IN CURRED TO REMOVE I.T.A. NO.139/COCH/2015 12 CONSTRAINTS FOR THE CONSTRUCTION OF THE FLATS AND E XPENDED COMPLETELY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS AND IS DEDU CTIBLE U/S. 37 OF THE INCOME TAX ACT, 1961. THE BANK STATEMENT SHOWING THE PAYMENT MADE THROUGH STATE BANK OF INDIA (ACCOUNT NO: 0000003001 3583314) ON 23.11.2006 VIDE CHEQUE NO.882301 OF RS.8,65,000/- A ND THE AGREEMENT WITH PATTATH RESIDENTS ASSOCIATION WERE PRODUCED AS SUPPORTING EVIDENCES. SECTION 37 PRESCRIBES THE FOLLOWING CRITERIA TO TRE AT AN EXPENDITURE AS BUSINESS EXPENDITURE:- SL. NO. CONDITIONS AS PER SECTION 37 APPELLANTS POSI TION 01 THE EXPENDITURE SHOULD NOT BE OF THE NATURE DESCRIBED IN SECTIONS 30 TO 36 COMPENSATION DOES NOT FALL UNDER SEC. 30 TO 36 02 IT SHOULD HAVE BEEN INCURRED IN THE ACCOUNTING YEAR INCURRED IN THE RELEVANT ACCOUNTING YEAR 03 IT SHOULD BE IN RESPECT OF A BUSINESS WHICH WAS CARRIED ON BY THE ASSESSEE AND THE PROFITS OF WHICH ARE TO BE COMPUTED AND ASSESSED COMPENSATION WAS PAID FOR THE APPELLANTS PROJECT. 04 IT SHOULD NOT BE IN THE NATURE OF PERSONAL EXPENSES OF THE ASSESSEE NOT A PERSONAL EXPENSE AS PAID OUT TO NEARBY RESIDENTS TO COMPENSATE THEIR LOSS 05 IT SHOULD HAVE BEEN LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF SUCH BUSINESS AND COMPENSATION PAID TO REMOVE THE OBSTRUCTION IN CARRYING ON THE BUSINESS OF DEVELOPMENT OF THE HOUSING PROJECT KALPAKA GARDENS 06 IT SHOULD NOT BE IN THE NATURE OF CAPITAL EXPENDITURE IT IS NOT A CAPITAL EXPENDITURE AS IT DID NOT BRING EXISTENCE OF AN ASSETS OR ADVANTAGE OF ENDURING BENEFIT. THE ASSET (RESIDENTIAL FLATS) GENERATED ARE STOCK IN TRADE. I.T.A. NO.139/COCH/2015 13 IN THE CASE OF ALEMBIC CHEMICAL WORKS CO. LTD. VS. CIT (1989) 177 ITR 377/43 TAXMAN 312 (SC), IT WAS HELD THAT ONCE FOR A LL PAYMENT IS NOT A CONCLUSIVE TEST TO FIND OUT THE NATURE OF AN EXPEND ITURE. WHAT IS RELEVANT IS THE PURPOSE OF THE OUTLAY AND IS INTENDED OBJECT AN D EFFECT, CONSIDERED IN A COMMONSENSE WAY HAVING REGARD TO THE BUSINESS REALI TIES. 5.3.1 IN THE CASE OF ASSOCIATED BUILDERS AND LAND VS. DEPARTMENT OF INCOME TAX IN I.T.A. NO. 5439/MUM/2009 FOR THE ASSE SSMENT YEAR 2006-07, THE ITAT, MUMBAI HELD THAT A N AMOUNT OF RS.13,48,260/- SPENT BY THE ASSESSEE, A PARTNERSHIP FIRM, CARRYING ON THE BUSINESS OF BUI LDERS AND DEVELOPERS OF PROPERTY, TO CONSTRUCT ALTERNATIVE ACCOMMODATION FOR THE SITT ING TENANT MR. L.B. KATHARE IS A REVENUE EXPENDITURE. IN THE ABOVE CASE CONSIDERED BY ITAT, MUMBAI, MAIN INTENTION OF THE FIRM WAS TO DEVELOP PLOTS OF LAND FOR RESIDENTIAL/COMMER CIAL PURPOSES BUT DUE TO VARIOUS PROBLEMS ATTACHED WITH THE SAID PLOTS, THE FIRM COULD NOT START THE DEVELOPMENT ACTIVITIES EVEN AFTER GETTING THE POSSE SSION OF THE PLOT IN THE YEAR 2000. THE EXPENDITURE WAS INCURRED WITH A VIEW TO SETTLE THE CLAIM OF THE SAID TENANT WHICH COULD HAVE PUT TO THE ASSESSE E TO A GREAT ADVANTAGE. IN ORDER TO RELOCATE THE TENANT, WHO DID NOT VACATE THE PLOT AND THE PROJECT DEVELOPMENT, WAS NOT MAKING ANY HEADWAY, IT BECAME NECESSARY TO RELOCATE THE TENANT FOR WHOM A RCC STRUCTURE WAS GO T BUILT BY THE ASSESSEE. THE ASSESSEE SPENT RS.13,48,260 FOR THE CONSTRUCTIO N OF THE RCC STRUCTURE. I.T.A. NO.139/COCH/2015 14 THIS EXPENDITURE CLAIMED BY THE ASSESSEE DURING THE YEAR WAS HELD BY THE ITAT TO BE A REVENUE EXPENDITURE. 5.4 IN VIEW OF THE AFORESAID REASONING AND IN THE LIGHT OF THE JUDICIAL PRONOUNCEMENTS CITED SUPRA, WE HOLD THAT THE COMPEN SATION OF RS.8,65,000/- PAID TO THE ASSESSEE IS TO BE ALLOWED AS REVENUE EXPENDITURE. III) DISALLOWANCE OF WEBSITE EXPENSE OF RS.27,500 6. THE CIT(A) CONFIRMED THE ASSESSMENT ORDER IN T HE CASE OF THE ABOVE MENTIONED DISALLOWANCE BY OBSERVING THUS: 8.3 I HAVE GONE THROUGH THE ASSESSMENT ORDER AND T HE SUBMISSIONS OF THE ASSESSEE. SINCE CONSTRUCTION OF A WEBSITE AND MAKIN G OF E-BROCHURES IS ONE TIME EXPENDITURE, ASSESSING OFFICER IS CORRECT IN HOLDIN G THE SAME AS CAPITAL IN NATURE AND MAKING THE DISALLOWANCE OF 27,500/-. 6.1 WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSE D THE MATERIAL ON RECORD. THE WEBSITE EXPENSE OF RS.27,500/- WAS IN CURRED FOR UPDATING THE COMPANYS WEBSITE AND MAKING E-BROCHURES FOR THE PR OJECT OF THE COMPANY FOR MARKETING. THIS IS PURELY A REVENUE EXPENDITUR E. IT WAS HELD IN THE CASE OF INDIAN VISIT COM. (P) LIMITED 176 TAXMAN 16 4 AND POLYPLEX CORP. LTD. 176 TAXMAN 57 THAT WEBSITE EXPENDITURE ARE OF REVENUE IN NATURE. I.T.A. NO.139/COCH/2015 15 6.2 IN VIEW OF THE ABOVE REASONING AND IN THE LIG HT OF THE JUDICIAL PRONOUNCEMENT CITED SUPRA, THE WEBSITE EXPENSE IS T O BE TREATED AS REVENUE EXPENDITURE. 7. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS A LLOWED. PRONOUNCED IN THE OPEN COURT ON 22-03-2016. SD/- SD/- (GEORGE GEORGE K.) (B.P. JAIN) JUDICIAL MEMBER ACC OUNTANT MEMBER PLACE: KOCHI DATED: 22 ND MARCH, 2016 GJ COPY TO: 1. M/S. KALPAKA BUILDERS PVT. LTD., 1 ST FLOOR, CASAGRANTE BUILING, DESHABHIMANI JUNCTION, KALOOR, KOCHI-682 017. 2. THE ADDL. COMMISSIONER OF INCOME TAX OFFICER, R ANGE-1, KOCHI. 3. THE COMMISSIONER OF INCOME-TAX(APPEALS)-II, KOCH I. 4. THE COMMISSIONER OF INCOME-TAX, KOCHI. 5. D.R., I.T.A.T.,COCHIN. 6. GUARD FILE. BY ORDER (ASSISTANT REGISTRAR) I.T.A.T., COC HIN