M/s. G. R. Developers, Bangalore V. ACIT, Bangalore

ITA 1439/BANG/2010

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 8497 (ITAT-BANGALORE)
• Duration Of Justice: 6 year(s) 2 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-03-2017
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 08-12-2016
• Assessment Year: 2007-2008
• Appeal Filed On: 15-12-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: K.R PRADEEP; M.K BIJU
• Keywords: Capital asset converted into stock in trade; Capital asset; Recovery proceedings; Business income; Business expenditure; Principle of natural justice; Commercial expediency; Revenue expenditure; Capital expenditure
• Section: 32; 147; 131; 68; 246; 69; 145; 27; 148; 54; 37; 6; 56; 263; 63; 132; 12; 28; 144; 10; 90; 154; 2; 11; 15; 271(1)(b); 139; 92; 234B; 264; 13; 22

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, BANGALORE BENCH, C, BANGALORE BEFORE SHRI A.K GARODIA, ACCOUNTANT MEMBER SHRI LALIET KUMAR, JUDICIAL MEMBER ITA NO.1439//B ANG/2010 (ASST. YEAR 2007-08) G.R DEVELOPERS, 142-143, 1 ST FLOOR, GR PLAZA, D.V.G ROAD, BASAVANAGUDI, BANGALORE-. . APPELLANT PAN NO.AAEFG3522F. VS. THE ASST. COMMISSIONER OF INCOME-TAX, CIRCLE-3(1), BANGALORE. . RESPONDENT * APPELLANT BY : SHRI K.R PRADEEP, C.A ASSESSEE BY : SHRI M.K BIJU, JCIT DATE OF HEARING : 02-02-2017 DATE OF PRONOUNCEMENT : 03-03-2017 O R D E R PER LALIET KUMAR, JUDICIAL MEMBER THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER PASSED BY THE COMMISSIONER OF INCOME-TAX (APPEALS) II, B ANGALORE DATED 15/9/2010 FOR THE ASSESSMENT YEAR 2007-08. IT(TP)A NO.1439/B/10 2 2. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE ARE AS UNDER: 1. THAT THE ORDERS OF THE AUTHORITIES BELOW INSOFAR AS IT IS AGAINST THE ASSESSEE IS AGAINST THE LAW, FACTS, CIRCUMSTANCES, NATURAL JUSTICE, EQUITY, WITHOUT JURISDICTION, BAD IN LAW AND ALL OTHER KNOWN PRINCI PLES OF LAW. 2. THAT THE TOTAL INCOME COMPUTED AND THE TOTAL TAX COMPUTED IS HEREBY DISPUTED. 3. THE LEARNED CIT-APPEALS ERRED IN CONFIRMING THE DISALLOWANCE OF CLUB HOUSE FACILITY EXPENSES AMOUNT ING TO RS. 117,67,253/-. 4. THE LEARNED CIT-APPEALS ERRED IN HOLDING THE ABO VE EXPENDITURE AS CAPITAL IN NATURE AND REASONS GIVEN BY HIM IS UNSUSTAINABLE AND UNTENABLE IN LAW. 5. THE LD CIT(A)- APPEALS ERRED IN REJECTING THE R ELEVANT EVIDENCES WHILE RELYING ON IRRELEVANT FACTORS. 6. THE LD AUTHORITIES BELOW ERRED IN DISALLOWING T HE CLAIM FOR DEDUCTION U/S 8-IB OF THE ACT OF RS.7,54,533/- RELATING TO THE PROJECT G.R GRAND RESIDENCY WITHOUT GIVING A NY COGENT REASONS FOR DOING SO. 7. THE APPELLANT DENIES THE LIABILITIES FOR INTERES T U/S. 234B AND 234D OF THE I.T. ACT. NO OPPORTUNITY HAS BEEN G IVEN BEFORE THE LEVY OF INTEREST ULS 234B & D OF THE ACT. 8. WITHOUT PREJUDICE TO THE APPELLANT'S RIGHT OF SE EKING WAIVER BEFORE APPROPRIATE AUTHORITY THE APPELLANT B EGS FOR CONSEQUENTIAL RELIEF IN THE LEVY OF INTEREST U/S.23 4B AND 234D. IT(TP)A NO.1439/B/10 3 9. FOR THE ABOVE AND OTHER GROUNDS AND REASONS WHIC H MAY BE SUBMITTED DURING THE COURSE OF HEARING OF TH IS APPEAL, THE ASSESSEE REQUESTS THAT THE APPEAL BE ALLOWED AS PRAYED AND JUSTICE BE RENDERED. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESS EE IS A FIRM ENGAGED IN THE BUSINESS ACTIVITY OF BUILDER AND PROPERTY DEVEL OPER AND FILED ITS RETURN OF INCOME ON 19/10/2007 DECLARING A TOTAL INCOME OF RS.71,21,040/-. THE CASE WAS SELECTED FOR SCRUTINY THROUGH CASS. THE AO HAS MENTIONED IN THE ASSESSMENT ORDER THAT THE ASSESSEE HAS OFFERED NET INCOME OF RS.3,28,523/- PROFITS FOR ONE OF ITS PROJECTS GR GR EEK AGORA. THE GROSS INCOME FROM THE PROJECT WAS ADMITTED BY THE ASSESSE E WAS FOR RS.1,31,42,832/- WHICH INCLUDED SHORT TERM CAPITAL GAIN OF RS.32,74,265/-. AGAINST THIS INCOME, THE ASESSEE CLAIMED A TOTAL EX PENSE OF RS.1,18,03,920/- TOWARDS CLUB FACILITY. THE AO ASK ED THE ASSESSEE TO SUBSTANTIATE AND EXPLAIN THE EXPENDITURE INCURRED F OR THE CLUB FACILITY. IN RESPONSE TO THAT IT WAS SUBMITTED THAT THE ASSESSEE HAD PROVIDED THE CLUB FACILITY THROUGH THEIR NOMINEE AS PER THE SALE DEED EXECUTED BETWEEN THE OWNER OF THE PLOTS AND THIS ASSESSEE. 4. IT WAS ALSO SUBMITTED THAT THE ASSESSEE HAD ENT ERED INTO JOINT VENTURE AGREEMENT WITH SHRI RAJANI KANTH AND SHRI K RISHAN PRASAD OWNERS OF LAND AND AS PER THE JOINT DEVELOPMENT AGREEMENT DATED 27/3/2005, THE ASSESSEE WAS REQUIRED TO DEVELOP THE LAND AND ACCOR DING TO WHICH THEY IT(TP)A NO.1439/B/10 4 SHARE THE PROFITS GENERATED BY THE DEVELOPMENT OF P LOTS IN THE RATIO OF 40:60. IT WAS ALSO CONTENDED THAT AS PER THE JOINT DEVELOPMENT AGREEMENT, THE ASSESSEE WAS TO DEVELOP A CLUB HOUSE AND OTHER COMMON FACILITIES TO BE PROVIDED TO THE INDIVIDUAL PLOT OWNER. THE ASSESSE E, AS PER THE JOINT DEVELOPMENT AGREEMENT SHALL REMAIN OWNER OF THE CLU B HOUSE SO DEVELOPED AND SHALL NOT TRANSFER THE POSSESSION OF THE CLUB TO THE THIRD PARTY. IT WAS ALSO AGREED THAT THE ASSESSEE WAS ENTITLED TO ADMIT MEMBERS WHO ARE THE OWNER OF THE PLOT AND WAS ALSO FREE TO ADMIT SUCH O THER MEMBERS ON THE TERMS AND CONDITIONS AND ON RECEIPT OF ENTRY FEES A ND SUMS AS MAY BE DECIDED. THE ASSESSEE WAS REMAIN TO BE CONTROLLED BY THE MANAGEMENT OF THE CLUB HOUSE. 5. IN ORDER TO PROVIDE THE CLUB FACILITY THE ASSES SEE ENTERED INTO A LEASE AGREEMENT WITH M/S SUMAN MOTELS LTD. VIDE AG REEMENT DATED 1210211997 AS AMENDED BY THE AMENDMENT DEED DATED 2 610311997 TO PROVIDE CLUB FACILITY TO THE SITE OWNERS. AS PER TH E DEED M/S SUMAN MOTELS LTD., WERE HAVING OVER 18 YEARS EXPERIENCE IN THE C ONSTRUCTION OF HOTELS, CLUBS AND RESORTS ETC. AND RUNNING THE SAME EFFICIE NTLY. THE LEASE' DEED WAS FOR A PERIOD OF 99 YEARS FOR A NOMINAL MONTHLY RENT OF RS.1 001 THE ASSESSEE HAS PLACED ABOUT 2,23,000 SQ. FT (5 ES APP ROX) OF LAND AT THE DISPOSAL OF MI5 SUMAN MOTELS LTD.,'HEREIN AFTER REF ERRED TO AS THE SERVICE IT(TP)A NO.1439/B/10 5 PROVIDER. 'IN SHORT S.P. THE S.P. HAVE TO CONSTRU CT THE CLUB HOUSE AND PROVIDE OTHER FACILITIES AT, THEIR COST AND RUN AND MAINTAIN THE SAME AFTER ADMITTING AS MEMBERS. THE INDIVIDUAL PLOT OWNERS AN D OTHERS FROM THE GENERAL PUBLIC, CAN USE THE FACILITY AFTER PAYING T HE RESPECTIVE FEES AND CHARGES TO THE CLUB AS PER APPLICABLE RULES. THE S. P. HAS TO SHARE THE PROFIT AFTER CLAIMING THE EXPENSES FOR RUNNING IT WITH THE DEVELOPER IN THE RATIO OF 60:40. 6. THE SP HAD CONSTRUCTED THE CLUB HOUSE AFTER AVA ILING LOAN FORM PUNJAB NATIONAL BANK AND RUN THE CLUB HOUSE UP TO 2 003. SUBSEQUENTLY THE S.P. HAD BECOME BANKRUPT AND COULD NOT PAY BACK THE DUES TO THE BANK AND, THEREFORE, THE BANK TOOK OVER THE CLUB HOUSE BUILDI NG FOR RECOVERING ITS DUES FROM THE S.P. 7. AS THE ( SP) SUMMON MOTELS LTD., BECAME BANKRUP T AND BANK OR WORK THE CHARGE OF THE CLUB AND NOR SERVICES WOULD RENDER WITH THE MEMBERS / PLOT OWNERS, THEREFORE ASSESSEE NEGOTIA TED WITH THE BANK TO SETTLE THE DUES OF M/S SUMMON MOTELS LTD FOR A CONS IDERATION OF RS.1 CRORE, SO AS TO PROVIDE THE CLUB FACILITY TO THE ME MBERS AND OUTSIDERS. AO WAS NOT CONVINCED WITH THE CONTENTION OF THE ASSES SEE AND THEREFORE DISALLOWED THE CLUB EXPENSES OF RS.117,67,253/-. IT(TP)A NO.1439/B/10 6 8. AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A) WHO WAS ALSO NOT CONVINCED WITH T HE SUBMISSIONS OF THE ASSESSEE DISALLOWED THE EXPENSES TOWARDS CLUB FACIL ITY FOR THE FOLLOWING REASONS: 4 .10 IN. THE LIGHT OF THE AFORESAID DECISIONS, THE C LAIM OF RS.1,00,00,000/- AS A LIABILITY CREATES CERTAIN DOU BTS. THE JUDGEMENT ON THE SUIT HAS BEEN DELIVERED BY THE LEA RNED CIVIL JUDGE ON 9/11/2FJ07. THUS THE SUBJECT MATTER OF SUIT WAS PENDING AS ON31/3/2FJ07. FROM THIS, IT TRANSPIR ES THAT M/S SUMAN MOTELS LTD. HEW32AS BORROWED LOAN OF RS.3 CRORES FOR CONSTRUCTION OF CLUB HOUSE BY MORTGAGING THE SAID PROPERTY. IN THE CIVIL SUIT, PUNJAB NATIONAL B ANK WAS MADE A PARTY AS ONE OF THE DEFENDANTS. THE APPE LLANT CONTENDED THAT THEY NEGOTIATED LOAN FOR RS.L CRORE AGAINST THE TOTAL AMOUNT DUE OF RS.3 CRORES. THE FACT IS TH AT, IT. THE MATTER FOR RECOVERY PROCEEDINGS WAS PENDING BEFORE THE DEBTS RECOVERY TRIBUNAL-II (DRT-II}, MUMBAI, WHETHE R APPROVAL FOR SUCH NEGOTIATION HAS BEEN OBTAINED OR WHETHER THE MATTER HAS BEEN WITHDRAWN. THE APPELLANT HAS PROPOSED TO MAKE PAYMENT OF RS.1,00,0 0,000/- AND TAKE BACK THE PROPERTY (CLUB HOUSE) AT BYANAHAL LI VILLAGE, BANGALORE NORTH ALSO WITH THE CHIEF MANAGE R, PUNJAB NATIONAL BANK, FIXING THE DATE FOR MEETING F OR NEGOTIATION REGARDING THE DUES AGAINST THE AFORESAID PROPERTY, THE APPELLANT HAS N OT FURNISHED OTHER DETAILS WITH REGARD TO THE RESULT OF NEGOTIATION, ACCEPTANCE OF SETTLEMENT BY THE SECURE D IT(TP)A NO.1439/B/10 7 CREDITORS I.E PUNJAB NATIONAL BANK AND IIBI. SECOND LY, THE APPELLANT FILED CIVIL SUIT BEFORE THE CIVIL JUDGE, DEVANAHALLI AND THE JUDGEMENT ON THE SAID SUIT WAS DELIVERED ON 9/1L/2!J07. THIS INDICATES THAT POSSESSION OF THE S AID PROPERTY WAS WITH CREDITORS EVEN DURING THE PREVIOU S YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION . HENCE, THE RUNNING OF CLUB HOUSE FACILITIES AT THE ALLEGED PROPERTY DOES NOT ARISE. IT SEEMS THAT THE APPELLANT CLAIMED EXPENSES AS REVENUE IN NATURE ON THE BASIS OF LETTER OF OFFE R MADE BY THEM. IN FACT, NO ACTUAL TRANSACTION HAD TAKEN PLAC E. THUS, THE LIABILITY ITSELF IS AN UNCERTAIN LIABILITY CLAI MED AGAINST THE PROPERTY. HENCE, -IT IS CAPITAL IN NATURE. UNDE R THE FACTS AND 'CIRCUMSTANCES, THE LIABILITY HAD NOT CRYSTALLI SED DURING THE YEAR. THEREFORE, THE CLAIM IS NOT ALLOWABLE TH IS YEAR. 9. AGGRIEVED, BY THE ORDER OF CIT, THE ASSESSEE IS BEFORE US. 10. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE ASSESSEE SUBMITTED THAT THE EXPENDITUR E INCURRED BY HIM WERE IN DISCHARGE OF LEGAL OBLIGATION ARISING FROM THE T ERMS AND CONDITIONS OF THE JOINT DEVELOPMENT AGREEMENT ENTERED BETWEEN HIM AND SHRI RAJANI KANTH AND SHRI KRISHAN PRASAD. THE LEARNED AR HAS POINTE D OUT THE OBLIGATION UNDER THE JOINT DEVELOPMENT AGREEMENT WAS TO EXTEND THE CLUB FACILITIES FOR THE UTILIZATION OF THE BUYER OF THE PLOT. THE ATTE NTION OF THE BENCH WAS DRAWN TO PARAGRAPH 5.4 AND 5.5 OF THE JOINT DEVELOP MENT AGREEMENT TO THE FOLLOWING EXTENT: IT(TP)A NO.1439/B/10 8 5.4 THAT UNDER THE SCHEME OF DEVELOPMENT THE PROPE RTY MEASURING SIX ACRES IN SURVEY NO.61/3, BYANAHALLI VILLAGE, JALA HOBLI, BANGALORE NORTH TALUK IS AGREE D TO BE DEVELOPED FOR LOCATING CLUB HOUSE WITH THREE STAR H OTEL FACILITIES AND ALSO WITH NECESSARY INFRASTRUCTURE I NCLUDING RESTAURANT AND BAR, INDOOR GAMES, HEALTH CLUB, BUSI NESS CENTRE, MEETING HALL, DEPARTMENTAL STORE, SWIMMING POOL, SHUTTLE COURT, TENNIS COURT, CHILDREN PLAY GROUND A ND OTHER FACILITIES WHICH SHALL BE FOR THE USE AND ENJOYMENT OF THE PURCHASERS OF THE SITES IN THE SCHEDULE PROPERTY AN D THE COST FOR ESTABLISHING THE CLUB HOUSE WITH ALL FACIL ITIES INCLUDING CONSTRUCTION THEREON AND FITTINGS, FIXTUR ES ETC., THEREIN SHALL BE MET BY THE SECOND PARTY AND FIRST PARTY IS NOT LIABLE TO PAY ANY AMOUNT IN RESPECT THERETO. T HE OWNERSHIP OF THE CLUB HOUSE AREA AND FITTINGS, FURN ITURE, EQUIPMENTS ETC., SHALL EXCLUSIVELY BELONG TO SECOND PARTY OVER WHICH THE FIRST PARTY OR THE PURCHASERS OF THE SITES IN THE SCHEDULE PROPERTY SHALL NOT HAVE ANY MANNER OF RIGHT, TITLE AND INTEREST THEREIN AND EXCEPT THE RIGHT TO BECOME MEMBERS AND MAKE USE OF SAID CLUB HOUSE AREA BY THE FIRST PARTY AND OWNERS OF THE SITES IN THE SCHEDULE PROPE RTY AS PER THE BYELAWS OF THE CLUB HOUSE. THE SECOND PARTY SHALL ADMIT THE MEMBERS OF THE FIRST PARTY AND THE PURCHA SERS OF THE SITES IN THE SCHEDULE PROPERTY AS MEMBERS OF TH E CLUB HOUSE SUBJECT TO PAYMENT OF NECESSARY ADMISSION FEE AND OTHER FEES PAYABLE IN ACCORDANCE WITH THE RULES AND REGULATIONS AND BYE-LAWS TO BE FORMED FOR THE CLUB HOUSE. THE SECOND PARTY IS ENTITLED TO ADMIT MEMBERS OTHER THAN IT(TP)A NO.1439/B/10 9 PURCHASERS OF THE SITES IN THE SCHEDULE PROPERTY ON SUCH DONATIONS, ENTRY FEES AND OTHER SUMS AS MAY BE DECI DED BY SECOND PARTY. THE SECOND PARTY SHALL BE IN TOTAL C ONTROL AND MANAGEMENT OF THE CLUB HOSUE AND THE SAID AREA. THE SAID PROPERTY MEASURING SIX ACRES SHALL BE DEVELOPE D FOR THE PURPOSES OF LOCATION OF A CLUB HOSUE ETC., AS S TATED ABOVE AND SHALL NOT BE SOLD TO THIRD PARTIES EXCEPT INT EH EVENT OF IMPOSSIBILITY OF SUBJECTING THE SCHEDULE P ROPERTY FOR DEVELOPMENT IN TERMS OF THIS AGREEMENT. HOWEVE R THE SECOND PARTY SHALL GIVE FIRST OPTION TO THE FIRST P ARTY AND ON THEIR FAILURE TO PURCHASE THE SECOND PARTY SHALL BE ENTITLED TO SELL TO THIRD PARTIES ON NO LESS TERMS OFFERED T O FIRST PARTY. 5.5) THE FIRST PARTY AGREES TO SELL THE AFORESAID S IX ACRES IN SURVEY NO.61/3 OF BYANAHALLI VILLAGE FOR ESTABLI SHING CLUB HOUSE AS STATED ABOVE WITHIN SIX MONTHS FROM T HIS DAY AND THE SECOND PARTY SHALL SECURE NECESSARY CONVERS ION AND OTHER PERMISSIONS FOR ESTABLISHING THE CLUB HOS UE WITH 3 STAR FACILITIES, AND COMMENCE FUNCTIONING OF THE SAME WITHIN THIRTY SIX MONTHS FROM THE DATE OF SANCTION AND CONVERSION AND PLANS. 11. FURTHER LEARNED AR HAS ALSO DRAWN OUR ATTENTION TO THE SALE AGREEMENT ENTERED BETWEEN SHRI RAJANI KANTH AND M/S G.R DEVELOPERS IN FAVOUR OF M/S MURUKUTLA VENKATA SUBBA RAO AND MORE PARTICULARLY CLAUSE 9(E) OF THE SALE AGREEMENT TO THE FOLLOWING EFFECT. IT(TP)A NO.1439/B/10 10 9E MEMBERSHIP OF THE CLUB TO BE LOCATED IN SCHEDULE C HEREIN SUBJECT TO PAYMENT OF MONTHLY SUBSCRIPTION AND FEES AND COMPLIANCE OF RULES AND REGULATIONS. 12. IT WAS ALSO SUBMITTED BY THE LEARNED AR THAT TH E MEMBERS WHO HAVE PURCHASED THE PLOTS FORMED AN ASSOCIATION AND THEY HAVE SERVED LEGAL NOTICE, AS SP FAILED TO PROVIDE CLUB FACILITY TO T HE MEMBERS FOR THAT OUR ATTENTION WAS DRAWN TO PAGE NOS. 90 AND 91 OF THE P APER BOOK. 13. THEREFORE , ON THE BASIS OF THIS DOCUMENT, IT W AS SUBMITTED THAT AS THE ASSESSEE WAS DEVELOPER OF THE PROPERTY AND IT W AS THE DUTY OF THE ASSESSEE TO MAINTAIN AND PROVIDE THE CLUB FACILITY TO PLOT OWNERS AND SINCE M/S S.P FAILED TO RUN THE CLUB AND THE PROPERTY OF THE CLUB WAS TAKEN OVER/ATTACHED BY THE PUNJAB NATIONAL BANK, THEREF ORE, WITH A VIEW TO PROVIDE UNINTERRUPTED CLUB FACILITY TO THE PLOT OWN ERS, THE ASSESSEE HAS PAID A SUM OF RS.1,00,00,000/- TO PUNJAB NATIONAL BANK. 14. SECONDLY IT WAS SUBMITTED THAT THE ASSESSEE HA S INCURRED AN AMOUNT OF RS.1,00,00,000/- AS PRUDENT BUSINESS MAN AND THIS HAS BEEN DONE CONSIDERING THE COMMERCIAL EXPEDIENCY IN MIND AND IT WAS SUBMITTED THAT THE REVENUE SHOULD NOW SIT IN THE ARM CHAIR OF THE ASSESSEE AND SHOULD NOT DECIDE WHICH AND HOW MUCH EXPENSES SHOULD BE MADE. FOR THAT PURPOSE, THE LEARNED AR RELIED UPON THE JUDGMENT OF THE HON BLE SUPREME COURT IN IT(TP)A NO.1439/B/10 11 THE CASE OF S.A BUILDERS LTD [2007] 158 TAXMAN 74 (SC) WHICH HELD AS UNDER : 34. WE AGREE WITH THE VIEW TAKEN BY THE DELHI HIGH COUR T IN CIT V. DALMIA CEMENT (BHARAT) LTD. [2002] 254 ITR 377 2 THAT ONCE IT IS ESTABLISHED THAT THERE WAS NEXUS BE TWEEN THE EXPENDITURE AND THE PURPOSE OF THE BUSINESS (WH ICH NEED NOT NECESSARILY BE THE BUSINESS OF THE ASSESSEE ITS ELF), THE REVENUE CANNOT JUSTIFIABLY CLAIM TO PUT ITSELF IN T HE ARM-CHAIR OF THE BUSINESSMAN OR IN THE POSITION OF THE BOARD OF DIRECTORS AND ASSUME THE ROLE TO DECIDE HOW MUCH IS REASONABL E EXPENDITURE HAVING REGARD TO THE CIRCUMSTANCES OF T HE CASE. NO BUSINESSMAN CAN BE COMPELLED TO MAXIMIZE ITS PRO FIT. THE INCOME TAX AUTHORITIES MUST PUT THEMSELVES IN THE S HOES OF THE ASSESSEE AND SEE HOW A PRUDENT BUSINESSMAN WOULD AC T. THE AUTHORITIES MUST NOT LOOK AT THE MATTER FROM THEIR OWN VIEW POINT BUT THAT OF A PRUDENT BUSINESSMAN. AS ALREADY STATED ABOVE, WE HAVE TO SEE THE TRANSFER OF THE BORROWED FUNDS TO A SISTER CONCERN FROM THE POINT OF VIEW OF COMMERCIAL EXPEDIENCY AND NOT FROM THE POINT OF VIEW WHETHER T HE AMOUNT WAS ADVANCED FOR EARNING PROFITS. 15. BEFORE, WE DEAL WITH THE FACTS OF THE CASE, WE WOULD LIKE TO REFER SOME RELEVANT JUDGMENTS ON THE ISSUE UNDER CONSIDER ATION. THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF PRAKASH LE ASING LTD., VS. DCIT (2012) 23 TAXMAN.COM (KAR) IN PARAGRAPH 6 TO 10 HAS HELD AS UNDER: IT(TP)A NO.1439/B/10 12 6 . THE APEX COURT IN THE CASE OF POONA ELECTRIC SUPPLY CO. LTD. V. CIT AIR 1966 SC 30, HAD AN OCCASION TO CONSIDER THE MEANING OF THE REAL INCOME. AFTER REVIEWING SEVERAL JUDGMENTS, THE APEX COURT HELD AS UNDER: 'INCOME TAX IS A TAX ON, THE REAL INCOME, I.E., THE PROFITS ARRIVED AT ON COMMERCIAL PRINCIPLES SUBJECT TO THE PROVISIONS OF THE INCOME-TAX ACT. THE REAL PROFITS CAN BE ASCERTAINED ONLY BY MAKING THE PERMISSIBLE DEDUCTIO NS. THERE IS A CLEAR-CUT DISTINCTION BETWEEN DEDUCTIONS MADE FOR ASCERTAINING THE PROFITS AND DISTRIBUTIONS MADE OUT OF PROFITS. IN A GIVEN CASE WHETHER THE OUTGOINGS FALL IN ONE OR THE OTHER OF THE HEADS IS A QUESTION OF FACT TO BE FOUND ON THE RELEVANT CIRCUMSTANCES, HAVING REGARD TO BUSINESS PRINCIPLES. ANOTHER DISTINCTION THAT SHALL BE BORNE IN MIND IS THAT BETWEEN THE REAL AND THE STATUTORY PROFITS, I. E., BETWEEN THE COMMERCIAL PROFITS AND STATUTORY PROFITS. THE L ATTER ARE STATUTORILY FIXED FOR A SPECIFIED PURPOSE. IF WE BE AR IN MIND THESE TWO PRINCIPLES THERE WILL BE NO DIFFICULTY IN ANSWERING THE QUESTION RAISED.' 7. THE APEX COURT IN THE CASE OF STATE BANK OF TRAVANCORE V. CIT [1986] 158 ITR 102 / 24 TAXMAN 337 , AFTER CONSIDERING VARIOUS DECISIONS OF THE APEX COURT, HE LD AS UNDER: 'AN ACCEPTABLE FORMULA OF CO-RELATING THE NOTION OF REAL INCOME IN CONJUNCTION WITH THE METHOD OF ACCOUNTING FOR THE PURPOSE OF THE COMPUTATION OF INCOME FOR THE PURPOS E OF TAXATION IS DIFFICULT TO EVOLVE. BESIDES, ANY STRAI T-JACKET IT(TP)A NO.1439/B/10 13 FORMULA IS BOUND TO CREATE PROBLEMS IN ITS APPLICAT ION TO EVERY SITUATION, IT MUST DEPEND UPON THE FACTS AND CIRCUMSTANCES OF EACH CASE. WHEN AND HOW DOES AN IN COME ACCRUE AND WHAT ARE THE CONSEQUENCES THAT FOLLOW FR OM ACCRUAL OF INCOME ARE WELL-SETTLED. THE ACCRUAL MUS T BE REAL TAKING INTO ACCOUNT THE ACTUALITY OF THE SITUATION. WHETHER AN ACCRUAL HAS TAKEN PLACE OR NOT MUST, IN APPROPRI ATE CASES, BE JUDGED ON THE PRINCIPLES OF THE REAL INCO ME THEORY. AFTER ACCRUAL, NON-CHARGING OF TAX ON THE SAME BECA USE OF CERTAIN CONDUCT BASED ON THE IPSE DIXIT OF A PARTICULAR ASSESSEE CANNOT BE ACCEPTED. IN DETERMINING THE QUE STION WHETHER IT IS HYPOTHETICAL INCOME OR WHETHER REAL I NCOME HAS MATERIALISED OR NOT, VARIOUS FACTORS WILL HAVE TO BE TAKEN INTO ACCOUNT. IT WOULD BE DIFFICULT AND IMPRO PER TO EXTEND THE CONCEPT OF REAL INCOME TO ALL CASES DEPE NDING UPON THE IPSE DIXIT OF THE ASSESSEE WHICH WOULD THEN BECOME A VALUE JUDGMENT ONLY. WHAT HAS REALLY ACCRUED TO T HE ASSESSEE HAS TO BE FOUND OUT AND WHAT HAS ACCRUED M UST BE CONSIDERED FROM THE POINT OF VIEW OF REAL INCOME TA KING THE PROBABILITY OR IMPROBABILITY OF REALISATION IN A RE ALISTIC MANNER AND DOVETAILING OF THESE FACTORS TOGETHER BU T ONCE THE ACCRUAL TAKES PLACE, ON THE CONDUCT OF THE PART IES SUBSEQUENT TO THE YEAR OF CLOSING, AN INCOME WHICH HAS ACCRUED CANNOT BE MADE 'NO INCOME'.' 8. THE APEX COURT IN THE CASE OF GODHRA ELECTRICITY CO. LTD., V. CIT [1997] 225 ITR 746 / 91 TAXMAN 351 EXPLAINING THE PRINCIPLES OF 'REAL INCOME' HAS HELD AT PAGE 760 AS UNDER: IT(TP)A NO.1439/B/10 14 THE QUESTION WHETHER THERE WAS REAL ACCRUAL OF INCO ME TO THE ASSESSEE COMPANY IN RESPECT OF THE ENHANCED CHA RGES FOR SUPPLY OF ELECTRICITY HAS TO BE CONSIDERED BY TAKIN G THE PROBABILITY OR IMPROBABILITY OF REALISATION IN A RE ALISTIC MANNER. IF THE MATTER IS CONSIDERED IN THIS LIGHT, IT IS NOT POSSIBLE TO HOLD THAT THERE WAS REAL ACCRUAL OF INC OME TO THE ASSESSEE-COMPANY IN RESPECT OF THE ENHANCED CHARGES FOR SUPPLY OF ELECTRICITY WHICH WERE ADDED BY THE INCOM E-TAX OFFICER WHILE PASSING THE ASSESSMENT ORDERS IN RESP ECT OF THE ASSESSMENT YEARS UNDER CONSIDERATION. THE APPELLATE ASSISTANT COMMISSIONER WAS RIGHT IN DELETING THE SA ID ADDITION MADE BY THE INCOME-TAX OFFICER AND THE TRI BUNAL HAD RIGHTLY HELD THAT THE CLAIM AT THE INCREASED RA TES AS MADE BY THE ASSESSEE-COMPANY ON THE BASIS OF WHICH NECESSARY ENTRIES WERE MADE REPRESENTED ONLY HYPOTH ETICAL INCOME AND THE IMPUGNED AMOUNTS AS BROUGHT TO TAX B Y THE INCOME-TAX OFFICER DID NOT REPRESENT THE INCOME WHI CH HAD REALLY ACCRUED TO THE ASSESSEE-COMPANY DURING THE R ELEVANT PREVIOUS YEARS. THE HIGH COURT, IN OUR OPINION, WAS IN ERROR IN UPSETTING THE SAID VIEW OF THE TRIBUNAL.' 9. THE DELHI HIGH COURT IN THE CASE OF CIT V. DINESH KUMAR GOEL [2011] 331 ITR 10 / 197 TAXMAN 375 EXPLAINING THE MEANING OF THE WORD 'ACCRUED', HELD AS UNDER: 'SECTION 145 OF THE ACT DEALS WITH THE METHOD OF AC COUNTING AND STATES THAT IN CASE OF BUSINESS INCOME, INTER ALIA, THE SAME IS TO BE COMPUTED IN ACCORDANCE WITH THE CASH OR MERCANTILE SYSTEM OF ACCOUNTING. SUB-SECTION (2) TH EREOF IT(TP)A NO.1439/B/10 15 AUTHORIZES THE CENTRAL GOVERNMENT TO NOTIFY IN THE OFFICIAL GAZETTE FROM TIME TO TIME ACCOUNTING STANDARDS TO B E FOLLOWED BY ANY CLASS OF ASSESSEES OR IN RESPECT OF ANY CLASS OF INCOME. SECTION 211 OF THE COMPANIES ACT, ON THE OTHER HAND, PRESCRIBES THE FORM AND CONTENTS OF BALANCE-S HEET AND PROFIT AND LOSS ACCOUNT, WHICH ARE TO BE MAINTAINED BY THE COMPANIES UNDER THE SAID ACT. SUB-SECTION (2) CASTS A DUTY ON A COMPANY TO GIVE A TRUE AND FAIR VIEW OF THE PR OFIT AND LOSS OF A COMPANY FOR THE FINANCIAL YEAR IN ITS PRO FIT AND LOSS ACCOUNTS. SUB-SECTION (3A) ADHERES TO THE ACCOUNTIN G STANDARDS FOR PREPARING PROFIT AND LOSS AND BALANCE -SHEET. SUB-SECTION (3C) DEFINES 'ACCOUNTING STANDARDS' AS UNDER: '(3C) FOR THE PURPOSES OF THIS SECTION, THE EXPRESS ION 'ACCOUNTING STANDARDS' MEANS THE STANDARDS OF ACCOU NTING RECOMMENDED BY THE INSTITUTE OF CHARTERED ACCOUNTAN TS OF INDIA CONSTITUTED UNDER THE CHARTERED ACCOUNTANTS A CT, 1949 (38 OF 1949) AS MAY BE PRESCRIBED BY THE CENTR AL GOVERNMENT IN CONSULTATION WITH THE NATIONAL ADVISO RY COMMITTEE ON ACCOUNTING STANDARDS ESTABLISHED UNDER SUB- SECTION (1) OF SECTION 210A: PROVIDED THAT THE STANDARDS OF ACCOUNTING SPECIFIED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA SHALL B E DEEMED TO BE THE ACCOUNTING STANDARDS UNTIL THE ACCOUNTING STANDARDS ARE PRESCRIBED BY THE CENTRAL GOVERNMENT UNDER THIS SUB-SECTION.' A CONJOINT READING OF THE AFORESAID PROVISIONS OF T HE INCOME-TAX ACT AND THE COMPANIES ACT SHOWS THAT THO SE IT(TP)A NO.1439/B/10 16 ASSESSEES, WHICH ARE COMPANIES AND SHOWING INCOME, INTER ALIA, UNDER THE HEAD 'BUSINESS OR PROFESSION' HAVE TO FOLLOW THE ACCOUNTING STANDARDS PRESCRIBED. THE GOVERNMENT OF INDIA HAS NOTIFIED ACCOUNTING STANDARDS IN EXERCISE OF ITS POWER UNDER SECTION 145(2) OF THE ACT, WHICH ARE DA TED MAY 29, 1996. ACCOUNTING STANDARD-1 RELATES TO THE DISC LOSURE OF ACCOUNTING POLICY AND PUTS AN OBLIGATION ON THE ASS ESSEE TO DISCLOSE ALL SIGNIFICANT ACCOUNTING POLICIES ADOPTE D IN THE PREPARATION AND PRESENTATION OF FINANCIAL STATEMENT S. PARAGRAPH 6 THEREOF DEFINES CERTAIN EXPRESSION WHIC H OCCURRED IN PARAGRAPHS 1 TO 5. CLAUSE (B) WHEREOF S PELLS OUT THE DEFINITION OF ACCRUAL IN THE FOLLOWING MANN ER: '(B) 'ACCRUAL' REFERS TO THE ASSUMPTION THAT REVENU ES AND COSTS ARE ACCRUED THAT IS, RECOGNIZED AS THEY ARE E ARNED OR INCURRED (AND NOT AS MONEY IS RECEIVED OR PAID) AND RECORDED IN THE FINANCIAL STATEMENTS OF THE PERIOD TO WHICH THEY RELATE;' FROM THE ABOVE, THAT THE TERM 'ACCRUAL' RELATES TO REVENUES EARNED OR COST INCURRED. TWO THINGS FOLLOW FROM THI S, VIZ., UNLESS THE REVENUE IS EARNED, IT IS NOT ACCRUED. LI KEWISE, THE EXPENSES UNLESS ARE INCURRED, COST IN RESPECT THERE OF CANNOT HE TREATED AS ACCRUED. SECONDLY, IT RECOGNIZES THE MATCHING CONCEPT, VIZ., RECEIPTS ARE TO BE MATCHED INCOME TO ARRIVE AT THE NET INCOME, WHICH WOULD THEN BE ELIGIBLE TO TAX .' 10. THE APEX COURT IN THE CASE OF J.K. INDUSTRIES V. UNION OF INDIA [2008] 297 ITR 176 / [2007] 165 TAXMAN 323 , HAS EXPLAINED THE 'MATCHING' CONCEPT AS UNDER: IT(TP)A NO.1439/B/10 17 'WE MAY REFER TO THE PASSAGE EXTRACTED BY THE SUPRE ME COURT FROM ITS JUDGMENT IN THE CASE OF J.K. INDUSTRIES V. UNION OF INDIA REPORTED IN [2007] 13 SCALE 204; [2008] 297 ITR 176 IN THE FOLLOWING TERMS (PAGE 277 OF 297 ITR): '82. MATCHING CONCEPT IS BASED ON THE ACCOUNTING PE RIOD CONCEPT. THE PARAMOUNT OBJECT OF RUNNING A BUSINESS IS TO EARN PROFIT. IN ORDER TO ASCERTAIN THE PROFIT MADE BY THE BUSINESS DURING A PERIOD, IT IS NECESSARY THAT 'REV ENUES' OF THE PERIOD SHOULD BE MATCHED WITH THE COSTS (EXPENS ES) OF THAT PERIOD. IN OTHER WORDS, INCOME MADE BY THE BUS INESS DURING A PERIOD CAN BE MEASURED ONLY WITH THE REVEN UE EARNED DURING A PERIOD IS COMPARED WITH THE EXPENDITURE INCURRED FOR EARNING THAT REVENUE. HOWEVER, IN CASES OF MERGERS AND ACQUISITIONS, COMPANIES SOM ETIMES UNDERTAKE TO DEFER REVENUE EXPENDITURE OVER FUTURE YEARS WHICH BRINGS IN THE CONCEPT OF DEFERRED TAX ACCOUNT ING. THEREFORE, TODAY IT CANNOT BE SAID THAT THE CONCEPT OF ACCRUAL IS LIMITED TO ONE YEAR. 83. IT IS A PRINCIPLE OF RECOGNIZING COSTS (EXPENSE S) AGAINST REVENUES OR AGAINST THE RELEVANT TIME PERIOD IN ORD ER TO DETERMINE THE PERIODIC INCOME. THIS PRINCIPLE IS AN IMPORTANT COMPONENT OF ACCRUAL BASIS OF ACCOUNTING. AS STATED ABOVE, THE OBJECT OF AS 22 IS TO RECONCILE T HE MATCHING PRINCIPLE WITH THE FAIR VALUATION PRINCIPL ES. IT MAY BE NOTED THAT RECOGNITION, .MEASUREMENT AND DISCLOS URE OF VARIOUS ITEMS OF INCOME, EXPENSES, ASSETS AND LIABI LITIES IS IT(TP)A NO.1439/B/10 18 DONE ONLY BY ACCOUNTING STANDARDS AND NOT BY THE PROVISIONS OF THE COMPANIES ACT.' 16. DELHI HIGH COURT IN THE CASE OF HOTEL SHIV (201 4) 44 TAXMAN.COM 470 HAS HELD AS UNDER:- 16. AS PER THE POLICY ONLY THOSE OWNERS, WHO APPLY AND PAY THE CONVERSION CHARGES, WERE PERMITTED TO PUT T HEIR RESIDENTIAL PROPERTIES TO COMMERCIAL OR MIXED USE. ONCE A PROPERTY STANDS CONVERTED TO COMMERCIAL/MIXED LAND USE, THERE WAS SUBSTANTIAL ENHANCEMENT AND INCREASE IN V ALUE OF THE SAID PROPERTY. THERE BEING AN ENDURING BENEFIT FROM THE SAID CONVERSION. 17. THE CONVERSION CHARGE PAID FOR CONVERSION OF THE PROPERTY FROM RESIDENTIAL TO COMMERCIAL WAS A ONE T IME CHARGE AND NOT A RECURRING EXPENDITURE INCURRED FROM YEAR TO YEAR. THE ONE TIME CONVERSION CHARGE FOR CONVERS ION OF THE PROPERTY FROM RESIDENTIAL TO COMMERCIAL USE IS DISTINCT AND DIFFERENT FROM ANNUAL HOUSE TAX PAID AT COMMERC IAL RATES. ANNUAL HOUSE TAX PAID ON COMMERCIAL RATE IS PAID FOR THE USE DURING THE FINANCIAL YEAR. IT IS AN ANNUAL AND REOCCURRING PAYMENT WHICH THE LAND LORD, TENANT OR THE OCCUPANT MUST MAKE UNDER THE APPLICABLE STATUTE. TH E ONE TIME CONVERSION CHARGE PERMANENTLY CONVERTS THE USE OF THE PROPERTY FROM RESIDENTIAL TO COMMERCIAL/MIXED LAND USE. ONCE THE PROPERTY IS CONVERTED, THE BENEFIT OF THE SAME WILL IT(TP)A NO.1439/B/10 19 ENSURE TO THE OWNERS OF THE PROPERTY. IT ENHANCES A ND ADDS TO THE VALUE OF THE CAPITAL ASSET I.E. THE PROPERTY. 18. IN THE PRESENT CASE, THE OWNERS OF THE PROPERTY ARE THE PARTNERS IN THEIR INDIVIDUAL CAPACITY AND AS SUCH T HE ENDURING BENEFIT OF CONVERSION FROM RESIDENTIAL TO COMMERCIAL ENSURES TO THE OWNERS. IN CASE THE PETIT IONER ASSESSEE WERE TO DISCONTINUE ITS BUSINESS, EVEN THE N THE PARTNERS I.E. THE OWNERS OF THE PROPERTY IN THEIR I NDIVIDUAL CAPACITY WOULD STILL HAVE THE RIGHT TO PUT THE PROP ERTY TO COMMERCIAL/MIXED LAND USE. THIS ADVANTAGE AND BENEF IT THAT THE PROPERTY HAS ACQUIRED BY PAYMENT OF CONVERSION CHARGES WILL CONTINUE TO ENSURE TO THE INDIVIDUAL PARTNERS IRRESPECTIVE OF THE ASSESSEE DISCONTINUING TO DO TH E BUSINESS OF GUEST HOUSE FROM THE SAID PROPERTY. THUS, THIS EXPENDITURE IS A CAPITAL EXPENDITURE AND HAS BROUGHT ABOUT AN ADVANTAGE OF AN ENDURING NATURE, AND THIS ADVANTAGE IS ATTACHED TO THE PROPERTY. SINCE THE AD VANTAGE OF ENDURING NATURE IS ATTACHED TO THE PROPERTY, THE BENEFIT OF THE SAME WILL ENSURE TO THE OWNERS OF THE SAID PROP ERTY. THE EXPENDITURE FOR ACQUIRING THE SAID ADVANTAGE IS AN EXPENDITURE INCURRED PURELY FOR THE INDIVIDUAL PARTNERS. HAD THIS EXPENDITURE BEEN INCURRED BY THE INDIVIDUAL OWNER, IT WOULD HAVE BEEN A CAPITAL AND NOT A REVENUE EXPENSE. THERE IS NO JUSTIFICATION AND REASON, WHY THE PETIT IONER FIRM MADE THE SAID PAYMENT AND ON WHAT TERMS/BASIS PAYME NT WAS MADE. THE SAID EXPENDITURE CANNOT BE TREATED AS RUNNING BUSINESS EXPENDITURE AND CANNOT BE CLAIMED AS A IT(TP)A NO.1439/B/10 20 DEDUCTION UNDER SECTION 37 OF THE ACT BY THE PETITIONER/ASSESSEE. AT BEST IT WOULD BE PAYMENT ON BEHALF OF AND AT THE BEHEST OF THE OWNERS, WHO WERE ALSO PART NERS OF THE PETITIONER. 19. INDIVIDUAL OWNERS AND THE PARTNERSHIP FIRM ARE TWO DISTINCT TAX ENTITIES FOR THE PURPOSE OF THE ACT AN D ARE LIABLE TO PAY INCOME TAX ON THEIR INCOME AFTER REDUCING REVENUE EXPENDITURE. BUT IN THE FACTS OF THE PRESENT CASE WHILE DECIDING THE QUESTION OF ENDURING BENEFIT, WE CANNOT BE OBLIVIOUS AND IGNORE THE PRACTICAL REALITY THAT UNLESS THE PARTNERS OF THE PETITIONER WANT THE PARTNERSHIP FIR M I.E. THE PETITIONER CANNOT CONTINUE TO OPERATE AND RUN THE G UEST HOUSE. THEREFORE, WHILE DETERMINING AND DECIDING TH E QUESTION WHETHER THE EXPENDITURE WAS CAPITALOR REVENUE IN NATURE, THE FACT AND ALSO THE POSITION THAT THE EXPENDITURE SHOULD HAVE BEEN INCURRED BY THE OWNERS CANNOT BE IGNORED. 20. WE ARE OF THE CONSIDERED VIEW THAT THE NATURE OF EXPENDITURE IS CLEARLY CAPITAL AND INCURRED ON ACCOUNT OF THE INDIVIDUAL PARTNERS AND IS NEITHER A CAPITAL NOR REVENUE EXPENDITURE OF THE PARTNERSHIP FIRM RESPONDENT ASSESSEE. WE FIND NO INFIRMITY IN THE ORDER REJECTI NG THE APPLICATION OF THE PETITIONER UNDER SECTION 264 OF THE ACT, REFUSING TO INTERFERE IN THE ASSESSMENT ORDER, WHER EBY THE SAID EXPENDITURE HAS BEEN DISALLOWED. IT(TP)A NO.1439/B/10 21 17. IN THE LIGHT OF THE ABOVE LAW LAID DOWN BY HON BLE HIGH COURT, NOW WILL DECIDE WHETHER THE EXPENDITURE INCURRED BY THE ASSESSEE FOR RE- POSSESSION OF THE CLUB WAS ON ACCOUNT OF CAPITAL O R REVENUE IN NATURE OR IS AN ALLOWABLE EXPENSES FOR DETERMINING REAL INCOME A S THE SAID EXPENDITURE THOUGH PAID BY THE ASSESSEE FOR AN AMOUNT ALREADY S PENT BY THE SP FOR EARLIER YEARS AFTER TAKING THE LOAN FROM THE BANK. 18. THE UNDISPUTED FACTS ARE THAT AS PER THE JOINT DEVELOPMENT AGREEMENT OF WHICH THE RELEVANT PARAS ARE REPRODUCE D IN PARA 10 ABOVE, THE OWNERSHIP OF THE ASSETS OF THE CLUB TO B E DEVELOPED BY THE ASSESSEE WAS BELONGING TO THE ASSESSEE AND THE PURC HASERS OF THE PLOTS WERE NOT HAVING ANY RIGHT IN THOSE ASSETS. IN THE SAME, THIS IS ALSO PROVIDED THAT PURCHASERS OF THE PLOTS ARE TO BE ADM ITTED AS MEMBERS OF THE CLUB SUBJECT TO PAYMENT OF NECESSARY ADMISSION FEES AND OTHER FEES. THIS IS ALSO PROVIDED IN THE AGREEMENT THAT O THER PERSONS CAN ALSO BE ADMITTED AS MEMBER OF THE CLUB ON PAYMENT O F DONATIONS, ENTRY FEES AND OTHER FEES. THIS IS ALSO AGREED POSI TION OF FACTS THAT THE CLUB WAS BUILT BY SP AND THE ASSESSEE WAS SHARING R EVENUE WITH SP. IN COURSE OF HEARING, THE BENCH WANTED TO SEE THE INCO ME AND EXPENDITURE ACCOUNT OF THE CLUB FOR THE PERIOD AFTER TAKING OVE R BY THE ASSESSEE AND IN REPLY. LEARNED AR OF THE ASSESSEE SUBMITTED THAT AFTER 2007, THE CLUB IS BEING RUN BY THE ASSOCIATION OF THE PLOT OWNERS. THEREAFTER, THIS IT(TP)A NO.1439/B/10 22 QUERY WAS ALSO RAISED BY THE BENCH THAT THE LIABILI TY OF THE ASSESSEE TO RUN THE CLUB WAS FOR HOW MANY YEARS, IT WAS SUBMITT ED THAT THE ASSESSEE WAS REQUIRED TO PROVIDE THE CLUB PREMISES AND THE RUNNING OF THE CLUB WAS NOT THE RESPONSIBILITY OF THE ASSESSEE . 19. FROM THESE FACTS, IT COMES OUT THAT THE PROVIDI NG OF CLUB FACILITY AND RUNNING OF CLUB IS A DOING OF BUSINESS IN THE P RESENT CASE BECAUSE THE ASSETS OF THE CLUB IS PROPERTY OF THE ASSESSEE AND ANY ACCRETION IN THE VALUE OF ASSET WILL BE A GAIN TO THE ASSESSEE. SIMILARLY, THE CLUB CAN CHARGE ADMISSION FEES AND OTHER FEES WITHOUT AN Y CAP AND IT WILL RESULT IN TO INCOME WHICH WAS INITIALLY SHARED BETW EEN THE ASSESSEE AND SP AND AFTER 20207. IT WAS FULLY ACCRUING TO TH E ASSESSEE. THE IMPUGNED PAYMENT OF RS. I CRORE IN THE PRESENT YEAR TO PNB IN SETTLEMENT OF THE LIABILITY OF SP HAD RESULTED INTO OWNERSHIP OF ASSETS OF THE CLUB TO THE ASSESSEE AND THEREFORE, IT IS AS CO ST OF PURCHASE OF ASSETS OF CLUB AND IT CANNOT BE ALLOWED AS REVENUE EXPENDITURE. HAD THE OWNERSHIP OF THE ASSETS OF THE CLUB WAS REQUIRE D TO BE VESTED IN THE PURCHASERS OF PLOTS OR THEIR ASSOCIATION, THERE MIG HT HAVE SOME MERIT IN THE CLAIM OF THE ASSESSEE BUT WHEN AS PER THE JDA, THE OWNERSHIP IS VESTED IN THE ASSESSEE AND THE PLOT OW NERS HAVE NO RIGHT IN THE ASSETS OF THE CLUB, IT CANNOT BE SAID THAT CREA TING THE ASSET OF THE CLUB IT(TP)A NO.1439/B/10 23 IS A REVENUE EXPENDITURE. COMMERCIAL EXPEDIENCY 20. 24. REGARDING COMMERCIAL EXPEDIENCY ASPECT, WE ARE OF THE CONSIDERED OPINION THAT THIS MAY BE HELPFUL IN THOSE CASES WHERE THE EXPENSE IS REVENUE IN NATURE BUT THE OBJECTION OF THE REVENUE IS THIS MUCH ONLY THAT IT IS NOT FOR THE PURPOSE OF BUSINES S OF THE ASSESSEE. THEN IF THE ASSESSEE CAN ESTABLISH THAT INCURRING OF SUC H EXPENDITURE MAY NOT BE A LEGAL LIABILITY OF THE ASSESSEE BUT BECAUS E OF COMMERCIAL EXPEDIENCY, SUCH EXPENDITURE WAS INCURRED AND IT SH OULD BE ALLOWED BUT IT CANNOT BE STRETCHED TO HOLD THAT A CAPITAL E XPENDITURE RESULTING INTO OWNERSHIP OF AN ASSET TO THE ASSET I S A REVENUE EXPENDITURE BECAUSE IT WAS CONSIDERED OF COMMERCIAL EXPEDIENCY TO ACQUIRE SUCH ASSET. THIS WE CAN UNDERSTAND WITH THE HELP OF AN EXAMPLE. SUPPOSE THAT A BUSINESS ENTERPRISE HAVING ITS PLANT IN RURAL AREA WHERE NO HOTEL IS AVAILABLE AND MANY SUPPLIERS AND CUSTOMERS ARE REGULARLY VISITING THE PLANT. UNDER THESE FACTS , IT MAY BE OF COMMERCIAL EXPEDIENCY TO CONSTRUCT A GUEST HOUSE TO BE USED BY SUCH SUPPLIERS AND CUSTOMERS VISITING THE PLANT. IF THE ASSESSEE IS INCURRING SOME MAINTENANCE LOSS BECAUSE THE FACILIT Y IS PROVIDED FREE OF COST OR AT SUBSIDED PRICES, SUCH LOSS MAY BE HEL D TO BE ALLOWABLE AS IT(TP)A NO.1439/B/10 24 BUSINESS EXPENDITURE BUT EVEN THEN, THE COST OF CON STRUCTION OF THE GUEST HOUSE CANNOT BE CONSIDERED AND ALLOWED AS REV ENUE BUSINESS EXPENDITURE. IN THE PRESENT CASE, THIS IS NOT THE C ASE OF THE ASSESSEE THAT THERE IS SOME LOSS IN DAY TO DAY RUNNING OF CL UB AND SUCH LOSS SHOULD BE ALLOWED BY APPLYING THE PRINCIPLE OF COMM ERCIAL EXPEDIENCY. THE ASSESSEE IS CLAIMING THE COST OF TH E ASSETS OF THE CLUB AS REVENUE EXPENDITURE WHICH IS AKIN TO ALLOWING OF GUEST HOUSE CONSTRUCTION COST IN THE GIVEN EXAMPLE, WHICH IS NO T ALLOWABLE BY ANY STRETCH OF IMAGINATION. HENCE, THERE IS NO MERI T IN THE CLAIM OF THE ASSESSEE. 21. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS DI SMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 3RD MARCH, 2017 . SD/- SD/- (A.K GARODIA) (LALIET KUMAR) ACCOUNTANT MEMBER JUDICIAL MEM BER BANGALORE DATED : 3/3/2017 VMS COPY TO :1. THE ASSESSEE 2. THE REVENUE 3.THE CIT CONCERNED. 4.THE CIT(A) CONCERNED. 5.DR 6.GF BY ORDER ASST. REGISTRA R, ITAT, BANGALORE.