ACIT, Circle-16(1), Hyderabad V. M/s. L & T Infocity Limited, Hyderabad

ITA 1765/HYD/2011

• Counselvise Citation: [2015] 120 COUNSELVISE.COM (IT) 9038 (ITAT-HYDERABAD)
• Duration Of Justice: 3 year(s) 2 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-01-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2003-2004
• Appeal Filed On: 12-10-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: D SUDHAKAR RAO
• Assessee Lawyers: ANITHA SUMANT
• Keywords: Depreciation; Audit objection

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES B : HYDERABAD BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER ITA.NO.1765/HYD/2011 ASSESSMENT YEAR 2003-2004 ACIT, CIRCLE 16(1) HYDERABAD. VS. M/S. L & T INFOCITY LTD., HYDERABAD. PAN AAACL5895R (APPELLANT) (RESPONDENT) FOR REVENUE : D SUDHAKAR RAO CIT.DR FOR ASSESSEE : SMT. ANITHA SUMANT. DATE OF HEARING : 20.11.2014 DATE OF PRONOUNCEMENT : 02.01.2015 ORDER PER B. RAMAKOTAIAH, A.M. THIS IS A REVENUE APPEAL AGAINST THE ORDER OF LD. CIT(A)-V, DATED 19.07.2011. REVENUE HAS RAISED THE FOLLOWING GROUNDS: 1. THE CIT(A) OUGHT TO HAVE APPRECIATED THE FACT THAT INCOME FROM CONSULTANCY DOES NOT HAVE ANY DIRECT OR IMMEDIATE NEXUS WITH THE ASSESSEES MAIN BUSINESS ACTIVITY I.E., DEVELOPMENT, OPERATION, MAINTENANCE OF INDUSTRIAL PARKS, INFRASTRUCTURE PROJECTS ETC., 2. THE CIT(A) ERRED IN ALLOWING THE EXPENDITURE OF RS.41,05,279 CLAIMED AS EXPENSES RELATED TO CONSULTANCY INCOME, SINCE IT DOES NOT RELATE TO T HE MAIN BUSINESS ACTIVITY I.E., DEVELOPMENT, OPERATION , MAINTENANCE OF INDUSTRIAL PARKS, INFRASTRUCTURE PRO JECTS ETC., 3. REVENUE AUDIT OBJECTION ON THE ABOVE ISSUE IS PENDI NG IN THIS CASE AND THE CASE IS COVERED BY THE BOARDS 2 ITA.NO.1765/HYD/2011 M/S. L & T INFOCITY LTD., HYDERABAD INSTRUCTION NO.3/2011 AS PER WHICH FURTHER APPEAL H AS TO BE PREFERRED WHERE REVENUE AUDIT OBJECTION IS ACCEPTED BY THE DEPARTMENT. 2. BRIEFLY STATED, ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF DEVELOPMENT, MAINTENANCE AND OPERATION OF INDUSTRIAL PARKS. THE RETURN OF INCOME FILED BY ASS ESSEE WAS SCRUTINIZED AND ASSESSEES CLAIM U/S. 80IA WAS ALLO WED AS SUCH. HOWEVER, LD. CIT-IV, NOTICED THAT ASSESSEE HA S CLAIMED DEDUCTION ON CONSULTANCY INCOME AND INTEREST ALSO A ND SO PROCEEDINGS U/263 WERE INITIATED AND ASSESSMENT WAS SET ASIDE FOR EXAMINING THE ISSUES AS RAISED IN THOSE P ROCEEDINGS. THAT ORDER OF LD. CIT WAS NOT CONTESTED. IN THE CON SEQUENT PROCEEDINGS A.O. EXAMINED THE CONSULTANCY INCOME. T HE FIRM RECEIPTS ON THIS WERE AT RS.2,76,31,011. ASSESSEE C LAIMED DIRECT EXPENDITURE OF RS.35,89,856 AND PROPORTIONAT E EXPENDITURE OUT OF COMMON EXPENSES AT 11% TO AN EXT ENT OF RS.29,59,252 TOTALING TO RS.65,49,108. HOWEVER, A.O . ALLOWED ONLY AN AMOUNT OF RS.24,43,830 PERTAINING TO PROFES SIONAL CHARGES. HE DISALLOWED WITHOUT ANY REASON DIRECT EX PENSES OF ADVERTISEMENT AND PUBLICITY OF RS.3,69,332 AND TRAV ELLING AND CONVEYANCE AT RS.7,86,794 AND INDIRECT EXPENDITURE WAS DISALLOWED STATING THAT NO AMOUNT CAN BE APPORTIONE D TOWARDS CONSULTANCY CHARGES. 3. ON FURTHER APPEAL, LD. CIT(A) EXAMINED THE CONTENTIONS AND ALLOWED EXPENDITURE 100% OF DIRECT EXPENDITURE AND 70% OF INDIRECT EXPENDITURE CLAIMED , STATING AS UNDER : 5.2. I HAVE CONSIDERED CAREFULLY THE FACTS AND EV IDENCE. I FIND, FIRST OF ALL, THAT THE CLAIM OF EXPENDITURE IS NOT TOTALLY WITHOUT ANY MERIT OR REASON. IT WOULD BE UNFAIR AND UNREALISTIC TO STATE THAT OUT OF THE 10 HEADS OF EX PENDITURE GIVEN IN THE WRITTEN SUBMISSIONS ABOVE, ONLY THE 3 ITA.NO.1765/HYD/2011 M/S. L & T INFOCITY LTD., HYDERABAD PROFESSIONAL AND CONSULTANCY CHARGES ARE ALLOWABLE AND THE BALANCE LIKE TRAVELLING, CONVEYANCE, PUBLICITY, ELE CTRICITY CHARGES, STAFF EXPENSES DO NOT AT ALL PERTAIN TO TH E EMPLOYEES WHO PROVIDED PROFESSIONAL CONSULTANCY. TH IS WOULD INDEED BE BEYOND HUMAN PROBABILITY. 5.3. FIRST OF ALL, THE ADVERTISEMENT AND TRAVELLI NG CHARGES ARE FACTUAL TO THE ACTIVITY OF CONSULTANCY AND NOT APPORTIONED. THE ASSESSING OFFICER HAS NOT STATED T HAT THE CLAIM TO BE FICTITIOUS OR WRONG. THEREFORE, THE SE CHARGES ARE ALLOWABLE AND I DIRECT THE ASSESSING OF FICER TO DO SO. 5.4. REGARDING THE OTHER EXPENSES I.E., STAFF EXPENSES, RENT, ELECTRICITY CHARGES, TELEPHONE, OFF ICE MAINTENANCE, SUNDRIES AND DEPRECIATION, THE APPORTIONMENT IS ON PRO DATA BASIS. THE ACT OF PROV IDING CONSULTANCY REQUIRES LESS PHYSICAL RESOURCES AS COMPARED TO THE MAIN BUSINESS OF THE APPELLANT AND THEREFORE, THE WEIGHTAGE GIVEN FOR APPORTIONMENT OF THESE EXPENSES TO OTHER INCOME SHOULD BE MORE. I THEREFOR E, DIRECT THE ASSESSING OFFICER TO ALLOW 70% OF THE CL AIM OF THE APPORTIONED EXPENSES AS CLAIMED BY THE APPELLAN T IN ADDITION TO ALLOWANCE OF THE CLAIMS OF ADVERTISEMEN T AND TRAVELLING AS ALREADY DISCUSSED ABOVE. THE APPELLAN T GETS RELIEF ACCORDINGLY. 4. AFTER CONSIDERING THE RIVAL CONTENTIONS, WE DO NOT SEE ANY MERIT IN REVENUE GROUNDS. A.O. HAS DISALLOW ED NOT ONLY INDIRECT EXPENDITURE BUT ALSO DIRECT EXPENDITU RE WITHOUT ANY VALID REASONS. THE ORDER OF LD. CIT(A) IS JUSTI FIED ON FACTS. HENCE, THE SAME IS UPHELD. 5. IN THE RESULT, REVENUE APPEAL IS DIS MISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 02.01.2015. SD/- SD/- (SAKTIJIT DEY) (B.RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER HYDERABAD, DATED 02 ND JANUARY, 2015 VBP/- 4 ITA.NO.1765/HYD/2011 M/S. L & T INFOCITY LTD., HYDERABAD COPY TO 1. ASST. COMMISSIONER OF INCOME TAX, CIRCLE 16(1) HYDERABAD. 2. M/S. L & T INFOCITY LTD., 1-Q4-A1, FIRST FLOOR, CYB ER TOWERS, HITECH CITY, MADHAPUR, HYDERABAD. 3. CIT(A)-V, HYDERABAD. 5. CIT-IV, HYDERABAD. 6. D.R. ITAT B BENCH, HYDERABAD.