The ITO, Ward-4(3), Ahmedabad V. M/s. Hariom Organizers Pvt.Ltd., Ahmedabad

ITA 1946/AHD/2009

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 6737 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 10 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-05-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 05-04-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 12-06-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAJIB JAIN SRDR

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH C AHMEDABAD BEFORE SHRI D.K. TYAGI, HONBLE JUDICIAL MEMBER AND SHRI A.N.PHAUJA, HONBLE ACCOUNTANT MEMBER ITA NO.1946/AHD/2009 ASSESSMENT YEAR:2005-06 DATE OF HEARING:5.4.11 DRAFTED:11.4.11 INCOME TAX OFFICER, WARD-4(3), ROOM NO.106 1 ST FLOOR, NAVJEEVAN PRESS BUILDINGS, OFF ASHRAM ROAD, AHMEDABAD -14 V/S. M/S. HARIOM ORGANIZERS PVT. LTD., SUKAN MALL, NR. RAJASTHAN HOSPITAL, SHAHIBAUG, AHMEDABAD PAN NO.AABCH4974L (APPELLANT) .. (RESPONDENT) APPELLANT BY :- SHRI RAJIB JAIN, SR-DR RESPONDENT BY:- SHRI UMAID SINGH BHATI, AR O R D E R PER D.K. TYAGI, JUDICIAL MEMBER:- THIS IS REVENUES APPEAL AGAINST THE ORDER OF COMM ISSIONER OF INCOME- TAX(APPEALS)-VIII, AHMEDABAD IN APPEAL NO. CIT(A)-V III/ITO/4(3)/187/07-08 DATED 25-02-2009 FOR THE ASSESSMENT YEAR 2005-06. 2. THE REVENUE HAS TAKEN FOLLOWING GROUND:- 1. THE LEARNED CIT(A) ERRED IN LAW AND ON FACTS IN HOLDING THAT THE EXPENSES CLAIMED BY THE ASSESSEE IS NOT DEBITED TO THE P & L ACCOUNT AND AS SUCH NOT DISALLOWABLE U/S.40(A)(IA) OF THE A CT. 3. THE BRIEF FACTS OF THE CASE ARE THAT ASSESSEE IS A PRIVATE LIMITED COMPANY ENGAGED IN CONSTRUCTION ACTIVITY. THE ASSES SEE FILED ITS RETURN OF INCOME DECLARING TOTAL INCOME OF RS. NIL. THE ASSES SMENT IN THIS CASE WAS ITA NO.1946/AHD/2009 A.Y. 2005-06 ITO WD-4(3) ABD V. M/S. HARIOM ORGANIZERS PVT. LTD. PA GE 2 COMPLETED U/S.143(3) OF THE ACT. DURING THE ASSESSM ENT PROCEEDINGS ASSESSING OFFICER FOUND THAT ASSESSEE HAD DISCLOSED PREOPERATIVE EXPENSES AMOUNTING TO RS.48,43,203/- CONSISTING OF EXPENDITU RE INCURRED TO COMMENCE ITS BUSINESS. THE AO ALSO FOUND THAT ASSESSEE DID N OT MAKE DEDUCTION OF TAX AT SOURCE ON THE PAYMENTS MADE FOR CONSULTANCY CHAR GES AMOUNTING TO RS.12.25 LAKH ADVERTISEMENT OF RS.4,20,129/- AND DU MMY MODEL CHARGES OF RS.44,600/- IN TERMS OF THE PROVISIONS OF SECTION 1 94C OF THE ACT. HE, THEREFORE, HELD THAT THESE EXPENSES WERE NOT ALLOWA BLE IN TERMS OF PROVISION OF SECTION 40(A)(IA). HE ACCORDINGLY DISALLOWED THE SA ME AND ADDED IN THE INCOME OF THE ASSESSEE. BEFORE LD. CIT(A) IT WAS CO NTENDED THAT ASSESSEE STARTED ITS COMMERCIAL PROJECT IN THE MONTH OF FEB- MAR05. SINCE THE ACTIVITY IN THE RELEVANT PERIOD WERE VERY MEAGER, THE PRELIMINA RY COST INCURRED BY ASSESSEE PERTAINING TO WHOLE PROJECT WAS CAPITALIZE D AS PREOPERATIVE EXPENSES. IT WAS ALSO POINTED OUT THAT SINCE THE EX PENSES REFERRED TO ABOVE WERE NOT DEBITED TO PROFIT AND LOSS ACCOUNT THERE W AS NO GROUND FOR DISALLOWING THE SAME UNDER THE PROVISION OF SECTION 40(A)(IA) OF THE ACT. IT WAS FURTHER SUBMITTED THAT QUESTION OF DISALLOWANCE U/S .40(A)(IA) COMES WHEN THE ASSESSEE HAS DEBITED THE EXPENSES INTO ITS PROFIT A ND LOSS ACCOUNT AS AN EXPENDITURE. WHEREIN THE ASSESSEE HAS NOT DEBITED A NY OF THE EXPENDITURE IN ITS PROFIT AND LOSS ACCOUNT AND HAD CAPITALIZED IT IN ITS BALANCE-SHEET QUESTION OF DISALLOWANCE OF EXPENDITURE U/S.40(A)(IA) DOES N OT ARISE. RELIANCE WAS ALSO PLACED ON CBDT CIRCULAR NO.1 DATED 27-04-2007 FOR M AKING THIS SUBMISSION. LD. CIT(A) AFTER TAKING INTO CONSIDERATION THIS SUB MISSION OF ASSESSEE DELETED THE ADDITION BY OBSERVING AS UNDER:- 5.3 I HAVE CONSIDERED THE FACTS OF THE CASE AND SU BMISSIONS OF THE LD. AR CAREFULLY. THERE IS NO DISPUTE ABOUT THE FACT TH AT THE PAYMENTS MADE BY THE APPELLANT WITH REGARD TO CONSULTANCY CHARGES , ADVERTISEMENT EXPENSES AND DUMMY MODEL EXPENSES WERE REQUIRED TO BE PAID AFTER DEDUCTION OF TAX AT SOURCE UNDER THE SPECIFIED PROV ISIONS. SINCE, THE DEDUCTION WAS NOT MADE, THE PROVISIONS OF SEC.40(A) (IA) WERE ATTRACTED. HOWEVER, IT IS SEEN THAT DURING THE RELEVANT PERIOD THE APPELLANT HAS NOT CLAIMED THOSE EXPENSES IN ITS P/L ACCOUNT AND HAS C APITALIZED THEM UNDER THE HEAD PREOPERATIVE EXPENSES. SINCE, THESE EXPENSES HAVE NOT BEEN CLAIMED DURING THE RELEVANT PERIOD THE QUESTIO N OF THEIR ITA NO.1946/AHD/2009 A.Y. 2005-06 ITO WD-4(3) ABD V. M/S. HARIOM ORGANIZERS PVT. LTD. PA GE 3 DISALLOWANCE UNDER THE PROVISIONS OF SEC. 40(A)(IA) DOES NOT ARISE. HOWEVER, IT IS TO BE SEEN THAT THESE EXPENSES ARE P ART OF THE APPELLANTS COST OF PROJECT WHICH HE WILL CLAIM AGAINST THE REC EIPTS IN SUBSEQUENT YEARS. THEREFORE, THESE EXPENSES WILL HAVE THE EFFE CT OF REDUCING THE INCOME OF THE APPELLANT TO THAT EXTENT. IN VIEW OF THIS THE EXPENDITURE TO THAT EXTENT IS ALLOWABLE ONLY WHEN SAME HAS BEEN MA DE AFTER DEDUCTION OF TAX AT SOURCE UNDER THE SPECIFIED PROVISIONS OF THE ACT. SINCE, THERE IS NO DISPUTE ABOUT THE FACT THAT ASSE SSEE HAS NOT CLAIMED THE EXPENSES IN THE PROFIT AND LOSS ACCOUNT AND HAS CAP ITALIZED THEM UNDER THE HEAD PREOPERATIVE EXPENSE THE DISALLOWANCE OF THE SE EXPENSES UNDER THE PROVISION OF SECTION 40(A)(IA) IS NOT SUSTAINABLE. THEREFORE WE FIND NO INFIRMITY IN THE ORDER PASSED BY LD. CIT(A) AND SAME IS HEREB Y UPHELD. THIS GROUND OF REVENUES APPEAL IS DISMISSED. 4. IN THE RESULT, REVENUES APPEAL IS DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON 06/05/2011 SD/- SD/- (A.N.PHAUJA) (D.K. TYAGI) (ACCOUNTANT MEMBER) (JUDICIAL MEMBER) AHMEDABAD, DATED : 06/05/2011 *DKP COPY OF THE ORDER FORWARDED TO :- 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT(APPEALS)-VIII, AHMEDABAD 4. THE CIT CONCERNS. 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER, /TRUE COPY/ DEPUTY / ASSTT.REGISTRAR ITAT, AHMEDABAD