M/s Sri Srinivasa Constructions India Pvt Ltd , Bellary V. Assistant Commissioner of Income Tax Circle-1 , Bellary

ITA 2101/BANG/2018

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 8137 (ITAT-BANGALORE)
• Duration Of Justice: 9 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-04-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2015-2016
• Appeal Filed On: 29-06-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SREENANDINI DAS
• Keywords: Business expenditure; Principle of natural justice; Commercial expediency; Capital expenditure; Set aside
• Section: 37; 143(3); 115JB; 37(1); 43; 20

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : BANGALORE BEFORE SHRI N. V. VASUDEVAN, VICE PRESIDENT AND SHRI JASON P BOAZ , ACCOUNTANT MEMBER ITA NO S . 1 25 & 2101 /BANG/201 8 ASSESSMENT YEAR : 20 1 4 - 1 5 , 2015 - 16 M/S. SRI SRINIVASA CONSTRUCTIONS INDIA PVT. LTD., CIVIL CONSTRUCTORS, SHIVA SHANKARA NILAYA, OPP. SHAKTI NURSING HOME, PARVATHI NAGAR, TALU ROAD, BELLARY 583 103.- PAN : AANCS 5640 J VS. ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 1, BELLARY. APPELLANT RESPONDENT ASSESSEE BY : SHRI. B. S. BALACHANDRAN, ADVOCATE REVENUE BY : MS. SREENANDINI DAS, JCIT DATE OF HEARING : 2 8 . 03 .201 9 DATE OF PRONOUNCEMENT : 16 . 0 4 .201 9 O R D E R PER SHRI JASON P BOAZ, A.M. : THESE APPEALS BY THE ASSESSEE ARE DIRECTED AGAINST THE ORDERS OF CIT(A), GULBARGA, DATED 29.11.2017 FOR ASSESSMENT YEAR 2014-15 AND DATED 18.05.2018 FOR ASSESSMENT YEAR 2015-16. SINCE COMMON ISSUES ARE INVOLVED, THESE TWO APPEALS WERE HEARD TOGETHER AND WE THEREFORE DEEM IT APPROPRIATE TO DISPOSE THEM OFF BY WAY OF THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. ITA NOS. 125 & 2101/BANG/2018 PAGE 2 OF 7 2. BRIEFLY STATED, THE FACTS RELEVANT FOR DISPOSAL OF THIS APPEAL ARE AS UNDER: 2.1 THE ASSESSEE IS A PRIVATE LIMITED COMPANY ENGAGED IN THE BUSINESS OF EXECUTION OF CIVIL CONTRACTS, MAINLY FOR THE STATE GOVERNMENT OF KARNATAKA. FOR ASSESSMENT YEAR 2014-15 , THE ASSESSEE FILED ITS RETURN OF INCOME ON 27.10.2014 DECLARING INCOME OF RS.5,60,29,962/- UNDER NORMAL PROVISIONS AND BOOK PROFITS OF RS.5,74,83,646/- UNDER SECTION 115JB OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT). THE CASE WAS TAKEN UP FOR SCRUTINY FOR THIS ASSESSMENT YEAR AND THE ASSESSMENT WAS CONCLUDED UNDER SECTION 143(3) OF THE ACT VIDE ORDER DATED 28.12.2016, WHEREIN THE ASSESSEES INCOME WAS DETERMINED AT RS.5,68,44,360/-, IN VIEW OF DISALLOWANCE OF EXPENDITURE OF RS.8,14,397/- CLAIMED TOWARDS CONTRACTORS BENEFIT FUND (CBF). THE ASSESSEES APPEAL WAS DISMISSED BY CIT(A), GULBARGA VIDE ORDER DATED 29.11.2017. FOR ASSESSMENT YEAR 2015-16, THE ASSESSEE FILED ITS RETURN OF INCOME ON 30.09.2015 DECLARING INCOME OF RS.7,60,66,840/-. THE CASE WAS SELECTED FOR SCRUTINY FOR THIS ASSESSMENT YEAR AND THE ASSESSMENT WAS CONCLUDED UNDER SECTION 143(3) OF THE ACT, VIDE ORDER DATED 29.11.2017 WHEREIN THE ASSESSEES INCOME WAS DETERMINED AT RS.7,79,95,570/- IN VIEW OF DISALLOWANCE OF EXPENDITURE OF RS.9,28,728/- CLAIMED UNDER THE HEAD CONTRACTORS BENEVOLENT FUND (CBF). THE ASSESSEES APPEAL WAS DISMISSED VIDE ORDER DATED 18.05.2018. 3.1 AGGRIEVED BY THE ORDERS OF THE CIT(A), GULBARGA DATED 29.11.2017 FOR ASSESSMENT YEAR 2014-15 AND DATED 18.05.2018 FOR ASSESSMENT YEAR 2015-16, THE ASSESSEE HAS FILED THESE APPEALS BEFORE THE TRIBUNAL, RAISING THE FOLLOWING GROUNDS:- ITA NOS. 125 & 2101/BANG/2018 PAGE 3 OF 7 ASSESSMENT YEAR 2014-15 1. THE ORDER OF THE LOWER AUTHORITY IS CONTRARY TO LAW, EVIDENCES AND FACTS ON RECORD AND IS NOT MAINTAINABLE IN LAW IN SO FAR AS THE ADDITION OF RS.8,14,397/- IS CONCERNED. 2. THE LEARNED LOWER AUTHORITIES ERRED IN DISALLOWING AND AFFIRMING THE DISALLOWANCE OF RS.8,14,397/- ON THE GROUND THAT IT IS NOT SHOWN TO HAVE BEEN INCURRED FOR BUSINESS PURPOSE AND INCIDENTAL TO BUSINESS. 3. THE LEARNED LOWER AUTHORITIES FAILED TO APPRECIATE THAT WITHOUT INCURRING THIS EXPENDITURE THE APPELLANT CANNOT START THE CONTRACT BUSINESS AT ALL AS DEMONSTRATED IN THE CASE OF THE APPELLANT BEFORE ITAT(SUPRA) AND HENCE THE SAME IS AN EXPENDITURE INCIDENTAL TO AND ARISING FROM BUSINESS AND AS SUCH ALLOWABLE AS A BUSINESS EXPENDITURE. 4. FOR THESE ARE ANY OTHER GROUNDS OF APPEAL THAT MAY BE URGED AT THE TIME OF HEARING IT IS PRAYED THAT THIS HONORABLE TRIBUNAL MAY BE PLEASED TO ALLOW THIS APPEAL IN THE INTEREST OF EQUITY AND JUSTICE. ASSESSMENT YEAR 2015-16 1. THE IMPUGNED ASSESSMENT ORDER IS PASSED IN HASTE VIOLATING THE PRINCIPLES OF NATURAL JUSTICE AND IS OPPOSED TO THE FACTS OF THE CASE AND EVIDENCES ON RECORD; AND AS SUCH, LIABLE TO BE SET ASIDE AND CANCELLED. DISALLOWANCE OF EXPENDITURE. 2.1. THE LEARNED AO ERRED IN DISALLOWANCE THE AMOUNT OF RS.9,28,328/-, WHICH WAS PAID TO THE CONTRACTORS BENEVOLENT FUND(CBF). 2.2. THE LEARNED AO AND THE LEARNED CIT (A) HAVE FAILED TO APPRECIATE THAT THE EXPRESSION, 'FOR THE PURPOSE OF BUSINESS' APPEARING IN SECTION 37 IS WIDER IN SCOPE THAN THE EXPRESSION, 'FOR THE PURPOSE OF EARNING INCOME, PROFITS OR GAINS' , AND EXPENDITURE VOLUNTARILY INCURRED FOR COMMERCIAL EXPEDIENCY IS ALLOWABLE UNDER THE SAID SECTION. 2.3. THE LEARNED CIT(A) HAS FAILED TO CONSIDER AND ADJUDICATE OR DISTINGUISH THE RATIO DECIDENDI OF THE DECISIONS RELIED UPON BY THE IN ITA NOS. 125 & 2101/BANG/2018 PAGE 4 OF 7 APPELLANT IN SUPPORT OF THE CONTENTION THAT CONTRIBUTION TO WELFARE TRUST/ ASSOCIATION IS AN ALLOWABLE EXPENDITURE BECAUSE SUCH TRUST / ASSOCIATION WAS CREATED FOR THE WELFARE OF THE MEMBER. 3. IN VIEW OF THE GROUNDS TAKEN ABOVE, THERE IS NO LIABILITY TO TAX OR INTEREST RAISED IN THE IMPUGNED ASSESSMENT ORDER. 4. THE GROUNDS ARE TAKEN WITHOUT PREJUDICE TO ONE ANOTHER AND THE APPELLANT CRAVES LEAVE TO ADD OR DELETE OR MODIFY OR REVISE ANY GROUND AT THE TIME OF HEARING BEFORE THE HON'BLE ITAT. 3.2.1 THE ONLY ISSUE AGITATED BY THE ASSESSEE IN ITS APPEALS FOR ASSESSMENT YEARS 2014-15 AND 2015-16 IS THE DISALLOWANCES OF EXPENDITURE CLAIMED BY IT TOWARDS THE CONTRACTORS BENEVOLENT FUND (CBF). ACCORDING TO THE LEARNED AR FOR THE ASSESSEE, THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF EXECUTION OF CIVIL CONTRACTS PRIMARILY FOR THE STATE GOVERNMENT OF KARNATAKA. IT IS SUBMITTED THAT IN GOVERNMENT CONTRACTS, TENDERS ARE FLOATED BY THE CONCERNED DEPARTMENTS SPECIFYING THE TERMS AND CONDITIONS OF EXECUTION OF THE CONTRACT BOTH IN TECHNICAL AND FINANCIAL TERMS, AND THE CONTRACT FOR EXECUTION OF THE WORK IS AWARDED TO THAT PARTY WHICH SATISFIES THE STIPULATED CONDITIONS AS PER THE TENDER DOCUMENT. IN THE BACKGROUND OF THE ISSUE IN DISPUTE, THE LEARNED AR FURTHER SUBMITTED THAT THE STATE GOVERNMENT OF KARNATAKA VIDE LETTER NO.PW/134/BMS/2007 DATED 27.07.2007 INSTRUCTED THE PUBLIC WORKS DEPARTMENT TO DEDUCT 0.1% OF THE BILL AMOUNT SANCTIONED TOWARDS CONTRACTORS BENEVOLENT FUND (CBF). THEREFORE, EVEN THOUGH THE SAME HAS NOT BEEN CONTRIBUTED VOLUNTARILY BY THE ASSESSEE, THE SAID AMOUNTS HAVING BEEN DEDUCTED DIRECTLY BY THE PWD FROM THE BILL AMOUNT SANCTIONED AGAINST CIVIL CONTRACTS EXECUTED BY THE ASSESSEE, THE SAME ARE TO BE ALLOWED AS A DEDUCTION UNDER SECTION 37(1) OF THE ACT AS THE SAID EXPENDITURE TOWARDS CONTRACTORS BENEVOLENT FUND (CBF) IS INCURRED WHOLLY AND EXCLUSIVELY IN CONNECTION WITH THE ASSESSEES BUSINESS. ITA NOS. 125 & 2101/BANG/2018 PAGE 5 OF 7 3.2.2 IN SUPPORT OF THE PROPOSITION THAT CONTRIBUTION BY THE ASSESSEE TOWARDS BENEVOLENT FUND IS ENTITLED TO DEDUCTION EVEN THOUGH THERE IS NO COMPULSION TO DO SO UNDER ANY LAW, THE LEARNED AR PLACED RELIANCE ON THE DECISION OF THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF CIT VS. MOTOR INDUSTRIES CO. LTD., (2014) 43 TAXMANN.COM 324 (KARNATAKA). 3.3 PER CONTRA, THE LEARNED DR FOR REVENUE SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 3.4.1 WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. ACCORDING TO THE AUTHORITIES BELOW, THE DEDUCTION MADE BY THE PWD, GOVERNMENT OF KARNATAKA OF 0.1% FROM CONTRACTORS SANCTIONED BILLS TOWARDS CONTRACTORS BENEVOLENT FUND (CBF) CANNOT BE ALLOWED AS DEDUCTION UNDER SECTION 37 OF THE ACT AS THE ASSESSEE HAS FAILED TO ESTABLISH THAT THE SAID EXPENDITURE HAS ACTUALLY BEEN INCURRED FOR THE BUSINESS PURPOSES OF THE ASSESSEE AND IN THE COURSE OF ITS BUSINESS. 3.4.2 SECTION 37(1) OF THE ACT AND THE EXPLANATION 1 AND 2 THERETO READ AS UNDER:- ANY EXPENDITURE (NOT BEING EXPENDITURE OF THE NATURE DESCRIBED IN SECTIONS 30 TO 36 [***] AND NOT BEING IN THE NATURE OF CAPITAL EXPENDITURE OR PERSONAL EXPENSES OF THE ASSESSEE), LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF THE BUSINESS OR PROFESSION SHALL BE ALLOWED IN COMPUTING THE INCOME CHARGEABLE UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION . [ EXPLANATION.1 ] FOR THE REMOVAL OF DOUBTS, IT IS HEREBY DECLARED THAT ANY EXPENDITURE INCURRED BY AN ASSESSEE FOR ANY PURPOSE WHICH IS AN OFFENCE OR WHICH IS PROHIBITED BY LAW SHALL NOT BE DEEMED TO HAVE BEEN INCURRED FOR THE PURPOSE OF BUSINESS OR PROFESSION AND NO DEDUCTION OR ALLOWANCE SHALL BE MADE IN RESPECT OF SUCH EXPENDITURE.] ITA NOS. 125 & 2101/BANG/2018 PAGE 6 OF 7 EXPLANATION 2.FOR THE REMOVAL OF DOUBTS, IT IS HEREBY DECLARED THAT FOR THE PURPOSES OF SUB-SECTION (1), ANY EXPENDITURE INCURRED BY AN ASSESSEE ON THE ACTIVITIES RELATING TO CORPORATE SOCIAL RESPONSIBILITY REFERRED TO IN SECTION 135 OF THE COMPANIES ACT, 2013 (18 OF 2013) SHALL NOT BE DEEMED TO BE AN EXPENDITURE INCURRED BY THE ASSESSEE FOR THE PURPOSES OF THE BUSINESS OR PROFESSION. 3.4.3 THE UNDISPUTED FACTS AS EMANATE FROM THE RECORDS AND ORDERS OF THE AUTHORITIES BELOW ARE THAT THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF EXECUTING CIVIL CONTRACT WORKS PRIMARILY FOR THE STATE GOVERNMENT OF KARNATAKA. IT IS ALSO NOT DISPUTED BY THE AUTHORITIES BELOW THAT THE STATE GOVERNMENT OF KARNATAKA HAD DIRECTED THE PWD / USER DEPARTMENT TO DEDUCT 0.1% OF THE SANCTIONED BILL TOWARDS CONTRACTORS BENEVOLENT FUND (CBF). THE DEDUCTION OF 0.1% ADMITTEDLY EFFECTED BY THE PWD / USER DEPARTMENT ON THE EXPRESS INSTRUCTIONS OF THE STATE GOVERNMENT OF KARNATAKA TOWARDS CONTRACTORS BENEVOLENT FUND (CBF) IS UNDENIABLY OUT OF SANCTIONED BILL FOR CONTRACT WORKS EXECUTED BY THE ASSESSEE. THE BUSINESS OF THE ASSESSEE, BEING EXECUTION OF CIVIL CONTRACTS OF THE STATE GOVERNMENT OF KARNATAKA, IN OUR VIEW, THE DEDUCTION OF 0.1% THEREOF TOWARDS THE CONTRACTORS BENEVOLENT FUND (CBF) BY THE PWD / USER DEPARTMENT ON INSTRUCTIONS OF THE STATE GOVERNMENT, EVEN THOUGH NOT VOLUNTARY, IS AN AMOUNT INCURRED BY THE ASSESSEE WHOLLY AND EXCLUSIVELY IN THE FURTHERANCE AND IN THE COURSE OF THE ASSESSEES BUSINESS AND CONSEQUENTLY IS EXPENDITURE TO BE ALLOWED UNDER SECTION 37(1) OF THE ACT. IN THIS FACTUAL MATRIX OF THE CASE, WE CONSEQUENTLY DELETE THE DISALLOWANCES OF RS.8,14,397/- FOR ASSESSMENT YEAR 2014-15 AND RS.9,28,728/- FOR ASSESSMENT YEAR 2015-16 MADE / UPHELD IN RESPECT OF AMOUNTS INCURRED BY THE ASSESSEE TOWARDS CONTRACTORS BENEVOLENT FUND (CBF) IN THE COURSE OF ITS BUSINESS OF EXECUTING CIVIL CONTRACT WORKS FOR THE STATE GOVERNMENT OF KARNATAKA. WE HOLD AND DIRECT ACCORDINGLY. ITA NOS. 125 & 2101/BANG/2018 PAGE 7 OF 7 4. IN THE RESULT, THE ASSESSEES APPEALS FOR ASSESSMENT YEARS 2014-15 AND 2015-16 ARE ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 16 TH DAY OF APRIL, 2019. SD/- SD/ - SD/ - (N. V. VASUDEVAN) VICE PRESIDENT (JASON P BOAZ) ACCOUNTANT MEMBER BANGALORE. DATED: 16 TH APRIL, 2019. /NS/* COPY TO: 1. APPELLANTS 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR, ITAT, BANGALORE.