ITO, Bhubaneswar V. M/s KMC RK SD (JV), Bhubaneswar

ITA 219/CTK/2012

• Counselvise Citation: 21922114 RSA 2012
• Duration Of Justice: 7 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-11-2012
• Appeal Filed By: Department
• Bench Allotted: DB
• Next Hearing Date: 20-11-2012
• Assessment Year: 2008-2009
• Appeal Filed On: 04-04-2012
• Court: TRIBUNAL
• Department Lawyers: PARAMITA TRIPATHY
• Assessee Lawyers: S C BHADRAAR
• Keywords: Depreciation; Revenue expenditure
• Section: 142(1)

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL, CUTTACK BENCH, CUTTACK ( ) BEFORE . . , , HONBLE SHRI K.K.GUPTA, ACCOUNTANT MEMBER. /AND . . . , H ONBLE SHRI K.S.S.PRASAD RAO, JUDICIAL MEMBER / I.T.A.NO. 219/CTK/2012 / ASSESSMENT YEAR 2008 - 09 INCOME - TAX OFFICER, WARD 2(1), BHUBANESWAR - - - VERSUS - M/S.KMC RK SD(JV), PLOT NO.143/B,BARAMUNDA DUPLEX COMPLEX, BHUBANE S WAR. PAN: AAAAK 6083 C ( /APPELLANT ) ( / RESPONDENT ) / FOR THE APPELLANT : / S MT. PARAMITA TRIPATHY, CIT - DR / FOR THE RESPONDENT: / SHRI S.C.BHADRA,AR / DATE OF HEARING: 20.11. 2012 / DATE OF PRONOUNCEMENT: 30.11.2012 / ORDER . . , , SHRI K.K.GUPTA, ACCOUNTANT MEMBER. THIS APPEAL BY THEREVENUE RAISES THE FOLLOWING GROUNDS. 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) I S NOT JUSTIFIED IN LAW AS WELL AS IN FACT IN DELETING THE ADDITION MADE BY THE AO TOWARDS CAMP CONSTRUCTION SINCE THE EXPENDITURE WAS PURELY CAPITAL IN NATURE. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) IS NOT JUSTIFIED IN LAW A S WEL L AS IN FACT IN DELETING THE ADDITIONS MADE BY THE AO ON ACCOUNT OF LABOUR PAYMENT EXPENSES, POOJA EXPENSES, ENTERTAINMENT EXPENSES, BUSINESS PROMOTION EXPENSES, ADVERTISEMENT EXPENSES, DONATION EXPENSES AND TIPS EXPENSES, WHEN THE ASSESSEE COULD NOT SUBSTANTIATE THE CLAIM. 2. THE BRIEF FACTS AS HAVE BEEN BROUGHT ON RECORD ARE THAT THE ASSESSEE IS A JOINT VENTURE (AOP) DERIVES INCOME FROM CONTRACT WORK FOR THE NATIONAL HIGHWAY AUTHORITY OF INDIA. E - RETURN FOR THE ASSESSMENT YEAR UNDER CONSIDERATION I N THE STATUS OF AOP WAS FILED ON 18.09.2008 SHOWING TOTAL INCOME AT NIL. THE SAID RETURN WAS PROCESSED U/S.143(1). THEREAFTER THE I.T.A.NO. 219/CTK/2012 2 CASE WAS SELECTED FOR SCRUTINY AND NOTICES U/SS.143(2) AND 142(1) WERE ISSUED. DURING THE COURSE OF ASSESSMENT PROCEEDINGS U/S .143(3) , AFTER VERIFYING THE METHOD OF ACCOUNTING BY THE ASSESSEE, THE ASSESSING OFFICER CLARIFIED THE POSITION WITH RESPECT TO THE CLAIMING THE EXPENSES WHICH WERE ALL DONE ON BEHALF OF THE NATIONAL HIGHWAY AUTHORITY OF INDIA WHICH WAS BILLED TO THEM AND WAS NOT IN DISPUTE. THE ASSESSING OFFICER, HOWEVER, COMPUTED THE DISALLOWANCES AND DETERMINED THE INCOME AT RS.56,59,921, AS FOLLOWS : (I) AS DISCUSSED ABOVE ASSESSEE HAS CLAIMED RS. AS CAMP CONSTRUCTION EXPENSES. SAME IS ADDED TO THE RETURNED HOME AS DI SALLOWED EXPENSES OF CAPITAL IN NATURE. RS. 53,02,642/ - I I) UNDER THE HEAD POOJA EXPENSES THE ASSESSEE HAS DEBITED A SUM OF RS.2,96,537/ - IN THE PROFIT AND LOSS ACCOUNT. THE ASSESSEE HAS PRODUCED ONLY SELF MADE VOUCHERS FOR THE SAID EXPENSES. THE ASSESSE E COULD NOT SATISFACTORY EXPLAIN THE SAME AND COULD NOT FILE MATERIAL EVIDENCES IN SUPPORT OF THE SELF VOUCHERS AND HENCE THE 50% OF THE EXPENSE ARE DISALLOWED FOR WHICH THE ASSESSEES REPRESENTATIVE HAS ALSO ACCEPTED. RS.1,48,268/ - (III) THE ASSESSEE CL AIMED A SUM OF RS.4,74,3L,063/ - FORWARDED LABOUR PAYMENT OR WHICH THE ASSESSEE HAS FILED XEROX COPIES OF LED ALONG WITH COPIES OF VOUCHER/ INVOICE RAISED BY VARIOUS PERSONS. IT IS SEEN THAT SOME OF THE VOUCHERS ARE OF DEFECTIVE IN NATURE AND ACCORDINGLY 1 % OUT OF THIS TOTAL LABOR PAYMENT WHICH WORKS OUT TO RS.4,74,300/ - IS DISALLOWED AND ADDED TO THE RETURN OF INCOME RS. 4,74,300 (IV) UNDER THE HEAD ENTERTAINMENT EXPENSES THE ASSESSEE HAS CLAIMED RS.3,06,969/ - WHICH IS TOO HIGH. IT IS STATED THAT THE SUM IS ENTIRELY SPENT FOR THE MAINTENANCE OF THE GUEST HOUSE NEAR THE SITE EXCLUSIVE MEANT FOR THE SITE ENGINEERS AND THE SUPERVISORY STAFF OF THE NHAI AND THAT TO THE PARTNERS. CONSIDERING THIS 20% OF THE ABOVE IS DISALLOWED. RS.61,390 (V) UNDER THE HEAD A DVERTISEMENT EXPENSES THE ASSESSEE DEBITED A SUM OF RS.45,898/ - WHICH IS SAID TO HAVE BEEN PAID FOR THE OUT OF THE TOTAL COMMISSION MADE 50% IS DISALLOWED AND ADDED BACK. RS.22,949 (VI) UNDER THE HEAD TIPS THE ASSESSEE DEBITED A SUM OF RS.35,792/ WHICH IS SAID TO HAVE BEEN PAID VARIOUS PLACES. TOTAL PAYMENT UNDER THIS HEAD IS DISALLOWED AND RS.35,792 I.T.A.NO. 219/CTK/2012 3 ADDED BACK. (VII) UNDER THE HEAD OF DONATION ASSESSEE HAS CLAIMED RS.1,42,687/ - AS EXPENSE. ON VERIFICATION IT WAS FOUND THAT MOST OF THE PAYMENTS WERE M ADE TO VARIOUS ORGANISATIONS, CLUBS TO ORGAMISE FUNCTIONS AND POOJA. IT WAS ALSO FOUND THAT THE DONATION INCLUDES AN AMOUNT OF RS.30,000/ - TO INDIAN RED CROSS SOCIETY. THE A/R STATED THAT THE SAME HAS BEEN MADE FOR SMOOTH FUNCTIONING OF THE BUSINESS. CONSI DERING THE SAME 50% OF THE SAME IS DISALLOWED AND ADDED TO THE INCOME. RS.71,344 VIII) UNDER THE HEAD BUSINESS PROMOTION EXPENSES ASSESSEE DEBITED A SUM OF .3,67,5O9/ - WHICH IS FOUND TO HAVE BEEN MADE FOR THE SNACKS, DRINKS OF CONSULTANTS, GUESTS, SERVIC E ENGINEERS AND NHAI OFFICIALS. THE A/R STATED THE SAID EXPENSES ARE MOSTLY ENTERTAINMENT IN NATURE AND MADE AS PER THE BUSINESS EXIGENCIES. AS IN THE OTHER CASE DISCUSSED SUPRA, THE VOUCHERS WERE MOSTLY SELF MADE AND VERACITY OF THE SAME CANNOT BE VERIFIE D. ACCORDINGLY 20% OF THE SAME IS DISALLOWED AND ADDED TO THE RETURNED INCOME OF THE ASSESSEE RS.73,501 LESS: ASSESSEE IS ALLOWED TO CAPITALIZE THE ABOVE STATED CAMP CONSTRUCTION EXPENSES AND ACCORDINGLY 10% THEREOF IS ALLOWED TOWARDS DEPRECIATION ON THE SAID ASSET. DEPRECIATION ON CAMP @10% RS.5,30,265 TOTAL INCOME RS.56,59,921 3. AGGRIEVED, THE ASSESSEE APPEALED BEFORE THE FIRST APPELLATE AUTHORITY WHO AFTER CONSIDERING THE ASSESSEES SUBMISSIONS BEFORE HIM WITH RESPECT TO THE DISALLOWANCES OF CAMP CONSTRUCTION EXPENSES AMOUNTING TO RS.53,02,642 HELD THAT TEMPORARY STRUCTURES CANNOT BE HELD TO BE BELONGING TO THE ASSESSEE WHEN THE SAME ARE TO BE DEMOLISHED AFTER THE WORK IS RENDERED WHEN THE AMOUNT HAS BEEN BILLE D TO NATIONAL HIGHWAY AUTHORITY OF INDIA INDICATING THAT THE ASSESSEE DOES NOT OWN IT. THE LEARNED CIT(A) RELIED ON THE DECISION OF THE ITAT, HYDERABAD IN THE CASE OF SHALIVAHANA CONSTRUCTION LTD., V. DCIT (12 SOT 406). HE DID NOT FIND ANY MERIT IN THE CON TENTION OF THE AO INSOFAR AS THE ASSESSING OFFICER HAD ALLOWED 10% DEPRECIATION THEREON WHICH CANNOT BE ON THE FACTS AND CIRCUMSTANCES OF THE CASE OF THE ASSESSEE. HE CONSIDERED THE VARIOUS OTHER DISALLOWANCES TOTALING RS.4,13,244 WHEN AGAIN HE HELD THAT T HE PAYMENTS HAVE BEEN DISALLOWED ON ESTIMATION WHEN THE SUBSTANTIVE EXPENSES HAVE BEEN CONSIDERED TO HAVE BEEN INCURRED FOR I.T.A.NO. 219/CTK/2012 4 THE BUSINESS OF THE ASSESSEE. THE ASSESSEE EXPLAINED THE INDIVIDUAL ITEMS TO HAVE BEEN INCURRED FOR THE BUSINESS WHICH THE LEARNED C IT(A) ACCEPTED WHEN DISALLOWANCE ON ADHOC BASIS WITHOUT ANY SPECIFIC DEFECT WAS CONSIDERED BY HIM AS AN ARBITRARY UNJUSTIFIED DISALLOWANCE BY QUOTING PLETHORA OF JUDGMENTS AS PER PAGE 15 OF HIS ORDER. I. AYUSHAKTI AYURVED PVT. LTD. VS. ACIT (2010) 4 ITR (TRIB .) 537 (MUM) . II. MONARCH FOODS PVT. LTD. VS. ACIT (1996) 54 TTJ (AHD) 405 . III. ACIT VS. KERALA TRANSPORT CO. (1994) 51 LTD (COCH) 405 . IV. OM PRAKASH JOSHI VS. ITO (2009) 123 TTJ 246. V. LAVRIDS KNUDSEN MASKINFABRIK (INDIA) LTD. VS. ADDL.CIT 102 TTJ 882. VI. ITA NO.0 224/2008 - 09 IN THE CASE OF RAJ KISHORE ROUT VS. ITO, WARD2(2), CUTTACK. VII. RAJAT TRADECOM INDIA PVT. LTD. VS. DCIT, 3 ITR(TRIB) 321 (INDORE ITAT) VIII. MUMBAI BENCH OF ITAT IN PEARL FARBEN CHEM PVT. LTD. ITA NO.1122/MUM/2010 ORDER DT.12/11/2010. IX. M/S. EPCOT SECU RITIES PVT. LTD., ITA N O.395/MUMBAI/2009. X. DELHI BENCH ITAT IN CASE OF M/S. MATRIX INC. ITA NO.54/DEL OF 2009 DT.25.06.2010. XI. HONBLE DELHI HIGH COURT IN THE CASE OF FRIENDS CLEARING AGENCY (P) LTD. ITA NO.3/1999 DT.04.01.2011. 4. THE LEARNED DR RELIED ON THE DECISION OF THE ASSESSING OFFICER INSOFAR AS THE LEARNED COUNSEL FOR THE ASSESSEE HAS RELIED ON THE ORDER OF THE LEARNED CIT(A) WHEN THE LEARNED CIT(A) HAS GIVEN HIS FINDING ON THE BASIS OF FACTS ENUMERATED BY THE ASSESSING OFFICER IN HIS ORDER. NO CO NTROVERTING MATERIAL HAS BEEN POINTED OUT BY THE LEARNED DR FOR CONSIDERATION OF CAPITAL I.T.A.NO. 219/CTK/2012 5 EXPENDITURE, REVENUE EXPENDITURE AFTER INCORPORATION OF THE METHOD OF THE ACCOUNTING BY THE ASSESSING OFFICER IN HIS ORDER FOR FURTHER DISALLOWANCE OF THE CLAIM OF EXP ENSES THEREIN OUGHT TO HAVE BEEN CONSIDERED BY HIM FOR REDUCTION OF THE INCOME AS WELL WHICH HAS NOT BEEN DONE THE ASSESSEE BEING A JOINT VENTURE ENTITY IN THE STATUS OF AOP. 5. AFTER HEARING THE RIVAL SUBMISSIONS AND ON PERUSAL OF THE ORDERS OF THE AUTHOR ITIES BELOW, WE ARE INCLINED TO FIND THAT THE DISALLOWANCES HAD BEEN MADE BY THE ASSESSING OFFICER ON PURELY ON ESTIMATION AND OPINION OF THE ASSESSING OFFICER AS TO WHAT COULD BE REVENUE OR CAPITAL IN NATURE EVEN AFTER ESTABLISHING THE FACT THAT ALL THESE EXPENSES HAVE BEEN BILLED FOR IN THE JOINT VENTURE AS AN AOP WHICH EXPENSES ARE TO BE REIMBURSED FROM NATIONAL HIGHWAY AUTHORITY OF INDIA INSOFAR AS FAR AS THE MONEY SO DISALLOWED COULD NOT BE RECOVERED FROM THE AOP ASSUMING BUT NOT ACCEPTING IF THE INC OME IS TO BE TAXED ACCORDINGLY. SA ME INCOME COULD NOT BE TAXED TWICE WAS CONSIDERED BY THE LEARNED CIT(A) WHEN HE CHOSE TO DEAL WITH THE ISSUES INDIVIDUALLY ON THE FACTUAL FINDING BY THE ASSESSING OFFICER TO COME TO THE CONCLUSION THAT THE EXPENSES INCURR ED ARE PART OF THE BUSINESS OF THE ASSESSEE WHEN THE DIFFERENTIATION BETWEEN THE SAME EITHER BY CAPITAL NATURE OR REVENUE NATURE EITHER FROM THE BUSINESS OF THE ASSESSEE OR NOT FROM THE BUSINESS OF THE ASSESSEE WAS TOTALLY RULED OUT AND IT WAS NOT THE CASE OF THE ASSESSING OFFICER TO PARTLY DISALLOW THE CLAIM AS THEY WERE REIMBURSED BY THE NATIONAL HIGHWAY AUTHORITY OF INDIA BEING DISALLOWANCE ON ACCOUNT OF NOT INCURRED BY NATIONAL HIGHWAY AUTHORITY OF INDIA WHICH WOULD ONLY LEAD TO THE DISALLOWANCE U/S.36( 1)(III) AS PER THE METHOD OF ACCOUNTING FOLLOWED BY THE ASSESSEE AS PER THE ACCOUNTING METHOD ACCEPTED AND ALLOWED BY THE ASSESSING OFFICER. WE DO NOT FIND ANY INFIRMITY IN THE IMPUGNED ORDER OF THE I.T.A.NO. 219/CTK/2012 6 LEARNED CIT(A), WHICH WE UPHOLD AND F INDING NO MERIT IN T HE REVENUES APPEAL, WE DISMISS THE SAME. 6. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMISSED. S D/ - S D/ - ( . . . ) , (K.S.S.PRASAD RAO), JUDICIAL MEMBER ( . . ) , , (K.K.GUPTA), ACCOUNTANT MEMBER. ( ) DATE: 30.11.2012 - COPY OF THE ORDER FORWARDED TO: 1 . / THE APPELLANT : INCOME - TAX OFFICER, WARD 2(1), BHUBANESWAR 2 / THE RESPONDENT: M/S.KMC RK SD(JV), PLOT NO.143/B,BARAMUNDA DUPLEX COMPLEX, BHUBANESWAR. 3 . / THE CIT, 4 . ( )/ THE CIT(A), 5 . / DR, CUTTACK BENCH 6 . GUARD FILE . / TRUE COPY, / BY ORDER, APPENDIX XVII SEAL TO BE AFFIXED ON THE ORDER SHEET BY THE SR. P.S./P.S. AFTER DICTATION IS GIVEN 1. DATE OF DICTATION 22.11.2012 . 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEF ORE THE DICTATING MEMBER 25.11.2012 OTHER MEMBER . 3. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. P.S./P.S. 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT.... 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR. P.S./P.S . 6. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 30.11.2012 7. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK .. 8. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER ................ 9. DATE OF DESPATCH OF THE ORDER .. ( ), (H.K.PADHEE), SENIOR.PRIVATE SECRETARY.