The DCIT, Circle-9, Ahmedabad V. M/s. Adani Towenship & Real Estate Co, Ahmedabad

ITA 2207/AHD/2012

• Counselvise Citation: [2015] 121 COUNSELVISE.COM (IT) 1161 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 1 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-11-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 04-11-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 04-10-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NARENDRA SINGH
• Assessee Lawyers: VIJAY RANJAN
• Keywords: Business income; Revenue expenditure

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, AHMEDABAD - , , BEFORE SHRI KUL BHARAT, JUDICIAL MEMBER AND SHRI MANISH BORAD, ACCOUNTANT MEMBER ./ I.T.A. NO.2207/AHD/2012 ( / ASSESSMENT YEAR : 2007-08) THE DCIT CIR.9 AHMEDABAD / VS. M/S.ADANI TOWNSHIPS & REAL ESTATE CO. ASHIMA HOUSE KAVI NANALAL MARG B/H. M J LIBRARY ASHRAM ROAD, AHMEDABAD $ ./ ./ PAN/GIR NO. : AANFA 2641 L ( $' / APPELLANT ) .. ( ()$' / RESPONDENT ) $' * / APPELLANT BY : SHRI NARENDRA SINGH, SR.DR ()$' + * / RESPONDENT BY : SHRI VIJAY RANJAN, A.R. ,- + . / DATE OF HEARING 04/11/2015 /0 + . / DATE OF PRONOUNCEMENT 20/11/2015 / O R D E R PER SHRI KUL BHARAT, JUDICIAL MEMBER : THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST TH E ORDER OF THE LD.COMMISSIONER OF INCOME TAX(APPEALS)-XV, AHMEDABA D [CIT(A) IN SHORT] DATED 02/07/2012 PERTAINING TO ASSESSMEN T YEAR (AY) 2007-08. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APP EAL:- ITA NO.2207 /AH D/2012 DCIT VS. M/S.ADANI TOWNSHIPS & REAL ESTATE CO. ASST.YEAR 2007-08 - 2 - 1) THE LD.COMMISSIONER OF INCOME-TAX (APPEALS-XV, AHM EDABAD HAS ERRED IN LAW AND ON FACTS IN DIRECTING TO DELETE TH E ADDITIONS OF RS.35,02,119/- AND OF RS.18,643/- ON ACCOUNT OF CAP ITALIZATION OF PRE-COMMENCEMENT OF EXPENSES PERTAINING TO A PROJEC T UNDER CONSIDERATION. 2) THE LD.COMMISSIONER OF INCOME-TAX(APPEALS)-XV, AHME DABAD HAS ERRED IN LAW AND ON FACTS IN DELETING THE DISALLOWA NCE OF RS.5,61,240/- MADE BY THE ASSESSING OFFICER U/S.40( A)(IA) OF THE ACT. 2B*) THE LD.COMMISSIONER OF INCOME-TAX(APPEALS)-XV , AHMEDABAD HAS ERRED IN LAW AND ON FACTS IN HOLDING THAT THE D ISALLOWANCE UNDER PROVISION OF SECTION 40(A)(IA) OF THE ACT, WOULD BE ATTRACTED ONLY IN RESPECT OF THE PAYABLE AMOUNT OF EXPENDITURE AS O N 31 ST MARCH OF THE RELEVANT PREVIOUS YEAR. 3) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD.COMMISSIONER OF INCOME-TAX(APPEALS)-XV, AHMEDABA D OUGHT TO HAVE UPHELD THE ORDER OF THE ASSESSING OFFICER. 4) IT IS THEREFORE, PRAYED THAT THE ORDER OF THE LD.CO MMISSIONER OF INCOME-TAX(APPEALS)-XV, AHMEDABAD MAY BE SET-ASIDE AND THAT OF THE ASSESSING OFFICER BE RESTORED. 2. BRIEFLY STATED FACTS ARE THAT THE CASE OF THE AS SESSEE WAS PICKED UP FOR SCRUTINY ASSESSMENT AND THE ASSESSMENT U/S.143( 3) OF THE INCOME TAX ACT,1961 (HEREINAFTER REFERRED TO AS THE ACT) WAS FRAMED VIDE ORDER DATED 14/12/2009. WHILE FRAMING THE ASSESSMENT, TH E ASSESSING OFFICER (AO IN SHORT) MADE DISALLOWANCE(S) OF RS.35,02,119/ - ON ACCOUNT OF SALES AND MARKETING EXPENSES, RS.18,643/- ON ACCOUNT OF E STABLISHMENT & ADMINISTRATIVE EXPENSES AND OF RS.5,61,200/- BY INV OKING THE PROVISIONS OF SECTION 40(I)(A) OF THE ACT. THE ASSESSEE BEING AGGRIEVED BY THE ASSESSMENT ORDER, PREFERRED AN APPEAL BEFORE THE LD .CIT(A), WHO AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE ALLOWED THE APPEAL AND ITA NO.2207 /AH D/2012 DCIT VS. M/S.ADANI TOWNSHIPS & REAL ESTATE CO. ASST.YEAR 2007-08 - 3 - DIRECTED THE AO TO DELETE THE DISALLOWANCES. AGG RIEVED BY THE ORDER OF THE LD.CIT(A), NOW THE REVENUE IS APPEAL BEFORE US. 3. FIRST GROUND IS AGAINST DELETION OF ADDITION(S) OF RS.35,02,119/- AND OF RS.18,643/-. THE LD.SR.DR SHRI NARENDRA SIN GH VEHEMENTLY ARGUED THAT THE LD.CIT(A) WAS NOT JUSTIFIED IN DELE TING THE DISALLOWANCES. HE SUBMITTED THAT THE AO HAD OBSERVED THAT THE ASSE SSEE HAD DEBITED AN AMOUNT OF RS.35,02,119/- UNDER THE HEAD SALES AND PROMOTIONAL EXPENSES CONSISTING OF MAINLY PAYMENTS TO INIT DES IGN STUDIOS AND GIHED IN CONNECTION WITH SPONSORING OF GIHED PROPER TY SHOW AND RS.18,643/- UNDER THE HEAD ESTABLISHMENT AND ADMIN ISTRATIVE EXPENSES. THE AO TREATED BOTH THE EXPENDITURE AS PRE COMMENCE MENT EXPENDITURE. 3.1. ON THE CONTRARY, THE LD.COUNSEL FOR THE ASSESS EE SUPPORTED THE ORDER OF THE LD.CIT(A) AND SUBMITTED THAT THE ISSUE IS CO VERED IN FAVOUR OF ASSESSEE BY THE JUDGEMENT OF THE HONBLE SUPREME CO URT IN THE CASE OF TAPARIA TOOLS LTD. VS. JT.CIT IN CIVIL APPEAL NOS.6 366-6368 OF 2003, DATED MARCH 23, 2015. THE LD.COUNSEL FOR THE ASSES SEE DREW OUR ATTENTION TOWARDS PAGE NO.20 OF THE SAID JUDGEMENT. FURTHER, THE LD.COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ISSUE IS ALSO COVER ED BY THE DECISION OF SPECIAL BENCH OF THIS TRIBUNAL [ITAT AHMEDABAD BENC H B (SPECIAL BENCH] RENDERED IN THE CASE OF ACIT VS. ASHIMA SYNT EX LTD. HE ALSO FURTHER RELIED ON THE DECISION OF THE COORDINATE BE NCH (ITAT A BENCH ITA NO.2207 /AH D/2012 DCIT VS. M/S.ADANI TOWNSHIPS & REAL ESTATE CO. ASST.YEAR 2007-08 - 4 - AHMEDABAD) RENDERED IN THE CASE OF DCIT VS. M/S.ADA NI RETAIL LTD. IN ITA NO.1311/AHD/2011 FOR AY 2004-05, DATED 24/04/20 15. 4. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED THE MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW AS WELL AS THE JUDGEMENT/DECISIONS RELIED UPON BY T HE LD.COUNSEL FOR THE ASSESSEE. WE FIND THAT THE LD.CIT(A) HAS DELETED THE ADDITION IN PARA-5 OF HIS ORDER, BY OBSERVING AS UNDER:- 5. I HAVE PERUSED THE FACTS OF THE CASE AND CONSID ERED THE CONTENTION OF BOTH A.O. AND APPELLANT. I HAVE PERU SED VARIOUS CASE LAWS AS RELIED ON BY APPELLANT. AFTER CAREFUL CONSIDERATION OF FACTS, I AM INCLINED TO ACCEPT THE CONTENTION OF TH E APPELLANT THAT EXPENSES RELATED TO SALES & PROMOTION AND ADMINISTR ATIVE EXPENSES ARE ALLOWABLE REVENUE EXPENDITURE IN VIEW OF THE AP PELLANTS BUSINESS OF REAL ESTATE DEVELOPMENT AND MOU WITH AD ANI TOWNSHIP AND REAL ESTATE COMPANY PVT.LTD. THE A.O. HAS TREATED THIS EXPENDITURE AS PER COMMENCEMENT EXPENDITURE AN D IN THE ABSENCE OF ANY BUSINESS INCOME DISALLOWED THE SAME. THE A.O. HAS NOT DOUBTED THE GENUINELY OF SUCH EXPENDITURE A S WELL AS ITS NATURE BEING REVENUE. THE SAME COULD HAVE BEEN ON ACCOUNT OF MISCONCEPTION WITH THE PRELIMINARY EXPENDITURE AS PROVIDED IN THE CASE OF CORPORATE ASSESSEE. IN THE CASE OF FIR M, THE MOMENT PARTNERSHIP AGREEMENT IS THERE AND REQUIRED CAPITAL IS BROUGHT BY PARTNER, THE BUSINESS COMMENCES IRRESPECTIVE OF THE FACT WHETHER APPELLANT FOLLOW PROJECT COMPLETION METHOD OR PERCE NTAGE COMPLETION METHOD. IF A.O. IS DISALLOWING SUCH EXP ENDITURE, THE SAME BE FORMING PART & PARCEL OF WORK IN PROGRESS A ND ALLOWABLE AS EXPENSES. ON THE OTHER HAND IF SUCH EXPENDITURE IS ALLOWED NOW THE SAME BEING BUSINESS LOSS AND CARRIED FORWARD, W ILL BE ADJUSTED AGAINST BUSINESS PROFIT. HENCE, IN BOTH THE CASES THERE IS NO ITA NO.2207 /AH D/2012 DCIT VS. M/S.ADANI TOWNSHIPS & REAL ESTATE CO. ASST.YEAR 2007-08 - 5 - REVENUE EFFECT. AS PER THE A.O.S CONTENTION THAT THERE IS NO BUSINESS INCOME AND AS PER MATCHING PRINCIPAL SUCH EXPENDITURE BE TREATED AS PER COMMENCEMENT OF BUSINESS EXPENDIT URE IS BASED ON WORNG FOOTING SINCE THE APPELLANT HAS CAPITALIZE D VARIOUS EXPENDITURE AS PROJECT EXPENSES BUT SINCE IT FOLLOW S PROJECT COMPLETION METHOD INCOME/LOSS EMBEDDED IN SUCH WORK IN PROGRESS IS NOT CONSIDERED DURING PREVIOUS YEAR ON ACCOUNT OF ACCOUNTING METHOD FOLLOWED BY IT. IT IS THEREFORE A.O. IS DIRECTED TO DELETE THE ADDITION OF RS.35,02,119 AND RS.18,64 3, THE APPELLANT GETS RELIEF ACCORDINGLY. IN REFERENCE TO DISALLOWANCE OF RS.5,61,200 U/S.40( A)(IA) OF THE ACT, I AM INCLINED TO ACCEPT THE CONTENTION OF THE APPELLANT THAT SINCE THE SAME HAD ALREADY BEEN PAID AND NOTHING RE MAIN PAYABLE AS ON 31 ST MARCH OF PREVIOUS YEAR, AS PER THE RATIO OF HONBL E SPECIAL BENCH OF ITAT VISHAKHAPATNAM IN THE CASE OF M/S.MARILYN SHIPPING & TRANSPORT VS. ACIT(SUPRA) THERE REMAINS NOTHING WHICH CAN BE DISALLOWED U/S.40(A)(IA) OF THE ACT. THE A.O. IS DIRECTED TO ALLOW THE CLAIM OF APPELLANT AND DELETE THE ADDITION. THE APPELLANT GETS RELIEF ACCORDINGLY. 4.1. THE HONBLE SUPREME COURT IN THE CASE OF TAPAR IA TOOLS LTD. VS. JT.CIT IN CIVIL APPEAL NOS.6366-6368 OF 2003(SUPRA) HAS HELD THAT THE ASSESSEE CHOSE TO CLAIM THE ENTIRE EXPENDITURE IN T HE YEAR IN WHICH IT WAS SPENT/PAID BY INVOKING THE PROVISIONS OF SECTION 36 (1)(III) OF THE ACT. ONCE A RETURN IN THAT MANNER WAS FILED, THE AO WAS BOUND TO CARRY OUT THE ASSESSMENT BY APPLYING THE PROVISIONS OF THAT A CT AND NOT TO GO BEYOND THE SAID RETURN. ITA NO.2207 /AH D/2012 DCIT VS. M/S.ADANI TOWNSHIPS & REAL ESTATE CO. ASST.YEAR 2007-08 - 6 - 4.2. FURTHER, THE HONBLE SPECIAL BENCH IN THE CASE OF ACIT VS. ASHIMA SYNTEX LTD.(SUPRA) HAS HELD THAT SO FAR AS C ORPORATE ADVERTISEMENT EXPENSES, COMPUTER SOFTWARE EXPENSES, PUBLIC RELATION EXPENSES QUOTA EXPENSES, SALES PROMOTION EXPENSES, FIXED DEPOSIT EXPENSES AND EXHIBITION EXPENSES ARE CONCERNED, THO SE EXPENSES SHOULD BE ALLOWED IN THE YEAR IN WHICH THEY ARE INCURRED. IN THE CASE IN HAND, THE ASSESSEE HAS CLAIMED EXPENDITURE IN THE YEAR TH OSE WERE INCURRED. THE AO DISALLOWED ON THE GROUND THAT THE EXPENDITUR E RELATED TO THE PRE- COMMENCEMENT OF THE BUSINESS. HOWEVER, THE LD.CIT( A) DELETED THE DISALLOWANCE. IN THE LIGHT OF THE JUDGEMENT OF THE HONBLE APEX COURT RENDERED IN THE CASE OF TAPARIA TOOLS LTD. VS. JT.C IT(SUPRA) AND DECISION OF THE COORDINATE BENCH IN THE CASE OF ACIT VS. AS HIMA SYNTEX LTD.(SUPRA), WE DO NOT SEE ANY REASON TO INTERFERE WITH THE ORDER OF THE LD.CIT(A), SAME IS HEREBY UPHELD. THUS, GROUND NO .1 OF REVENUES APPEAL IS REJECTED. 5. GROUND NO.2 & 2(B) OF THE APPEAL IS AGAINST DELE TION OF DISALLOWANCE OF R.5,61,240/- MADE BY THE AO. THE L D.SR.DR SUBMITTED THAT THE LD.CIT(A) HAS DELETED THE DISALLOWANCE BY FOLLOWING THE DECISION OF THE SPECIAL BENCH OF ITAT VISHAKHAPATNAM IN THE CASE OF M/S.MARILYN SHIPPING & TRANSPORT VS. ACIT (SUPRA) W HICH HAS BEEN OVERRULED BY THE HIGH COURT. ITA NO.2207 /AH D/2012 DCIT VS. M/S.ADANI TOWNSHIPS & REAL ESTATE CO. ASST.YEAR 2007-08 - 7 - 5.1. ON THE CONTRARY, LD.COUNSEL FOR THE ASSESSEE S UBMITTED THAT THE AO MADE DISALLOWANCE ON THE GROUND THAT THE TAX WAS NO T DEDUCTED ON PROCESSING FEE FOR FINANCIAL APPRAISAL. THE LD.COU NSEL FOR THE ASSESSEE RELIED UPON THE DECISION OF THE HONBLE HIGH COURT OF DELHI IN THE CASE OF CIT VS. ANSAL LAND MARK TOWNSHIP (P) LTD. IN SUP PORT OF THE CONTENTION THAT THE ASSESSEE WAS NOT DECLARED THE A SSESSEE IN DEFAULT, THEREFORE, IN VIEW OF THE SECOND PROVISO TO SECTION 40(I)(A) OF THE ACT, NO ADDITION CAN BE MADE ON THIS GROUND. 5.2. IN THE REJOINDER, THE LD.SR.DR SUBMITTED THAT THIS ARGUMENT OF THE ASSESSEE WAS NOT BEFORE THE AO. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED THE MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHOR ITIES BELOW AS WELL AS THE JUDGEMENT RELIED UPON BY THE PARTIES. THERE IS NO DISPUTE WITH REGARD TO THE FACT THAT THERE WAS NO FINDING FOR TREATING THE ASSESSEE TO BE IN DEFAULT BY THE CONCERNED AO. THEREFORE, IN VIEW OF THE JUDGEMENT OF THE HONBLE HIGH COURT OF DELHI IN THE CASE OF CIT VS. ANSAL LAND MARK TOWNSHIP(P) LTD., WE DO NOT SEE ANY REASON TO INTER FERE WITH THE ORDER OF THE LD.CIT(A), SAME IS HEREBY UPHELD. THUS, GROUND NOS.2 & 2(B) ARE REJECTED. ITA NO.2207 /AH D/2012 DCIT VS. M/S.ADANI TOWNSHIPS & REAL ESTATE CO. ASST.YEAR 2007-08 - 8 - 7. GROUND NOS.3 & 4 ARE GENERAL IN NATURE WHICH REQ UIRE NO INDEPENDENT ADJUDICATION. 8. IN THE RESULT, REVENUES APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE COURT ON FRIDAY, THE 20 TH DAY OF NOVEMBER, 2015 AT AHMEDABAD. SD/- SD/- ( ) ( ) ( MANISH BORAD ) ( KUL BHARAT ) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD; DATED 20/ 11 /2015 4..., ,.../ T.C. NAIR, SR. PS !'#$%&%# / COPY OF THE ORDER FORWARDED TO : 1. $' / THE APPELLANT 2. ()$' / THE RESPONDENT. 3. 56 7 / CONCERNED CIT 4. 7 ( ) / THE CIT(A)-XV, AHMEDABAD 5. 8,9 (56 , . 560 , / DR, ITAT, AHMEDABAD 6. 9;< =- / GUARD FILE. / BY ORDER, )8 ( //TRUE COPY// / ( DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD 1. DATE OF DICTATION ..5.XI.15 (DICTATION-PAD 11- PAGES ATTACHED AT THE END OF THIS FILE) 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER .. 17.11.15 3. OTHER MEMBER... 4. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.P. S./P.S.. 5. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 6. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.P .S./P.S. 20.XI.15 7. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 20.XI.15 8. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK ... 9. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER.. 10. DATE OF DESPATCH OF THE ORDER