M/s Ozone Shelters Pvt Ltd , Bangalore V. Assistant Commissioner of Income Tax Circle-5(1)(2) , Bangalore

ITA 2556/BANG/2017

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 6915 (ITAT-BANGALORE)
• Duration Of Justice: 2 year(s) 9 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-09-2020
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 10-09-2020
• Assessment Year: 2014-2015
• Appeal Filed On: 30-11-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S SUNDAR RAJAN
• Assessee Lawyers: B R SUDHEENDRA
• Keywords: Business expenditure; Revenue expenditure
• Section: 143(3); 37

Judgement Text

ITA NO.2556/BANG/2017 M/S. OZONE SHELTERS PVT. LTD., BANGALORE .IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH: BANGALORE BEFORE SHRI GEORGE GEORGE K., JUDICIAL MEMBER AND SHRI B.R. BASKARAN, ACCOUNTANT MEMBER ITA NO.2556/BANG/2017 ASSESSMENT YEAR: 2014-15 M/S. OZONE SHELTERS PVT. LTD. # 38, ULSOOR ROAD BANGALORE-560 042 PAN NO : AABCO 0607K VS. ASST. COMMISSIONER OF INCOME-TAX CIRCLE 5(1)(2) BANGALORE APPELLANT RESPONDENT APPELLANT BY : SHRI B.R. SUDHEENDRA, A.R. RESPONDENT BY : SHRI S. SUNDAR RAJAN, D.R. DATE OF HEARING : 10.09.2020 DATE OF PRONOUNCEMENT : 10.09.2020 O R D E R PER GEORGE GEORGE K., JUDICIAL MEMBER: THIS APPEAL AT THE INSTANCE OF ASSESSEE IS DIRECTE D AGAINST CIT(A) ORDER DATED 31.8.2017. THE RELEVANT ASSESSM ENT YEAR IS 2014-15. 2. THE SOLITARY ISSUE THAT IS RAISED IS WHETHER THE CIT(A) IS JUSTIFIED IN CONFIRMING DISALLOWANCE OF EXPENDITURE OF DIESEL GENERATOR SET AMOUNTING TO RS.1,10,57,643/-. 3. THE BRIEF FACTS OF THE CASE ARE AS FOLLOWS: ASSESSEE IS A COMPANY. IT IS ENGAGED IN THE BUSIN ESS OF DEVELOPMENT OF PROPERTIES. DURING THE ASSESSMENT Y EAR 2014-15, ITA NO.2556/BANG/2017 M/S. OZONE SHELTERS PVT. LTD., BANGALORE PAGE 2 OF 6 ASSESSEE HAD CONSTRUCTED AND SOLD APARTMENTS IN THE NAME OF EVERGREENS, WHICH WAS TAKEN AS A JOINT DEVELOPMEN T VENTURE AS PER THE JDA AGREEMENT DATED 31.3.2009. FOR THE ASSESSM ENT YEAR 2014- 15, ASSESSEE FILED RETURN OF INCOME ON 26.11.2014, DECLARING LOSS OF RS.37,37,628/-. IN THE P&L ACCOUNT, ASSESSEE HAD C LAIMED AS DEDUCTION, A SUM OF RS.1,10,57,643/- BEING EXPENDIT URE INCURRED FOR PURCHASE OF DIESEL GENERATOR SETS. THE A.O. VIDE ASSESSMENT ORDER DATED 13.12.2016 PASSED U/S 143(3) OF THE INCOME-TA X ACT,1961 ['THE ACT' FOR SHORT] DISALLOWED THE SAID EXPENDITURE BY OBSERVING AS UNDER: FROM THE ABOVE IT CAN BE SEEN THAT THE PROJECT HAS TO BE MAINTAINED ONLY TILL THE FORMATION OF THE ASSOCIATION AND ONCE THE ASSOCIATION IS FORMED IT NEED TO BE HANDED OVER TO THEM. THE DG SET EXPENDITURE OF RS.11057643/- WHICH IS FOR THE MAINTENANCE OF THE POWER BACK UP OF THE APARTMENTS IS OVER AND ABOVE T HE FMC EXPENSES SHOWN ABOVE. HENCE THE CLAIM OF DG SE T AS THE BUSINESS EXPENSES OF THE ASSESSEE IS NOT TEN ABLE. THUS THE SAID EXPENDITURE IS DISALLOWED UNDER SECTI ON 37 OF INCOME TAX ACT, 1961 SINCE IT IS NOT INCURRED EXCLUSIVELY AND WHOLLY FOR THE BUSINESS PURPOSE. WITHOUT PREJUDICE TO THE ABOVE WHEN THE ASSESSEE WAS ASKED TO PROVIDE INVOICES RELATED TO DG SET EXPENDITURE, BOTH THE SAMPLE INVOICES SUBMITTED BY THE ASSESSEE TO A TUNE OF RS.48,54,441 WERE DATED 22.04.2014 AND FALLS IN THE AY 2015-16 AND HENCE DISALLOWED UNDER SECTION 37 OF INCOME TAX ACT, 1961 AS THE EXPENDITURE WAS NOT INCURRED DURING THE PREVIOU S YEAR 2013-14. FOR ALL THE DETAILED REASONS GIVEN ABOVE THE EXPENDITURE CLAIMED OF RS.1,10,57,643/- AS DG SET EXPENSES UNDER THE HEAD BUSINESS EXPENSES IS DISALLOWED U/S 37 AS NOT BEING FOR BUSINESS PURPOSE AND NOT INCURRED DURING THE PREVIOUS YEAR AND THUS ADDE D BACK TO THE INCOME OF THE ASSESSEE COMPANY. ADDITIONS: RS.1,10,57,643/- ITA NO.2556/BANG/2017 M/S. OZONE SHELTERS PVT. LTD., BANGALORE PAGE 3 OF 6 4. AGGRIEVED BY THE ASSESSMENT ORDER, ASSESSEE PREF ERRED AN APPEAL TO THE FIRST APPELLATE AUTHORITY. BEFORE TH E FIRST APPELLATE AUTHORITY, THE FOLLOWING SUBMISSIONS WERE MADE: NOTE OF ALLOWABILITY OF DG SET COST FOR CONSTRUCTI ON OF 6 APARTMENT COMPLEXES OF 19 FLOORS EACH AND ALSO FOR CLUB HOUSE, SITUATED AT EVERGREENS, HARLURU ROAD, OFF SA RJAPUR ROAD, BANGALORE. 1. THE COST OF DG SET IS AN INPUT COST LIKE ANY OTHER RAW MATERIALS, WITHOUT WHICH THE CONSTRUCTION OF APARTM ENT COMPLEX IS NOT FULL AND COMPLETE. HENCE THE COST O F DG SET IS ALLOWABLE AS BUSINESS EXPENSE SOLELY AND EXCLUSIVEL Y INCURRED FOR THE PURPOSE OF BUSINESS AND PROFESSION . 2. THE FACILITIES OF 24X7 POWER FACILITY WAS ASSURED A ND PROMISED BY THE DEVELOPER AT THE TIME OF LAUNCH OF THE PROJECT FOR SALE TO THE CUSTOMERS. 3. 24X7 POWER IS POSSIBLE ONLY WITH THE POWER CONNECTI ON FROM BSECOM AND STANDBY POWER FROM DG SET. 4. DG SET POWER IS MANDATORY BY FIRE AUTHORITIES FOR O PERATION OF LIFTS, ESCALATORS, PUMPS, FIRE EQUIPMENTS, STREE T LIGHTING, PUMPING UP OF WATER TO THE TOP FLOOR AND MANY OTHER ESSENTIAL FACILITIES. 5. DG SET IS A COMMON ASSET IN ANY APARTMENT COMPLEX L IKE CLUB HOUSE AND THE SAME WAS HANDED OVER TO THE APARTMENT OWNERS ASSOCIATION UPON COMPLETION. THE CLUB HOUSE AND ALL OTHER COMMON ASSETS HELD BY THE ASSOCIATION FOR THE BENEFIT OF ALL CUSTOMERS IN TERMS OF THE PROJECT SCHEME. 6. THE DG SET WAS BOUGHT AND THE COST OF DG SET IS ACC OUNTED AS COST OF THE PROJECT WHICH WAS ALSO PART OF COST OF SALES OF APARTMENT ON PERCENTAGE COMPLETION METHOD. 7. THE INSTALLATION OF DG SET IS A PRECONDITION TO GET THE CLEARANCE FROM FIRE FORCE AUTHORITIES AND SUCH CLEA RANCE CERTIFICATE IS A MANDATORY REQUIREMENT FOR GETTING THE OCCUPANCY CERTIFICATE FROM CORPORATION AUTHORITIES (BBMP). ITA NO.2556/BANG/2017 M/S. OZONE SHELTERS PVT. LTD., BANGALORE PAGE 4 OF 6 8. THE SALE VALUE OF APARTMENT IS COMPOSITE INCLUDING THE VALUE FOR PROVISION OF DG SET FACILITY AND NO ADDITIONAL OR EXTRA SUMS ARE COLLECTED FROM THE CUSTOMERS. IN VIEW OF THE FOREGOING, WE PRAY THAT THE COST OF DG SET BE ALLOWED AS A BUSINESS EXPENSE. 5. THE CIT(A) REJECTED THE APPEAL FILED BY THE ASSE SSEE. THE CIT(A) HELD THAT THERE IS NO INFIRMITY IN THE ORDER OF THE A.O. AND NO INTERFERENCE IS CALLED FOR. 6. AGGRIEVED BY THE ORDER OF THE CIT(A), ASSESSEE H AS PREFERRED THIS APPEAL BEFORE THE TRIBUNAL. THE LD. A.R. HAS FILED A PAPER BOOK INTER-ALIA ENCLOSING THE AUDITED FINANCIAL STATEMEN T, FOR THE YEAR ENDING 31.3.2014, NOTICES RECEIVED DURING THE COURS E OF ASSESSMENT PROCEEDINGS, SUBMISSIONS MADE BEFORE THE A.O. AND T HE CIT(A), COPIES OF THE INVOICES OF THE DIESEL GENERATOR SETS , DELIVERY NOTES OF THE SAME, ETC. THE LD. A.R. REITERATED THE SUBMISS IONS MADE BEFORE THE A.O. AND THE CIT(A). THE LD. D.R. ON THE OTHER HAND, SUPPORTED THE ORDERS PASSED BY THE INCOME TAX AUTHORITIES. 7. WE HAVE HEARD RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. ASSESSEE IS A BUILDER. DURING THE YEAR A SSESSEE HAD BUILT A PROJECT IN THE NAME EVERGREENS. THE APARTMENT CO MPLEX BUILT BY THE ASSESSEE HAS 19 FLOORS CONSISTING OF 912 APARTM ENTS. IN ADDITION, THERE ARE MANY OTHER FACILITIES SUCH AS CLUB HOUSE, SECURITY ROOM, WATER FILTRATION PLANT, ETC. THE FACILITIES OF 24X 7 POWER FACILITY WAS ASSURED AND PROMISED BY THE DEVELOPER ASSESSEE AT T HE TIME OF THE LAUNCH OF THE PROJECT FOR THE SALE TO CUSTOMERS. 2 4X7 POWER IS POSSIBLE ONLY WITH THE POWER CONNECTION FROM BESCOM AND STAND BY POWER FROM THE DG SETS. DG SET POWER IS MANDATORY BY THE FIRE AUTHORITIES FOR OPERATION OF LIFT, ESCALATOR, PUMPS , FIRE EQUIPMENTS, STREET LIGHTS AND OTHER ESSENTIAL FACILITIES. THE DG SET IS A COMMON ITA NO.2556/BANG/2017 M/S. OZONE SHELTERS PVT. LTD., BANGALORE PAGE 5 OF 6 ASSET IN ANY APARTMENT COMPLEX JUST LIKE THE CLUB H OUSE AND THE SAME WAS HANDED OVER TO THE APARTMENT OWNERS ASSOC IATION UPON COMPLETION. THE CLUB HOUSE AND ALL OTHER COMMON FA CILITIES HELD BY THE ASSOCIATION ARE FOR THE BENEFIT OF ALL THE CUST OMERS IN TERMS OF THE PROJECT SCHEME. THE DG SET WAS HANDED OVER TO THE ASSOCIATION ON 23.9.2015 AND SAME IS EVIDENT FROM THE LETTER WRITT EN BY THE ASSESSEE TO THE PRESIDENT OF EVERGREENS OWNERS ASSOCIATION . THE COST OF DG SET BROUGHT BY THE ASSESSEE IS COUNTED AS COST OF P ROJECT, WHICH WAS ALSO PART OF THE COST OF SALE OF APARTMENT ON PERCE NTAGE COMPLETION METHOD. THE COST OF DG SET IS A INPUT COST LIKE AN Y OTHER RAW MATERIAL WITHOUT WHICH THE CONSTRUCTION OF APARTMENT COMPLEX IS NOT FULL AND COMPLETE. HENCE, THE COST OF DG SET IS ALLOWABLE A S A BUSINESS EXPENSES SOLELY AND EXCLUSIVELY INCURRED FOR THE PU RPOSE OF BUSINESS AND PROFESSION. THE FACILITY MAINTENANCE CHARGES I S REGARDING MAINTENANCE EXPENSES, WHICH ARE COLLECTED FROM THE USERS OF APARTMENTS OWNERS UNLIKE THE DG SET COST BEING CONS TRUCTION COST OF THE DEVELOPER. AS MENTIONED EARLIER, THE INSTALLAT ION OF DG SET IS A PRECONDITION FOR GETTING STATUTORY CLEARANCE AND OC CUPANCY CERTIFICATE FOR THE APARTMENTS CONSTRUCTED. HENCE, IT IS AN AL LOWABLE DEDUCTION. 8. AS REGARDS THE A.OS FINDING THAT THE DG SET EXP ENDITURE TO THE TUNE OF RS.48,54,441/- WAS RELATING TO ASSESSMENT Y EAR 2015-16 AND IS NOT INCURRED IN THE YEAR UNDER CONSIDERATION, TH E SUBMISSION OF THE LD. A.R. WAS THAT ASSESSEE IS FOLLOWING MERCANT ILE SYSTEM OF ACCOUNTING AND THE EXPENDITURE HAS CRYSTALIZED IN T HE CURRENT ASSESSMENT YEAR. THEREFORE THE SAME IS ALLOWABLE A S A REVENUE EXPENDITURE FOR THE RELEVANT ASSESSMENT YEAR. ADMI TTEDLY, ASSESSEE IS FOLLOWING THE MERCANTILE SYSTEM OF ACCOUNTING AN D THE SAME IS EVIDENT FROM THE ASSESSMENT ORDER DATED 13.12.2016. WHEN ASSESSEE HAD INCURRED THE EXPENSES ON MERCANTILE BA SIS, THE SAME IS ALLOWABLE AS A DEDUCTION THOUGH THE INVOICES MAY BE RAISED IN THE ITA NO.2556/BANG/2017 M/S. OZONE SHELTERS PVT. LTD., BANGALORE PAGE 6 OF 6 SUBSEQUENT ASSESSMENT YEAR. ASSESSEE HAS PRODUCED THE DELIVERY NOTE, WHEREIN IT IS CLEARLY STATED THAT THE DG SET FOR AN AMOUNT OF RS.48,54,442/- HAS TAKEN DELIVERY ON 19.3.2014 I.E. DURING THE RELEVANT ASSESSMENT YEAR. HOWEVER, THERE IS NO MEN TION OF THE SAME IN THE ORDER OF ASSESSMENT NOR IN THE CIT(A)S ORDE R. WE ARE OF THE VIEW THAT THE MATTER IS TO BE EXAMINED, WHETHER THE EXPENDITURE ON PURCHASE OF DIESEL GENERATOR AMOUNTING TO RS.48,54, 442/- HAS CRYSTALIZED IN THE RELEVANT ASSESSMENT YEAR OR NOT. FOR THE LIMITED PURPOSE OF EXAMINATION OF THE SAME, THE ISSUE IS RE STORED TO THE FILES OF THE A.O. THE A.O. SHALL EXAMINE WHETHER THE EXP ENDITURE OF RS.48,54,442/- HAS CRYSTALIZED IN RELEVANT ASSESSME NT YEAR AND IF SO, THE SAME SHALL BE ALLOWED AS A DEDUCTION. AS REGAR DS THE EXPENDITURE OF RS.62,03,202/- I.E. (RS.1,10,57,642 RS.48,54,4 41/-), WE HOLD THAT ASSESSEE IS ENTITLED THE DEDUCTION AS A BUSINE SS EXPENDITURE. IT IS ORDERED ACCORDINGLY. 9. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PAR TLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 10 TH SEPT, 2020 SD/- (B.R. BASKARAN ) ACCOUNTANT MEMBER SD/- (GEORGE GEORGE K.) JUDICIAL MEMBER BANGALORE, DATED 10 TH SEPT, 2020. VG/SPS COPY TO: 1. THE APPLICANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER