M/S. NATHPA JHAKRI JOINT VENTURE, MUMBAI V. THE ACIT CIR 23(1), MUMBAI

ITA 260/MUM/2008

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 78800 (ITAT-MUMBAI)
• Duration Of Justice: 6 year(s) 3 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-04-2014
• Appeal Filed By: Assessee
• Bench Allotted: L
• Next Hearing Date: 27-08-2013
• Assessment Year: 2004-2005
• Appeal Filed On: 11-01-2008
• Court: TRIBUNAL
• Department Lawyers: AJAY SRIV A TSAV
• Assessee Lawyers: H P MAHAJANI
• Keywords: Business expenditure; Opportunity of being heard
• Section: 28

Judgement Text

L IN THE INCOME TAX APPELLATE TRIBUNAL L BENCH, MUMBAI BEFORE SHRI VIJAY PAL RAO, JM AND SHRI D. KARUNAKARA RAO, AM ./I.T.A. NO.260/M/2008 ( / ASSESSMENT YEAR: 2004 - 2005 ) NATHPA JHAKRI JOINT VENTURE, HINCON HOUSE, LBS MARG, VIKHROLI (W), MUMBAI 400 083. / VS. ACIT - CIRCLE 23(1), C - 10, 1 ST FLOOR, PRATYAKSHAKAR BHAVAN, BANDRA KURLA COMPLEX, BANDRA (E), MUMBAI 400 051. ./ PAN : AAAAN1127C ( / APPELLANT) .. ( / RESPONDENT ) ./I.T.A. NO.459/M/2008 ( / ASSESSMENT YEAR: 2004 - 2005 ) ACIT - CIRCLE 23(1), C - 10, 1 ST FLOOR, PRATYAKSHAKAR BHAVAN, BANDRA KURLA COMPLEX, BANDRA (E), MUMBAI 400 051. / VS. NATHPA JHAKRI JOINT VENTURE, HINCON HOUSE, LBS MARG, VIKHROLI (W), MUMBAI 400 083. ./ PAN : AAAAN1127C ( / APPELLANT) .. ( / RESPONDENT ) / ASSESSEE BY : SHRI H.P. MAHAJANI, AR / REVENUE BY : SHRI AJAY SRIV A TSAV CIT - DR / DA TE OF HEARING : 13.02 .2014 / DATE OF PRONOUNCEMENT : 30. 0 4.2014 / O R D E R PER D. KARUNAKARA RAO, AM: THERE ARE TWO APPEALS UNDER CONSIDERATION. THESE TWO APPEALS ARE FILED AGAINST THE ORDER OF THE CIT (A) - XXIII, MUMBAI DATED 12.11.2007 FOR THE ASSESSMENT YEAR 2004 - 2005. SINCE, THE ISSUES RAISED IN BOTH THESE APPEALS ARE CONNECTED, THEREFORE, FOR THE SAKE OF CONVENIENCE, THEY ARE C LUBBED, HEARD COMBINEDLY AND DISPOSED OF IN T HIS CONSOLIDATED ORDER. APPEAL - WISE ADJUDICATION IS GI VEN IN THE FOLLOWING PARAGRAPHS AFTER SUMMARIZING THE RELEVANT FACTS. 2 2. BRIEFLY STATED RELEVANT FACTS OF THE CASE NECESSARY FOR ADJUDICATION OF BOTH THE APPEALS ARE THAT THE ASSESSEE IS JOINT VENTURE (JV) AND THE SAME IS ASSESSED AS AN AOP . THIS IS A JOINT VENTURE BETWEEN M/S. HINDUSTAN CONSTRUCTION COMPANY LTD (HCC OF INDIA ) AND M/S. IMPREGLIO SPA OF ITALY . THE JV IS FORMED TO EXECUTE A SPECIFIC CONTRACT FOR CIVIL WORK OF NATHPA JAKRI HYDRO PROJECT , A POWER PROJECT OF NATHPA JHAKRI POWER CORPORATION (NJPC) OF GOVERNMENT OF HIMACHAL PRADESH. DURING THE YEAR, THE SAID CONTRACT WAS COMPLETED AND HANDED OVER TO CONTRACTEE WHO ISSUED A COMPLETION CERTIFICATION. OF COURSE, IN THE ASSESSMENT, THE ASSESSEE CLAIMS THE SAID COMPLETION AS SUBSTANTIALLY COMPLETED. ASSESSEE FILED THE RETURN OF INCOME DECLARING THE LOSS OF R S. 7 ,60,63,771/ - . DURING THE ASSESSMENT PROCEEDINGS, AO NOTICED THAT THE ASSESSEE DEBI TED VARIOUS EXPENSES, DETAILS OF WHICH INCLUDES THE EXPENDITURE ON STORES CONSUMPTION, SUB - CONTRACTORS EXPENSES, EMPLOYEES REMUNERATION, CONVEYANCE, PROFESSIONAL CHARGES, B ANK GUARANTEE COMMISSION, FEES PAID TO DISPUTE REVIEW BOARD, LEGISLATION EXPENSES ETC. AT THE END OF THE ASSESSMENT, THE TOTAL INCOME WAS DETERMINED AT THE POSITIVE INCOME OF RS. 1,12,19,500/ - . AO DISALLOWED VARIOUS CLAIMS OF THE ASSESSEE IN THE ASSESSME NT. THEY ARE: AO DISALLOWED INTEREST PAYMENT OF RS. 2,36,68,000/ - FOR WANT OF EXPLANATION OF THE ASSESSEE. FURTHER, AO DISALLOWED 75% OF THE BUSINESS EXPENSES OF RS. 5,60,55,000/ - AMOUNTING TO RS. 4,20,41,250/ - (RS. 7,93,00,000 RS.2,33,07,000 = RS. 5,6 0,55,000/ - AND 75% OF THE SAME IS RS. 4,20,41,250/ - ). THERE ARE OTHER DISALLOWANCES TOO. AO IS OF THE OPINION THAT THE EXPENSES INCURRED BY THE ASSESSEE ONLY UP TO THE DATE OF EXPIRY OF THE BANK GUARANTEE IN JULY, 2003 ARE ONLY ALLOWABLE BUSINESS EXPENSE S . AO IS OF THE OPINION THAT , WITH REGARD TO THE ISSUE OF THE COMPLETION CERTIFICATE, THE BUSINESS FOR WHICH JV IS FORMED, ENDED AND THEREFORE, THE EXPENSES INCURRED THEREAFTER DO NOT CONSTITUTE BUSINESS EXPENSES. AO ALSO INVOKED THE PROVISIONS OF SECTION 40(A )(I ) IN RESPECT OF THE CLAIM OF RS. 1,98,64,847/ - AND THE SAME WAS ADDED AS INCOME OF THE ASSESSEE. THESE ARE THE AMOUNTS DEBITED, PAID OR PAYABLE TO NON - RESIDENTS WITHOUT MAKING TDS U/S 195 OF THE ACT. MATTER TRAVELLED TO THE FIRST APPELLATE AUTHOR ITY. 3. DURING THE PROCEEDINGS BEFORE THE FIRST APPELLATE AUTHORITY, ASSESSEE CHALLENGED THE ADDITIONS AND THE ASSESSMENT MADE BY THE AO. AFTER HEARING THE ASSESSEE, CIT (A) CONFIRMED THE ADDITION OF RS. 1,98,64,847/ - . ON THE ISSUE OF 3 ADDITION OF INTEREST OF RS. 2,36,68,000/ - , CIT (A) GRANTED RELIEF AND THE SAME IS THE CASE OF SAID DISALLOWANCE OF RS. 75% OF THE EXPENSES. PARA 30 - 34 OF THE IMPUGNED ORDER ARE RELEVANT IN THIS REGARD. CIT (A) CONFIRMED THE OTHER ADDITIONS OF RS. 1.99 LA KHS BEING PROVISION FOR LEAVE ENCASHMENT AND GRATUITY. FINALLY, CIT (A) PARTLY ALLOWED THE APPEAL OF THE ASSESSEE. AGGRIEVED WITH THE SAID ORDER OF THE CIT (A), ASSESSEE AS WELL AS THE REVENUE FILED THE RESPECTIVE APPEALS BEFORE. REVENUE S APPEAL - ITA N O. 459/M/2008 4. WE SHALL NOW TAKE UP THE APPEAL OF THE REVENUE ITA NO. 459/M/2008 FOR ADJUDICATION. THE GROUNDS RAISED IN THIS APPEAL READ AS UNDER: I) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT (A) ERRED IN DIRECTING THE ASSESSING OFFICER TO ALLOW GROSS INTEREST EXPENDITURE OF RS. 2,36,68,000/ - IGNORING THE FACT THAT THE WORK OF M/S. NATHPA JHAKRI POWER CORPN (NJPC) PERTAINING TO HIMACHAL PRADESH GOVERNMENT WAS ALREADY COMPLETED AND CONTRACTEE HAD ISSUED COMPLETION CERTIFICATE TO T HE ASSESSEE. THE ASSESSE HAD SHOWN ONLY OTHER INCOME AT RS. 39.60 LAKHS AND THEREFORE, THE ONLY EXPENSES WHICH ARE ALLOWABLE ARE AS PER PROVISIONS OF SECTION 58 OF THE ACT. II) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT (A) E RRED IN DIRECTING THE ASSESSING OFFICER TO ALLOW 75% OF THE TOTAL EXPENDITURE OF RS. 3,89,52,000/ - DISALLOWED BY THE AO IGNORING THE FACT THAT THE WORK OF M/S. NATHPA JHAKRI POWER CORPN (NJPC) PERTAINING TO HIMACHAL PRADESH GOVERNMENT WAS ALREADY COMPLETED AND THE CONTRACTEE HAD ISSUED COMPLETION CERTIFICATE TO THE ASSESSEE. THE ASSESSEE HAD SHOWN ONLY OTHER INCOME AT RS. 39.60 LAKHS AND THEREFORE, THE ONLY EXPENSES WHICH ARE ALLOWABLE ARE AS PER PROVISION OF SECTION 58 OF THE IT ACT. 5. GROUND NO.1 RELATES TO DELETION OF ADDITION ON ACCOUNT OF GROSS INTEREST EXPENDITURE OF RS. 2,36,68,000/ - . GROUND NO.2 RELATES TO THE DELETION OF ADDITION MADE BY THE AO AMOUNTING TO RS.3,89,52,000/ - I.E, 75% OF THE GROSS EXPENDITURE. IT IS THE CLAIM OF THE REVENUE THAT THESE EXPENSES SHOULD BE ALLOWED ONLY IN ACCORDANCE WITH THE PROVISIONS OF SECTION 58 OF THE ACT. THE CASE OF THE REVENUE IS THAT THE PROJECT SINCE COMPLETED AND COMPLETION CERTIFICATE IS DRAWN BY JULY, 2003, THE DATE OF EXPIRY OF THE GUARANTEE PERIO D, THE SPECIFIED BUSINESS OF THE ASSESSEE CEASED . THEREFORE, THE EXPENSES RELATABLE TO THE POST JULY 2003 DO NOT CONSTITUTE ALLOWABLE BUSINESS EXPENDITURE. TH EREFORE, ON APPROXIMATE BASIS, 75% OF THE CLAIM OF EXPENSES (AUG 2003 TO MARCH 2004 = 8 MONTHS ) WER E NOT ALLOWED BY THE AO. THE CIT (A) DID NOT AGREE WITH THE ABOVE PROPOSITION AND PROCEEDED TO EXPLAIN THE CONCEPT OF BUSINESS AND NEED FOR INTERPRETING THE SAME LIBERALLY . T HE CONTENTS OF 4 PARA 30 TO 34 OF HIS ORDER ARE RELEVANT . THERE WAS NO DISCU SSION ABOUT THE JUDICIAL PRONOUNCEMENTS AVAILABLE ON RECORD AT THE RELEVANT POINT OF TIME. THIS IS THE CASE WHERE THE JV WAS FORMED FOR SPECIFIC PURPOSES AND THE SAME WAS COMPLETED ON 8.7.2002. ASSESSEE ARGUES THAT THE PROJECT IS SUBSTANTIALLY COMPLETE D AND THERE IS NO DEFINITION TO THIS EXPRESSION SUBSTANTIALLY COMPLETED . OTHERWISE, ASSESSEE PROVIDED WARRANTY PERI OD COMMENCED AFTER 8.7.2002 AND THE SAME IS VALID TILL 8.7.2013. ON THE OTHER HAND, THE CASE OF THE ASSESSEE IS THAT THE ASSESSEE IS STILL CONNECTED TO THE CONTRACT IN QUESTION DESPITE THE SUBSTANTIAL COMPLETION OF THE CONTRACT BY VIRTUE OF PERFORMANCE GUARANTEE AND RETENTION GUARANTEE. FURTHER, IT IS THE CLAIM OF THE ASSESSEE THAT ASSESSEE HAD TO MAKE CERTAIN CLAIMS OF SOME CONTRACTUAL A MOUNTS. THE ISSUES ARE SUB - JUDICE BEFORE THE DISPUTE REVIEW BOARD. THERE IS A PROCEEDINGS OF RECOVERY OF LIQUIDATED DAMAGES OF RS. 73.44 CRS BY NJPC. MATTER WAS REFERRED TO THE BOARD OF ARBITRATION. FINALLY, ORDERS WERE PASSED BY THE BOARD IN SEPTEMBER , 2007 AND AMOUNTS RECEIVED SUBSEQUENTLY WERE OFFERED TO TAX IN THE SUBSEQUENT ASSESSMENT YEARS. ASSESSEE FILED COPIES OF THE RELEVANT ASSESSMENT ORDERS IN EVIDENCING THE SAME. AGGRIEVED WITH THE LIBERAL INTERPRETATION ADVOCATED BY THE CIT(A) AND THE RELI EF GRANTED BY HIM, THE REVENUE FILED THE PRESENT APPEAL WITH THE SAID GROUNDS. 6. BEFORE US, LD CIT - DR FILED COPIES OF CERTAIN DECISIONS FOR THE PROPOSITION THAT THE BUSINESS CONTRACT ONCE EXECUTED BY A JOINT VENTURE COMPANY, THE SUBSEQUENT EXPENSES ARE N OT ALLOWABLE. IN THIS REGARD, LD CIT - DR FILED A COPY OF THE JUDGMENT IN THE CASE OF JOSHI AND VERMA VS. CIT [1979] 119 ITR 262 (BOM). THE RELEVANT CONCLUSIONS OF THE SAID BINDING JUDGMENT ARE NARRATED AS UNDER: IF A FIRM IS FORMED EXCLUSIVELY TO EXECUTE A PARTICULAR CONTRACT, THE BUSINESS ACTIVITY CEASES THE MOMENT THE CONTRACT IS COMPLETED THOUGH BILLS ARE PENDING FOR SETTLEMENT AND NO LOSS CAN BE CLAIMED IN SUBSEQUENT YEAR . WHERE AFTER THE COMPLETION OF CON TRACT FOR WHICH IT WAS FORMED, THE ASSESSEE - FIRM SELLS CERTAIN MATERIALS , IT CANNOT BE SAID TO CARRY ON BUSINESS ACTIVITY WITHIN THE MEANING OF SECTION 28. 7. FURTHER, THE JUDGMENT OF THE HONBLE KERALA HIGH COURT IN THE CASE OF CIT VS. KAR VALVES LTD [19 87] 168 ITR 416 (KER) WAS FILED FOR THE PROPOSITION WHERE ASSESSEE COMPANY INCURRED CERTAIN EXPENDITURE ON OVERHEADS AFTER NATIONALIZATION OF ELECTRICITY DISTRIBUTION BUSINESS CARRIED ON BY IT THE SAME CANNOT BE ALLOWED AS A 5 DEDUCTION AS NO BUSINESS WAS CARRIED ON BY THE ASSESSEE DURING THAT PERIOD. THIS IS THE CASE, WHERE THE ASSESSEE CLAIMED EXPENSES DURING THE POST NATIONALIZATION OF ELECTRICITY DISTRIBUTION BUSINESS. THESE EXPENSES WERE INCURRED ON THE STAFF FOR MAINTAI NING OFFICE CONNECTED TO THE REALIZATION OF COMPENSATION AMOUNTS FROM THE GOVERNMENT. IT WAS HELD THAT MERELY ON ACCOUNT OF THE FACT THAT THE LIABILITIES WERE NOT LIQUIDATED AND OUTSTANDING AMOUNTS WERE NOT COLLECTED DURING THE PERIOD IT CANNOT BE CONCLUD ED THAT THE ASSESSEE WAS CARRYING ON ANY BUSINESS ACTIVITY. FURTHER, CIT - DR BROUGHT TO OUR NOTICE THE JUDGMENT OF THE HONBLE MADRAS HIGH COURT IN THE CASE OF P.V. GAJAPATHI RAJU VS. CIT [1989] 176 ITR 238 (MAD) FOR THE PROPOSITION THAT MERELY COLLECTING DUES DURING THE POST CONTINUATION OF MONEY LENDING BUSINESS, IT DOES NOT TANTAMOUNT TO CONTINUATION OF BUSINESS ACTIVITY. SIMILARLY, HONBLE KERALA HIGH COURT JUDGMENT IN THE CASE OF S.P.V. BANK LTD VS. CIT [1980] 126 ITR 773 (KER) WAS ALSO BROUGHT TO OUR NOTICE FOR THE PROPOSITION THAT MERELY TA KING STEPS FOR REALIZATION OF OUTSTANDING OR FOR PAYMENT OF LIABILITIES OF A CLOSED BUSINESS DOES NOT AMOUNT TO CARRYING ON OF BUSINESS AND CONSEQUENTLY ASSESSEE IS NOT ENTITLED FOR CARRY FORWARD OF LOSSES. 8. ON THE OTHER HAND, SHRI H.P. MAHAJANI, AR LD COUNSEL FOR THE ASSESSEE RELIED ON VARIOUS DECISIONS SPECIFIED IN PARA 29 OF THE IMPUGNED ORDER IN HIS FAVOUR. FURTHER, HE ARGUED STATING THAT THE ASSESSEE MADE CLAIM OF EXPENSES TO THE TUNE OF RS. 7,93,62,000/ - . THE BREAK - UP FOR THESE EXPENSES ARE GIVEN AS UNDER: THE DETAILS OF ENTIRE BUSINESS EXPENSES AMOUNTING TO RS. 7,93,62,000/ - WERE SUBMITTED TO AO IN THE COURSE OF ASSESSMENT VIDE OUR LETTER DATED 7.8.2006, 24.8.2006, 16.10.2006, 20.11.2006, 30.11.2006. MAJOR EXPENSES ARE BANK GUARANTEE COMMISSION RS. 139.53 LAKHS PAID TO SANPAOLO IMI SPA MILANO THRU IGL, LEGAL EXPENSES RS. 18,26,377/ - (EURO 32359) PAID TO BONWLLI EREDE PAPPALARDO MILANO THRU IGL, SOCIAL INSURANCE CONTRIBUTION FOR EXPATRIATRE EMPLOYEES RS. 40,08,678/ - AND SOFTWARE CHARGES RS. 52,875/ - , CONSTRU CTION EXPENSES RS. 110 LAKHS, SALARIES AND EMPLOYEE REMUNERATION RS. 38.36 LAKHS, INTEREST ON BANK LOANS RS. 233.07 LAKHS, STATIONERY, POSTAGE TELEPHONE RS. 7.10 LAKHS, TRAVELLING AND CONVEYANCE RS. 46.44 LAKHS, OFFICE AND GUEST HOUSE RENT RS. 8.55 LAKHS, PROFESSIONAL CHARGES RS. 14.33 PAID TO LAYERS AND FOR RECORD KEEPING, LOSS ON FOREIGN EXCHANGE TRANSACTIONS CONVERSION RS. 32.74 LAKHS, BANK CHARGES RS.5.04 LAKHS, AUDITORS REMUNERATION RS.3.24 LAKHS, DISPUTE REVIEW BOARD EXPENSES RS. 80.88 LAKHS OTHER M ISC. OFFICE ESTABLISHMENT EXPENSES. IT IS THE ARGUMENT O F THE SRI MAHAJANI AR THAT THE JUDGMENT IN THE CASE OF JOSHI AND VARMA (SUPRA) IS DECIDED BASED ON THE FACT THAT THE SAME IS A PARTNERSHIP FIRM AND 6 THE DECISION WAS GIVEN ON THE FACTS OF THE TERMS AND CONDITIONS OF THE RELEVANT PARTNERSHIP DEED. IT IS CLEARLY MENTIONED IN THE SAID JOSHI AND VARMA (SUPRA) CASE THAT THE PROJECT IN THE PARTNERSHIP STANDS COMPLETED ONCE THE CONTRACT WORK COMPLETE . REFER RING TO THE ACTIVITIES DONE SUBSEQUENT TO THE COMPLETION OF THE PROJECTS IN THE PRESENT CASE, LD COUNSEL MENTIONED THAT ASSESSEE HAS GIVEN PERFORMANCE BANK GUARANTEE S AND THE RETENTION MONEY GUARANTEES TO THE TUNE OF RS. 41.35 CRS AND RS. 82.71 CRS RES PECTIVELY IN ADDITION TO THE PENDING CONTRACTUAL OBLIGATIONS TILL THE EXPIRY OF THESE CONTRACTS. THESE ACTIVITIES ARE NOT COMPARABLE TO THE RECOVERIES AND OTHER ASPECTS ADJUDICATED BY THE HONBLE HIGH COURTS IN THE CASES RELIED UPON BY THE CIT - DR (SUPRA). REFERRING TO THE JUDGMENT OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF ASSOCIATED CABLES PVT LTD (286 ITR 596), LD COUNSEL FOR THE ASSESSEE MENTIONED THAT THE RETENTION MONEY GUARANTEE WOULD ACCRUE AS INCOME ONLY WHEN THE CONTRACTUAL OBLIGATIONS ARE F ULFILLED SO AS TO ENTITLE THE CONTRACTOR TO CLAIM THE MONEY. IT IS THE CLAIM OF THE ASSESSEE BEFORE US THAT THE GUARANTEES ARE EXTENDED RIGHT UP TO THE YEAR 2011 . 9. ON HEARING BOTH THE PARTIES AND GOING THROUGH THE CASE LAWS AND THE JUDGMENTS CITED BEFOR E US, IT IS NOTICED THAT THERE IS NO DISPUTE ON THE FACT OF GIVING PERFORMANCE BANK GUARANTEES AND RETENTION MONEY GUARANTEES. THERE IS A CORRESPONDENCE FROM THE BANK CONFIRMING THE EXISTENCE OF THESE GUARANTEES (PAGES 59 TO 63 OF THE PAPER BOOK ARE R ELEVANT). AT THE SAME TIME, IT IS A FACT THAT THE CORE BUSINESS ACTIVITY OF COMPLETION OF WORK IS COMPLETED. THE REVENUE AUTHORITIES HAVE NOT ANALYZED IF THE PENDING WORKS LISTED ABOVE CONSTITUTE PART OF THE CORE BUSINESS ACTIVITY OR ALTERNATIVELY IF THE Y ARE AKIN TO THE MISCELLANEOUS ACTIVITIES LIKE RECOVERIES, SETTLEMENT OF PENDING BILLS ETC BROUGHT OUT BY THE LD DR RELYING ON THE JUDGMENT IN THE CAS E OF JOSHI AND VARMA (SUPRA), KAR VALVES LTD (SUPRA) AND OTHERS . THE IS ALSO A NEED FOR EXAMINING THE JOI NT VENTURE AGREEMENT IN THE LIGHT OF THE BINDING JUDGMENT OF THE HONBLE HIGH COURT IN THE CASE OF JOSHI AND VARMA (SUPRA). FROM THE ABOVE FACTS AS WELL AS THE LEGAL PROPOSITIONS OF THE CASE, WE ARE OF THE OPINION THAT THE ASSESSEE CLAIMS THAT THE BUSINES S IS IN CONTINUATION AND THE BUSINESS INCLUDE (I) GUARANTEES ARE IN EXISTENCE; (II) DAMAGES ARE CLAIMED AND THE CONTRACTUAL AMOUNTS ARE RECEIVABLE AND ETC ARE REQUIRED TO BE EXAMINED BY WAY OF A SPEAKING ORDER . THE ORDERS OF THE REVENUE DO NOT EXAMINE IF THESE ACTIVITIES CONSTITUTE 7 CONTINUATION OF BUSINESS ACTIVITY WITHIN THE MEANING OF SECTION 28 OF THE ACT. IT IS A SETTLED LEGAL PROPOSITION THAT ONCE THE CONTRACT SPECIFIC JV IS INCORPORATED AND THE SAME COMPLETES THE CONTRACT SO SPECIFIED, THE BUSINESS EXPENDITURE INCURRED AFTER THE SAID COMPLETION IS NOT ALLOWABLE. THE LEGAL PROPOSITIONS EXTRACTED ABOVE SUPPORTS THIS VIEW. IT IS A FACT THAT THE REVENUE AUTHORITIES HAVE NOT DETAILED THE PENDING WORKS AFTER JULY, 2003 AND IF THEY FORM PART OF THE BUSINESS ACTIVITIES OF THE ASSESSEE. THIS BEING A VERY IMPORTANT BASIC FACT REQUIRED FOR ADJUDICATION OF THE ISSUE UNDER CONSIDERATION. CONSIDERING THE SAME, WE ARE OF THE OPINION THAT THE GROUND NO.1 AND 2 RAISED BY THE REVENUE IN THIS APPEAL SHOULD BE REMANDED TO THE FILES OF THE AO FOR DECIDING THE ISSUE AFRESH AFTER AFFORDING A REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. ACCORDINGLY, BOTH THE GROUNDS RAISED BY REVENUE ARE ALLOWED FOR STATISTICAL PURPOSES. 10. IN THE RESULT, APPEAL OF THE R EVENUE I S ALLOWED FOR STATISTICAL PURPOSES. ./I.T.A. NO.260/M/2008 ( / ASSESSMENT YEAR: 2004 - 2005) 11. THIS APPEAL FILED BY THE ASSESSEE ON 11.1.2008 IS AGAINST THE ORDER OF THE CIT (A) - XXIII, MUMBAI DATED 12 TH NOVEMBER, 2007 FOR THE ASSESSMENT YEAR 2004 - 2005. 12. IN THIS APPEAL, ASSESSEE RAISED THE FOLLOWING GROUNDS WHICH READ AS UNDER: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD CIT (A) HAS ERRED IN UPHOLDING THE DISALLOWANCE OF RS. 1,98,64,847/ - MAD E BY THE AO ON ACCOUNT OF REIMBURSEMENT OF EXPENSE S PAID TO NON - RESIDENTS BY INVOKING THE PROVISIONS OF SECTION 40(A)(I) OF THE ACT. 2. THE LD CIT (A) ALSO ERRED IN UPHOLDING THE DISALLOWANCE OF RS. 1,99,000/ - MADE BY THE ASSESSING OFFICER IN RESPECT OF PROVISION FOR LEAVE ENCASHMENT AND GRATUITY . 13. AT THE OUTSET, LD COUNSEL FOR THE ASSESSEE BROUGHT OUR ATTENTION TO THE GROUND NO.1 RELA TING TO THE DISALLOWANCE OF RS. 1,98,64,847/ - BEING REIMBURSEMENT OF EXPENSES PAID TO NON - RESIDENTS UNDER THE PROVISIONS OF SECTION 40(A)(I) OF THE ACT. IN THIS REGARD, LD COUNSEL BROUGHT OUR ATTENTION TO THE ORDER OF THE HONBLE BOMBAY HIGH COURT IN ASSE SSEES OWN CASE VIDE INCOME TAX APPEAL NO.3694 OF 2010 DATED 14.08.2012 AND MENTIONED THAT THE TRIBUNAL GRANTED RELIEF ON IDENTICAL ISSUE FOR THE AY 2003 - 04 VIDE ITA NO.35/MUM/2007 (AY: 2003 - 2004) DATED 3.12.2009 AND READ 8 OUT RELEVANT PARA 10 IN THIS REGAR D. FURTHER, LD COUNSEL MENTIONED THAT THE REVENUE IS IN APPEAL BEFORE THE HONBLE HIGH COURT AGAINST THE SAID ORDER OF THE TRIBUNAL VIDE INCOME TAX APPEAL NO.3694 OF 2010 DATED 14.08.2012 (SUPRA). WHILE ADMITTING THE APPEAL OF THE REVENUE, THE REVENUE RE LIED ON ANOTHER JUDGMENT OF THE SAME COURT IN THE CASE OF PRUTHVI BROKERS & SHRAREHOLDERS VIDE ITA NO.3908 OF 2010 DATED 21.6.2012. IT IS THE ASSERTION OF THE ASSESSEE THAT THE FACTS ARE IDENTICAL IN BOTH THE YEARS AND THE PAYMENTS WERE MADE TO THE SIMILA R PARTIES THEREFORE, THE SAID ORDER OF THE TRIBUNAL IN THE AY 2003 - 04 COVERS THE DISPUTE RAISED BY THE ASSESSEE IN THIS APPEAL. 14. ON THE OTHER HAND, LD DR OPPOSED THE CLAIM OF COVERED NATURE OF THE ISSUE AND RELIED ON THE DECISION OF THE TRIBUNAL IN THE CASE OF ACIT VS. M/S. FIRST ADVANTAGE PVT LTD VIDE ITA NO.3029 AND 3030/M/2010 (AY 2008 - 09 & 2009 - 10), DATED 18.5.2012 AND MENTIONED THAT THERE IS A VIOLATION TO THE PROVISIONS OF SECTION 40(A)(I) OF THE ACT. IT IS THE CLAIM OF THE LD DR THAT FACTS WERE NOT UNDERSTOOD BY THE TRIBUNAL AND THEREFORE, THE DECISION OF THE TRIBUNAL FOR THE AY 2003 - 2004 SHOULD NOT APPLY HERE. 15. ON HEARING BOTH THE PARTIES, WE A RE OF THE OPINION THAT THE DECISION OF THE TRIBUNAL FOR THE AY 2003 - 2004 WAS TAKEN BASING ON THE COMPARING FACTS OF THE PRESENT CASE. IT IS NOT APPROPRIATE FOR US TO GO INTO THE ERRORS IN THE ORDER OF THE TRIBUNAL WHEN THE SAME WERE NOT REMOVED THROUGH MI SCELLANEOUS APPLICATION U/S 254 OF THE ACT. NOW, THE MATTER IS SEIZED UP BY THE HONBLE HIGH COURT BY WAY OF ADMITTING THE APPEAL OF THE REVENUE. THEREFORE, THE ORDER OF THE TRIBUNAL FOR THE AY 2003 - 2004 WILL HAVE A BINDING VALUE. IN THESE CIRCUMSTANCES , WE ARE OF THE OPINION THAT THE ORDER OF THE CIT (A) IS REQUIRED TO BE REVERSED ON THE ISSUE OF DISALLOWANCE OF RS. 1,98,64,847/ - AND THE ASSESSEE GETS RELIEF ACCORDINGLY. THUS, GROUND NO.1 RAISED BY THE ASSESSEE IS ALLOWED . 16. GROUND NO.2 RELATES TO TH E DISALLOWANCE OF RS. 1.99 LAKHS BEING THE PROVISION FOR LEAVE ENCASHMENT AND GRATUITY. IT IS THE CLAIM OF THE REVENUE THAT THE ASSESSEE HAS NOT FURNISHED ANY SUBMISSION IN SUPPORT OF THE CLAIM OF RS. 1.99 LAKHS ( PARA 35 OF THE CIT(A)S ORDER IS RELEVANT) . ACCORDINGLY, CIT (A) CONFIRMED THE ADDITION BY MERELY STATING THAT THEREFORE, I DONT INTEND TO INTERFERE WITH THE AOS 9 DECISION OF ADDITION OF RS. 1.99 LAKHS WHICH CAN BE SUSTAINED AS INCOME ON ACCOUNT OF UNEXPLAINED AND NON - EXISTENT LIABILITY, IF NOT AS PROFIT OF THE P & L ACCOUNT. THE GROUND IS DISMISSED. THE SAID DECISION DOES NOT PROVIDE ANY INFORMATION AS TO THE DETAILS FOR ADDITION, DISALLOWANCE, ASSESSEES STAND AND THE REASONS FOR CONFIRMING THE ADDITION. IT IS NOT CLEAR HOW IT IS AN UNEXPLAINED LIABILITY OR NON - EXISTING LIABILITY OR PROFIT OF THE P& L ACCOUNT. CONSIDERING THE NON - SPEAKING NATURE OF THE CONCLUSIONS OF THE CIT (A), WE ARE OF THE OPINION THAT THE ISSUE SHOULD BE REMANDED TO THE FILES OF THE AO FOR ADJUDICATING THE ISSUE AFRESH AFTER GRANT A REASONABLE OPPORTUNITY OF BEING HEARD TO THE A SSESSEE. ACCORDINGLY, GROUND NO.2 IS ALLOWED FOR STATISTICAL PURPOSES. 17 . IN THE RESULT, APPEAL OF THE ASSESSEE, IS PARTLY ALLOWED FOR STATISTICAL PUROSES. ORDER PRONOU NCED IN THE OPEN COURT ON 3 0 T H APRIL, 2014. S D / - S D / - (VIJAY PAL RAO) (D. KARUNAKARA RAO) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; 3 0 . 0 4 .2014 . . ./ OKK , SR. PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE . //TRUE COPY// / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI