ADIT, New Delhi V. M/s. Hyundai Engineering & Contruction Co. Ltd., New Delhi

ITA 2715/DEL/2014

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 7262 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 1 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-06-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 13-06-2016
• Assessment Year: 2005-2006
• Appeal Filed On: 02-05-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business expenditure

Judgement Text

1 ITA 2715/DEL/2014 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH C NEW DELHI BEFORE SHRI S.V. MEHROTRA : ACCOUNTANT MEMBER AND SMT. BEENA A. PILLAI: JUDICIAL MEMBER ITA NO. 2715/DEL/2014 ASSTT. YR: 2005-06 ADIT, CIRCLE 1(2), VS. HYUNDAI ENGINEERING & CON STRUCTION (INTL. TAX), NEW DELHI CO. LTD., ROOM NO. 576, HOTEL SAMRAT, CHANAKYAPURI, NEW DELHI. PAN: AAACH 2622 L ( APPELLANT ) (RESPONDENT) APPELLANT BY : SHRI SANJAY KUMAR YADAV SR. DR RESPONDENT BY : NONE DATE OF HEARING : 13/06/2016. DATE OF ORDER : 15/06/20126. O R D E R PER S.V. MEHROTRA, A.M: THIS IS REVENUES APPEAL AGAINST THE ORDER DATED 28.02.2014, PASSED BY THE LD. CIT(A)-XXIX, NEW DELHI, RELATING TO AY 2 005-06. 2. NONE PUT IN APPEARANCE ON BEHALF OF THE ASSESSEE . WE PROCEED TO DISPOSE OF THE REVENUES APPEAL, EX PARTE, QUA THE ASSESSEE AND IN THAT PROCESS WE HAVE HEARD LD. DR AND PERUSED THE MATERI AL AVAILABLE ON RECORD. 3. EFFECTIVE GROUNDS RAISED ARE AS UNDER: 2 ITA 2715/DEL/2014 1. ON THE FACTS AND THE CIRCUMSTANCE OF THE CASE, W HETHER LD. CIT(A) WAS CORRECT IN DELETING THE ADDITION OF RS. 1,42,21,882/- AND HOLDING THAT FREIGHT EXPENSES ARE ALLOWABLE AS BUSINESS EXPENDITURE IN REFERENCE TO RE-EXPORT O F EQUIPMENTS. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, WHETHER LD. CIT (A) WAS CORRECT IN DELETING THE ADD ITION OF RS. 51,07,400/- AND HOLDING THAT THESE WERE IN NATURE O F DEDUCTIBLE EXPENSES AND THE ASSESSEE WAS CORRECT IN NOT CLASSI FYING THIS SUM AS WORK-IN-PROGRESS FOR THE REASON THAT THE ASS ESSEE WAS NOT TO RECOVER ANYTHING FROM THE CLIENT IN SPITE OF THE FACT THAT IN THE LIGHT OF THE FACTS SUCH EXPENDITURE SHOULD HAD BEEN CAPITALIZED AS WORK-IN PROGRESS 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE WA S HAVING 7 BUSINESS UNITS AND IT WAS MAINLY IN ENGINEERING AND CONSTRUC TION BUSINESS. THE ASSESSEE HAD FILED RETURN OF INCOME DECLARING LOSS OF RS. 3,33,86,099/-. THE AO NOTICED FROM THE COMPUTATION OF INCOME THAT THE LOSS/ PROFIT OF VARIOUS PROJECTS DURING THE YEAR WAS AS UNDER: (I) NAPTHA JHAKARI POWER PROJECT (5,582,820) (II) CAR PROJECT (3,028,084) (III) NAINI BRIDGE (31,470,784) (IV) HYDROGEN GENERATION UNIT 648,347 (V) TIDEL POWER PROJECT 54,603 (VI) IT-500 KOLAR (5,107,401) (VII) KAYAMKULAM 142,610 4. AO NOTICED THAT IN THE NAINI BRIDGE PROJECT THE RECEIPTS WERE OF RS. 64,037,288/-, WHICH INCLUDED CONSTRUCTION INCOME OF RS. 3,51,92,281/-. HE FURTHER NOTICED THAT THIS PROJECT HAD A GROSS BLOCK OF RS. 118,840,919/- IN RESPECT OF PLANT AND MACHINERY AND ON THIS DEPRECIA TION OF RS. 52,909,739/- AS PER COMPANIES ACT WAS CLAIMED. THE WHOLE BLOCK O F PLANT AND MACHINERY HAD OPENING WDV AS PER THE ACT OF RS. 61,013,843. H E NOTED THAT ALL THE 3 ITA 2715/DEL/2014 MACHINERIES RELATING TO NAINI BRIDGE PROJECT HAD BE EN RE-EXPORTED BY THE ASSESSEE DURING THE YEAR AND THE CLOSING WDV OF PLA NT AND MACHINERY HAD BECOME NIL. IN THE TRANSACTION THE ASSESSEE HAD SHO WN THE SHORT TERM CAPITAL GAIN OF RS. 13,69,348/-. HE FURTHER NOTICED THAT AS SESSEE HAD CLAIMED EXPENSES OF RS. 1,42,21,882/- FOR FREIGHT INWARDS. THE AO DISALLOWED THE ASSESSEES CLAIM, INTER ALIA, OBSERVING AS UNDER: AS THE ASSESSEE HAS NOT IMPORTED ANY EQUIPMENT DUR ING THE YEAR, BUT AHS RE-EXPORTED ONLY AND THAT TOO TO ITS HEAD OFFICE, AT A VALUE NEAR TO WDV. THE ASSESSEE HAS NOT SUBMITTED THE BASIS OF VALUATION OF ASSETS. IN THE CIRCUMSTANCES IT SHO ULD HAVE ALSO RECOVERED THE FREIGHT EXPENSES RELATING TO SUCH RE- EXPORT OF ASSETS. CONSIDERING THESE FACTS, THE FREIGHT EXPENS ES CLAIMED OF RS. 14,221,882/- IS DISALLOWED. 5. AS REGARDS IT-500 KOLAR PROJECT, THE AO NOTICED THAT THE INCOME OF THE ASSESSEE WAS INTEREST INCOME ON REFUNDS FROM IT DEPARTMENT AND BANK DEPOSIT INTEREST INCOME. HE FURTHER NOTICED THAT EX PENSES PERTAINED TO DIRECT MATERIAL OF RS. 35,95,180/-, SUBCONTRACT EXPENSES O F RS. 10,55,072/-. HE POINTED OUT THAT SINCE THE ASSESSEE WAS NOT EARNING ANY RECEIPT FROM THE PROJECT AND IT APPEARED THAT THE PROJECT RELATED TO THE SUPPLY AND ERECTION OF POWER GRID CORPORATION OF INDIA LTD., THEREFORE, IF THESE EXPENSES WERE INCURRED, THE SAME SHOULD HAVE BEEN SHOWN AS WORK-I N-PROGRESS. HE, ACCORDINGLY, CONCLUDED THAT EITHER THE WORK IN PROG RESS WAS TO BE ESTIMATED AT RS. 70,28,511/- OR THE NET OF EXPENSES OF RS. 51 ,07,400/- WERE TO BE DISALLOWED. HE, ACCORDINGLY, DETERMINED THE LOSS AT RS. 11,115,817/-, INTER ALIA, MAKING THE AFOREMENTIONED TWO DISALLOWANCES. 4 ITA 2715/DEL/2014 6. LD. CIT(A) DELETED THE DISALLOWANCE IN RESPECT O F NAINI BRIDGE PROJECT OBSERVING AS UNDER: 7.2 I HAVE DULY CONSIDERED SUBMISSIONS OF THE APPEL LANT, DETAILS OF FREIGHT EXPENSES, TDS CERTIFICATES AND O THER MATERIALS FURNISHED BY THE APPELLANT. IT HAS BEEN NOTED THAT ALL THE PAYMENTS HAVE BEEN MADE BY THE ACCOUNT PAYEE CHEQUE S AND THE APPELLANT HAS COMPLIED WITH TDS OBLIGATION WHER EVER APPLICABLE. IT IS ALSO A FACT THAT FREIGHT EXPENSES HAVE BEEN INCURRED IN REFERENCE TO RE-EXPORT OF EQUIPMENT USE D BY THE APPELLANT IN ITS BUSINESS AND HENCE THESE ARE IN TH E NATURE OF BUSINESS EXPENDITURE. THE AO HAS NOT GIVEN ANY COGE NT REASON FOR DISALLOWING THESE EXPENSES. IN VIEW OF ABOVE, I HOLD THAT FREIGHT EXPENSES TO THE TUNE OF RS. 1,42,21,882/- A RE TO BE ALLOWED AS DEDUCTION. THE GROUND OF APPEAL IS ACCOR DINGLY ALLOWED . 7. HAVING HEARD LD. DR, WE DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF LD. CIT(A) BECAUSE HE HAS, INTER ALIA, POI NTED OUT THAT EXPENSES HAD BEEN INCURRED IN REFERENCE TO RE-EXPORT OF EQUIPME NT USED BY THE ASSESSEE IN ITS BUSINESS AND HENCE THESE WERE IN THE NATURE OF BUSINESS EXPENDITURE. NOTHING HAS BEEN BROUGHT ON RECORD BY THE DEPARTMEN T TO CONTROVERT THESE FINDINGS. ACCORDINGLY, ORDER OF LD. CIT(A) ON THE I SSUE IN QUESTION IS UPHELD. GROUND NO. 1 IS DISMISSED. 8. APROPOS GROUND NO. 2 IN REGARD TO IT-500 KOLAR P ROJECT, WE FIND THAT LD. CIT(A) IN PARA 8.2 HAS OBSERVED AS UNDER: 8.2. I HAVE DULY CONSIDERED THE SUBMISSIONS OF THE APPELLANT AND OTHER MATERIALS PLACED ON RECORD. IT HAS BEEN N OTED THAT ALL THE PAYMENTS HAVE BEEN MADE BY ACCOUNT PAYEE CHEQUE S AND THE APPELLANT HAS FULFILLED TDS OBLIGATIONS WHEREVE R 5 ITA 2715/DEL/2014 APPLICABLE. THE OBSERVATION OF THE AO THAT PAYMENTS SHOULD HAVE BEEN TREATED AS WORK-IN-PROGRESS IS NOT CORREC T BECAUSE THESE ARE IN THE NATURE OF EXPENSES AND CANNOT BE RECOVERED FROM THE CLIENT. IN VIEW OF DISCUSSION ABOVE, I HOL D THAT DISALLOWANCE MADE BY THE AO IN RESPECT OF THIS PROJ ECT IS NOT CORRECT. THE AO IS DIRECTED TO GRANT THE RELIEF ACC ORDINGLY. THE GROUND OF APPEAL IS ALLOWED . 9. AFTER HEARING THE LD. DR WE DO NOT FIND ANY REAS ON TO INTERFERE WITH THE ORDER OF LD. CIT(A) ON THE ISSUE IN QUESTION, BECAUSE THE IMPUGNED AMOUNTS WERE CLEARLY IN THE NATURE OF BUSINESS EXPE NSES. THE AO HAD PRIMARILY DISALLOWED THESE EXPENSES BECAUSE THE ASS ESSEE WAS NOT EARNING ANY RECEIPT FROM THE PROJECT. IT IS WELL SETTLED LA W THAT IT IS NOT NECESSARY THAT FOR ALLOWABILITY OF EXPENSES, THERE SHOULD BE RECEI PT ALSO FOR JUSTIFYING THE ASSESSEES CLAIM REGARDING EXPENSES. ACCORDINGLY, ORDER OF LD. CIT(A) ON THE ISSUE IN QUESTION IS UPHELD. GROUND IS DISMISSE D. 10. IN THE RESULT, REVENUES APPEAL IS DISMISSED. ORDER PRONOUNCEMENT IN OPEN COURT ON 15/06/2016. SD/- SD/- (BEENA A. PILLAI) (S.V. MEHROTRA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 15/06/2016. *MP* COPY OF ORDER TO: 1. ASSESSEE 2. AO 3. CIT 4. CIT(A) 5. DR, ITAT, NEW DELHI.