The ITO, Ward-3, Gandhinagar V. The Gujarat Urban Development Co. Ltd., Gandhinagar

ITA 2840/AHD/2007

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 8832 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 8 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-03-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 09-03-2010
• Assessment Year: 2004-2005
• Appeal Filed On: 29-06-2007
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: GOVIND SINGHAL
• Assessee Lawyers: M K PATEL
• Keywords: Capital asset; Business income; Depreciation; Set aside
• Section: 143(1); 143(2); 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH A, AHMEDABAD BEFORE SHRI BHAVNESH SAINI, JM & SHRI A.N. PAHUJA, AM I.T.A. NO.2840/AHD/2007 (ASSESSMENT YEAR 2004-05) ITO, WARD-3 VS GUJARAT URBAN DEVELOPMENT GANDHINAGAR COMPANY LTD, 1 ST FLOOR ABHISHEK BUILDING, SECTOR 11 GANDHINAGAR [PAN : AABCG1330R] (APPELLANT) (RESPONDENT) REVENUE BY : SHRI GOVIND SINGHAL, DR ASSESSEE BY : SHRI MK PATEL, AR. O R D E R AN PAHUJA : THIS APPEAL BY THE REVENUE AGAINST AN O RDER DATED 28-03-2007 OF THE CIT(A), GANDHINAGAR ,RAISES THE FOLLOWING GROUN DS:. (1) THE LEARNED CIT(APPEALS) HAS ERRED IN LAW AND ON THE FACTS IN DELETING THE DISALLOWANCE ON ACCOUNT OF ADMINIST RATIVE EXPENDITURE OF RS.3,56,485/-. (2) THE LEARNED CIT(APPEALS) HAS ERRED IN LAW AND O N THE FACTS IN DELETING THE DISALLOWANCE ON ACCOUNT OF PRELIMIN ARY EXPENSES WRITTEN OFF OF RS.7,11,973/-. (3) THE LEARNED CIT(APPEALS) HAS ERRED IN LAW AND O N THE FACTS IN DELETING THE DISALLOWANCE ON ACCOUNT OF DEPRECIA TION ALLOWABLE AS PER THE I.T. LAW OF RS.1,40,230/-. (4) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE THE CIT(APPEALS) OUGHT TO HAVE UPHELD THE ORDER OF THE A.O. (5) IT IS THEREFORE PRAYED THAT THE ORDER OF THE LE ARNED CIT(APPEALS) MAY BE SET ASIDE AND THAT OF THE A.O. BE RESTORED TO THE ABOVE EXTENT. 2. FACTS,IN BRIEF, AS PER RELEVANT ORDERS ARE THAT RETURN DECLARING INCOME OF RS.41,01,702/- FILED ON 21-10-2004, AFTER BEING PR OCESSED U/S 143(1) OF THE INCOME-TAX ACT, 1961 (HEREINAFTER CALLED, THE ACT ) , WAS TAKEN UP FOR SCRUTINY ITA NO.2840/AHD/2007 2 WITH THE ISSUE OF NOTICE U/S 143(2) OF THE ACT ON 1 7-01-2005 . DURING THE COURSE OF ASSESSMENT PROCEEDINGS , THE ASSESSING OFFICER[A O IN SHORT] NOTICED THAT THE ASSESSEE IS A 100% STATE OWNED COMPANY REGISTERED U/S 617 OF THE COMPANIESACT, 1956 WITH AN OBJECT TO DEVELOP AND D EAL IN ALL ASPECTS, TYPES AND KINDS AND FORMS OF URBAN DEVELOPMENT, URBAN INFRAST RUCTURE AND URBAN HOUSING. AFTER REFERRING TO THE OBJECTS OF THE COMPANY AND THEIR ANNUAL REPORT AS ALSO THE FACT THAT THE ASSESSEE HAD SHOWN INCOME UNDER THE H EADOTHER SOURCES ONLY, THE AO CONCLUDED , FOR THE REASONS MENTIONED ON PAG ES 2 TO 4 OF HIS ORDER THAT THE ASSESSEE HAS NOT COMMENCED THEIR BUSINESS AND T HE INCOME EARNED BY THE ASSESSEE FROM SURPLUS FUNDS OF THE ASSESSEE HAS TO BE TAXED UNDER THE HEAD INCOME FROM OTHER SOURCES ,RELYING INTER ALIA, ON THE JUDGMENT OF THE HONBLE APEX COURT IN THE CASE OF TUTICORIN ALKALIES CHEMIC ALS & FERTILISERS LTD 227 ITR 172 (SC). AS A RESULT, FOLLOWING EXPENDITURE CLAI MED BY THE ASSESSEE WAS DISALLOWED: I) ADMINISTRATIVE & OTHER EXPENSES RS. 3,56,485 /- II) DEPRECIATION RS. 1,40,230/- III) PRELIMINARY EXPENSES WRITTEN OFF RS. 7,11 ,973/- -------------------- TOTAL .. RS.12,08,688/- -------------------- 3. ON APPEAL, THE LD. CIT(A), FOLLOWING HIS ORDER F OR THE AY 2003-04 CONCLUDED THAT THAT THE ASSESSEE HAD COMMENCED ITS BUSINESS AND THE ADMINISTRATIVE AND OTHER EXPENSES CLAIMED WERE ELIG IBLE TO BE DEDUCTED IN COMPUTING INCOME UNDER THE HEAD BUSINESS. 4. THE REVENUE IS NOW IN APPEAL BEFORE US AGAINST THE AFORESAID FINDINGS OF THE LD. CIT(A).AT THE OUTSET,THE LD. AR ON BEHAL F OF THE ASSESSEE WHILE INVITING OUR ATTENTION TO AN ORDER DATED 29-04-2009 OF THE ITAT IN THE ASSESSEES OWN CASE FOR THE AYS 2002-03 AND 2003-04 IN ITA NOS. 12 05-1269& 2113/AHD/2006 ITA NO.2840/AHD/2007 3 SUBMITTED THAT THE ISSUE IS SQUARELY COVERED IN TH E ASSESSEES FAVOUR . THE LD. DR DID NOT OPPOSE THESE SUBMISSIONS ON BEHALF OF T HE ASSESSEE. 5. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE FACTS OF THE CASE AS ALSO THE DECISION RELIED UPON. WE FIND THAT THE TR IBUNAL, WHILE ADJUDICATING A SIMILAR ISSUE IN THE ASSESSEES OWN CASE IN THE AYS 2002-03 & 2003-04, VIDE THEIR AFORECITED ORDER DATED 29-04-2009,CONCLUDED I N THE FOLLOWING TERMS: 11. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D THE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIALS AVAILABL E ON RECORD. IN THE INSTANT CASE, THE ASSESSEE FILED RETURN OF INCO ME SHOWING ITS ENTIRE GROSS RECEIPTS OF RS.29,34,749/- AS ITS INCO ME AND CLAIMED THE SAME AS EXEMPT U/S 10(20A) OF THE I.T. ACT, 196 1. THE ASSESSING OFFICER DISALLOWED DEDUCTION CLAIMED BY T HE ASSESSEE U/S 10(20A) OF THE ACT AND TAXED THE ENTIRE RECEIPT OF RS.29,34,749/- AS THE INCOME OF THE ASSESSEE. THE CONTENTION OF THE ASSESSEE IS THAT THE ASSESSEE HAD SHOWN EXPENDI TURE UNDER THE HEADS ADMINISTRATION, DEPRECIATION, PRELIMINARY EXPENSES, ETC. TOTALING TO RS.24,70,524/-. THE ASSESSING OFFICER WAS NOT JUSTIFIED IN NOT ALLOWING DEDUCTION FOR THE SAME WHILE COMPUT ING THE INCOME OF THE ASSESSEE ON THE GROUND THAT IT HAS NOT COMME NCED ITS BUSINESS IN THE EARLIER ASSESSMENT YEAR 2001-02. H ENCE, THE ASSESSING OFFICER IS NOT JUSTIFIED IN NOT ALLOWING DEDUCTION FOR EXPENDITURE SHOWN BY THE ASSESSEE IN ITS ACCOUNTS. THE LD.CIT(APPEALS) OBSERVED THAT THE COMPANY HAD UNDER TAKEN ACTIVITIES IN EARLIER YEAR IN ACCORDANCE WITH ITS M AIN OBJECTS ENSHRINED IN THE MEMORANDUM OF ARTICLES OF ASSOCIAT ION OF THE COMPANY. THE LD.CIT(APPEALS) HAS ALSO OBSERVED THA T DURING THE YEAR UNDER CONSIDERATION, THERE WAS CHANGE IN THE A CTIVITIES OF THE ASSESSEE-COMPANY AS IT WAS DESIGNATED AS A NODAL AG ENCY TO IMPLEMENT THE URBAN INFRASTRUCTURE COMPONENT OF THE EARTHQUAKE RECONSTRUCTION AND REHABILITATION PROJECT THROUGH G UJARAT STATE DISASTER MANAGEMENT AUTHORITY AND ENTIRE EXPENDITUR E INCURRED FOR THE SAME WAS REIMBURSED BY THE GUJARAT STATE DISAST ER MANAGEMENT AUTHORITY AND WHICH DID NOT FORM PART OF TURNOVER. THE ASSESSEE WAS ALSO APPOINTED NODAL AGENCY FOR IMPLEMENTATION OF GUJARAT REFORMS PROJECT BY THE UR BAN DEVELOPMENT AND URBAN HOUSING DEPARTMENT OF GOVERNM ENT OF GUJARAT, THE TOTAL COST OF WHICH WAS USD 150 MN. T HE ASSESSING OFFICER CONSIDERED THE ACTIVITIES OF THE ASSESSEE F ROM THE VIEW THAT THE MAIN OBJECT WAS OF ACQUIRING BUILDING, DEVELOPI NG, ETC. OF INFRASTRUCTURE AND SELLING OR EXPLOITING SUCH ASSET S. THEREFORE, THE ITA NO.2840/AHD/2007 4 ACTIVITIES CARRIED OUT BY THE ASSESSEE WAS HELD TO BE PRE-OPERATIVE IN NATURE. THE LD.CIT(APPEALS) OBSERVED THAT THE A SSESSEE WAS MAINLY CARRYING ON FUNCTION OF NODAL IN IMPLEMENTIN G THE PROJECTS. THE COMPANY UTILIZED ITS PROFESSIONALS AND OTHER EM PLOYEES FOR THE SAME. THE COMPANY WAS NOT TO ACQUIRE, BUILD OR OWN ANY CAPITAL ASSETS IN CARRYING OUT ITS BUSINESS AS NODAL AGENCY AND, THEREFORE, THERE WAS NO QUESTION OF COMMERCIAL EXPLOITATION OF ASSETS BY THE ASSESSEE. THE ACTIVITIES OF THE ASSESSEE OF CONDUC TING PRE- FEASIBILITY STUDY, APPOINTING CONSULTANTS INVITING BIDS / TENDERS OBTAINING ANALYZING AND SUPPLYING DATA ON URBAN NEE DS, THEREFORE, CANNOT BE TREATED AS PRE-OPERATIVE IN NATURE. THE REVENUE COULD NOT BRING ANY MATERIAL ON RECORD TO SHOW THAT THE A BOVE FINDING OF THE LD.CIT(APPEALS) WAS NOT CORRECT. FURTHER, NO M ATERIAL WAS BROUGHT ON RECORD TO SHOW THAT ASSESSEE WAS IN THE BUSINESS OF ACQUIRING BUILDING OR OWNING CAPITAL ASSETS IN CARR YING OUT COMMERCIAL EXPLOITATION OF ASSETS. FURTHER, THE RE VENUE COULD NOT CONTROVERT THE FINDING OF THE LD.CIT(APPEALS) THAT THE ASSESSEE HAS ALREADY COMMENCED ITS BUSINESS IN THE EARLIER ASSES SMENT YEAR 2001-02 AND THE YEAR UNDER APPEAL IS NOT THE FIRST YEAR IN WHICH THE ASSESSEE DERIVED THE BUSINESS RECEIPTS. IN VIEW OF THE ABOVE, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD.CI T(APPEALS). THUS, THE GROUND OF APPEAL OF THE REVENUE IS DISMISSED. 5.1 IN THE LIGHT OF VIEW TAKEN IN THE AFORES AID DECISION THAT THE ASSESSEE HAD ALREADY COMMENCED BUSINESS IN THE PERIOD RELEVANT T O THE AY 2001-02, WE ARE NOT INCLINED TO INTERFERE WITH THE FINDINGS OF THE LD. CIT(A). THEREFORE, GROUND NOS. 1 TO 3 IN THE APPEAL ARE DISMISSED. 6. GROUND NOS. 4 & 5 BEING GENERAL IN NATURE , DO NOT REQUIRE ANY SEPARATE ADJUDICATION AND ARE, THEREFORE, DISMISSED. 7. IN THE RESULT, APPEAL IS DISMISSED. ORDER PRONOUNCED ON THIS 9TH DAY OF MARCH, 2010. SD/- SD /- (BHAVNESH SAINI) (A.N. PAHUJA) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD, DATED :9TH MARCH, 2010 PK/- ITA NO.2840/AHD/2007 5 COPY TO: 1. THE ASSESSEE 2. ITO, WARD-3 , GANDHINAGAR 3. CIT(A) , GANDHINAGAR 4. CIT CONCERNED 5. DR, A BENCH BY ORDER DEPUTY REGISTRAR, ITAT, AHMEDABAD