Dholu Construction and Projects Ltd., Ahmedabad V. The Income tax Officer, Ward-1(4), Ahmedabad

ITA 2913/AHD/2004

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 8727 (ITAT-AHMEDABAD)
• Duration Of Justice: 5 year(s) 6 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-03-2010
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 18-03-2010
• Assessment Year: 2001-2002
• Appeal Filed On: 29-09-2004
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: M C
• Assessee Lawyers: S N DIVATIA
• Keywords: Capital expenditure
• Section: 201

Judgement Text

ITA.2913-04-DCA 1 IN THE INCOME_TAX APPELLATE TRIBUNAL C BENCH, AHMEDABAD BEFORE SHRI BHAVNESH SAINI AND SHRI D.C. AGARWAL. ITA NO.2913/AHD/2004 (ASSESSMENT YEAR: 2001-02 ) DHOLU CONSTRUCTION AND PROJECTS LTD., S-1/A, MURLIDHAR COMPLEX, OPP. SNEH KUNJ SOCIETY, S.M.ROAD, AHMEDABAD-15. VS INCOME TAX OFFICER, WARD 1(4), INSURANCE BUILDING, ASHRAM ROAD, AHMEDABAD-14. (APPELLANT) (RESPONDENT) PAN: AABCD 5760 C APPELLANT BY : SHRI S.N. DIVATIA. RESPONDENT BY : SHRI M.C. PANDIT,SR.D.R. ( (( ( )/ )/)/ )/ ORDER PER: SHRI D.C. AGARWAL. THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF LEARNED C.I.T.(A) DATED 9-7-2004 WHERE HE HAS CONFIRMED AN ADDITION OF RS.10 LACS MADE BY THE A.O. BY DISALLOWING ALLEGED CLAIM OF EX PENDITURE FOR PROCURING CONTRACT. 2. THE FACTS OF THE CASE ARE THAT ASSESSEE IS A CIV IL CONTRACTOR. HE CLAIMED AN EXPENDITURE OF RS.10 LACS DEBITED IN THE PROFIT AND LOSS ACCOUNT UNDER THE HEAD BUSINESS PROCUREMENT AND DEVELOPME NT CHARGES. DURING THE COURSE OF ASSESSMENT PROCEEDINGS IT WAS EXPLAIN ED THAT SAID AMOUNT WAS ITA.2913-04-DCA 2 PAID TO ONE MR. PRABHAKAR REDDY WHO WAS WORKING ON BEHALF OF M/S. TIRUPATI TRADERS. IT WAS FURTHER EXPLAINED THAT ASS ESSEE AND 2 OTHER PARTIES HAD SUBMITTED TENDERS FOR PROCURING WORK OF EARTH-R EMOVING FROM GUJARAT MINERAL DEVELOPMENT CORPORATION (GMDC). THE TENDER QUOTED BY THE ASSESSEE WAS THIRD LOWEST. THE FIRST LOWEST PARTY N AMELY J.P. FABRICATOR WITHDREW ON ACCOUNT OF NOT HAVING ADEQUATE PLANT AN D MACHINERY FOR WORK. TIRUPATI TRADERS BEING SECOND LOWEST WITHDREW FROM THE CONTEST BY ACCEPTING A SUM OF RS.10 LACS FROM THE ASSESSEE. A LETTER WAS FILED BY MR. PRABHAKAR REDDY ON BEHALF OF TIRUPATI TRADERS ADDRE SSED TO GMDC ON 6-2- 2001 INDICATING THEREIN HIS UNWILLINGNESS TO CARRYO UT THE WORK AT THE QUOTED TENDER RATE. ACCORDING TO THE ASSESSEE HE HAD RECEI VED THE WORK ORDER FROM GMDC ONLY AFTER WITHDRAWAL OF TENDER BY MR. REDDY. EVEN THOUGH M/S. TIRUPATI TRADERS EXPRESSED WILLINGNESS TO CARRYOUT THE WORK AT RS.23.95 PER CUBIC METRE BUT THE ASSESSEE AGREED TO WORK EVEN AT A LESSER PRICE AT RS.22.91 PER CUBIC METRE BEING THE FIRST LOWEST RAT ES. THE ASSESSEE SUBMITTED A COPY OF HIS BANK ACCOUNT SHOWING THE PAYMENT OF R S.5 LACS EACH ON 13.2.01 AND 23.2.01 TO TIRUPATI ENTERPRISES. THE A. O. ASKED THE ASSESSEE TO FURNISH COPY OF CONTRACT AWARDED BY GMDC TO TIRUPAT I ENTERPRISES, COPY OF AGREEMENT WITH TIRUPATI ENTERPRISES MADE BY THE ASS ESSEE COMPANY ETC. IT WAS EXPLAINED THAT AGREEMENT WITH TIRUPATI ENTERPRI SES WAS NOT ENTERED. IT WAS ONLY A BUSINESS COMMITMENT TO BE HONOURED BY TH E ASSESSEE AFTER TIRUPATI ENTERPRISES WITHDREW FROM THE CONTEST. THE AMOUNT WAS PAID BY BANK CHEQUE AFTER ENSURING THAT SHRI PRABHAKAR REDD Y FILES A LETTER OF HIS UNWILLINGNESS TO WORK AT THE LOWEST TENDER RATE WIT H GMDC. THE AMOUNT WAS PAID TO MR. PRABHAKAR REDDY ONLY WHEN ASSESSEE GOT LETTER OF INTENT FROM GMDC. IT WAS FURTHER EXPLAINED THAT MR. PRABHA KAR REDDY WAS READY TO WORK AT THE LOWEST RATE WITH GMDC PROVIDED HE WA S COMPENSATED BY ITA.2913-04-DCA 3 RS.10 LACS. THE A.O. CONSIDERED THE EXPLANATION BUT HE DISALLOWED THE CLAIM ON THE GROUND THAT ASSESSEE FAILED TO ADDUCE ANY CO GENT EVIDENCE IN RESPECT OF ITS CLAIM THAT PAYMENT HAS BEEN MADE FOR BUSINES S PURPOSES. THUS, HOLDING THAT EXPENDITURE WAS NOT INCURRED FOR BUSIN ESS PURPOSES CLAIM WAS DISALLOWED. 3. THE LD. CIT(A) CONFIRMED THE DISALLOWANCE ON TH E GROUND THAT IT IS NOT A LIABILITY ACTUALLY EXISTING AT THE TIME WHEN THE AMOUNT WAS PAID TO MR. PRABHAKAR REDDY. IT IS NOT A LEGAL LIABILITY AND IT WAS NOT INCURRED FOR BUSINESS PURPOSES. FURTHER, BY PURCHASING THE RIVAL BIDDER BY NOT PARTICIPATING IN PUBLIC AUCTION, THE ASSESSEE ACTED AGAINST THE PUBLIC INTEREST AND PUBLIC WELFARE. THE LD. CIT (A) RELIED ON THE D ECISION OF BANGALORE ARRACK LTD., (1993) 201 ITR- 25 (KAR.). 4. AGAINST THIS LEARNED A.R. FOR THE ASSESSEE SUBMI TTED THAT EXPENDITURE INCURRED BY THE ASSESSEE IS FOR BUSINESS PURPOSES A S IT HAS PROCURED THE BUSINESS BY PAYING A SUM OF RS.10 LACS TO MR. PRABH AKAR REDDY. THERE IS NO VIOLATION OF PUBLIC POLICY AS HELD BY THE LD. CIT(A ). IN FACT ASSESSEE HAS WORKED AT THE LOWEST AMOUNT WHICH WAS TENDERED BY F IRST LOWEST THE BIDDER. THE WORK WAS AWARDED TO IT ONLY WHEN MR. PRABHAKAR REDDY REFUSED TO WORK AT THE LOWEST RATE. 5. AGAINST THIS LD. D.R. SUBMITTED THAT FIRSTLY IT IS NOT PROVED THAT EXPENDITURE WAS INCURRED AT ALL OR IT WAS INCURRED FOR BUSINESS PURPOSES. NO AGREEMENT BETWEEN SHRI PRABHKAR REDDY AND ASSESSEE HAS BEEN OBTAINED CLEARLY SHOWING THE INTENTION OF MR. PRABHAKAR REDD Y TO QUIT FROM THE BIDDING IF HE GETS RS.10 LACS. MERELY BECAUSE OF EV IDENCE SUBMITTED IN THE ITA.2913-04-DCA 4 FORM OF LETTER FROM MR. PRABHAKAR REDDY ADDRESSED T O GMDC, IT SHOULD NOT BE INFERRED THAT THE LETTER WAS WRITTEN ONLY ON UND ERSTANDING OF RECEIVING RS.10 LACS. IN ANY CASE, IT SHOULD BE TREATED AS A CAPITAL EXPENDITURE AS HELD BY HON. KARNATAKA HIGH COURT IN CIT VS. BANGALORE A RRACK LTD., 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PER USED THE MATERIAL ON RECORD. IN OUR CONSIDERED VIEW THE ISSUE IS SQUA RELY COVERED BY THE DECISION OF KARNATAKA HIGH COURT WHEREIN THE HONBL E COURT HELD AS UNDER : THIS VIEW HAS BEEN CONFIRMED BY THE HONBLE KARNATA KA HIGH COURT IN THE CASE OF BANGALORE ARRACK LTD., (1993) 201 IT R-25 (KAR.).DECISION TAKEN BY THE HONBLE HIGH COURT IN THIS CASE IS DIRECTLY APPLICABLE TO THE FACTS OF THE CASE OF THE APPELLANT AND THEREFORE, THE PAYMENT OF AMOUNT OF RS.10 LAC TO TH E RIVAL BIDDER IS NOT HELD TO BE AN EXPENDITURE INCURRED FOR THE PURPOSE OF BUSINESS OF THE APPELLANT. THEREFORE, THE APPEAL ON THIS POINT IS H EREBY REJECTED. 7. WE ARE ALSO OF THE SAME VIEW THAT PAYMENT IF AT ALL IS MADE BY THE ASSESSSEE TO MR. PRABHAKAR REDDY IN CONNECTION WIT H PROCURING TENDER FROM GMDC THEN IT WAS FOR PROCURING A SOURCE OF INCOME A ND HENCE WAS A CAPITAL EXPENDITURE. THE PAYMENT WAS MADE ONCE FOR ALL WITH A VIEW TO BRING INTO EXISTENCE AN ASSET OR ADVANTAGE OR FOR BRINGING INT O EXISTENCE A SOURCE OF INCOME. FURTHER ANY EXPENDITURE INCURRED FOR THE IN ITIAL OUT-LAY OR FOR EXTENSION OF BUSINESS WOULD BE CAPITAL IN NATURE. 8. NOTWITHSTANDING WE ARE OF THE VIEW THAT THE BUSI NESS PURPOSE OF THE PAYMENT IS NOT PROVED. IT IS BECAUSE THERE IS NO DO CUMENT SHOWING PAYMENT OF MONEY TO SHRI PRABHAKLAR REDDY OR THE TIRUPATI T RADERS WAS FOR QUITTING THE BIDDING. THERE IS NO LETTER WRITTEN BY TIRUPATI TRADERS TO THE ASSESSEE SHOWING HIS INTENTION OF QUITTING THE BIDDING FOR P AYMENT OF RS. 10 LACS. THE ITA.2913-04-DCA 5 NEXUS OF ALLEGED TRANSFER OF MONEY FROM ASSESSEE TO MR. PRABHAKAR REDDY/ TIRUPATI TRADERS IN OBTAINING BUSINESS FROM GMDC IS NOT ESTABLISHED. IN VIEW OF THIS, WE CONFIRM THE ORDER OF AUTHORITIES B ELOW AND DISMISS THE APPEAL FILED BY THE ASSESSEE. AS A RESULT, THE APPEAL FILED BY THE ASSESSEE IS D ISMISSED. ORDER PRONOUNCED IN OPEN COURT ON 31/ 03/2010. SD/- SD/- (BHAVNESH SAINI) (D.C.AGARWAL) JUDICIALMEMBER. ACCOUNTANT MEMBER. AHMEDABAD. DATED: 31/ 03 /2010. S.A.PATKI. COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT(APPEALS)- 4. THE CIT CONCERNED. 5. THE DR.,ITAT, AHMEDABAD. 6. GUARD FILE. BY ORDER DEPUTY/ASSTT.REGISTRAR ITAT,AHMEDABAD.