M/s S.B. Developer Ltd., New Delhi V. ACIT, New Delhi

ITA 3142/DEL/2013

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 8017 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 11 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-05-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: G
• Next Hearing Date: 17-05-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 20-05-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ANIMA BERNWAL
• Assessee Lawyers: PIYUSH KAMAL
• Keywords: Capital expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES : G : NEW DELHI BEFORE SHRI R.S. SYAL, AM & MS SUCHITRA KAMBLE, JM ITA NO.3142/DEL/2013 ASSESSMENT YEAR : 2009-10 S.B. DEVELOPER LTD., 6, COMMUNITY CENTRE, SAKET, NEW DELHI. PAN; AADCS6293B VS. ACIT, CIRCLE 7(1), NEW DELHI. ITA NO.2958/DEL/2013 ASSESSMENT YEAR : 2009-10 ACIT, CIRCLE 7(1), NEW DELHI VS. S.B. DEVELOPER LTD., 6, COMMUNITY CENTRE, SAKET,NEW DELHI. PAN; AADCS6293B (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI GAUTAM JAIN, ADVOCATE & SHRI PIYUSH KAMAL, ADVOCATE DEPARTMENT BY : MS ANIMA BERNWAL, SR. DR DATE OF HEARING : 17.05.2016 DATE OF PRONOUNCEMENT : .05.2016 ORDER PER R.S. SYAL, AM: THESE TWO CROSS APPEALS ONE BY THE ASSESSEE AND THE OTHER BY THE REVENUE ARISE OUT OF THE ORDER PASSED BY THE CIT( A) ON 14.3.2013 IN RELATION TO THE ASSESSMENT YEAR 2009-10. ITA NOS.3142 & 2958/DEL/2013 2 2. THE ONLY ISSUE RAISED BY THE REVENUE IN ITS APPE AL IS AGAINST THE DELETION OF ADDITION TO THE EXTENT OF RS.45,37,471/ - OUT OF DIESEL AND ELECTRICITY EXPENSES. THE FIRST GROUND OF THE ASSE SSEES APPEAL RELATES TO THE SAME ISSUE, NAMELY, THE SUSTENANCE OF THE REMAI NING ADDITION TO THE TUNE OF RS.3 LAC OUT OF THE TOTAL DISALLOWANCE OF D IESEL AND ELECTRICITY EXPENSES MADE BY THE AO AMOUNTING TO RS.48,37,471/ -. 3. SUCCINCTLY, THE FACTS OF THE CASE ARE THAT THE A SSESSEE, DURING THE YEAR IN QUESTION WAS MAINLY ENGAGED IN THE BUSINESS OF B UILDING MAINTENANCE AND DEALINGS IN MUTUAL FUND. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS OBSERVED THAT THE ASSESSEE WAS CHARGING 20% MARGIN ON COST OF SERVICES RENDERED ON MAINTENANCE, LIGHTI NG AND AIR CONDITIONING. THE ASSESSEE DEBITED A SUM OF RS.4,40,21,870/- ON A CCOUNT OF ELECTRICITY AND POWER EXPENSES, COMPRISING OF ELECTRICITY CHARG ES AMOUNTING TO RS.2.71 CRORE AND DIESEL CHARGES AMOUNTING TO RS.1. 66 CRORE. AS AGAINST THE INCURRING OF EXPENSES TO THE ABOVE EXTENT, THE ASSESSEE MADE RECOVERIES ONLY TO THE TUNE OF RS.1,74,09,883/-. O N BEING CALLED UPON TO JUSTIFY THE CONSUMPTION OF ELECTRICITY AND DIESEL E XPENSES, THE ASSESSEE SUBMITTED A COST SHEET, WORKING OUT THE EXPENSES IN CURRED BY IT ON ITA NOS.3142 & 2958/DEL/2013 3 MAINTENANCE OF COMMON AREA, OPERATION CHARGES, ETC. , AT RS.6.40 PER SQ. FEET. FROM THE EXPENSES INCURRED ON ELECTRICITY, P OWER AND FUEL, THE ASSESSEE REDUCED A SUM OF RS.1.74 CRORE TOWARDS ELE CTRICITY BILLED AND A SUM OF RS.67.77 LAC TOWARDS EXTRA HOUR CHARGES BILL ED. THE BALANCE AMOUNT OF RS.1.98 CRORE WAS DIVIDED BY THE TOTAL AR EA AND THE COST WAS WORKED OUT AT RS.6.44 PER SQ. FEET. THE ASSESSEE A DDED BOTH THE FIGURES TOTALING TO RS.12.84 PER SQ. FEET AND A SERVICE CHA RGE OF RS.2.57, BEING 20%, WAS ADDED TO IT, WHICH GAVE RATE OF RS.15.41 PER SQ. FEET. THE AO OBSERVED THAT IN CERTAIN CASES ELECTRICITY WAS CHAR GED @ RS.4.73 WHICH WAS ALMOST EQUAL TO THE COST TO THE ASSESSEE ON THE BASIS OF ELECTRICITY CHARGES OF DHBVN, GURGAON. BESIDES, IT WAS FURTHER OBSERVED THAT ON 25.10.2008, GENERATOR WAS SHOWN TO HAVE RUN ONLY F OR ONE HOUR AND THE CONSUMPTION OF DIESEL WAS SHOWN AT 590 LITRES. ON 2 4.10.2008, THE DIESEL WAS SHOWN TO HAVE RUN FOR 1.15 HOURS AND THE CONSUM PTION OF DIESEL WAS ONLY 230 LITRES. ON 22.10.2008, THE GENERATOR WAS RUN FOR SEVEN HOURS AND THE CONSUMPTION OF DIESEL WAS 980 LITRES. IN T HE ABOVE BACKGROUND OF THE FACTS, THE AO CAME TO HOLD THAT THE FIGURES GIV EN BY THE ASSESSEE WERE NOT RELIABLE. HE, THEREFORE, MADE DISALLOWANCE @ 20 % OF ELECTRICITY BILLED ITA NOS.3142 & 2958/DEL/2013 4 AT RS.1.74 CRORE AND EXTRA HOURS CHARGES BILLED AT RS.67.77 LAC, WHICH RESULTED INTO AN ADDITION OF RS.48,37,471/-. IN AP PEAL, THE LD. CIT(A) OBSERVED THAT THERE WAS ONLY SOME JUSTIFICATION ON THE PART OF THE AO INASMUCH AS THE DIESEL EXPENSES WERE NOT PROPERLY S HOWN BECAUSE OF ITS OPERATION FOR A LIMITED PERIOD OF TIME. HE ALSO FO UND WEIGHT IN THE ARGUMENT ADVANCED ON BEHALF OF THE ASSESSEE THAT AL L THE PAYMENTS FOR DIESEL WERE MADE TO BPCL AND THE AMOUNTS WERE PAID THROUGH CHEQUES AND THE ELECTRICITY CHARGES WERE PAID TO THE ELECTR ICITY BOARD. IN VIEW OF CERTAIN DISCREPANCIES POINTED OUT BY THE AO, THE LD . CIT(A) SUSTAINED THE ADDITION AT RS.3 LAC ON ACCOUNT OF CERTAIN LEAKS OR USE OF DIESEL FOR NON- BUSINESS PURPOSES. BOTH THE SIDES ARE IN APPEAL ON THEIR RESPECTIVE STANDS. 4. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. THERE IS NO DISPUTE ON THE FAC T THAT THE ASSESSEE PAID ELECTRICITY CHARGES TO THE ELECTRICITY BOARD, GURGA ON AND DIESEL WAS PURCHASED FROM BPCL AND THE PAYMENTS WERE MADE THRO UGH CHEQUES. THIS SHOWS THAT THE EXPENSES WERE GENUINELY INCURRE D BY THE ASSESSEE. THE AO HAS NOT REFERRED TO ANY INVESTIGATION CARRIE D OUT BY HIM DIVULGING THAT THE ACTUAL RECOVERIES MADE FROM THE RESIDENTS WERE MORE THAN THOSE ITA NOS.3142 & 2958/DEL/2013 5 REFLECTED IN THE BOOKS OF ACCOUNT OF THE ASSESSEE. THIS SHOWS THAT THE FIGURES OF EXPENSE INCURRED AND RECOVERIES MADE BY THE ASSESSEE ARE GENUINE. THE FACT THAT THE ASSESSEE COULD NOT RECOV ER THE ENTIRE AMOUNT FROM THE RESIDENTS, CANNOT, PER SE , LEAD TO THE CONCLUSION THAT EITHER THE EXPENSES WERE BOGUS OR INADEQUATE RECOVERIES WERE M ADE. UNDER SUCH CIRCUMSTANCES, WE ARE NOT INCLINED TO UPHOLD THE VI EW POINT TAKEN BY THE AO IN MAKING DISALLOWANCE AT AN AD HOC RATE OF 20%. THE FACTUAL DETAILS GIVEN BY THE AO ABOUT THE CONSUMPTION OF DIESEL SHO WN BY THE ASSESSEE VIS--VIS THE NUMBER OF HOURS FOR WHICH THE GENERATOR WORKED , WHICH REMAINED UNCONTROVERTED BY THE LD. AR, MANIFEST THA T THERE MAY BE SOME NON-BUSINESS PURPOSE IN THE CONSUMPTION OF DIESEL. IN OUR CONSIDERED OPINION, THE LD. CIT(A) WAS JUSTIFIED IN ESTIMATING SUCH SUM AT RS.3.00 LAC. ERGO, WE UPHOLD THE IMPUGNED ORDER ON THIS SCO RE, THEREBY DISMISSING THE CORRESPONDING GROUNDS RAISED BY BOTH THE SIDES. 5. THE ONLY OTHER ISSUE WHICH SURVIVES IN THE ASSES SEES APPEAL IS AGAINST THE CONFIRMATION OF DISALLOWANCE OF RS.14,1 1,727/-. THE FACTS APROPOS THIS ISSUE ARE THAT THE ASSESSEE PAID LEGAL CHARGES AMOUNTING TO RS.14,11,727/- TO BSR & CO. VIDE LETTER DATED 31.1 0.2011, THE ASSESSEE ITA NOS.3142 & 2958/DEL/2013 6 SUBMITTED THAT IT WAS A REAL ESTATE COMPANY AND HAD PLANNED TO TAKE LOAN FROM THE BANKS FOR DEVELOPING THE UNSOLD LAND, HEL D AS STOCK IN TRADE. IN THIS VIEW OF THE MATTER, THE ASSESSEE GOT THE VALUA TION DONE FOR WHICH SUCH PAYMENT WAS MADE. THE ASSESSEE ALSO CONTENDED THAT SINCE THE AMOUNT WAS SPENT ON ITS LAND, HELD AS INVENTORY, THE EXPEN DITURE ON ITS LEGAL AND CONSULTANCY SERVICES WAS DEDUCTIBLE. ON PERUSAL OF E-MAIL SENT BY VIKASH TEWARI DATED 8.7.2008 ALONG WITH THE ADVANCE INVOIC E OF THE BSR & CO., IT WAS OBSERVED BY THE AO THAT THE VALUATIONS WERE GOT DONE FOR TWO COMPANIES, NAMELY, M/S SARVAMANGALAM BUILDERS AND D EVELOPERS PVT. LTD. AND SB DEVELOPERS LTD. (THE ASSESSEE). THE AO OBSERVED THAT THIS VALUATION WAS IN RESPECT OF TWO COMPANIES AND, HENC E, THE ENTIRE AMOUNT COULD NOT BE DEBITED TO THE PROFIT & LOSS ACCOUNT O F THE ASSESSEE ALONE. THEREAFTER, IT WAS OPINED THAT THE VALUATION WAS GO T DONE FOR DEVELOPING THE UNSOLD LAND AND THE PROJECT WAS YET TO START, H ENCE, THE ENTIRE AMOUNT WAS CAPITAL EXPENDITURE. THE LD. CIT(A) UPHELD THE ADDITION. 6. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PERU SING THE RELEVANT MATERIAL ON RECORD, WE FIRSTLY FIND IT AS UNDISPUTE D FACT THAT THE ASSESSEE HAD SHOWN CERTAIN LAND AS ITS STOCK-IN-TRADE WHICH WAS UNSOLD AND THE ITA NOS.3142 & 2958/DEL/2013 7 PAYMENT WAS MADE BY THE ASSESSEE TO BSR & CO., FOR VALUATION OF SOME PROPERTY. SINCE THE PROPERTY IN QUESTION HAPPENED TO BE INVENTORY, ANY EXPENDITURE INCURRED IN CONNECTION WITH DEVELOPING OF SUCH LAND, CANNOT ASSUME THE CHARACTER OF A CAPITAL EXPENDITURE. WE, THEREFORE, OVERTURN THE IMPUGNED ORDER ON THIS SCORE. 7. THE NEXT FINDING RECORDED IN THE ORDERS IS ABOUT PAYMENT OF RS.14,11,727/- HAVING BEEN MADE FOR VALUATION DONE BY TWO COMPANIES, NAMELY, THE ASSESSEE AND M/S SARVAMANGALAM BUILDERS AND DEVELOPERS PVT. LTD. ONCE A PROPERTY IS HELD AS STOCK IN TRADE AND THE ASSESSEE GETS IS VALUATION DONE, THEN SUCH AN EXPENDITURE HAS TO BE ALLOWED AS DEDUCTION. HOWEVER, IT IS ONLY SUCH EXPENDITURE THAT RELATES T O THE PROPERTY(IES) OF THE ASSESSEE HELD AS STOCK IN TRADE, THAT DEDUCTION CAN BE ALLOWED. IT GOES WITHOUT SAYING, THAT ANY EXPENDITURE INCURRED IN R ESPECT OF VALUATION DONE FOR THE PROPERTY OF M/S SARVAMANGALAM BUILDERS AND DEVELOPERS PVT. LTD., CANNOT BE ALLOWED AS DEDUCTION IN THE HANDS O F THE ASSESSEE. IN THIS REGARD, THE LD. AR CONTENDED THAT E-MAIL REPORTING THE VALUATION DONE FOR TWO COMPANIES WAS WRONG. HOWEVER, HE COULD NOT BRIN G TO OUR NOTICE THE INVOICES RAISED BY BSR & CO., ON THE ASSESSEE FOR A SUM OF RS.14.11 LAC. ITA NOS.3142 & 2958/DEL/2013 8 THE ONLY INVOICE REFERRED TO BY THE LD. AR IN THE N AME OF THE ASSESSEE IS FOR A SUM OF RS.7 LAC AND ODD. THE OTHER INVOICE O F M/S BSR & CO. WAS STATED TO BE NOT AVAILABLE WITH THE LD. AR, FOR WHI CH IT WAS URGED THAT THE MATTER MAY BE REFERRED BACK TO THE AO FOR VERIFICAT ION TO THIS LIMITED POINT. WE AGREE WITH THE SAME AND SEND THE MATTER B ACK TO THE AO FOR EXAMINING THE ALL THE INVOICES RAISED BY BSR & CO. TOTALING RS.14.10 LAC AND ODD. IT IS HEREBY DIRECTED THAT DEDUCTION BE A LLOWED ONLY TO THE EXTENT OF INVOICES RAISED ON THE ASSESSEE IN RESPECT OF TH E PROPERTIES HELD BY IT AS STOCK IN TRADE. THE REMAINING EXPENDITURE, IF ANY, BE DISALLOWED. 8. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED AND THAT OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES . THE ORDER PRONOUNCED IN THE OPEN COURT ON 18.05.201 6. ; SD/- SD/- [SUCHITRA KAMBLE] [R.S. SYAL] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED,18 TH MAY, 2016. DK ITA NOS.3142 & 2958/DEL/2013 9 COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT AR, ITAT, NEW DELHI.