PAN INDIA PARYATAN LTD ( NOW ESSEL INFRA PROJECTS LTD), MUMBAI V. ASST CIT CIR 7(1), MUMBAI

ITA 3240/MUM/2011

• Counselvise Citation: 324019914 RSA 2011
• Duration Of Justice: 2 year(s) 4 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-08-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 14-08-2013
• Assessment Year: 2002-2003
• Appeal Filed On: 25-04-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: C TRIPURA SUNDARI
• Assessee Lawyers: SANJIV M SHAH
• Keywords: Capital asset; Depreciation; Opportunity of being heard; Principle of natural justice; Revised return; Revenue expenditure; Capital expenditure
• Section: 143(3); 14A; 37(1)

Judgement Text

, INCOME TAX APPELLATE TRIBUNAL,MUMBAI - C BENCH. . . , , BEFORE S/SH. B.R.MITTAL, JUDICIAL MEMBER & RAJ ENDRA, ACCOUNTANT MEMBER ./ ITA NO. 3240/MUM/2011, ! ! ! ! ' ' ' ' / ASSESSMENT YEAR-2002-03 PAN INDIA PARYATAN LTD. (NOW ESSEL INFRA PROJECTS LTD.) CONTIONETAL BUILDING, 135 DR A.B.ROAD, WORLI,MUMBAI-18 VS. THE ASST. COMMISSIONER OF INCOME-TAX, CIRCLE-7(1), MUMBAI-400 020 PAN: AAACP6095M ( #$ / APPELLANT ) ( %&#$ / RESPONDENT ) #$ #$ #$ #$ ' ' ' ' / APPELLANT BY :SHRI SANJIV M. SHAH %&#$ ( ' / RESPONDENT BY : MS. C. TRIPURA SUNDARI ! ! ! ! ( (( ( )* )* )* )* / DATE OF HEARING : 14-08-2013 +,' ( )* / DATE OF PRONOUNCEMENT : 28-08-2013 ! ! ! ! , 1961 ( (( ( 254(1) )-) )-) )-) )-) . . . . ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) PER RAJENDRA, A.M. FOLLOWING THE GROUNDS OF APPEAL HAS BEEN FILED BY T HE ASSESSEE-COMPANY AGAINST THE ORDER DATED 10.05.2010 OF CIT(A)-13, MUMBAI. 1.(A) THE LD. CIT(A) ERRED IN LAW AND FACTS IN ENH ANCING DISALLOWANCE OF EXPENSES TO RS.56, 40,054/- AGAINST RS. 11,28,011/- DONE BY THE AO WITHOUT GIVI NG OPPORTUNITY OF BEING HEARD U/S 251 (2) OF THE AC T. THE REASONS GIVEN BY HIM FOR DOING SO ARE WRONG, CO NTRARY TO THE FACTS OF THE CASE AND AGAINST THE PROVISIONS OF LAW. (B)THE LD CIT (A) ERRED IN LAW AND FACTS IN HOLDING THE EXPENSES OF RS. 56,40,054/- AS CAPITAL IN NATU RE. THE REASONS GIVEN BY HIM FOR DOING SO ARE WRONG, CO NTRARY TO THE FACTS OF THE CASE AND AGAINST THE PROVISIONS OF LAW. (C)THE CIT (A) OUGHT TO HAVE CONSIDERED THE EXPENSE S DISCUSSED IN ENCLOSED STATEMENT OF FACTS AS REVEN UE IN NATURE ALLOWABLE U/S 37(1) OF THE INCOME TAX ACT , 1961. THE REASONS GIVEN BY HIM FOR NOT DOING SO A RE WRONG, CONTRARY TO THE FACTS OF THE CASE AND AGAINS T THE PROVISIONS OF LAW. 2.(A) THE LD. CIT (A) ERRED IN LAW AND FACTS IN UPH OLDING EXPENSE OF RS. 72,55,541/-INCURRED ON LEASED ASSETS AS CAPITAL IN NATURE. THE REASONS GIVEN BY H IM FOR DOING SO ARE WRONG, CONTRARY TO THE FACTS OF THE CASE AND AGAINST THE PROVISIONS OF LAW. (B)THE CIT (A) OUGHT TO HAVE CONSIDERED THE EXPENSE S INCURRED ON LEASED ASSETS AS REVENUE IN NATURE ALLOWABLE U/S 37(1) OF THE INCOME TAX ACT, 1961. 3.THE LD. CIT (A) ERRED IN LAW AND FACTS IN DIRECTI NG THE AO TO APPLY RULE 8 D FOR THE YEAR UNDER CONSIDERATION FOR MAKING DISALLOWANCE U/S 14A OF AC T (FOLLOWING DAGA CAPITAL-SB ITAT). THE REASONS GIVEN BY HIM FOR DOING SO ARE WRONG, CONTRARY TO TH E FACTS OF THE CASE AND AGAINST THE PROVISIONS OF L AW. 4.THE APPELLANT CRAVES THE LEAVE TO ADD, AMEND OR A LTER ALL OR ANY OF THE GROUNDS OF APPEAL. ASSESSEE-COMPANY FILED ITS RETURN OF INCOME ON 30.1 0.2002 DECLARING LOSS OF RS. 99.68 LACS. LATER ON A REVISED RETURN WAS FILED ON 31.03.2004 DECLARI NG TOTAL LOSS OF RS. 86.15 LACS. ASSESSING 2 ITA NO. 3240/MUM/2011(AY 2002-03) PAN INDIA PARYATA N LTD. OFFICER (AO) FINALISED THE ASSESSMENT U/S. 143(3) O F THE ACT ON 07.02.2005 DETERMINING THE TOTAL INCOME AT RS. 13.85 LACS. 2. FIRST GROUND OF APPEAL IS ABOUT ENHANCEMENT OF THE DISALLOWANCE OF EXPENSES BY THE FIRST APPELLATE AUTHORITY(FAA),WITHOUT GIVING AN OPPORTUN ITY OF BEING HEARD.DURING THE ASSESSMENT PROCEEDINGS,AO FOUND THAT ASSESSEE HAD CLAIMED FOLL OWING EXPENSES UNDER THE HEAD FINANCIAL EXPENSES: - I) THE EXPENSES ON BUSINESS DEVELOPMENT PLAN PAID T O AMBIT CORPORATE FINANCE P.LTD. AS PER THE COPY OF AGREEME NT PROVIDED BY THE ASSESSEE THE EXPENSE IS INCURRED IN CONNECTION WITH PROPOSED DEVELOPMENT OF NEW THEME & MULT-COMPONENT DEVELOPME NT RS. 24,07,946/- II) THE EXPENDITURE ON ENVIRONMENTAL STUDY. AS EXPL AINED BY THE ASSESSEE THE AMOUNT IS SPEND FOR SEEKING ENVIRONMEN TAL CLEARANCE FOR FUTURE DEVELOPMENT OF COMPANYS PROPERTY RS. 11,25,000/- III) MONORAIL PROJECT: THE AMO UNT IS SPEND FOR CONDUCTING FEASIBILITY STUDY ON IMPLEMENTATION OF MONORAIL SYSTEM RS. 21,07,108/- 56,40,054/- AO HELD THAT THE ABOVE REFERRED EXPENSES WERE SQUAR ELY COVERED BY THE PROVISIONS OF THE SECTION 35D OF THE ACT,THAT AMOUNT-IN-QUESTION WAS ALLOWABL E UNDER THE SAID SECTION IF THE ASSESSEE FULFILLED CERTAIN CONDITIONS,THAT ONLY ONE FIFTH OF SUCH EXPENDITURE WAS ALLOWABLE FOR EACH OF SUCCEEDING FIVE YEARS, THAT 4/5 OF THE EXPENDITURE WAS TO BE DISALLOWED FOR THE ASSESSMENT YEAR UNDER CONSIDERATION.FINALLY,HE MADE A DISALLOWANCE OF RS. 45.12 LACS 2.1. ASSESEE PREFERRED AN APPEAL BEFORE THE FAA.AFTER CO NSIDERING THE SUBMISSIONS OF THE ASSESSEE AND THE ASSESSMENT ORDER,HE HELD THAT SCOPE OF VARI OUS SERVICES TO BE RENDERED BY M/S AMBIT CORPORATE FINANCE PVT.LTD. RELATED TO ASSIST THE AS SESSEE IN PROPOSED DEVELOPMENT OF NEW PROJECTS,THAT THE EXPENDITURE INCURRED BY THE ASSES SEE WAS CAPITAL IN NATURE,THAT THE SERVICES RENDERED BY THE INNOVATOR RELATED TO COMPREHENSIVE ENVIRONMENT STUDY,THAT THE PAYMENT AMOUNTING TO RS. 11.25 LACS MADE TO INNOVATIVE ORBI T WAS CAPITAL IN NATURE, THAT THE AMOUNT OF RS.21.07 LACS PERTAINED TO FEASIBILITY PROJECT REPO RT OF IMPLEMENTATION OF MONO RAIL SYSTEM WITHIN THE AMUSEMENT PARK, THAT THE AMOUNTS SPEND O N FEASIBILITY REPORT OF THE PROJECT WAS CAPITAL IN NATURE, THAT ALL THE AFORESAID EXPENSES WERE CAP ITAL IN NATURE AND HENCE NOT ALLOWABLE, THAT THE EXPENSES DID NOT FULFILL THE CONDITIONS LAID DOWN U /S. 35D OF THE ACT, THAT THE EXPENSES WERE NOT IN THE NATURE OF PRELIMINARY EXPENSES RELATED TO COMME NCEMENT OF NEW BUSINESS, THAT NO EXTENSION OF UNDERTAKING WAS INITIATED BY THE ASSESSEE, THAT NO NEW UNIT WAS SET UP, THAT NO CAPITAL ASSET HAD BEEN ACQUIRED OUT OF THE AFORESAID CAPITAL EXPENDIT URE, THAT DEPRECIATION WAS ALSO NOT ALLOWABLE ON THE ABOVE REFERRED EXPENDITURE. FINALLY HE ENHANCED THE DISALLOWANCE FROM RS. 45.12 LACS TO RS. 56.40 LACS. 2.2. BEFORE US,AUTHORISED REPRESENTATIVE (AR) SUBMITTED THAT FAA HAD ENHANCED THE INCOME OF THE ASSESSEE WITHOUT FOLLOWING THE PROCEDURE LAID D OWN BY SECTION 251(2) OF THE ACT, DEPARTMENTAL REPRESENTATIVE (DR) SUPPORTED THE ORDE R OF THE FAA. 2.3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD.WE FIND THAT WHILE DECIDING THE APPEAL FAA HAS ENHANCED THE DISALLOWAN CE TO RS.56.4 LAKHS AS AGAINST RS.45.12 LAKHS MADE BY THE AO.THERE IS NO DOUBT THAT THE POW ERS OF THE FAA ARE CO-TERMINUS WITH THE POWER OF THE AO AND HE CAN MAKE INQUIRIES AND PASS AN ORDER AS HE THINKS FIT. BUT, PRIVISIONS OF SECTION 251(2)ENVISAGE THAT HE HAS TO HEAR THE ASSE SSEE BEFORE HE TAKES A DECISION THAT MAY ADVERSELY AFFECT THE INTEREST OF THE ASSESSEE.IN OU R OPINION,BY INCORPORATING THE SAID SECTION LEGISLATURE HAS FORMALLY RECOGNISED THE PRINCIPLES OF NATURAL JUSTICE WHICH REQUIRE THAT WITHOUT HEARING A PERSON NO DECISION, SPECIALLY ADVERSE DE CISION,SHOULD BE TAKEN .NOW,WE WOULD LIKE TO REPRODUCE THE SECTION : 3 ITA NO. 3240/MUM/2011(AY 2002-03) PAN INDIA PARYATA N LTD. THE COMMISSIONER(APPEALS) SHALL NOT ENHANCE AN ASS ESSMENT OR A PENALTY OR REDUCE THE AMOUNT OF REFUND UNLESS THE APPELLANT HAS HAD A REASONABLE OP PORTUNITY OF SHOWING CAUSE AGAINST SUCH ENHANCE - MENT OR REDUCTION. EXPLAINING THE PROVISIONS OF THE SECTION HONBLE DE LHI HIGN COURT HAS IN THE CASES OF GEDORE TOOLS PVT. LTD.(238 ITR268) AND LOTTE INDIA CORPORA TION LTD.( 290ITR248)HAS HELD THAT BEFORE ENHANCING THE INCOME OF AN ASSESSEE FAA SHOULD INVA RIABLE ISSUE A NOTICE TO HIM AND GIVE HIM OPPORTUNITY OF HEARING.IN THE CASE UNDER CONSIDERAT ION FAA HAS NOT ISSUED ANY NOTICE BEFORE ENHANCING THE INCOME OF THE ASSESSEE AND HAS THUS V IOLATED THE PROCEDURE LAID DOWN BY THE ACT. IN THESE CIRCUMSTANCES,WE ARE OF THE OPINION THAT IN T HE INTEREST OF JUSTICE MATTER SHOULD BE REMANDED BACK TO THE FILE OF THE FAA FOR FRESH ADJUDICATION. HE SHOULD AFFORD A REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE BEFORE PASSING FRESH ORDER. GROUND OF APPEAL NO.1 IS A LLOWED PARTLY IN FAVOUR OF THE ASSESSEE. 3. NEXT GROUND OF APPEAL IS ABOUT EXPENSES INCURRED, A MOUNTING TO RS. 72,55,541/- OF LEASED ASSETS.DURING THE ASSESSMENT PROCEEDINGS, AO FOUND THAT ASSESSEE HAD INCURRED AN AMOUNT OF RS. 72.55 LACS FOR CONVERSION WARSHIP INS PRABAL INTO N AVAL MEMORIAL. AFTER CONSIDERING THE AGREEMENTS ENTERED INTO BY THE ASSESSEE AND GOVERNM ENT OF INDIA,HE HELD THAT THE LEASE PERIOD OF 15 YEARS COULD NOT BE CONSIDERED TEMPORARY-LEASE, T HAT THOUGH THE DEPOSIT PAID BY THE ASSESSEE WAS ONLY RS. 5 LACS YET THE ASSESSEE HAD INCURRED H UGE EXPENDITURE OF RS. 72.55 LACS FOR THE RENOVATION OF THE ASSET,THAT VIRTUALLY THE AGREEMEN T WAS NOT TERMINABLE.RELYING UPON THE JUDGMENT OF NAVSARI COTTON & SILK MILLS DELIVERED BY THE HON BLE HIGH COURT OF GUJARAT,HE HELD THAT EXPENDITURE INCURRED BY THE ASSESSEE SHOULD NOT BE ALLOWED AS REVENUE EXPENDITURE U/S. 37(1) OF THE ACT,THAT THE SAME SHOULD BE TREATED AS ADDITION TO PLANT & MACHINERY.ACCORDINGLY, HE ALLOWED THE DEPRECIATION @ 25% (18.13 LACS) AND DISALLOWANC E OF RS. 54.14 LACS WAS MADE. 3.1. ASSESSEE PREFERRED AN APPEAL BEFORE THE FAA.AFTER C ONSIDERING THE CLAUSE-6 OF THE LEASE AGREEMENT,FAA HELD THAT THE LEASED NAVAL VESSEL WAS A CAPITAL ASSET,THAT IT WAS A SOURCE OF INCOME TO THE ASSESSEE FOR NEXT 15 YEARS, THAT THE ASSESSEE HAD ACQUIRED A CAPITAL ASSET, THAT THE EXPENDITURE INCURRED BY THE ASSESSEE WAS CAPITAL IN NATURE HENCE NOT ALLOWABLE U/S. 37(1) OF THE ACT. 3.2. BEFORE US, AUTHORISED REPRESENTATIVE(AR) SUBMITTED THAT INS PRABAL WAS ASSET OF THE SOVEREIGN,THAT THE COMPLETE CONTROL OF THE SHIP WAS WITH INDIAN NAVY,THAT OUT OF RS. 72.55 LACS RS. WERE INCURRED FOR SHIFTING THE SHIP,THAT EXPEND ITURE OF RS. LACS WAS INCURRED FOR CONSUMABLES LIKE OIL,THAT THE EXPENDITURE WAS ALLOWABLE U/S.31 OF THE ACT, THAT NO NEW CAPITAL ASSET HAD BEEN ACQUIRED BY THE ASSESSEE.HE REFERRED TO PAGE NO. 42 A AND 46 OF THE PAPER BOOK.HE RELIED UPON THE DECISIONS DELIVERED BY THE HONBLE HIGH COURT OF MU MBAI IN THE CASE OF TALATHI AND PANTHAKY ASSOCIATED PVT. LTD.(343ITR309),RAYMONDS LTD.(ITA N O.189/MUM/2011 DELIVERED BY THE HONBLE JURISDICTION HIGH COURT ON 20.03.2012).HE R EFERRED TO THE ORDER OF THE B BENCH OF TRIBUNAL DELIVERED IN THE CASE OF BIJESH THAKUR(ITA NO.512/MUM/2010-A.Y. 2001-02). DEPARTMENTAL REPRESENTATIVE(DR) SUBMITTED THAT ASSE T WAS LEASED OUT FOR A PERIOD OF 15 YEARS, THAT IT WAS A SOURCE OF INCOME FOR THE ASSESSEE, TH AT 15 YEAR WAS A LONG PERIOD,THAT IT WAS A CAPITAL EXPENDITURE,THAT THE SHIP WAS IN THE NATURE OF ANY OTHER ASSET ACQUIRED BY THE ASSESSEE,THAT THE EXPENDITURE INCURRED BY THE ASSESSEE FOR SHIFTING T HE SHIP WAS PRE-OPERATIVE EXPENDITURE,THAT REST OF THE EXPENDITURES INCURRED BY THE ASSESSEE WAS NO T FOR CURRENT REPAIRS. 3.3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD.WE FIND THAT AO OR THE FAA HAS NOT CONSIDERED THE NATURE OF EXPENDITUR E INCURRED BY THE ASSESSEE WHILE FINALISING THE ASSESSMENT OR DECIDING THE APPEAL.DETAILS GIVEN BY THE ASSESSEE AT PAGE NO.46 OF THE PAPER BOOK SHOULD HAVE BEEN CONSIDERED BEFORE TAKING FINAL DEC ISION.QUESTION OF A CAPITAL OR REVENUE EXPENDITURE CANNOT BE DECIDED ONLY ON ONE OR TWO FA CTORS-NATURE OF THE EXPENDITURE HAS TO BE SEEN.AO HAS NOT DISCUSSED THE ISSUE AT ALL.WE ARE O F THE OPINION THAT MATTER NEED FURTHER VERIFICATION.SO,IN THE INTEREST OF JUSTICE,WE ARE R ESTORING BACK THE MATTER TO THE FILE OF THE AO.HE I S DIRECTED TO DECIDE THE ISSUE AFRESH,AFTER AFFORDING A REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE. 4 ITA NO. 3240/MUM/2011(AY 2002-03) PAN INDIA PARYATA N LTD. GROUND NO.2 IS PARTLY ALLOWED IN FAVOUR OF THE ASS ESSEE. 4. GROUND NO.3 WAS NOT PRESSED BY THE ASSESSEE DURING THE COURSE OF HEARING BEFORE US. HENCE SAME IS DISMISSED AS NOT PRESSED. AS A RESULT,APPEAL FILED BY THE ASSESSEE STANDS PARTLY ALLOWED. / )0 !/) 1 2 ( - . 4 5 ( ) 67 . ORDER PRONOUNCED IN T HE OPEN COURT ON 28 TH AUGUST,2013 . . ( +,' 8 9! 28 -) , 2013 , ( - : SD/- SD/- ( . ; ; ; ; . . B.R.MITTAL ) ( / RAJENDRA ) / JUDICIAL MEMBER /ACCOUNTANT MEMBER / MUMBAI, 9! /DATE: 28 TH AUGUST,2013 SK . . . . ( (( ( %)< %)< %)< %)< =<') =<') =<') =<') / COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE / #$ 2. RESPONDENT / %&#$ 3. THE CONCERNED CIT (A) / > ? , 4. THE CONCERNED CIT / > ? 5. DR C BENCH, ITAT, MUMBAI / <@- %)! , . . . 6. GUARD FILE/ - A &<) &<) &<) &<) %) %)%) %) //TRUE COPY// .! / BY ORDER, B / 6 DY./ASST. REGISTRAR , /ITAT, MUMBAI