Nikunjam Constructions P. Ltd, Trivandrum V. The ACIT, Trivandrum

ITA 327/COCH/2016

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 4409 (ITAT-COCHIN)
• Duration Of Justice: 1 year(s) 7 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-03-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Assessment Year: 2007-2008
• Appeal Filed On: 25-07-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: M V RUDRAN
• Assessee Lawyers: R KRISHNAN
• Keywords: Revenue expenditure; Capital expenditure
• Section: 43B

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFORE S/SHRI CHANDRA POOJARI , AM & GEORGE GEORGE K., JM I.T.A. NO. 327/COCH/16 ASSESSMENT YEAR : 2007 - 08 M/S. NIKUNJAN CONSTRUCTIONS PVT. LTD., INDRAPRASTHAM, PATTOM, KOWDIAR ROAD, TRIVANDRUM. [PAN:AABCN 0901B] VS. THE ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE-1(1), TRIVANDRUM. (ASS ESSEE - APPELLANT) (REVENUE - RESPONDENT) A SSESSEE BY SHRI R. KRISHNAN, CA REVENUE BY SHRI M.V. RUDRAN, ADDL. CIT, DR D ATE OF HEARING 21 / 0 3 /2018 DATE OF PRONOUNCEMENT 22 / 0 3 /2018 O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE CIT(A), TRIVANDRUM DATED 13/05/2016 AND PERTAINS TO THE ASS ESSMENT YEAR2007-08. 2. THE FIRST GROUND IS WITH REGARD TO THE ADDITION OF RS.14,18,410/- IN RESPECT OF PERMIT FEE PAID ON THE GROUND THAT IT IS A CAPITAL EXPENDITURE. 3. THE FACTS OF THE ISSUE ARE THAT PERMIT FEE OF RS.14,18,410/- CLAIMED TO HAVE BEEN MADE TO THIRUVANANTHAPURAM MUNICIPAL CORPORATI ON FOR THE PROJECT I.T.A. NO.327/COCH/2016 2 STARTED AT VELLAYAMBALAM WAS NOT ALLOWED BY THE ASS ESSING OFFICER SINCE NO INCOME FROM THE SAID PROJECT WAS OFFERED FOR TAX AN D FURTHER, THE PAYMENT WAS CAPITAL IN NATURE AND PAID FOR THE ENDURING BENEFIT S THAT WOULD ACCRUE TO THE APPELLANT OVER A PERIOD OF TIME. THE ASSESSEE WAS N OT IN AGREEMENT WITH THE ASSESSING OFFICER AND THEREBY CONTENDED THAT THE PA YMENT WAS A STATUTORY PAYMENT WHICH IS ALLOWABLE U/S 43B OF THE ACT. THE ASSESSEE FURTHER CONTENDED THAT IF IT IS DISALLOWED FOR THE AY 2007- 08 THEN DIRECTION MAY BE ISSUED TO THE ASSESSING OFFICER TO CONSIDER THE SAM E FOR THE AY 2008-09 AS THE RETURN FILED FOR THE AY 2008-09 ON 30.09.2008 C ANNOT BE REVISED NOW. 4. ON APPEAL, THE CIT(A) CONSIDERED BOTH THE VIE WS EXPRESSED. ACCORDING TO THE CIT(A), THE PERMIT FEE PAID CANNOT BE CONST RUED AS STATUTORY PAYMENT SO AS TO CONSIDER THE SAME U/S 43B FOR DEDUCTION. A CCORDING TO THE CIT(A) TO CONSIDER FOR DEDUCTION U/S 43B, THE PAYMENT SHOULD BE IN THE NATURE OF TAX, DUTY, CESS ETC. THE CIT(A) OBSERVED THAT PAYMENT MA DE FOR GETTING PERMISSION FOR THE CONSTRUCTION OF A BUILDING CAN U NDER NO WAY BE BROUGHT INTO THE AMBIT OF SECTION 43B SINCE THE SAME WAS PAID FO R CERTAIN ENDURING BENEFIT THE CAPTIONED PROJECT AT VELLAYAMBALAM WOULD GET TO THE ASSESSEE ON ITS COMPLETION, IN FUTURE. ACCORDING TO THE CIT(A) IT I S BASICALLY A PAYMENT MADE FOR THE PURPOSE OF GETTING APPROVAL FOR CONSTRUCTIO N OF A BUILDING AND IT CANNOT BE TREATED AS TAX, DUTY, CESS ETC PAID. THE CIT(A) OBSERVED THAT SPENDING OF THIS AMOUNT HAS NOT RESULTED IN REVENUE GENERATION DURING THE ASSESSMENT YEAR UNDER CONSIDERATION AS NO SUCH INCOME FROM THE PROJECT AT I.T.A. NO.327/COCH/2016 3 VELLAYAMBALAM WAS OFFERED FOR TAX. THE AMOUNT SPENT ON AN ONGOING PROJECT WOULD DEFINITELY BRING ENDURING BENEFIT TO THE APPE LLANT IN FUTURE AND THEREBY BE TREATED AS CAPITAL EXPENDITURE. THE PERMIT FEE P AID IN THE CIRCUMSTANCES NARRATED ABOVE NEITHER BE TREATED AS PAID U/S 43B N OR AS REVENUE EXPENDITURE. IN VIEW OF THE ABOVE, THE CIT(A) CONFI RMED THE DECISION OF THE ASSESSING OFFICER WHO HAD TAKEN TO TREAT THE PERMIT FEE PAID AS CAPITAL EXPENDITURE. ACCORDINGLY, THE CIT(A) HELD THAT THE PERMIT FEE PAID IS THE CAPITAL EXPENDITURE AND UPHELD THE DISALLOWANCE MAD E BY THE ASSESSING OFFICER. 5. AGAINST THIS, THE ASSESSEE IS IN APPEAL BEFOR E US. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE MAIN CONTENTION OF THE LD. DR BEFORE US IS THAT THE ASSESSEE HAS NOT OFFERED INCOME RELATING TO VELLAYAMBALAM PROJECT. HENCE, IT CANNOT BE ALLOWED. ADMITTEDLY, IN THIS CASE THE ASSESSEE IS IN REAL ES TATE BUSINESS AND CARRYING OUT VARIOUS CONSTRUCTION PROJECTS NAMELY, KUMARAPURAM, PONGUMOODU, VANCHIYOOR AND VELLAYAMBALAM. THE ASSESSEE OFFERED INCOME FRO M PONGUMOODU, KUMARAPURAM AND VANCHIYOOR. HOWEVER, THERE WAS NO INCOME OFFERED FROM VELAMBALAM PROJECT. THE ASSESSEE RECOGNIZED INCOME FROM THE PROJECT ON THE BASIS OF PERCENTAGE OF COMPLETION METHOD AND THE PE RCENTAGE OF COMPLETION WILL BE DETERMINED BY THE PROJECT MANAGEMENT TEAM OF THE COMPANY, BASED ON I.T.A. NO.327/COCH/2016 4 WHICH THE COMPANY PREPARES ITS PROFIT AND LOSS ACCO UNT. THE ASSESSEE INCURRED EXPENSES OF RS.14,18,410/- TOWARDS PERMIT FEE WHICH WAS PAID TO THE MUNICIPAL CORPORATION TO GET THE PROJECT APPROVED AT VELLAYAM BALAM. AS SEEN FROM THE ABOVE FACTS, THE ASSESSEE IS IN THE BUSINESS OF REA L ESTATE AND IT IS CONTINUING THE PROJECT. ACCORDING TO THE LD. DR, THAT EXPENDITURE IS CAPITAL IN NATURE AS IT GIVES ENDURING BENEFIT TO THE ASSESSEE. IN OUR OPINION, M ERELY BECAUSE THERE WAS NO INCOME OFFERED WITH REFERENCE TO VELLAYAMBALAM PROJ ECT, WOULD NOT DISENTITLE THE ASSESSEE FROM CLAIMING THIS AS A BUSINESS EXPENDITU RE IN THIS ASSESSMENT YEAR. IT IS WELL SETTLED THAT THE EXPENDITURE INCURRED WHILE THE BUSINESS IS A RUNNING CONCERN IN COMMUTATION OF LIABILITIES CHARGEABLE TO REVENUE IS REVENUE IN NATURE. FURTHER, WHERE THE LIABILITIES ARE INCURRED BEFORE THE BUSINESS HAS STARTED, AND HAS BEEN INCURRED NOT FOR THE RUNNING OF THE BUSINE SS, BUT FOR THE PURPOSE OF SECURING CERTAIN ADVANTAGE TO THE BUSINESS OR CERTA IN SET OF FAVOURABLE CIRCUMSTANCES IN ORDER TO LAUNCH THE BUSINESS, THE EXPENDITURE IN QUESTION WOULD BE CAPITAL FIELD. THUS, WHEN THE BUSINESS IS ESTAB LISHED AND IS READY TO COMMENCE BUSINESS, THEN IT CAN BE SAID OF THAT BUSI NESS THAT IS ALREADY SET UP. THE WORDS READY TO COMMENCE WOULD NOT NECESSARILY MEAN THAT ALL THE INTEGRATED ACTIVITIES ARE FULLY CARRIED OUT AND/OR WHOLLY COMPLETED. THIS REQUIREMENT IS ALSO COMPLIED WITH IN THIS CASE WHER E THE ASSESSEE HAS ALREADY COMMENCED BUSINESS AND IT IS GOING ON AND THE IMPUG NED EXPENDITURE WAS INCURRED IN CONNECTION WITH VELLAYAMBALAM PROJECT F OR GETTING APPROVAL FROM THE MUNICIPAL CORPORATION AND IT CANNOT BE SAID THAT TH E EXPENDITURE WAS INCURRED I.T.A. NO.327/COCH/2016 5 BEFORE THE COMMENCEMENT OF BUSINESS OR IT CANNOT BE DISALLOWED ON THE PRETEXT THAT THE ASSESSEE HAS NOT OFFERED INCOME FROM VELLA YAMBALAM PROJECT IN RESPECT OF WHICH THE EXPENDITURE WAS INCURRED. THE IMPUGNE D EXPENDITURE WAS INCURRED BY THE ASSESSEE AFTER SETTING UP OF BUSINESS AND IT IS TO BE REVENUE EXPENDITURE. WE ALSO PLACE RELIANCE ON THE FOLLOWING JUDGMENTS: I) WESTERN INDIA VEGETABLE PRODUCTS L TD. VS. CIT (26 ITR 151)(BOM) II) CIT VS. KULWANT SINGH AND COMPANY (144 TAXATION 464 (P&H) III) CIT VS. MFAR CONSTRUCTION LTD. (48 DTR 36 0(KAR.). IN VIEW OF THIS, WE ARE INCLINED TO DECIDE THIS ISS UE IN FAVOUR OF THE ASSESSEE 7. THE NEXT GROUND, GROUND NO. 4 IS WITH REGARD T O DISALLOWANCE OF RS.4,72,232/- BEING 1/5 TH OF EXPENSES RELATING TO FOREIGN TRAVEL AS HAVING INCURRED FOR PERSONAL PURPOSES. 8 . THE FACTS OF THE ISSUE ARE THAT L/5 TH OF TRAVELLING EXPENSES WAS DISALLOWED FOR THE PERSONAL ELEMENT INVOLVED IN THAT. THE ASSESSEE WAS NOT IN AGREEMENT WITH THE ASSESSING OFFICER AS THE TRAVEL WAS CARRIED OUT FOR BUSINESS PURPOSE. THE ASSESSEE FURTHER PRODUCED COPIES OF THE FLIGHT TI CKETS AND CLAIMED NOTHING WAS SPENT FOR PERSONAL NEEDS. 9. ON APPEAL, THE CIT(A) OBSERVED THAT GENERALLY, THE PERSON GOING TO ABROAD FOR BUSINESS PURPOSE CANNOT SAY OUT RIGHTLY NOTHING WAS SPENT BY HIM FOR HIS PERSONAL NEEDS AND EVERYTHING WAS SPENT ONLY FOR BU SINESS PURPOSE. SAME WOULD I.T.A. NO.327/COCH/2016 6 BE THE CASE OF THE ASSESSEE UNLESS PROVED TO BE CON TRARY. PRODUCING FLIGHT TICKETS ALONE FOR THE AMOUNT SPENT OF RS.18,88,928/- ACCOR DING TO THE CIT(A) WOULD NOT JUSTIFY THE CLAIM TO THE CORE SINCE PERSONAL ELEMEN T INVOLVED IN THE CLAIM MADE CANNOT BE RULED OUT. IT IS NOT THE CASE OF THE ASSE SSEE THAT THE ENTIRE LOT OF RECEIPTS AND VOUCHERS RELATES TO FOREIGN TRAVEL HAS BEEN PRODUCED TO THE ASSESSING OFFICER FOR VERIFICATION. IT IS ALSO NOT THE CASE OF THE ASSESSEE THAT THE DIRECTORS WHO VISITED ABROAD HAVE SPENT SEPARATELY FOR THEIR PERSONAL NEEDS WHICH IS VERIFIABLE EVEN NOW. THE CIT(A) CONFIRMED THE DISALLOWANCE OF L/5 TH OF THE EXPENSES. THE CIT(A) REJECTED ANOTHER ARGUMEN T OF THE ASSESSEE THAT THE COMPANY HAD FILED FRINGE BENEFIT TAX RETURN AND THE DISALLOWANCE MADE TANTAMOUNT TO DUPLICATION AS THIS ARGUMENT HAS NO R ELEVANCE TO THE FACTS OF THE CASE SINCE THE DETAILS BASED ON WHICH THE FRINGE BE NEFIT TAX RETURN WAS FILED WAS NOT MADE AVAILABLE FOR VERIFICATION. THIS APART, TH E CIT(A) OBSERVED THAT FRINGE BENEFIT TAX RETURN WAS FILED FOR THE FRINGE BENEFIT S VALUE OF RS.4,24,344/- BUT THE DISALLOWANCE ON TRAVELLING EXPENSES WAS MADE FOR TH E AMOUNT DEBITED OF RS.18,88,928/-. THE CIT(A) OBSERVED THAT ASSESSEE C ANNOT SAY THAT THE ENTIRE AMOUNT DISALLOWED WAS CONSIDERED FOR FILING FRINGE BENEFIT TAX RETURN. ACCORDING TO THE CIT(A), THIS ARGUMENT MAY BE FACTUALLY INCOR RECT AS THE FRINGE BENEFIT TAX RETURN WAS FILED ON 30.10.2007 MUCH BEFORE THE DISA LLOWANCE MADE IN DECEMBER, 2009. HENCE HE CONFIRMED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. I.T.A. NO.327/COCH/2016 7 10. AGAINST THIS, THE ASSESSEE IS IN APPEAL BEFORE US 11. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUS ED THE RECORD. THE LD. AR RELIED ON THE JUDGMENT OF THE GUJARAT HIGH COURT IN THE CASE OF SAYAJI IRON AND ENGG.CO. VS.CIT (172 CTR GUJ 339), DECISION OF THE DELHI BENCH OF THE TRIBUNAL IN THE CASE OF DCIT VS. M/S. JUNEJA PROJECT SERVICE S PVT. LTD IN ITA NO. 2491/DEL/2011 DATED 09/08/2012 AND THE DECISION OF THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF AGFA INDIA PVT. LTD. VS. AC IT IN ITA NO. 3426 TO 3428/MUM/2008 DATED 23/01/2015. HE FURTHER SUBMI TTED THAT THERE CANNOT BE ANY PERSONAL EXPENDITURE IN THE HANDS OF THE ASSESS EE-COMPANY. ACCORDING TO THE LD. AR AT THE MOST, EVEN IF THE EXPENDITURE IS INCURRED FOR THE PERSONAL USE OF THE DIRECTORS, THE SAME CANNOT BE CONSIDERED AS PERSONAL EXPENDITURE AND IT CANNOT BE DISALLOWED. IN THIS CASE THOUGH THE ASSE SSEE HAS CLAIMED AN EXPENDITURE OF RS.18,88,928/- TOWARDS FOREIGN TRAVE L EXPENDITURE UNDERTAKEN BY THE DIRECTORS THE ASSESSEE HAS NOT PRODUCED DETAILS OF THE WORK CARRIED OUT BY THE DIRECTORS AT VARIOUS COUNTRIES. THE ASSESSEE H AS ONLY FILED DETAILS OF FLIGHT TICKETS IN SUPPORT OF THE CLAIM OF THAT EXPENDITURE . UNLESS THE ASSESSEE SUBMITTED THE DETAILS OF THE NAMES OF THE CLIENTS O R CUSTOMERS WITH WHOM THE DIRECTORS HELD TALKS AND THE NUMBER OF DAYS SPEND T HEREIN, IT IS NOT POSSIBLE TO HOLD THAT THE ENTIRE EXPENDITURE CLAIMED BY THE ASS ESSEE IS WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS OF THE ASSESSEE. IT WAS NECESSARY FOR THE ASSESSEE TO FURNISH DETAILS OF THE WORK CARRIED OUT BY THE DIRECTORS AT ABROAD IN CONNECTION WITH THE BUSINESS OF THE ASSESSEE. HE NCE, THE ASSESSING OFFICER IS I.T.A. NO.327/COCH/2016 8 JUSTIFIED IN DISALLOWING A PART OF THE EXPENDITURE AS PERSONAL IN NATURE. ACCORDINGLY, WE DO NOT FIND ANY INFIRMITY IN THE OR DER OF THE CIT(A) AND THE SAME IS CONFIRMED. THIS GROUND OF APPEAL OF THE ASSESS EE IS REJECTED. 12. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THI S 22 ND MARCH, 2018. SD/- SD/- ( GEORGE GEORGE K.) (CHAN DRA POOJARI) JUDICIAL MEMBER ACCOUNTANT MEMBER PLACE: DATED: 22 ND MARCH, 2018 GJ COPY TO: 1. M/S. NIKUNJAN CONSTRUCTIONS PVT. LTD., INDRAPRAS THAM, PATTOM, KOWDIAR ROAD, TRIVANDRUM. 2. THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE -1(1), TRIVANDRUM. 3. THE COMMISSIONER OF INCOME-TAX(APPEALS), TRIVAND RUM. 4. THE PR. COMMISSIONER OF INCOME-TAX, TRIVANDRUM. 5. D.R., I.T.A.T., COCHIN BENCH, COCHIN. 6. GUARD FILE. BY ORDER (ASSISTANT REGISTRA R) I.T.A.T. , COCHIN