DEGUSTIBUS HOSPITALITY P.LTD, MUMBAI V. DCIT 5(1), MUMBAI

ITA 355/MUM/2016

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 1112 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 7 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-09-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Assessment Year: 2010-2011
• Appeal Filed On: 22-01-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: D G PANSARI
• Assessee Lawyers: SUNIL A DESAI
• Keywords: Capital asset; Revenue expenditure; Capital expenditure; Set aside
• Section: 143(3); 37(1); 143(2)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL 'D' BENCH, MUMBAI BEFORE SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER AND SHRI RAVISH SOOD, JUDICIAL MEMBER ITA NO. 355/MUM/2016 (ASSESSMENT YEAR: 2010-11) M/S. DEGUSTIBUS HOSPITALITY P. LTD. 8TH FLOOR, BAKTAWAR BLDG. NARIMAN POINT, MUMBAI 400021 VS. D C I T - 5(1) AAYAKAR BHAVAN, M.K. ROAD MUMBAI 400020 PAN AABCD3674P APPELLANT RESPONDENT APPELLANT BY: SHRI SUNIL A. DESAI RESPONDENT BY: SHRI D.G. PANSARI DATE OF HEARING: 26.06.2019 DATE OF PRONOUNCEMENT: 12.09.2019 O R D E R PER SHAMIM YAHYA, AM THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER OF THE CIT(A)-10, MUMBAI DATED 16.10.2015 AND IT RELATES T O A.Y. 2010-11. 2. ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL : - 1. ON THE BASIS OF FACTS AND IN THE CIRCUMSTANCES OF T HE CASE, THE LEARNED CIT(A) ERRED IN MAKING PRESUMPTION THAT THE ADDITIONS ARE AGREED BY THE APPELLANT AND FURTHER ERRED IN NO T APPRECIATING THAT THE APPELLANT HAS DISPUTED THE VERY ADDITIONS FOR WHICH THE APPEAL IS FILED BEFORE HIM. 2. ON THE BASIS OF FACTS AND IN THE CIRCUMSTANCES OF T HE CASE, THE LEARNED CIT(A) ERRED IN CONFIRMING THE ADDITION OF RS. 839,564/- ON ACCOUNT OF DEFERRED REVENUE EXPENDITURE, THE CON CEPT WHICH IS ABSENT IN INCOME TAX ACT, 1956, WITHOUT CONSIDERING FACTS AND NATURE OF EXPENDITURE. 3. ON THE BASIS OF FACTS AND IN THE CIRCUMSTANCES OF T HE CASE, THE LEARNED CIT(A) ERRED IN CONFIRMING THE ADDITION OF RS. 5,00,000/- IN RESPECT OF PROFESSIONAL FEES U/S 37(1). ITA NO. 355/MUM/2016 M/S. DEGUSTIBUS HOSPITALITY P. LTD. 2 4. ON THE BASIS OF FACTS AND IN THE CIRCUMSTANCES OF T HE CASE, THE LEARNED CIT(A) ERRED IN NOT DECIDING THE ISSUE OF C ARRY FORWARD OF BUSINESS LOSS OF RS. 193,51,731 /-. 3. AT THE OUTSET THE LEARNED COUNSEL FOR THE ASSESSEE CONTENDED THAT HE SHALL NOT BE PRESSING GROUND NO. 4. ACCORDINGLY GRO UND NO. 4 RAISED ABOVE IS DISMISSED AS NOT PRESSED. 4. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A COMPANY ENGAGED IN THE BUSINESS OF RUNNING OF CONTINENTAL RESTAURAN T. IT FURNISHED ITS RETURN OF INCOME FOR A.Y.2010-11 ON 06.10.2010 DECL ARING TOTAL LOSS AT ` 5,59,82,258/-. NOTICE UNDER SECTION 143(2) OF THE I NCOME TAX ACT, 1961 (HEREINAFTER 'THE ACT') DATED 27.08.2011 WAS I SSUED AND SERVED ON THE ASSESSEE. THE AO COMPLETED THE ASSESSMENT UNDER SECTION 143(3) OF THE ACT DETERMINING THE TOTAL LOSS BY A REDUCED FIG URE OF ` 5,46,34,690/- ON 28.03.2013 BY MAKING THE ADJUSTMENTS. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE AO HAS NOTICED THAT THE ASSESSEE HAS DEBITED AN AMOUNT OF ` 98,23,302/~ UNDER THE HEAD LEGAL & PROFESSIONAL FEES. ON VERIFICATION OF THE DETAILS OF THE EXPENSE S SUBMITTED, THE AO HAS SEEN THAT THE ASSESSEE HAS CLAIMED LEGAL SERVIC E CHARGES AMOUNTING TO ` 12,59,346/- PAID TO AZB& PARTNERS. THE ASSESSEE WAS ASKED WHY THE ABOVE EXPENSES SHOULD NOT BE TREATED AS DEFERRE D REVENUE EXPENDITURE FOR THREE YEARS AS THE CLAIM IS VERY HI GH AND THE BENEFIT OF THE EXPENSES LIKELY TO BE AVAILED BY THE ASSESSEE F OR MORE THAN ONE YEAR. THE ASSESSEE HAS AGREED TO TREAT THE EXPENSES FOR T HREE EQUAL PROPORTIONS FROM A.Y.2010-11 ONWARDS. ACCORDINGLY, 2 / 3 OF ` 12,59,346/- I.E. ` 8,39,564/- WAS DISALLOWED AND ADDED TO THE TOTAL IN COME OF THE ASSESSEE. FURTHER THE AO NOTICED THAT THE ASSESSEE HAS DEBITED AN AMOUNT OF ` 98,23,302/- UNDER THE HEAD LEGAL & PROFESSIONAL FEE S. ON VERIFICATION OF THE DETAILS OF THE EXPENSES SUBMITT ED, THE AO HAS SEEN THAT THE ASSESSEE HAS CLAIMED SERVICES FOR EQUITY S HARE TRANSACTION AMOUNTING TO ` 5,00,000/- PAID TO KANGA & CO. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE WAS ASKED AS T O WHY THE ABOVE EXPENSES SHOULD NOT BE CAPITALIZED/DISALLOWED IN VI EW OF THE FACT THAT THE EXPENSES HAVE YOU BEEN INCURRED ON ACCOUNT OF T RANSFER OF SHARES ITA NO. 355/MUM/2016 M/S. DEGUSTIBUS HOSPITALITY P. LTD. 3 AND RELATED LITIGATION MATTER WHICH IS IN RESPECT O F CAPITAL ASSET. THE AO RELIED UPON THE DECISION OF SUPREME COURT IN THE CA SE OF BROOK BOND INDIA LTD. WHEREIN THE COURT HAS RULED THAT IF BENE FITS OF EXPENDITURE ARE OF ENDURING NATURE, IT SHOULD BE TREATED AS CAPITAL EXPENDITURE. AS SUCH ASSESSEE HAS AGREED FOR THE ABOVE DISALLOWANCE. THE AO DISALLOWED AN AMOUNT OF ` 5,00,000/- UNDER SECTION 37(1) OF THE ACT AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 5. UPON ASSESSEES APPEAL THE LEARNED CIT(A) CONFIRMED THE ADDITION. HE UPHELD THE ACTION OF THE ASSESSING OFFICER AS WE LL AS NOTED THE FACT THAT THE ASSESSEE HAS ACCEPTED THE DISALLOWANCE BEFORE T HE ASSESSING OFFICER. 6. AGAINST THE ABOVE THE ASSESSEE IS IN APPEAL BEFORE US. WE HAVE HEARD BOTH THE COUNSELS AND PERUSED THE RECORDS. WE FIND THAT THE ASSESSEE HAS INCURRED LEGAL AND PROFESSIONAL EXPENSES. THESE EXP ENSES ARE IN THE NATURE OF REVENUE EXPENDITURE. JUST BECAUSE THE QUANTUM OF EXPENDITURE IS HIGH IT CANNOT CHANGE THE NATURE OF EXPENDITURE FROM REV ENUE TO CAPITAL. MOREOVER, IN TAX LAWS THERE IS NO CONCEPT OF DEFERR ED REVENUE EXPENDITURE. FURTHERMORE CONCESSION AS TO LAW CANNOT BE TREATED AS ESTOPPEL, BARRING THE ASSESSEE FROM CHALLENGING THE SAME. ACCORDINGLY WE SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW TREATING PART OF TH E LEGAL EXPENDITURE A DEFERRED REVENUE EXPENDITURE. 7. AS REGARDS THE DISALLOWANCE OF EXPENDITURE AS CAPIT AL EXPENDITURE ON ACCOUNT OF LITIGATION AND RELATED EXPENSES REGARD T O TRANSFER OF SHARES, WE FIND THAT LITIGATION IN THIS REGARD CANNOT ADD TO T HE VALUE OF THE SHARES. HENCE BY NO STRETCH OF IMAGINATION IT CAN BE SAID T HAT THE LITIGATION HAS INCREASED THE VALUE OF THE SHARES AND HENCE THE LIT IGATION EXPENDITURE IN THIS REGARD IS NOT REQUIRED TO BE CAPITALISED. 8. IN THIS VIEW OF THE MATTER, IN OUR CONSIDERED OPINI ON, THE TREATMENT OF LEGAL EXPENDITURE AS CAPITAL EXPENDITURE IS NOT SUSTAINABLE. ACCORDINGLY WE SET ASIDE THE ORDER OF THE AUTHORITIES BELOW. ITA NO. 355/MUM/2016 M/S. DEGUSTIBUS HOSPITALITY P. LTD. 4 9. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE STA NDS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 12 TH SEPTEMBER, 2019. SD/ - SD/ - (RAVISH SOOD) (SHAMIM YAHYA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED: 12 TH SEPTEMBER, 2019 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) -10, MUMBAI 4. THE PR.CIT - 5, MUMBAI 5. THE DR, D BENCH, ITAT, MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI N.P.