ITO, New Delhi V. M/s. Integrated Warehousing Kandla Project Development Pvt. Ltd., New Delhi

ITA 3933/DEL/2014

• Counselvise Citation: 393320114 RSA 2014
• Duration Of Justice: 1 year(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-07-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: SMC 2
• Next Hearing Date: 08-07-2015
• Assessment Year: 2010-2011
• Appeal Filed On: 08-07-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ROBIN RAWAL
• Section: 143(3)

Judgement Text

1 IN THE INCOME TAX APPELATE TRIBUNAL DELHI BENCH SMC - 2 : NEW DELHI BEFORE SHRI H.S. SIDHU, JUDICIAL MEMBER ITA NO. 3933 /DEL/201 4 A.Y. : 20 10 - 1 1 INCOME TAX OFFICER, VS. M/S INTEGRATED WAREHOUSING KANDLA WARD 11(4), PROJECT DEVELOPMENT PVT. LTD., ROOM NO. 409 - A, CR BUILDING , C/O IL & FS SECURITIES SERVICES LTD., NEW DELHI 10, COMMUNITY CENTRE, 2 ND FLOOR, EAST OF KAILASH, SOUTH DELHI, NEW DELHI (PAN : AABCI4306D ) (APPELLANT) (RESPONDENT) DEPARTMENT BY : SH. ROBIN RAWAL, SR. DR ASSESSEE BY : NONE DATE OF HEARING : 0 8 - 07 - 2015 DATE OF ORDER : 30 - 07 - 2015 O R D E R PER H.S. SIDHU, JM THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) - X V , NEW DELHI DATED 28 . 4 .201 4 PERTAINING TO ASSESSMENT YEAR 20 10 - 1 1 . 2. T HE GROUNDS OF APPEAL READ AS UNDER: - I) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 14,98,868/ - MADE ON ACCOUNT OF PRE - OPERATIVE EXPENSES. 2 II) THE APPELLANT CRAVES LEAVE TO ADD, ALTER OR AMEND ANY GROUND OF APPEAL RAISED ABOVE AT THE TIME OF HEARING. 3 . THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE FILED THE RETURN DECLARING LOSS OF RS. 9,13,895/ - ON 23.9.2010. THE RETURN WAS PROCESSED U/S. 143(1) OF THE ACT. THE CASE WAS SELECTED FOR SCRUTINY. NOTICE U/S. 143(2) OF THE ACT WAS ISSUED ON 25.8.201 2 WHICH WAS DULY SERVED ON THE ASSESSEE COMPANY. IN RESPONSE TO THE SAID NOTICE, ASSESSEE S AUTHORISED REPRESENTATIVE ATTENDED THE ASSESSMENT PROCEEDINGS AND FILED THE DETAILS AS ASKED FOR. AFTER GOING THROUGH THE RECORDS, ASSESSING OFFICER WAS OF THE VIEW THAT ASSESSEE S COUNSEL HAS FAILED TO EXPLAIN WHY THE EXPENSES AMOUNTING TO RS. 14,98,868/ - INCURRED ON ACCOUNT OF LEGAL AND PROFESSIONAL WERE NOT REFLECTED IN THE BALANCE SHEET UNDER THE HEAD CAPITAL WORK IN PROGRESS . THE ASSESSEE HAS NOT B EEN SUCCESSFUL IN ITS BIDDING IN ANY PROJECT SO FAR, AS SUCH AL THE EXPENSES INCURRED BY IT ARE TO BE DEBITED IN THE CAPITAL WORK IN PROGRESS. AO FURTHER OBSERVED THAT THAT IT WAS ASSESSEE S OWN ADMISSION THAT ALL THESE EXPENSES WERE RECOVERABLE FROM THE PROSPECTIVE BIDDERS IN NEAR FUTURE. IT IS VERY UNLIKELY THAT THE ASSESSEE COMPANY WOULD NOT RECOVER THE SAID EXPENSES AMOUNTING TO RS. 14,98,868/ - INCURRED ON ACCOUNT OF LEGAL AND PROFESSIONAL FROM THE PROSPECTIVE BIDDERS IN NEAR FUTURE. ASSESSING O FFICER WAS OF THE FIRM OPINION THAT EXPENSES SO INCURRED ARE OF THE NATURE OF PRE - OPERATIVE AND ARE TO BE DEBITED TO CAPITAL WORK IN PROGRESS . TO SUPPORT HIS CONTENTION, HE RELIED UPON THE HON BLE SUPREME COURT OF INDIA JUDGMENT IN THE CASE OF M/S TUTI CORIN ALKALI CHEMICALS AND FERTILIZERS LTD. VS. COMMISSIONER OF INCOME TAX (1997) 227 ITR 172 (SC). THEREFORE, THE AO COMPLETED THE ASSESSMENT U/S. 143(3) OF THE ACT AT A TOTAL INCOME OF RS. 5,84,970/ - VIDE ORDER DATED 19 .12.201 2 , AFTER 3 MAKING THE DISALL OWANCE ON ACCOUNT OF PRE - OPERATIVE EXPENSES AMOUNTING TO RS. 14,98,868/ - . 4 . AGGRIEVED WITH THE AFORESAID ASSESSMENT ORDER, ASSESSEE APPEALED BEFORE THE LD. CIT(A), WHO VIDE IMPUGNED ORDER DATED 2 8 . 4 .2014 STATISTICALLY ALLOWED THE APPEAL OF THE ASSESS EE. 5. AGAINST THE ABOVE MENTIONED IMPUGNED ORDER DATED 28 . 4 .2014, THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL. 6. LD. DR RELIED UPON THE ORDER OF THE AO AND REITERATED THE CONTENTIONS RAISED IN THE GROUNDS OF APPEAL. 7. IN THIS CASE THE NOTICE WAS SENT TO THE ASSESSEE FOR HEARING BY REGD. AD POST FOR 0 8 .07.2015 AT THE ADDRESS MENTIONED IN FORM NO. 36 VIDE COLUMN NO. 10, BUT NOBODY APPEARED ON BEHALF OF THE ASSESSEE NOR ANY ADJOURNMENT APPLICATION WAS FILED. IN MY CONSID ERED OPINION, NO USEFUL PURPOSE WOULD BE SERVED TO ISSUE NOTICE AGAIN AND AGAIN ON THE SAME ADDRESS. THEREFORE, I AM OF THE CONSIDERED VIEW THAT THE CASE MAY BE DECIDED EXPARTE QUA ASSESSEE, AFTER HEARING THE LD. DR. 8. I HAVE HEARD THE LD. DR AND PERUSED THE RECORDS, ESPECIALLY THE ORDERS OF THE REVENUE AUTHORITIES. I FIND THAT DURING THE APPELLATE PROCEEDINGS THE A SSESSEE WAS AS KED TO FURNISH A COPY OF THE BILLS OF THE CONSULTANCY CHARGES AGGREGATING TO RS. 14,98,868 CLAIMED TO HAVE BEEN PAID TO THE LAW FIRM M / S AMARCHAND & M ANGALDAS & SURESH A SHROFF & CO. I FIND THAT LD. CIT(A) ON CAREFUL PERUSAL OF THE NINE BILLS RAISED BY THE SAID LAW FIRM AND THE DETAILS GIVEN IN THE ANNUAL AUDITED ACCOUNTS, OBSERVED THAT A SSESSEE COMPANY HAD PAID THE A BOVE CHARGES IN RESPECT OF LITIGATION WITH M /S MAYTAS CONSTRUCTIONS (P) LTD. BEFORE THE DELHI HIGH COURT. THE SCHEDULE - I RE LATING TO NOTES TO 4 ACCOUNTS OF THE ANNUAL AUDITED ACCOUNT (NO. L: BANK GUA RANTEES ENCASHED) SHOWS THAT THE COMPANY HAD INVOKED BANK G UARANTEE OF RS. 2 CRORES AGAINST M/S MAYTAS CONSTRUCTIONS (P) LTD. 8 . 1 I FIND THAT THE ASSESSEE , IN TERMS OF CONSISTENTLY FOLLOWED ACCOUNTING POLICIES, CA PITAL I SES ALL EXPENSES RELATING TO DEVELOPMENT OF PROJECTS UNDER THE HEAD 'WORK IN PROGRESS', AS SUC H EXPENSES ARE TO BE RECOVERED FROM THE PROSPECTIVE BIDDERS. T HE A SSESSEE IS ENGAGED IN THE DEVELOPMENT OF PROJECTS, WHICH ARE SOLD AT D IFFERENT STAGES TO THE PROSPECTIVE BIDDERS AND THEREFORE, THE COST OF THE PROJECT W HICH ALSO INCLUDE CONSULTANCY CHARGES INCURRED FOR DEVELOPING THE PROJECT ARE A ISO CAPITALIZED. HOWEVER, THE IMPUGNED CHARGES OF RS.14,98,868 / - PAID TO MLS A MARCHAND & MANGALDAS & SURESH A SHROFF & CO. ARE NOT IN RESPECT OF ANY C ONSULTANCY SERVICES RENDERED FOR DEVELOPMENT OF PROJECTS BUT WERE TOWARDS THE LI TIGATION COST IN RESPECT OF ONE OF THE PROSPECTIVE BIDDERS AND IN WHOSE CASE THE B ANK GUARANTEE WAS INVOKED BY THE ASSESSEE COMPANY. I FIND THAT THE U NDER THE CIRCUMSTANCES, T HE A SSESSEE WAS NOT REQUIRED TO CAPITALIZE THE SAID LITIGATION EXPENSES AS THE SAME WERE NOT FOR DEVELOPMENT OF PROJECTS. 8 . 2 I FIND THAT AO HAD RELIED UPON THE DECISION OF MLS TUTICORIN ALKALI CHEMICALS AND FERTILIZERS LTD. VS COMMISSIONER OF INCOME TAX (SUPRA). HOWEVER, I FURTHER FIND THAT THE LD. CIT(A) HAS RIGHTLY DISTINGUISHED THE FACTS OF THE CASE AND OBSERVED THAT IT WAS NOT A CASE OF INVESTMENT OF SURPLUS MONEY IN THE PRE - COMMENCEMENT PERIOD. IN VIEW OF THIS, THE ACTION OF THE AO OF TREATING THE LITIGATION EXPENSES AS CAPITAL IN NATURE AND HOLDING THE SAME AS PRE - OPERATIVE IN NATURE IS NOT IN ACCORDANCE WITH LAW AND THE ACCOUNTING STANDARDS. I ALSO FIND THAT THE LD. CIT(A) WAS QUITE RIGHT IN DIRECTING THE AO TO FOLLOW UP THE OUTCOME OF THE 5 LITI GATION WITH MLS MAYTAS CONSTRUCTION IN THE SUBSEQUENT YEARS TO SEE WHETHER THE A SSESSEE HAD SUCCEEDED IN THE LITIGATION AND IF SO, WHETHER THE A SSESSEE HAD OFFERED T HE AMOUNT OF BANK GUARANTEE FOR TAXATION IN THE YEAR, IN WHICH SUCH LITIGATION HAD COME TO AN END. IN THE BACKGROUND OF THE AFORESAID DISCUSSIONS, I DO NOT SEE ANY REASON TO INTERFERE WITH THE WELL REASONED ORDER PASSED BY THE LD. CIT(A), HENCE, I UPHOLD THE SAME AND DISMISS THE APPEAL OF THE ASSESSEE. 9 . IN THE RESULT, THE APPEAL FILED BY THE REVENUE STANDS DISMISSED. ORDER PRONOUNCED IN THE OPEN CO URT ON 30 /7/201 5 . SD/ - [ H.S. SIDHU ] JUDICIAL MEMBER DATE: 30 /7/201 5 SRBHATNAGAR COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4.CIT (A) 5. DR, ITAT TRUE COPY BY ORDER, ASSISTANT REGISTRAR, ITAT, DELHI BENCHES