Aerens Developers & Building Pvt. Ltd, New Delhi V. DCIT, New Delhi

ITA 3963/DEL/2009

• Counselvise Citation: [2010] 119 COUNSELVISE.COM (IT) 5789 (ITAT-DELHI)
• Duration Of Justice: 6 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-03-2010
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 15-03-2010
• Assessment Year: 2002-2003
• Appeal Filed On: 24-09-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PRATIMA KAUSHIK
• Keywords: Opportunity of being heard; Bad and doubtful debts; Capital expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH A : NEW DELHI BEFORE SHRI R.P.TOLANI AND SHRI K.D.RANJAN ITA NO.3963/DEL/2009 ASSESSMENT YEAR : 2002-03 AERENS DEVELOPERS & BUILDERS PVT. LTD., G-56, GREEN PARK MAIN, NEW DELHI-110016. VS. DCIT, CENTRAL CIRCLE-8, NEW DELHI. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI RAVI GUPTA, ADVOCATE WIT H SHRI RAJESH JAIN RESPONDENT BY : MS. PRATIMA KAUSHIK, SR. D.R. ORDER PER K.D.RANJAN, AM: THESE CROSS APPEALS BY THE ASSESSEE AND THE REVENUE FOR ASSESSMENT YEAR 2002-03 ARISE OUT OF ORDER OF LD. CIT(A)-II, N EW DELHI. 2. THE GROUNDS OF APPEAL RAISED IN ASSESSEES AND R EVENUES APPEALS ARE REPRODUCED AS UNDER: BY THE REVENUE: 1. THE LD.CIT(APPEAL) HAS ERRED IN LAW IN HOLDING T HAT THE HORTICULTURE EXPENSES INCURRED BY THE APPELLANT AMO UNTING TO RS.1,13,396/- IS EITHER CAPITAL EXPENDITURE OR SUCH EXPENSES ARE NOT REQUIRED TO BE INCURRED. 2. THAT THE LD. CIT(APPEAL) HAS ERRED IN LAW IN SUS TAINING THE DISALLOWANCE OF LEGAL PROFESSIONAL EXPENSES OF RS.8 ,15,117/-. 2 3. THAT THE LD. CIT(APPEAL) HAS ERRED IN LAW IN DIR ECTING THE A.O. TO REEXAMINE THE ISSUE OF UNCONFIRMED DEBTORS WHEN THE APPELLANT HAS NOT CLAIMED ANY BAD DEBTS. 4. THAT THE IMPUGNED APPELLATE ORDER IS ARBITRARY, ILLEGAL, BAD IN LAW AND IN VIOLATION OF RUDIMENTARY PRINCIPLES OF C ONTEMPORARY JURISPRUDENCE. BY THE ASSESSEE: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, LD.CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.7,04,185/- MADE BY THE A.O. BY WAY OF DISALLOWING CERTAIN EXPENSES WHICH W ERE NOT VERIFIABLE AND WERE NOT INCURRED FOR BUSINESS PURP OSES. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, LD.CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.7,04,185/- MADE BY THE A.O. BY HOLDING THAT THEY ARE INCURRED IN THE COURS E OF BUSINESS MERELY ON THE BASIS OF PRESUMPTION THAT THEY CANNOT BE SUBJECTED TO DISALLOWANCE UNLESS IT IS ESTABLISHED THAT THEY ARE INCURRED FOR THE PURPOSE OTHER THAN BUSINESS PURPOS ES. 3. THE ORDER OF THE CIT(A) IS ERRONEOUS AND NOT TEN ABLE IN LAW AND ON FACTS. 3. THE FIRST ISSUE FOR CONSIDERATION IN ASSESSEES APPEAL RELATES TO CONFIRMING THE ADDITION OF RS.1,13,396/- ON ACCOUNT HORTICULTURE EXPENSES. DURING THE COURSE OF HEARING THIS GROUND OF APPEAL WAS NOT PRESSED AND AS SUCH THE GROUND OF APPEAL IS DISMISSED. 4. THE NEXT ISSUE FOR CONSIDERATION WHICH IS COMMON IN ASSESSEES AND REVENUES APPEALS RELATES TO DISALLOWANCE/ALLOWANCE OF LEGAL AND PROFESSIONAL EXPENSES. THE ASSESSING OFFICER DISALL OWED THE AMOUNT OF RS.15,19,302/- OUT OF TOTAL CLAIM OF RS.75,88,946/- . DURING THE COURSE OF HEARING BEFORE THE LD. CIT(A), THE ASSESSEE CONTEST ED THE DISALLOWANCE OF THE AMOUNT INCURRED ON ACCOUNT OF LEGAL AND PROFESSIONA L FEES. THE LD. CIT(A) 3 NOTED THAT THERE WAS A STEEP RISE IN THE EXPENDITUR E INCURRED UNDER THE LEGAL AND PROFESSIONAL FEES. A SUM OF RS.10,96,879/- WAS CLAIMED DURING THE YEAR UNDER CONSIDERATION AS AGAINST RS.3,96,599/- AND RS .3,07,090/- INCURRED FOR ASSESSMENT YEARS 2001-02 AND 2002-03, RESPECTIVELY. ON GOING THROUGH THE DETAILS TOWARDS LEGAL AND PROFESSIONAL CHARGES, THE LD. CIT(A) FOUND THAT A SUM OF RS.1,04,390/- WAS INCURRED TOWARDS CONSULTAN CY CHARGES OF LAND PROJECT AND THE AMOUNT WAS PAID TO M/S GRANT THORNT ON INDIA (P) LTD.. THE LD. CIT(A) WHEN ASKED THE ASSESSEE TO SUBSTANTIATE THE PURPOSE FOR WHICH THE SAID AMOUNT WAS PAID AND JUSTIFICATION TO INCUR SUC H AMOUNT, THERE WAS NO REASONABLE EXPLANATION FORTHCOMING FROM THE ASSESSE E TO JUSTIFY THE CLAIM. THE CLAIM FOR THE EXPENDITURE INCURRED ON LAND PROJ ECT WAS ALSO NOT KNOWN AND WHETHER THE SAID LAND WAS PART OF BUSINESS OF T HE ASSESSEE OR NOT. THERE WAS NO WORK IN PROGRESS DECLARED TO SHOW THAT THE A SSESSEE COMPANY WAS STILL HOLDING SOME PROPERTIES FOR SALE. IN THE ABSE NCE OF ANY CONVINCING REASON TO THE CLAIM, THE LD. CIT(A) WAS OF THE OPIN ION THAT IT WAS DIFFICULT TO ALLOW THE CLAIM AS SUCH WHILE COMPUTING THE PROFITS OF BUSINESS. THE LD. CIT(A) ALSO NOTED THAT ASSESSEE HAD INCURRED A SUM OF RS.7,10,727/- TOWARDS BUSINESS PLAN OF CORPORATE OFFICE, INCOME TAX AND O THER RELATES CONSULTANCIES. THE AMOUNT WAS PAID TO M/S BHANDARI GUPTA & ASSOCIA TES. ON BEING ASKED BY THE LD. CIT(A) TO JUSTIFY THE EXPENDITURE BY FUR NISHING NECESSARY EVIDENCE, NO SPECIFIC DETAILS WERE FILED WARRANTING THE GENUINENESS OF THE EXPENDITURE SO INCURRED. THE LD. CIT(A) ALSO NOTED THAT ASSESSEE HAD INCURRED SUBSTANTIAL AMOUNT TOWARDS RETAINERSHIP, C ONSULTANCY, TAX CONSULTATION, INTERNAL AUDIT FEE ETC. HE WAS OF THE OPINION THAT ASSESSEE WAS TO ADVANCE REASONABLE EXPLANATION ALONG WITH COGENT EVIDENCES TO SUBSTANTIATE ANY EXPENDITURE CLAIMED IN THE RETURN OF INCOME. HE ALSO NOTED THAT EXPENSES INCURRED ON SERVICES RENDERED BY THE PARTIES WAS VERY MUCH DOUBTFUL. THERE WAS COMPLETE FAILURE ON THE PART OF THE ASSESSEE TO ADDUCE 4 NECESSARY EVIDENCES ABOUT THE SERVICES RENDERED AND SUCH SERVICES WERE RENDERED IN THE INTEREST OF BUSINESS. THE LD. CIT(A ), THEREFORE, ALSO DISALLOWED THE AMOUNT OF RS.7,10,727/-. THE LD. CIT (A) THUS CONFIRMED THE ADDITION OF RS.8,15,117/- (RS.7,10,727 +1,04,390) A ND ALLOWED THE CLAIM OF ASSESSEE AT RS.7,04,185/- OUT OF TOTAL DISALLOWANCE OF RS.15,19,302/- MADE BY THE ASSESSING OFFICER. 5. THE REVENUE IS AGGRIEVED BY THE DELETION OF ADDITION OF RS.7,04,185/- AND ASSESSEE IS AGGRIEVED AGAINST THE SUSTENANCE OF ADDITION OF RS.8,15,117/- 6. BEFORE US, THE LD. A.R. OF THE ASSESSEE SUBMITTE D THAT ASSESSEE HAD GIVEN NECESSARY DETAILS BEFORE THE ASSESSING OFFICE R AND THE PURPOSE FOR WHICH THE EXPENDITURE WAS INCURRED. HOWEVER, NEITHE R THE ASSESSING OFFICER NOR THE LD. CIT(A) HAD APPRECIATED THE FACTS OF THE CASE RELATING TO EXPENDITURE INCURRED IN RESPECT OF LEGAL AND PROFES SIONAL CHARGES. THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF DEVELOPER A ND BUILDERS AND THE EXPENDITURE BY WAY OF LEGAL AND PROFESSIONAL CHARGE S WERE INCURRED FOR THE PURPOSES OF BUSINESS. THEREFORE, THE LD. CIT(A) WAS NOT JUSTIFIED IN SUSTAINING THE ADDITION OF RS. 8,15,117/-. ON THE O THER HAND, LD. SR. D.R. SUPPORTING THE ORDER OF ASSESSING OFFICER SUBMITTED THAT ASSESSEE HAD NOT GIVEN DETAILS AND, THEREFORE, DISALLOWANCE HAS BEEN MADE CORRECTLY BY ASSESSING OFFICER. 7. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. FROM THE ASSESSMENT ORDER WE F IND THAT THE ASSESSING OFFICER HAD MADE DISALLOWANCE OF RS.15,19,302/- ON THE GROUND THAT EXPENSES WERE NOT VERIFIABLE. HE HAS NOT POINTED OU T ANY EXPENDITURE WHICH WAS NOT VERIFIABLE. ON THE OTHER HAND, LD. CIT(A) H AS ALSO CONFIRMED THE PART 5 DISALLOWANCE ON THE GROUND THAT ASSESSEE WAS NOT AB LE TO JUSTIFY THE EXPENDITURE INCURRED BY THE ASSESSEE. THE AMOUNT OF RS.1,04,390/- WAS PAID TO M/S GRANT THORNTON INDIA (P) LTD. THE INTERNATIO NAL CHARTERED ACCOUNTANTS FIRM. ANOTHER AMOUNT OF RS.7,10,727/- W AS PAYABLE TO M/S BHANDARI GUPTA & ASSOCIATES FOR BUSINESS PLAN OF CO RPORATE OFFICE, INCOME TAX AND OTHER RELATED CONSULTANCIES. NEITHER THE AS SESSING OFFICER NOR THE LD. CIT(A) HAD EXAMINED THE NATURE OF EXPENDITURE INCUR RED. WE, THEREFORE, FEEL IT NECESSARY TO SET ASIDE THE MATER TO THE FILE OF THE ASSESSING OFFICER WITH THE DIRECTIONS TO EXAMINE THE CLAIM OF ASSESSEE IN RESPECT OF LEGAL AND PROFESSIONAL CHARGES. THE ASSESSEE WILL PROVIDE NEC ESSARY EVIDENCE BEFORE THE ASSESSING OFFICER TO JUSTIFY THE CLAIM FOR THE SERVICES RENDERED. THE ASSESSING OFFICER WILL DECIDE THE ISSUE ON MERITS A FTER AFFORDING THE ASSESSEE A REASONABLE OPPORTUNITY OF BEING HEARD AND WILL PA SS A SPEAKING ORDER. 8. THE NEXT ISSUE FOR CONSIDERATION IN ASSESSEES A PPEAL RELATES TO ISSUE OF DIRECTION TO ASSESSING OFFICER IN RESPECT OF UNCONF IRMED DEBTORS WHEN THE ASSESSEE HAD NOT CLAIMED ANY BAD DEBTS. THE ASSESSI NG OFFICER FROM THE BALANCE SHEET FOUND THAT AS ON 31/3/2002, THE DEBTO RS HAD BEEN SHOWN AT AN AMOUNT OF RS.38,89,575/-. THE ASSESSING OFFICER ASK ED THE ASSESSEE TO FILE CONFIRMATIONS FROM THE DEBTORS. THE ASSESSEE FILED ONLY ONE CONFIRMATION FROM M/S SARVA PRIYA DEVELOPERS PVT. LTD. FOR AN AM OUNT OF RS.36,63,575/-. REGARDING OTHER PARTIES, NO CONFIRMATION WAS FILED. THE ASSESSING OFFICER TREATED THE AMOUNT OF RS.2,26,000/- AS INCOME ON AC COUNT OF SUNDRY DEBTS. 9. ON APPEAL, IT WAS ARGUED THAT NO CLAIM WAS MADE IN THE ACCOUNTS TOWARDS BAD DEBTS IN THE YEAR. THE ASSESSEE SUBMITT ED THAT THE AMOUNT OF RS.2,26,000/- REPRESENTED THE INCOME OFFERED IN EAR LIER YEARS AND WAS RECOVERABLE FROM VARIOUS PARTIES. NO CLAIM WAS MADE IN THE RETURN OF INCOME 6 AS BAD DEBTS WRITTEN OFF. WHEN NO SUCH CLAIM WAS MA DE THEN QUESTION OF DISALLOWANCE OF RS.2,26,000/- DID NOT ARISE. LD. CI T(A) NOTED THAT WHEN NO CLAIM WAS MADE IN THE PROFIT AND LOSS ACCOUNT THEN QUESTION OF DISALLOWANCE DID NOT ARISE. HOWEVER, HE DIRECTED THE ASSESSING O FFICER TO EXAMINE THE CLAIM OF THE ASSESSEE. 10. BEFORE US, LD. A.R. OF THE ASSESSEE SUBMITTED T HAT ASSESSEE HAD NOT MADE ANY CLAIM IN THE RETURN OF INCOME ON ACCOUNT O F BAD DEBTS AND, THEREFORE, NO DISALLOWANCE COULD BE MADE. THE ASSES SEE HAD SHOWN DEBTORS ON ACCOUNT OF AMOUNT RECOVERABLE FROM VARIOUS PARTI ES AND, THEREFORE, NO ADDITION COULD BE MADE. THEREFORE, THE LD. CIT(A) W AS NOT JUSTIFIED IN DIRECTING THE ASSESSING OFFICER TO EXAMINE THE CLAI M OF THE ASSESSEE FOR BAD DEBTS. ON THE OTHER HAND, LD. SR. D.R. SUPPORTED TH E ORDER OF LD. CIT(A). 11. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. FROM THE ASSESSMENT ORDER WE F IND THAT THE ASSESSEE HAD SHOWN IN BALANCE SHEET THE SUNDRY DEBTORS AT AN AM OUNT OF RS.38,89,575/- OUT OF WHICH CONFIRMATION OF RS.36,63,575/- WAS FIL ED. NO CONFIRMATION WAS FILED IN RESPECT OF RS.2,26,000/-. IT IS ALSO A FAC T THAT THE ASSESSEE HAD NOT MADE ANY CLAIM ON ACCOUNT OF BAD DEBTS. UNDER THESE CIRCUMSTANCES, THE AMOUNT SHOWN AS DEBTS WHICH IS AN ASSET, CANNOT BE TREATED AS INCOME. THE LIABILITY WHICH IS NOT CONFIRMED, CAN BE TREATED AS INCOME OF THE ASSESSEE BUT IT IS NOT TRUE IN RESPECT OF UNCONFIRMED DEBIT BALA NCES. THE DEBIT BALANCES ARISE BECAUSE OF BUSINESS TRANSACTION. THE ASSESSEE HAD STATED THAT THE AMOUNT OF RS.2,26,000/- REPRESENTED THE INCOME OF T HE EARLIER YEARS WHICH WAS ADMITTED AS INCOME. THIS BEING SO, IN OUR CONSI DERED OPINION, NO ADDITION CAN BE MADE ON ACCOUNT OF UNCONFIRMED DEBI T BALANCES. THEREFORE, THE LD. CIT(A) WAS NOT JUSTIFIED IN GIVING DIRECTIO NS TO VERIFY THE CLAIM OF THE 7 ASSESSEE. WE, THEREFORE, ALLOW THIS GROUND OF APPEA L RAISED BY THE ASSESSEE. THE ASSESSING OFFICER IS DIRECTED ACCORDINGLY. 12. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES AND APPEAL FILED BY THE REVENU E IS ALSO ALLOWED FOR STATISTICAL PURPOSES. DECISION PRONOUNCED IN THE OPEN COURT ON 31 ST MARCH,2010. SD/- SD/- (R.P.TOLANI ) (K.D.RANJAN ) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 31.03.2010. PSP COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT DEPUTY REGISTRAR