M/s Devi Promoters & Real Estate (P) Ltd, V. ITO, Bhubaneswar

ITA 401/CTK/2011

• Counselvise Citation: 40122114 RSA 2011
• Duration Of Justice: 7 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-04-2012
• Appeal Filed By: Assessee
• Bench Allotted: SMC
• Next Hearing Date: 12-04-2012
• Assessment Year: 2005-2006
• Appeal Filed On: 13-09-2011
• Court: TRIBUNAL
• Department Lawyers: S C MOHANTY
• Assessee Lawyers: A K PADHEE
• Keywords: Revenue expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, (SMC) BENCH, CUTTACK BEFORE : SHRI K.K.GUPTA, ACCOUNTANT MEMBER ITA NO. 401/CTK/2011 (ASSESSMENT YEAR 2005 - 06) M/S.DEVI PROMOTERS & REAL ESTATE (P) LTD., PLOT NO.M55, KAPIL PRASAD PHASE II, BHIMATANGI, BHUBANESWAR, KHURDA, ORISSA PAN: AACCD 0709 Q VERSUS INCOME - TAX OFFICER, WARD 1(3), BHUBANESWAR. (APPELLANT) (RESPONDENT) FOR THE APPELLANT: SHRI A.K.PADHEE, AR FOR THE RESPONDENT SHRI S.C.MOHANTY, DR DATE OF HEARING : 12 .04.2012 DATE OF PRONOUNC EMENT : 13.04.2012 ORDER SHRI K.K.GUPTA, AM : THIS APPEAL BY THE ASSESSEE RAISES THE FOLLOWING GROUNDS. 1. THAT THE DISALLOWANCE OF PRELIMINARY EXPENSES OF 11,019 IS UNJUSTIFIED AND UNTENABLE IN THE EYES OF LAW. 2. THAT THE DISALLOWANCE OF BROKER AGE COMMISSION OF 26,680 IS ILLEGAL, ARBITRARY AND UNCALLED FOR TO THE PARTICULAR FACTS AND CIRCUMSTANCES OF THE CASE. 3. THAT THE DISALLOWANCE OF INCENTIVE OF 1,17,600 IS ILLEGAL, ARBITRARY AND UNCALLED FOR TO THE PARTICULAR FACTS AND CIRCUMSTANCE OF THE CASE. 4. THAT THE DISALLOWANCE OF TRAVELLING EXPENSES OF 30,834 IS ILLEGAL, ARBITRARY AND UNCALLED FOR TO THE PARTICULAR FACTS AND CIRCUMSTANCE OF THE CASE. 2. THE BRIEF FACTS AS HAVE BEEN BROUGHT ON RECORD ARE THAT THE ASSESSEE IS A PRIVATE LIMI TED COMPANY. DURING THE ASSESSMENT YEAR UNDER CONSIDERATION IT DERIVED INCOME FROM BUSINESS ON CONTRACT. IT FILED ITS RETURN OF INCOME AT A TOTAL INCOME OF 3,09,710 ON 31.10.2005. THE SAID RETURN OF INCOME WAS PROCESSED U/S 143(1) ON DT.14.03.2006 . SUBSEQ UENTLY THE CASE WAS SELECTED FOR SCRUTINY AND THE ASSESSING OFFICER DETERMINED THE INCOME AT 4,95,840 BY MAKING THE FOLLOWING ADDITIONS. ITA NO.401/CTK/2011 2 I. DISALLOWANCE OF PRELIMINARY EXPENSES OF 11,019/ - . II. DISALLOWANCE OF BROKERS COMMISSION INTEREST OF 26,680. I II. DISALLOWANCE OF INCENTIVE OF 1,17,600 . IV. DISALLOWANCE OF TRAVELLING EXPENSES OF 30,834 3. AGGRIEVED, THE ASSESSEE APPEALED BEFORE THE FIRST APPELLATE AUTHORITY WHO AFTER CONSIDERING THE FACTS AND ALSO THE SUBMISSIONS OF THE ASSESSEE DISMISSED THE APPEAL AND HENCE, THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 4. THE LEARNED COUNSEL FOR THE ASSESSEE INITIATING HIS ARGUMENTS SUBMITTED BY FURNISHING THE FINANCIAL STATEMENTS FOR THE IMPUGNED ASSESSMENT YEAR ALONG WITH THE TAX AUDIT REPORT IN FORM 3CA AND 3CD ALONG WITH THE NATURE OF EXPENSES CLAIMED IN THE P & L ACCOUNT WHICH DETAILS WERE FURNISHED TO THE ASSESSING OFFICER . HE CONTENDED THAT THE FACTS AND FIGURES WERE ALREADY AVAILABLE TO THE ASSESSING OFFICER WHEN THE ASSESSEE BEING A CONTRACTOR AND DEVELOPER ENGAGED HIMSELF IN ACQUIRING REAL ESTATES TO BE DEVELOPED AND SOLD AS PART OF ITS BUSINESS. THE ASSESSING OFFICER WITHOUT ENQUIRING FROM THE ASSESSEE , INSPITE OF FURNISHING ALL THE DETAILS SUCH AS BILLS, VOUCHERS, BOOKS OF ACCOUNT AS WERE PERUSED BY HIM , DISALLOWED THE EXPENSES UNILATERALLY BY HOLDING THE SAME AS NOT RELATABLE TO CONTRACT BUSINESS. HE DISALLOWED 11,019 PRELIMINARY EXPENSES CLAIMED IN ACCORDANCE WITH THE PROVISIONS OF THE I.T.ACT. THE ASSESSEE WAS INCORPORATED IN FINANCIAL YEAR 2002 - 03AND BECAUSE OF NOT CARRYING ON ANY ACTIVITIES IN THAT YEAR STARTED CLAIMING 1/5 TH OF THE PRELIMINARY EXPENSES IN A CCORDANCE WITH THE PROVISIONS OF THE I.T.ACT BEING FEES PAID TO THE REGISTRAR OF COMPANIES ON INCORPORATION. THE ASSESSING OFFICER, THEREFORE, WAS NOT TO HOLD THE SAME AS CLAIMED FOR CARRYING ON THE CONTRACT BUSINESS OF THE ASSESSEE. WITH RESPECT TO THE B ROKERS C OMMISSION AND INCENTIVE AND TRAVELLING AGENTS ACCOUNT , THE DETAILS WERE ITA NO.401/CTK/2011 3 FURNISHED INDICATING THAT THE EXPENSES WERE INCURRED WHEN THE ASSESSEE HAD INVOLVED ITSELF IN PROCURING LAND OBTAINING ADVANCE FROM CUSTOMERS AS PROSPECTIVE BUYERS WHEN THE ASS ESSEE HAD TO ABANDON THE PROJECT IN THE MIDWAY ON RUMORS THAT THE LAND IN QUESTION COULD NOT BE ACQUIRED AND DISPERSED AS PER THE GOVERNMENT NOTIFICATION. THE ASSESSEE HAD TO PAY FOR THESE ABANDONED PROJECTS WHEN THE SAME WAS INDICATED IN THE FINANCIAL STA TEMENTS FOR THE IMMEDIATELY PRECEDING YEAR. HE PERUSED THE FINANCIAL STATEMENTS FOR THE IMMEDIATELY PRECEDING YEAR WHEN AMOUNTS HAD BEEN PAID FOR ACQUIRING THE PURPORTED LAND AT 45,45,206 AND THE SAME WAS DISTRIBUTED ON INSTALLMENTS PAYMENTS RENDERED TO INCOME AS ON 31.3.2004. THE BROKERS, WHO ARE ALLOWED TO INCUR EXPENDITURE FOR SITE VISIT BY THE PROSPECTIVE CUSTOMERS, WERE REIMBURSED THROUGH THE TRAVELLING AGENT WHO USE D TO PRO VIDE THE VEHICLES WHEN IT WAS PART AND PARCEL OF THE ASSESSEES BUSINESS TO SOLICIT THE CUSTOMERS AS NO OTHER ADVERTISEMENT EXPENSES WAS CLAIMED BY THE ASSESSEE. THE ASSESSING OFFICER, THEREFORE, MISDIRECTED HIMSELF TO HOLD THAT THESE EXPENSES DO NOT PERTA IN TO THIS YEAR WHEN HE HAD ACCEPTED THE ASSESSEES BUSINESS OF OBTAINING INSTALLMENTS AGAINST LAND COST WHICH ADVANCE HAS BEEN PAID. THE INCENTIVE AMOUNT IS TOWARDS AGENTS WHO ARE BROKERS WHO HAVE BEEN PAID COMMISSION BUT FOR ENCOURAGING BOOKING OF PLOTS WHICH CU STOMERS HAVE READILY PAID AND DIRECTLY RELATED TO THE TAXI SERVICE PROVIDED BY THE TRAVEL AGENTS WERE PAID FOR BY THE ASSESSEE. HE POINTED OUT THAT THE SUBSTANTIAL AMOUNT WAS INCURRED IN THE IMMEDIATELY PRECEDING YEAR AT 94,168 WHEN THIS YEAR THE RESIDUAL BILLS PAID TO THE TRAVEL AGENT AMOUNTING TO 30,834 HAS BEEN DISALLOWED BY THE AO AS NOT ALLOWABLE DEDUCTION. HE PRAYED THAT ALL THESE EXPENSES HAVE BEEN INCURRED FOR THE BUSINESS OF THE ASSESSEE AS NO FURTHER CONTROVERTING MATERIAL HAS BEEN POINT ED OUT BY THE ASSESSING OFFICER. THE LEARNED CIT(A) WITHOUT APPRECIATING ITA NO.401/CTK/2011 4 THE NATURE OF CLAIMS HAS DISMISSED THE ASSESSEES CONTENTION BY HOLDING THAT THE ASSESSEE HAS NOT FILED ANY DETAILS THEREOF. 5. THE LEARNED DR SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. HE POINTED OUT THAT THE BUSINESS OF REAL ESTATE WAS NOT CARRIED OUT IN THE IMPUGNED ASSESSMENT YEAR INSOFAR AS THE ASSESSEE HAD ONLY RENDERED INCOME FROM CONTRACT BUSINESS AMOUNTING TO 91,92,209. THE ADMINISTRATIVE EXPENSES CLAIMED IN THE P & L ACCOUNT THEREFORE DID NOT RELATE TO THE CONTRACT BUSINESS WAS RIGHTLY DISALLOWED BY THE AO AND CONFIRMED BY THE LEARNED CIT(A). HE FULLY SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 6. I HAVE H EARD THE RIVAL SUB MISSIONS OF THE PARTIES AND PERUSED THE IMPUGNED ORDERS OF THE AUTHORITIES BELOW AND ALSO THE PAPER BOOK MADE AVAILABLE TO THE TRIBUNAL. CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE, I AM OF THE CONSIDERED VIEW THAT THE FINANCIAL STATEMENTS DULY AUDITED UNDER THE PRO VISIONS OF THE I.T.ACT INDICATE THE NATURE OF EXPENSES INCURRED WHETHER CAN BE RELATED FOR HAVING BEEN INCURRED FOR THE BUSINESS OF THE ASSESSEE. UNDER THE MERCANTILE SYSTEM OF ACCOUNTING THE EXPENSES ARE TO BE CLAIMED IN ACCORDANCE WITH THE ACCOUNTING STANDARD WHEN THE EXPENSES ARE FOR THE BUSINESS OF THE ASSESSEE. THE ASSESSING AUTHORITIES DISALLOWED THE SAME HOLDING THAT THEY DO NOT RELATE TO THE BUSINESS OF THE ASSESSEE WHICH I AM UNABLE TO SATISFY MY SELF. PRELIMINA RY EXPENSES , AS THE NAME SUGGESTS , ARE THE FEES TO REGISTRAR OF COMPANIES INCURRED ON THE INCORPORATION OF THE COMPANY WHICH ARE TO BE AMORTIZED IN ACCORDANCE WITH THE PROVISIONS OF THE I.T.ACT TO BE CLAIMED AS REVENUE EXPENDITURE. THE BUSINESS TO BE CARRI ED OUT IS SPECIFIED IN THE MAIN OBJECTS IN THE MEMORANDUM OF ARTICLES OF ASSOCIATION OF THE COMPANY. THE ASSESSEE, AS THE NAME SUGGESTS, IS A BUILDING CONTRACTOR AS WELL AS REAL ESTATE DEVELOPER. IN THE IMMEDIATELY PRECEDING ASSESSMENT YEAR, THE ASSESSEE H AD PAID THE ADVANCE FOR PURCHASING THE LAND WHICH WAS ITA NO.401/CTK/2011 5 YET TO BE TRANSFERRED BUT HAD OBTAINED ADVANCES FORM CUSTOMERS THROUGH THE BROKERS AND COMMISSION AGENTS. MAJOR EXPENSES WERE INCURRED IN THE PRECEDING YEARS ON THIS SCORE WHICH HAD BEEN CLAIMED AND ALL OWED BY THE AO. THE RESIDUAL BALANCES IN THE NATURE OF COMMISSION TO BROKERS, REIMBURSEMENT OF THE EXPENSES INCURRED AND THE INCENTIVE AND ON ABANDONING THE PROJECT THE REPAYMENT TO CUSTOMERS WITHOUT ANY LEGAL HASSLES CANNOT BY ANY STRETCH OF IMAGINATION B E ACCOUNTED FOR ON ACCRUAL BASIS. I FIND ON PERUSING THE LEARNED CIT(A)S ORDER THAT HE HAS NOT EVEN CONSIDERED THE NATURE OF EXPENSES CLAIMED FOR THE PURPOSE OF BUSINESS WHEN HE HAS NOT BEEN ABLE TO DEFINE THAT THE ASSESSEE COULD CARRY ON ACTIVITIES OF D EVELOPMENT OF LAND ALONG WITH BEING BUILDING CONTRACTOR. HE HAS RELIED ON THE REAL ESTATE BUSINESS WHICH INCORPORATES BOTH. THEREFORE, WE DO NOT FIND ANY INFIRMITY IN THE CONTENTION OF THE LEARNED COUNSEL FOR THE ASSESSEE THAT THERE SHOULD BE SPEC IFIC CORR OBORATIVE MATERIAL TO DISALLOW THE EXPENDITURE AS OTHERWISE HAS BEEN CLAIMED IN ACCORDANCE WITH THE PROVISIONS OF THE I.T.ACT WHEN THE BUSINESS ACTIVITIES CARRIED OUT BY THE ASSESSEE ON ACCOUNT OF CONTRACT AS WELL AS DEVELOPMENT OF LAND ARE BEING ACCEPTED. THESE EXPENSES CLAIMED ARE INCIDENTAL TO THE BUSINESS AND NOT THAT THEY DO NOT RELATE TO THE YEAR UNDER CONSIDERATION. THEY ARE DIRECTED TO BE ALLOWED AS CLAIMED BY THE ASSESSEE. 7. IN THE RESULT, THE ASSESSEES APPEAL IS ALLOWED. SD/ - (K.K.GUPTA) ACCOUNTANT MEMBER DATE: 13.04.2012 H.K.PADHEE, SENIOR PRIVATE SECRETARY. ITA NO.401/CTK/2011 6 COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT: M/S.DEVI PROMOTERS & REAL ESTATE (P) LTD., PLOT NO.M55, KAPIL PRASAD PHASE II, BHIMATA NGI, BHUBANESWAR, KHURDA, ORISSA 2. THE RESPONDENT: INCOME - TAX OFFICER, WARD 1(3), BHUBANESWAR. 3. THE CIT, 4. THE CIT(A), 5. THE DR, CUTTACK 6. GUARD FILE (IN DUPLICATE) TRUE COPY, BY ORDER, SENI OR PRIVATE SECRETARY.