Appeal details
Counselvise Citation
[2017] 128 COUNSELVISE.COM (IT) 2874 (ITAT-DELHI)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
2 year(s) 10 month(s) 12 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
16-06-2017
Appeal Filed By
Assessee
Order Result
Allowed
Bench Allotted
F
Next Hearing Date
15-06-2017
Assessment Year
2010-2011
Appeal Filed On
04-08-2014
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH F , NEW DELHI BEFORE SH. N. K. SAINI, AM AND SMT. BEENA A. PILLAI , JM ITA NO. 4237 /DEL/2014 : ASSTT. YEAR : 2010 - 1 1 ROSE ADVERTISING PVT. LTD., 5A, SHANKAR GA LI, GOVIND MOHALLA HAIDERPUR, DELHI - 110088 VS INCOME TAX OFFICER, WARD - 15(4), NEW DELHI (APPELLANT) (RESPONDENT) PAN NO. A AACR1077M ASSESSEE BY : SH. VED JAIN, ADV. & SH. ASHISH GOEL, ADV. REVENUE BY : MRS. SHEFALI SWAROOP, CI T DR DATE OF HEARING : 15 .06 .201 7 DATE OF PRONOUNCEMENT : 16 . 0 6 .201 7 ORDER PER N. K. SAINI, AM: THIS IS AN APPEAL BY THE ASSESSEE AGAINST THE ORDER DATED 17.06 .2014 OF LD. CIT(A) - X V II I, NEW DELHI . 2. FOLLOWING GROUNDS HAVE BEEN RAISED IN THIS APPEAL: GROUND NO. 1 THE IMPUGNED ORDER IS WRONG IN LAW AND ON FACTS AND CIRCUMSTANCES OF TH E CASE. THE SAME HAS BEEN PASSED ARBITRARILY ON ERRONEOUS FACTS WITHOUT BRINGING OUT THE RELEVANT MATERIAL FACT ON RECORD. GROUND NO. 2 WHETHER THE LD. CIT (A) HAS ERRED IN LAW AND FACTS OF THE CASE BY CONFIRMING THE DISALLOWANCE OF DEFERRED REVENUE EXPENDITURE OF RS. 62,46,183/ - AS CAPITAL EXPENDITURE BEING 1 /3 R D OF RS. 1,87,38,550/ - ITA NO. 4237 /DEL /201 4 ROSE ADVERTISING PVT. LTD. 2 INCURRED BY THE ASSESSEE ON ACCOUNT OF CONSTRUCTION OF DHALLOWS. GROUND NO. 3 THE ASSESSEE RETAINS THE RIGHT TO ADD/DELETE/MODIFY ANY OF THE ABOVE GROUNDS OF APPEAL AT ANY STAGE. 3 . FROM THE AFORESAID GROUND S , IT IS GATHERED THAT ONLY GRIEVANCE OF THE ASSESSEE IN THIS APPEAL RELATES TO THE DISALLOWANCE OF 1/3 RD OF THE DEFERRED REVENUE EXPENDITURE INCURRED BY THE ASSESSEE ON ACCOUNT OF CONSTRUCTION OF DHALLOWS. 4 . DURING THE COURSE OF HEARING THE LD. COUNSEL FOR THE ASSESSEE AT THE VERY OUTSET STATED THAT THIS ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE VIDE E ARLIER ORDER DATED 13.09.2016 IN ITA NOS. 2293 & 2294/DEL/2013 FOR THE ASSESSMENT YEARS 2008 - 09 AND 2009 - 10 IN ASSESSEE S OWN CASE. IT WAS ALSO STATED THAT THE AFORESAID ORDER OF THE ITAT NOW HAS BEEN CONFIRMED BY THE HON BLE JURISDICTIONAL HIGH COURT (COP IES OF THE SAID ORDER S WERE FURNISHED WHICH ARE PLACED ON RECORD). 5 . IN HER RIVAL SUBMISSIONS THE LD. CIT DR ALTHOUGH SUPPORTED THE ORDER OF THE AO BUT COULD NOT CONTROVERT THE AFORESAID CONTENTION OF THE LD. COUNSEL FOR THE ASSESSEE. 6 . WE HAVE CONS IDERED THE SUBMISSIONS OF BOTH THE PARTIES AND CAREFULLY GONE THROUGH THE MATERIAL AVAILABLE ON THE RECORD. IN THE PRESENT CASE, IT IS AN ADMITTED FACT THAT A SUM OF RS.1,87,38,550/ - WAS ITA NO. 4237 /DEL /201 4 ROSE ADVERTISING PVT. LTD. 3 INCURRED BY THE ASSESSEE ON ACCOUNT OF CONSTRUCTION OF DHALLOWS DURIN G THE FINANCIAL YEAR 2007 - 08. THE SAID EXPENDITURE WAS TREATED AS DEFERRED REVENUE EXPENDITURE AND HENCE 1/3 RD OF THE SAME WAS WRITTEN OFF IN THE ASSESSMENT YEARS 2008 - 09 TO 2010 - 11 . T HE AO DISALLOWED THE SAID EXPENSES AND THE LD. CIT(A) UPHELD THE ACTION OF THE AO. HOWEVER, THE ITAT VIDE AFORESAID REFERRED TO ORDER DATED 30.09.2016 DELETED THE DISALLOWANCE FOR THE PRECEDING ASSES SMENT YEARS 2008 - 09 AND 2009 - 10, T HE RELEVANT FINDINGS HAVE BEEN GIVEN IN PARAS 9 TO 9.5 WHICH READ AS UNDER: 9. NOW WE TAKE UP THE ISSUE OF ALLOWABILITY OF THIS EXPENDITURE. THE CONTRACT AS PER THE AGREEMENT IS FOR THE PERIOD OF THREE YEARS. THE ASSESSEE WAS REQUIRED TO INCUR EXPENDITURE ON CERTAIN PROPERTY WHICH WAS NOT OWNED BY THE ASSESSEE. THE ASSESSEE EARNED REVENUES F OR INCURRING THIS EXPENDITURE. THE BENEFIT THAT ACCRUES TO THE ASSESSEE FOR INCURRING THIS EXPENDITURE IS SPREAD OVER A PERIOD OF THREE YEARS. UNDER THESE CIRCUMSTANCES THE CONCLUSION OF THE LD. CIT(A) THAT THE EXPENDITURE IS IN THE CAPITAL FILED, IN OUR V IEW IS NOT CORRECT. THE ASSESSEE, AS A CONTRACTOR AND AGREEMENT HOLDER HAS INCURRED CERTAIN EXPENDITURE WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF HIS BUSINESS. THE NATURE OF THE EXPENDITURE IS CONSTRUCTION AND RENOVATION OF DHALLOWS, ON A PROPERTY WHICH DO ES NOT BELONG TO HIM. THERE IS NO ENDURING BENEFIT THAT ARISES TO THE ASSESSEE. THE EXPENDITURE IS IN THE REVENUE FIELD. 9.1 . THE CBDT IN ITS CIRCULAR NO.09/2014 DT. 23RD APRIL, 2014, ON THE ISSUE OF CONSTRUCTION OF EXPENDITURE INCURRED FOR THE DEVELOPMEN T OF ROAD/ HIGHWAYS, WHICH ASSETS DO NOT BELONG TO THE ASSESSEE AT PARA 4, 5 AND 6 HELD AS FOLLOWS. ITA NO. 4237 /DEL /201 4 ROSE ADVERTISING PVT. LTD. 4 4. THERE IS NO DOUBT THAT WHERE THE ASSESSEE INCURS EXPENDITURE ON A PROJECT FOR DEVELOPMENT OF ROADS/HIGHWAYS, HE IS ENTITLED TO RECOVER COST INCURRED BY HIM TOWARDS DEVELOPMENT OF SUCH FACILITY (COMPRISING OF CONSTRUCTION COST AND OTHER PREOPERATIVE EXPENSES) DURING THE CONSTRUCTION PERIOD. FURTHER, EXPENDITURE INCURRED BY THE ASSESSEE ON SUCH BOT PROJECTS BRINGS TO IT AN ENDURING BENEFIT IN THE FORM OF RI GHT TO COLLECT THE TOLL DURING THE PERIOD OF THE AGREEMENT. HON'BLE SUPREME COURT IN THE CASE OF MADRAS INDUSTRIAL INVESTMENT CORPORATION LTD. VS. CIT IN 225 ITR 802ALLOWED SPREADING OVER OF LIABILITY OVER A NUMBER OF YEARS ON THE GROUND THAT THERE WAS CON TINUING BENEFIT TO THE COMPANY OVER A PERIOD. THEREFORE, ANALOGOUSLY, EXPENDITURE INCURRED ON AN INFRASTRUCTURE PROJECT FOR DEVELOPMENT OF ROADS/HIGHWAYS UNDER BOT AGREEMENT MAY BE TREATED AS HAVING BEEN MADE/INCURRED FOR THE PURPOSES OF BUSINESS OR PROFES SION OF THE ASSESSEE AND SAME MAY BE ALLOWED TO BE SPREAD DURING THE TENURE OF CONCESSIONAIRE AGREEMENT. 5. IN VIEW OF ABOVE, CENTRAL BOARD OF DIRECT TAXES, IN EXERCISE OF THE POWERS CONFERRED UNDER SECTION 119 OF THE ACT HEREBY CLARIFIES THAT THE COST OF CONSTRUCTION ON DEVELOPMENT OF INFRASTRUCTURE FACILITY OF ROADS/HIGHWAYS UNDER BOT PROJECTS MAY BE AMORTIZED AND CLAIMED AS ALLOWABLE BUSINESS EXPENDITURE UNDER THE ACT. 6. THE AMORTIZATION ALLOWABLE MAY BE COMPUTED AT THE RATE WHICH ENSURES THAT THE WHO LE OF THE COST INCURRED IN CREATION OF INFRASTRUCTURAL FACILITY OF ROAD/HIGHWAY IS AMORTIZED EVENLY OVER THE PERIOD OF CONCESSIONAIRE AGREEMENT AFTER EXCLUDING THE TIME TAKE FOR CREATION OF SUCH FACILITY. 9.2 . IN OUR VIEW, THE SPIRIT OF THIS CIRCULAR APP LIES TO THE FACTS OF THE PRESENT CASE, AS THERE IS NO DOUBT THAT THE ASSESSEE HAS INCURRED EXPENDITURE IN PURSUANCE OF A CONTRACTOR ON AN ASSET ITA NO. 4237 /DEL /201 4 ROSE ADVERTISING PVT. LTD. 5 NOT OWNED BY IT THE BENEFIT OF WHICH IS FOR A PERIOD OF THREE YEARS. 9.3. THE CBDT RELIED ON THE DECISION OF TH E HON BLE SUPREME COURT IN THE CASE OF MADRAS INDUSTRIAL CORPORATION LTD. VS.CIT (1997) 225 ITR 802. THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF ITO VS. SHREYAS SHIPPING LTD. (2002) (5) TMI 203 - ITAT BOMBAY H BENCH IN ITS ORDER DT. 24TH MAY, 2002 HAD AT PARA 17 HELD AS FOLLOWS. 17. FROM THE DISCUSSION IN THE FOREGOING PARAGRAPHS WE FIND THAT THE LEGAL POSITION IN NUTSHELL IS THAT COMPUTATION OF INCOME UNDER THE HEADS 'PROFITS AND GAINS OF BUSINESS OR PROFESSION' OR 'INCOME FROM OTHER SOURCES' SHOULD BE MADE IN ACCORDANCE WITH THE METHOD OF ACCOUNTING REGULARLY EMPLOYED BY THE ASSESSEE AS LONG AS THE METHOD OF ACCOUNTING IS SUCH AS INCOME MAY PROPERLY BE DEDUCED THEREFROM. IN SUCH A SCENARIO WE FIND IT HARD TO ACCEPT THE PROPOSITION THAT UNDER THE INCOME - TAX ACT THERE IS WATERTIGHT COMPARTMENTALISATION OF EXPENDITURE TO BE EITHER ALLOWED IN ONE SINGLE YEAR AS REVENUE EXPENDITURE OR TO BE DISALLOWED ALTOGETHER AS CAPITAL EXPENDITURE. AS A MATTER OF FACT, THE COMPLEXITIES AND VARIETY OF BUSINESSES THAT ASSE SSEES DO CARRY ON WOULD SIMPLY MILITATE AGAINST SUCH INFLEXIBLE APPROACH. THERE ARE HUNDREDS OF ASSESSMENTS BEING COMPLETED IN THE CASES OF BUILDERS AND CONSTRUCTION FIRMS BASED ON' PROJECT COMPLETION METHOD'. UNDER THIS METHOD, EVEN REVENUE EXPENDITURE IN CURRED BY THE ASSESSEE YEAR AFTER YEAR IS SIMPLY CARRIED FORWARD AS 'WORK - IN - PROGRESS' TO BE FINALLY RECKONED WITH IN THE YEAR WHEN THE PROJECT IS SUBSTANTIALLY COMPLETED OR SALES ARE SUBSTANTIALLY EXECUTED. THESE CASES ARE STANDARD EXAMPLES OF DEFERRED RE VENUE EXPENDITURE. THERE CAN BE MYRIAD SIMILAR SITUATIONS. HAVING REGARD TO THIS, HON'BLE SUPREME COURT HAVE HELD IN THE CASE OF MADRAS INDUSTRIAL INVESTMENT CORPN. LTD., THAT THE GENERAL RULE THAT REVENUE ITA NO. 4237 /DEL /201 4 ROSE ADVERTISING PVT. LTD. 6 EXPENDITURE MUST BE ALLOWED IN ITS ENTIRETY IN THE YEAR IN WHICH IT IS INCURRED ADMITS OF EXCEPTIONS AND ON THE CONTRARY THERE MAY BE CASES WHERE RIGID OBSERVATIONS OF THE GENERAL RULE MAY RESULT INTO A VERY DISTORTED PICTURE OF THE PROFITS OF A PARTICULAR YEAR. 9.4 . THE CONCEPT OF DEFERRED REVENUE EXPE NDITURE IS NOT NEW TO INCOME TAX LAW. WHEN THE INCOME IS TO BE MATCHED WITH THE EXPENDITURE YEAR WISE, THE EXPENDITURE IS SPREAD OVER THE PERIOD OF CONTRACT. 9.5. IN VIEW OF THE ABOVE DISCUSSION AND TAKING STRENGTH ON THE CIRCULAR OF THE CBDT NO.09/2014, AND AS THE CLAIM OF THE ASSESSEE IS APREAD OVER THREE YEARS, WE ARE OF THE CONSIDERED OPINION THAT THE CLAIM OF THE ASSESSEE FOR DEDUCTION OF ONLY 1/3RD OF THE EXPENDITURE FOR EACH YEAR SHOULD BE ALLOWED. 7 . THE AFORE SAID ORDER DATED 30.09.2016 WAS CHAL LENGED BEFORE THE HON BLE DELHI HIGH COURT IN ITA NOS. 237 TO 240/2017 WHEREIN VIDE ORDER DATED 18.04.2017 IN PARA 4, IT HAS BEEN HELD AS UNDER: 4. HAVING HEARD LEARNED COUNSEL FOR THE RESPONDENT, THE COURT IS OF VIEW THAT THE ORDERS OF THE CIT(A) AS WELL AS THE ITAT ON THE ABOVE ISSUES TURNED PURELY ON FACTS. COGENT REASONS HAVE BEEN GIVEN BY THE CIT(A) FOR PERMITTING ADDITIONAL EVIDENCE TO BE LED. THE IMPUGNED ORDER OF THE ITAT DOES NOT GIVE RISE TO ANY SUBSTANTIAL QUESTION OF LAW IN REGARD TO ANY OF THE ABOVE ISSUES. 8. FROM THE AFORESAID DISCUSSION, IT IS CLEAR THAT NOW THE ISSUE IS SETTLED BY THE HON BLE HIGH COURT, THEREFORE, BY RESPECTFULLY FOLLOWING THE AFORESAID REFERRED TO ORDER DATED 30.09.2016 IN ITA NOS. 2293 & 2294/DEL/2013 FOR THE ASSESSMEN T YEARS 2008 - 09 AND 2009 - 10, THE ITA NO. 4237 /DEL /201 4 ROSE ADVERTISING PVT. LTD. 7 IMPUGNED ADDITION MADE BY THE AO AND SUSTAINED BY THE LD. CIT(A) IS DELETED AND THE ISSUE IS DECIDED IN FAVOUR OF THE ASSESSEE. 9 . IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED . (O RD ER PRONOUNCED IN THE COUR T ON 16 /0 6 /2017 ) SD/ - SD/ - (BEENA A. PILLAI ) (N. K. SAINI) JUDICIAL MEMBER ACCOUNTANT MEMBER DAT ED: 16 /06 /2017 *SUBODH* COPY FORWARDED TO: 1 . APPELLANT 2 . RESPONDENT 3 . CIT 4 . CIT(APPEA LS) 5 . DR: ITAT ASSISTANT REGISTRAR
