Torrence Capital Advisors Private Ltd., New Delhi V. DCIT, New Delhi

ITA 4419/DEL/2016

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 7156 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 5 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-02-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Assessment Year: 2011-2012
• Appeal Filed On: 12-08-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SARAS KUMAR
• Keywords: Revised return; Revenue expenditure
• Section: 201; 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH G, NEW DELHI BEFORE MS. SUSHMA CHOWLA, VICE PRESIDENT DR. B. R. R. KUMAR, ACCOUNTANT MEMBER ITA NO. 4419/DEL/2016 : ASSTT. YEAR : 201 1-12 TORRENCE CAPITAL ADVISORS PVT. LTD., B-27, SOAMI NAGAR, NEW DELHI-110017 VS DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-16(1), NEW DELHI (APPELLANT) (RESPONDENT) PAN NO. AA CCT7972M ASSESSEE BY : SH. PIYUSH KAUSHIK, ADV. REVENUE BY : SH. SARAS KUMAR, SR. DR DATE OF HEARING: 02 . 0 1 .2020 DATE OF PRONOUNCEMENT: 03 .02 .2020 ORDER PER DR. B.R.R. KUMAR, ACCOUNTANT MEMBER: THE PRESENT APPEAL HAVE BEEN FILED BY THE ASSESSEE AGAINST THE ORDER OF LD. CIT (A)-9, NEW DELHI DATED 26.05.2016. 2. FOLLOWING GROUNDS HAVE BEEN RAISED BY THE ASSESS EE: 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT (A) HAS ERRED BOTH IN LAW AND ON FACTS IN CONFIRMING THE ACTION OF AO IN COMPLETING THE ASSESSMENT AT ALLEGED LOSS OF RS.2,75,105/- AS AGAINST THE RETURNED LOSS OF RS.55,16,277/-. 2. THAT THE LD. CIT (A) HAS ERRED IN LAW AND ON FAC TS IN: 2.1 DISALLOWING EXPENSES AMOUNTING TO RS.52,41,172/- BY HOLDING THE SAME TO BE CAPITAL IN NATURE. ITA NO. 4419/DEL/2016 TORRENCE CAPITAL ADVISORS PVT. LTD . 2 2.2 ALLEGING THAT THE APPELLANT HAS FAILED TO OFFER ANY EXPLANATION IN SUPPORT OF ITS CLAIM THAT THE EXPENDITURE IS ALLOWABLE UNDER SECTION 37(1). 2.3 IN AFFIRMING THE ACTION OF AO AND NOT APPRECIATING THAT THE ABOVE EXPENDITURE, BEING REVENUE IN NATURE, IS ALLOWABLE AS A DEDUCTION UNDE R SECTION 37 OF THE ACT. 3. THE ASSESSEE COMPANY FILED THE RETURN OF INCOME FOR THE AY 2011-12 ON 20.09.2011 AT DECLARING TOTAL LOSS OF RS.2,27,105/- AND THE RETURN WAS REVISED ON 28.09.2 012 BY CLAIMING A LOSS AT RS.55,16,277/-. THE ASSESSEE WAS ASKED BY THE ASSESSING OFFICER TO CLAIM THE REVISED LOSS. TH E ASSESSEE HAS SUBMITTED BEFORE THE ASSESSING OFFICER AS UNDER : IT IS SUBMITTED THAT THE ASSESSEE HAS REVISED ITS RETURN FOR THE AY 2011-12 FOR CLAIMING THE EXPENDITURE BOOKED UNDER T HE HEAD WORK IN PROGRESS. IT IS FURTHER SUBMITTED THAT THE SAID EXPENDITURE WAS IN THE NATURE OF REVENUE EXPENDITURE INCURRED IN THE C OURSE OF BUSINESS AND ALLOWABLE DEDUCTION U/S 37 OF THE ACT IN ACCORDANCE WITH THE ACCEPTED PRINCIPLE OF TAXATION. ACCORDINGL Y, THE SAID EXPENDITURE AMOUNTING TO RS.52,41,172/- INCURRED ON THE NEW PROJECTS IN THE RELEVANT ASSESSMENT YEAR, WAS DISAL LOWED IN THE RETURN FOR ASSESSMENT YEAR 2012-13 AS PRIOR PERIOD EXPENSES AND THE ASSESSEE REVISED THE RETURN OF INCOME FOR RELEV ANT ASSESSMENT YEAR ON SEPTEMBER 28,2012 TO CLAIM THEREOF. 4. AFTER CONSIDERING THE REPLY OF THE ASSESSEE, THE AO HAS HELD AS UNDER: A PERUSAL OF THE SUBMISSIONS AND BALANCE SHEET REV EALS THAT THE ASSESSEE HAS CAPITALIZED CERTAIN PROJECT RELATED EX PENSES IN THIS CASE IN THE YEAR UNDER CONSIDERATION AND ALSO IN TH E YEARS PROCEEDING THIS ASSESSMENT YEAR. THE EXPENSES WERE ALLOCATED TO VARIOUS PROJECTS UND ER WAYS. ITA NO. 4419/DEL/2016 TORRENCE CAPITAL ADVISORS PVT. LTD . 3 WHEN AN EXPENSE IS MADE, A DECISION IS TAKEN AS TO WHETHER IT IS CAPITAL IN NATURE OR REVENUE. ONCE THE ASSESSEE HAS MADE A DECISION, THE EXPENSES ARE EITHER CAPITALIZED OR DE BITED TO THE PROFIT AND LOSS ACCOUNT, THE ASSESSEE WHILE DOING SO WAS F ULLY AWARE THAT THE EXPENSES BEING ATTRIBUTABLE, TO PROFIT WHICH WO ULD LEAD TO ENDURING BENEFIT OUGHT TO BE CAPITALIZED. THEREAFTER, WHEN THE ASSESSEE DECIDED TO CLOSE DOWN THOSE PROJECTS, BY SOME STROKE OF GENIUS SUDDENLY REALIZE D THAT THEY WERE REVENUE IN NATURE AND REVISED THE RETURN. THE ASSESSEE HAS TAKEN THE PLEA THAT THEY HAS DONE SO UNDER THE ADVICE OF THEIR CHARTERED ACCOUNTANT BUT HAVE NOT O FFERED THE ANY EXPLANATION TO WHY THE RETURN WAS REVISED WOULD BE CAPITAL LOSS AND NOT ALLOWABLE AS REVENUE EXPENDITURE. 5. THEREFORE, AO HELD THEM TO BE NOT REVENUE IN NAT URE AND DISALLOWED. 6. THE LD. CIT (A) CONFIRMED THE ADDITION HOLDING T HAT THE EXPENDITURE WAS INCURRED FOR THE PROPOSED NEW PROJE CTS. HE HELD THAT THE EXPENDITURE PERTAINING TO THE NEW PRO JECTS HAVE TO BE DEBITED AGAINST THE INCOME OF THE NEW PROJECT ONLY WHICH WAS TREATED AS WORK IN PROGRESS EARLIER. 7. BEFORE US, THE LD. AR ARGUED THAT THE ASSESSEE I S ENGAGED IN THE BUSINESS OF INVESTMENT BANKING THAT PROVIDES STRATEGIC ADVISORY, FINANCIAL ADVISORY AND CAPITAL RAISING SE RVICES TO CORPORATIONS, PARTNERSHIPS, AND INSTITUTIONS. CUTTI NG ACROSS ALL GEOGRAPHICAL BARRIERS, ASSESSEE HELPS BUSINESS ENTE RPRISES, HAVING SCALABLE AND SUSTAINABLE BUSINESS MODEL, TO REALIZE THEIR FULL POTENTIAL BY INTEGRATING ASSESSEE'S ADVI SORY AND FUND RAISING CAPABILITIES. ASSESSEE COMBINES SUPERIOR EX ECUTION ITA NO. 4419/DEL/2016 TORRENCE CAPITAL ADVISORS PVT. LTD . 4 CAPABILITIES, METICULOUS RESEARCH, RICH TRANSACTION EXPERIENCE AND A NETWORK OF GLOBAL PARTNERSHIP TO HELP CLIENTS CLOSE A VARIETY OF STRATEGIC AND FINANCIAL TRANSACTIONS. IT IS SUBMITTED THAT THE ASSESSEE HAD CAPITALIZED THE EXPENSES (SAL ARY, TRAVELLING, TELEPHONE ETC) AS 'PROJECT, IN PROGRESS ' WHILE PREPARING THE BOOKS OF ACCOUNT FOR THE ASSESSMENT Y EAR 2010- 11 AND THE SAME WERE ALSO NOT CLAIMED AS DEDUCTION IN THE RETURN OF INCOME FOR THE RESPECTIVE YEAR. SUCH ACCO UNTING TREATMENT WAS FOLLOWED BY THE ASSESSEE IN THE RELEV ANT ASSESSMENT YEAR ALSO I.E. A.Y. 2011-12. 8. HE ARGUED THAT AT THE TIME OF FINALIZING THE BOO KS FOR THE ASSESSMENT YEAR 2012-13, THE ASSESSEE WAS ADVISED T O CLAIM THE DEDUCTION OF THE ABOVE EXPENDITURE IN THE RESPE CTIVE ASSESSMENT YEAR TO WHICH IT PERTAINS SINCE THE SAME IS IN THE NATURE OF REVENUE EXPENDITURE INCURRED IN THE COURS E OF BUSINESS AND ALLOWABLE DEDUCTION U/S 37 OF THE ACT IN ACCORDANCE WITH THE ACCEPTED PRINCIPLES OF TAXATION . ACCORDINGLY, THE SAID EXPENDITURE AMOUNTING TO RS.5 2,41,172/- INCURRED IN RESPECT OF EXISTING/NEW/PROPOSED PROJEC TS IN THE RELEVANT ASSESSMENT YEAR, WAS DISALLOWED IN THE RET URN FOR ASSESSMENT YEAR 2012-13 AS PRIOR PERIOD EXPENSES AN D THE ASSESSEE REVISED THE RETURN OF INCOME FOR RELEVANT ASSESSMENT YEAR ON SEPTEMBER, 28,2012 TO CLAIM THEREOF. IT WAS ARGUED THAT THE ASSESSEE WAS CONSTANTLY ENGAGED IN MEETING POTENTIAL CLIENTS, UNDERTAKING NEGOTIATIONS FOR ENTERING INTO THE CONTRACTS WITH SUCH CLIENTS. IT IS SUBMITTED THAT I T IS ONLY ON ACCOUNT OF PERSISTENT EFFORTS MADE BY THE ASSESSEE IN THE RELEVANT ASSESSMENT YEAR, IT WAS SUCCESSFUL IN OBTA INING NEW BUSINESS VIDE VARIOUS CONTRACTS ENTERED INTO IN THE SUBSEQUENT ITA NO. 4419/DEL/2016 TORRENCE CAPITAL ADVISORS PVT. LTD . 5 YEARS. THE ABOVE EXPENDITURE HAS BEEN DULY RECORDED IN THE BOOKS OF ACCOUNT AND AUDITED. THE ASSESSEE HAS ACCO RDINGLY PREPARED ORIGINAL RETURN OF INCOME ON THE ABOVE BAS IS. THE DETAILS OF THE REVENUE EXPENDITURE INCURRED BY THE ASSESSEE (CATEGORIZED AS PROJECT WORK IN PROGRESS) IN THE RE LEVANT ASSESSMENT YEAR ARE AS UNDER: S. NO. PARTICULARS AMOUNT RS. 1. SAL ARY 44,00,000 2. TELEPHONE EXPENSES 81,295 3. TRAVELLING EXPENSES 1,75,325 4. TRAVELLING EXPENSES - FOREIGN 5,84,551 TOTAL 52.41,171 9. THE COPY OF FORM 16 AS WELL AS OTHER SUPPORTING DOCUMENTS IN RELATION TO THE SAID EXPENDITURE WAS D ULY SUBMITTED BEFORE THE ASSESSING OFFICER. 10. HEARD THE ARGUMENTS OF BOTH THE PARTIES AND PER USED THE MATERIAL AVAILABLE ON RECORD. 11. WE FIND THAT THE ASSESSEE IS ALREADY IN THE RUN NING BUSINESS. THE EXPENDITURE CLAIMED IS IN THE NATURE OF REVENUE. THE ASSESSEE HAS OBTAINED BUSINESS ENGAGEMENTS FROM VARIOUS COMPANIES NAMELY, ASIAN HEALTHCARE MANAGEMENT LTD., GBFA LTD., AMPLUS INFRASTRUCTURE DEVELOPMENT, BIHAN NETW ORK LTD., THE RECEIPTS OF WHICH HAVE BEEN OFFERED TO TAX SUBS EQUENTLY. DURING THIS YEAR, THE ASSESSEE HAS INCURRED THE EXP ENSES ON ACCOUNT OF SALARY, TELEPHONE AND TRAVELLING IN ORDE R TO OBTAIN THE BUSINESS WHICH HAS BEEN PROCURED IN THE FURTHER YEARS DOWN THE LINES. THE BUSINESS HAS TO BE LOOKED INTO AS A COMPOSITE ACTIVITY OF THE ASSESSEE AND THE RECEIPTS AND THE EXPENDITURE HAVE TO BE TAKEN COMPOSITELY. THE APPOR TION OF ITA NO. 4419/DEL/2016 TORRENCE CAPITAL ADVISORS PVT. LTD . 6 THE EXPENDITURE IN A CONSULTANCY FIRM LIKE THE ASSE SSEE AGAINST EACH PROJECT IS NOT IN TUNE WITH THE STANDARD ACCOU NTING PRACTICES. THIS IS NOT A CASE OF CONSTRUCTION OF BU ILDINGS OR TOWNSHIPS WHEREIN THE EXPENDITURE INCURRED AGAINST EACH PROJECT IS CONSIDERED SEPARATELY DEPENDING UPON THE METHOD OF ACCOUNTING FOLLOWED BY THE ASSESSEE. IN THE INSTANC E CASE, THE ASSESSEE IS IN THE BUSINESS OF PROVIDING CONSULTANC Y AND FUND MANAGEMENT, FINANCIAL ADVISORY WHEREIN THE EXPENDIT URE AND THE REVENUE HAS TO BE TAKEN INTO ACCOUNT IN RUNNING ACCOUNTING METHODS. WE FIND THAT THE REVENUE HAS PRIMARILY DIS ALLOWED THIS EXPENDITURE BECAUSE THE ASSESSEE HAS FILED A R EVISED RETURN OF INCOME WHICH WERE HITHERTO CLAIMED UNDER WORK IN PROGRESS. ONCE, THE ASSESSEE HAS REALIZED THAT THE CLAIM WAS WRONGLY NOT MADE, THE ASSESSEE HAS EVERY RIGHT TO R EVISE THE RETURN INDICATING CORRECT TAXABLE INCOME. WHAT IS T O BE EXAMINED IS WHETHER THE CLAIM OF THE ASSESSEE IS CO RRECT OR NOT BUT NOT WHETHER THE CORRECT CLAIM IS FILED WITH THE ORIGINAL RETURN OR REVISED RETURN. SINCE, THE CLAIM OF THE A SSESSEE CAN BE ACCEPTED WITH REGARD TO THE EXPENDITURE INVOLVED AS ALLOWABLE EXPENDITURE FOR THE YEAR, WE HEREBY HOLD THAT NO DISALLOWANCE ON THIS ACCOUNT IS REQUIRED AND THE AD DITION MADE IS HEREBY DIRECTED TO BE DELETED. 12. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 03/02/2020. SD/- SD/- (SUSHMA CHOWLA) (DR. B.R.R. KUMAR) VICE PRESIDENT ACCOUNTANT ME MBER DATED: 03/02/2020 *SUBODH*