DCIT 3(2), MUMBAI V. L.K. EARTH DEVELOPERS P.LTD, MUMBAI

ITA 4965/MUM/2014

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 2920 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 1 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-09-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2010-2011
• Appeal Filed On: 30-07-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K V VISPUTE
• Assessee Lawyers: VIMAL PUNMIYAAR
• Keywords: Commercial expediency
• Section: 37

Judgement Text

, INCOME-TAX APPELLATE TRIBUNAL -GBENCH MUMBAI , , , BEFORE S/SHRI RAJENDRA,ACCOUNTANT MEMBER AND RAM LAL NEGI,JUDICIAL MEMBER /.ITA/4965/MUM/2014, /AY: 2010-11 DCIT-3(2), ROOM NO.674, 6TH FLOOR, AAYAKAR BHAVAN, M.K. ROAD,MUMBAI-400 020. PAN: AAACE 0897 L VS. M/S. L.K. EARTH DEVELOPERS PVT. LTD. (FORMERLY KNOWN AS FKA EXCELLENT EXPORTS PVT. LTD.) 142, B-WING, MITTAL TOWER, 210, NARIMAN POINT, MUMBAI-400 021. ( /APPELLANT ) ( / RESPONDENT) REVENUE BY: SHRI K.V. VISPUTE -DR ASSESSEE BY: SHRI VIMAL PUNMIYA-AR / DATE OF HEARING: 25.08.2016 / DATE OF PRONOUNCEMENT: 14.09.2016 , 1961 254 )1( ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) PER RAJENDRA, AM - CHALLENGING THE ORDER OF THE CIT(A)-4,MUMBAI,DATED 19.05.2014, THE ASSESSING OFFICER (AO), HAS FILED THE PRESENT APPEAL.ASSESSEE -COMPANY ENGA GED IN THE BUSINESS OF TRADING IN STEEL, FINANCING AND BUILDING CONSTRUCTION,FILED ITS RETUR N OF INCOME ON 26.09.2010,DECLARING LOSS OF RS.1.73 CRORES. THE ASSESSING OFFICER(AO) COMPLETED THE ASSESSMENT U/S.143(3) OF THE ACT,ON 28.01.2013, DETERMINING ITS INCOME AT (-)RS.1.03 C RORES. 2. EFFECTIVE GROUND OF APPEAL IS ABOUT DELETING THE DI SALLOWANCE OF RS. 61.26 LAKHS. DURING THE ASSESSMENT PROCEEDINGS THE AO FOUND THAT THE ASSESS EE HAD DEBITED SOME OF RS.61,26,824/-IN ITS P&L ACCOUNT FOR SHARE OF PROFIT TO R.D.BUILDERS (RD B). HE DIRECTED THE ASSESSEE TO SHOW CAUSE AS TO WHY THE AFORESAID EXPENSES SHOULD NOT BE DISA LLOWED.VIDE ITS RESPONSE DATED 19/12/ 2012,THE ASSESSEE STATED THAT THE PROFIT OF CONSTRU CTION ACTIVITY HAD BEEN COMPUTED AFTER CONSIDERING THE COST OF CONSTRUCTION AND BROKERAGE AS HAD BEEN DONE IN EARLIER YEARS AND AS PER THE UNDERSTANDING BETWEEN THE PARTIES ENTERED INTO LONG BACK, THAT THE PAYMENT TO RDB WAS BASED ON MUTUAL UNDERSTANDING ON WHICH THE PROFIT O F REALTY BUSINESS WAS TO BE SHARED, THE EXPENSES WERE CONSISTENT WITH PREVIOUS YEARS, THAT THE ARRANGEMENT WITH RDB WAS CONSISTENTLY FOLLOWED SINCE INCEPTION OF THE PROJECT, THAT IN TH E YEAR 2005 RDB HAD APPROACHED THE ASSESSEE WITH HIS PROPOSAL TO BID FOR A PLOT, THAT LATER ON THE ASSESSEE ENTERED INTO AN AGREEMENT WITH RDB, THAT THE EXPENDITURE INCURRED BY THE ASSESSEE WAS B ECAUSE OF COMMERCIAL EXPEDIENCY. AFTER 4965/M/14-LKED 2 CONSIDERING THE SUBMISSION OF THE ASSESSEE, THE AO HELD THAT CLAIM OF EXPENDITURE ON SHARE OF PROFIT OF RDB WAS NOT CORRECT AND WAS NOT COVERED U NDER THE PRINCIPLE OF BUSINESS EXPEDIENCY, THAT THE EXPENDITURE WAS INCURRED ON THE BASIS OF M OU WHICH WAS MADE BETWEEN TWO PARTIES, THAT IT COULD NOT BE THE BASIS FOR ALLOWABILITY OF THE E XPENDITURE, THAT THE EXPENDITURE INCURRED BY IT DID NOT FULFILL THE CRITERIA, THAT SAME WAS NOT INC URRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF EARNING INCOME OR MAKING PROFIT. FINALLY HE MADE A DISALLOWANCE OF RS. 61.06 LAKHS AND ADDED IT TO THE TOTAL INCOME OF THE ASSESSEE. 3. AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE PREF ERRED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY (FAA).BEFORE HIM, IT WAS ARGUED THAT ASSE SSEE WAS IN THE BUSINESS OF TRADING IN STEEL, THAT IT DECIDED TO DIVERSIFY ITS BUSINESS ACTIVITIE S, IN THE YEAR 2005 RDB APPROACHED THE ASSESSEE WITH A PROPOSAL TO BID FOR A PLOT OF LAND, IT WAS D ECIDED TO CONSTRUCT A RESIDENTIAL TOWER WITH THE HELP OF RDB, THAT THE COMPANY HAD NO EXPERIENCE IN THE BUILDING CONSTRUCTION FIELD, THAT IT ENTERED INTO AN MOU WITH RDB, THAT PAYMENT WAS MADE TO RDB BECAUSE OF COMMERCIAL EXPEDIENCY, THAT THE AO COULD NOT DECIDE WHETHER A PARTICULAR EXPENDITURE HAD BEEN INCURRED FOR PURPOSE OF BUSINESS OR NOT, THAT THE GENUINENESS OF THE EXPENDITURE HAD BEEN VERIFIED, THAT RDB HAD VERIFIED THAT IT HAD RECEIVED THE SHARE OF PROF IT, THAT RDB HAD OFFERED THE AMOUNT IN QUESTION FOR TAXATION, THAT THE POLICY OF MAKING PAYMENT TO RDB WAS BEING FOLLOWED SINCE AY. 2007 08, THAT THE DEPARTMENT HAD ACCEPTED THE CLAIM MADE IN THE EARLIER YEARS. AFTER CONSIDERING THE SUMMATION OF THE ASSESSEE AND THE ASSESSMENT ORDER, THE FAA HELD THAT THE SHARE OF PROFIT FROM THE PROJECT WAS SHARED WITH RD B AS PER THE TERMS OF MOU SINCE AY. 2007- 08 AND SAME HAD BEEN CONSISTENTLY ACCEPTED BY THE A O, THAT THE ASSESSMENT FOR THE AY. 2009-10 WAS COMPLETED AND SECTION 143 (3) OF THE ACT, THAT AS A BUSINESS ENTITY THE ASSESSEE KNEW ITS INTERESTS THE BEST, THAT THE AO WAS NOT THE PERSON TO DECIDE HOW TO DO BUSINESS, THE EXPENDITURE INCURRED BY AN ASSESSEE HAD TO BE SEEN FROM THE VIE WPOINT OF THE BUSINESS NINE AND NOT FROM THE PERSPECTIVE OF THE AO, THAT THE MANNER IN WHICH THE PROFITS OF A VENTURE WERE TO BE SHARED WAS A MATTER OF DISCRETION OF THE CO-VENTURES AND THE MOU COULD NOT BE DISPUTED AFTER ACCEPTING THE SAME FOR MORE THAN THREE YEARS,THAT THERE WAS A DIF FERENCE BETWEEN PROJECT CONSTRUCTION COST AND PROJECT MAINTENANCE COST, THAT THE PAYMENT OF RS. 6 1.26 LAKHS MADE TO RDB WAS REPORTEDLY FOR THE PURPOSE OF ASSISTANCE IN CONSTRUCTION ACTIVITY AND GAINING EXPERIENCE IN THE FIELD, THAT THE 4965/M/14-LKED 3 RESIDENTIAL TOWER SO CONSTRUCTED GAINED POPULARITY AND THE ASSESSEE HAD BEEN ABLE TO EXPAND ITS BUSINESS,THAT AO SHOULD RESPECT THE RULE OF JUDICIA L CONSISTENCY, THAT THE AGREEMENT ENTERED INTO BETWEEN RDB AND THE ASSESSING WAS A VALID CONTRACT UNDER THE INDIAN CONTRACT ACT, 1872, THAT THE AO COULD NOT TAKE CONTRARY VIEW TO THE SAID MOU AFTER ACCEPTED IT IN THE EARLIER AY.S. HE REFERRED TO THE CASES OF RAJA NARASINGIRJI (91 ITR 544), AMAR JYOTI PICTURES (69 ITR 755), SASSOON J DAVID COMPANY PRIVATE LTD.(118ITR261)AND ALLOWED THE APPEAL FILED BY THE ASSESSEE. 4. DURING THE COURSE OF HEARING BEFORE US,THE DEPARTME NTAL REPRESENTATIVE (DR) SUPPORTED THE ORDER OF THE AO. THE AUTHORISED REPRESENTATIVE (AR) RELIED UPON THE ORDER OF THE FAA AND STATED THAT THE PAYMENT MADE BY THE ASSESSEE WAS DU E TO COMMERCIAL EXPEDIENCY, THAT SAME WAS ALLOWABLE AS PER THE PROVISIONS OF SECTION 37 OF TH E ACT, THAT DISALLOWANCE IN THE HANDS OF THE ASSESSEE WOULD RESULT IN DOUBLE TAXATION OF INCOME, THAT SIMILAR PAYMENT WAS MADE IN THE EARLIER YEARS AND WAS ACCEPTED BY THE AO. HE RELIED UPON TH E CASES OF LAKSHMIPAT SINGHANIA (71 ITR 291), HERO CYCLES PRIVATE LTD. (APPEAL NUMBER 514 O F 2008 OF THE HONORABLE SUPREME COURT). 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FIND THAT THE ASSESSEE HAD ENTERED INTO AN AGREEMENT WITH RDB TO CONSTRUCT A TOWER OF RESIDENTIAL UNITS, THAT THE ASSESSEE HAD NO PREVIOUS EXPERIENCE OF REA L ESTATE BUSINESS, THAT AS PER THE AGREEMENT THE ASSESSEE HAD TO PAY CERTAIN AMOUNTS TO RDB, THAT IN THE EARLIER YEARS THE AO DID NOT QUESTION THE VALIDITY OF THE PAYMENTS MADE TO RDB, THAT AT LEAST IN ONE YEAR THE MATTER WAS SELECTED FOR SCRUTINY AND THE ASSESSMENT WAS MADE UNDER SECTION 143 (3) OF THE ACT, THAT THE AO HAD NOT DOUBTED THE GENUINENESS OF THE PAYMENT, THAT HE HAD HELD THAT THE EXPENDITURE WAS NOT INCURRED WHOLLY AND EXCLUSIVELY FOR THE BUSINESS PURPOSES. I N OUR OPINION THE ROLE OF CONSISTENCY HAS TO BE FOLLOWED AS PER THE ESTABLISHED PRINCIPLES OF TAXAT ION JURISPRUDENCE-UNLESS AND UNTIL NEW AND DISTINGUISHABLE FACTS ARE FOUND AND REFERRED TO IN THE ASSESSMENT ORDERS OF SUBSEQUENT YEARS.IN THE CASE UNDER CONSIDERATION, THE AO HAS NOT MENTIO NED AS TO HOW THE FACTS OF THE INSTANT AY. WERE DIFFERENT FROM THE FACTS OF EARLIER YEARS WHEN THE PAYMENT WAS ALLOWED. THE AO CANNOT AND SHOULD NOT CHANGE THE STAND ABOUT ALLOWABILITY OF AN EXPENDITURE AS PER HIS WHIMS AND FANCIES. THERE IS NO DOUBT THAT HE CAN TAKE A NEW S TAND IN THE SUBSEQUENT AY.S,BUT FOR THAT HE HAS TO ASSIGN SOME REASONS.IN THE CASE OF ARONI COMMERC IALS LTD.( 362 ITR 403) THE HONORABLE BOMBAY HIGH COURT HAS HELD AS UNDER: 4965/M/14-LKED 4 THOUGH THE PRINCIPLE OF RES JUDICATA IS NOT APPLICA BLE TO TAX MATTERS AS EACH YEAR IS SEPARATE AND DISTINCT, NEVERTHELESS WHERE FACTS ARE IDENTICAL FR OM YEAR TO YEAR, THERE HAS TO BE UNIFORMITY AND CONSISTENCY IN TREATMENT. IN THE CASE OF GOPAL PUROHIT (336 ITR 287),THE JURI SDICTIONAL HIGH COURT HAS HELD THAT THAT THERE SHOULD BE UNIFORMITY IN TREATMENT AND WHEN FACTS A ND CIRCUMSTANCES FOR DIFFERENT YEARS WERE IDENTICAL PARTICULARLY IN THE CASE OF THE SAME ASSE SSEE. IT IS ALSO A FACT THAT RDB HAS OFFERED THE PAYMENT RECEIVED FROM THE ASSESSEE AND ITS RETURN OF INCOME AND HAS PAID THE TAXES.THE BASIC PRINCIPLES OF TAX LAWS STIPULATE THAT THERE CANNOT BE DOUBLE TAXATION OF SAME INCOME.THIRDLY, THE AO IS N OT THE PERSON TO DECIDE AS TO HOW MUCH AND UNDER WHICH HEAD AN ASSESSEE SHOULD INCUR AN EXPEND ITURE.IT IS THE PREROGATIVE OF AN ASSESSEE. THE AO IS DEBARRED FROM ENTERING INTO THE PROVERBIA L SHOES OF THE ASSESSEE WITH REGARD TO INCURRING OF EXPENDITURE.CONSIDERING THE ABOVE,WE A RE OF THE OPINION THAT THE ORDER OF THE FAA DOES NOT SUFFER FROM ANY LEGAL OR FACTUAL INFIRMITY . THEREFORE, UPHOLDING HIS ORDER WE DECIDE EFFECTIVE GROUND OF APPEAL AGAINST THE AO. AS A RESULT, APPEAL F ILED BY THE AO STANDS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 14 TH SEPTEMBER,2016. 14 , 2016 SD/- SD/- ( / R.L.NEGI ) ( / RAJENDRA ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; DATED : 14.09.2016. JV.SR.PS. / COPY OF THE ORDER FORWARDED TO : 1. APPELLANT / 2. RESPONDENT / 3. THE CONCERNED CIT(A)/ , 4. THE CONCERNED CIT / 5. DR G BENCH, ITAT, MUMBAI / , , . . . 6. GUARD FILE/ //TRUE COPY// / BY ORDER, / DY./ASST. REGISTRAR , /ITAT, MUMBAI.