M/s DCM Shriiram Aqua Foods Ltd., New Delhi V. DCIT, New Delhi

ITA 5223/DEL/2016

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 6923 (ITAT-DELHI)
• Duration Of Justice: 3 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-01-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 10-01-2017
• Assessment Year: 2013-2014
• Appeal Filed On: 04-10-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income
• Section: 142(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH B, NEW DELHI BEFORE SHRI J. S. REDDY, ACCOUNTANT MEMBER AND SMT. BEENA A. PILLAI, JUDICIAL MEMBER I.T.A. NO. 5223/DEL/2016 (ASSESSMENT YEAR 2009-10) APPELLANT BY : SH. PRADEEP DINODIA, CA SH. V. P. GUPTA, ADVS. RESPONDENT BY : SH. ANIL KUMAR SHARMA, SR. DR. DATE OF HEARING : 10.01.2017 DATE OF PRONOUNCEMENT: 20.01.2017 ORDER PER BEENA A. PILLAI, JM: 1. T HE PRESENT APPEAL HAS BEEN FILED BY ASSESSEE AGAINS T ORDER DATED 4.03.2016 PASSED BY LD.CIT (A) 37, NEW DELHI FOR ASSESSMENT YEAR 2013-14 ON THE FOLLOWING GROUNDS OF APPEAL: 1. THAT THE CIT(A) ERRED IN UPHOLDING THE ORDER OF THE A.O. WHEREIN HE HAS TAKEN A VIEW THAT INDEXED COST OF IMPROVEMENT OF LAND OF RS.2,03,50,000/- WAS NOT TO BE CONSIDERED IN DETERMINATION OF CAPITAL GAIN/LOSS IN RESPECT OF LAND ACQUIRED BY THE GOVERNMENT ON THE D CM SHRIIRAM AQUA FOODS LTD., 5 TH FLOOR, KANCHENJUNGA BUILDING, 18, BARAKHAMBA ROAD, PLACE, NEW DELHI GIR/PAN : AABCD6782G (APPELLANT) VS. D CIT CIRCLE- 7(1), C. R. BUILDING NEW DELHI. (RESPONDENT) ITA NO. 5223/DEL/2016 (AY 2013-14) PAGE 2 OF 11 GROUND THAT THE APPELLANT COMPANY WAS NOT ABLE TO PRODUCE THE BILLS AND VOUCHERS IN RESPECT OF EXPEND ITURE WITHOUT APPRECIATING THAT EXPENDITURE HAD BEEN INCU RRED DURING ACCOUNTING YEARS ENDED 31.03-1995 TO 31.03.1997. 2. THAT THE CIT(A) ERRED IN UPHOLDING THE ORDER OF A.O. IN THE FACTS AND CIRCUMSTANCES OF THE CASE OF THE APPELLANT WITHOUT CORRECTLY APPRECIATING THE FACTUA L AND THE LEGAL POSITION IN RESPECT OF THE MATTER AND ALS O BY MAKING CERTAIN IRRELEVANT AND INCORRECT OBSERVATION S. 3. THAT CIT(A) FAILED TO APPRECIATE THAT THE APPELLANT COMPANY HAD SHOWN THE EXPENDITURE IN ITS AUDITED BALANCE SHEET FOR THE YEARS ENDED 31.03.199 5 TO 31.03.2011 AS COST OF 'CONSTRUCTION IN PROGRESS' UNDER THE HEAD 'CAPITAL WORK-IN-PROGRESS' AND, AT N O STAGE, ANY DOUBT WAS EXPRESSED AS REGARDS THE NATUR E OF EXPENDITURE AND, THEREFORE, NOW IN THE YEAR UNDE R APPEAL IT COULD NOT BE SAID THAT THE NATURE OF EXPE NDITURE WAS NOT VERIFIABLE. 4. THAT THE A.O. AND ALSO CIT(A) ERRED IN NOT APPRECIATING THAT THE APPELLANT COMPANY WAS NOT EXPECTED TO MAINTAIN THE BILLS AND VOUCHERS FOR EAC H OF THE ITEMS OF EXPENSES FOR A LONG PERIOD OF 20 YEARS WHEN THE ACCOUNTS HAD BEEN DULY AUDITED FOR EACH OF THE ACCOUNTING YEARS IN THE PAST AND HAD ALSO BEEN SUBMITTED TO THE INCOME-TAX DEPARTMENT AND, THEREFO RE, CLAIM OF THE COMPANY COULD NOT BE REJECTED IN THIS YEAR ON THE GROUND THAT NATURE OF EXPENDITURE COULD NOT BE DETERMINED IN THE ABSENCE OF BILLS AND VOUCHERS. 5. THAT, THE APPELLANT COMPANY CRAVES LEAVE TO AMEND, ALTER, WITHDRAW AND/OR ADD ANY ONE OR MORE ITA NO. 5223/DEL/2016 (AY 2013-14) PAGE 3 OF 11 GROUNDS OF APPEAL BEFORE OR AT THE TIME OF HEARING OF APPEAL. 2. THE BRIEF FACTS OF THE CASE ARE AS UNDER: ASSESSEE FILED ITS RETURN OF INCOME ON 02.09.2013, DECLARING A LOSS OF RS.1,22,07,639/- AND TOTAL INCO ME OF RS.6,30,880/-. THE RETURN WAS SUBSEQUENTLY REVISED TO CLAIM ADDITIONAL AMOUNT OF TDS. THE CASE WAS SELECTED FOR SCRUTINY AND NOTICE UNDER SECTION 143(2) ALONGWITH QUESTIONN AIRE UNDER SECTION 142(1) OF THE ACT WAS ISSUED AND SERV ED UPON THE ASSESSEE. IN RESPONSE TO THE SAID NOTICES, REPR ESENTATIVES OF ASSESSEE APPEARED BEFORE LD. AO AND FILED DETAIL S REQUIRED AND CALLED FOR. 3. LD. AO OBSERVED THAT ASSESSEE IS A COMPANY CARRYIN G ON WITH FARMING, CULTIVATION OF ALL TYPES OF SEAFOODS . IT WAS OBSERVED THAT DURING THE YEAR UNDER CONSIDERATION T HERE WAS NO BUSINESS ACTIVITY CARRIED OUT BY ASSESSEE AND TH ERE WAS NO BUSINESS INCOME SHOWN IN THE PROFIT AND LOSS ACCOUN T. ASSESSEE VIDE LETTER DATED 13.11.2015 SUBMITTED IN BRIEF THE BUSINESS ACTIVITY CARRIED ON BY THE ASSESSEE. 4. IT HAS BEEN SUBMITTED THAT THE ASSESSEE WAS INCORPORATED ON 01.01.1993, FOR PURPOSE OF CARRYING ON BUSINESS OF FISHERY AND HATCHERY. FOR THIS PURPOSE, LAND WAS PURCHASED IN PONDICHERRY DURING THE FINANCIAL YEARS 1994-95 AND 1995-96, WITH A VIEW TO COMMENCE THE BUSINESS D URING THE RELEVANT FINANCIAL YEARS. THE TOTAL COST INCURR ED BY ASSESSEE TOWARDS PURCHASE OF LAND WAS RS. 28.13 LAC S AND ITA NO. 5223/DEL/2016 (AY 2013-14) PAGE 4 OF 11 THE COST INCURRED ON IMPROVEMENT OF THE LAND BY WAY OF LEVELING, CONSTRUCTION OF BONDS ETC WAS RS.116.60 L ACS. IT WAS OBSERVED BY ASSESSING OFFICER THAT COST OF LAND WAS SHOWN IN THE FIXED ASSETS AND THE COST OF IMPROVEMENT WAS SH OWN UNDER THE HEAD CAPITAL WORK IN PROGRESS IN THE BALA NCE SHEET. APART FROM THE ABOVE, ASSESSEE WAS ALSO INCURRING O THER EXPENSES FOR ADMINISTRATION AND OTHER ACTIVITIES AN D AN AGGREGATE EXPENDITURE OF RS. 466.85 LACS WAS INCURR ED TILL 31.03.1997 WHICH WAS SHOWN AS PRE-OPERATIVE EXPENSE S. THE ASSESSEE HAD GIVEN CERTAIN CAPITAL ADVANCES WHICH W ERE ALSO SHOWN UNDER THE HEAD CAPITAL WORK IN PROGRESS. IT A LSO DEBITED THE COST OF MAINTENANCE OF THE LAND TO THE PROFIT AND LOSS ACCOUNT. ASSESSEE HOWEVER, COULD NOT SET UP TH E BUSINESS ON ACCOUNT OF RESTRICTIONS IMPOSED BY HON BLE SUPREME COURT VIDE ITS ORDER DATED 11.12.1996. THER EFORE, THE ACTIVITIES OF ASSESSEE HAD BEEN AT A STANDSTILL FROM 31.03.1997 TO 31.03.2011. 5. DURING THE FINANCIAL YEAR ENDED ON 31.03.2012, GOVERNMENT OF PONDICHERRY ACQUIRED MAJOR PORTION OF THE LAND PURCHASED BY ASSESSEE UNDER THE LAND ACQUISITI ON ACT, 1894, FOR WHICH ASSESSEE WAS TO BE COMPENSATED WITH AN AMOUNT OF RS.194.95 LACS. ASSESSEES THEREFORE, IN T HE BOOKS OF ACCOUNTS FOR FINANCIAL YEAR ENDED ON 31.03.2012 CONSIDERED THE AFORESAID AMOUNT OF COMPENSATION REC EIVABLE FROM GOVERNMENT AND MADE NECESSARY ACCOUNTING ENTRI ES AND PROFIT OF RS. 188.31 LACS WAS DETERMINED. ITA NO. 5223/DEL/2016 (AY 2013-14) PAGE 5 OF 11 6. LD. AO DURING THE COURSE OF THE ASSESSMENT PROCEED INGS REQUIRED THE ASSESSEE TO PROVIDE NECESSARY EVIDENCE REGARDING COST OF IMPROVEMENT. ASSESSEE VIDE LETTER DATED 13. 11.2015, EXPLAINED THE INABILITY TO SUBMIT THE EVIDENCES AS THE PERIOD INVOLVED DURING WHICH THE COST WAS INCURRED WAS MOR E THAN 20 YEARS OLD AND THE ASSESSEE WAS NOT HAVING ANY RE CORDS PERTAINING TO FINANCIAL YEARS 1994-95 TO 1996-97. I T ALSO SUBMITTED THAT AMOUNT INCURRED AS COST OF IMPROVEME NT WAS REFLECTED IN THE BOOKS OF ACCOUNT SINCE THEN AS CAP ITAL WORK IN PROGRESS UNTIL 31.03.2012, WHEN THE LAND WAS ACQUIR ED BY THE GOVERNMENT. IT WAS ALSO SUBMITTED THAT ONCE THE LAND WAS ACQUIRED ASSESSEE HAD WRITTEN OFF THE EXPENSES. 7. THE ASSESSING OFFICER WAS OF THE OPINION THAT AS T HE EXPENSES WERE NOT SUPPORTED BY ANY VOUCHERS IT COUL D NOT BE ALLOWABLE SINCE THE BUSINESS OR THE PROJECT HAD NOT STARTED AND THE EXPENSES WERE OF CAPITAL IN NATURE BY RELYI NG UPON THE DECISION OF ITAT LUCKNOW BENCH IN THE CASE OF RAMENDRA VIKRAM SINGH VS. ITO IN ITA NO. 76 TO 79/LUC/08 DECIDED ON 27/02/2009. LD. AO ALSO DISALLOWED EXPENSES INCURRE D DURING THE YEAR AMOUNTING TO RS. 5,79,948/- WHICH W ERE ROUTINE EXPENSES INCURRED BY ASSESSEE IN THE NATURE OF CONTRACT WAGES, TRAVELLING AND CONVEYANCE, SECURITY EXPENSES ETC., FOR THE REASON THAT BUSINESS HAD NOT COMMENCE D. 8. AGGRIEVED BY THE ORDER OF LD.AO, THE ASSESSEE PREF ERRED AN APPEAL BEFORE LD. CIT(A) WHO UPHELD THE DISALLOW ANCE ITA NO. 5223/DEL/2016 (AY 2013-14) PAGE 6 OF 11 MADE BY ASSESSING OFFICER IN RESPECT OF THE COST OF IMPROVEMENT IN DETERMINATION OF THE CAPITAL GAIN/CA PITAL LOSS IN RESPECT OF THE LAND ACQUIRED BY THE GOVERNMENT. 9. AGGRIEVED BY THE ORDER OF LD. CIT(A) OF ASSESSEE I S IN APPEAL BEFORE US NOW. ALL GROUNDS RAISED BEFORE US PERTAINS TO DISALLOWAN CE MADE BY ASSESSING OFFICER IN RESPECT OF COST OF IMP ROVEMENT, IN DETERMINATION OF CAPITAL GAIN/CAPITAL LOSS. WE A RE THEREFORE, DISPOSE OFF THESE GROUNDS TOGETHER. 10. LD. AR HAS SUBMITTED THAT THE BOOKS OF ACCOUNTS MAINTAINED BY ASSESSEE HAVE NOT BEEN REJECTED BY TH E AUTHORITIES BELOW FOR ALL THESE ASSESSMENT YEARS FR OM 1994- 95 ONWARDS. HE FURTHER, SUBMITTED THAT THE VOUCHERS PERTAINING TO THE COST OF IMPROVEMENT RELATES TO FI NANCIAL YEARS 1994-95 TO 1996-97, WHICH ARE ALMOST A DECADE OLD AND IT WAS IMPOSSIBLE FOR THE ASSESSEE TO PRODUCE THEM DURING THE RELEVANT PERIOD. HE SUBMITTED THAT AUDITED ACCOUNTS OF ASSESSEE FOR ALL THE YEARS FROM 1994-95 HAS NEVER B EEN DOUBTED BY ASSESSING OFFICER, AND AMOUNT PERTAINING TO COST OF IMPROVEMENT BEING RS. 116.35 LACS STOOD ACCEPTED BY REVENUE IN THE PRECEDING YEARS. HE SUBMITTED THAT ASSESSING OFFICER SHOULD NOT HAVE DISALLOWED THE CLAIM OF THE ASSESSEE MERELY BECAUSE ASSESSEE COULD NOT PRODUCE VOUCHERS FOR THE EXPENSES INCURRED WHICH WAS ALMOST 20 YEARS OLD. ITA NO. 5223/DEL/2016 (AY 2013-14) PAGE 7 OF 11 11. LD. AR BROUGHT TO OUR NOTICE NOTES FORMING PART O F THE ACCOUNTS, FOR THE YEAR ENDING 31 ST OF MARCH 1995 WHICH REPRODUCED BY LD. CIT (A) IN HIS ORDER AT PAGE 11 W HEREIN NOTE 4 WHICH STATES THAT ALL PROJECTS WITHIN THE CO ASTAL REGULATION ZONE HAS BEEN PUT ON HOLD DUE TO INTERIM ORDER PASSED BY HONBLE SUPREME COURT DATED 09.03.1995 WH ERE AN HONBLE SUPREME COURT HAD DIRECTED THE STATES NO T TO PERMIT THE SETTING UP OF ANY INDUSTRY WITHIN THE CO ASTAL REGULATION ZONE. FURTHER, IN THE NOTES FORMING PAR T OF ACCOUNTS FOR YEAR ENDING MARCH 31 ST 1997, NOTE 3, STATES THAT HONBLE SUPREME COURT VIDE ITS ORDER DATED 12. 12.1996 DIRECTED THAT AQUA PROJECTS SHALL BE ALLOWED TO BE DEVELOPED OUTSIDE THE COASTAL REGULATION ZONE AFTER THE PROJE CTS ARE GRANTED APPROVAL BY ANY AUTHORITY TO BE CONSTITUTED BY THE CENTRAL GOVERNMENT IN THIS REGARD. HE SUBMITTED THA T DUE TO THESE LEGAL DIFFICULTIES, THE PROJECT COULD NOT BE IMPLEMENTED THE EXPENDITURE INCURRED ON IMPROVEMENT OF THE LAND COULD NOT BE CAPITALIZED IN THE BOOKS OF ACCOUNTS AND THE SAME WAS SEPARATELY SHOWN UNDER THE HEAD WORK IN PROGRESS WI TH THE INTENTION TO CAPITALISE THE SAME AS AND WHEN THE PR OJECT WOULD BE CLEARED. HE FURTHER SUBMITTED THAT THE PRO JECT HOWEVER COULD NOT BE STARTED AND WAS FINALLY ABANDO NED. THE EXPENDITURE OF RS. 116.60 LACS INCURRED BY ASSESSEE WAS CONTINUED TO BE SHOWN AS WORK IN PROGRESS. 12. LD. AR SUBMITTED THAT ALL THE EXPENSES WERE MADE TOWARDS IMPROVEMENT OF THE LAND. HE FURTHER SUBMITT ED THAT ITA NO. 5223/DEL/2016 (AY 2013-14) PAGE 8 OF 11 THE ONLY REASON FOR REJECTING THE CLAIM OF THE ASSE SSEE IS THAT THE ASSESSEE COULD NOT PRODUCE THE EVIDENCE FOR INC URRING SUCH HUGE EXPENSES. LD. AR SUBMITTED THAT THE COMPA NIES ACT SECTION 209 REQUIRES, THE ASSESSEE TO MAINTAIN BOOKS OF ACCOUNTS FOR A PERIOD NOT LESS THAN 8 YEARS IMMEDIA TELY PRECEDING THE CURRENT YEAR TOGETHER WITH THE VOUCHE RS RELEVANT TO ANY ENTRY IN SUCH BOOKS OF ACCOUNT AND UNDER INCOME TAX ACT THE ASSESSEE IS SUPPOSED TO MAINTAIN THE RECORDS FOR A PERIOD NOT LESS THAN 6 YEARS IMMEDIAT ELY PRECEDING THE CURRENT YEAR TOGETHER WITH THE VOUCHE RS RELEVANT FOR ANY ENTRY IN THE BOOKS OF ACCOUNT. HE SUBMITTED THAT ASSESSING OFFICER HAD CALLED FOR THE VOUCHERS PERTAINING TO ASSESSMENT YEAR 1994-95 WHICH IS ALMOST MORE THA N 20 YEARS OLD. HE THUS SUBMITTED THAT IT WOULD NOT HAVE BEEN PRACTICALLY POSSIBLE FOR THE ASSESSEE TO PRODUCE TH E BILLS AND VOUCHERS WHICH WERE 20 YEARS OLD. 13. ON THE CONTRARY, LD. DR ARE PLACED HIS RELIANCE UP ON PARA NOS. 6 AND 7 OF THE ORDER PASSED BY LD. CIT (A ) WHEREIN LD. CIT (A) OF HOLDS THE VIEW OF ASSESSING OFFICER BY OBSERVING AS UNDER: 7.2 THE ABOVE FIXED ASSET SCHEDULE CLEARLY REFLECTS THAT THERE IS NO ADDITION TO FIXED ASSETS UNDER 'LAND' HEAD OR EVEN PLANT AND MACHINERY HEAD WAS MADE IN ANY OF THE FYS ENDING 95/96/97/98 ETC. THE DETAILS OF CAPI TAL WORK IN PROGRESS AT BEST CAN BE SAID TO BE THAT REL ATING TO OMNIBUS DOMAIN AND THERE IS NO WAY TO ALLOCATE THE SUMS EXPENDED TO LAND ASSET ALONE. THE STATEMENTS A ND ITA NO. 5223/DEL/2016 (AY 2013-14) PAGE 9 OF 11 ASSERTIONS BEING MADE BY ASSESSEE ARE A CLEVER ACCOUNTING ENTRY TREATMENT TO SEEK ENHANCED DEDUCTI ON AND LESSEN TAXATION BURDEN THEREBY WHICH IS AMPLIFI ED BY THE FACT THAT IN ABSENCE OF DETAILS OF BILLS AND VOUCHERS, ON WHAT BASIS HAS THE ASSESSEE ATTRIBUTED ALL SO CALLED ALLEGED CAPITAL WORK IN PROGRESS TO LAND ASSET ALONE AND WHY NOT TO PLANT AND MACHINERY BLOCK. 14. HE THUS RELYING UPON THE ORDER PASSED BY LD. CIT ( A) SUBMITTED THAT THE EXPENSES INCURRED BY THE ASSESSE E UNDER THE HEAD WORK IN PROGRESS IS NOTHING BUT PRE-OPERAT IVE EXPENSES WHICH SHOULD NOT BE ALLOWED AS THE BUSINES S OF THE ASSESSEE WAS NEVER SET UP. 15. WE HAVE PERUSED THE SUBMISSIONS ADVANCED BY BOTH T HE SIDES IN THE LIGHT OF THE RECORDS PLACED BEFORE US. IT IS A UNDISPUTED FACT THAT ASSESSING OFFICER HAS NOT RECO RDED ANY FINDING THAT THE BOOKS OF ACCOUNTS MAINTAINED BY TH E ASSESSEE WERE INCORRECT RENDERING IT IMPOSSIBLE TO DETERMINE THE PROFITS AND DESPITE THAT HE WENT TO COMPLETE TH E ASSESSMENT. THE ASSESSMENT ORDER FURTHER DOES NOT I NDICATE THAT ASSESSING OFFICER HAS NOTICED ANY INCONSISTENC Y OR INFIRMITY IN THE AUDIT REPORT. 16. ON THE OTHER HAND, THE ASSESSING OFFICER HAS ACCEP TED THE AUDITED ACCOUNTS OF THE ASSESSEE IN ALL THE PRE CEDING YEARS WHEREIN THE EXPENSES APPEAR UNDER THE HEAD WO RK IN PROGRESS AMOUNTING TO RS.116.60 LACS. THE EXPLANATI ON GIVEN BY THE ASSESSEE THAT THEY HAD INCURRED SUCH EXPENSE S TOWARDS THE IMPROVEMENT OF THE LAND HAS NOT BEEN ITA NO. 5223/DEL/2016 (AY 2013-14) PAGE 10 OF 1 1 CONTROVERTED BY ASSESSING OFFICER. THERE IS NO INFI RMITY POINTED OUT IN THE PROFIT AND LOSS ACCOUNT FOR ANY OF THE PRECEDING ASSESSMENT YEARS OR THE YEARS UNDER CONSI DERATION. 17. IN OUR CONSIDERED VIEW, THE FACTS BEING ADMITTED B Y THE AUTHORITIES BELOW ITSELF WOULD AMOUNT TO EVIDENCE I N SUPPORT OF THE CLAIM OF ASSESSEE. FURTHER, ASSESSEE CANNOT BE EXPECTED TO MAINTAIN THE OF VOUCHER REGARDING EXPEN SES WHICH ARE ALMOST 20 YEARS OLD. AS NO MISTAKER HAVIN G BEEN FOUND BY ASSESSING OFFICER IN THE BOOKS OF ACCOUNTS FOR ALL THE PRECEDING ASSESSMENT YEARS AND THE ASSESSMENT YEAR UNDER CONSIDERATION, HE WAS NOT JUSTIFIED IN DISALLOWING THE CLAIM OF THE ASSESSEE. WE ARE ACCORDINGLY, INCLINED TO ALLOW THE GROUNDS RAISED BY THE ASSESSEE. IN THE RESULT APPEA L FILED BY THE ASSESSEE STANDS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 20 TH JANUARY, 2017. SD/- SD/- (J. S.REDDY) (BEENA A. PILLAI) ACCOUNTANT MEMBER JUDICIAL MEMBER DATE: 20.01.2017 @M!T COPY FORWARDED TO:- 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT (A)-, NEW DELHI.