ACIT, New Delhi V. M/s NBCC Ltd., New Delhi

ITA 5870/DEL/2010

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 8251 (ITAT-DELHI)
• Duration Of Justice: 5 year(s) 3 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-04-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Next Hearing Date: 04-04-2016
• Assessment Year: 2007-2008
• Appeal Filed On: 23-12-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P DAM KANUNJNA

Judgement Text

1 ITA NO. 5807/DEL/2010 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: E NEW DELHI BEFORE SHRI G. D. AGRAWAL, VICE P RESIDENT AND SMT SUCHITRA KAMBLE , JUDICIAL MEMBER I.T.A .NO.-5870/DEL/2010 (ASSESSM ENT YEAR-2007-08) ACIT CIRCLE 13(1), ROOM NO. 406, C. R. BUILDING, I. P. ESTATE NEW DELHI (APPELLANT) VS NBCC LTD. NBCC BHAWAN, LODI ROAD NEW DELHI AAACN3053B (RESPONDENT) APPELLANT BY SH. P. DAM KANUNJNA, SR. DR RESPONDENT BY SH.SOMIL AGRAWAL, ADV ORDER PER SUCHITRA KAMBLE, JM THIS APPEAL IS FILED BY THE REVENUE AGAINST THE ORD ER DATED 21/09/2010 PASSED BY CIT(A) XVI, NEW DELHI. 2. THE GROUNDS OF APPEAL ARE AS UNDER:- 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AS WELL AS IN LAW THE CIT(A) HAS ERRED IN DELETING THE DISALLO WANCE OF RS. 240.52 LACS ON THE ISSUE OF DISALLOWANCE MADE B Y THE A.O ON ACCOUNT OF EXPENDITURE TOWARDS PREPARATORY W ORK. DATE OF HEARING 05.04.2016 DATE OF PRONOUNCEMENT 08.04.2016 2 ITA NO. 5807/DEL/2010 2. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AS WELL AS IN LAW THE CIT(A) HAS ERRED IN DELETING THE DISALLO WANCE OF RS.240.52 LACS ON THE ISSUE OF WORK IN PROGRESS EXP ENSES. 3. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AS WELL AS IN LAW THE CIT(A) HAS ERRED IN DELETING THE DISALLO WANCE OF RS.49.31 LACS MADE BY THE A.O ON ACCOUNT OF PRIOR P ERIOD EXPENSES. 3. THE ASSESSEE COMPANY IS A GOVERNMENT OF INDIA UN DERTAKING UNDER MINISTRY OF URBAN DEVELOPMENT AND IS ENGAGED IN THE BUSINESS OF EXECUTION OF VARIOUS TYPES OF CIVIL/ELECTRICAL/INFRASTRUCTURAL/HOUSING AND ENVIRO NMENTAL PROJECTS ALL OVER INDIA AND ABROAD PERTAINING TO STATE/CENTR AL GOVERNMENTS/PUBLIC SECTOR UNDERTAKINGS. THE ASSESS EE COMPANY IS ENGAGED ON CONSISTENT BASIS IN EXECUTION OF VARI OUS PROJECTS. THE ASSESSEE INCURRED VARIOUS EXPENSES TERMED AS EXPEND ITURE TOWARDS PREPARATORY WORK IN ITS NORMAL COURSE OF BUSINESS. THE DETAILS OF THE EXPENSES INCURRED ARE AS UNDER:- S. NO. NATURE OF EXPENSES PERTAINING TO WHICH PROJE CT AMOUNT 1. CONSULTANCY & SURVEY WORK (PREPARATORY WORK SUCH AS SOIL TESTING, SURVEY & CONSULTANCY) PRADHAN MANTRI GRAM SADAK YOJNA IN THE STTE OF TRIPURA (AGARTALA) 348.14 LACS 2. CONSULTANCY & SURVEY WORK (PREPARATORY WORK SUCH AS SOIL TESTING, SURVEY & CONSULTANCY) ONGC MUMBAI 4.63 LACS 3. CONSULTANCY & SURVEY WORK (PREPARATORY WORK SUCH AS SOIL TESTING, SURVEY & CONSULTANCY) ONGC DELHI 7.27 LACS 4. CONSULTANCY & SURVEY WORK (PREPARATORY WORK SUCH AS SOIL TESTING, SURVEY & CONSULTANCY) SWM TEJPUR 0.75 LACS 3 ITA NO. 5807/DEL/2010 360.79 LACS 4. THE ASSESSEE COMPANY IS CARRYING OUT THE PROJECT S FOR PAST MANY YEARS PERTAINING TO PMGSY TRIPURA. THE PERUSAL OF THESE DETAILS WAS SUBMITTED BY THE ASSESSEE BEFORE THE AU THORITIES FOR THE FINANCIAL YEARS 2004-05 TO 2008-09. THE ASSESSEE CO MPANY BOOKED AGGREGATE INCOME UNDER THE PROJECT TO THE TUNE OF R S. 492.43 CRORES. THUS, THE ASSESSEE COMPANY INCURRED THE EXPENSES AN D BOOKED THE INCOME ON ONGOING BASIS IN DIFFERENT YEARS. THE SAM PLE COPIES OF WORK ORDERS AWARDED TO THE ASSESSEE COMPANY AND THE COPIES OF THE EVIDENCES SHOWING NATURE OF PAYMENTS MADE TO VARIOU S CONSULTANTS WERE PRODUCED BEFORE THE AUTHORITIES. THE ASSESSING OFFICER DISALLOWED TWO THIRD BEING RS. 240.52 LACS AND MADE ADDITION TO THE INCOME OF THE ASSESSEE TOWARDS THE COST OF PRELIMIN ARY EXPENSE I.E. EXPENDITURE ON PREPARATORY WORK. 5. THE ASSESSEE ALSO CLAIMED IN ITS PROFIT AND LOSS ACCOUNT, RS. 76.27 LACS ON ACCOUNT OF PRIOR PERIOD EXPENDITURE. THE SAME WAS DISALLOWED TO THE EXTENT OF RS. 49.31 LACS RELATED TO THE PAYMENTS AS PIECE RATE OF LABOUR AND MADE AND ADDITION BY THE A SSESSING OFFICER. 6. THE ASSESSEE FILED APPEAL BEFORE THE CIT(A). THE CIT(A) PARTLY ALLOWED THE APPEAL, THEREBY ALLOWING ABOVE MENTIONE D DISALLOWANCE MADE BY THE ASSESSING OFFICER IN FAVOUR OF THE ASSS ESSEE. THE CIT(A) HELD THAT SINCE THE PREPARATORY EXPENSES EIT HER DID NOT PERTAIN TO ANY PARTICULAR PROJECT OR WERE INCURRED PRIOR TO SECURING A 4 ITA NO. 5807/DEL/2010 PROJECT AND WERE INCURRED BY THE ASSESSEE DURING TH E YEAR, THE ACTION OF THE ASSESSING OFFICER WAS NOT JUSTIFIED. AS RELATES TO PRIOR PERIOD EXPENSES TOWARDS THE PAYMENT AS PIECE RATE O F LABOUR, THE CIT(A) RELIED UPON THE JUDGMENT OF THE ITAT, DELHI BENCHES IN CASE OF SUDARSHAN OVERSEAS LTD. VS. DCIT (ITA NO. 1404/D EL/2004 DATED 17.08.2007). 7. THE LD. DR RELIED UPON THE ASSESSMENT ORDER AND SUBMITTED THAT THE ASSESSING OFFICER HAS RIGHTLY DISALLOWED T HE PREPARATORY EXPENDITURE TO THE EXTENT OF TWO THIRD BEING RS. 24 0.52 LACS. AS RELATES TO PRIOR PERIOD EXPENSES, THE LD. DR SUBMIT S THAT THE EXPENDITURE CAN BE ALLOWED ONLY IN THE YEAR TO WHIC H SUCH EXPENSES RELATE IN MERCANTILE SYSTEM OF ACCOUNTING. THE ASS ESSING OFFICER HAS GIVEN A REASONING IN PARA 3.6 OF THE ASSESSMENT ORDER AND IN PARA 5.7 OF THE ASSESSMENT ORDER. THUS, THE LD. DR SUBMITTED THAT THE CIT(A) FAILED TO TAKE COGNIZANCE OF THE SAID FI NDING OF THE ASSESSING OFFICER AND THE ORDER OF THE CIT(A) BE SE T ASIDE. 8. THE LD. AR FURTHER POINTED OUT THAT THE ASSESSEE COMPANY IS BUILDING MORE THAN 100 ROADS AT MORE THAN 100 LOCAT IONS AND BLOCKS IN TRIPURAS VILLAGES AND THE WORK HAS BEEN GOING ON SIMULTANEOUSLY. THE EXPENDITURE OF RS. 348.14 LACS WAS INCURRED COMMONLY FOR ROADS AT MANY LOCATIONS. THUS UNDER TH ESE, CIRCUMSTANCES, THE SAID EXPENDITURE COULD NOT BE AT TRIBUTED TO THE SINGLE ROAD/PROJECT. SINCE THE ASSESSEE COMPANY IS IN THE BUSINESS OF EXECUTION OF THE PROJECT AND INCOME FROM THESE P ROJECTS IS THE MAIN SOURCE OF INCOME OF THE ASSESSEE COMPANY, THE EXPENSES 5 ITA NO. 5807/DEL/2010 INCURRED IN GENERAL ON THESE PROJECTS COMMONLY DEBI TED TO THE PROFIT AND LOSS ACCOUNT. 9. THE LD. AR SUBMITTED THAT THE EXPENSES DISALLOWE D BY ASSESSING OFFICER AGGREGATING TO RS.49.31 LACS ARE ON ACCOUNT OF PAYMENT TO SUBCONTRACTORS IN LIEU OF WORK PERFORMED BY THEM. THESE EXPENSES PERTAIN TO THE WORK DONE BY THE SUBC ONTRACTORS BEYOND THE ORIGINAL WORK ORDER ISSUED TO THEM (SUB- CONTRACTORS). THE EXPENDITURE WAS CRYSTALLIZED IN THE YEAR IN WHI CH THE BILL WAS SUBMITTED BY THE SUB-CONTRACTOR AND CLIENTS HAVE CE RTIFIED AND ACCEPTED THE EXTRA WORK/CLAIMS BY THE SUB-CONTRACTO R. THE ASSESSEE COMPANY RAISED BILL UPON CONCERNED CUSTOME R (I.E. PSU/MINISTRY/OTHER GOVERNMENT AGENCY) ONLY WHEN THE BILL OF EXPENSES FOR EXTRA WORK DONE BY THE SUB CONTRACTOR WAS PASSED BY THE ASSESSEE COMPANY. THUS, THE ASSESSEE COMPANY B OOKED INCOME AGAINST THESE EXPENSES ONLY IN THE YEAR IN WHICH TH ESE EXPENSES WERE CRYSTALLIZED AND THEREFORE IN THIS CASE, THE C RYSTALLIZATION OF EXPENSES AS WELL AS ACCRUAL OF INCOME TAKES PLACE I N THE SAME YEAR. IN THE IMPUGNED YEAR ALSO, THE ASSESSEE CREDITED TH E INCOME TO THE TUNE OF RS.76.53 LACS AGAINST THE AFORESAID EXPENSE S AS PER DETAILS GIVEN BEFORE THE AUTHORITIES . THUS, IN FACT AND AS PER LAW, IT IS NOT A CASE OF PRIOR PERIOD EXPENSES. IT MAY FURTHER BE N OTED THAT THE INCOME OF THE APPELLANT HAS BEEN ASSESSED AT POSITI VE FIGURE IN PRIOR YEARS AS WELL AS IN SUBSEQUENT YEARS AND THE TAXES HAVE BEEN PAID REGULARLY. UNDER THESE CIRCUMSTANCES, THERE WAS NO MOTIVE OR GAIN 6 ITA NO. 5807/DEL/2010 WITH THE APPELLANT COMPANY TO SHOW THESE EXPENSES I N A PARTICULAR YEAR. THE LD. AR ALSO RELIED ON THE JUDGMENT OF HO NBLE DELHI HIGH COURT IN THE CASE OF VISHNU INDUSTRIAL GASES 22 ITR /1998 (DELHI H.C) HOLDING THAT WHERE THE DEPARTMENT HAD NOT DIS PUTED THAT THE EXPENDITURE WAS DEDUCTIBLE IN PRINCIPLE BUT WAS ONL Y DISPUTING THE YEAR IN WHICH THE DEDUCTION COULD BE ALLOWED, HELD, CASTIGATING THE DEPARTMENT, THAT AS THE TAX RATES WERE THE SAME IN BOTH THE YEARS, DEPARTMENT SHOULD NOT FRITTER AWAY ITS ENERGIES IN RAISING QUESTIONS AS TO THE YEAR OF DEDUCTIBILITY/TAXABILITY. 10. THE LD. AR FURTHER SUBMITTED THAT IN THE EARLIE R ASSESSMENT YEARS, SIMILAR EXPENSES WERE DEBITED AND THESE WERE DISALLOWED BUT ALLOWED BY CIT(A) IN ASSESSMENT YEARS 1986-87, 1987 -88, 1988-89, 1989-90, 1990-91, 1991-92, 1992-93 AND 2002-03. 11. THE LD. AR FURTHER SUBMITTED THAT IN VIEW OF JU DGMENT OF HONBLE ITAT IN THE CASE OF M/S SUDARSHAN OVERSEAS LTD., IF ANY EXPENDITURE HAS TO BE DISALLOWED, THE CORRESPONDING INCOME ALSO CANNOT BE TAXED. THEREFORE, IF PRIOR PERIOD EXPENS ES OF RS. 49.31 LACS ARE DISALLOWED, THE INCOME CORRESPONDING TO TH ESE EXPENSES I.E RS. 76.53 LACS ALSO CANNOT BE TAXED SINCE IF THE EX PENSES ARE DISALLOWED BEING PRIOR PERIOD, THE CORRESPONDING IN COME ALSO ADMITTEDLY PERTAINING TO PRIOR PERIOD ALSO CANNOT B E TAXED. 12. THE LD. AR SUBMITTED THAT THE CIT(A) HAS RIGHTL Y TAKEN INTO ACCOUNT THE CONTENTIONS OF THE ASSESSEE BEFORE THE CIT(A), IN FACT THE CIT(A) IN PARA 2.2 HAVE GIVEN A DETAILED REASON ING EXPLAINING 7 ITA NO. 5807/DEL/2010 THEREIN. AS RELATED TO GROUND NO. 3, THE CIT (A) H AS RELIED ON THE SUDARSHAN OVERSEAS DECISION WHICH IS SQUARELY COVER ING THE ASSESSEES CASE. 13. WE HAVE PERUSED ALL THE RECORDS AND HEARD BOTH THE PARTIES. THE PREPARATORY EXPENSES ARE NECESSITY IN A CONSTRU CTION WORK AND CANNOT BE BIFURCATED FROM THE ACTUAL CONSTRUCTION W ORK. THUS, THE LD. DRS CONTENTION FAILS AND THE SAID RECEIPT HAS TO BE TREATED AS REVENUE RECEIPTS ONLY. THE RELIANCE OF THE ASSESSI NG OFFICER ON SECTION 35D OF THE ACT IS NOT RELEVANT IN THE PRESE NT CASE. SECTION 35D PROVIDES FOR AMORTIZATION OF CERTAIN PRELIMINAR Y EXPENSES INCURRED BY AN ASSESSEE BEFORE COMMENCEMENT OF HIS BUSINESS OR AFTER THE COMMENCEMENT OF HIS BUSINESS BUT IN CONNE CTION WITH THE EXTENSION OF THE UNDERTAKING OR SETTING UP A NEW UN IT. THE ASSESSEE HEREIN NEITHER COMMENCED ITS BUSINESS DURING THE AS SESSMENT YEAR IN QUESTION NOR DID IT INCUR THE EXPENSES IN QUESTI ON FOR SETTING UP ANY NEW UNIT OR FOR EXTENSION OF ITS UNDERTAKING. T HE EXPENSES INCURRED FOR OBTAINING FEASIBILITY REPORT, ON THE P OSSIBILITY OF SETTING UP PROJECTS, ETC. IS REVENUE IN NATURE. THIS VIEW H AS BEEN TAKEN BY THE VARIOUS HIGH COURTS WHICH WAS CONSIDERED BY THE CIT(A) IN PARA 2.2. THUS THE PREPARATORY EXPENDITURE ARE REVENUE I N NATURE. AS RELATES TO PRIOR PERIOD EXPENSES THE SAME IS COVERE D BY THE JUDGMENT OF HONBLE ITAT IN THE CASE OF M/S SUDARSH AN OVERSEAS LTD. WHEN ANY EXPENDITURE IS DISALLOWED, THE CORRES PONDING INCOME ALSO CANNOT BE TAXED. THEREFORE, IF PRIOR PERIOD E XPENSES OF RS. 49.31 LACS ARE DISALLOWED, THE INCOME CORRESPONDING TO THESE 8 ITA NO. 5807/DEL/2010 EXPENSES I.E. RS. 76.53 LACS ALSO CANNOT BE TAXED. THE JUDGMENT OF HONBLE DELHI HIGH COURT IN THE CASE OF VISHNU INDU STRIAL GASES 22 ITR/1998 (DELHI H.C) ALSO CONFIRMED THE SAID VIEW B Y HOLDING THAT WHERE THE DEPARTMENT HAD NOT DISPUTED THAT THE EXPE NDITURE WAS DEDUCTIBLE IN PRINCIPLE BUT WAS ONLY DISPUTING THE YEAR IN WHICH THE DEDUCTION COULD BE ALLOWED, HELD, CASTIGATING THE D EPARTMENT, THAT AS THE TAX RATES WERE THE SAME IN BOTH THE YEARS, D EPARTMENT SHOULD NOT FRITTER AWAY ITS ENERGIES IN RAISING QUE STIONS AS TO THE YEAR OF DEDUCTIBILITY/TAXABILITY. 7. IN RESULT, THE APPEAL OF THE REVENUE IS DISMISSE D. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 08 TH OF APRIL, 2016. SD/- SD/- (G. D. AGRAWAL) (SUC HITRA KAMBLE) VICE PRESIDENT JUDICIAL MEMBER DATED: 08/04/2016 R. NAHEED * COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT R EGISTRAR ITAT NEW DELHI 9 ITA NO. 5807/DEL/2010 DATE 1. DRAFT DICTATED ON 05/04/2016 PS 2. DRAFT PLACED BEFORE AUTHOR 06/04/2016 PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER .2016 JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS 8.04.2016 PS/PS 6. KEPT FOR PRONOUNCEMENT ON PS 7. FILE SENT TO THE BENCH CLERK 8 .04.2016 PS 8. DATE ON WHICH FILE GOES TO THE AR 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK. 10. DATE OF DISPATCH OF ORDER. 10 ITA NO. 5807/DEL/201 0