John Laing International Ltd. (India Branch Office), New Delhi V. DDIT, New Delhi

ITA 5925/DEL/2010

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 69159 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 7 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-08-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 29-07-2013
• Assessment Year: 2007-2008
• Appeal Filed On: 24-12-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P K SIDHU
• Assessee Lawyers: KHIVENDRA GUPTA; GAGANDEEP KAUR
• Keywords: Depreciation; Business expenditure; Commercial expediency; Unabsorbed depreciation
• Section: 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH D NEW DELHI BEFORE SHRI R.P. TOLANI AND SHRI SHAMIM YAHYA ITA NO. 5925/DEL/2010 ASSTT. YR: 2007-08 JOHN LAING INTERNATIONAL LTD. VS. DCIT, CIR. 3(1) , (INDIA BRANCH OFFICE), INTERNATIONAL TAXATION, L-2A, HAUZ KHAS ENCLAVE, NEW DELHI. NEW DELHI-110016. PAN/ GIR NO. AABCJ 1944N ( APPELLANT ) ( RESPONDENT ) APPELLANT BY : SHRI KHIVENDRA GUPTA & MS. GAGANDEEP KAUR RESPONDENT BY : MS. P.K. SIDHU CIT (DR) O R D E R PER R.P. TOLANI, J.M : THIS IS ASSESSEES APPEAL AGAINST ASSESSMENT ORDER DATED 8-10-2010FOR A.Y. 2007-08 PASSED BY THE ASSESSING OFFICER U/S 14 3(3) AFTER SEEKING DIRECTIONS FROM DRP U/S 144C(13) OF THE INCOME-TAX ACT, 1961. FOLLOWING GROUNDS ARE RAISED: 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. AO ERRED IN DISALLOWING THE FOLLOWING EXPENSES: 1.1. PERSONAL EXPENSES AMOUNTING TO RS. 1,514,717 D EBITED TO THE PROFIT AND LOSS ACCOUNT. 1.2. ADMINISTRATION EXPENSES AMOUNTING TO RS. 456,4 63 DEBITED TO THE PROFIT AND LOSS ACCOUNT. ITA 5925/DEL/2010 JOHN LAING INTERNATIONAL LTD. 2 2. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. AO ERRED IN DISALLOWING THE CLAIM OF S ET OFF OF UNABSORBED DEPRECIATION AND BUSINESS LOSS AMOUNT ING TO RS. 36,60,177 PERTAINING TO AY 2006-07 WHILE COMPUTING THE ASSESSED INCOME. 3. WITHOUT PREJUDICE TO THE ABOVE, THAT LD. AO HAS, THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, ERRED IN NOT GRANTING DEDUCTION UNDER SECTION 44C OF THE ACT TO THE APPELLANT IN RESPECT OF THE HEAD OFFICE EXPENDI TURE. 2. GROUND NO. 3 IS NOT PRESSED, HENCE DISMISSED. 3. BRIEF FACTS ARE THE ASSESSEE IS A U.K. BASED CON SULTANCY COMPANY BELONGING TO AN INTERNATIONAL CONSTRUCTION GROUP. D URING THE ASSESSMENT YEAR UNDER CONSIDERATION THE ASSESSEE WAS ENGAGED IN PRO VIDING TECHNICAL CONSULTANCY SERVICE AS UNDER: (I) ANTILIA RESIDENCE PROJECTS OF RELIANCE ENGINEERING PVT. LTD.; (II) SPORTS COMPLEX OF SIMPLEX INFRASTRUCTURE LTD. 3.1. DURING THE COURSE OF ASSESSMENT PROCEEDINGS TH E ASSESSEE FILED A COPY OF AGREEMENT WITH THE SAID RELIANCE ENGINEERING ASS OCIATES PVT. LTD. (REAPL) WHICH, ACCORDING TO ASSESSING OFFICER, RE VEALED THAT THE ASSESSEE WAS REQUIRED TO PROVIDE CONSTRUCTION MANAGEMENT SER VICES IN RESPECT OF A RESIDENCE BUILDING ANTILIA IN MUMBAI AND AS PER THE TERMS THE ASSESSEE WAS REQUIRED TO PROVIDE EXPATRIATE CONSTRUCTION STA FF AT MUMBAI IN HELPING THE PROJECT AND FOR THIS PURPOSE CERTAIN CLAUSES WE RE INSERTED ABOUT THE REMUNERATION. ACCORDING TO ASSESSING OFFICER, THE A GREEMENT PROVIDED VARIOUS FACILITIES TO BE PROVIDED TO ASSESSEE WITHO UT BEARING ANY COSTS. ASSESSING OFFICER FOUND THAT ASSESSEE HAD DEBITED A SUM OF RS. 15,14,717/- ITA 5925/DEL/2010 JOHN LAING INTERNATIONAL LTD. 3 ON ACCOUNT OF SALARY TO LOCAL EMPLOYEES WORKING ON RELIANCE PROJECT. ASSESSING OFFICER HELD THAT IN VIEW OF THIS AGREEME NT, ASSESSEE WAS NOT SUPPOSED TO INCUR ANY EXPENDITURE AND IT OUGHT TO HAVE BEEN PAID/RECOVERED FROM RELIANCE. CONSEQUENTLY, THE SAME WAS DISALLOWE D ON THE PLEA THAT ASSESSEE IS NOT ELIGIBLE FOR THE DEDUCTION THEREOF. 3.2. ON THE SAME ANALOGY, ADMINISTRATIVE EXPENSES A MOUNTING TO RS. 4,56,463/- WERE DISALLOWED ON THE GROUND THAT IT WA S THE DUTY OF THE RELIANCE TO PROVIDE OFFICE ACCOMMODATION; TRAVEL CHARGES FR OM THE SITE AND JLI LOCAL OFFICE ON PROJECT BUSINESS; OFFICE TELEPHONE/ FAX/ E-MAIL CHARGES; OFFICE FURNITURE AND EQUIPMENT; PHOTOCOPY CONSUMABLES ETC. IT WAS HELD THAT THERE WAS NO JUSTIFICATION FOR THE ASSESSEE TO CLAIM SUC H EXPENSES AS THERE WAS NO BUSINESS COMPULSION ON THE ASSESSEE TO INCUR THESE EXPENSES SO AS TO MAKE THEM ELIGIBLE FOR DEDUCTION U/S 37(1). 3.3. AGGRIEVED, ASSESSEE APPROACHED THE DRP AGAINST THIS DRAFT ASSESSMENT ORDER AND FILED DETAILED OBJECTIONS IN THIS BEHALF , GIVING EXPLANATION FOR ELIGIBILITY OF EXPENDITURE U/S 37(1). HOWEVER, ASSE SSING OFFICERS DRAFT ORDER WAS CONFIRMED BY THE DRP. 3.4. AGGRIEVED, THE ASSESSEE IS BEFORE US. 4. LD. COUNSEL FOR THE ASSESSEE CONTENDS THAT ASSES SING OFFICER HAS FAILED TO APPRECIATE THE ACTUAL NATURE OF BUSINESS OPERATI ON AND EXPENDITURE INCURRED BY THE ASSESSEE IN INDIA. THE MAJOR RECEI PTS IN THIS YEAR ARE NOT FROM RESIDENCE ANTILIA PROJECT BUT FROM THE OTHER S PORTS COMPLEX OF SIMPLEX INFRASTRUCTURE LTD. THIS AGREEMENT DOES NOT PROVIDE ANY INCURRING ITA 5925/DEL/2010 JOHN LAING INTERNATIONAL LTD. 4 OF EXPENDITURE BY SIMPLEX. BESIDES THAT IMMUNITY AB OUT EXPENDITURE FROM RELIANCE WAS IN RESPECT OF MUMBAI OPERATIONS ONLY. WHEREAS THE ASSESSEE IS OPERATING FROM DELHI AND THE EXPENDITURE INCURRED I S RELATED TO DELHI OFFICE MAINTENANCE ETC. AND THE EXPENDITURE IS NOT COVERED BY THE SAID RELIANCE AGREEMENT. 4.1. SIMILARLY, THE ADMINISTRATIVE EXPENDITURE ALSO , DETAIL WHEREOF WERE FURNISHED WITH ASSESSING OFFICER, WERE INCURRED DUR ING THE COURSE OF NORMAL BUSINESS ACTIVITY OF THE ASSESSEE AND THEY HAVE NOT BEEN CHARGED FROM THE CLIENT. 4.2. THE ASSESSEE IS OPERATING FULL FLEDGED BRANCH IN INDIA AND FOR ITS OWN OPERATIONS HAS TO INCUR INDEPENDENT EXPENDITURE FO R SUCH OPERATION UNRELATED TO RELIANCE PROJECT. THE CLAIM OF THE ASS ESSEE THAT THESE EXPENDITURES ARE IN THE COURSE OF BUSINESS CANNOT B E RECOUPED FROM THE RELIANCE OR SIMPLEX PROJECTS, IS EVIDENT FROM THE F ACT THAT NO ASSESSEE WILL FOREGO ANY EXPENDITURE WHICH CAN BE RECOVERED FROM THE CLIENTS. THEREFORE, THE EXPENDITURE HAS BEEN DISALLOWED ONLY ON CONJECT URES AND PROBABILITIES THAT ASSESSEE SHOULD NOT HAVE INCURRED THIS EXPENDI TURE. 4.3. IT IS TRITE LAW THAT ASSESSING OFFICER CANNOT STEP INTO THE WISDOM OF A BUSINESSMAN WHILE DOING THE BUSINESS AND CANNOT DIC TATE WHAT EXPENDITURE SHOULD BE INCURRED AND WHETHER PARTICULAR BUSINESS EXPENDITURE SHOULD BE INCURRED OR NOT. SECTION 37(1) ALLOWS THE ELIGIBILI TY OF EXPENDITURE AS LONG AS IT IS IN THE COURSE OF BUSINESS. THERE IS NO JUSTIF ICATION WHETHER THE ASSESSEE SHOULD NOT HAVE INCURRED OR OUGHT NOT TO HAVE INCUR RED AS PROPOSED BY ASSESSING OFFICER. THUS, THE GENUINENESS OF THE EXP ENDITURE IS NOT IN ITA 5925/DEL/2010 JOHN LAING INTERNATIONAL LTD. 5 QUESTION. ITS GENUINENESS, INCORPORATION IN BOOKS O F ACCOUNT AND ELIGIBILITY OF BUSINESS IS NOT IN QUESTION ON ANY COGENT REASON ING. SUSPICION AND CONJECTURES HOW SO EVER STRONG CANNOT DENY THE EXPE NDITURE. LD. COUNSEL CONTENDS THAT IF THE ASSESSEE HAS SOMETHING TO RECO VER FROM THE CLIENTS, IT MAY BE TAXED WHEN IT IS RECEIVED. THEREFORE, IT CAN NOT BE ASSUMED AT THIS STAGE THAT THE EXPENDITURE INCURRED BY THE ASSESSEE COULD HAVE BEEN RECOVERED FROM THE CLIENTS AND, THEREFORE, SHOULD NOT HAVE BEEN INCURRED BY THE ASSESSEE. THE DISALLOWANCES UNDER THE INCOME-TA X ACT CANNOT BE MADE ON THE BASIS OF SHOULD HAVE, COULD HAVE OR OUG HT TO HAVE. THERE ARE SPECIFIC PROVISIONS GOVERNING THE ELIGIBILITY OF TH E EXPENDITURE. RELIANCE IS PLACED ON (I) HONBLE SUPREME COURT JUDGMENT IN THE CASE OF SA BU ILDERS LTD. VS. CIT 288 ITR 1 (SC), WHICH HAS LAID DOWN THE PRO POSITION OF COMMERCIAL EXPEDIENCY AND FOR THE PURPOSE OF BUSINE SS. (II) CIT VS. DALMIA CEMENT (BHARAT) LD. 254 ITR 377 FOR THE PROPOSITION THAT REVENUE CANNOT JUSTIFIABLY CLAIM T O PUT ITSELF IN THE ARM-CHAIR OF THE BUSINESSMAN OR IN THE POSITION OF THE BOARD OF DIRECTORS AND ASSUME THE ROLE TO DECIDE HOW MUCH IS REASONABLE EXPENDITURE HAVING REGARD TO THE CIRCUMSTANCES OF T HE CASE. 4.4. FURTHER RELIANCE IS PLACED ON THE RATIO OF DEC ISIONS IN THE CASES OF ADDL. CIT VS. KUBER SINGH BHAGWANDAS 118 ITR 379 (M P); CIT VS. ITA 5925/DEL/2010 JOHN LAING INTERNATIONAL LTD. 6 WALCHAND & CO. (P) LTD. 65 ITR 381 (SC); AND SASOON J. DAVID & CO. (P) LTD. VS. CIT (1979) 118 ITR 261 (SC). 5. LD. CIT(DR) SUPPORTED THE ORDER OF ASSESSING OFF ICER AND CONTENDS THAT THE BUSINESS OF THE ASSESSEE WAS REGULATED BY THE AGREEMENT EXECUTED BY IT AND THE DISALLOWANCES HAVE BEEN MADE BY JUSTIFIA BLE INTERPRETATION OF COVENANTS OF THE AGREEMENT. THEREFORE, THE DISALLOW ANCES HAVE BEEN RIGHTLY MADE. 6. WE HAVE HEARD RIVAL SUBMISSIONS AND GONE THROUGH THE ENTIRE MATERIAL PLACED ON RECORD. AS THE FACTS EMERGE, THERE IS NO AGREEMENT ABOUT INDEMNITY OF EXPENSES AS FAR AS SIMPLEX SPORT COMPL EX AT RANCHI IS CONCERNED, WHICH CONSTITUTES THE MAJOR RECEIPT OF C ONSULTANCY FEE. APROPOS RELIANCE ANTILIA PROJECT, THE AGREEMENT IS CLAIMED TO BE ABOUT IMMUNITY FROM EXPENDITURE PERTAINING TO MUMBAI OPERATIONS B Y ASSESSING OFFICER. WHEREAS THE EXPENDITURE IN QUESTION HAS BEEN INCURR ED FOR OPERATING DELHI BRANCH OFFICE. THE DELHI BRANCH OFFICE CANNOT BE EQ UATED WITH THE PROJECT OFFICE. IN OUR VIEW THE ASSESSEE, AS A BUSINESSMAN, HAS THE LIBERTY TO CARRY ON ITS BUSINESS IN THE MANNER IT THINKS FEASIBLE. THE EXPENDITURE HAVING BEEN INCURRED FOR BUSINESS PURPOSES CANNOT BE DISALLOWED ON IPSI DIXIT, BEYOND WHICH THE REVENUE HAS NOT BEEN ABLE TO MAKE OUT ANY FURTHER CASE. RESPECTFULLY FOLLOWING THE JUDGMENTS OF HONBLE SUP REME COURT IN THE CASES OF S.A. BUILDERS LTD. (SUPRA); AND WALCHAND & CO. (P) LTD. (SUPRA); AND THAT OF HONBLE DELHI HIGH COURT JUDGMENT IN TH E CASE OF DALMIA CEMENT (BHARAT) LTD. (SUPRA), WE HOLD THAT THE EXPE NDITURE INCURRED BY THE ASSESSEE BEING IN THE COURSE OF BUSINESS HAS TO BE ALLOWED. BESIDES, ASSESSEE UNDERTAKES THAT IF ANY RECOVERY OF EXPENDITURE IS M ADE FROM RELIANCE OR ITA 5925/DEL/2010 JOHN LAING INTERNATIONAL LTD. 7 SIMPLEX, THE SAME WOULD BE OFFERED TO TAX, WHENEVER IT IS RECEIVED. IN VIEW THEREOF, WE DELETE THE DISALLOWANCE. 7. IN THE RESULT, ASSESSEES APPEAL IS ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON 02-08-2013. SD/- SD/- ( SHAMIM YAHYA ) ( R.P. TOLANI ) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 2 ND AUGUST 2013. MP COPY TO : 1. ASSESSEE 2. AO 3. CIT 4. CIT(A) 5. DR