ASST CIT CEN CIR 29, MUMBAI V. SAMUDRA DEVELOPERS P.LTD, MUMBAI

ITA 5974/MUM/2013

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 0852 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 6 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-04-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Assessment Year: 2010-2011
• Appeal Filed On: 09-10-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VISHWAS MUNDHEDR
• Assessee Lawyers: VIRAG H SHAHAR
• Keywords: Capital asset; Depreciation; Business expenditure; Revenue expenditure

Judgement Text

, INCOME-TAX APPELLATE TRIBUNAL -EBENCH MUMBAI , , , BEFORE S/SHRI RAJENDRA,ACCOUNTANT MEMBER AND AMARJIT SINGH,JUDICIAL MEMBER ./I.T.A./5974/MUM/2013, /ASSESSMENT YEAR: 2010-11 ACIT CC-29 411,AAYKAR BHAVAN, M K ROAD,MUMBAI-20. VS. M/S.SAMUDRA DEVELOPERS PVT. LTD. RAHEJA CENTER POINT,4 TH FLOOR,294 CST RD. VIYA NAGARI MARG,SANTACRUZ, MUMBAI-400 098. PAN:AAACS 7992M ( /APPELLANT ) ( / RESPONDENT ) REVENUE BY: SHRI. VISHWAS MUNDHE,DR. ASSESSEE BY: SHRI VIRAG H SHAH-AR. / DATE OF HEARING: 24.03.2017 / DATE OF PRONOUNCEMENT: 26.04.2017 ,1961 254(1) ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) PER RAJENDRA, AM - CHALLENGING THE ORDER DATED 28/11/2014,OF THE CIT(A )-44,MUMBAI THE ASSESSING OFFICER (AO) HAS FILED THE PRESENT APPEAL.ASSESSEE-COMPANY,ENGAG ED IN THE BUSINESS OF REAL ESTATE,FILED ITS RETURN OF INCOME ON 15/10/2010,DECLARING INCOME OF RS. 1.33 CRORES.THE AO COMPLETED THE ASSESSMENT U/S.143(3)OF THE ACT,ON 22/02/2013,DETER MINING ITS INCOME AT RS. 5.34 CRORES. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE H AD UNDERTAKEN CONSTRUCTION OF A RESIDENTIAL PROJECT AT BANDRA(EAST)MUMBAI.WHILE COMPLETING THE ASSESSMENT THE AO MADE ADDITIONS/ DISALLOWANCES UNDER THE HEADS SALES SUPPORT SERVICE S (RS.2.03 CRORES),SPONSORSHIP FEES(RS. 16. 21LAKHS),MANAGEMENT FEE(RS.6.08 LAKHS),TRAVELLING E XPENSES RS.1.14 CRORES)ALLOCATION OF MANAGEMENT EXPENSES(RS. 19.45 LAKHS),EXCESS AMOUNT RECEIVED (RS.34.40 LAKHS) AND AMOUNT PAID TO HARIANI & CO.(RS.7.77 LAKHS). ALL THE GROUN DS OF APPEAL, RAISED BY THE AO, PERTAIN TO ADDITIONS/DISALLOWANCES MENTIONED ABOVE. 2. FIRST GROUND OF APPEAL IS ABOUT DELETING THE DISALL OWANCE ON ACCOUNT OF SALE SUPPORT SERVICE AND ALLOCATION OF MANAGEMENT FEES.DURING THE ASSESS MENT PROCEEDINGS,THE AO OBSERVED THAT THE ASSESSEE WAS FOLLOWING PERCENT IS COMPLETION ME THOD OF ACCOUNTING,THAT IT HAD COMPLETED ONLY 26.32% OF THE PROJECT, THAT EXPENDITURE ONLY T O THAT EXTENT WAS REQUIRED TO BE ALLOWED, THAT THE REMAINING EXPENSES WERE TO BE DISALLOWED AND WE RE TO BE CAPITALISED AS PART OF THE WORK IN PROGRESS AS PER ACCOUNTING STANDARD (AS-7),THAT SAM E WERE TO BE CLAIMED IN THE SUBSEQUENT 5974/M/13(10-11) SAMUDRA DEVELOPERS 2 YEARS, THAT THE MANAGEMENT FEES WAS A CAPITAL EXPEN DITURE, THAT SAME WAS TRUE INTANGIBLE ASSET, THAT THE ASSESSEE WAS ENTITLED TO CLAIM DEPRECIATIO N AT THE RATE OF 25%. ACCORDINGLY, OUT OF THE MANAGEMENT FEES OF RS.8.11 LAKHS, HE MADE A DISALLO WANCE OF RS.6,08,533/-. 2.1. 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 EXPEN DITURE OF RS. 2.75 CRORES HAD BEEN INCURRED IN RESPECT OF SALARIES OF 23 EMPLOYEES, THAT THOSE PERSONS WERE LOOKING AFTER THE CONSTRUCTION WORK IS ALSO SALES AND MARKETING ON DAY-TO-DAY BASI S, THAT THE EXPENDITURE INCURRED BY IT WAS PURELY OF REVENUE IN NATURE, THAT IDENTICAL EXPENDI TURE HAD BEEN INCURRED IN SUBSEQUENT AY.S NAMELY 2011-12 AND 2012-13,TO THE TUNE OF RS. 2.53 CRORES AND RS. 7.94 CRORES RESPECTIVELY,THAT IT WAS NOT ONE-TIME EXPENDITURES INCURRED IN THE YE AR THAT WOULD PROVIDE ASSESSEE ANY BENEFIT OF ENDURING NATURE, THAT IT WAS DAY-TO-DAY EXPENDITURE INCURRED ON PROJECT STAFF AND SALES TEAM WHICH WAS NECESSARY FOR EXHIBITION OF A CONSTRUCTIO N PROJECT, THAT THERE WAS NO JUSTIFICATION FOR RESTRICTING THE EXPENDITURE TO 26.32% ONLY. AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE AN D THE ASSESSMENT ORDER, THE FAA HELD THAT THERE WAS NO DOUBT ABOUT THE GENUINENESS OF THE INC URRING OF EXPENDITURE, THAT EXPENDITURE HAD BEEN INCURRED THROUGH THE FLAGSHIP COMPANY WHICH AC TED AS AN UMBRELLA ORGANISATION, THAT EXPENDITURE WAS INCURRED FOR VARIOUS PERSONNEL, THA T THE EXPENDITURE WAS NECESSARY FOR EDUCATION OF THE CONSTRUCTION PROJECT, THAT IT HAD DIRECT COR RELATION TO THE BUSINESS OF THE ASSESSEE, THAT LOGI C GIVEN BY THE AO ABOUT ALLOWING ONLY 26.32% OF THE E XPENDITURE WAS UNJUSTIFIED AND FLAWED, THAT EXPENDITURE WAS NOT INCURRED DURING THE YEAR ONLY, IT WAS A REGULAR BUSINESS EXPENDITURE AND WAS NOT OF CAPITAL IN NATURE, THAT NO CONSTRUCTION BUSI NESS WOULD RUN WITHOUT INCURRING SUCH KIND OF EXPENDITURE,THAT THE STAND TAKEN BY THE AO THAT ASS ESSEE SHOULD CARRY FORWARD THE EXPENDITURE AS PART OF WORK IN PROGRESS WAS ALSO NOT JUSTIFY, THAT THE EXPENDITURE WAS HAVING DIRECT COALITION WITH THE SALES OF THE CURRENT YEAR FROM WHICH IT HA D SHOWN SIGNIFICANT PROFITS. FINALLY HE DELETED THE DISALLOWANCE MADE BY THE AO, AMOUNTING TO RS. 2 ,03, 26, 390/-. 2.2. DURING THE COURSE OF HEARING BEFORE US, THE DEPARTM ENTAL REPRESENTATIVE (DR) SUPPORTED THE ORDER OF THE AO AND STATED THAT ASSESSEE HAD COMPLE TED ONLY 26.32% OF THE PROJECT, THAT THE AO HAD RIGHTLY ALLOWED PROPORTIONATE EXPENDITURE, THAT THERE WAS NO JUSTIFICATION IN DELETING THE ADDITION MADE BY THE AO,THAT HE HAD RIGHTLY INCLUDE D THE BALANCE EXPENDITURE A PART OF WORK IN 5974/M/13(10-11) SAMUDRA DEVELOPERS 3 PROGRESS.THE AUTHORISED REPRESENTATIVE(AR)RELIED UP ON THE ORDER OF THE FAA AND STATED THAT EXPENDITURE INCURRED BY THE ASSESSEE WAS OF REVENUE NATURE.HE RELIED UPON THE CASES OF ASHISH BUILDERS PRIVATE LTD.(ITA/310/MUM/2012 AND ITA/1566 /MUM/2011 AY.S 2008-09 AND 2007-08 AND OTHER APPEALS, DATED 23/09/2016), SUNNY VISTA R EALTORS PRIVATE LTD. (ITA/ 4580/MUM/2013- AY.2009-10,DATED 11/01/2017)AND HIRANANDANI PALACE GARDENS PRIVATE LTD. (ITA/4579/ MUM/ 2013 AY. 2009-10,DATE 30/12/2015). 2.3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US. WE FIND THAT THE AO HAD HELD THAT ASSESSEE COULD CLAIM 26.3% OF THE EXP ENDITURE INCURRED BY IT UNDER THE HEADS SALES SUPPORT SERVICES AND MANAGEMENT FEE, THAT IT HAD CO MPLETED ROUGHLY 26% OF THE PROJECT, THAT THE BALANCE EXPENDITURE WAS TO BE CAPITALISED UNDER THE HEAD WORK IN PROGRESS, THAT HE HAD MADE A REFERENCE TO AS -7 FOR MAKING THE DISALLOWANCE. I T IS TRUE THAT AS-7 STIPULATES PROPORTIONATE ALLOWANCE OF EXPENDITURE. BUT, CERTAIN EXPENDITURES ARE NOT COVERED BY THE PROVISIONS OF THE SAID ACCOUNTING STANDARD. EXPENSES RELATED WITH THE DAY- TO-DAY BUSINESS OF THE ASSESSEE CANNOT BE CAPITALISED.DEPENDING UPON THE NATURE OF THE JOB UN DERTAKEN BY THE ASSESSEE CERTAIN EXPENSES HAVE TO BE INCURRED ON CAPITAL SIDE,WHEREAS SOME EX PENDITURE HAS TO BE INCURRED FOR RUNNING THE BUSINESS.WHAT THE AS-7 HAS ENVISAGED IS THAT EXPEND ITURE OF FIRST CATEGORY HAVE TO BE CAPITALISED- OTHER EXPENSES HAVE TO BE ALLOWED LIKE ANY OTHER RE VENUE EXPENDITURE.IT WOULD BE USEFUL TO REFER TO THE AS-7,ISSUED BY THE ICAI.WE ARE REPRODUCING T HE RELEVANT PORTIONS OF THE AS AND SAME READ AS UNDER: SCOPE 1. THIS STATEMENT SHOULD BE APPLIED IN ACCOU NTING FOR CONSTRUCTION CONTRACTS IN THE FINANCIAL STATEMENTS OF CONTRACTORS. DEFINITIONS 2. THE FOLLOWING TERMS ARE USED IN THIS STATEMENT WITH THE MEANINGS SPECIFIED: A CONSTRUCTION CONTRACT IS A CONTRACT SPECIFICALLY NEGOTIATED FOR THE CONSTRUCTION OF AN ASSET OR A COMBINATION OF ASSETS THAT ARE CLOSELY INTERRELATED OR INTERDEPENDENT IN TERMS OF THEIR DESIGN, TECHNOLOGY AND FUNCTION OR THEIR ULTIMATE PURPOSE O R USE. A FIXED PRICE CONTRACT IS A CONSTRUCTION CONTRACT I N WHICH THE CONTRACTOR AGREES TO A FIXED CONTRACT PRICE, OR A FIXED RATE PER UNIT OF OUTPUT, WHICH IN SOME CASES IS SUBJECT TO COST ESCALATION CLAUSES. A COST PLUS CONTRACT IS A CONSTRUCTION CONTRACT IN WHICH THE CONTRACTOR IS REIMBURSED FOR ALLOWABLE OR OTHERWISE DE N COSTS, PLUS PERCENTAGE OF THESE COSTS OR A FIXED FEE. A PERUSAL OF THE ABOVE REVEALS THAT THAT AS-7 DEALS WITH CONTRACTOR WHEREAS THE ASSESSEE BEFORE US IS A BUILDER /DEVELOPER.THEREFORE, IT CAN BE SAI D AS-7 IS NOT STRICTLY APPLICABLE TO THE FACTS OF THE CASE.LEAVING THE ISSUE OF APPLICABILITY OF AS-7 ASIDE,WE WOULD NOW LIKE TO REFER TO THE CLAUSES RELEVANT FOR DECIDING THE ISSUE AND SAME RE AD AS FOLLOW: 5974/M/13(10-11) SAMUDRA DEVELOPERS 4 CONTRACT COSTS 15. CONTRACT COSTS SHOULD COMPRISE: (A) COSTS THAT RELATE DIRECTLY TO THE SPECIFIC CONTRACT; (B) COSTS THAT ARE ATTRIBUTABLE TO CONTRA CT ACTIVITY IN GENERAL AND CAN BE ALLOCATED TO THE CONTRACT; AND (C) SUCH OTHER COSTS AS ARE SPECIFICA LLY CHARGEABLE TO THE CUSTOMER UNDER THE TERMS OF THE CONTRACT. 16. COSTS THAT RELATE DIRECTLY TO A SPECIFIC CONTRA CT INCLUDE: (A) SITE LABOUR COSTS, INCLUDING SITE SUPERVISION; (B) COSTS OF MATERIALS USED IN CONSTRU CTION; (C) DEPRECIATION OF PLANT AND EQUIPMENT USED ON THE CONTRACT; (D) COSTS OF MOVING PLANT, EQ UIPMENT AND MATERIALS TO AND FROM THE CONTRACT SITE; ( E) COSTS OF HIRING PLANT AND EQUIPMENT; (F) COSTS OF DESIGN AND TECHNICAL ASSISTANCE THAT IS DIRECTLY RELATED TO THE CONTRACT; (G) THE ESTIMATED COSTS OF RECTIFICATION AND GUARANTEE WORK, INCLUDING EXPECTED WARRANTY COSTS; AND (H) CLAIMS F ROM THIRD PARTIES. THESE COSTS MAY BE REDUCED BY ANY INCIDENTAL INCOME THAT IS NOT INCLUDED IN CO NTRACT REVENUE, FOR EXAMPLE INCOME FROM THE SALE OF SURPLUS MATERIALS AND THE DISPOSAL OF PLANT AND EQUIPMENT AT THE END OF THE CONTRACT. 17.COSTS THAT MAY BE ATTRIBUTABLE TO CONTRACT ACTIV ITY IN GENERAL AND CAN 10 BE ALLOCATED TO SPECIFIC CONTRACTS INCLUDE: (A) INSURANCE; (B) COST S OF DESIGN AND TECHNICAL ASSISTANCE THAT IS NOT DIRECTLY RELATED TO A SPECIFIC CONTRACT; AND (C) CO NSTRUCTION OVERHEADS. SUCH COSTS ARE ALLOCATED USING METHODS THAT ARE SYSTEMATIC AND RATIONAL AND ARE APPLIED CONSISTENTLY TO ALL COSTS HAVING SIMILAR CHARACTERISTICS. THE ALLOCATION IS BASED ON THE NORMAL LEVEL OF CONSTRUCTION ACTIVITY. CONSTRUCTION OVERHEADS INCLUDE COSTS SUCH AS THE PR EPARATION AND PROCESSING OF CONSTRUCTION PERSONNEL PAYROLL. COSTS THAT MAY BE ATTRIBUTABLE T O CONTRACT ACTIVITY IN GENERAL AND CAN BE ALLOCATED TO SPECIFIC CONTRACTS ALSO INCLUDE BORROW ING COSTS AS PER ACCOUNTING STANDARD (AS) 16, BORROWING COSTS. 18. COSTS THAT ARE SPECIFICALLY CHARGEABLE TO THE C USTOMER UNDER THE TERMS OF THE CONTRACT MAY INCLUDE SOME GENERAL ADMINISTRATION COSTS AND DEVEL OPMENT COSTS FOR WHICH REIMBURSEMENT IS SPECIFIED IN THE TERMS OF THE CONTRACT. 19. COSTS THAT CANNOT BE ATTRIBUTED TO CONTRACT ACT IVITY OR CANNOT BE ALLOCATED TO A CONTRACT ARE EXCLUDED FROM THE COSTS OF A CONSTRUCTION CONTRACT. SUCH COSTS INCLUDE: (A) GENERAL ADMINISTRATION COSTS FOR WHICH REIMBURSEMENT IS NOT SPECIFIED IN T HE CONTRACT; (B) SELLING COSTS; (C) RESEARCH AND DEVELOPMENT COSTS FOR WHICH REIMBURSEMENT IS NOT SP ECIFIED IN THE CONTRACT; AND (D) DEPRECIATION OF IDLE PLANT AND EQUIPMENT THAT IS NOT USED ON A P ARTICULAR CONTRACT. 20. CONTRACT COSTS INCLUDE THE COSTS ATTRIBUTABLE T O A CONTRACT FOR THE PERIOD FROM THE DATE OF SECURING THE CONTRACT TO THE [MAL COMPLETION OF THE CONTRACT. HOWEVER, COSTS THAT RELATE DIRECTLY TO A CONTRACT AND WHICH ARE INCURRED IN SECURING THE C ONTRACT ARE ALSO INCLUDED AS PART OF THE CONTRACT COSTS IF THEY CAN BE SEPARATELY IDENTIFIED AND MEASURED RELIABLY AND IT IS PROBABLE THAT THE CONTRACT WILL BE OBTAINED. WHEN COSTS INCURRED IN SECURING A CONTRACT ARE RECOGNISED AS AN EXPENSE IN THE PERIOD IN WHICH THEY ARE INCURRED, T HEY ARE NOT INCLUDED IN CONTRACT COSTS WHEN THE CONTRACT IS OBTAINED IN A SUBSEQUENT PERIOD. FROM THE ABOVE DISCUSSION ONE THING IS CLEAR THAT T HAT ENTIRE COST OF A PROJECT IS NOT REQUIRED TO BE ADDED WHILE DETERMINING THE TAX LIABILITY OF AN ASS ESSEE. AS-7STIPULATES THAT ONLY THOSE COSTS SHOULD BE CONSIDERED THAT ARE DIRECTLY ATTRIBUTABLE TO A PROJECT.OTHER COSTS LIKE GENERAL ADMINISTRATION COSTS,SELLING COSTS, DEPRECIATION ON THOSE ASSETS WHICH ARE NOT USED IN CONSTRUCTION ACTIVITIES,ARE NOT BE CONSIDERED FOR CAPITALIZATION OR PROPORTIONATE ALLOWANCE.IN THE CASE UNDER CONSIDERATION THE AO HAD HELD THAT ONLY 26.32% OF T HE IMPUGNED EXPENSES WERE TO BE ALLOWED.IN OUR OPINION EXPENSES INCURRED BY THE ASSESSEE ON SA LARY OF THE OFFICE EMPLOYEES/MANAGEMENT FEES CANNOT BE DISALLOWED ON PROPORTIONATE BASIS.TH EY DO NOT HAVE ANY DIRECT NEXUS PROJECT.SUCH 5974/M/13(10-11) SAMUDRA DEVELOPERS 5 EXPENDITURE FALL IN THE CATEGORY OF EXPENSES INCURR ED FOR RUNNING OF DAY-TODAY BUSINESS.SO,WE DO NOT FIND ANY LEGAL OR FACTUAL INFIRMITY IN THE ORDE RS OF THE FAA.CONFIRMING THE SAME,WE DECIDE FIRST GROUND OF APPEAL AGAINST THE AO. 3. SECOND GROUND OF APPEAL PERTAINS TO DELETING THE DI SALLOWANCE ON ACCOUNT OF SPONSORSHIP FEES AND MANAGEMENT FEES.IN THE EARLIER PART OF OUR ORDE R,WE HAVE MENTIONED THE FACTS ABOUT THE VARIOUS DISALLOWANCES MADE BY THE AO INCLUDING THE CAPITALISATION OF SPONSORSHIP.TREATING IT AS AN INTANGIBLE ASSET,HE ALLOWED DEPRECIATION ON IT @ 25%. 3.1. THE FAA AFTER CONSIDERING THE ELABORATE SUBMISSIONS OF THE ASSESSEE,HELD THAT IT HAD ENTERED INTO AN AGREEMENT WITH THE SPORTS COMPANY NAMELY IN DIA-WIN IN THE MONTH OF MARCH, 2010,THAT THE ASSESSEE-GROUP BECAME COSPONSOR OF MUMBAI INDIA N IPL CRICKET TEAM AS AN ASSOCIATE PARTNER, THAT AS PER THE AGREEMENT THE GROUND LOGO OF THE AS SESSEE GROUP WAS DISPLAYED PERMANENTLY IN THE CRICKET STADIUM IS ALSO ON THE PLAYING GEAR OF THE PLAYERS,THAT IN THE TERMS OF THE AGREEMENT AND AMOUNT OF RS.4.50 CRORES WAS PAID TOWARDS SPONSORSH IP FEES DURING THE YEAR UNDER CONSIDERATION, THAT THE SPONSORSHIP FEES FOR DIFFERENT YEARS HAD B EEN APPORTIONED AND ALLOCATED TO 3 ENTITIES OF THE ASSESSEE GROUP WHICH WERE USING THE BRAND LOGO IN THE RATIO OF THEIR RESPECTIVE TURNOVERS DURING THE YEAR, THAT OUT OF THE EXPENDITURE OF RS. 2.50 CRORES AND AMOUNT OF RS. 21.61 LAKHS WAS ALLOCATED TO THE ASSESSEE, THAT THE EXPENDITURE INC URRED ON IPL SPONSORSHIP DID NOT PROVIDE IT ANY BENEFIT OF ENDURING NATURE,THAT THE EXPENDITURE HAD BEEN INCURRED YEAR AFTER YEAR BY THE ASSESSEE GROUP WITH A VIEW TO GET VISIBILITY, THAT IT WAS IN NATURE OF SOME KIND OF ADVERTISEMENT EXPENDI - TURE,THAT SAME SHOULD BE ALLOWED AS REVENUE EXPENDI TURE. REFERRING TO THE CASE OF DELHI CLOTH AND GENERAL MILLS CO.LTD.(115 ITR 659) OF THE HONOR ABLE DELHI HIGH COURT,THE FAA ALLOWED THE APPEAL FILED BY THE ASSESSEE. 3.1.A. WITH REGARD TO MANAGEMENT FEE,THE FAA OBSERVED THAT THERE WAS NO DOUBT ABOUT THE GENUINENESS OF EXPENDITURE,THAT THE EXPENDITURE WAS INCURRED FOR AVAILING INFRASTRUCTURE FACILITIES ADMINISTRATIVE SUPPORT,LIKE MANPOWER RECRUITMENT, H R SERVICES, USES OF COMPUTER, TELEPHONE, PHOTO COPIERS,INFRASTRUCTURE SET UP ETC. IN ORDER T O CARRYOUT BUSINESS OPERATIONS SMOOTHLY, THAT THE PARENT COMPANY HAD ALLOCATED A CERTAIN AMOUNT TO TH E ACCOUNT OF THE ASSESSEE IN THE RATIO OF ITS TURNOVER. HE FINALLY HELD THAT EXPENDITURE HAD TO B E ALLOWED AS REVENUE EXPENDITURE. 5974/M/13(10-11) SAMUDRA DEVELOPERS 6 3.2. BEFORE US,THE DR SUPPORTED THE ORDER OF THE AO AND THE AR RELIED UPON THE ORDER OF THE FAA. WE FIND THAT THE ASSESSEE GROUP HAD ENTERED INTO AN AGREEMENT WITH INDIA WIN,THAT IT WAS A CO- SPONSOR OF MUMBAI INDIAN IPL TEAM, THAT IT HAD INCU RRED SIMILAR EXPENDITURE IN THE SUBSEQUENT TWO YEARS,THAT OUT OF THE TOTAL EXPENDITURE THE ASS ESSEE HAD CLAIMED A VERY SMALL PROPORTION UNDER THE HEAD SPONSORSHIP EXPENSES. SUCH AN EXPENDITURE IS FOR ADVERTISING THE BRAND NAME OF THE GROUP.BEING A RECURRING EXPENDIUTURE,IT HAD TO BE A LLOWED AS REVENUE EXPENDITURE.WE FIND THAT IN THE CASE OF DELHI CLOTH AND GENERAL MILLS CO.LTD .(SUPRA)THE HONBLE COURT HAD HELD THAT EXPENDITURE INCURRED FOR ORGANIZING SPORTS EVENTS A RE ALLOWABLE ITEMS OF REVENUE EXPENDITURE AS SUCH EVENTS PUBLICISE THE NAMES OF THE SPONSOR.THE AO WAS NOT JUSTIFIED IN CAPITALISING THE EXPENSES.THE ENTIRE EXPENDITURE WAS RIGHTLY ALLOWED BY THE FAA AS REVENUE EXPENDITURE. AFTER GOING THROUGH THE DETAILS OF EXPENDITURE INCU RRED BY ASSESSEE UNDER THE HEAD MANAGERIAL EXPENSES, WE ARE OF THE OPINION THAT IT HAD NOT GO T ANY ENDURING BENEFIT FROM THE EXPENDITURE INCURRED NOR DID THE EXPENDITURE CREATE ANY CAPITAL ASSET.THEREFORE, WE DO NOT WANT TO INTERFERE WITH THE ORDER OF THE FAA.CONSIDERING THE ABOVE,WE DECIDE SECOND GROUND OF APPEAL AGAINST THE AO. 4. NEXT GROUND DEALS WITH DELETION MADE ON ACCOUNT OF TRAVELLING EXPENSES.DURING THE ASSESSMENT PROCEEDINGS THE AO FOUND THAT THE ASSESSEE HAD DEBI TED RS.1.14CRORES ON ACCOUNT OF TRAVELLING EXPENSES.HE DIRECTED IT TO SHOW CAUSE AS TO WHY EXP ENSES SHOULD BE ALLOWED.VIDE ITS LETERS DT.29.10.2012 & 18/2/2013 THE ASSESSEE MADE ITS SUB MISSIONS.AFTER CONSIDERING THE SAME,HE HELD THAT THE ASSESSEE HAD FAILED TO SUBSTANTIATE ITS CL AIM, THAT THE EXPENSES WERE NOT INCURRED FOR CARRYING OUT ITS DAY TO DAY BUSINESS ACTIVITIES,THA T EXPENSES WERE PURELY OF PERSONAL NATURE,THAT IT HAD FAILED TO CO-RELATE AND PROVE THAT EXPENSES WER E SPENT WHOLLY AND EXCLUSIVELY FOR BUSINESS ACTIVITIES.FINALLY HE MADE DISALLOWANCE1,14,09,190/ - AND HELD THAT EXPENSES WERE OF PERSONAL NATURE AND WERE NOT INCIDENTAL TO THE BUSINESS OF T HE ASSESSEE. 4.1. DURING THE APPELLATE PROCEEDINGS BEFORE THE FAA,THE ASSESSEE MADE ELABORATE SUBMISSIONS. AFTER CONSIDERING THE AVAILABLE MATERIAL,HE HELD TH AT PERUSAL OF THE TRAVELLING EXPENDITURE PROVED THAT MAJOR PART OF EXPENDITURE HAD BEEN INCURRED IN RESPECT OF THE DIRECTORS NAMELY,-DHEERAJ WADHWAN AND H.BINDRA,THAT THEY HAVE TRAVELLED INSID E AND OUTSIDE INDIA, THAT THE JOURNEYS WERE CLAIMED TO HAVE BEEN UNDERTAKEN FOR BUSINESS PURPOS ES.HE FURTHER FOUND THAT THE DIRECTORS HAD 5974/M/13(10-11) SAMUDRA DEVELOPERS 7 TRAVELLED WITH THEIR FAMILY MEMBERS ON CERTAIN OCCA SIONS.HE HELD THAT SUCH JOURNEYS WERE UNDERTAKEN FOR PERSONAL PURPOSES OR THAT ELEMENT OF PERSONAL USE COULD NOT BE TOTALLY DENIED. FINALLY,HE RESTRICTED THE DISALLOWANCE TO 25% OF TO TAL EXPENDITURE I.E. 28.52 LAKHS. 4.2. THE DR SUPPORTED THE ORDER OF THE AO.THE AR STATED THAT THE FAA ALREADY UPHELD DISALLOWANCE OF RS. 28.52 LAKHS. WE FIND THAT THE AO HAVE DISALLOWED THE ENTIRE EXPE NDITURE,THAT THE FAA VERIFIED THE DETAILS OF TRAVELLING EXPENSES,THAT HE FOUND THAT PERSONAL ELE MENT WAS THERE IN THE EXPENDITURE INCURRED BY THE ASSESSEE,THAT HE DELETED 75% OF THE DISALLOWANC E.IN OUR OPINION,HIS ORDER DOES NOT SUFFER FROM ANY INFIRMITY.AFTER CONSIDERING AVAILABLE MATE RIAL HE ESTIMATED THE DISALLOWANCE,WHEREAS THE AO HAD DISALLOWED ENTIRE CLAIM.CONFIRMING THE O RDER OF THE FAA,WE DECIDE THIRD GROUND AGAINST THE AO. 5. LAST GROUND IS ABOUT DELETING THE ADDITION OF EXCES S AMOUNT RECEIVED BY THE ASSESSEE. DURING THE ASSESSMENT PROCEEDINGS, THE AO FOUND THAT THE A SSESSEE HAD PAID RS. 3.65 CRORES TO KARMA ISPAT PRIVATE LTD. (KIPL) FOR PURCHASE OF STEEL TO BE USED IN CONSTRUCTION WORK, THAT ONE OF THE SISTER CONCERN HAD ALSO ADVANCE RS. 1 CRORES TO KIP L,THAT BECAUSE OF FLUCTUATION IN THE RATE OF STEEL THE SUPPLIER COULD NOT SUPPLY THE GOODS AND T HE ASSESSEE ASKED FOR THE REFUND, THAT KIPL ISSUED TWO CHEQUES OF RS. 2 CRORES EACH, TOTALLING TO RS. FOUR CRORES TO THE ASSESSEE GROUP. THE AO PROPOSED TO ADD AN AMOUNT OF RS. 34.40 LAKHS,BEI NG THE DIFFERENCE IN THE AMOUNT ADVANCED BY THE ASSESSEE AND THE AMOUNT REFUNDED TO IT BY KI PL. BEFORE HIM, THE ASSESSEE EXPLAINED THAT THE SUPPLIER HAD ISSUED TWO CHEQUES,THAT THE ASSESS EE HAD PAID RS. 65.60 LAKHS TO ITS SISTER CONCERN, THAT THERE WAS NO DISCREPANCY OR EXCESS PA YMENT IN THE TRANSACTION. HOWEVER, THE AO DID NOT AGREE WITH THE SUBMISSIONS MADE BY THE ASSE SSEE AND ADDED AND AMOUNT OF RS. 34.40 LAKHS TO THE INCOME OF THE ASSESSEE. 5.1. DURING THE APPELLATE PROCEEDINGS,BEFORE THE FAA,THE ASSESSEE MADE ELABORATE SUBMISSIONS AND FILE CONFIRMATION FROM KIPL STATING THAT AMOUNT ADVANCED TO IT WAS RETURNED TO THE ASSESSEE AND ITS SISTER CONCERN, THAT THE EXCESS AMOUNT OF R S. 34.40 LAKHS PAID TO THE ASSESSEE HAD TO BE ADJUSTED AGAINST AMOUNT PAYABLE TO THE SISTER CONCE RN.IT REFERRED TO THE LETTER OF THE KIPL,DATED 6/ 02/2013, IN THAT REGARD. 5974/M/13(10-11) SAMUDRA DEVELOPERS 8 AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE AN D THE ASSESSMENT ORDER,THE FAA HELD THAT EXCESS AMOUNT OF RS. 84.14 LAKHS WAS MEANT TO BE AD JUSTED AGAINST SHORT AMOUNT PAID IN RESPECT OF SISTER CONCERN, THAT KIPL HAD, IN ITS LETTER, CO NFIRMED THE TRANSACTION,THAT THERE WAS NO DISCREPANCY IN THE POSITION TAKEN BY THE ASSESSEE O R THE SUPPLIER OF THE GOODS, THAT THE AMOUNT REFUNDED BY KIPL TO THE ASSESSEE AND ITS SISTER CON CERN WAS EQUAL TO THE AMOUNT PAID AS ADVANCED BY THE GROUP, THAT NO EXCESS PAYMENT WAS R ECEIVED BY THE ASSESSEE. FINALLY, HE DELETED THE ADDITION MADE BY THE AO. 5.2. BEFORE US,THE DR STATED THAT MATTER COULD BE DECIDE D ON MERITS.THE AR SUPPORTED THE ORDER OF THE FAA. WE FIND THAT THE ASSESSEE HAD ADVANCED RS. 3.65CROR ES TO THE KIPL FOR SUPPLY OF STEEL, THAT ONE OF THE SISTER CONCERN ALSO HAD ADVANCED MONEY TO TH E SUPPLIER,THAT KIPL RETURNED THE MONEY TO THE GROUP BY ISSUING TWO CHEQUES OF RS. 2 CRORES EA CH, THAT THE ASSESSEE HAD PAID RS. 65.60 LAKHS TO ITS SISTER CONCERN.THE FAA HAS GIVEN A CATEGORIC AL FINDING OF FACT THAT THE TOTAL AMOUNT PAID TO THE ASSESSEE AND ITS SISTER CONCERN,PUT TOGETHER, W AS SAME AS THAT TOTAL ADVANCES GIVEN BY THEM TO KIPL.THERE IS NOTHING ON THE RECORD TO CONTROVERT T HE FINDING GIVEN BY THE FAA. THEREFORE, WE ARE NOT INCLINED TO INTERFERE WITH HIS ORDER.CONFIR MING THE SAME,WE DECIDE LAST GROUND OF APPEAL AGAINST THE AO. AS A RESULT,APPEAL FILED BY THE AO STANDS DISMISSED. ORDER PRONOUNCED I N THE OPEN COURT ON 26 TH APRIL, 2017. 26 2017 SD/- SD/- ( /AMARJIT SINGH ) ( / RAJENDRA ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; /DATED : 26.04.2017. JV.SR.PS. / COPY OF THE ORDER FORWARDED TO : 1. APPELLANT / 2. RESPONDENT / 3. THE CONCERNED CIT(A)/ , 4. THE CONCERNED CIT / 5. DR E BENCH, ITAT, MUMBAI / , , . . . 6. GUARD FILE/ //TRUE COPY// / BY ORDER, / DY./ASST. REGISTRAR , /ITAT, MUMBAI.