Housing Board Haryana, Panchkula V. DCIT, Panchkula

ITA 622/CHANDI/2015

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 95694 (ITAT-CHANDIGARH)
• Duration Of Justice: 5 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-11-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: Not Allotted
• Next Hearing Date: 22-09-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 09-06-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MANJIT SINGH
• Assessee Lawyers: B K NOHRIA
• Keywords: Capital asset; Depreciation; Commercial expediency; Revenue expenditure; Capital expenditure
• Section: 6; 143(3); 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH, CHANDIGARH BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND MS. ANNAPURNA MEHROTRA, ACCOUNTANT MEMBER ITA NO.622/CHD/2015 ASSESSMENT YEAR:2009-10 HOUSING BOARD HARYANA, VS. DCIT PLOT NO. C-15 PANCHKULA CIRCLE AWAS BHAWAN, SECTOR 6 PANCHKULA PANCHKULA PAN NO. AAALH0022P (APPELLANT) (RESPONDENT) APPELLANT BY : SH. B.K. NOHRIA RESPONDENT BY : SH. MANJIT SINGH DATE OF HEARING : 22/09/2015 DATE OF PRONOUNCEMENT : 20/11/2015 ORDER PER ANNAPURNA MEHROTRA A.M. THIS APPEAL HAS BEEN FILED BY THE ASSESEE AGAINST T HE ORDER OF LD. CIT(A), PANCHKULA, DATED 17.4.2015. THE ASSESSEE HAS RAISED THE FOLLOWING GROUND OF APPEAL:- 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE THE LD. CIT(A) PANCHKULA HAS ERRED IN LAW AND FACTS IN UPHOLDING RS. 9,15,597/- ON ACCOUNT INAUGURATION AND FOUNDATION STONE CEREMONIES OF COLONIES EXPENSES AS NON REVENUE EXPENDITURE WHEREAS THE SAID EXPENDITURE WAS INCURRED FOR COMMERCIAL EX PEDIENCY OF THE APPELLANT AS A REVENUE EXPENDITURE. 2. BRIEF FACTS RELATING TO THE CASE ARE THAT THE AS SESSEE IS ENGAGED IN THE BUSINESS OF PROVIDING HOUSING BY CONSTRUCTION OF HO USES FOR GENERAL PUBLIC AND SPECIFICALLY BPL SECTOR IN VARIOUS TOWN, MUNDIES, A ND CITIES OF STATE OF HARYANA. THE CONSTRUCTION AND SALE OF HOUSES ARE DONE AFTER PLANNING, DEVELOPMENT AND IMPROVEMENT OF COLONIES IN VARIOUS CITIES AND TOWNS . DURING THE IMPUGNED 2 ASSESSMENT YEAR THE ASSESSEE FILED ITS RETURN OF IN COME DECLARING INCOME OF RS. 50,25,99,240/- ON 24.09.2009. ASSESSMENT U/S 143(3) WAS FRAMED ON 30.11.2011 AT AN INCOME OF RS. 50,35,75,750/- AFTER MAKING ADDITI ON OF EXPENSES INCURRED ON ACCOUNT OF INAUGURATION AND FOUNDATION STONE CEREMO NIES OF COLONIES TREATING THEM AS BEING CAPITAL IN NATURE, AMOUNTING TO RS. 9 ,15,597/, AND FURTHER MAKING ADDITION OF ADVANCES TO STAFF WAIVED OFF DURING THE YEAR AMOUNTING TO RS. 60,909/-. 3. AGGRIEVED BY THE SAME, THE ASSESSEE FILED APPEAL BEFORE LD. CIT(A), WHO VIDE HIS ORDER DATED 17.04.2015 UPHELD THE ADDITION OF RS. 9,15,5597/- BEING EXPENSES INCURRED ON ACCOUNT OF INAUGURATION AND FO UNDATION STONE CEREMONIES OF COLONIES AND DELETED THE ADDITION OF RS. 60,909/- BEING ADVANCES TO STAFF WAIVED OFF. AGGRIEVED BY THE SAME THE ASSE SSEE FILED THIS APPEAL BEFORE US. 4. THE ONLY ISSUE IN THE PRESENT APPEAL IS THE DISA LLOWANCE OF INAUGURATION AND FOUNDATION STONE CEREMONIES EXPENSES INCURRED B Y THE ASSESSEE. BRIEF FACTS RELATING TO THE ISSUE ARE THAT DURING THE IMPUGNED ASSESSMENT YEAR THE ASSESSEE INCURRED EXPENSES ON ACCOUNT OF INAUGURATION AND FO UNDATION STONE CEREMONIES AND CLAIMED THE SAME IN ITS PROFIT & LOS S ACCOUNT. DURING ASSESSMENT PROCEEDINGS THE ASSESSEE WAS ASKED TO EXPLAIN WHY T HE SAME WERE TO BE TREATED AS BEING REVENUE IN NATURE. AFTER CONSIDERI NG THE ASSESSEES REPLY, THE A.O. OBSERVED THAT THE ASSESSEE HAD NOT SUBMITTED A NY DETAILS WHETHER THESE EXPENSES WERE BOOKED AGAINST THE INCOME OF COLONIE S FOR WHICH INAUGURATION AND FOUNDATION STONE CEREMONIES WERE HELD. IN THE A BSENCE OF THE SAME THE A.O. DISALLOWED THE IMPUGNED EXPENSE TREATING THE S AME AS BEING CAPITAL IN NATURE. DURING APPELLATE PROCEEDINGS THE ASSESSEE S UBMITTED THAT IT IS IN THE BUSINESS OF CONSTRUCTION OF HOUSES FOR THE GENERAL PUBLIC AND MORE SPECIFICALLY FOR THE BPL SECTOR IN THE VARIOUS TOWNS AND MUNDIES OF THE CITIES OF THE STATE OF 3 HARYANA. THE ASSESEEE SUBMITTED THAT THE IMPUGNED EXPENSES WERE PURELY BUSINESS PROMOTION EXPENSE INCURRED ON ACCOUNT OF C OMMERCIAL EXPEDIENCY, TO MAKE THE PUBLIC AWARE THAT THE ASSESSEE IS IN THE F IELD OF PROVING HOUSES TO THE PUBLIC AT LARGE. THEREFORE, THE ASSESSEE SUBMITTED, THE IMPUGNED EXPENSES HAVING BEEN INCURRED FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE, WAS AN ALLOWABLE REVENUE EXPENDITURE. THE ASSESSEE FURTHER SUBMITTED THAT THE EXPENSES WERE NOT RECOVERABLE FROM THE BUYERS OF TH E COLONIES AND WAS NOT A PART OF THE TRADING EXPENSE OF THE ASSESSEE. THE AS SESSEE SUBMITTED THERE WAS NO CORRELATION OF THE EXPENSES INCURRED WITH THE IN COME EARNED FROM COLONIES. THE ASSESSEE ALSO SUBMITTED THAT THE IMPUGNED EXPEN SES COULD NOT BE TREATED AS CAPITAL EXPENDITURE, SINCE NO ENDURING ADVANTAGE HAD BEEN OBTAINED FROM INCURRING THE SAME. THE ASSESSEE ALSO SUBMITTED THA T NO CAPITAL ASSET HAD COME INTO EXISTENCE BY VIRTUE OF INCURRING THE IMPUGNED EXPENSE AND THEREFORE, THE EXPENSE COULD NOT BE TREATED AS BEING CAPITAL EXPEN DITURE. ALTERNATELY ASSESSEE SUBMITTED THAT IF THE EXPENDITURE WERE TO BE TREATED AS CAPITAL EXPENDITURE THEN DEPRECIATION OUGHT TO BE ALLOWED O N THE SAME, SINCE IT IS MANDATORY IN NATURE. LD. CIT(A) AFTER CONSIDERING T HE SUBMISSIONS OF THE ASSESSEE UPHELD THE DISALLOWANCE MADE BY HOLDING AT PARA 5.6 AND 5.7 OF HIS ORDER AS FOLLOWS:- I HAVE GONE THROUGH THE FACTS OF THE CASE AND THE W RITTEN SUBMISSION FILED BY THE APPELLANT. IT IS NOTED THAT THE APPELLANT IS ENGAGE D IN PROVIDING HOUSING BY CONSTRUCTION OF HOUSES FOR THE GENERAL PUBLIC AND S PECIFICALLY FOR THE BPL SECTOR IN VARIOUS TOWNS, MANDIES AND CITIES OF STATE OF HARYA NA. THE CONSTRUCTION AND SALE OF HOUSES IS DONE AFTER PLANNING DEVELOPMENT AND IM PROVEMENT OF COLONIES IN VARIOUS CITIES AND TOWNS. THE APPELLANT HAS CLAIMED AN EXPENDITURE OF RS.9,15,597/- ON ACCOUNT OF 'INAUGURATION AND FOUND ATION STONE CEREMONIES'. THIS SHOWS THAT THE EXPENDITURE IS ON ACCOUNT OF NEW DEV ELOPMENT OF COLONIES FOR WHICH FOUNDATION STONES HAVE BEEN LAID. THE APPELLA NT INCUR EXPENDITURES FOR ITS VARIOUS PROJECTS AND AS PER ITS POLICY THE COST OF HOUSES ARE DECIDED WHICH ARE ULTIMATELY RECOVERED FROM THE ALLOTTEES ON SALE OF HOUSES. SO, THE EXPENDITURE IS LINKED TO SPECIFIC PROJECT FOR WHICH THE FOUNDATION STONE CEREMONIES HAVE BEEN DONE. SUCH EXPENDITURE WILL FORM THE PART OF THE PR OJECT COST OF THE HOUSING PROJECT AND IT IS NOT A REGULAR EXPENDITURE OF THE APPELLANT. HERE, IT IS NOT A MATTER OF OBTAINING ENDURING ADVANTAGE OR CREATION OF A NE W SPECIFIC CAPITAL ASSET. THE EXPENDITURE IS PART AND PARTIAL OF A NEW PROJECT AN D THEREFORE, THE SAME CAN BE ATTRIBUTED AS PART OF THE PROJECT COSTTHEREFORE, T HE, EXPENDITURE IS IN THE NATURE OF CAPITAL EXPENDITURE. REGARDING THE APPELLANT'S SUBMISSION THAT NO DEPREC IATION HAS BEEN ALLOWED. IT IS FOUND THAT THE APPELLANT HAS NOT CREATED A CAPIT AL ASSET WHICH IS USED OR 4 APPLIED IN RUNNING ITS BUSINESS BUT THE VERY NATURE OF EXPENDITURE ITSELF IS PART OF A CAPITAL PROJECT AND THEREFORE THE EXPENDITURE IS NO T IN THE NATURE OF REVENUE EXPENDITURE. REGARDING THE APPELLANT'S RELIANCE ON THE DECISION OF HON'BLE MP HIGH COURT AND DELHI HIGH COURT IT IS FOUND-THAT TH E DECISIONS ARE NOT APPLICABLE ON THE FACTS OF THE INSTANT CASE AS THE SAME WERE G IVEN ON THE ISSUE OF REPAIRS AND RENOVATION. FURTHER, THE DECISION OF HON'BLE SU PREME COURT IN THE CASE OF SA BUILDER (SUPRA) IS ALSO DISTINGUISHABLE ON THE FACT S OF THE CASE AS THE SAME WAS ALLOWED ON THE GROUND OF COMMERCIAL EXPEDIENCY WHER EAS THE EXPENDITURE ON FOUNDATION STONE CEREMONY IN THE INSTANT CASE IS NO T IN THE NATURE OF COMMERCIAL EXPEDIENCY. THEREFORE,THE JUDGMENTS OF HON'BLE COUR TS AS CITED BY THE APPELLANT ARE DISTINGUISHABLE ON THE F ACTS OF THE CASE AND THUS NOT APPLICABLE. REGARDING THE APPELLANT'S CONTENTION TH AT THE EXPENDITURE IS IN THE NATURE OF BUSINESS PROMOTION, THE SAME IS NOT FOUND TO BE ACCEPTABLE AS THE EXPENDITURE WAS INCURRED SPECIFICALLY FOR LAYING TH E FOUNDATION STONE OF A PROJECT CANNOT CONSTITUTE THE BUSINESS PROMOTION EXPENSE. T HE APPELLANT'S SUBSEQUENT SUBMISSIONS ON THE CLAIM OF EXPENDITURE EITHER AS B USINESS PROMOTION OR INCURRED DUE TO COMMERCIAL EXPEDIENCY DOES NOT HAVE ANY MERI T. 5. BEFORE US LD A.R. REITERATED THE SUBMISSIONS MAD E BEFORE THE LD. CIT(A) AND STATED THAT THE EXPENSES WERE PURELY REVENUE IN NATURE HAVING BEEN INCURRED FOR THE PURPOSE OF PROMOTING THE BUSINESS OF THE ASSESSEE . LD. AR ARGUED THAT THE EXPENSE COULD NOT BE TREATED AS CAP ITAL IN NATURE SINCE NO ASSET HAD COME INTO EXISTENCE BY VIRTUE OF THIS EXP ENDITURE NOR ANY BENEFIT OF ENDURING ADVANTAGE HAD ACCRUED TO THE ASSESSEE. LD. AR FURTHER ARGUED THAT THE EXPENSE WAS NOT RELATED OR INCURRED DIRECTLY FO R THE PURPOSE OF SPECIFIC COLONIES AND NO AMOUNT OF SUCH EXPENSES INCURRED WA S RECOVERED FROM THE BUYER OF FLATS IN THE COLONIES. THEREFORE, ALSO LD. AR ARGUED THAT THESE EXPENSES COULD NOT BE CAPITALIZED IN THE PROJECT OF THESE CO LONIES. LD. AR PLACED RELIANCE ON A NUMBER OF CASE LAWS IN SUPPORT OF HIS ABOVE CO NTENTIONS. LD. DR ON THE OTHER HAND RELIED UPON THE ORDER OF LD. CIT(A) AND HELD THAT THE EXPENDITURE WAS PART AND PARCEL OF THE NEW PROJECTS OF THE ASSE SEEE AND WERE TO BE ATTRIBUTED TO THE PROJECT COST AND WERE THEREFORE C APITAL IN NATURE. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDER OF THE AUTHORITIES BELOW:- 7. WE FIND THAT THE FACTS EMANATING IN THE PRESENT CASE ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF CONSTRUCTION OF HOUSES AND HAS INCURRED EXPENSES ON ACCOUNT OF INAUGURATION AND FOUNDATION OF CEREMONIES AMOUNTING 5 TO RS. 9,15,597/-. THE DISPUTE IN THE PRESENT CASE IS REGARDING THE NATURE OF THE EXPENSES, WHETHER IT IS TO BE TREATED AS PART OF TH E PROJECT COST AND CAPITALIZED THEREIN OR IT IS TO BE TREATED AS A REGULAR BUSINES S EXPENDITURE TO BE CHARGED TO REVENUE. LAYING OF FOUNDATION STONE AND INAUGURATION OF PROJ ECT ARE BASICALLY CEREMONIAL EXERCISES. FOUNDATION STONE IS LAID, RELIGIOUSLY, T O SEEK THE BLESSINGS OF GOD FOR THE SUCCESSFUL COMPLETION OF A PROJECT AND IS A SIGNAL OF THE COMMENCEMENT OF A PROJECT. SIMILARLY INAUGURATION OF A PROJECT, SIGNA LS COMMENCEMENT / COMPLETION OF A PROJECT AND IS ALSO CELEBRATION OF THE SAME. BOTH THE ACTIVITIES ALSO SERVE A DUAL PURPOSE OF ADVERTISING THE BUSINE SS OF A PERSON, IN THE PRESENCE OF LARGE NUMBER OF INVITEES WHO REPRESENT THE PRESENT INVESTORS IN THE PROJECT AS ALSO THE FUTURE INVESTORS. UNDENIABLY SU CH ACTIVITIES ARE NOT ESSENTIAL FOR THE COMPLETION OF THE PROJECT AND THE BUILDINGS AND COLONIES CAN BE CONSTRUCTED WITHOUT INCURRING THESE EXPENSES. THE O NLY PURPOSE WHICH THESE EXPENSES SERVE, IS TO INFORM THE PUBLIC AT LARGE AB OUT THE COMMENCEMENT AND COMPLETION OF THE PROJECT UNDERTAKEN BY AN ENTITY A ND ALSO TO DISPLAY THE QUALITY OF WORK UNDERTAKEN BY IT. IN SHORT, THE PRI MARY PURPOSE OF INCURRING SUCH EXPENSES IS ADVERTISING THE BUSINESS OF A PERSON. 8. ON THE OTHER HAND PROJECT COST INCURRED BY A BUI LDER AND WHICH IS TO BE CAPITALIZED PRIMARILY INCLUDES ALL EXPENSE, DIRECTL Y ATTRIBUTABLE TO PROJECT ACTIVITY AND INCLUDES COST OF LAND AND DEVELOPMENT RIGHTS, C ONSTRUCTION AND DEVELOPMENT COST, AND BORROWING COSTS. GENERAL EXPE NSES, NOT DIRECTLY ATTRIBUTABLE TO A PROJECT AND INCURRED FOR THE PURP OSE OF THE BUSINESS AS A WHOLE ARE NOT TREATED AS PART OF PROJECT COST. THESE INCL UDE GENERAL ADMINISTRATIVE EXPENSES, SELLING EXPENSE, RESEARCH AND DEVELOPMENT EXPENSES AND OTHER EXPENSE OF SIMILAR NATURE. 6 9. IN THE BACK DROP OF THE ABOVE, WE FIND THAT THE INAUGURATION AND FOUNDATION STONE EXPENSES CANNOT BE TREATED AS PART OF THE PROJECT COST. WE HOLD THAT THE SAME CANNOT BE TREATED AS BEING CAPIT AL IN NATURE. IN FACT, THE EXPENSES BEING IN THE NATURE OF ADVERTISING AND SEL LING EXPENSES ARE REVENUE IN NATURE AND ARE ALLOWABLE AS PER THE PROVISIONS OF S ECTION 37(1), HAVING BEEN INCURRED FOR THE PURPOSE OF THE BUSINESS OF THE ASS ESSEE. THE HONBLE DELHI HIGH COURT IN THE CASE OF DELHI C LOTH & GENERAL MILLS CO. LTD. VS. CIT (1992) 198 ITR 0500(DELHI) HAS HELD THAT IN AUGURATION EXPENSES ARE INCURRED BY AN ASSESSEE WITH A VIEW TO OBTAIN PUBLI CITY OF ITS PROJECT AND ARE THEREFORE ALLOWABLE AS REVENUE EXPENDITURE. IN VIEW OF THE ABOVE WE HOLD HAT THE INAUGURATION AND FOUNDATION STONE CEREMONIES EXPENSES INCURRED BY THE ASSESSEE, AMOUNTING TO RS. 9,15,597/- ARE REVENUE I N NATURE AND THE ASSESSEE IS ENTITLED TO CLAIM DEDUCTION OF THE SAME U/S 37(1) O F THE INCOME TAX ACT,1961. 10. THIS APPEAL OF THE ASSESSEE IS THEREFORE ALLOWE D. ORDER PRONOUNCED IN THE OPEN COURT. SD/- SD/- (BHAVNESH SAINI) (ANNAPURNA MEHROTRA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 20/11/2015 AG COPY TO: THE APPELLANT, THE RESPONDENT, THE CIT, TH E CIT(A), THE DR