MAGNA WAREHOUSING & DISTRIBUTION P.LTD, MUMBAI V. DCIT 9(2), MUMBAI

ITA 7430/MUM/2013

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 5210 (ITAT-MUMBAI)
• Duration Of Justice: 5 year(s) 8 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-08-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2010-2011
• Appeal Filed On: 17-12-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SATISH CHANDRA RAJORE
• Keywords: Revenue expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B , BENCH MUMBAI BEFORE SHRI MAHAVIR SINGH , JM & SHRI M.BALAGANESH, AM ITA NO. 7430 /MUM/201 3 ( ASSESSMENT YEAR : 2010 - 11 ) M/S. MAGNA WAREHOUSING & DISTRIBUTION PRIVATE LIMITED RAHEJA TOWER, PLOT NO.C - 30, G BLO CK OPP. SIDBI, BANDRA KURLA COMPLEX BANDRA EAST MUMBAI 400 051 VS. DY. COMMISSIONER OF INCOME TAX - 9(2), MUMBAI PAN/GIR NO. SSECM4101H (APPELLANT ) .. (RESPONDENT ) ASSESSEE BY SHRI MADHUR AGARWAL REVENUE BY SHRI SATISH CHANDRA RAJORE DATE OF HEA RING 14 / 08 /2019 DATE OF PRONOUNCEMENT 21 / 08 /2019 / O R D E R PER M. BALAGANESH (A.M) : THIS APPEAL IN ITA NO. 7430/MUM/2013 FOR A.Y. 2010 - 11 ARISES OUT OF THE ORDER BY THE LD. COMMISSIONER OF INCOME TAX (APPEALS) - 20, MUMBAI IN APP EAL NO. CIT(A)20/DC9(3)/IT - 293/2012 - 13 DATED 04/09/2013 (LD. CIT(A) IN SHORT) AGAINST THE ORDER OF ASSESSMENT PASSED U/S.143(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS ACT) DATED 11/02/2013 BY THE LD. DY. COMMISSIONER OF INCOME TAX 9(2), M UMBAI (HEREINAFTER REFERRED TO AS LD. AO). ITA NO .7430/MUM/2013 M/S. MAGNA WAREHOUSING & DISTRIBUTION PVT. LTD. 2 2. THE ONLY ISSUE TO BE DECIDED IN THIS APPEAL IS AS TO WHETHER THE LD CITA WAS JUSTIFIED IN CONFIRMING THE ACTION OF THE LD AO OF TREATING THE ENTIRE EXPENDITURE OF RS 1,09,84,625/ - DEBITED TO PROFIT AND LOSS A CCOUNT AS EXPENDITURE PERTAINING TO COMMERCIAL PROJECT AND CAPITALIZED TO WORK IN PROGRESS, IN THE FACTS AND CIRCUMSTANCES OF THE CASE. 3. WE HAVE HEARD THE RIVAL SUBMISSIONS. WE FIND THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF REAL ESTATE DEVELOPMEN T OF HOTEL, RETAIL, MALL, INFORMATION TECHNOLOGY PARK AND OTHER HIGH QUALITY COMMERCIAL SEGMENTS AND HAD FILED THE RETURN OF INCOME FOR THE ASST YEAR 2010 - 11 ON 10.9.2010 DECLARING TOTAL LOSS OF RS 1,08,35,377/ - FOR THE CURRENT YEAR. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEES COMMERCIAL PROJECT AT BENGULURU WAS UNDER PROGRESS AND ACCORDINGLY, THE EXPENDITURE INCURRED TOWARDS THE SAID PROJECT WERE CAPITALIZED TO CAPITAL WORK IN PROGRESS BY THE ASSESSEE. BUT THERE ARE CERTAIN ADMINISTRATIVE AND GEN ERAL EXPENDITURE WHICH WERE INCURRED BY THE ASSESSEE WHICH CANNOT BE ATTRIBUTED TO THE COMMERCIAL PROJECT AS SUCH AND ACCORDINGLY THE SAME WERE CHARGED OFF BY THE ASSESSEE AS A REVENUE EXPENDITURE TO THE TUNE OF RS 1,09,84,625/ BY DEBITING THE SAME TO THE PROFIT AND LOSS ACCOUNT. THE LD AO OBSERVED THAT THE ASSESSEE HAD DERIVED OTHER INCOME OF RS 1,50,563/ - AGAINST WHICH THE AFORESAID EXPENDITURE WAS SET OFF. ACCORDINGLY, THE LD AO DISALLOWED THE LOSS CLAIMED BY THE ASSESSEE IN THE SUM OF RS 1,08,35,377/ - AND ALLOWED THE SAME TO BE CAPITALIZED TO CAPITAL WORK IN PROGRESS IN VIEW OF THE FACT THAT THE PROJECT HAD NOT COMMENCED DURING THE YEAR UNDER CONSIDERATION. WE FIND THAT THE DETAILS OF EXPENDITURE DEBITED TO PROFIT AND LOSS ACCOUNT ARE AS UNDER: - ITA NO .7430/MUM/2013 M/S. MAGNA WAREHOUSING & DISTRIBUTION PVT. LTD. 3 SR . EXPENSES HEAD AMOUNT REMARKS 1 RATES, TAXES AND OTHERS 5,000 PROFESSIONAL TAX PAID 2 GUEST HOUSE EXPENSES 3,54,596 DAY - TO - DAY USE OF EMPLOYEES WHITE ON DUTY 3 PRINTING AND STATIONERY 98,816 LETTER - HEAD AND OTHER MISCELLANEOU S STATIONERY 4 LEGAL AND PROFESSIONAL EXPENSES 5,37,705 INTERNAL AUDIT AND TAX AUDIT FEES 5 PROJECT SUPPORT FEES (NON - TECHNICAL) 41,35,560 ADMINISTRATIVE CHARGES, HR ACCOUNTING, FINANCE. PAYROLL, TAXATION ETC. 6 TRAVELLING AND CONVEYANCE 11,5 6, 447 ROUTINE TRAVEL AND RELATED EXPENSES 7 COMMUNICATION COSTS 37,713 TELEPHONE CHARGES 8 REPAIRS AND MAINTENANCE 4,43,785 VARIOUS AMC & INTERNET CHARGES AT CORPORATE OFFICE 9 AUDIT FEES 7,49,488 STATUTORY AUDIT FEES 10 ROYALTY CHARGES 17,35,524 FOR USE OF NAME AND LOGO 11 BANK CHARGES 48,202 ROUTINE BANK CHARGES 12 SUBSCRIPTION CHARGES 56,500 SUBSCRIPTION TO EXPORT PROMOTION COUNCIL AND BUSINESS ASSOCIATION 13 ADVERTISEMENT AND PUBLICITY EXPENSES 5,29,524 MARKET SURVEY AND RESEARCH REPORTS 14 MISCELLANEOUS EXPENSES 1,13,155 VARIOUS DAY TO DAY SMALL NATURE EXPENSES AT CORPORATE OFFICE 3.1. WE FIND THAT THE ASSESSEE HAD PLEADED THAT THE AFORESAID EXPENDITURE WERE INCURRED FOR THE PURPOSE OF SMOOTH RUNNING OF THE BU SINESS AND ARE ITA NO .7430/MUM/2013 M/S. MAGNA WAREHOUSING & DISTRIBUTION PVT. LTD. 4 PURELY ADMINISTRATIVE IN NATURE AND ARE NOT CONNECTED WITH THE PROJECT UNDERTAKEN BY THE ASSESSEE. IN OTHER WORDS, IT WAS PLEADED THAT THE AFORESAID EXPENDITURE ARE ROUTINE ADMINISTRATIVE EXPENSES AND ARE TO BE INCURRED IRRESPECTIVE OF THE COMPLETION OF THE PROJECT BY THE ASSESSEE. WE FIND FROM THE PERUSAL OF THE BALANCE SHEET THAT THE ASSESSEE HAD ALREADY CONSIDERED , THE COST OF LAND, MATERIAL AND CONTRACTUAL PAYMENTS, TECHNICAL PROFESSIONAL FEES, RATES & TAXES FOR THE PROJECT, TRAVELLING EXPENSES FOR THE PROJECT, TECHNICAL PROJECT SUPPORT FEES, INTEREST ETC AGGREGATING TO RS 187 CRORES, TO THE CAPITAL WORK IN PROGRESS AS THEY ARE DIRECTLY RELATED TO THE CONSTRUCTION OF PROJECT. THIS WAS DONE IN ACCORDANCE WITH THE MANDATE PRESCRIBED IN A CCOUNTING STANDARDS (AS - 7) ISSUED BY INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA (ICAI) . WE FIND THAT THE ASSESSEE PLEADED BEFORE THE LOWER AUTHORITIES THAT THE VERY SAME SET OF EXPENDITURE WERE INCURRED BY THE ASSESSEE AND CLAIMED AS DEDUCTION BY THE AS SESSEE IN EARLIER YEARS IN ASST YEARS 2006 - 07 AND 2007 - 08 WHEREIN THE CLAIM OF THE ASSESSEE WAS ACCEPTED BY THE LD AO IN SCRUTINY ASSESSMENTS. IT IS NOT IN DISPUTE THAT THE COMMERCIAL PROJECT HAD BEEN UNDERTAKEN BY THE ASSESSEE FROM THE EARLIER YEARS AND HAD NOT BEEN COMPLETED DURING THE YEAR UNDER CONSIDERATION. THE AFORESAID TREATMENT OF EXPENDITURE I.E PARTLY TOWARDS CAPITAL WORK IN PROGRESS IN RESPECT OF DIRECT PROJECT RELATED EXPENSES AND PARTLY TOWARDS REVENUE EXPENDITURE IN RESPECT OF ROUTINE ADMI NISTRATIVE EXPENSES HAS BEEN CONSISTENTLY FOLLOWED BY THE ASSESSEE IN THE EARLIER YEARS ALSO AND THE SAME STAND WAS TAKEN BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION. WE FIND THAT THERE IS NO REASON FOR THE LD AO TO TAKE A DIVERGENT STAND WITH REGA RD TO THE TREATMENT OF EXPENDITURE GIVEN BY THE ASSESSEE IN THE BOOKS WHICH IS SIMILAR TO TREATMENT FOR INCOME TAX PURPOSES ALSO. IN ANY CASE, WE FIND THAT THESE ADMINISTRATIVE EXPENSES , EVEN IF TRANSFERRED TO CAPITAL WORK IN PROGRESS, WOULD EVENTUALLY FIND ITS ITA NO .7430/MUM/2013 M/S. MAGNA WAREHOUSING & DISTRIBUTION PVT. LTD. 5 WAY TO THE PROFIT AND LOSS ACCOUNT IN THE YEAR OF COMPLETION OF PROJECT , IN VIEW OF THE FACT THAT THE REVENUE HAD NOT DOUBTED THE GENUINENESS OF INCURRENCE OF THOSE EXPENDITURE AND THE BUSINESS NEXUS OF THE SAME. WE FIND THAT THE LOWER AUTHORITIE S HAD NOT APPRECIATED THE ACTION OF THE ASSESSEE WHEREIN THE ROUTINE ADMINISTRATIVE EXPENSES THAT ARE NOT DIRECTLY CONNECTED WITH THE PROJECT, NEED TO BE CHARGED OFF AS REVENUE EXPENDITURE. HENCE WE DIRECT THE LD AO TO GRANT DEDUCTION OF THE REVENUE EXPE NDITURE IN THE SUM OF RS 1,09,84,625/ - THAT WERE DEBITED TO PROFIT AND LOSS ACCOUNT BY THE ASSESSEE. ACCORDINGLY, THE GROUND NO. 1 RAISED BY THE ASSESSEE IS ALLOWED. 4. IN VIEW OF OUR AFORESAID DECISION, THE ADJUDICATION OF GROUND NO. 2 BECOMES ACADEMI C IN NATURE AS IT WOULD NOT HAVE ANY BEARING ON THE COMPUTATION OF TOTAL INCOME OF THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION. ACCORDINGLY, THE GROUND NO. 2 ON MERITS IS LEFT OPEN AND IS HEREBY DISMISSED AS BEING ACADEMIC IN NATURE. 5. IN THE RESUL T, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 21 / 08 /201 9 SD/ - ( MAHAVIR SINGH ) SD/ - (M.BALAGANESH) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED 21 / 08 / 2019 KARUNA , SR.PS ITA NO .7430/MUM/2013 M/S. MAGNA WAREHOUSING & DISTRIBUTION PVT. LTD. 6 COPY OF THE ORDER FORWARDED TO : BY ORDER, ( ASSTT. REGISTRAR) ITAT, MUMBAI 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY//