ACIT, New Delhi V. M/s Gulab Farms Pvt. Ltd., New Delhi

ITA 76/DEL/2011

• Counselvise Citation: [2011] 135 COUNSELVISE.COM (IT) 0109 (ITAT-DELHI)
• Duration Of Justice: 2 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-03-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 14-03-2011
• Assessment Year: 2004-2005
• Appeal Filed On: 06-01-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MRS MONA MOHANTY
• Keywords: Depreciation; Rule of consistency; Revenue expenditure; Capital expenditure
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH C NEW DELHI) BEFORE SHRI I.P. BANSAL, JUDICIAL MEMBER AND SHRI A.K. GARODIA, ACCOUNTANT MEMBER I.T.A. NO.76/DEL/2011 ASSESSMENT YEAR : 2004-05 ACIT, M/S GULAB FARMS PVT. LTD., CIRCLE-12 (1), COMMERCIAL COMPLEX, MALCHA MARG, NEW DELHI. V. DIPLOMATIC ENCLAVE, N. DELHI. (APPELLANT) (RESPONDENT) PAN /GIR/NO. PAN /GIR/NO. PAN /GIR/NO. PAN /GIR/NO.AACG AACG AACG AACG- -- -3777 3777 3777 3777- -- -D DD D APPELLANT BY : MRS. MONA MOHANTY, SR. DR. RESPONDENT BY : SHRI KVSR KRISHNA, C.A. ORDER PER A.K. GARODIA, AM: THIS IS REVENUE'S APPEAL FILED AGAINST THE ORDER OF LD CIT(A)-XXVI, NEW DELHI DATED 14.10.2010 FOR ASSESSMENT YEAR 2004-05. 2. GROUNDS RAISED BY THE REVENUE ARE AS UNDER:- 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE ORDER OF THE LD CIT(A) IS ERRONEOUS, PERVERSE, ILLEGAL AND AGAINST THE PROVISIONS OF LAW WHICH IS LIABLE TO BE SET ASIDE. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT(A) HAS ERRED IN DELETING THE ADDITION OF `.1,53, 80,175/- MADE BY THE ASSESSING OFFICER ON ACCOUNT OF PROJECT MANAGEME NT FEE WITHOUT GOING INTO THE FACTS OF THE CASE. PAGE 2 OF 6 ITA NO76./DEL/11 3. BRIEF FACTS OF THE CASE ARE THAT IT IS NOTED BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDER THAT THE ASSESSEE COMPANY CONSTRUCTE D APARTMENTS ON THE LAND OWNED BY ITS SISTER CONCERN. IT IS NOTED BY THE ASSESSING OFFICER THAT THE COMPANY DID NOT HAVE MUCH EX PERIENCE AND THEREFORE IT HAD ENTERED INTO PROJECT MANAGEMENT AG REEMENT WITH THE COMPANIES AND PAID PROJECT MANAGEMENT FEES AS PER THE AGREEMENT. THE ASSESSING OFFICER WAS NOT SATISFIED WITH THE EXPLANAT ION OF THE ASSESSEE REGARDING ITS ALLOWABILITY AS REVENUE EXPENDITU RE. HE HELD THAT THIS WILL GIVE TECHNICAL COMPETENCE TO THE COMP ANY FOR FUTURE PROJECTS AND IT WILL GIVE ENDURING BENEFIT TO THE CO MPANY AND HE HELD THAT THE EXPENDITURE OF `.20506900/- PAID BY THE ASSE SSEE COMPANY AS PROJECT MANAGEMENT FEE IS CAPITAL IN NATURE. THE ASSE SSING OFFICER ALLOWED DEPRECIATION @ 25% TO THE EXTENT OF `.51267 25/- AND DISALLOWED THE BALANCE AMOUNT OF `.15380175/-. BEING AGGRIEVED, THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE LD CIT (A) . LD CIT(A) HAS DELETED THIS DISALLOWANCE AND NOW THE REVENUE IS IN AP PEAL BEFORE US. 4. LD DR OF THE REVENUE SUPPORTED THE ASSESSMENT ORDER W HEREAS LE AR OF THE ASSESSEE SUPPORTED THE ORDER OF LD CIT(A). IT IS ALSO POINTED OUT BY HIM THAT IT HAS BEEN NOTED BY LD CIT( A) IN PARA NO.5.3. OF HIS ORDER THAT IN THE CASE OF A SISTER CONCERN M/S SW EET PEAS FARMS (P) LTD., THE EXPENDITURE HAS BEEN ALLOWED BY THE A. O. AS REVENUE EXPENDITURE AND THE ASSESSMENT WAS COMPLETED U/S 143(3) F OR ASSESSMENT YEAR 2004-05, 2006-0-7 AND 2007-08. IT IS AL SO NOTED BY THE LD CIT(A) THAT IN THE CASE OF THIS ASSESSEE ALSO FOR ASSESSMENT YEAR 2005-06 AND 06-07, THE EXPENDITURE HAS BEEN ALLOWED BY THE A.O. AND IN THOSE TWO YEARS ALSO, THE ASSESSMENT WAS COMPLETED U/S 14 3(3). IT IS ALSO NOTED BY THE LD CIT(A) THAT IN ASSESSMENT YEAR 2007 -08 AND 2008- 09 ALSO, SIMILAR CLAIM WAS MADE WHICH HAS NOT BEEN DISTU RBED ALTHOUGH THE ASSESSMENT WAS NOT COMPLETED U/S 143(3) OF THE ACT. PAGE 3 OF 6 ITA NO76./DEL/11 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND HAVE GONE TH ROUGH THE MATERIAL AVAILABLE ON RECORD. THE ISSUE IN QUESTION WA S DECIDED BY LD CIT(A) IN FAVOUR OF THE ASSESSEE IN PARA NO. 5 TO 5.4. OF HIS ORDER WHICH ARE REPRODUCED BELOW:- 5. I HAVE CONSIDERED THE SUBMISSIONS OF THE LD COUNSEL AS WELL AS THE FACTS ON RECORD. THE LD ASSESSING OFFICER HAS STATED THAT THE EXPENDITURE IS CAPITAL IN NATURE FOR THE REASON T HAT ASSESSEE HAS APPOINTED THE PROJECT MANAGER TO RECEIVE TECHNIC AL ADVICE. THIS WOULD RESULT IN THE ASSESSEE ACQUIRING TECHNICAL COM PETENCE WHICH WILL BE PUT TO USE IN FURTHER PROJECTS THEREBY RESULTING IN ENDURING BENEFIT TO THE ASSESSEE. ACCORDINGLY, HE TREAT ED THE ENTIRE AMOUNT OF `.20506900 AS CAPITAL EXPENDITURE. AFTER GIVING 25% DEDUCTION ON ACCOUNT OF DEPRECIATION AT `.51267 25 HE DISALLOWED THE BALANCE OF `.15380175. 5.2. IN MY VIEW THE FINDING OF THE ASSESSING OFFICER C ANNOT BE SUSTAINED. THE PAYMENT OF THE PROJECT MANAGEMENT FEE IS NOT MERELY FOR TECHNICAL ADVICE AS UNDERSTOOD BY THE LD A SSESSING OFFICER BUT IS FOR THE EXECUTION OF THE ENTIRE PROJE CT NAMELY THE CENTRAL PAIK-1, PROJECT RELATING TO CONSIDERATION OF RESIDENTIAL FLATS. THE ASSESSEE COMPANY ALONG WITH ITS SISTER CONCERN M /S SWEET PEAS FARMS (P) LTD. IS THE OWNER OF THE LAND. BO TH THE COMPANIES HAVE JOINTLY ENGAGED M/S MOHINDRA GESCO DEVE LOPERS LTD., A COMPANY ENGAGED IN THE BUSINESS OF PROPERTY DEVELOPMENT AND CONSTRUCTION OF GROUP HOUSING PROJECT ON THEIR LAND TO FACILITATE TIMELY DEVELOPMENT OF GROUP HOUSI NG SCHEME. AS PER THE MAIN TERMS OF THE AGREEMENT REFERRED TO IN PARA 4 IT IS SEEN THAT THE PROJECT MANAGER HAS BEEN ENGAGED TO PRO CURE CAPITAL FOR THE PROJECT, TO PREPARE FEASIBILITY REPO RT, TO MANAGE PAGE 4 OF 6 ITA NO76./DEL/11 AND CONSTRUCT THE WHOLE PROJECT TO OBTAIN NECESSARY CL EARANCE FROM THE VARIOUS GOVT. AGENCIES, TO ENGAGE ARCHITECT/ CONSULTANTS AND TO COORDINATE THEIR DESIGN, CONCEPT AND DETAILIN G, TO DEVELOP MARKETING & PROMOTIONAL STRATEGIES AND ALSO SELL THE FL ATS. IN OTHER WORDS, THE PROJECT MANAGERS HAVE BEEN ENGAGED T O EXECUTE THE ENTIRE PROJECT. THEY ARE ALSO TO ENSURE SA LES AND RECEIPT OF SALE PROCEEDS RELATING TO THE PROJECT. WHE N THE WORK DISCHARGED BY THEM IS OF SUCH DETAILED NATURE, IT IS NE ITHER CORRECT NOR JUSTIFIED TO RESTRICT THEIR FUNCTIONS TO THAT OF BEING TECHNICAL EXPERTS ONLY. THEREFORE, IN MY VIEW, THE CONTENTION OF THE LD COUNSEL THAT THE EXPENDITURE IS NOT CAPITAL IN NATURE IS CORRECT. THE PROJECT MANAGERS HAVE CHARGED A FEE FOR EXECUTING THE CONSTRUCTION OF THE FLATS. THE CHARACTERISTICS OF SU CH EXPENDITURE IS REVENUE IN NATURE. IT HAS CARRIED OUT THE WORK WHICH WOULD ORDINARILY HAVE BEEN CARRIED OUT BY THE ASSESSEE ITSELF HAD IT NOT ENGAGED THE PROJECT MANAGER. 5.3. IT IS FURTHER OBSERVED THAT IN THE CASE OF THE SIST ER CONCERN I.E. M/S SWEET PEAS FARMS PVT. LTD. THE EXPENDITURE HA S BEEN ALLOWED AS REVENUE EXPENDITURE U/S 143(3) FOR ASSESSMENT YEAR 2004-05, 2006-07 AND 2007-08. SIMILARLY, IN THE CASE OF THE APPELLANT ALSO FOR ASSESSMENT YEAR 2005-06 AND 2006-07 T HE EXPENDITURE HAS BEEN ALLOWED U/S 143(3) AS REVENUE EXPENDITURE. IN THE ASSESSMENT YEAR 2007-08 AND 2008-0 9, THE CLAIM MADE HAS SO FOR NOT BEEN DISTURBED. THUS EVEN ON THE PRINCIPLE OF CONSISTENCY THE CLAIM OF THE APPELLANT T HAT THE EXPENDITURE IS REVENUE IN NATURE DESERVES TO SUCCEED. 5.4. IN VIEW OF THE ABOVE, I HOLD THAT FOR THE ASSESSME NT YEAR 2004-05 THE EXPENDITURE IS REVENUE IN NATURE. IN THE FIRST PAGE 5 OF 6 ITA NO76./DEL/11 ASSESSMENT YEAR I.E. 2001-02 LOOKING TO THE TERMS OF AGR EEMENT DATED 12.9.2000 THERE ARE CERTAIN ITEMS OF EXPENDITU RE TO WHICH SECTION 35D WOULD HAVE APPLIED, HOWEVER, IN ASSESSMENT Y EAR 2004-05, THE ENTIRE PAYMENT OF PROJECT MANAGEMENT F EE IS HELD TO BE REVENUE IN NATURE. ASSESSING OFFICER TO GIVE EFFE CT ACCORDINGLY. 7. LD DR OF THE REVENUE COULD NOT POINT OUT ANY SPE CIFIC MISTAKE IN THE ORDER OF LD CIT(A) WHICH IS AFTER DETAILED DISCU SSION AND AFTER CONSIDERING ALL FACTS. A CLEAR FINDING IS GIVEN BY LD CIT(A) THAT WHEN THE WORK ENTRUSTED TO THE PROJECT MANAGER IS OF DETAILED NATURE AS NOTED BY HIM, IT IS NEITHER CORRECT NOR JUSTIFIED TO RESTRICT T HEIR FUNCTION TO THAT OF BEING TECHNICAL EXPERTS ONLY. CONSIDERING ALL THESE FACTS OF THE PRESENT CASE, WE DO NOT FIND ANY REASON TO INTERFERE I N THE ORDER OF LD CIT(A) BECAUSE NO CASE HAS BEEN MADE OUT BY THE ASSESSING OFFICER OR BY THE LD DR OF THE REVENUE FOR TREATING THE PROJEC T MANAGEMENT FEES PAID BY THE ASSESSEE IN THE PRESENT YEAR AS A CAPITAL EXP ENDITURE. IN SUBSEQUENT YEARS, THE A.O. HIMSELF HAS ALLOWED SIMILAR EX PENSES UNDER SIMILAR FACTS IN COURSE OF SCRUTINY ASSESSMENT AND NO DIFF ERENCE IN FACTS COULD BE POINTED OUT BY LD. DR OF THE REVENUE. WE , THEREFORE, DECLINE TO INTERFERE IN THE ORDER OF LD CIT(A). 8. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMISSED . 9. ORDER PRONOUNCED IN THE OPEN COURT ON THE DAY OF 18 TH MARCH, 2011. SD/- SD/- (I.P. BANSAL) (A.K. GAR ODIA) JUDICIAL MEMBER ACCOUNTANT MEMBER DT. 18.3.2011. HMS PAGE 6 OF 6 ITA NO76./DEL/11 COPY FORWARDED TO:- 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT (A)-, NEW DELHI. 5. THE DR, ITAT, LOKNAYAK BHAWAN, KHAN MARKET, NEW DEL HI. TRUE COPY. BY ORDER (ITAT, NEW DELHI).