Appeal Details
Counselvise Citation
[2019] 117 COUNSELVISE.COM (IT) 7130 (ITAT-MUMBAI)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
1 year(s) 2 month(s) 22 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
30-04-2019
Appeal Filed By
Assessee
Order Result
Allowed
Bench Allotted
E
Assessment Year
2014-2015
Appeal Filed On
07-02-2018
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL E BENCH, MUMBAI BEFORE SHRI M. BALAGANESH , A M AND SHRI AMARJIT SINGH, J M / I.T.A. NO. 762 /MUM/201 8 ( / ASSESSMENT YEARS: 2014 - 15 ) TAJ SATS AIR CATERING LIMITED MAN DLIK HOUSE, MANDLIK ROAD, COLABA, MUMBAI - 400001 . / VS. ACIT, CIRCLE 2(3)(1) AAYAKAR BHAVAN, MUMBAI. ./ ./ PAN/GIR NO. : AABCT4686P ( / APPELLANT ) .. ( / RESPONDENT ) / DAT E OF HEARING: 25 .0 4 .2019 /DATE OF PRONOUNCEMENT: 30 / 04 / 2019 / O R D E R PER AMARJIT SINGH , JM: THE ASSESSEE HAS FILED THE PRESENT APPEAL AGAINST THE ORDER DATED 16 . 11 .2017 PASSED BY THE COMMISSIONER OF INCOME TAX (APPEALS) - 6 , MUMBAI [HEREINAFTER REFERRED TO AS THE CIT(A)] RELEVANT TO THE A.Y. 20 14 - 1 5 . 2 . THE ASSESSEE HAS RAISED THE FOLLOWIN G GROUNDS OF APPEAL: - 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN UPHOLDING THE ACTION OF THE ASSISTANT COMMISSIONERS OF INCOME TAX, CIRCLE - 2(3)(1) IN TREATING WRITE OFF OF SECURITY DEPOSIT OF RS.150 LAKHS AND INCIDENTAL EXPENSES OF RS.10.95 LAKHS AS CAPITAL IN NATURE. 3 . THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE FILED ITS RETURN OF INCOME ON 28 . 11 .201 4 DECLARING TOTAL LOSS TO THE TUNE OF RS.9,66,30,068 / - . THEREAFTER, THE CASE WAS SELECTED FOR SC RUTINY UNDER CASS . N OTICES U/S REVENUE BY: MS. NEELIMA NADKARNI (D R) ASSESSEE BY : SHRI M.P. LOHIA/ HEMEN CHANDARIYA ITA NO. 762 /M/201 8 A. Y. 2 014 - 15 2 143(2) & 142(1) OF THE ACT WERE ISSUED AND SERVED UPON THE ASSESSEE. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF CATERING TO VARIOUS AIRLINES AND OTHER ALLIED SERVICES. THE ASSESSEE SUBMITTED THE AUDITED B ALANCE SHEET, P & L A CCOUNT ETC. DURING THE COURSE OF ASSESSMENT PROCEEDINGS. THE ASSESSEE CLAIMED WRITE OFF ADVANCE OF RS.160.95 LAKHS. THE NOTICE WAS GIVEN AND AFTER THE REPLY OF THE ASSESSEE , THE SAID AMOUNT WAS CONSIDERED AS CAPITAL IN NATURE , HENCE, DISALLOWED AND ADDED T O THE INCOME OF THE ASSESSEE. THE TOTAL INCOME OF THE ASSESSEE WAS ASSESSED TO THE TUNE OF RS.7,99,64,560/ - . FEELING AGGRIEVED , THE ASSESSEE FILED AN APPEAL BEFORE THE CIT(A) WHO CONFIRMED THE ORDER , THEREFORE, THE ASSESSEE HAS FILED THE PRESENT APPEAL BE FORE US. GROUND NO. 1 4 . UNDER THIS GROUND THE ASSESSEE HAS CHALLENGED THE CONFIRMATION OF THE DISALLOWANCE OF RS.1 6 0.95 LAKHS. THE ASSESSEE CLAIMED THE WRITE OFF OF ADVANCE OF RS. 160.95 LAKHS TOWARDS SECURITY DEPOSIT AND INCIDENTAL CHARGES. THE CONTENTION OF THE ASSESSEE IS THAT THE MUMBAI INTERNATIONAL AIRPORT LTD. HAD COME UP FOR REQUEST FOR PROPOSAL TO SELECT THE SINGLE PLAYER ON NON - EXCLUSIVE CONCESSION TO THE CONCESSIONAIRE TO DESIGN, FIT - OUT, FINANCE, DEVELOP, OPERATE, MAINTAIN AND MANAGE THE COMMON USE LOUNGES. AS PER THE REQUEST FOR PROPOSAL , THE MUMBAI INTERNATIONAL AIRPORT WOULD PROVIDE A LICENSE TO THE SUCCESSFUL BIDDER FOR A PERIOD AGGREGATING TO 11 YEARS FOR OPERATING AND MANAGING THE LOUNGE. IN ORDER TO PARTICIPATE IN THE BID PROCESS, THE BIDD ER HAD TO FURNISH A REFUNDABLE CASH DEPOSIT OF RS.1,50,00,000/ - AS SECURITY. THE SAID SECURITY WAS REFUNDABLE TO THE BIDDER AFTER THE COMPLETION OF BID PE RIOD. ACCORDING TO CLAUSE 5 TO THE BID DOCUMENTS , THE SECURITY WAS LIABLE TO BE FORFEITED IF THE BIDDE R REFUSES TO PERFORM HIS DUTIES . M UMBAI INTERNATIONAL AIRPORT ACCEPTED THE BID OF THE ASSESSEE BUT THE ASSESSEE SHOWED HIS DISABILITY TO PERFORM HIS WORK, THEREFORE, THE SAID AMOUNT WAS FORFEITED . THE ASSESSEE CLAIM ED AS BUSINESS LOSS AND CLAIMED WRITE OFF AS DEDUCTION WHILE COMPUTING THE TAXABLE INCOME ITA NO. 762 /M/201 8 A. Y. 2 014 - 15 3 FOR THE A.Y. 2014 - 15. THE AO WAS OF THE VIEW THAT THE ASSESSEE HAS STARTED THE NEW BUSINESS, THEREFORE, THE SAID AMOUNT IS CAPITAL IN NATURE, HENCE, DISALLOWED THE SAME. THE CIT(A) HAS ALSO CONFIRMED THE VIE W OF THE AO ON THE BASIS OF THIS FACT THAT THE ASSESSEE WAS TO ACQUIRE A NEW BUSINESS, THEREFORE, THE AMOUNT WAS CAPITAL IN NATURE AND INCIDENTAL TO SECURITY THE AMOUNT IN SUM OF RS.10,95,510/ - HAS ALSO BEEN DISALLOWED. THE LD. REPRESENTATIVE OF THE ASSESS EE HAS ARGUED THAT THE ASSESSEE DID NOT START A NEW BUSINESS AND THE BUSINESS OF THE ASSESSEE IS OF THE CATERING TO VARIOUS AIRLINES AND ALLIED SERVICES. THE FACTUAL POSITION IS NOT IN DISPUTE. IT IS REQUIRED TO BE SEEN THAT THE WHETHER THE ASSESSEE HAS ST ARTED THE NEW BUSINESS, THEREFORE, IS NOT ENTITLED TO WRITE OFF THE SECURITY AS WELL AS ANCILLARY AMOUNT OR NOT. THE NATURE OF THE BUSINESS OF THE ASSESSEE IS NOT IN DISPUTE AS THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF CATERING TO VARIOUS AIRLINES AND ALLIED SERVICE . MUMBAI INTERNATIONAL AIRPORT HAD COME UP WITH THE REQUEST OF PROPOSAL TO SELECT THE SINGLE PLAYER ON NON - EXCLUSIVE CONCESSION TO THE CONCESSIONAIRE TO DESIGN, FIT - OUT, FINANCE, DEVELOP, OPERATE, MAINTAIN AND MANAGE THE COMMON USE LOUNG ES. AS PER THE REQUEST FOR PROPOSAL , THE MUMBAI INTERNATIONAL AIRPORT WOULD PROVIDE A LICENSE TO THE SUCCESSFUL BIDDER FOR A PERIOD AGGREGATING TO 11 YEARS FOR OPERATING AND MANAGING THE LOUNGE . THE ASSESSEE WAS ONE OF THE BIDDER AND DEPOSITED A SUM OF RS. 1 50,00,000/ - CRORES AS SECURITY TO MUMBAI INTERNATIONAL AIRPORT. IT IS NOT IN DISPUTE THAT THE WORK WAS ALLOTTED TO THE ASSESSEE AND SUBSEQUENTLY THE ASSESSEE SHOWED HIS INABILITY TO PERFORM THE WORK, THEREFORE, HIS SECURITY WAS FORFEITED. THE REQUEST OF P ROPOSAL IS QUITE IN CONSONANCE OF BUSINESS OF THE ASSESSEE . I N THE CASE OF THACKERS H.P. & CO. VS. CIT IT IS SPECIFICALLY HELD BY THE HONBLE HIGH COURT OF MADHYA PRADESH THAT - IT IS WELL SETTLED THAT THE FORFEITURE OF A SECURITY DEPOSIT UNDER A CONTRACT IS A BUSINESS LOSS AND NOT A CAPITAL LOSS. THE SECURITY AMOUNT DEPOSITED UNDER A CONTRACT IS NOT FOR OBTAINING THE CONTRACT BUT FOR THE DUE ITA NO. 762 /M/201 8 A. Y. 2 014 - 15 4 PERFORMANCE OF ITS TERMS. MOREOVER, IN THE INSTANT CASE, IT WAS OBVIOUS THAT THE CONTRACT WITH THE CORPORATION WAS NOT A NEW BUSINESS STARTED BY THE ASSESSEE BUT WAS ONLY A VENTURE IN THE COURSE OF BUSINESS WHICH THE ASSESSEE WAS ALREADY CARRYING ON AND, THEREFORE, IT COULD IN NO SENSE BE HELD THAT THE DEPOSIT OF SECURITY WAS MADE FOR ACQUIRING A BUSINESS. ACCORDINGLY, THE LOSS RESULTING FROM THE FORFEITURE OF SECURITY MONEY WAS A REVENUE LOSS . IN THE CASE OF NARANDAS MATHURADAS & CO. VS. CIT (1959) 35 ITR 461 (BOM) HIGH COURT HAS SPECIFICALLY HELD THAT - THIS WAS NOT A CASE WHERE THE ASSESSEE MADE THE DEPOSIT IN ORD ER TO ACQUIRE A BUSINESS, NOR WAS THIS A CASE WHERE AN AMOUNT WAS DEPOSITED AS A SHORT OR A TEMPORARY, INVESTMENT YIELDING INTEREST, THE DEPOSIT BEING NECESSARY IN ORDER THAT THE ASSESSEE SHOULD BE PERMITTED TO CARRY ON A PARTICULAR BUSINESS. THE ASSESSEE ALREADY HAD HIS BUSINESS. IT WAS ONE OF THE TERMS OF THE TENDER THAT HE MUST MAKE THE DEPOSIT. THEREFORE, THE MAKING OF THE DEPOSIT WAS INCIDENTAL TO THE BUSINESS WHICH HE WAS CARRYING ON, AND WAS FOR THE PURPOSE OF PRODUCING PROFITS IN CONDUCT OF THE BUSI NESS. THIS WAS NOT A CASE WHERE THE ASSESSEE HAD COMMITTED A BREACH OF THE CONTRACT FRAUDULENTLY OR THAT HE DELIBERATELY FAILED TO DISCHARGE HIS OBLIGATION UNDER THE CONTRACT. THE FAILURE TO DELIVER THE GOODS TO THE RAILWAY COMPANY WAS INCIDENTAL TO THE BU SINESS. THEREFORE, THIS WAS A TRADING LOSS AND THE ASSESSEE WAS ENTITLED TO DEDUCT IT FROM HIS PROFITS IN ORDER THAT THE ASSESSABLE PROFITS COULD BE ASCERTAINED. NOTE : THE DECISION WAS IN FAVOUR OF THE ASSESSEE. 5 . NO DOUBT IF THE EXPENDITURE INCURRED F OR STARTING A NEW BUSINESS WHICH WAS NOT CARRIED OUT BY ASSESSEE EARLIER THEN SUCH EXPENDITURE IS HELD TO BE CAPITAL IN NATURE WHEREAS IN THE INSTANT CASE NOTHING CAME INTO NOTICE THAT THE ASSESSEE HAS STARTED THE NEW BUSINESS AND WAS SUBSEQUENTLY NOT CARR IED OUT BY ASSESSEE, THEREFORE, NO DOUBT THE FINDING OF THE CIT(A) IS NOT LIABLE TO BE JUSTIFIABLE. IN THE CASE OF CIT VS. PRIYA VILLAGE ROADSHOWS LTD. THE HONBLE HIGH COURT OF DELHI HAS DRAWN THE LINE BETWEEN THE CAPITAL EXPENDITURE AND REVENUE EXPENDITU RE IN CONNECTION WITH THE SECURITY AND WRITE OFF EXPENSES. THE FINDING IS HEREBY REPRODUCED AS UNDER. A HARMONIOUS READING OF TRIVENI ENGG. WORKS LTD. V. CIT [1998] 232 ITR 639/100 TAXMAN 19 (DELHI). AND CIT V. MODI INDUSTRIES [1993] 200 ITR 341/68 TAXMAN 114 (DELHI) WOULD DEMONSTRATE THAT ONE HAS TO KEEP IN MIND THE ESSENTIAL PURPOSE FOR WHICH SUCH AN EXPENDITURE IS INCURRED. IF THE EXPENDITURE IS INCURRED FOR STARTING A NEW BUSINESS WHICH WAS NOT. CARRIED OUT BY THE ASSESSEE EARLIER, THEN SUCH IS HELD TO BE OF CAPITAL NATURE IN THAT EVENT, IT WOULD BE IRRELEVANT AS TO WHETHER PROJECT REALLY ITA NO. 762 /M/201 8 A. Y. 2 014 - 15 5 MATERIALIZE OR NOT. HOWEVER, IF THE EXPENDITURE INCURRED IS IN RESPECT OF THE SAME BUSINESS WHICH IS ALREADY CARRIED ON BY THE ASSESSEE, EVEN IF IT IS FOR THE EXPANSIO N OF THE BUSINESS, NAMELY, TO START A NEW UNIT WHICH IS SAME AS EARLIER BUSINESS AND THERE IS UNITY OF CONTROL AND A COMMON FUND, THEN SUCH AN EXPENSE IS TO BE TREATED AS BUSINESS EXPENDITURE. IN SUCH A CASE, WHETHER A NEW BUSINESS/ASSET COMES INTO EXISTEN CE OR NOT WOULD BECOME A RELEVANT FACTOR. IF THERE IS NO CREATION OF A NEW ASSET, THEN THE EXPENDITURE INCURRED WOULD BE OF REVENUE NATURE. HOWEVER, IF THE NEW ASSET COMES INTO EXISTENCE WHICH IS OF ENDURING BENEFIT, THEN SUCH EXPENDITURE WOULD HE OF CAPIT AL NATURE. [PARA 10] IN THE INSTANT CASE, EXPENDITURE WAS INCURRED IN RESPECT OF SAME BUSINESS, WHICH WAS ALREADY CARRIED ON BY THE ASSESSEE. TWO PROJECTS WHICH WERE UNDERTAKEN WERE FOR THE EXPANSION OF THE SAME BUSINESS, NAMELY ONE FOR TAKING OVER ANOTHER CINEMA FOR CONVERSION INTO MULTIPLEX AND OPERATION AND MANAGEMENT THEREOF AND OTHER FOR CONVERSION OF SELF - OWNED CINEMA INTO MULTIPLEX. PAYMENTS WERE MADE TO THE CONSULTANTS FOR PREPARING FEASIBILITY REPORTS IN RESPECT OF BOTH THE PROJECTS. HOWEVER, ULTIM ATELY PROJECTS WERE NOT FOUND TO BE FINANCIALLY AND TECHNICALLY VIABLE AND WERE SHELVED THUS, FINDING GIVEN, THAT NO NEW ASSET CAME INTO EXISTENCE, WHICH WAS THE BASIS ADOPTED BY THE ASSESSING OFFICER FOR TREATING THE EXPENDITURE AS CAPITAL EXPENDITURE WAS WRONG. [PARA II] IN THE INSTANT CASE, BOTH THE INGREDIENTS WERE SATISFIED, NAMELY, - (I) THE FEASIBILITY STUDY CONDUCTED BY THE ASSESSEE WAS FOR THE SAME AND EXISTING BUSINESS WITH A COMMON ADMINISTRATION AND COMMON FUND. AND II) THE STUDY WAS ABANDONED, WITHOUT CREATING AN)' NEW ASSET. [PARA 12] IN SUCH CIRCUMSTANCES, THE TRIBUNAL WAS CORRECT, IN LAY.; IN HOLDING THAT EXPENSES ON NEW PROJECT DEVELOPMENT WERE ALLOWABLE AS BUSINESS EXPENDITURE UNDER SECTION 37. [PARA 141 ], 6 . TAKING INTO ACCOUNT ALL THE F ACTS AND CIRCUMSTANCES AND SEEING THE NATURE OF THE BUSINESS OF THE ASSESSEE AND ALSO RELYING UPON THE LAW RELIED BY THE LD. REPRESENTATIVE OF THE ASSESSEE, WE ARE OF THE VIEW THAT THE FINDING OF THE CIT(A) IS NOT JUSTIFIABLE, HENCE, IS HEREBY ORDERED TO B E SET ASIDE AND ACCORDINGLY WE ALLOWED THE CLAIM OF THE WRITTEN OFF OF RS. 160.95 / - IN CONNECTION WITH SECURITY AND INCIDENTAL CHARGES . ACCORDINGLY, THIS ISSUE IS DECIDED IN FAVOUR OF THE ASSESSEE AGAINST THE REVENUE. ITA NO. 762 /M/201 8 A. Y. 2 014 - 15 6 7 . IN THE RESULT, THE APPEA L OF TH E ASSESSEE IS HEREBY ORDERED TO BE ALLOWED . ORDER PRONOUNCED IN THE OPEN COURT ON THIS 30 / 0 4 / 2019 SD/ - SD/ - (M. BALAGANESH ) (AMARJIT SINGH ) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI ; DATED 30 / 04 / 2019 V IJAY 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//
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