M/s Betwa Realtors P Ltd, V. The ACIT 1 (1),

ITA 95/IND/2009

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 2775 (ITAT-INDORE)
• Duration Of Justice: 1 year(s) 4 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-06-2010
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 25-06-2010
• Assessment Year: 2002-2003
• Appeal Filed On: 25-02-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P K MITRA
• Assessee Lawyers: S S DESHPANDE
• Keywords: Opportunity of being heard; Revenue expenditure; Capital expenditure

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL, INDORE BENCH, INDORE BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER AND SHRI V.K. GUPTA, ACCOUNTANT MEMBER ITA NO.95/IND/2009 A.YS. 2002-03 BETWA REALTORS PRIVATE LIMITED BHOPAL PAN AAACB-6095R APPELLANT VS ASSTT. COMMISSIONER OF INCOME TAX 1(1) BHOPAL RESPONDENT APPELLANT BY : SHRI S.S. DESHPANDE, CA RESPONDENT BY : SHRI P.K. MITRA, SR. DR O R D E R PER JOGINDER SINGH, JM THIS APPEAL IS BY THE ASSESSEES AGAINST THE ORDER O F THE LEARNED CIT(A) DATED 10.12.2008 ON THE FOLLOWING GROUNDS :- 1. THAT THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) IS NOT JUSTIFIED IN ENHANCING THE ASSESSED INCOME ON THE GROUND THAT THE COMPANY DID NOT COMMENCE ITS BUSINESS AND HENCE THE EX P ENSES ARE OF CAPITAL IN NATURE AND WERE WRONGLY AND UNWITTINGLY ALLOWED BY THE AO FACTS AND CIRCUMSTANCES OF THE CASE. 2 2. THAT THE LEARNED CIT(A) HAS GROSSLY ERRED IN DISALLOWING OF RS.318469/- TOWARDS TRAVELLING EXPENSES STATING THAT THE VISITS WERE NOT UNDERTAKEN IN CONNECTION WITH BUSINESS. 3. THAT THE LEARNED CIT(A) HAS ERRED BY NOT ACCEPTING THE ASSESSEES PLEA THAT THE COMPANY HAS ALREADY ENTERED INTO A CONTRACT WITH MP RAJYA SETU NIRMAN NIGAM FOR ROAD DEVELOPMENT ON B.O.T. BASIS AND HAD AN M.O.U. WITH THE OVERSEES COMPANY AND ERRED IN HOLDING THAT CONSTRUCTION OF ROADS CONSTITUTE CAPITAL EXPENDITURE ONLY, IGNORING THE FACT THAT THE CONSTRUCTION OF ROAD ITSELF WAS THE BUSINESS OF THE COMPANY. DURING HEARING OF THIS APPEAL WE HAVE HEARD SHRI S. S. DESHPANDE, LD. COUNSEL FOR THE ASSESSEE AND SHRI P.K. MITRA, L EARNED SENIOR DR. THE CRUX OF ARGUMENTS ON BEHALF OF THE ASSESSEE IS THAT THE LEARNED FIRST APPELLATE AUTHORITY WRONGLY ENHANCED THE ASSESSED I NCOME ON THE PRESUMPTION THAT THE ASSESSEE COMPANY DID NOT COMME NCE ITS BUSINESS WHEREAS THE ASSESSEE COMPANY WAS ALREADY IN BUSINES S SINCE 1996. IN EARLIER YEARS THE INTEREST WAS ALLOWED BY THE DEPAR TMENT. THIS FACTUAL MATRIX WAS NOT CONTROVERTED BY THE REVENUE. 2. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS OF LD. REPRESENTATIVES OF BOTH SIDES AND PERUSED THE MATERIAL AVAILABLE ON RE CORD. BRIEF FACTS ARE THAT THE ASSESSEE CLAIMED THE LOSS OF RS.80,03,060/ - WHICH WAS REDUCED TO RS.74,86,591/- AFTER DISALLOWING THE ENTIRE CLAI M OF TRAVELING EXPENSES AMOUNTING TO RS. 3,18,469/- WHICH WAS DEBITED TO TH E PROFIT AND LOSS ACCOUNT. IT IS AN UNCONTROVERTED FACT THAT THE ASS ESSEE COMPANY WAS 3 INCORPORATED IN 1996 AND THE DEPARTMENT HAD BEEN AC CEPTING THE CLAIMED INTEREST. THE LEARNED ASSESSING OFFICER DI SALLOWED THE TRAVELLING EXPENSES ON THE PLEA THAT THE ASSESSEE COULD NOT SH OW THAT THE VISITS WERE UNDERTAKEN ON ACCOUNT OF BUSINESS PURPOSES. I T WAS CLAIMED ON BEHALF OF THE ASSESSEE THAT THE ASSESSEE WAS EXPLOR ING THE POSSIBILITY OF INFRASTRUCTURE DEVELOPMENT, THEREFORE, INCURRED TRA VELLING EXPENSES TO FIND OUT THE BUSINESS OPPORTUNITIES. THE DIRECTOR MADE FREQUENT VISITS TO BOMBAY TO MEET VARIOUS CONSULTANTS, GOVERNMENT OFFI CIALS OF RESPECTIVE DEPARTMENTS TO EXPLORE THE POSSIBILITY OF GETTING T HE CONTRACTS. THE ASSESSEE ALSO ENTERED INTO AN AGREEMENT IN AUGUST, 2001 WITH A MALASIAN COMPANY M/S HCM ENGINEERING SDN/BHD AND AS PER THE AGREEMENT, BOTH THE COMPANIES AGREED TO CARRY OUT B OT PROJECT. EVEN THE DIRECTORS OF MALASIAN COMPANY VISITED INDIA ON REGULAR BASIS AND THEY MET AT BOMBAY. THE CIT(A) IN THE COURSE OF TH E APPEAL FILED BY THE ASSESSEE, FORMED AN OPINION THAT THE ASSESSEE COMPA NY HAD NOT COMMENCED ITS BUSINESS ACTIVITIES, HENCE, ALL THE E XPENSES CLAIMED BY THE ASSESSEE WERE NOT DEDUCTIBLE AT ALL. ACCORDING LY, HE ISSUED A NOTICE OF ENHANCEMENT UNDER SECTION 251(2) OF THE ACT TO WHICH THE ASSESSEE REPLIED BY STATING THAT THE ASSESSEE COMPANY WAS IN EXISTENCE AND MAINLY ENGAGED IN THE FINANCE ACTIVITIES AND IN THE YEAR, UNDER CONSIDERATION, IT HAD ALREADY SUBMITTED TENDERS FOR CONSTRUCTION OF ROADS AND, THEREFORE, IN THESE CIRCUMSTANCES, IT COULD NO T BE SAID THAT THE 4 ASSESSEE COMPANY HAD NOT COMMENCED ITS BUSINESS. T HE CIT(A), HOWEVER, HELD THAT THE ASSESSEE COMPANY HAD NOT COM MENCED BUSINESS AND THE EXPENDITURE INCURRED ON CONSTRUCTI ON OF ROADS WAS NOT REVENUE EXPENDITURE. AGGRIEVED BY THIS FINDING, TH E ASSESSEE IS IN APPEAL BEFORE US. 3. THE LEARNED COUNSEL FOR THE ASSESSEE NARRATED TH E FACTS AND DREW OUR ATTENTION TO PAGE 14 OF THE PAPER BOOK CONTAINI NG INCOME AND EXPENDITURE, AS CLAIMED IN THE PROFIT AND LOSS ACCO UNT FOR THE YEAR ENDING 31 ST MARCH, 2002 WHICH ALSO CONTAINED FIGURES OF INCOME EARNED AND THE EXPENDITURE INCURRED IN THE IMMEDIATELY PRECEDING F INANCIAL YEAR AND ON THAT BASIS THE LEARNED COUNSEL FOR THE ASSESSEE SUB MITTED THAT THE ASSESSEE COMPANY WAS REGULARLY ENGAGED IN THE BUSIN ESS OF FINANCING AS IS EVIDENT FROM SUCH DETAILS AND, THEREFORE, THE CIT(A)S VIEW THAT THE ASSESSEE COMPANY HAD NOT COMMENCED BUSINESS WAS TOT ALLY OUT OF CONTEXT AND, THEREFORE, SUCH VIEW WAS LIABLE TO BE QUASHED. ON THE OTHER HAND, THE LEARNED SENIOR DR PREFERRED TO RELY ON THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS). 4. AFTER CAREFUL CONSIDERATION OF THE FACTS OF THE CASE SUCH AS YEAR OF INCORPORATION OF THE ASSESSEE COMPANY BEING 1996, T HE INCOME OFFERED BY THE ASSESSEE COMPANY FROM FINANCIAL BUSINESS THE REAFTER TILL THE YEAR, UNDER CONSIDERATION, REGULARLY AND ACCEPTED BY THE DEPARTMENT, CLEARLY ESTABLISH THE FACT THAT THE ASSESSEE COMPANY IS CAR RYING ON THE 5 BUSINESS. HENCE, WE FIND NO MERIT IN THE VIEW OF T HE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) THAT THE ASSES SEE HE ALSO SUBMITTED THAT NOT COMMENCED OPERATIONS. EVEN OTHE RWISE, THE DOT ACTIVITIES HAVE ALSO BEEN STARTED BY ENTERING INTO JOINT VENTURE/ TECHNOLOGY ARRANGEMENT AND BY SUBMITTING TENDERS. T HUS, WE ACCEPT GROUND NOS. 1 AND 3 OF THE APPEAL OF THE ASSESSEE. AS REGARDS THE ALLOWABILITY OF TRAVELLING EXPENSES, WE FIND THAT T HE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS NOT GIVEN ANY FINDING ON THIS ASPECT AND, THEREFORE, WE RESTORE THIS ISSUE TO THE FILE OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) FOR DECISION T HEREON AS PER LAW AFTER GIVING AN ADEQUATE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. FINALLY, THE APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES ONLY. ORDER PRONOUNCED IN OPEN COURT IN THE PRESENCE OF L EARNED REPRESENTATIVES OF BOTH THE SIDES AT THE CONCLUSION OF HEARING ON 25 TH JUNE. 2010. (V.K. GUPTA) (JOGINDER SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER 25 TH JUNE, 2010 COPY TO: APPELLANT, RESPONDENT, CIT, CIT(A), DR, G UARD FILE *DBN/ 6