DCIT, Circle - 10, Kolkata, Kolkata v. M/s. Banani Properties Pvt. Ltd., Kolkata

ITA 1394/KOL/2010 | 2005-2006
Pronouncement Date: 31-01-2011

Appeal Details

RSA Number 139423514 RSA 2010
Bench Kolkata
Appeal Number ITA 1394/KOL/2010
Duration Of Justice 6 month(s) 29 day(s)
Appellant DCIT, Circle - 10, Kolkata, Kolkata
Respondent M/s. Banani Properties Pvt. Ltd., Kolkata
Appeal Type Income Tax Appeal
Pronouncement Date 31-01-2011
Appeal Filed By Department
Bench Allotted C
Tribunal Order Date 31-01-2011
Assessment Year 2005-2006
Appeal Filed On 02-07-2010
Judgment Text
ITA NO. 1394/KOL/2010 1 IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : KOLKATA () . . ! . '. # '$ ) [BEFORE HONBLE SRI B.R.MITTAL JM & HONBLE SRI B. K. HALDAR AM] !% / I.T.A NO. 1394/KOL/2010 &' () / ASSESSMENT YEAR : 2005-06 DY.COMMISSIONER OF INCOME-TAX -VS- M/S. BENAMI PROPERTIES PVT. LTD. CIR.10 KOLKATA. PAN:AABCB 0703D (+ /APPELLANT ) (-.+ / RESPONDENT ) + / FOR THE APPELLANT : / / SHRI P.KOLHE LD.DR -.+ / FOR THE RESPONDENT : / / SHRI C.GOSWAMI LD.AR '0 / ORDER . .. .' '' ' . .. .# # # # '$ SHRI B.K.HALDAR ACCOUNTANT MEMBER . : THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) XXXII KOLKATA DATED 22.0 1.2010 FOR THE ASSESSMENT YEAR 2005- 06. 2. THE REVENUE HAS TAKEN FOLLOWING GROUND OF APPEAL :- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE LDCIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.23 27 741/ - CLAIMED TO HAVE BEEN INCURRED FOR BUSINESS PURPOSES TO BE DEDU CTIBLE FROM RENTAL INCOME THOUGH DEDUCTION U/S.24(A) HAS BEEN A LLOWED AND NO BUSINESS ACTIVITIES WERE CARRIED OUT DURING THE YEAR. 3. THE ASSESSEE IS A COMPANY HAVING THE BUSINESS OF PROPERTY DEVELOPER AND SHARE TRADERS. IT ALSO EARNS INCOME FROM LETTING OUT OF PROPERTIES. IN THE COMPUTATION OF INCOME ASSESSEE REFLECTED THE FOLLOWING INCOME:- A. INCOME FROM RENT RS.35 38 360/- B. OTHER INCOME(SCH-K) RS. 86 667/- 3.1 AGAINST THE ABOVE THE ASSESSEE CLAIMED FOLLOW ING EXPENSES:- A. PURCHASE OF SHARES RS. NIL B. SALARY ALLOWANCES ETC. RS.2 95 230 C. DEPRECIATION FOR THE YEAR(SCH-D) RS.2 95 230 D. AUDITORS REMUNERATION: ITA NO. 1394/KOL/2010 2 STATUTORY AUDIT FEE RS. 21 750 TAX AUDIT FEES RS. 3 000 SERVICE TAX RS. 2 525 E. OTHER EXPENSES(SCH-L) RS. 16 33 236 TOTAL :- RS.23 27 741/- 3.2 THE ASSESSEE ALSO CLAIMED OTHER INCOME AS INCOM E UNDER THE HEAD BUSINESS THE AO NOTED THAT AS PER SCHEDULE-K OF P & L ACCOUNT THE OTHER INCOME WAS NOTHING BUT MAINTENANCE CHARGES RECEIVED FROM LEASED PROPERTY; INCOME OF WHICH IS COMPUTED UNDER THE HEAD INCOME FROM HOUSE PROPERTY. HE THEREFORE H ELD THAT THE OTHER INCOME WAS ASSESSABLE AS INCOME UNDER THE HEAD OTHER SOURCES. 3.3 AS THE ASSESSEE HAS CLAIMED TOTAL EXPENSES OF RS.23 27 741/- (SCHEDULE-D) IN THE P & L ACCOUNT AND THERE WAS NO INCOME UNDER THE HEAD BUSINESS THE AO REQUIRED THE ASSESSEE TO SHOW CAUSE AS TO WHY THE SAME SHOULD NO T BE DISALLOWED. THE ASSESSEES SUBMISSIONS VIDE ITS LETTER DATED 17-11-07 WERE A S UNDER:- 4.2 IN THIS CONTEXT WE FURTHER SUBMIT THAT THE BU SINESS ACTIVITY OF TRADING IN AND/PROPERTY IS THE MAIN ACTIVITY OF THE ASSESSE E. HOWEVER THERE ARE SEVERAL DISPUTES WITH RE8ARD TO THE ACTUAL ACQUISIT ION FOR WHICH REGULAR LEGAL SUITES / NOTICES ARE BEING FILED/SERVED SO AS TO RETAIN COMPLETE AND ACTUAL POSSESSION OF THE PROPERTY. 4.3 THE EXPENSES INCURRED BY THE ASSESSEE IN ITS PR OFIT AND LOSS ACCOUNT ARE SUBSTANTIALLY SUCH LEGAL EXPENSES INCURRED IN R ELATION TO THE POSSESSION OF THE PROPERTY TO BE DEVELOPED IN DUE C OURSE. FURTHER OTHER EXPENSES AS INCURRED SUCH AS PROPERTY MAINTENANCE E XPENSES HAVE BEEN INCURRED FOR FURTHERANCE OF THE BUSINESS ACTIVITY O F THE ASSESSEE AND HENCE SHOULD BE FULLY ALLOWANCE UNDER THE INCOME TAX ACT 1961 4.4 WE FURTHER SUBMIT THAT IT IS TRUE THAT NO INCOM E WAS GENERATED FROM THE BUSINESS ACTIVITY OF THE ASSESSEE DURING THE R ELEVANT ASSESSMENT YEAR. HOWEVER THIS CAN NOT BE A VALID REASON FOR DISALLOW ING THE ABOVE LEGITIMATE EXPENSES INCURRED AND SUCH OTHER FIXED E XPENSES INCURRED VIZ SALARY OF STAFF AND OTHER ONGOING BUSINESS EXPENSES . ALL SUCH EXPENSES THUS INCURRED FOR PROTECTING THE BUSINESS INTEREST S OF THE ASSESSEE COMPANY SHOULD HENCE BE FULLY ALLOWABLE UNDER THE I NCOME TAX ACT 1961. 4.5 IN THIS CONTEXT WE WOULD LIKE TO DRAW YOUR KIND ATTENTION TO THE DECISION OF HONBLE RAJASTHAN HIGH COURT IN CIT VS . UDAIPUR MINERAL DEVELOPMENT SYNDICATE AL LTD [2004] 269 ITR 0263 WH EREIN THE HIGH COURT UPHELD DEDUCTION OF POWER CHARGES AND ENGINE HIRE CHARGES THOUGH NO BUSINESS IN THE WAS CARRIED ON DURING THE YEAR. FURTHER 1TAT AMRITSAR ITA NO. 1394/KOL/2010 3 BENCH IN SHINGAR LAMPS LTD V. ADDITIONAL COMMISSION ER OF INCOM1E- TA SPECIAL RANGE JALANADHAR [2006] -(15O)-TAXMAN 00 17 -TASR HELD THAT THE EXPENSES WERE ALLOWABLE WHICH ARE ESS ENTIAL FOR MAINTENANCE OF THE COMPANY EVEN IF SO BUSINESS WAS CARRIED ON. FURTHER RELIANCE WERE BASED UPON THE FOLLOWING DECISIONS:- ORDER OF THE ITAR CHANDIGARH BENCH IN THE MATTER O F ITO V. METAL PRODUCTS OF INDIA CHANDIGARH DATED 30-7-2001 IN[IT APPEAL NOS.748 TO 751(CHD.) OF 1992] (1) THE ORDER OF THE ITAR DELHI (SMC) BENCH IN THE MATTER OF ONKAR ENGINEERING (P) LTD. V. ITO [2004] 84 TTJ (DE LHI) 776 4.6 IN VIEW OF THE ABOVE WE SUBMIT THAT WHILE EXP ENDITURE CAN BE ALLOWED ONLY FOR BUSINESS WHICH IS CARRIED ON DURI NG THE YEAR IT CANNOT BE DISALLOWED MERELY BECAUSE THERE IS NO PRODUCTIO N DURING THE YEAR. THUS EXPENDITURE INCURRED FOR THE MAINTENANCE OF BUSINESS INCOME DURING THE PREVIOUS YEAR. 4. FROM THE EVIDENCE ON RECORD THE AO OPINED THAT F OLLOWING FACTS EMERGED :- (I) NO BUSINESS HAS BEEN CARRIED OUT BY THE ASSESSE E DURING THE YEAR AS ALSO ADMITTED BY THE ASSESSEE VIDE POINT 4.4 OF LET TER DATED 17-11-2007 (II) THE NOTES ON ACCOUNTS GIVEN IN SCHEDULE-M UNDE R POINT 1.05.01 STATES REVENUE IS RECOGNIZED ONLY WHEN ONE OR MOR E UNITS ARE HANDED OVER OR REGISTRATION MADE WHICHEVER IS EARLIER. (III) ASSESSEE HAS STATED THAT ITS MAIN ACTIVITY IS CONSTRUCTION OF FLATS AND SALE OF LAND. (IV) ASSESSEE HAS ALSO STATED THAT THE EXPENSE OF RS23 27 741/- ARE RELATED TO ITS ACTIVITY OF TRADING IN LAND AND PROP ERTY. (V) IT IS FOUND FROM THE BALANCE SHEET THAT THE HEA D STOCK IN TRADE OF LANDED PROPERTIES AMOUNTS TO RS 2 50 55 374/- AND UNDER THE DEBTORS ASSESSEE HAS SHOWN ADVANCE FROM FLATS AND LAND AS DETAILED IN SCHEDULE-I (VI) NOTES TO THE ACCOUNTS GIVEN BY THE AUDITORS SA Y THE COMPANY DOES NOT HAVE ANY STOCK OF RAW MATERIALS AND/OR FINISHED GOODS. (VII) NOTES TO THE ACCOUNTS UNDER POINT 1.06 STATES ALL EXPENSES FOR DEVELOPMENT AND COMPLETION OF PROJECT ARE CHARGED T O WORK IN PROGRESS ACCOUNT MAINTAINED PROJECTWISE AND TRANSFERRED TO C OST OF CONSTRUCTION A/C WHEN COMPLETED AND HANDED OVER/REGISTERED EITHE R IN FULL OR IN PART. 5. ON THE AFORESAID FACTS HE HELD THAT NO BUSINESS ACTIVITY WAS CARRIED OUT BY THE ASSESSEE DURING THE RELEVANT PREVIOUS YEAR. ACCORDINGLY HE HELD THAT EXPENSES AMOUNTING TO RS.23 27 741/- WERE REQUIRED TO BE CARRIED FORWARD AS WORK IN PROGRESS. THUS HE DISALLOWED THE CLAIM OF THE SAID EXPENSES DURING THE RELEVANT PREVIOUS YEAR. ITA NO. 1394/KOL/2010 4 6. AGGRIEVED THE ASSESSEE FILED APPEAL BEFORE THE LD.CIT(A). 7. BEFORE THE LD.CIT(A) IT WAS SUBMITTED BY THE AS SESSEE THAT TOTAL EXPENDITURE OF RS.23 27 741/- INCLUDE THE ORDINARY BUSINESS EXPENS ES LIKE SALARY & BONUS RS.3 72 000/- .AUDITORS REMUNERATION RS.27 275/- PROFESSIONAL FEES FOR ADVOCATE RS.7 09 088/- INTEREST ON BANK LOAN RS.4 79 392/- ETC. THESE ARE NORMAL BU SINESS EXPENSES AND COVERED BY EVERY ACTIVITIES OF BUSINESS OF THE ASSESSEE. IT IS ALSO NOTED THAT THE EXPENSES MUST BE PAID WHETHER ANY OF THE BUSINESS AN ACTIVITY HAS BEEN CARRIED OU T OR NOT IN ANY FINANCIAL YEAR. THE A.R. ALSO POINTED OUT THAT IN THE ASSESSMENT FOR THE SUB SEQUENT YEAR I.E. A.Y. 2005-06 WHICH HAS ALSO BEEN COMPLETED U/S 143(3) OF THE ACT AFTER DUE PROCESS OF SCRUTINY THE FACTS INVOLVED WERE ALSO IDENTICAL TO THAT OF THE YEAR UNDER CONSI DERATION I.E. IN THAT YEAR ALSO THERE WAS NO BUSINESS ACTIVITY OF PROPERTY DEVELOPMENT BY THE AS SESSEE AND THE RENTAL INCOME AND INCOME FROM MAINTENANCE CHARGES AND THE IDENTICAL CLAIM OF EXPENSES AS INVOLVED IN THE YEAR UNDER CONSIDERATION HAS BEEN ALLOWED BY THE A.O. AND NO D ISALLOWANCE HAS BEEN MADE THEREFROM. 8. THE LD.CIT(A) OPINED THAT IT IS NOT THE CASE OF THE REVENUE THAT THE ASSESSEE HAS DISCONTINUED OR CLOSED DOWN ITS OTHER BUSINESS AC TIVITIES. HE NOTED THAT IN THE BALANCE SHEET STOCK-IN-TRADE OF LANDED PROPERTIES WAS DISCLOSED AT RS.2 50 55 374/-. THIS WOULD SO THAT THE BUSINESS OF THE ASSESSEE HAS NOT BEEN DISCONTIN UED. CERTAIN EXPENSES ARE REQUIRED TO BE INCURRED TO KEEP A COMPANY GOING AND TO MAINTAIN I TS HEALTH WHETHER ANY BUSINESS ACTIVITY WAS CARRIED OUT OR NOT DURING A PARTICULAR FY. SUCH EXPENSES ARE TO BE ALLOWED AS EXPENDITURE IRRESPECTIVE OF THE FACT THAT DURING A PARTICULAR YEAR NO BUSINESS TRANSACTION WAS CARRIED OUT BY THE ASSESSEE. FURTHER AS PER PARA 1. 6 OF THE NOTES TO ACCOUNTS-CONTAINED IN SCHEDULE-M STATES THAT ALL EXPENSES FOR THE DEVELOP MENT AND COMPLETION OF PROJECTS ARE CHARGED TO WORK IN PROGRESS ACCOUNT THE LD.CIT(A) HELD THAT THE EXPENSES CLAIMED BY THE ASSESSEE WERE NOT IN THE NATURE OF HAVING BEEN I NCURRED FOR DEVELOPMENT AND COMPLETION OF PROJECTS. THESE EXPENSES WERE INCURRED ON A/C O F RENT RATES & TAXES PRINTING & STATIONERY TRAVELING & CONVEYANCE LEGAL & PROFESS IONAL CHARGES LEASE RENTALS GENERAL MAINTENANCE INTEREST ETC.. HE THEREFORE HELD TH AT THE IMPUGNED AMOUNT OF RS.23 27 741/- WAS REQUIRED TO BE ALLOWED AS AN EXPENDITURE. THE L D.CIT(A) HOWEVER UPHELD THE FINDING OF ITA NO. 1394/KOL/2010 5 THE AO THAT INCOME OF RS.86 667/- WAS REQUIRED TO BE ASSESSED UNDER THE HEAD INCOME FROM OTHER SOURCES. 9. AGGRIEVED THE REVENUE HAS FILED APPEAL BEFORE TH E TRIBUNAL. 10. BEFORE US THE LD.DR SUBMITTED THAT THE OTHER I NCOME RECEIVED BY THE ASSESSEE WAS HELD TO BE ASSESSABLE AS INCOME UNDER THE HEADOTHE R SOURCES BY THE LD.CIT(A) AND THE SAME HAS BEEN ACCEPTED BY THE ASSESSEE. THUS DURING TH E RELEVANT PREVIOUS YEAR THERE WAS NO BUSINESS RECEIPT. 10.1 AS REGARDS THE SUBMISSIONS OF THE ASSESSEE THA T IN SUBSEQUENT YEAR SUCH EXPENSES HAVE BEEN ALLOWED BY THE AO THE LD.DR SUBMITTED THAT T HERE IS NO RES JUDICATE IN INCOME-TAX PROCEEDINGS. HE ALSO POINTED OUT THAT THERE IS NO E VIDENCE ON RECORD TO SHOW THAT THE IMPUGNED EXPENSE IS NOT RELATED TO DEVELOPMENT OF PROPERTY. AS SUCH IT WAS OBSERVED BY HIM THAT NO DETAILS OF SUCH EXPENSES HAVE BEEN FUR NISHED BY THE ASSESSEE. IT WAS FURTHER POINTED OUT BY HIM REFERRING TO THE DEPARTMENTAL P APER BOOK PAGE-7 THAT ADVANCE RECEIVED AGAINST BOOKING OF FLAT UNDER CONSTRUCTION AND ADVA NCE RECEIVED AGAINST SALE OF LAND EMBP HAS NOT BEEN SHOWN AS RECEIPTS. THUS EXPENSES RE LATABLE TO THE SAME HAS TO BE CAPITALIZED AS WORK IN PROGRESS. REFERRING TO DEPARTMENTAL PAPER BOOK PAGE15- IT WAS POINTED OUT BY HIM THAT THE LAND VALUED AT RS.25 055 374/- HAS BEE N SHOWN AS STOCK IN TRADE AS ON 31-03- 2005. HE FURTHER POINTED OUT THAT FROM DEPARTMEN TAL PAPER BOOK PAGE-17 IT IS CLEAR THAT RS.2 11 080/- AS LEASE RENTAL EXPENSES WAS RELATABL E TO THE PROPERTY WHICH WAS RENTED OUT. SIMILARLY IT IS POINTED OUT BY HIM THAT ALL THE L EGAL EXPENSES WERE RELATABLE TO THE BUSINESS OF LAND DEVELOPMENT. THESE WERE REQUIRED TO BE CAR RIED FORWARD AS WORK IN PROGRESS. 11. THE LD.AR FOR THE ASSESSEE ON THE OTHER HAND R ELIED ON THE IMPUGNED ORDER OF THE LD.CIT(A). IT WAS CONTENDED BY HIM THAT DETAILED S CRUTINY OF EXPENSES WOULD MAKE IT CLEAR THAT THE EXPENSES DEBITED TO P & L ACCOUNT HAD NO D IRECT NEXUS WITH DEVELOPMENTAL ACTIVITY AND WERE IN THE NATURE OF GENERAL ADMINISTRATIVE EX PENSES INCURRED TO KEEP THE BUSINESS RUNNING. THUS THE SAME COULD NOT FORM PART OF WOR K IN PROGRESS. IT WAS FURTHER CONTENDED BY HIM THAT NON- GENERATION OF ANY BUSINESS INCOME IN ANY PARTICULAR YEAR CANNOT BE A VALID REASON FOR DISALLOWING LEGITIMATE ESTABLISHMENT E XPENSES TO KEEP THE BUSINESS GOING. RELIANCE WAS PLACED ON THE FOLLOWING CASE LAWS:- ITA NO. 1394/KOL/2010 6 A. CIT VS. UDAIPUR MINERAL DEVELOPMENT SYNDICATE P. LTD 269 ITR 263)RAJ) B. SHINGAR LAMPS LTD. VS. ADDL.CIT SPL. RANGE JALL ANDHAR 350 TAXMAN 0017TASR . 12. WE HAVE HEARD THE PARTIES AND PERUSED THE RECO RD. IT APPEARS THAT ALL RELEVANT FACTS FOR DECIDING THE ISSUE AT HAND HAS NOT BEEN BROUGHT TO OUR NOTICE. AS THE BUSINESS OF THE ASSESSEE HAS NOT BEEN DISCONTINUED THE EXPENSES I NCURRED FOR THE MAINTENANCE OF THE CORPORATE ENTITY HAS TO BE ALLOWED AS LEGITIMATE BU SINESS EXPENSES DURING HE RELEVANT PREVIOUS YEAR EVEN THOUGH THERE WAS NO BUSINESS R ECEIPTS. EXPENSES WHICH ARE RELATABLE TO EARNING OF INCOME UTH HOUSE PROPERTY ARE TO BE A LLOWED TO THE EXTENT THE SAME IS ALLOWABLE AS PER THE PROVISIONS OF THE ACT. THOSE EXPENSES OUT OF THE DISPUTED AMOUNT SHOULD BE ALLOWED WHICH ARE NOT RELATABLE TO THE BUSINESS O F DEVELOPMENT OF PROPERTY ETC. NO DETAILED EVIDENCE IS AVAILABLE ON THE RECORD AND THE LOWER AUTHORITIES HAVE NOT DONE THE REQUISITE EXERCISE. WE THEREFORE SET ASIDE THE IMPUGNED OR DERS OF THE AUTHORITIES BELOW AND REMIT THE MATTER BACK TO THE FILE OF THE AO WITH THE DIRE CTION THAT A FRESH ORDER BE PASSED AS PER LAW AFTER GIVING THE ASSESSEE ADEQUATE OPPORTUNITY OF B EING HEARD. 13. IN THE RESULT THE APPEAL OF THE REVENUE IS AL LOWED FOR STATISTICAL PURPOSED. # '0 $1' 2 1& 3 #4 5$ 31-01-2011 ORDER PRONOUNCED IN THE OPEN COURT ON 31-01 -2011 SD/- SD/- [ . . ] [ . ' . # '$ ] (B.R.MITTAL ) (B. K. HALDAR) JUDICIAL MEMBER ACCOUNTANT MEMBER (5$) DATED :31- 01-2011 *PP 67 &89 : /SR.P.S. ITA NO. 1394/KOL/2010 7 '0 ; -< ='<(>- COPY OF THE ORDER FORWARDED TO: 1. + /APPELLANT- DY. COMMISSIONER OF INCOME-TAX CIR- 10 3 RD FL. P-7 CHOWRINGHEE SQUARE KOLKATA-69. 2 -.+ / RESPONDENT : M/S. BENAMI PROPERTIES PVT. LTD 3/6 MAJHI PARA ROAD P.O THAKURPUKUR KOL-63. 3. 0&/ THE CIT 4. 0& ()/ THE CIT(A) KOLKATA. 5. E3 -& / DR KOLKATA BENCHES KOLKATA .< -/ TRUE COPY '0&1/ BY ORDER F !9 / DEPUTY REGISTRAR .