The ACIT,(OSD) Circle-5,, Ahmedabad v. PMC Project (Inda) Pvt.Ltd., Ahmedabad

ITA 1561/AHD/2011 | 2006-2007
Pronouncement Date: 04-11-2011 | Result: Allowed

Appeal Details

RSA Number 156120514 RSA 2011
Assessee PAN AADCP5841L
Bench Ahmedabad
Appeal Number ITA 1561/AHD/2011
Duration Of Justice 5 month(s) 1 day(s)
Appellant The ACIT,(OSD) Circle-5,, Ahmedabad
Respondent PMC Project (Inda) Pvt.Ltd., Ahmedabad
Appeal Type Income Tax Appeal
Pronouncement Date 04-11-2011
Appeal Filed By Department
Order Result Allowed
Bench Allotted D
Tribunal Order Date 04-11-2011
Assessment Year 2006-2007
Appeal Filed On 02-06-2011
Judgment Text
. .. .!' !' !' !' !' !' !' !' #$ #$ #$ #$ # % # % # % # % IN THE INCOME TAX APPELLATE TRIBUNAL : D BENCH : AHMEDABAD BEFORE SHRI MUKUL KR.SHRAWAT J.M. & SHRI A.MOHAN A LANKAMONY A.M.) . ITA NO. 1561/AHD./2011 : ' &' - 2006-2007 A.C.I.T.(OSD) CIRCLE-5 ABAD VS- PMC PROJECT (INDIA) P.LTD. ABAD (PAN : AADCP 5841L) ( () /APPELLANT) ( *+() /RESPONDENT ) () - # / APPELLANT BY : SHRI B.L.YADAV SR.D.R. *+() - # / RESPONDENT BY : NONE '. $ / DATE OF HEARING : 04/11/2011 /!& $ / DATE OF PRONOUNCEMENT : 04/11/2011 #0 #0 #0 #0 / ORDER PER SHRI A.MOHAN ALANKAMONY ACCOUNTANT MEMBER : THIS APPEAL IS FILED BY THE REVENUE AGGRIEVED BY THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS)-XI AHM EDABAD IN APPEAL NO.CIT(A)-XI/867/08-09 DATED 17.03.2011 FOR THE ASSESSMENT YEAR 2006-2007 PASSED UNDER SECTION 250 R.W.S. 143( 3) OF THE I.T. ACT 1961. 2. THOUGH THE REVENUE HAS RAISED FOUR GROUNDS THE CRUX OF THE ISSUE IS THAT THE LD. CIT (A) HAD ERRED IN DIRECTING THE AO TO DELETE THE ADDITION OF RS.9 34 213/- ON ACCOUNT OF PRIOR PERIOD EXPENSE S SUBJECT TO VERIFICATION. 3. THE FACTS OF THE ISSUE IN BRIEF ARE THAT THE A SSESSEE COMPANY [THE ASSESSEE HENCEFORTH] ENGAGED IN THE BUSINESS OF DR EDGING CONSTRUCTION AND CONSULTANCY FURNISHED ITS RETURN OF INCOME DE CLARING A TOTAL INCOME ITA NO. 2372-AHD-04 2 OF RS.46 74 700/- ON 29.12.2006 WHICH WAS INITIALL Y PROCESSED U/S 143(1) OF THE ACT AND SUBSEQUENTLY TAKEN UP FOR SC RUTINY. THE CASE WAS FIXED FOR HEARING ON 16.10.2007 AND NOTICES UNDER S ECTION 143(2) WERE ISSUED. IN RESPONSE TO THE NOTICES AND QUERY LETTER S THE A.R. OF THE ASSESSEE ATTENDED AND PRODUCED BOOKS OF ACCOUNTS W HICH WERE EXAMINED ON TEST-CHECK BASIS. THE ASSESSMENT WAS CO MPLETED BY THE AO ON 30.12.2008. DURING THE ASSESSMENT PROCEEDINGS AND ON VERIFICATION OF THE MONTH-WISE DETAILS OF EXPENSES INCURRED IN THE MONTH OF JUNE 2005 AND AUGUST 2005 THE AO NOTICED THAT T HE ASSESSEE HAS CLAIMED THE FOLLOWING EXPENSES ON ACCOUNT OF ITS DR EDGER AND CONSULTANCY BUSINESS:- A) SALARY OF DREDGING STAFF 5 69 936 B) REPAIRS & MAINTENANCE EXPENSES 33 113 C) STAFF WELFARE EXPENSES 20 218 D) FOREIGN TRAVEL EXPENSES 1 08 204 E) INSURANCE EXPENSES 1 98 538 F) BUSINESS DEVELOPMENT EXPENSES 5 706 G) ENTERTAINMENT EXPENSES 2 610 H) VISA FEES EXPENSES 7 000 I) SAFETY EXPENSES 12 800 J) EXPENSES RELATED TO CONSULTANCY BUSINESS FOR THE MONTH OF JUNE 2008 (AS PER DETAILS GIVEN BY THE APPELLANT) 1 54 768 TOTAL 9 34 213 IN THIS REGARD THE ASSESSEE WAS SPECIFICALLY ASKED TO SUBSTANTIATE THE FACT THAT EXPENSES INCURRED WAS PURELY REVENUE IN N ATURE AND INCURRENT AFTER THE COMMENCEMENT OF THE BUSINESS. THE AO OBSE RVED THAT THE ASSESSEE HAS NOT FURNISHED ANY SUPPORTING DOCUMENTA RY EVIDENCE TO PROVE THAT THE EXPENDITURE INCURRED WERE PERTAINED TO AFTER THE ITA NO. 2372-AHD-04 3 COMMENCEMENT OF BUSINESS. THE ASSESSEE HAS NOT FURN ISHED ANY DETAILS SUCH AS COPY OF ANY BILLS RAISED FOR RENDE RING ANY TECHNICAL SERVICE TO ANYBODY DETAILS SHOWING ANY EXECUTION O F PROJECT COPY OF FRESH ORDERS RECEIVED OR ANY PLAUSIBLE SUPPORTING D OCUMENTS TO SHOW THAT THE DREDGING AND CONSULTANCY BUSINESS WERE STA RTED FROM THE MONTH OF JUNE 2006. THEREFORE IN ABSENCE OF THE DETAILS AND THE EVIDENCES THE AO TREATED THE EXPENSES OF RS.9 34 213/- AS PRIOR P ERIOD EXPENSES AND HENCE DISALLOWED THE EXPENDITURE AND ADDED THE SAME TO THE TOTAL INCOME OF THE ASSESSEE BY CAPITALIZING THE SAID EXP ENSES. 4. BEING AGGRIEVED THE ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT(A). THE ASSESSEE FILED THE WRITTEN SUBMISSIONS BEFORE THE LD. CIT(A). THE RELEVANT PARAS OF THE WRITTEN SUBMISSIONS FILED BY THE A.R. OF THE ASSESSEE BEFORE THE LD. CIT(A) IS REPRODUCED HEREUN DER: 4. THE THIRD GROUND OF APPEAL IS DIRECTED AGAINST THE DISALLOWANCE OF PRIOR PERIOD EXPENSES OF RS.9 34 213/-. THE RELE VANT PARAS OF THE WRITTEN SUBMISSIONS FILED BY THE A. R. OF THE APPEL LANT ARE REPRODUCED HEREUNDER :- THE ASSESSING OFFICER ON PAGE 3 OF HIS ASSESSMENT O RDER HAS MENTIONED THAT THE APPELLANT HAS CLAIMED THE FOLLOW ING EXPENSES WHICH HAVE BEEN INCURRED IN THE MONTH OF JUNE 2005 AND AUGUST 2005 IN RESPECT OF DREDGING BUSINESS AND CONSULTANC Y BUSINESS. A) SALARY OF DREDGING STAFF 5 69 936 B) REPAIRS & MAINTENANCE EXPENSES 33 113 C) STAFF WELFARE EXPENSES 20 218 D) FOREIGN TRAVEL EXPENSES 1 08 204 E) INSURANCE EXPENSES 1 98 538 F) BUSINESS DEVELOPMENT EXPENSES 5 706 G) ENTERTAINMENT EXPENSES 2 610 H) VISA FEES EXPENSES 7 000 ITA NO. 2372-AHD-04 4 I) SAFETY EXPENSES 12 800 J) EXPENSES RELATED TO CONSULTANCY BUSINESS FOR THE MONTH OF JUNE 2008 (AS PER DETAILS GIVEN BY THE APPELLANT) 1 54 768 TOTAL 9 34 213 IT WAS OBSERVED THAT THE APPELLANT HAS NOT FURNISHE D ANY SUPPORTING DOCUMENTARY EVIDENCE TO PROVE THAT THE EXPENDITURE INCURRED PERTAINS TO COMMENCEMENT OF BUSINESS. THE APPELLANT HAS NOT FURNISHED ANY DETAILS TO SHOW THAT THE DREDGING AND CONSULTANCY BUSINESS WERE STARTED FROM THE MONTH OF JUNE 2006. ULTIMATELY IT WAS CONCLUDED THAT THE EXPENSES OF RS.9 34 213/- PE RTAINS TO PRIOR PERIOD EXPENSE AND WAS REQUIRED TO BE CAPITALIZED. SO ITS CLAIM WAS DISALLOWED IN THE ASSESSMENT ORDER. 2.2 AGAINST THE ABOVE DISALLOWANCE THE APPELLANT W OULD LIKE TO SUBMIT THAT THE COMPANY WAS ALREADY ENGAGED IN THE BUSINESS OF CONSULTING. AS CAN BE SEEN FROM THE SCHEDULE-10 TO THE PROFIT AND LOSS ACCOUNT IT HAS EARNED CONSULTANCY INCOME OF R S.3 CRORES DURING THE FINANCIAL YEAR. THUS EXPENSES IN RELATI ON TO THE CONSULTANCY BUSINESS' FOR THE MONTH OF JUNE 2005 S HOULD BE REGARDED AS INCURRED AFTER THE COMMENCEMENT OF THE BUSINESS. IN THIS RESPECT WE WOULD ALSO LIKE TO FURNISH THE 'BIL LS (AS PER EHCLOSURE-A) IN RELATION TO THE CONSULTANCY BUSINES S RAISED ON THE CLIENTS TO WHOM CONSULTANCY SERVICES WERE GIVEN FOR THE MONTHS OF MAY JUNE & JULY. THIS SHOWS THAT THE CONSULTANCY B USINESS HAD ALREADY COMMENCED IN THE MONTH OF JUNE 2005. 2.3 THE APPELLANT COMPANY HAD ALSO EARNED INCOME O F RS. 18.30 CRORES FROM OUT OF THE DREDGING SERVICES GIVEN TO I TS CLIENTS. IN THIS RESPECT THE APPELLANT WOULD LIKE TO FURNISH THE BI LLS RAISED ON THE CLIENTS (AS PER ENCLOSURE-B) SHOWING THAT THE DREDG ING BUSINESS HAD ACTUALLY TAKEN PLACE DURING THE MONTHS JUNE JUL Y & AUGUST 2005. THUS ALL THE EXPENSES IN RELATION TO THE DRE DGING BUSINESS MAY BE ALLOWED AS THE BUSINESS HAD ALREADY COMMENCE D. FURTHER THE APPELLANT COMPANY HAD ELABORATELY EXPLAINED TO THE ASSESSING OFFICER THAT IT HAD PURCHASED THE DREDGER AND PUT T O USE IN THE MONTH OF JULY 2005. DOCUMENTARY EVIDENCE SHOWING T HE PURCHASE BILL OF THE DREDGER IS ENCLOSED HEREWITH (ENCLOSURE -C) FOR READY REFERENCE. THUS THE VIEW TAKEN BY THE ASSESSING OF FICER IS UNTENABLE AND HE MAY BE DIRECTED TO ALLOW ALL THE E XPENSES INCURRED IN RELATION TO DREDGING BUSINESS. ITA NO. 2372-AHD-04 5 2.4 WITHOUT PREJUDICE TO THE ABOVE AS THE APPELLA NT COMPANY HAD ALREADY COMMENCED THE CONSULTANCY BUSINESS IT H AD COMMENCED ITS BUSINESS ACTIVITIES. DREDGING BUSINES S WAS ALTOGETHER ANOTHER SEGMENT. BUT IT CANNOT BE SAID T HE EXPENSES HAD BEEN INCURRED PRIOR TO THE COMMENCEMENT OF BUSI NESS. SINCE THE BUSINESS OF THE APPELLANT COMPANY HAD ALREADY C OMMENCED ALL THE EXPENDITURE INCURRED MAY BE ALLOWED AS DEDU CTION.' 2.5 AS FAR AS THE ISSUE OF COMMENCEMENT OF BUSINES S IS CONCERN THE APPELLANT WOULD LIKE TO SUBMIT THAT IT IS A SET TLED PRINCIPLE AS HELD BY COURTS FOR DECIDING THE POINT OF COMMENCEME NT OF BUSINESS WHAT IS NECESSARY IS THAT THE BUSINESS MUS T BE PUT INTO SUCH A SHAPE THAT IT CAN START FUNCTIONING EITHER A S BUSINESS OR AS A MANUFACTURING ORGANIZATION AS THE CASE MAY BE. IN C ONSIDERING THE BUSINESS IS SO ESTABLISHED IT IS NECESSARY TO REMEM BER THAT A BUSINESS CANNOTES A CONTINUOUS COURSE OF SERIES OF ACTIVITIES AND THAT IN ORDER THAT THE BUSINESS MAY BE SAID TO HAVE COMMENCED IT IS NOT NECESSARY THAT ALL ACTIVITIES THAT GO TO MAK E UP THE BUSINESS SHOULD BE STARTED. IT IS THUS SUFFICIENT IF THAT O NE AMONG THE ACTIVITIES WHICH CONSTITUTE THE BUSINESS IS COMMENC ED WHICH IS FIRST IN THE POINT OF TIME AND WHICH MUST NECESSARILY PRE CEDE ALL OTHERS. THE WORDS READY TO COMMENCE WOULD NOT NECESSARILY M EAN THAT ALL THE INTEGRATED ACTIVITIES ARE FULLY CARRIED OUT AND /OR WHOLLY COMPLETED. THE REQUIREMENTS IS ALSO COMPLIED WITH I N A GIVEN CASE WHERE AN ASSESSEE HAD UNDERTAKEN THE FIRST OF THE K IND OF INTEGRATED ACTIVITIES MUST START EITHER SIMULTANEOU SLY OR THAT THE LAST STAGE MUST START BEFORE IT CAN BE SAID THAT THE BUS INESS WAS SET UP.. THE TEST TO BE APPLIED IS AS TO WHEN A BUSINES SMAN WOULD REGARD A BUSINESS AS HAVING COMMENCED AND THE APPRO ACH MUST BE FROM A COMMON SENSE POINT OF VIEW. WHAT IS MATER IAL IS THE DATE WHEN THE COMPANY WENT INTO OR STARTED ONE OR THE OT HER OF ITS COMPONENT ACTIVITIES. THIS LAW HAS BEEN APPROVED BY THE COURT IN CASE OF CIT VS SARABHAI MANAGEMENT CORPORATION LTD (1991) 192 ITR 151(SC) AFFIRMING SARABHAI MANAGEMENT CORPORATI ON LTD VS CIT (1976) 102 ITR 25 (GUJ) CIT VS INCHECK TYRES LT D (1983) 141 ITR 937 (CAL). 2.6 IN CASE BEFOREHAND IT HAS NOT BEEN DOUBTED BY THE ASSESSING OFFICER THAT THE APPELLANT HAS INCURRED VARIOUS DIR ECT EXPENSE RELATING TO CONSULTING AND DREDGING SERVICES BEFORE JUNE 2005. EVEN IF IT IS ASSUMED THAT NO RECEIPT HAS BEEN RECE IVED FROM SUCH ACTIVITIES TILL JUNE 2005 STILL THE BUSINESS ACTIVI TY CAN BE CONSIDERED ITA NO. 2372-AHD-04 6 AS COMMENCED APPLYING THE ABOVE LEGAL RATIO AND THE EXPENSES INCURRED WILL BE ALLOWABLE AS REVENUE IN NATURE. 2.7. TAKING INTO ACCOUNT THE ABOVE PRINCIPLE THE DISALLOWED EXPENSE AMOUNTING TO RS. 9 34 213/- DESERVES TO BE DELETED. 4.1 THE LD. CIT(A) AFTER CONSIDERING THE WRITTEN S UBMISSIONS FILED BY THE A.R. AND THE OBSERVATIONS OF THE AO IN THE ASSE SSMENT ORDER CAME TO THE FOLLOWING CONCLUSION: 4.1. I HAVE CONSIDERED THE SUBMISSIONS MADE BY THE A.R. OF THE APPELLANT AND THE OBSERVATIONS OF THE ASSESSING OFF ICER IN THE ASSESSMENT ORDER. I AM INCLINED TO ACCEPT THE CONTE NTIONS PUT FORTH BY THE A.R. OF THE APPELLANT. A.O. IS DIRECTED TO V ERIFY THE APPELLANTS CONTENTIONS AND DELETE THE DISALLOWANCE MADE BY HIM. SUBJECT TO VERIFICATION THIS GROUND OF APPEAL IS AL LOWED. 5. THE LD. D.R. HAD REITERATED MORE OR LESS WHAT WA S REPRESENTED BEFORE THE FIRST APPELLATE AUTHORITY. THE D.R. SUBM ITTED THAT SINCE THE ASSESSEE HAD NOT FURNISHED ANY SUPPORTING DOCUMENTA RY EVIDENCE TO PROVE THAT THE EXPENDITURE INCURRED FOR RS. 9 34 21 3/- PERTAINS TO THE PERIOD AFTER THE COMMENCEMENT OF BUSINESS THE ASSE SSEE MAY NOT BE ALLOWED DEDUCTION. THE LD.DR SUPPORTED THE ORDER OF THE A.O. AND PRAYED THAT THE ORDER OF THE LD. CIT(A) MAY BE SET ASIDE AND THE ORDER OF THE AO BE RESTORED. 7. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIO NS AND PERUSED THE MATERIALS ON RECORD. IT IS APPARENT THAT THE AS SESSEE HAD NOT PRODUCED THE REQUISITE DOCUMENTS TO CLEAR THE ISSUE S RAISED BY THE LD.AO AT THE TIME OF THE ASSESSMENT PROCEEDINGS. TH E ASSESSEE HAD ALSO NOT COME UP WITH ANY MATERIALS BEFORE THE LD.C IT(A) TO PROVE ITS STAND HOWEVER THE LD.CIT(A) MAGNANIMOUSLY REMITTED THE CASE BACK TO THE FILE OF THE LD.AO WITH DIRECTIONS TO VERIFY THE APPELLANTS CONTENTIONS AND DELETE THE DISALLOWANCE MADE SUBJECT TO VERIFI CATION OF THE ITA NO. 2372-AHD-04 7 SUBMISSIONS MADE BY THE ASSESSES AR. IN THESE CIRC UMSTANCES WE ARE OF THE CONSIDERED OPINION THAT THE MATTER REQUIRES TO BE REMITTED BACK TO THE FILE OF LD. AO FOR DE NOVO CONSIDERATION AND PASS APPROPRIATE ORDERS AS PER LAW AND MERIT AND IN THE LIGHT OF ALL THE SU BMISSIONS MADE BY THE LD. A.R. IT IS ORDERED ACCORDINGLY. 8. IN THE RESULT THE REVENUES APPEAL IS ALLOWED FOR STATISTICAL PURPOSES. 1 #0 /!& 2'' 04 / 11 /201 1 ! 3 4. 5 SD/- SD/- (MUKUL KR. SHRAWAT) (A.MOHA N ALANKAMONY) JUDICIAL MEMBER ACCOUNTANT M EMBER DATED : 04/11/2011 #0 #0 #0 #0 *6 *6 *6 *6 7#6&' 7#6&' 7#6&' 7#6&' - 1. () 2. *+() 3. 8 4. 8 - - 5. 694 *' 5 6. 4 :1 #0 # ; / < 5 TALUKDAR/ SR. P.S .