DCIT CC-20, v. Ansal Housing & Construction Ltd,

ITA 3304/DEL/2007 | 2003-2004
Pronouncement Date: 09-09-2011 | Result: Partly Allowed

Appeal Details

RSA Number 330420114 RSA 2007
Assessee PAN AAACA0377R
Bench Delhi
Appeal Number ITA 3304/DEL/2007
Duration Of Justice 4 year(s) 1 month(s) 28 day(s)
Appellant DCIT CC-20,
Respondent Ansal Housing & Construction Ltd,
Appeal Type Income Tax Appeal
Pronouncement Date 09-09-2011
Appeal Filed By Department
Order Result Partly Allowed
Bench Allotted A
Tribunal Order Date 09-09-2011
Date Of Final Hearing 11-01-2011
Next Hearing Date 11-01-2011
Assessment Year 2003-2004
Appeal Filed On 12-07-2007
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH A NEW DELHI BEFORE SHRI R.P. TOLANI AND SHRI SHAMIM YAHYA ITA NOS. 4277/DEL/09 4817/DEL/05 & 3304/DEL/07 ASSTT. YRS: 1999-2000 2002-03 & 2003-04 DCIT CEN. CIR.-20 VS M/S ANSAL HOUSING & CONSTRU CTION LTD. NEW DELHI. 15 UGF INDRAPRAKASH BUILDING 21 BARAKHAMBA ROAD NEW DELHI. AND ITA NOS. 3192/DEL/08 & 4595/DEL/05 ASSTT. YRS: 2001-02 & 2002-03 M/S ANSAL HOUSING & CONSTRUCTION LTD. VS. DCIT C EN. CIR.-20 15 UGF INDRAPRAKASH BUILDING NEW DELHI. 21 BARAKHAMBA ROAD NEW DELHI. PAN/GIR NO.AAACA0377R ( APPELLANT ) ( RESPONDENT ) DEPARTMENT BY : SHRI ASHOK PANDEY SR. DR ASSESSEE BY: SHRI GAURAV JAIN ADV. & MS. JANPRI YA ROOPRANI O R D E R PER R.P. TOLANI J.M : THE REVENUE IS IN APPEAL AGAINST SEPARATE ORDERS OF CIT(A) RELATING TO A.Y. 1999-2000 2002-03 & 2003-04 AND THE ASSESSEE IS IN APPEAL FOR A.Y. 2001-02 & IN CROSS-APPEAL FOR A.Y. 2002-03. ALL THE SE APPEALS WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY A CONSOLIDATE D ORDER FOR THE SAKE OF CONVENIENCE. 2 ITA NO. 4277/DEL/2009 (REVENUES APPEAL FOR A.Y. 19 99-2000) : 2. THIS IS REVENUES APPEAL AGAINST CIT(A)S ORDER DATED 19-8-2009 RELATING TO A.Y. 1999-2000. FOLLOWING GROUNDS ARE R AISED: 1. THE ORDER OF THE LD. CIT(A) IS NOT CORRECT IN L AW AND FACTS. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E THE LD. CIT(A) HAS ERRED IN LAW IN ALLOWING DEDUCTION U/S 8 0- IA(4F)/80-IB(10) WHILE WRONGLY TAKING INTO CONSIDER ATION THE RETURN OF INCOME FILED BELATEDLY ON 27-12-2001 CLAI MED AS REVISED RETURN WHEREAS NO SUCH CLAIM HAD BEEN MADE IN THE ORIGINAL RETURN OF INCOME. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E THE LD. CIT(A) HAS ERRED IN LAW IN ALLOWING DEDUCTION U/S 8 0- IA(4F)/80-IB(10) IN RESPECT OF THREE PROJECTS WHERE AS IN THE CASES OF TWO PROJECTS THE CHARTERED ACCOUNTANTS IN THEIR STATUTORY REPORT HAVE CERTIFIED THAT THESE TWO PROJ ECTS COMMENCED BEFORE 01-10-1998 AND FOR WHICH THE ASSES SEE COMPANY IS NOT ENTITLED FOR ANY DEDUCTION UNDER SEC TION 80- IA(4F)/80-IB(10). 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E THE LD. CIT(A) HAS ERRED IN LAW IN ALLOWING DEDUCTION U/S 8 0- IA(4F)/80-IB(10) WHEREAS THE ASSESSEE COMPANY HAD A LREADY MADE EXPENDITURE OF RS. 103 01 73 852/- UP TO 31-3- 1998 AND SMALL EXPENDITURE OF RS. 9 61 17 965/- HAD BEEN MAD E IN THE PREVIOUS YEAR THUS SHOWING THAT SUBSTANTIAL EXPENDI TURE HAD ALREADY BEEN INCURRED ON THE PROJECTS. 5. THE APPELLANT CRAVES LEAVE TO ADD ALTER OR AMEN D ANY/ ALL OF THE GROUNDS OF APPEAL BEFORE OR DURING THE COURS E OF THE HEARING OF THE APPEAL. 3. LEARNED DR SUPPORTS THE ORDER OF AO. 3 4. LEARNED COUNSEL FOR THE ASSESSEE ON THE OTHER H AND CONTENDS AS UNDER: 4.1. DURING THE COURSE OF ORIGINAL ASSESSMENT PROCE EDINGS THE ASSESSEE BY FILING REVISED COMPUTATION OF INCOME PREFERRED CLAI M OF DEDUCTION U/S 80- IB(10) OF THE ACT IN RESPECT OF PROJECTS GOLF LINK I & II GREATER NOIDA AND AVANTIKA AAKRITI PROJECTS. THE AO DID NOT ENTERTAIN THE CLAIM MADE IN THE REVISED COMPUTATION ON THE GROUND THAT THE SAME WAS NOT MADE BY WAY OF FILING REVISED RETURN WITHIN THE TIME STIPULATED U/ S 139(5) OF THE ACT. THE CIT(A) AFTER CONSIDERING THE SUBMISSIONS AND LAW R EVERSED THE ACTION OF THE AO IN NOT EXAMINING/ ENTERTAINING THE FRESH CLAIM O N THE AFORESAID GROUND AND SET ASIDE THE MATER TO THE FILE OF AO IN ORDER TO DECIDE THE ISSUE ON MERITS AS PER LAW. ON FURTHER APPEAL FILED BY THE D EPARTMENT AND CROSS- OBJECTIONS FILED BY THE ASSESSEE THE ITAT UPHELD T HE ORDER OF THE CIT(A). 4.2. IN SET ASIDE PROCEEDINGS THE AO ON THE BASIS OF SIMILAR FINDINGS AS GIVEN ON MERITS QUA ALLOWABILITY OF DEDUCTION U/S 8 0-IB(10) FOR SAME PROJECTS IN THE ASSESSMENT ORDERS FOR A.YRS. 2000-0 1 AND 2001-02 DISALLOWED THE DEDUCTION CLAIMED BY THE ASSESSEE ON THE FOLLOWING GROUNDS: (1) THE PROJECTS COMMENCED CONSTRUCTION PRIOR TO 1-10-1 998 BEING THE CUT-OFF DATE STIPULATED U/S 80IA(4F)/ 80-IB(10) FO R CLAIMING DEDUCTION UNDER THAT SECTION; 4 (2) THE BUILT UP AREA IN CASE OF CERTAIN HOUSES IN THE PROJECT EXCEEDED 1000 SQ. FT. BEING THE SIZE OF HOUSING PROJECT STIP ULATED U/S 80IA(4F)/80-IB(10) FOR CLAIMING DEDUCTION UNDER THA T SECTION. 4.3. IN SUCCEEDING ASSESSMENT YEARS VIZ. 2000-01 AN D 2001-02 ASSESSMENT ORDERS PASSED U/S 143(3) WERE REVISED BY CIT U/S 26 3 OF THE ACT WITH THE DIRECTIONS TO DISALLOW DEDUCTION CLAIMED BY THE ASS ESSEE U/S 80-IB(10) IN RESPECT OF GOLF LINK I & II GREATER NOIDA; AVANT IKA AAKRITI AND EAST END LONI PROJECTS. 4.5. ON FURTHER APPEAL FILED BY THE ASSESSEE BEFORE ITAT AGAINST THE AFORESAID ORDERS PASSED BY CIT U/S 263 FOR A.Y. 200 0-01 AND 2001-02 THE ITAT VIDE ORDER DATED 12-6-2009 DECIDED THE ISSUE O F ELIGIBILITY OF DEDUCTION GOLF LINK I & II GREATER NOIDA AND AVANT IKA AAKRITI IN FAVOUR OF ASSESSEE ON MERITS WITH THE FOLLOWING FINDINGS. (A) THE BUILT UP AREA OF HOUSES IN THE PROJECT EXCEPT 5 HOUSES IN EAST END LONI AND 6 HOUSES IN AVANTIKA AAKRITI DID NOT EXCEED THE STATUTORY LIMIT OF 1000 SQ. FT. AS PER THE COMPLETI ON CERTIFICATES ISSUED BY THE APPROPRIATE AUTHORITY AND THEREFORE DEDUCT ION COULD NOT BE DISALLOWED IN RESPECT OF SUCH HOUSES. (B) THE CONSTRUCTION OF ALL THE HOUSING PROJECTS EFFECT IVELY COMMENCED AFTER THE STATUTORY DATE OF 1-10-1998 AND THEREFORE DEDUCTION U/S 80- 5 IB(10) WAS RIGHTLY CLAIMED AND ALLOWED IN THE ORIGI NAL ASSESSMENT PROCEEDINGS. 4.6. ON APPEAL AGAINST THE CAPTIONED ORDER PASSED B Y THE AO U/S 143(3)/250 FOR A.Y. 1999-2000 THE CIT(A) WHILE FO LLOWING THE AFORESAID DECISION OF ITAT IN THE ASSESSEES OWN CASE FOR A.Y . 2000-01 AND 2001-02 ALLOWED THE APPEAL IN FAVOUR OF THE ASSESSEE AND UP HELD THE CLAIM OF DEDUCTION U/S 80-IB(10) ON MERITS BY HOLDING AS UND ER: ON PERUSAL OF THE DETAILS FILED AND CAREFUL CONSID ERATION OF AL FACTS AND CIRCUMSTANCES OF THE CASE THE CASE OF TH E APPELLANT DURING THE YEAR IS SQUARELY COVERED BY THE ORDER OF HONBLE ITAT A BENCH (ITA NO. 1922 AND 1923/DEL/2005) FOR ASSESSMENT YEAR 2000-01 AND 2001-02 OF THE ASSESSEE . 6.3. IN VIEW OF THE ABOVE DISCUSSION AND DIFFERENT JUDICIAL PRONOUNCEMENTS AS CITED ABOVE PARTICULARLY FOLLOWIN G THE DECISION OF ITAT DELHI A BENCH IN THE CASE OF THE SAID ASSESSEE FOR ASSESSMENT YEAR 2000-01 AND 2001-2002 THE CLAIM OF THE ASSESSEE U/S 80IA(4F) IS DIRECTED TO B E ALLOWED EXCEPT IN THE CASE OF SIX UNITS OF AWANTIKA AAKRITI WHICH EXCEEDED THE STATUTORY LIMIT OF 1000 SQ. FT. PER UN IT AS MENTIONED ABOVE. THUS THE APPEAL OF THE APPELLANT ON THIS GROUND IS PARTLY ALLOWED. 5. WE HAVE HEARD RIVAL CONTENTIONS AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. WE FIND MERIT IN THE ARGUMENT OF THE LEARNED COUNSEL FOR THE ASSESSEE THAT THE ISSUE IN QUESTION IN RESPECT OF PROJECTS GOLF LINK I & II GREATER NOIDA AND AVANTIKA AAKRITI IS COVERED BY EARLIER ORDERS DATED 12-6-2009 OF THE ITAT IN ASSESSEES OWN CASE IN ITA NOS. 1922 & 6 1923/DEL/2005 FOR A.Y. 2000-01 AND 2001-02 INTER A LIA GIVING FOLLOWING OBSERVATIONS: 17. RESPECTFULLY FOLLOWING THE AFORESAID THREE DEC ISIONS WE HOLD THAT THE DEDUCTION TO THE ASSESSEE CAN BE ALLO WED WITH RESPECT TO THE UNITS WHICH DID NOT EXCEED THE STATU TORY LIMIT OF 1000 SQ. FT. AND THE ASSESSEE WOULD NOT BE ENTITLED TO REDUCTIONS OF THE BUILT UP AREA IN 5 HOUSES IN EAST END LONI A ND 6 HOUSES IN AVANTIKA AAKRITI AS REFERRED TO IN PARAGRAPH 10 OF THE ORDER AFORESAID. WE ORDER ACCORDINGLY. . 21. IN VIEW OF THE AFORESAID TWO DECISIONS WE ARE OF THE OPINION THAT DEDUCTION UNDER SECTION 80-IB(10) HAS BEEN RIGHTLY ALLOWED ON HOUSING PROJECTS BECAUSE THE BUILDING PL ANTS OF THE RESIDENTIAL UNITS WERE APPROVED AFTER 1.10.98 ONLY AND THE CONSTRUCTION HAS TO BE DEEMED TO HAVE BEEN COMMENCE D ON OR AFTER THE DATE OF APPROVAL ITSELF. 22. IT SHOULD NOT BE LOST SIGHT THAT THESE ARE THE REVISION PROCEEDINGS AND IN SUCH PROCEEDINGS THE ALLOWANCE O F DEDUCTION UNDER SECTION 80IB(10) TO THE ASSESSEE CO ULD NOT BE REVISED AS THE ISSUE IN ANY CASE WAS DEBATABLE AND ONE OF THE POSSIBLE VIEWS WAS TAKEN BY THE ASSESSING OFFICER W HILE GRANTING DEDUCTION TO THE ASSESSEE. IT WAS ALSO ALL OWED BY THE CIT(APPEALS) IN THE SUCCEEDING ASSESSMENT YEARS VIZ . 2002-03 AND 2003-04. THE REVISION OF IMPUGNED ASSESSMENT OR DERS AS SOUGHT TO BE MADE BY THE CIT WHILE EXERCISING JURI SDICTION UNDER SECTION 263 WOULD IN SUCH A CASE BE MERELY A DIFFERENCE OF OPINION AND HENCE NOT AMENABLE TO THE REVISION J URISDICTION UNDER SECTION 263 OF THE ACT IN VIEW OF SUPREME CO URT DECISION IN THE CASES OF MALABAR INDUSTRIAL CO. LTD . VS. CIT 243 ITR 83(SC) AS ALSO LATER DECISION IN CIT V. MAX INDIA LTD. 295 ITR 282 (SC). 23. WE HOLD THEREFORE THAT CIT IS NOT RIGHT IN HOLD ING THAT AO FAILED TO MAKE ENQUIRIES OR TO APPLY HIS MIND AN D ALLOWED DEDUCTION UNDER SECTION 80IB(10) OF THE ACT. WE THE REFORE VACATE HIS ORDER AND RESTORE THAT OF THE AO. IT IS HOWEVER 7 EXCEPT FOR THE CONSTRUCTION FOUND TO BE IN EXCESS B UILT UP AREA OVER 1000 SQ. FT. AS AFORESAID AND IN RESPECT OF WH ICH THE ASSESSEE WOULD NOT ENTITLED TO DEDUCTION. 5.1. RESPECTFULLY FOLLOWING THE ITAT ORDER IN ASSES SEES OWN CASE WE UPHOLD THE ORDER OF CIT(A) ON THIS ISSUE. IN THE RE SULT REVENUES APPEAL BEING ITA NO. 4277/DEL/09 FOR A.Y. 1999-2000 IS DIS MISSED. ITA NO. 3192/DEL/08 (ASSESSEES APPEAL FOR A.Y. 200 1-02 : 6. THIS IS ASSESSEES APPEAL AGAINST CIT(A)S ORDER DATED 27-8-2008 RELATING TO A.Y. 2001-02. 7. GROUND NOS. 1 TO 6 RAISE ONE ISSUE IN RESPECT OF DENIAL OF DEDUCTION U/S 80-IB(10); GROUND NO. 7 RELATES TO CHARGING OF INTE REST U/S 234B AND WITHDRAWAL OF INTEREST U/S 244A. 7.1. THE ASSESSEE HAS ALSO SOUGHT TO RAISE AN ADDIT IONAL GROUND WHICH IS AS UNDER: WITHOUT PREJUDICE THAT ON FACTS AND CIRCUMSTANCES OF THE CASE THE EXPENDITURE BY WAY OF PAYMENT OF RS. 18 75 195/ - TO RHW HOTEL MANAGEMENT SERVICES LTD. ON ACCOUNT OF CONSUL TATION/ DEVELOPMENT FEES CLAIMED AS DEDUCTION IN THE ASSESS MENT YEAR 2002-03 MAY KINDLY BE DIRECTED TO BE ALLOWED AS DED UCTION IN THE ASSESSMENT YEAR 2001-02. 7.2. LEARNED COUNSEL FOR THE ASSESSEE CONTENDS THAT ASSESSEE HAD COMMENCED RESTAURANT BUSINESS DURING THE FINANCIAL YEAR ENDING 31.3.2002 RELEVANT TO A.Y. 2002-03 . IN ORDER TO EXTEND THE B USINESS IN THE FIELD OF 8 HOSPITALITY AND FOR OPERATING THE RESTAURANT THE A PPELLANT SOUGHT PROFESSIONAL SERVICES OF RSW HOTEL MANAGEMENT SERVICES LTD. NEW DELHI. THE AGREEMENT FOR SUCH SERVICES WAS ENTERED ON 17 TH AUGUST 2000. IN TERMS OF THAT AGREEMENT INVOICES OF RS. 18 75 195/- WERE RA ISED BY RSW HOTEL MANAGEMENT SERVICES LTD. IN THE FINANCIAL YEAR ENDI NG 31 ST MARCH 2001. 7.3. SINCE THE BUSINESS OF RESTAURANT COMMENCED DUR ING THE FINANCIAL YEAR ENDING 31-3-2002 THE AFORESAID AMOUNT OF RS. 18 7 5 195/- WAS ACCOUNTED AS EXPENSE IN THE BOOKS OF ACCOUNT AND ACCORDINGLY DEDUCTION WAS CLAIMED IN THE RETURN OF INCOME FOR THAT YEAR. 7.4. UNDER THE PROVISIONS OF THE INCOME-TAX ACT TH E EXPENSE IS HOWEVER ALLOWABLE AS DEDUCTION IN THE YEAR OF ACCRUAL OF EX PENSES WHICH FOR THE SAME WILL ASSESSMENT YEAR VIZ. 2001-02. THROUGH TH E AFORESAID ADDITIONAL GROUND OF APPEAL THE APPELLANT SEEKS DIRECTION FOR ALLOWABILITY OF SUCH EXPENSE IN A.Y. 2001-02 IF THEY ARE NOT ALLOWED IN A.Y. 2002-03. THE OTHER DETAILS WITH RESPECT TO SUCH EXPENSE ARE PART OF TH E RECORD OF THE DEPARTMENT AND NO FRESH INVESTIGATION INTO FACTS IS CALLED FOR . 7.5. IT IS CONTENDED THAT THE ADDITIONAL GROUND OF APPEAL IS BEING RAISED PURSUANT TO A CONTINGENCY WHICH MAY ARISE DUE TO TE CHNICAL INTERPRETATION OF LAW. THE OMISSION TO RAISE THE AFORESAID ADDITIONAL GROUND OF APPEAL IS NEITHER WILLFUL NOR UNREASONABLE. RELIANCE IS PLACE D ON THE SUPREME COURT 9 IN THE CASE OF NATIONAL THERMAL POWER COMPANY LTD. VS. CIT 229 ITR 383 AND THE POWERS VESTED IN THE ITAT UNDER RULE 11 OF THE INCOME-TAX (APPELLATE TRIBUNAL) RULES 1963. 8. AFTER HEARING BOTH THE PARTIES WE ARE INCLINED TO ADMIT THE ADDITIONAL GROUND. 9. WHILE DECIDING REVENUES APPEAL FOR A.Y. 1999-20 00 (SUPRA) WE HAVE HELD THAT THE ASSESSEE IS ENTITLED FOR DEDUCTION U/ S 80-IB(10). RESPECTFULLY FOLLOWING THE VERY SAME REASONS HEREIN ALSO WE DEC IDE THE FIRST ISSUE AS RAISED IN GROUND NOS. 1 TO 6 IN THE PRESENT APPEAL PERTAINING TO DEDUCTION U/S 80-IB(10) IN FAVOUR OF THE ASSESSEE. 10. CHARGING OF INTEREST U/S 234B/ 2441 OF THE ACT IS CONSEQUENTIAL IN NATURE. THE AO SHALL RECALCULATE THE CHARGING OF INTEREST IF ANY WHILE GIVING APPEAL EFFECT TO APPELLATE ORDER. 11. ADDITIONAL GROUND ABOUT EXPENDITURE BY WAY OF P AYMENT TO RHW HOTEL MANAGEMENT SERVICES LTD. SHALL BE CONSIDERED ALONG WITH APPEAL FOR A.Y. 2002-03. ITA NO. 4595/DEL/05 ( ASSESSEES APPEAL FOR A.Y. 20 02-03) : 12. THIS IS ASSESSEES APPEAL AGAINST CIT(A)S ORDE R DATED 20-9-2005 RELATING TO A.Y. 2002-03. EFFECTIVE GROUNDS OF APPE AL ARE AS UNDER: 10 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE CIT(A)-I HAS ERRED IN TREATING THE EXPENSE S OF RS. 46 55 750/- INCURRED ON CONSULTATION/ DEVELOPMENT F EE PAID TO FRANCHISER COMPANIES AS CAPITAL EXPENDITURE AND IN NOT PROVIDING DEDUCTIONS AS REVENUE EXPENDITURE CLAIMED U/S 37(1) OF THE INCOME TAX ACT 1961. THE ACTION OF THE CIT(A)-I BEING ARBITRARY ERRONEO US UNWARRANTED AND UNJUST MUST BE QUASHED WITH DIRECT IONS FOR RECKONING THE SAME AS REVENUE OUTGOING. 2. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE CIT(A)-I HAS ERRED IN LAW AND ON THE FACTS IN NOT GIVING HIS JUDGMENT REGARDING WITHDRAWAL OF INTEREST ALLOW ED U/S 244A AS WELL AS CHARGING OF INTEREST U/S 234D IN ITNS 15 0 DATED 30 TH MARCH 2005 ANNEXED TO THE ASSESSMENT ORDER AND BOT H THE DEMANDS ARE WITHOUT THE AUTHORITY OF LAW AS HAVING NOT BEEN AUTHORIZED TO DO SO IN THE BODY OF THE ASSESSMENT O RDER. 13. THE ASSESSEE HAS FURTHER SOUGHT TO RAISE THE FO LLOWING ADDITIONAL GROUND OF APPEAL: WITHOUT PREJUDICE THAT ON FACTS AND CIRCUMSTANCES OF THE CASE THE EXPENDITURE BY WAY OF PAYMENT OF RS. 18 75 195/ - TO RHW HOTEL MANAGEMENT SERVICES LTD. ON ACCOUNT OF CONSUL TATION/ DEVELOPMENT FEES MAY KINDLY BE DIRECTED TO BE ALLOW ED AS DEDUCTION IN THE ASSESSMENT YEAR 2001-02. 13.1. AFTER HEARING BOTH THE PARTIES WE ADMIT THE ADDITIONAL GROUND WHICH IS CONSEQUENTIAL/ ALTERNATE WITH A.Y. 2001-02 AS ME NTIONED ABOVE. 14. LEARNED COUNSEL FOR THE ASSESSEE CONTENDS THAT: 14.1. THE APPELLANT IS A LIMITED COMPANY ENGAGED INTER ALIA IN THE BUSINESS OF DEVELOPMENT AND CONSTRUCTION OF HOUSING PROJECTS. DURING THE 11 RELEVANT PREVIOUS YEAR ASSESSEE EXTENDED ITS EXIST ING BUSINESS IN THE FIELD OF HOSPITALITY VIZ. BUSINESS OF SETTING UP OPERATIN G/RUNNING OF RESTAURANTS. 14.2. TO SET UP RESTAURANTS AS PART OF THE AFORESA ID BUSINESS OF HOSPITALITY THE ASSESSEE OBTAINED PROFESSIONAL SERVICES OF TWO LEADING CONSULTANTS VIZ. RHW HOTEL MANAGEMENT SERVICES LTD. NEW DELHI AND Y ORKSHIRE GLOBAL LICENSING NETHERLANDS BV. THE ASSESSEE ENTERED IN TO FOLLOWING AGREEMENTS WITH THE ABOVE REFERRED PARTIES: - FRANCHISE & MANAGEMENT AGREEMENT WITH RHW HOTEL MANAGEMENT PVT. LTD. DATED 17.8.2000 - AREA DEVELOPMENT AGREEMENT WITH YORKSHIRE GLOBAL RESTAURANT JUNE 1 2001 14.3. IN ACCORDANCE WITH THE AFORESAID AGREEMENT(S) THE ASSESSEE MADE FOLLOWING PAYMENTS TO THE AFORESAID PARTIES TOWARDS CONSULTANCY/TECHNICAL ASSISTANCE/TECHNICAL KNOW-HOW OBTAINED FROM SUCH VE NDORS TOWARDS SETTING- UP OF RESTAURANT(S): RHW HOTEL MANAGEMENT PVT. LTD. RS. 18 75 195 YORKSHIRE GLOBAL RESTAURANT RS. 27 80 375 RS. 46 55 570 14.4. PAYMENT OF RS. 18 75 195 WAS MADE TO RHW HOTE L MANAGEMENT (P) LTD. DURING THE PERIOD RELEVANT TO ASSESSMENT YEAR 2001-02. THE SAID EXPENDITURE WAS DEBITED AS PRE-PAID EXPENSE IN TH E BOOKS OF ACCOUNT FOR THE YEAR ENDING 31.3.2001 AND NO DEDUCTION WAS CLAIMED FOR SUCH EXPENDITURE IN 12 THE RETURN OF INCOME FOR THE ASSESSMENT YEAR 2001-0 2 SINCE THE RESTAURANT BEING SET-UP HAD NOT COMMENCED OPERATIONS DURING THAT YEAR. 14.5. IN THE RETURN OF INCOME FOR THE RELEVANT ASSE SSMENT YEAR THE AFORESAID EXPENSES INCLUDING PAYMENT OF RS. 18 75 195 MADE I N THE ASSESSMENT YEAR 2001-02 WERE CLAIMED AS REVENUE EXPENDITURE BY THE ASSESSEE. 14.6. IN THE ASSESSMENT ORDER THE ASSESSING OFFICE R DISALLOWED THE AFORESAID EXPENDITURE ON THE FOLLOWING GROUNDS: 1. SINCE THE CONSULTANCY FEE WAS PAID TO RHW HOTEL MANAGEMENT DURING THE FINANCIAL YEAR 2000-01 THE ASSESSING OF FICER OBSERVED THAT THE SAID PAYMENT WAS MADE PRIOR TO COMMENCEMEN T OF RESTAURANT BUSINESS (COMMENCED DURING THE RELEVANT PREVIOUS YEAR) AND WAS THEREFORE NOT AN ALLOWABLE REVENUE EXPENDITURE; 2 THE EXPENSES WERE CAPITAL IN NATURE SINCE THE SAM E RESULTED IN ACQUISITION OF CAPITAL ASSET IN THE NATURE OF TECHN ICAL KNOW-HOW AND FRANCHISE FROM THE VENDORS AS ALSO THE ASSESS EE HAD OBTAINED ADVANTAGE OF ENDURING NATURE BY STARTING A NEW BUSI NESS OF RESTAURANT THROUGH KNOW-HOW ACQUIRED FROM VENDORS. 14.7. THE CIT(APPEALS) UPHELD THE ACTION OF THE ASS ESSING OFFICER AND HELD THAT THE IMPUGNED EXPENDITURE WAS CAPITAL IN NATURE SINCE THE SAME AS IT RESULTED IN BENEFIT OF ENDURING NATURE TO THE ASSES SEE. THE CIT(APPEALS) HOWEVER DIRECTED THE ASSESSING OFFICER TO ALLOW DE PRECIATION THEREON AS PER RULES. 14.8. THE IMPUGNED EXPENDITURE INCURRED BY THE ASSE SSEE FOR OBTAINING TECHNICAL ASSISTANCE/TECHNICAL KNOW-HOW TOWARDS SET TING UP/ RUNNING RESTAURANTS IS ALLOWABLE REVENUE EXPENDITURE FOR TH E FOLLOWING REASONS: 14.9. PERUSAL OF THE VARIOUS CLAUSES OF THE AGREEM ENT DATED 17-8-2000 EXECUTED BETWEEN ASSESSEE AND RHW HOTEL MANAGEMENT SERVICES LTD. 13 REVEALS THAT THE IMPUGNED PAYMENT WAS MADE TO RHW H OTEL MANAGEMENT SERVICES LTD. TOWARDS TECHNICAL ASSISTANCE SERVICE S PROVIDED BY THAT COMPANY FOR OPENING AND RUNNING THE RESTAURANTS. T HE ASSESSEE DID NOT ACQUIRE ANY CAPITAL ASSET OR ANY ENDURING ADVANTAGE IN THE NATURE OF KNOW- HOW FROM THE SAID VENDOR. THE ASSESSEE DID NOT ACQU IRE ANY PROPRIETARY RIGHTS IN THE KNOW-HOW AND WAS ONLY ENTITLED TO USE THEREOF DURING THE CURRENCY F THE AGREEMENT. ON TERMINATION OF THE AGR EEMENT THE ASSESSEE WAS OBLIGED TO STOP USING THE BRAND NAME OF THE RESTAUR ANT (SUPER STAR) ASSOCIATED WITH IT AND RETURN ANY PROPERTY USED I N THE RESTAURANT OWNED BY THE VENDOR/OPERATOR. IN SUCH CIRCUMSTANCES IT COUL D NOT BE SAID THAT THE ASSESSEE ACQUIRED ANY PROPRIETARY RIGHTS IN THE KNO W-HOW/TECHNICAL ASSISTANCE FEES SO AS TO CONSTITUTE PAYMENTS MADE TO RHW MANAGEMENT SERVICES LTD. AS CAPITAL EXPENDITURE. 14.10.TERMS OF FRANCHISEE AGREEMENT ENTERED WITH YO RKSHIRE HOTEL ARE SALSO SIMILAR WHEREIN TOO THE ASSESSEE ONLY HAD THE RI GHT TO USE THE KNOW-HOW AND BRAND NAME OF THE FRANCHISER TO RUN THE RESTAUR ANT DURING THE CURRENCY OF THE AGREEMENT WITHOUT ANY OWNERSHIP/DISPOSITION RI GHTS IN THE SAME OR ENDURING ADVANTAGE IN THE CAPITAL FIELD. IN SUCH CI RCUMSTANCES THE ASSESSEE DID NOT ACQUIRE ANY CAPITAL ASSET. 14.11. RELIANCE IN THIS REGARD IS PLACED ON THE F OLLOWING DECISIONS WHEREIN IT HAS BEEN CONSISTENTLY HELD THAT PAYMENT MADE FOR OBTAINING ACCESS TO INFORMATION AND RESTRICTED LICENSE TO USE OF KNOW-H OW UTILIZED TOWARDS CARRYING ON BUSINESS SHOULD BE TREATED AS REVENUE EXPENDITURE: - CIT V. CIBA INDIA LTD. 69 ITR 692 (SC) - ALEMBIC CHEMICAL WORKS CO. LTD. V. CIT 177 ITR 377 (SC) - CIT VS. BRITISH INDIA CORPN. LTD. 165 ITR 51 (SC) - CIT V. INDIA OXYGEN LTD. 218 ITR 337 (SC) 14 - CIT V. IAEC (PUMPS) LTD. 232 ITR 316 (SC) - CIT V. WAVIN (INDIA) LTD. 236 ITR 314 (SC) - SHRIRAM REFRIGERATION INDUSTRIES LTD. V. CIT 127 IT R 746(DEL) - TRIVENI ENGINEERING WORKS LTD. V. CIT 136 ITR 340 ( DEL) - SHRIRAM REFRIGERATION INDUSTRIES LTD. V. CIT: 127 I TR 746(DEL) - TRIVENI ENGINEERING WORKS LTD. V. CIT:136 ITR 340 (DEL) - ADDL. CIT V. SHAMA ENGINE VALVES LTD.:138 ITR 216 ( DEL) - CIT V. BHAI SUNDER DASS & SONS P. LTD.:158 ITR 195 (DEL) - CIT V. TATA ENGINEERING & LOCOMOTIVE CO. PVT. LTD. 123 ITR 538 (BOM) - BAJAJ TEMPO LTD. V. CIT 207 ITR 1017 (BOM) - CIT V. AVERY INDIA LTD. 207 ITR 813 (CAL) - CIT V. MADRAS RUBBER FACTORY LTD. 212 ITR 443 (MAD) - SRP TOOLS LTD. V CIT: 237 ITR 684(MAD) - CIT V SOUTHERN PRESSINGS (P) LTD.: 242 ITR 67(MAD) - CIT V. POWER BUILD LTD: 244 ITR 19 (GUJ) - CIT V GUJARAT CARBON LTD. : 254 ITR 294(GUJ) - CIT V. KIRLOSKAR TRACTORS LTD.: 98 TAXMAN 112 (BOM. ) - CIT V SWARAJ ENGINES LTD. : 154 TAXMANN 243(P & H) - CIT V ZAVERCHAND GAEKWAD (P) LTD. : 202 CTR 94(GUJ. ) - CIT V JCT ELECTRONICS LTD. : 203 CTR 315(P &H) - CIT V. KANPUR CIGARETTES (P) LTD.: 287 ITR 485 (ALL .) - CIT V. EICHER MOTORS LTD.: 293 ITR 464 (MP)(INDORE BENCH) - SHRIRAM PISTONS & RINGS LTD. V. CIT: 171 TAXMAN 81 (DEL.) - CIT V. LUMAX INDUSTRIES LTD.: 173 TAXMAN 390 (DEL.) - CIT V. J.K. SYNTHETICS LTD.: 176 TAXMAN 355 (DEL.) - DCIT V. DCM BENETTON INDIA LTD.: ITA NO. 392 & 3973 /DEL/2006 - CIT V. MUNJAL SHOWA LTD. : 329 ITR 449 (DEL)(HC) - CIT V. DENSO INDIA P. LTD.: ITA 16/2008 (DEL.) (HC) - ITO V. SHIVANI LOCKS LTD.: 118 TTJ 467 (DEL. TRI.) - HERO HONDA MOTORS LTD.: 1312/D/2008 14.12. IN THE AFORESAID JUDGMENTS THE COURTS HAVE ON AN ANALYSIS OF THE AGREEMENT COME TO THE CONCLUSION THAT PAYMENT MADE UNDER THE AGREEMENT WAS DEDUCTIBLE REVENUE EXPENDITURE SINCE THERE WAS NO OUT RIGHT OR ABSOLUTE TRANSFER OF THE KNOW-HOW BY THE OWNER-LICENSOR TO T HE ASSESSEE-LICENSEE AND THE KNOW-HOW SUPPLIED REMAINED THE PROPERTY OF THE VENDOR FOR ALL TIMES TO 15 COME WITH THE ASSESSEE ONLY HAVING LIMITED RIGHTS TO USE SUCH KNOW-HOW FOR THE PURPOSES OF BUSINESS DURING THE CURRENCY OF THE AGREEMENT. 14.13. THE RATIO DECIDENDI EMANATING FROM THE AFORE SAID DECISIONS IS SQUARELY APPLICABLE SINCE THE ASSESSEE HAD ONLY US ED THE KNOW- HOW/TECHNICAL ASSISTANCES PROVIDED BY THE VENDOR(S) IN THE BUSINESS OF RUNNING THE RESTAURANT WITHOUT ACQUISITION OF ANY CAPITAL ASSET THE PAYMENTS MADE CANNOT BE REGARDED AS CAPITAL EXPENDITURE. 14.14. INSOFAR AS THE CONTENTION OF THE LOWER AUTHO RITIES THAT AS THE CONSULTANCY FEES WAS PAID IN RELATION TO NEW BUSINE SS VIZ. RUNNING OF RESTAURANTS THE SAME SHOULD BE CONSIDERED AS CAPIT AL EXPENDITURE ASSESSEE SUBMITTED AS UNDER: 14.15. IN THE PRESENT CASE AS SUBMITTED ABOVE THE ASSESSEE WAS ALREADY ENGAGED IN THE BUSINESS OF CONSTRUCTION. THE NEW VE NTURE OF OPENING AND RUNNING OF RESTAURANT(S) IN LINE WITH THE MAIN OBJ ECTS OF THE ASSESSEE ONLY AN EXTENSION OF THE EXISTING BUSINESS. THE TEST FOR DETERMINING WHETHER DIFFERENT VENTURES CONSTITUTES SAME BUSINESS AS HA S BEEN ENUNCIATED BY THE SUPREME COURT IN VARIOUS ABOVE DECISIONS IS TO FIN D OUT IF THERE IS ANY INTERCONNECTION INTERLACING INTERDEPENDENCE OR UN ITY EMBRACING DIFFERENT VENTURES. THE AFORESAID INTERDEPENDENCE/INTERLACING OF DIFFERENT VENTURES CAN BE ESTABLISHED BY EXISTENCE OF COMMON MANAGEMENT C OMMON BUSINESS ORGANIZATION/ADMINISTRATION AND COMMON FUND. 14.16.RELIANCE IS PLACED ON THE FOLLOWING DECISIONS : - PRODUCE EXCHANGE CORPORATION 77 ITR 739 (SC) - SETABGANJ SUGAR MILLS LTD. VS. CIT : 41 ITR 272 (SC ) - CIT VS. PRITHVI INSURANCE CO. LTD.: 63 ITR 632 (SC) 16 - HOOGLY TRUST (P) LTD. V CIT 73 ITR 685 (SC) - L.M. CHHABDA & SONS VS. CIT : 65 ITR 638 (SC) - STANDARD REFINERY & DISTILLERY LTD. V. CIT: 79 ITR 589 (SC) - CIT V. MONNET INDUSTRIES LIMITED : 221 CTR (DEL) 26 6 14.17. IN VIEW OF THE ABOVE IF THERE IS UNITY OF C ONTROL AND INTERLACING OF FUNDS BETWEEN THE NEW VENTURE AND THE EXISTING BUSI NESS THE NEW VENTURE IS REGARDED AS EXTENSION OF EXISTING BUSINESS EVEN IF THE NEW VENTURE CONSTITUTES AN ENTIRELY DIFFERENT ACTIVITY. 14.18. IN THE CASE OF ASSESSEE THE NEW BUSINESS OF OPENING AND RUNNING OF RESTAURANTS WAS COMMENCED UNDER THE CONTROL AND SUP ERVISION OF THE EXISTING MANAGEMENT OF THE ASSESSEE ONLY. THERE WAS COMPLETE INTERLACING OF FUNDS BETWEEN EXISTING BUSINESS OF CONSTRUCTION OF HOUSIN G PROJECTS AND THE NEW ACTIVITY OF SETTING-UP AND OPERATING RESTAURANTS. T HE VARIOUS EXPENSES INCURRED TOWARDS ACQUISITION OF ASSETS AND THOSE OF REVENUE NATURE IN RELATION TO THE NEW VENTURE WERE MADE OUT OF FUNDS GENERATE D FROM THE EXISTING BUSINESSES ONLY. THE IMPUGNED PAYMENTS WERE INFACT MADE OUT OF FUNDS GENERATED FROM THE BUSINESS OF DEVELOPMENT AND CONS TRUCTION OF HOUSING PROJECTS ITSELF. THE LOWER AUTHORITIES HAVE ALSO NO T RAISED ANY DOUBT WITH RESPECT TO THE UNITY OF CONTROL AND INTERLACING OF FUNDS BETWEEN THE EXISTING BUSINESS AND THE NEW VENTURE WHICH COMMENCED OPERA TION DURING THE YEAR. 14.19. IT IS PLEADED THAT THE NEW VENTURE WAS ONLY AN EXTENSION OF THE EXISTING BUSINESS AND THUS CONSTITUTED PART OF SU CH BUSINESS THE IMPUGNED EXPENDITURE INCURRED ON ACCOUNT OF CONSULTANCY/TECH NICAL ASSISTANCE/TECHNICAL KNOW-HOW FEES WAS NO INCURRED PRIOR TO COMMENCEMENT OF BUSINESS. 17 14.20.FURTHER RELIANCE IN THIS REGARD IS PLACED ON THE FOLLOWING DECISIONS WHEREIN WHILE FOLLOWING THE TESTS LAID DOWN IN THE AFOREMENTIONED DECISIONS OF SUPREME COURT THE COURTS/TRIBUNAL HAVE HELD THA T REVENUE EXPENDITURE INCURRED IN CONNECTION WITH EXPANSION OF BUSINESS EVEN INVOLVING SETTING UP OF NEW UNIT WHICH SATISFIES THE TEST OF UNITY OF C ONTROL INTERLACING OF FUNDS COMMON MANAGEMENT ETC. WOULD BE CONSIDERED AS BEIN G INCURRED FOR THE PURPOSES OF BUSINESS: CIT V. RELAXO FOOTWEARS LTD: 293 ITR 231 (DEL.) ENPRO INDIA LTD. VS. DCIT: 113 TAXMAN 132 (DEL.) JAY ENGINEERING WORKS LTD. V. CIT: 311 ITR 405 (DEL .) CIT V. TATA CHEMICALS LTD: 256 ITR 395 (BOM.) ADDL. CIT V. ANILINE DYE STUFFS & PHARMACEUTICALS P VT. LTD.: 138 ITR 843(BOM) KESORAM INDUSTRIES AND COTTON MILLS LTD VS CIT: 196 ITR 845 (CAL .) HINDUSTAN ALUMINIM CORPORATION LTD. V. CIT: 159 ITR 673 (CAL.) CIT V. RANE (MADRAS) LTD.: 215 CTR 250 (CHENN.) PREM SPINNING AND WEAVING MILLS CO. LTD. V. CIT : 9 8 ITR 20 (ALL.) CIT V. SHAH THEATRES P. LTD. : 169 ITR 499 (RAJ.) CIT V. MALWA VANASPATI & CHEMICALS CO. LTD. 149 CTR 283 (MP) CIT V. KERALA STATE INDUSTRIAL DEVELOPMENT CORPORAT ION LTD.: 182 ITR 62 (KER.) CCIT V. SENAPATHY WHITELY LTD. : 101 CTR 31 (KAR.) CIT V. HINDUSTAN MACHINE TOOLS LTD.: 175 ITR 212 (K AR.) 14.21.TTHE ASSESSEE HAD MADE PAYMENT OF RS.18 75 19 5 TO RHW HOTEL MANAGEMENT SERVICES LTD. IN THE IMMEDIATELY PRECEDI NG ASSESSMENT YEAR VIZ. 2001-02. HOWEVER SINCE THE SAID RESTAURANT B USINESS COMMENCED OPERATIONS DURING THE RELEVANT PREVIOUS YEAR THE A FORESAID EXPENDITURE WAS CLAIMED BUSINESS DEDUCTION IN THE RETURN OF INCOME FOR THE RELEVANT ASSESSMENT YEAR THEREFORE THE SAID EXPENDITURE WA S ALLOWABLE EXPENDITURE IN A.Y. 2001-02. 18 14.22. WITHOUT PREJUDICE TO THE ABOVE IN THE EVENT IT IS HELD THAT THE EXPENDITURE IS ALLOWABLE DEDUCTION IN THE ASSESSMEN T YEAR 2001-02 IT IS RESPECTFULLY PRAYED THAT THE SAID EXPENDITURE MAY K INDLY BE DIRECTED TO BE ALLOWED AS DEDUCTION IN THE ASSESSMENT YEAR 2001-0 2 IN VIEW OF THE ADDITIONAL GROUND OF APPEAL RAISED BY THE ASSESSEE IN BOTH ASSESSMENT YEARS. 15. LEARNED DR ON THE OTHER HAND CONTENDS THAT THE ASSESSEES OWN STATEMENT IT FURTHER DIVERSIFIED INTO HOSPITALITY BUSINESS CLINCHES THE ISSUE THAT IT WAS A NEW BUSINESS. THE ASSESSEES CONSTRUC TION BUSINESS AND HOSPITALITY BUSINESS ARE SEPARATE AND INDEPENDENT. THE ASSESSEES PRESENCE IN CONSTRUCTION BUSINESS DOES NOT IMPLY THAT IT W AS IN THE BUSINESS OF HOSPITALITY. CONSEQUENTLY ON THIS FIRST PROPOSITIO N ITSELF THE EXPENDITURE IS IN RESPECT OF A NEW BUSINESS. 15.1. ON SECOND PROPOSITION THE PAYMENT INCURRED B Y ASSESSEE IS IN RESPECT OF ACQUIRING KNOWLEDGE AND USING TECHNICAL KNOW-HOW OF THE OPERATORS AND THE ENTIRE PAYMENT HAS BEEN MADE PRIOR TO COMMENCEM ENT OF BUSINESS. ARTICLE XIV GIVES COMPLETE BREAK UP OF THE ONE TI ME FEE WHICH IS PAID BEFORE COMMENCEMENT OF BUSINESS IN THE FIELD OF IM PARTING EXPERT KNOWLEDGE AND TECHNICAL KNOW-HOW FOR SETTING UP THE RESTAURANTS. ON COMMENCEMENT OF BUSINESS THE ASSESSEE HAS TO PAY R ECURRING FEE SEPARATELY. AS PER ASSESSEES OWN ADMISSION THE FEE HAS BEEN SP ILT INTO TWO PARTS 19 (A) PRE-COMMENCEMENT PAYMENT ON ACCOUNT OF EXPERT KNOWL EDGE AND KNOW-HOW; AND (B) POST COMMENCEMENT RECURRING FEE. 15.2. THE IMPUGNED AMOUNT BEING PRE-COMMENCEMENT OF BUSINESS AND ON CAPITAL ACCOUNT THE CIT(A) HAS RIGHTLY DISALLOWED THE SAME AS REVENUE EXPENDITURE. 15.3. LEARNED DR FURTHER CONTENDS THAT ASSESSEE HAS BEEN HELD ELIGIBLE FOR DEPRECIATION BY CIT(A) THEREFORE THERE SHOULD BE NO CAUSE OF GRIEVANCE FOR IT. 16. WE HAVE HEARD RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. CIT(A) AFTER CONSIDERING ALL THE CASE LAWS AND FACTS DECIDED THE ISSUE AS UNDER: 20. IN THE PRESENT CASE OF THE ASSESSEE THE PAYME NT RELATES TO ACQUIRING OF KNOWLEDGE AND USING OF THE TECHNICAL K NOW-HOW OF THE OPERATOR THE ENTIRE PAYMENT AHS BEEN MADE PRIOR TO THE COMMENCEMENT OF BUSINESS. ARTICLE XIV GIVES COMPLET E BREAK UP OF OPERATORS FEE. THESE FEE ARE ONE TIME PAYMEN T FOR IMPARTING EXPERT KNOWLEDGE AND TECHNICAL KNOW-HOW T O THE ASSESSEE. THE OPERATOR IS ALSO HELPING THE ASSESSEE IN DAY TO DAY RUNNING OF THE RESTAURANT AND PROVIDE ALL ASSISTANC E AT EVERY STAGE FOR DAY TO DAY RUNNING OF THE BUSINESS. SUCH EXPENDITURES ARE NOT INCLUDED IN THIS ONE TIME FEE. RECURRING EX PENDITURES ON OPERATORS ARE BEING CLAIMED AND ALLOWED SEPARATELY. THIS DEVELOPMENT FEE IS AN ONE TIME PAYMENT. THE ASSESSE E WHO WAS HITHERTO UNKNOWN IN THIS BUSINESS OF HOSPITALITY IS NOW RUNNING WORLD CLASS RESTAURANT-CUM-BAR AND IS A MUCH SOUG HT AFTER LOCATION. OBVIOUSLY THIS ASSET OF ENDURING NATURE H AS BEEN CREATED DUE TO THE PROFESSIONAL HELP RECEIVED. THIS AMOUNT THEREFORE HAS BEEN RIGHTLY TREATED AS CAPITAL EXPEN DITURE. I 20 THEREFORE DISMISS THIS GROUND OF APPEAL OF THE ASS ESSEE AND UPHOLD THE STAND TAKEN BY THE ASSESSING OFFICER. TH E ASSESSING OFFICER HOWEVER IS DIRECTED TO ALLOW DEPRECIATION A S PER RULES. 16.1. A PERUSAL OF THE FACTS CLEARLY SHOW THAT ASSE SSEE AND THE OPERATORS I.E. M/S RHW HOTEL MANAGEMENT SERVICES LTD. AGREED ON A FORMULA FOR TWO TYPES OF FEE. THE AMOUNT IN QUESTION FOR A.Y. 2001- 02 & 2002-03 WAS ON ACCOUNT OF PROVIDING OF TECHNICAL KNOW-HOW AND EXPE RT KNOWLEDGE PRIOR TO THE COMMENCEMENT. BY OWN ADMISSION OF ASSESSEE IT W AS NOT ENGAGED INTO HOSPITALITY BUSINESS AND DIVERSIFIED FROM BUSINESS OF CONSTRUCTION OF BUILDINGS. IN THESE CIRCUMSTANCES WE SEE NO INFIRM ITY IN THE ORDER OF CIT(A) HOLDING THAT THE RESTAURANT BUSINESS WAS A NEW BUSINESS AND EXPENDITURE WAS FOR SETTING UP THE SAME AND THE EXP ENSES WERE NOT ALLOWABLE AS BUSINESS IN NATURE. WE UPHOLD CIT(A)S ORDER. AS SESSEES GROUND NO. 1 FOR A.Y. 2002-03 AND ADDITIONAL GROUND IN RESPECT O F ASSESSMENT YEARS 2001- 02 & 2002-03 ARE DISMISSED. 16.2. APROPOS GROUND NO. 2 LEARNED COUNSEL FOR THE ASSESSEE CONTENDS THAT INTEREST U/S 244A IS CONSEQUENTIAL IN NATURE. ABOUT SEC. 234D IT IS PLEADED THAT THESE PROVISIONS HAVE BEEN INSERTED BY THE FI NANCE ACT 2003 W.E.F. 1- 6-2003 AND THEREFORE THE PROVISIONS BEING PROSPEC TIVE IN OPERATION APPLIES FROM A.Y. 2004-05 ONWARDS AND DOES NOT APPLY TO THE PRIOR YEAR UNDER CONSIDERATION. RELIANCE IN THIS REGARD IS PLACED O N THE RATIO OF DECISIONS IN 21 THE CASES OF DIT V. JACABS CIVIL INCORPORATED MIT SUBISHI CORPN. & OTHERS 330 ITR 578 (DEL.); AND ITO V. EKTA PROMOTERS PVT. LTD. 305 ITR 1 (SB) CONSEQUENTLY INTEREST CHARGED U/S 234D MAY BE DIRE CTED TO BE DELETED. 17. LEARNED DR IS HEARD. 18. WE HAVE HEARD RIVAL CONTENTIONS. THE HONBLE DE LHI HIGH COURT IN THE CASE OF JACABS CIVIL INCORPORATED (SUPRA) HAS HELD THE PROVISIONS OF SEC. 234D TO BE PROSPECTIVE IN NATURE APPLICABLE FROM A.Y. 2004-05 ONWARDS. THEREFORE PROVISIONS OF SEC. 234D ARE NOT APPLICAB LE FOR THE ASSESSMENT YEARS UNDER CONSIDERATION. ACCORDINGLY INTEREST C HARGED U/S 234D IS DIRECTED TO BE DELETED. 19. IN THE RESULT ASSESSEES APPEAL FOR A.Y. 2001- 02 AND 2002-03 ARE PARTLY ALLOWED. ITA NO. 4817/DEL/05 (REVENUES APPEAL FOR A.Y. 2002 -03) 20. THIS IS REVENUES APPEAL AGAINST CIT(A)S ORDER DATED 20-9-2005 RELATING TO A.Y. 2002-03. FOLLOWING GROUNDS ARE RAI SED: 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN D ELETING THE ADDITION OF RS. 2 24 077/- MADE ON ACCOUNT OF P RIOR PERIOD EXPENSE. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN D IRECTING THE ASSESSING OFFICER TO ALLOW DEDUCTION OF RS. 98 40 341/- U/S 22 80-IB(10) WHEN THE LD. COMMISSIONER OF INCOME TAX (APPEALS) HIMSELF IN PARA 25 OF HIS ORDER AGREED TH AT HE DEDUCTION IS NOT AVAILABLE TO THOSE PROJECTS WHERE THE DEVELOPMENT AND CONSTRUCTION OF HOUSE WAS COMMENCED PRIOR TO 01-10-1998. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN D ELETING THE ADDITION OF RS. 3 02 65 204/- MADE ON ACCOUNT O F ADDITIONAL NOTIONAL ANNUAL LETTING VALUE OF FLATS. 21. APROPOS GROUND NO. 1 THE ASSESSEE CONTENDS AS U NDER: 21.1. DURING HE RELEVANT PREVIOUS YEAR ENDING 31-3- 2002 THE ASSESSEE CLAIMED AN AMOUNT OF RS. 2 24 077/- ON ACCOUNT OF E LECTRICITY BILLS PERTAINING TO FINANCIAL YEAR 2000-01 BUT WHICH WAS RECEIVED A ND ACKNOWLEDGED/ ACCOUNTED FOR PAYMENT DURING THE RELEVANT ASSESSMEN T YEAR. SIMPLY BECAUSE THE AFORESAID CHARGES WERE PAID IN RELATION TO ELEC TRICITY CONSUMED IN THE PRECEDING FINANCIAL YEAR IT CANNOT BE SAID THAT TH E AFORESAID EXPENSES ARE PRIOR PERIOD EXPENSES. THE LIABILITY IN RESPECT OF AFORESAID CHARGES CRYSTALLIZED DURING THE RELEVANT YEAR ONLY ON MAKI NG OF THE CLAIM BY THE ELECTRICITY BOARD AND ITS ACCEPTANCE BY THE ASSESSE E. 21.2. THE GUJARAT HIGH COURT IN THE CASE OF SAURASH TRA CEMENT & CHEMICAL INDUSTRIES V. CIT 213 ITR 523 HELD THAT MERELY BECA USE AN EXPENSE RELATES TO A TRANSACTION OF AN EARLIER YEAR IT DOES NOT BE COME A LIABILITY PAYABLE IN THE EARLIER YEAR IF THE LIABILITY WAS DETERMINED A ND CRYSTALLIZED IN THE YEAR IN 23 QUESTION ON THE BASIS OF MAINTAINING ACCOUNTS ON TH E MERCANTILE BASIS. RELIANCE IS PLACED ON FOLLOWING DECISIONS: - SAURASHTRA CEMENT & CHEMICAL INDUSTRIES V. CIT 213 ITR 523 (GUJ.); - S.P. JAISWAL ESTAES (P) LTD. V. CIT 214 ITR 558 (CA L.); - CIT V. INDIA FOILS LTD. 200 ITR 259 (CAL.); - CIT V. SHRIRAM PISTONS & RINGS LTD. 220 CTR 404 (DE L.) 21.3. IT IS FURTHER SUBMITTED THAT ASSESSEE IS SUBJ ECT TO UNIFORM RATE OF TAX IN BOTH THE ASSESSMENT YEARS VIZ. 2000-01 & 2001-02. I N VIEW OF THE SAME THE ISSUE OF ALLOWABILITY OF IMPUGNED EXPENDITURE IN TH E RELEVANT YEAR OR PRECEDING YEAR IS A REVENUE NEUTRAL EXERCISE. 21.4. RELIANCE IN THIS REGARD IS PLACED ON THE FOL LOWING DECISIONS WHEREIN IT HAS BEEN HELD THAT REVENUE SHOULD NOT AGITATE ISSUE S RELATING TO ALLOWABILITY OF EXPENDITURE IN ONE YEAR OR DIFFERENT YEARS SINC E SUCH ISSUES ARE REVENUE NEUTRAL AND DO NOT AFFECT THE TAX LIABILITY OF THE ASSESSEE LIKELY TO BE COLLECTED BY THE DEPARTMENT AS A WHOLE: - CIT V. NAGRI MILLS CO. LTD. 33 ITR 681 (BOM.) - SHRI RAM PISTONS & RINGS LTD. 220 CTR 404 (DEL.); - CIT V. TRIVENI ENGINEERING INDUSTRIES LTD. 239 CTR 216 (DEL.). 22. LEARNED DR SUPPORTS THE ORDER OF AO. 23. WE HAVE HEARD RIVAL CONTENTIONS. SINCE THE EXPE NDITURE IN QUESTION PERTAINS TO CONSUMPTION OF ELECTRICITY WHICH WAS R ECEIVED AND PAYABLE THIS YEAR WE SEE NO INFIRMITY IN THE ORDER OF CIT(A) W HICH IS UPHELD. 24 24. APROPOS GROUND NO. 2 REGARDING DEDUCTION U/S 80 -IB(10) THE ISSUE IS COVERED BY THE ITAT ORDER IN ASSESSEES OWN CASE FO R EARLIER YEARS. FOR THE REASONS GIVEN BY US WHILE DECIDING REVENUES APPEAL FOR A.Y. 1999-2000 ABOVE WE DISMISS THE GROUND AND UPHOLD THE ORDER O F CIT(A) ON THE ISSUE IN QUESTION. 25. APROPOS GROUND NO. 3 I.E. NOTIONAL RENT ON UNS OLD FLATS THE LEARNED CIT(A) DELETED THE ADDITION BY FOLLOWING OBSERVATIO NS: I HAVE CONSIDERED THE SUBMISSIONS OF THE APPELLANT AND THE ORDER OF THE ASSESSING OFFICER. THE MATTER WITH REG ARD TO NOTIONAL ANNUAL LETTING VALUE FOR THE UNSOLD FLATS WHICH ARE KEPT VACANT HAS BEEN CONSIDERED AND ALLOWED IN FAVOUR OF THE APPELLANT BY MY PREDECESSOR CIT(A) VIDE HER ORDER F OR ASSESSMENT YEAR 2001-02 IN THE CASE OF THE APPELLAN T. THE APPELLANT AHS ALSO ENCLOSED THE COPY OF DECISION OF THE HONBLE ITAT IN THE CASE OF M/S ANSAL PROPERTIES AND INDUST RIES LTD. IN ITA NO. 7636/DEL/92 FOR ASSESSMENT YEAR 1989-90. VI DE THIS ORDER THE FINDING OF THE CIT(A) HAS BEEN CONFIRMED THAT INCOME CANNOT BE TAXED ON NOTIONAL BASIS BY ESTIMAT ING ALV. SINCE THE FACTS OF THIS CASE ARE IDENTICAL TO THE F ACTS IN THE EARLIER YEARS I FOLLOW THE ORDER OF MY PREDECESSOR IN THE CASE OF THE APPELLANT FOR ASSESSMENT YEAR 2001-02 AND THE ADDIT ION OF RS. 1 87 09 177/- MADE ON ACCOUNT OF NOTIONAL ANNUAL LE TTING VALUE OF THE UNSOLD FLATS IS DELETED IN APPEAL. 26. THE LEARNED DR SUPPORTS THE ORDER OF AO. 27. LEARNED COUNSEL FOR THE ASSESSEE ON THE OTHER HAND CONTENDS THAT CIT(A) IN DELETING THE ADDITION IN QUESTION HAS REL IED ON EARLIER ORDER OF THE ITAT IN ASSESSEES OWN CASE FOR A.Y. 1989-90. LEARN ED COUNSEL FURTHER 25 SUBMITTED THAT THE ITAT DELHI BENCH A VIDE ITS OR DER DATED 10-6-2009 IN ASSESSEES OWN CASE FOR A.Y. 2004-05 ALSO HAS DECID ED IDENTICAL ISSUE IN FAVOUR OF THE ASSESSEE BY FOLLOWING OBSERVATIONS: 3. THE ASSESSEE IS IN THE BUSINESS OF REAL ESTATE DEVELOPMENT OF MINI TOWNSHIPS PROMOTION DEVELOPME NT AND CONSTRUCTION OF HOUSES FLATS VILLAS AND COMMERCIA L COMPLEXES ETC. THE ASSESSEE IN THE COURSE OF ITS BUSINESS W AS IN POSSESSION OF VARIOUS COMMERCIAL AND RESIDENTIAL FL ATS AND SPACES ETC. WHICH WERE LAYING IN ITS STOCK AS ON 31 -3-2003. ACCORDING TO THE DEPARTMENT THE ASSESSEE HAD NOT D ISCLOSED ANY INCOME FROM HOUSE PROPERTY. NOTIONAL ANNUAL LETTING VALUE WAS DETERMINED BY THE AO AND WAS BROUGHT TO TAX. IT MAY BE STATED THAT IDENTICAL ISSUE AROSE IN ASSESSEES OWN CASE IN A.Y. 1988- 89 TO 1997-98 AS ALSO IN A.Y. 2001-02. DIFFERENT BE NCHES OF THE ITAT IN ALL THOSE YEARS HAVE DELETED LIKE ADD ITION. IN THE LIGHT OF THE DISCUSSIONS MADE IN EARLIER ORDERS OF THE ITAT THE ISSUE IS DECIDED IN FAVOUR OF THE ASSESSEE. ACCORDI NGLY THE REVENUE S APPEAL IS DISMISSED. THE ORDER OF THE CIT(A) BEING IN CONFORMITY WITH EA RLIER ORDER OF ITAT THE SAME MAY BE UPHELD. 28. WE HAVE HEARD RIVAL SUBMISSIONS AND PERUSED THE RECORD. RESPECTFULLY FOLLOWING ITAT ORDER IN ASSESSEES ON CASE FOR EARL IER YEARS REFERRED TO ABOVE HOLDING THAT NO ADDITION ON ACCOUNT OF ADDIT IONAL NOTIONAL ANNUAL LETTING VALUE OF FLATS CAN BE MADE IN THE HANDS OF THE ASSESSEE WE UPHOLD THE ORDER OF CIT(A). GROUND IS DISMISSED. 29. IN THE RESULT REVENUES APPEAL IS DISMISSED. 26 ITA NO. 3304/DEL/07 (REVENUES APPEAL FOR A.Y. 2003 -04) 30. THIS IS REVENUES APPEAL AGAINST CIT(A)S ORDER DATED 19-4-2007 RELATING TO A.Y. 2003-04. FOLLOWING GROUNDS ARE RAI SED: 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. CIT(A) HAS ERRED IN DIRECTING THE ASSESSING OFFICER TO ALLOW A CLAIM OF RS. 16 53 750/- ON ACCOUNT OF CONSULTATION / DEVELOPMENT FEE AS REVENUE EXPENDITURE U/S 37(I) OF THE I.T. ACT 1961 AS AGAINST CAPITAL EXPENDITURE HELD BY TH E ASSESSING OFFICER. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN D ELETING THE ADDITION OF RS. 1 56 37 782/- MADE BY THE ASSES SING OFFICER ON ACCOUNT OF NOTIONAL RENTAL INCOME ON THE UNSOLD FLATS AND SPACE HELD BY THE ASSESSEE COMPANY AS STOCK-IN-TRAD E. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN D IRECTING THE ASSESSING OFFICER TO ALLOW ASSESSEES CLAIM FOR DEDUCTION U/S 80-IB(10) OF THE I.T. ACT 1961 AMOUNTING TO RS . 3 34 10 717/-. 31. LEARNED DR SUPPORTS THE ORDER OF AO. 32. APROPOS GROUND NO. 1 WE HAVE ALREADY HELD THAT IF THE ASSESSEE PAYS CONSULTANCY FEES ON DAY TO DAY RUNNING OF ITS BUSIN ESS THE SAME IS ALLOWABLE AS REVENUE EXPENDITURE. IN OUR VIEW THE ORDERS OF BOTH THE AUTHORITIES FOR THE ASSESSMENT YEAR IN QUESTION CREATE SOME CONFUSION INASMUCH AS THOUGH THE AO HAS REFERRED THE DISALLOWANCE TO BE ATTRIBUTABLE TO DEFERRED REVENUE EXPENDITURE HOWEVER THERE IS A FINDING THAT THE A SSESSEE STARTED ITS BUSINESS DURING A.Y. 2002-03 CIT(A) THOUGH HAS GIVEN THE RE LIEF BUT THERE IS NO FINDING THAT THE AMOUNT IN QUESTION IS ATTRIBUTABLE TO RECURRING FEE OR ROYALTY ON RUNNING OF THE RESTAURANT. WE HAVE ALREADY HELD THAT THE EXPENDITURE 27 PERTAINING TO CONSULTANCY PRIOR TO COMMENCEMENT OF BUSINESS WILL NOT BE ALLOWABLE HOWEVER THE ROYALTY OR FEE RELATABLE TO DAY TO DAY RUNNING OF BUSINESS WILL BE ALLOWABLE. SINCE THE FINDING ABOUT THE NATURE OF EXPENDITURE IS NOT CLEAR FROM THE ORDER OF LOWER AUTHORITIES W E SET ASIDE THE ISSUE BACK TO THE FILE OF AO TO VERIFY AND IF THE AMOUNT IN QUEST ION IS FOUND TO BE RELATABLE TO DAY TO DAY RUNNING OF RESTAURANT BUSINESS POST C OMMENCEMENT THE SAME MAY BE ALLOWED. GROUND IS ALLOWED FOR STATISTICAL P URPOSES ONLY. 33. APROPOS GROUND NO. 2 RESPECTFULLY FOLLOWING OU R EARLIER ORDER IN ASSESSEES OWN CASE WE UPHOLD THE ORDER OF CIT(A) DELETING THE NOTIONAL RENTAL INCOME ON THE UNSOLD FLATS AND SPACE HELD BY THE ASSESSEE COMPANY AS STOCK-IN-TRADE. THIS GROUND OF REVENUE IS DISMISSED . 34. APROPOS GROUND NO. 3 I.E. DEDUCTION U/S 80-IB(1 0) FOLLOWING THE EARLIER HISTORY OF ITAT JUDGMENTS IN ASSESSEES OW N CASE WE UPHOLD THE ORDER OF CIT(A) ALLOWING DEDUCTION U/S 80-IB(10) TO THE ASSESSEE. 35. IN THE RESULT REVENUES APPEAL IS PARTLY ALLOW ED FOR STATISTICAL PURPOSES ONLY. 36. ALL THE APPEALS ARE DISPOSED OF IN THE MANNER I NDICATED ABOVE. ORDER PRONOUNCED IN OPEN COURT ON 09-09-2011. SD/- SD/- ( SHAMIM YAHYA ) ( R.P. TOLANI ) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 09-09-2011. MP COPY TO : 1. ASSESSEE 2. AO 3. CIT 4. CIT(A) 5. DR 28