M.B. Agritech Pvt. Ltd., New Delhi v. DCIT, New Delhi

I.T.A. NO. 3359/DEL/2008 1/4 IN THE INCOME TAX APPELLATE TRIBUNAL NEW DELHI BENCH E BEFORE SHRI RAJPAL YADAV JUDICIAL MEMBER AND SHRI A K GARODIA ACCOUTANT MEMBER ITA NO. 3359 /DEL/2008 (ASSESSMENT YEAR 2005-06) M B AGRITECH PVT. LTD. VS. DCIT CC-8 1510 CHIRANJIV TOWER NEW DELHI 43 NEHRU PLACE NEW DELHI. (APPELLANTS) (RESPONDENTS) PAN / GIR NO. AADCM1426G APPELLANT BY: SHRI RAVI GUPTA ADV. RESPONDENT BY: SHRI G S SAHOTA SR. DR ORDER PER A. K. GARODIA AM: 1. THIS IS AN ASSESSEES APPEAL DIRECTED AGAINST TH E ORDER OF LD. CIT(A) II NEW DELHI DATED 10.09.2008 FOR THE ASSESSMENT YEAR 2005-06. THE GROUNDS RAISED BY THE ASSESSEE READ AS UNDER: 1) THAT THE LD. CIT(A) HAS ERRED IN LAW IN HOLDING THAT THE INTEREST PAID BY THE APPELLANT AMOUNTING TO RS.44 193/- IS CAPITAL EXPENDITURE. 2) THAT THE LD. CIT(A) HAS ERRED IN LAW IN HOLDING THAT THE LEGAL EXPENSES OF RS.50 000/- ARE CAPITAL EXPENDITURE. 3) THAT THE IMPUGNED APPELLATE ORDER IS ARBITRARY ILLEGAL BAD IN LAW AND IN VIOLATION OF RUDIMENTARY PRINCIPLES OF CONTEMPORARY JURISPRUDENCE. I.T.A. NO. 3359/DEL/2008 2/4 2. THE BRIEF FACTS OF THE CASE ARE THAT THE RETURN OF INCOME WAS FILED BY THE ASSESSEE ON 16.06.2005 DECLARING L OSS OF RS.390/-. IT IS NOTED BY THE A.O. THAT THE ASSE SSEE COMPANY IS ENGAGED IN THE BUSINESS OF PURCHASE AND SALE OF PROPERTY RIGHT. IT IS NOTED BY THE A.O. TH AT DURING THE YEAR THE ASSESSEE COMPANY HAS INCURRED INTEREST EXPENDITURE OF RS.44 913/- AND LEGAL & PROFESSIONAL EXPENSES OF RS.50 000/-. IT IS FURTHE R NOTED BY THE A.O. THAT ON INQUIRY IT WAS FOUND THAT THE INTEREST WAS PAID ON FUNDS WHICH WERE USED FOR PURCHASE OF LAND WHICH IS YET TO BE DEVELOPED BY T HE ASSESSEE COMPANY. IT IS ALSO NOTED BY THE A.O. THA T LEGAL & PROFESSIONAL CHARGES WERE ALSO PAID TOWARDS STUDY IN GURGAON FOR PURCHASE OF LAND TO BE DEVELOP ED OVER A PERIOD OF TIME. IT WAS HELD BY THE A.O. TH AT THE EXPENDITURE ARE CAPITAL IN NATURE AND HE DISALLOWED BOTH. BEING AGGRIEVED THE ASSESSEE CARRIED THE MA TTER IN APPEAL BEFORE THE LD. CIT(A) BUT WITHOUT SUCCES S AND NOW THE ASSESSEE IS IN FURTHER APPEAL BEFORE US . 3. IT IS SUBMITTED BY THE LD. A.R. FOR THE ASSESSEE THAT THESE EXPENSES ARE NOT CAPITAL IN NATURE AND AT THE WORST THE SAME MAY BE ADDED IN THE CLOSING STOCK BECAUSE THE PROPERTY IN QUESTION FOR WHICH THESE EXPENSES ARE INCURRED WERE LYING IN CLOSING STOCK. THE LD. D.R. FOR I.T.A. NO. 3359/DEL/2008 3/4 THE REVENUE SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 4. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS PERUSED THE MATERIAL ON RECORD AND HAVE GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. WE FIND THAT IT IS NOTED BY THE LD. CIT(A) ON PAGE 3 OF HIS ORDER THAT INTEREST ON BORR OWED FUNDS AND LEGAL & PROFESSIONAL CHARGES ARE INCURRED IN RELATION TO A PROJECT WHICH IS YET TO BE COMPLETED AND OTHER EXPENDITURE ARE BEING GROUPED UNDER WORK IN PROGRESS. IN VIEW OF THIS OBSERVATION AND THE FIND ING OF LD. CIT(A) WE ARE OF THE CONSIDERED OPINION THAT T HESE TWO EXPENSES INCURRED BY THE ASSESSEE ON ACCOUNT OF INTEREST ON BORROWED FUNDS AND LEGAL & PROFESSIONAL CHARGES SHOULD ALSO BE GROUPED UNDER WORK IN PROGR ESS. AS A RESULT THE VALUE OF THE CLOSING STOCK OF WORK IN PROGRESS WILL GO UP. THE ASSESSEE WILL NOT GET ANY DEDUCTION ON ACCOUNT OF THESE TWO EXPENSES IN THE PRESENT YEAR. TO THIS EXTENT THE ORDER OF THE LD. CIT(A) IS MODIFIED. 5. IN THE RESULT THE APPEAL OF THE ASSESSEE IS PAR TLY ALLOWED FOR STATISTICAL PURPOSES. 6. THIS DECISION WAS PRONOUNCED IN THE OPEN COURT O N 24 TH MAY 2010. SD./- SD./- (RAJPAL YADAV) (A K GARODIA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED:24 TH MAY 2010 I.T.A. NO. 3359/DEL/2008 4/4 SP. COPY FORWARDED TO 1. APPELLANT 2. RESPONDENT 3. CIT TRUE COPY: BY ORDER 4. CIT(A) 5. DR DY. REGISTRAR ITAT NEW DELHI