DCIT 5(2), MUMBAI v. PIRAMYD RETAIL & MERCHANDISING P. LTD, MUMBAI

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH MUMBAI. BEFORE SHRI R.V.EASWAR PRESIDENT AND SHRI R.K.PANDA ACCOUNTANT MEMBER I.T.A. NO.4974/MUM/2009 (ASSESSMENT YEAR : 2004-05) THE DEPUTY COMMISSIONER OF INCOME TAX-5(2) 571 AAYAKAR BHAVAN M.K.ROAD MUMBAI-400 020. VS. M/S. PIRAMYD RETAIL & MERCHANDISING PVT.LTD. 106 PENINSULA CENTRE DR. S.S.RAO ROAD PAREL MUMBAI-400 013. PAN: AACCP 3990K (APPELLANT) (RESPONDENT) APPELLANT BY : MR. P.N.DEVDASAN DR RESPONDENT BY : MR. M.D. INAMDAR O R D E R PER R.V.EASWAR PRESIDENT: THIS APPEAL BY THE REVENUE RELATES TO THE ASSESSMENT YEAR 2004-05. THE ASSESSEE IS A P RIVATE LIMITED COMPANY ENGAGED IN TRADING AND MERCHANDISIN G OF READYMADE GARMENTS ACCESSORIES ETC. THE APPEAL ARI SES OUT OF THE ASSESSMENT ORDER PASSED UNDER SECTION 143(3) OF THE INCOME TAX ACT ON 28.12.2006. 2. THE FIRST GROUND IS THAT THE CIT(A) ERRED IN HOL DING THAT THE EXPENDITURE OF RS.81 11 120/- WAS ALLOWABLE AS REVENUE EXPENDITURE INCURRED FOR EXPANSION OF THE BUSINESS ALTHOUGH THE ASSESSEE ITSELF HAD DEFERRED THE SAME IN THE BOOKS OF ACCOUNT AND ACCORDINGLY ONLY 1/5 TH OF THE SAID EXPENDITURE IS ALLOWABLE TO THE ASSESSEE. THE BRIEF FACTS RELATING TO THE G ROUND ARE AS FOLLOWS. IN THE COMPUTATION OF INCOME ATTACHED TO T HE RETURN ASSESSEE CLAIMED A DEDUCTION OF RS.1 21 66 682/- AS PRE- OPERATIVE EXPENSES. IN THE BOOKS OF ACCOUNT HOWEVER THE EXPENDITURE WAS DEFERRED FOR A PERIOD OF FIVE YEARS AND ONLY 1/5 TH OF THE SAME WAS CLAIMED AS A DEDUCTION. THE EXPEN DITURE WAS INCURRED IN RESPECT OF THE COMPANYS THIRD STOR E IN THE CITY ITA NO.4974/MUM/09 2 OF NAGPUR. IT WAS CLAIMED BEFORE THE ASSESSING OFFI CER THAT THE EXPENDITURE WAS INCURRED FOR EXTENSION OF THE EXIST ING BUSINESS AND WAS ALLOWABLE UNDER SECTION 37(1) OF THE ACT. THE ASSESSING OFFICER HOWEVER HELD THAT THE TREATMENT GIVEN BY TH E ASSESSEE IN ITS BOOKS OF ACCOUNT SHOWED THAT THE EXPENDITURE WA S OF ENDURING NATURE. HE THEREFORE HELD THAT ONLY 1/5 TH OF THE EXPENDITURE AS DEBITED IN THE BOOKS OF ACCOUNT WA S ALLOWABLE AS A DEDUCTION AS DEFERRED REVENUE EXPENDITURE. AC CORDINGLY HE ALLOWED RS.24 33 336/- AND THE BALANCE OF RS.97 33 346/- WAS DISALLOWED. 3. THE CIT(A) REFERRED TO THE REMAND REPORT CALLED FOR BY HIS PREDECESSOR FROM THE ASSESSING OFFICER AS WELL AS THE REMAND REPORT FILED BY THE ASSESSING OFFICER ON 9.1.2009. HE NOTED FROM THE REMAND REPORT THAT OUT OF THE TOTAL EXPENSES RS.17 24 255/- WAS INCURRED AS PROJECT DEVELOPMENT EXPENSES AND THE BALANCE OF RS.1 04 42 427/- WAS INCURRED AS PRE- OPERATIVE EXPENSES. HE FURTHER NOTED THAT THE ASSES SING OFFICER HAS HELD IN THE REMAND REPORT THAT THE ASSESSEE WAS NOT ABLE TO PRODUCE ALL THE BILLS FOR THE EXPENSES. THE REMAND REPORT WAS SHOWN TO THE ASSESSEE WHO MADE ITS SUBMISSION ON 5 .5.2009 BEFORE THE CIT(A). THE CONTENTS OF THE REMAND REPOR T AND THE SUBMISSIONS OF THE ASSESSEE HAVE BEEN REPRODUCED I N THE IMPUGNED ORDER AND HENCE NOT REPRODUCED HERE FOR TH E SAKE OF BREVITY. THE ASSESSEE EXPRESSED IN ITS INABILITY TO PRODUCE ALL THE BILLS AND VOUCHERS SINCE THE RETAIL MALL BUSINESS W AS CLOSED DOWN AND THERE WERE ALSO SEVERAL SHIFTS OF THE OFFI CE PREMISES. HOWEVER IT WAS SUBMITTED THAT THE DOCUMENTARY EVID ENCE AND THE PAYMENTS MADE TO PARTIES DID ESTABLISH THE FACT THAT THE EXPENDITURE WAS INCURRED AS REFLECTED IN THE BOOKS OF ACCOUNT. IT WAS CLAIMED THAT THE BOOKS OF ACCOUNT WERE AUDITED BOTH BY THE STATUTORY AUDITORS AND THE TAX AUDITORS AND HAVE NO T MADE ANY ADVERSE COMMENTS ON THE ACCOUNTS. EVEN THE ASSESSIN G OFFICER ITA NO.4974/MUM/09 3 IT WAS SUBMITTED HAD NOT DOUBTED THE GENUINENESS O F THE EXPENDITURE. 4. AFTER TAKING NOTE OF THE REMAND REPORT AND THE A SSESSEES SUBMISSIONS THE CIT(A) NOTED THAT THE ISSUE OF ALL OWABILITY OF DEDUCTION OF SIMILAR TYPE OF EXPENSES HAD COME UP F OR CONSIDERATION BY THE CIT(A) IN THE ASSESSMENT YEAR 2003-04 AND THE CIT(A) HAD HELD THAT THE EXPENSES WERE INCURRED FOR OPENING THE STORE AND FOR EXTENSION OF THE BUSINESS AND TH EREFORE THEY HAVE TO BE ALLOWED IN THE YEAR IN WHICH THEY WERE I NCURRED UNDER SECTION 37(1) OF THE ACT IRRESPECTIVE OF THE TREATMENT GIVEN IN THE ASSESSEES BOOKS OF ACCOUNT. THE CIT(A ) IN THE IMPUGNED ORDER FOUND THAT THE FACTS FOR THE YEAR UN DER APPEAL ARE IDENTICAL WITH THE FACTS FOR THE ASSESSMENT YEA R 2003-04 AND THE NATURE OF THE EXPENSES ALSO REMAINED THE SAME. THEREFORE FOLLOWING THE ORDER OF THE CIT(A) FOR THE ASSESSMEN T YEAR 2003- 04 HE DIRECTED THE ENTIRE EXPENDITURE TO BE ALLOWE D AS A DEDUCTION WITHOUT ANY DISALLOWANCE. 5. IT IS AGAINST THE AFORESAID DECISION OF THE CIT( A) THAT THE REVENUE HAS COME IN APPEAL BEFORE THE TRIBUNAL. AT THE TIME OF THE HEARING THE LEARNED REPRESENTATIVE FOR THE ASS ESSEE SUBMITTED THAT THE DECISION OF THE CIT(A) FOR THE A SSESSMENT YEAR 2003-04 HAS BEEN CONFIRMED BY THE TRIBUNAL IN ITS ORDER DATED 15 TH MAY 2009 IN ITA NO.1548/MUM/2007. A COPY OF THE SAID ORDER WAS ALSO FILED. WE FIND THAT THE FIRST GROUND OF THE REVENUE IN THAT ASSESSMENT YEAR WAS AGAINST THE DE CISION OF THE CIT(A) HOLDING THAT THE ENTIRE EXPENDITURE INCURRED FOR EXPANSION OF BUSINESS SHOULD BE ALLOWED AS A REVENU E EXPENDITURE ALTHOUGH THE ASSESSEE ITSELF HAD DEFERR ED THE SAME IN THE BOOKS OF ACCOUNT OVER A PERIOD OF FIVE YEARS . THIS GROUND HAS BEEN DEALT WITH BY THE TRIBUNAL IN PARAGRAPH 3 OF ITS ORDER. THE TRIBUNAL HAS FOUND THAT THE EXPENDITURE WAS INC URRED IN RELATION TO THE OPENING OF THE ASSESSEES THIRD MEG A STORE AT NAGPUR WHICH CLEARLY CONSTITUTED EXPANSION OF BUSIN ESS. THE ITA NO.4974/MUM/09 4 TRIBUNAL FURTHER HELD THAT MERELY BECAUSE THE EXPEN DITURE WAS TREATED AS DEFERRED REVENUE EXPENDITURE IN THE BOOK S OF ACCOUNT AND WAS WRITTEN OFF ONLY TO THE EXTENT OF 1/5 TH IN THE YEAR UNDER CONSIDERATION THERE WAS NO JUSTIFICATION IN MAKING ANY DISALLOWANCE ON THAT GROUND SINCE THERE IS NO DISPU TE THAT THE FACTS FOR THE YEAR UNDER CONSIDERATION AND THE NATU RE OF EXPENDITURE ARE THE SAME FOR THE YEAR UNDER APPEAL RESPECTFULLY FOLLOWING THE DECISION OF THE TRIBUNAL CITED ABOVE WE CONFIRM THE DECISION OF THE CIT(A) IN RESPECT OF THIS GROUN D AND DISMISS THE GROUND FILED BY THE REVENUE. 6. GROUND NUMBERS 2 & 3 ARE AS BELOW:- 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND AS PER LAW THE LEARNED CIT(A) ERRED IN DIRECTING THE ASSESSING OFFICER TO DELETE THE ADDIT ION OF RS.1 21 540/- MADE BY THE ASSESSING OFFICER TH E SAME BEING 1/5 TH OUT OF HOTEL EXPENSES OF RS.6 07 703/-. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND AS PER LAW THE LEARNED CIT(A) ERRED IN DIRECTING THE ASSESSING OFFICER TO DELETE THE ADDIT ION OF RS.4 83 180/- MADE BY THE ASSESSING OFFICER THE SAME BEING 1/5 TH OUT OF TELEPHONE EXPENSES OF RS.24 15 903/-. A PERUSAL OF THE ASSESSMENT ORDER (PARAGRAPHS 6 & 7 ) SHOWS THAT A PART OF THE AFORESAID EXPENSES NAMELY 1/5 TH WAS DISALLOWED FOR POSSIBLE PERSONAL AND NON-BUSINESS U SE ON THE GROUND THAT THE COMPANY WAS CLOSELY HELD COMPANY. T HE CIT(A) REFERRED TO THE ORDER OF THE CIT(A) FOR THE ASSESSM ENT YEAR 2003- 04 IN WHICH THE DISALLOWANCE WAS NOTICED TO BE BASE D ON MERE POSSIBILITIES OR HYPOTHETICAL VISUALIZATION WHICH WAS NOT JUSTIFIED. FOLLOWING THE DECISION OF THE CIT(A) F OR THE ASSESSMENT YEAR 2003-04 THE PRESENT CIT(A) DELETED THE DISALLOWANCE. 7. THIS ISSUE ALSO CAME UP FOR CONSIDERATION BEFORE THE TRIBUNAL IN THE ORDER CITED SUPRA FOR THE ASSESSMEN T YEAR 2003- 04. IN PARAGRAPH 4 OF THE CITED ORDER THE TRIBUNAL FOLLOWING THE ITA NO.4974/MUM/09 5 JUDGEMENT OF THE GUJARAT HIGH COURT IN THE CASE OF SAYALI IRON & ENGINEERING CO. VS. CIT. 253 ITR 749 HELD THAT IN THE CASE OF A COMPANY WHICH IS A CORPORATE ENTITY THERE CANNOT B E ANY PERSONAL ELEMENT INVOLVED NO DISALLOWANCE OF ANY EX PENDITURE CAN BE MADE FOR POSSIBLE PERSONAL USE. SINCE THE FA CTS AND THE REASON FOR THE DISALLOWANCE ARE THE SAME FOR THE YE AR UNDER APPEAL RESPECTFULLY FOLLOWING THE ORDER OF THE TRI BUNAL CITED ABOVE WE CONFIRM THE DECISION OF THE CIT(A) AND DI SMISS THE GROUNDS TAKEN BY THE DEPARTMENT. 8. IN THE RESULT THE APPEAL FILED BY THE DEP ARTMENT IS DISMISSED WITH NO ORDER AS TO COSTS. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 18 TH DAY OF FEBRUARY 2011. SD/- ( R.K. PANDA ) SD/- ( R.V.EASWAR ) ACCOUNTANT MEMBER PRESIDENT MUMBAI DATED 18 TH FEBRUARY 2011. SOMU COPY TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT-MC-V MUMBAI. 4. THE CIT(A)-V MUMBAI 5. THE DR C BENCH /TRUE COPY/ BY ORDE R ASSTT. REGISTRAR I.T.A.T MUMBAI