Gyaniram & Sons Pvt. Ltd., Kolkata v. ITO, Ward - 6(2), Kolkata, Kolkata

ITA 659/KOL/2010 | 2006-2007
Pronouncement Date: 07-01-2011

Appeal Details

RSA Number 65923514 RSA 2010
Assessee PAN AAACG9146J
Bench Kolkata
Appeal Number ITA 659/KOL/2010
Duration Of Justice 9 month(s) 1 day(s)
Appellant Gyaniram & Sons Pvt. Ltd., Kolkata
Respondent ITO, Ward - 6(2), Kolkata, Kolkata
Appeal Type Income Tax Appeal
Pronouncement Date 07-01-2011
Appeal Filed By Assessee
Bench Allotted B
Tribunal Order Date 07-01-2011
Date Of Final Hearing 29-07-2010
Next Hearing Date 29-07-2010
Assessment Year 2006-2007
Appeal Filed On 06-04-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL BEN CH B KOLKATA () BEFORE . . . . . . . . SHRI B.R.MITTAL JUDICIAL MEMBER. ! ! ! ! /AND . .. .'# '#'# '#. .. . $% SHRI C.D. RAO ACCOUNTANT MEMBER !& !& !& !& / ITA NO .659/KOL/2010 '( )*/ ASSESSMENT YEAR : 2006-07 ( - / APPELLANT ) M/S.GYANIRAM & SONS PVT. LTD. KOLKATA (PAN: AAACG 9146 J) - ' - - VERSUS - . (/0 -/ RESPONDENT ) I.T.O. WARD-6(2) KOLKATA - 1 2 $/ FOR THE APPELLANT: SHRI RAVI TULSIYAN /0 - 1 2 $/ FOR THE RESPONDENT: SHRI P.KOLHE $3 / ORDER ( (( ( . . . . . . . . ) PER SHRI B.R.MITTAL JM THE ASSESSEE HAS FILED THIS APPEAL FOR A.YR. 2006-0 7 AGAINST ORDER OF THE LD. CIT(A) DATED 6 TH JANUARY 2010. 2. THE ONLY GROUND OF APPEAL IS AS TO WHETHER ON FA CTS AND CIRCUMSTANCES OF THE CASE THE LD.CIT(A) HAS ERRED IN CONFIRMING DISALLOW ANCE OF LEGAL EXPENSES OF RS.4 37 722/- MADE BY THE AO. 3. THE RELEVANT FACTS ARE THAT THE ASSESSEE IS ENG AGED IN DEALING OF SHARES AND ALSO DERIVES RENTAL INCOME FROM HOUSE PROPERTY. THE ASSE SSEE IS THE OWNER OF A LAND 2 SITUATED AT ALIPORE KOLKATA. PART OF SUCH LAND WAS OCCUPIED BY AN OLD BUILDING IN 1952 AND DERIVED RENTAL INCOME FROM THEM WHICH HAS REGULARLY BEEN SHOWN UNDER THE HEAD INCOME FROM HOUSE PROPERTY. ON THE SAME PREM ISES THERE WAS 22 COTTAH OF VACANT LAND. IN THE YEAR 1995 THE ASSESSEE ENTERED INTO AN AGREEMENT/ARRANGEMENT WITH A DEVELOPER M/S.CONCRETE DEVELOPER PVT. LTD FOR CON STRUCTION OF BUILDING OF 4 RESIDENTIAL FLATS ON THE VACANT PORTION OF THE LAND . UNDER THE AGREEMENT THE ASSESSEE AND THE SAID DEVELOPER AGREED THAT 32 FLATS ARE TO BE CONSTRUCTED. DURING 1998 THE FLATS WERE READY BUT THERE WAS A DISPUTE BETWEEN THE ASSE SSEE AND THE DEVELOPER. THAT THE DEVELOPER REFUSED TO GIVE POSSESSION OF THE FLATS T O THE ASSESSEE AS PER AGREEMENT ENTERED INTO. IT IS RELEVANT TO STATE THAT THE CONS TRUCTED AREA TO BE SHARED BETWEEN THE ASSESSEE AND THE DEVELOPER IN THE RATIO OF 57.5% TO 42.5%. 3.1. PURSUANT TO LITIGATION BETWEEN THE ASSESSEE AN D THE DEVELOPER THE ASSESSEE STATED TO HAVE SPENT RS.4 37 722/- ON ACCOUNT OF LE GAL EXPENSES AND CLAIMED THE SAME AS REVENUE EXPENSES ON THE GROUND THAT THE SAID LEG AL EXPENSES HAD BEEN INCURRED IN CONNECTION WITH THE BUSINESS ACTIVITIES OF THE ASSE SSEE OF DEVELOPING ITS LAND AND THE EXPENSES WERE ALLOWABLE U/S 37 OF THE ACT. 3.2. THE AO STATED THAT THE LEGAL EXPENSES IS NOT R ELATED TO THE INCOME OF THE ASSESSEE. IT IS RELATED WITH THE HOUSE PROPERTY INC OME. BEING AGGRIEVED ASSESSEE FILED APPEAL BEFORE THE FIRST APPELLATE AUTHORITY. 3.3. THE LD. CIT(A) HAS OBSERVED FROM THE DEVELOPME NT AGREEMENT THAT THERE ARE MANY PERSONS INTERESTED IN THE PROPERTY ON BEHALF O F THE ASSESSEE OWNER. THE ASSESSEE HAS THE RESPONSIBILITY TO NEGOTIATE WITH THE SAID L ESSEES AND THE TENANT ON SUCH TERMS AND CONDITIONS AS MAY BE AGREED UPON TO GRANT THE E XCLUSIVE RIGHT IN FAVOUR OF THE DEVELOPER. THAT THE ASSESSEE COMPANY IS REPRESENTI NG MANY PERSONS INTERESTED IN THE PROPERTY. THAT THE ASSESSEE COMPANY HAS NOT STARTED RECOGNIZING INCOME FROM THE PROJECT. ALL THE EXPENSES HAVE TO BE CAPITALIZED TO WORK IN PROGRESS. THAT THE 3 EXPENDITURE CAN BE CAPITALIZED TOWARDS THE COST OF THE PROJECT. THEREFORE THE LD. CIT(A) HAS CONFIRMED THE ACTION OF THE AO. HENCE TH E ASSESSEE IS IN FURTHER APPEAL BEFORE THE TRIBUNAL. 4. ON BEHALF OF THE ASSESSEE THE LD. AR AFTER REITE RATING THE FACTS MENTIONED HEREIN ABOVE SUBMITTED THAT THE ASSESSEE STARTED BUSINESS PROJECT IN 1995 FOR DEVELOPING VACANT LAND BELONGING TO IT. THE SOLE PURPOSE OF TH E ASSESSEE WAS TO EXPLOIT ITS VACANT LAND COMMERCIALLY. THE LD. AR SUBMITTED THAT THE AS SESSEE INCURRED LEGAL EXPENSES TO GAIN POSSESSION OVER THE FLATS BECAUSE WITHOUT GETT ING POSSESSION THE ASSESSEE COULD NOT UTILIZE IT COMMERCIALLY. THE LD. AR RELYING ON THE DECISION OF THE HONBLE APEX COURT IN THE CASE OF EMPIRE JUTE CO. LTD. VS CIT AND ALSO THE DECISION IN THE CASE OF CIT VS RALLI WOLF LTD. 121 ITR 262 SUBMITTED THAT A NY EXPENDITURE INCURRED BY THE ASSESSEE BETWEEN THE SETTING UP OF BUSINESS AND ITS COMMENCEMENT IS ALLOWABLE AS REVENUE EXPENDITURE. THE LD. AR SUBMITTED THAT THE LEGAL EXPENSES HAVE BEEN INCURRED BY THE ASSESSEE TO TAKE POSSESSION OF THE FLATS FRO M THE DEVELOPER SO THAT THE ASSESSEE COULD SELL THOSE FLATS AFTER TAKING POSSESSION FROM THE DEVELOPER. THE LD.AR ALSO FILED A WRITTEN SUBMISSION STATING THE ABOVE FACTS AND THE CASES MENTIONED THEREIN AND CLAIMED THAT THE LEGAL EXPENSES SHOULD BE ALLOWED AS REVENU E EXPENDITURE AS THE SAID EXPENSES HAVE BEEN INCURRED BY THE ASSESSEE IN THE ORDINARY COURSE OF MAINTAINING AND PRESERVING ITS BUSINESS ASSETS. 5. ON THE OTHER HAND THE LD. DR SUPPORTED THE ORDE RS OF THE AUTHORITIES BELOW. HE SUBMITTED THAT THE ASSESSEE IS IN REGULAR BUSINESS OF TRADING OF SHARES AS PER ITS PROFIT AND LOSS ACCOUNT. THE LEGAL EXPENSES HAVE BEEN INCU RRED BY THE ASSESSEE TOWARDS PAYMENTS TO ADVOCATES RELATING TO A DISPUTE WITH IT S DEVELOPER IN RESPECT OF CONSTRUCTION OF FLATS. THE LD. DR SUBMITTED THAT CO NSTRUCTION OF FLATS IS NOT A REGULAR ACTIVITY OF THE ASSESSEE. 5.1. THE LD. DR FURTHER SUBMITTED THAT EVEN FOR THE SAKE OF ARGUMENT DEVELOPMENT AGREEMENT IS CONSIDERED AS BUSINESS ACTIVITY OF THE ASSESSEE THAT ASSESSEE HAS FOLLOWED 4 THE PROJECT COMPLETION METHOD AND THEREFORE THE LEG AL EXPENSES HAVE TO BE CAPITALISED AS THE ASSESSEE IS YET TO GET POSSESSION OF THE FLA TS IN THE ASSESSMENT YEAR UNDER CONSIDERATION TO SET UP ITS BUSINESS. HE SUBMITTED THAT THE ASSESSEE HAS NEVER SHOWN THESE FLATS AS ITS STOCK-IN-TRADE AND LAND WAS SHOW N AS CAPITAL ASSET. THE LD. DR SUBMITTED THAT THE FACTS OF THE ASSESSEES CASE ARE SIMILAR TO THE CASE CONSIDERED BY THE SPECIAL BENCH MUMBAI ITAT IN THE CASE OF WALL STREE T CONSTRUCTION LTD. VS- JCIT SPECIAL RANGE-12 MUMBAI 101 ITD 156 (SB). HE SUBMI TTED THAT THE ORDER OF THE LD. CIT(A) BE CONFIRMED. 6. WE HAVE CAREFULLY CONSIDERED THE ORDERS OF THE L D. REPRESENTATIVES OF THE PARTIES. WE HAVE ALSO GONE THROUGH THE WRITTEN SUBM ISSION FILED BY THE ASSESSEE AND HAVE CONSIDERED THE CASES CITED THEREIN. 6.1. THERE IS NO DISPUTE TO THE FACT THAT THE ASSES SEE HAS SHOWN IN THE PRECEDING ASSESSMENT YEARS ONLY INCOME FROM TRADING OF SHARES AND RENTAL INCOME FROM HOUSE PROPERTY. 6.2. WE HAVE OBSERVED THAT THE ASSESSEE ENTERED INT O AN AGREEMENT WITH A DEVELOPER M./S. CONCRETE DEVELOPER PVT. LTD FOR CONSTRUCTION OF 4 RESIDENTIAL BUILDINGS AND CONSTRUCTED AREA IS TO BE SHARES IN THE RATIO OF 57 .5% TO 42.5%. SINCE THERE WAS A DISPUTE BETWEEN THE PARTIES THE ASSESSEE HAS ENTER ED IN LITIGATION. DURING THE COURSE OF HEARING THE LD AR SUBMITTED THAT IN EARLIER YEARS A LSO THE ASSESSEE CLAIMED LEGAL EXPENSES AND SAME WERE ALLOWED BY THE DEPARTMENT. IN REPLY TO A QUERY THE LD. AR CONCEDED THAT EARLIER ASSESSMENTS WERE COMPLETED U/ S 143(1) OF THE ACT. FURTHER NO DETAILS IN REGARD THERETO HAS BEEN PLACED ON RECORD . BE THAT AS IT MAY WE ARE OF THE CONSIDERED VIEW THAT THE DISPUTE BETWEEN THE ASSESS EE AND THE DEVELOPER IS IN REGARD TO TAKING OVER OF POSSESSION OF FLATS PURSUANT TO DEV ELOPMENT AGREEMENT DATED 28 TH APRIL 1995 ENTERED INTO. WE OBSERVE THAT THE ASSESSEE HAS NOT TRANSFERRED THE SAID LAND AS STOCK IN TRADE TILL DATE. THE SAID LAND HAS BEEN CO NSIDERED BY THE ASSESSEE AS ITS 5 BUSINESS ASSET. WE ARE OF THE CONSIDERED VIEW THAT THE DISPUTE BETWEEN THE ASSESSEE AND THE DEVELOPER IS IN REGARD TO CAPITAL ASSET AND MERELY BECAUSE THE ASSESSEE HAS STATED THAT HE HAS INTENDED TO COMMERCIALLY EXPLOIT THE LAND AND WITHOUT SHOWING THE SAID LAND AS ITS STOCK IN TRADE IT DOES NOT RESULT THAT THE ASSESSEE HAS ENTERED IN CONSTRUCTION ACTIVITY AND THEREFORE THE EXPENDITURE INCURRED CANNOT BE ALLOWED AS REVENUE EXPENDITURE. WE ARE OF THE CONSIDERED VIEW THAT THE DISPUTE IS IN REGARD TO THE CAPITAL ASSET AND AS SUCH THE LEGAL EXPENSES INCURR ED BY THE ASSESSEE IS CAPITAL EXPENDITURE AND THE SAME CANNOT BE ALLOWED AS REVEN UE EXPENDITURE. THE CASES CITED BY THE LD. AR ARE ALSO NOT RELEVANT TO THE FACTS OF THE CASE. NO FACTS/EVIDENCES HAVE BEEN PLACED ON RECORD THAT THE ASSESSEE IS IN THE B USINESS OF REAL ESTATE IN THE PRECEDING ASSESSMENT YEARS OR IN THE ASSESSMENT YEAR UNDER CO NSIDERATION. THE FLATS TO BE DELIVERED TO THE ASSESSEE UNDER THE AGREEMENT DATED 28 TH APRIL 1995 IS IN LIEU OF THE LAND ON WHICH THE FLATS ARE TO BE BUILT BY THE DEVE LOPER. 6.3. CONSIDERING THE FACTS OF THE CASE WE HOLD THA T THE AUTHORITIES BELOW HAVE RIGHTLY HELD THAT THE SAID LEGAL EXPENSES IS THE EX PENDITURE INCURRED BY THE ASSESSEE FOR PROTECTING ITS CAPITAL ASSETS AND IS NOT ALLOWABLE AS REVENUE EXPENDITURE. HENCE WE REJECT THE GROUNDS OF APPEAL TAKEN BY THE ASSESSEE BY CONFIRMING ORDERS OF THE LD. CIT(A). 7. IN THE RESULT THE APPEAL OF THE ASSESSEE IS DISM ISSED. ORDER PRONOUNCED IN THE COURT ON 07.01.2011. . .. .'# '#'# '#. .. . $% C.D. RAO ACCOUNTANT MEMBER . . . . . . . . B.R.MITTAL JUDICIAL MEMBER. ( (( (#% #% #% #%) )) ) DATE: 07.01.2011. R.G.(.P.S.) 6 $3 1 /4 5$4)6- COPY OF THE ORDER FORWARDED TO: 1. M/S.GYANIRAM & SONS PVT. LTD. 8/4 ALIPORE ROAD K OLKATA-700027. 2 THE I.T.O. WARD-6(2) KOLKATA 3. THE CIT 4. THE CIT(A) 5. DR KOLKATA BENCHES KOLKATA 04 // TRUE COPY $3';/ BY ORDER DEPUTY /ASST. REGISTRAR ITAT KOLKATA BENCHES