2015 (6) TMI 1042 - AT - Income Tax

Disallowance of expense incurred on maintenance of colonies - CIT(A) deleted the addition - Held that - The nature of expenses is upliftment of street lighting, development and laying of roads, underground tanks etc. These assets would never belong to the assessee but would belong to the community living in the colony and therefore, it cannot be said that assessee has derived enduring benefit from such expenses, therefore, in our opinion, the assessee was under obligation to maintain this colony for which such expense is a necessity. Therefore, we find nothing wrong with the order of Ld. CIT(A) and confirm the same. - Decided in favour of assessee

Summary

Issues involved: Appeal against deletion of addition made by Assessing Officer on account of disallowance of expenses incurred by the assessee on maintenance of colonies.

Analysis:
1. Identical Issue in Both Appeals: The appeal by the Revenue is directed against separate orders of CIT(A), Panchkula, dated 27.12.2013 and 18.7.2014. Since the issue in both appeals is the same, they were heard together and disposed of by a common order.

2. Grounds Raised by Revenue: The Revenue raised grounds challenging the deletion of the addition made by the Assessing Officer on account of disallowance of expenses incurred by the assessee on maintenance of colonies amounting to a specific sum. The Revenue contended that these expenses were not incurred for the purpose of business.

3. Assessing Officer's Disallowance: The Assessing Officer disallowed the expenses for maintenance of colonies during assessment proceedings, stating that they were not for the purpose of business.

4. Arguments Before CIT(A): The assessee argued that the expenses were in the nature of revenue expenditure as the colonies were handed over to municipal committees or local authorities for future maintenance. The assessee had not acquired any fixed assets through these expenses, and it was unclear how the Assessing Officer concluded that the expenditure would result in enduring benefits.

5. Decision of CIT(A): The CIT(A) agreed with the assessee's submissions and deleted the addition made by the Assessing Officer.

6. Arguments Before ITAT: The Revenue strongly supported the Assessing Officer's order, while the assessee's counsel cited a similar case where expenses on maintenance of colonies were treated as revenue expenditure.

7. ITAT's Decision: The Tribunal considered a similar issue in a previous case and noted that the expenses in question were of revenue nature. The Tribunal emphasized that the expenses were necessary for maintaining the colony and did not result in enduring benefits for the assessee. Therefore, the Tribunal confirmed the CIT(A)'s decision to delete the addition.

8. Final Disposition: The Tribunal dismissed the appeals of the Revenue, as the issues and facts were identical to the case discussed above. The orders were pronounced in open court on a specific date.

This detailed analysis covers the grounds of appeal, arguments presented, decisions made at different stages, and the final outcome of the judgment.