2023 (4) TMI 313 - AT - Income Tax

Claim of expenses pertaining to abandoned project - demonstrate incurrence of the expenditure itself - Second round of proecedings before ITAT - HELD THAT - ITAT in the first round held that the claim of expenditure incurred by the assessee on the abandoned project was allowable to it subject to the assessee demonstrating the fact that it had incurred the expenditure itself and not through Gujarat Acrylics Ltd. an Joint Venture entity of the assessee and others. This fact we find has been suitably demonstrated by the assessee by pointing out that the Shareholders agreement between the JV partners entered on 06/01/1995 required the respective parties to the JV to bear costs upto 31-12-1994 and the assessee had till then incurred this cost of 20.51 lacs. As per the terms of agreement between the JV partners costs incurred upto 31-12 -1994 was to be borne by the partners themselves. There was no question therefore of the JV company i.e Gujarat Acrylics Ltd bearing any expenditure upto 31-12-1994 . The impugned expenses incurred by the assessee of 20.51 lacs have been suitably demonstrated as incurred upto 31-12-1994. Revenue does not dispute this fact - no doubt in the fact that the said expenses have been incurred by the assessee itself the Shareholders agreement ruling out in clear terms the JV company from bearing these expenses. Assessee had established clearly that this expenditure had been incurred by the assessee itself. We find that the assessee had sufficiently demonstrated compliance with the conditions stipulated by the ITAT for theallowance of the claim and we hold that the assessee is entitled to the said claim of project expenses in terms of the direction of the ITAT in the first round. Basis of the Revenue for rejecting the claim missed the crux and contents of the directions of the Tribunal which was simply to the effect that the assessee had to demonstrate incurrence of the expenditure itself and for the said purpose the Tribunal had gone to the extent of directing assessee to demonstrate mode of payment and details of payment etc. Facts demonstrated by the assessee clearly showed that the expenditure had been incurred by the assessee itself. There is no question of denial of claim to the assessee. Thus ground no.2 and 2.1 are allowed. Claim of wage settlement - in first round directions of the ITAT were to allow claim of wage settlement on thefinal settlement of the wages and on its actual payment. It was on the fulfillment of both the conditions that claim was to be allowed to the assessee - AO in the second round denied the claim finding that the same was not settled by the assessee in the impugned year - HELD THAT - As assessee was unable to controvert the factual finding that to the extent of the claim of wages was not settled in the impugned year. Inviewof the same we see no reason to interfere in the order of the ld.CIT(A) disallowing the claim of wages to the extent of Rs.81 lakhs. At the time same we agree with the contentions of the assessee that the said claim be allowed in the year in which it is actually paid by the assessee. With this direction to the AO ground of appeal are allowed in the above terms.

Summary

Issues Involved:
1. Claim of expenses pertaining to an abandoned project amounting to Rs. 20,51,000.
2. Claim of expenses for wage settlement amounting to Rs. 81,00,000.

Detailed Analysis:

1. Claim of Expenses Pertaining to Abandoned Project:
The first issue pertains to the disallowance of expenses written off for an abandoned project, specifically the Acrylon Nitric Project, amounting to Rs. 20,51,000. The assessee argued that the CIT(A) exceeded his jurisdiction by adjudicating on the merits of the claim, which was previously accepted by the AO and not challenged before the High Court.

The ITAT in the first round had noted that the assessee incurred expenses on the Acrylon Nitric project, a joint venture with M/s Modi Rubber Ltd., and these expenses were claimed as revenue expenditure after the project was abandoned. The AO initially disallowed the claim, stating that the business had not commenced, and thus the expenditure could not be allowed. The ITAT, however, held that since the assessee was already in an existing business, creating another unit was an extension of the business, and the expenses should be allowed if it was demonstrated that the assessee itself incurred them, not the new entity Gujarat Acrylics Ltd.

In the second round, the assessee demonstrated that the expenses were indeed incurred by it, as per the shareholders' agreement, which stipulated that costs incurred up to 31.12.1994 were to be borne by the respective parties. The assessee provided detailed evidence, including the agreement and expense details, to show compliance with the ITAT's directions. Despite this, the CIT(A) upheld the AO's disallowance, stating that the mode of payment and nature of expenditure were not furnished.

Upon review, the ITAT found that the assessee had sufficiently demonstrated compliance with the conditions stipulated in the first round, proving that the expenses were incurred by the assessee itself. Consequently, the ITAT allowed the claim of Rs. 20,51,000 as project expenses.

2. Claim of Expenses for Wage Settlement:
The second issue involved the disallowance of Rs. 81,00,000 on account of wage settlement. The ITAT had previously directed the AO to verify whether the wage settlement was finalized and the amount actually paid in the relevant year. The AO found that only Rs. 78,00,000 was paid during the current year, with the remaining Rs. 81,00,000 paid in the next year. Consequently, the AO disallowed the claim for Rs. 81,00,000, and the CIT(A) upheld this decision.

The assessee was unable to counter the factual finding that the wage settlement amount of Rs. 81,00,000 was not settled in the impugned year. The ITAT agreed with the CIT(A)'s disallowance but directed that the claim be allowed in the year when the payment was actually made.

Conclusion:
The appeal was partly allowed. The ITAT permitted the claim of Rs. 20,51,000 for expenses related to the abandoned project, as the assessee demonstrated compliance with the conditions set in the first round. However, the claim for wage settlement expenses of Rs. 81,00,000 was disallowed for the relevant year but directed to be allowed in the year of actual payment.