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TMI Blog2011 (9) TMI 636X X X X Extracts X X X X X X X X Extracts X X X X ..... of all the housing projects effectively commenced after the statutory date of 1-10-1998 and therefore, deduction u/s 80-IB(10) was rightly claimed and allowed in the original assessment proceedings. Issue is covered by the ITAT order in assessee’s own case for earlier years. Ground Dismissed. CIT(A) deleted Prior period Expense - Held That:- expenditure in question pertains to consumption of electricity, which was received and payable this year, we see no infirmity in the order of CIT(A), which is upheld. Notional rent on unsold flats - Held That:- M/s Ansal properties and Industries Ltd. in ( 1989 -TMI - 63212 - ITAT DELHI-A ) case decided in favour of asseseee. X X X X Extracts X X X X X X X X Extracts X X X X ..... upheld the order of the CIT(A). 4.2. In set aside proceedings, the AO on the basis of similar findings as given on merits qua allowability of deduction u/s 80-IB(10) for same projects in the assessment orders for A.Yrs. 2000-01 and 2001-02, disallowed the deduction claimed by the assessee on the following grounds: (1) The projects commenced construction prior to 1-10-1998, being the cut-off date stipulated u/s 80IA(4F)/ 80-IB(10) for claiming deduction under that section; (2) The built up area in case of certain houses in the project exceeded 1000 sq. ft. being the size of housing project stipulated u/s 80IA(4F)/80-IB(10) for claiming deduction under that section. 4.3. In succeeding assessment years viz. 2000-01 and 2001-02, assessment orders passed u/s 143(3) were revised by CIT u/s 263 of the Act, with the directions to disallow deduction claimed by the assessee u/s 80-IB(10) in respect of Golf Link I & II, Greater Noida; Avantika Aakriti and East End Loni projects. 4.5. On further appeal filed by the assessee before ITAT against the aforesaid orders passed by CIT u/s 263 for A.Y. 2000-01 and 2001-02, the ITAT vide order dated 12-6-2009 decided the issue of eligibility of d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ceed the statutory limit of 1000 sq. ft. and the assessee would not be entitled to reductions of the built up area in 5 houses in East End Loni and 6 houses in Avantika Aakriti, as referred to in paragraph 10 of the order aforesaid. We order accordingly. …. 21. In view of the aforesaid two decisions, we are of the opinion that deduction under section 80-IB(10) has been rightly allowed on housing projects because the building plants of the residential units were approved after 1.10.98 only and the construction has to be deemed to have been commenced on or after the date of approval itself. 22. It should not be lost sight that these are the revision proceedings and in such proceedings the allowance of deduction under section 80IB(10) to the assessee could not be revised as the issue in any case, was debatable and one of the possible views was taken by the assessing officer while granting deduction to the assessee. It was also allowed by the CIT(Appeals) in the succeeding assessment years viz. 2002-03 and 2003-04. The revision of impugned assessment orders as sought to be made by the CIT, while exercising jurisdiction under section 263, would in such a case be merely a diffe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , deduction was claimed in the return of income for that year. 7.4. Under the provisions of the Income-tax Act, the expense is, however, allowable as deduction in the year of accrual of expenses, which for the same will assessment year viz. 2001-02. Through the aforesaid additional ground of appeal, the appellant seeks direction for allowability of such expense in A.Y. 2001-02, if they are not allowed in A.Y. 2002-03. The other details with respect to such expense are part of the record of the department and no fresh investigation into facts is called for. 7.5. It is contended that the additional ground of appeal is being raised pursuant to a contingency which may arise due to technical interpretation of law. The omission to raise the aforesaid additional ground of appeal is neither willful nor unreasonable. Reliance is placed on the Supreme Court in the case of National Thermal Power Company Ltd. Vs. CIT 229 ITR 383 and the powers vested in the ITAT under Rule 11 of the Income-tax (Appellate Tribunal) Rules, 1963. 8. After hearing both the parties, we are inclined to admit the additional ground. 9. While deciding revenue's appeal for A.Y. 1999-2000 (supra), we have held that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts. During the relevant previous year, assessee extended its existing business in the field of hospitality, viz., business of setting up, operating/running of restaurants. 14.2. To set up restaurants, as part of the aforesaid business of hospitality, the assessee obtained professional services of two leading consultants, viz., RHW Hotel Management Services Ltd., New Delhi and Yorkshire Global Licensing, Netherlands, BV. The assessee entered into following agreements with the above referred parties: - Franchise & Management Agreement with RHW Hotel Management Pvt. Ltd. dated 17.8.2000 - Area Development Agreement with Yorkshire Global Restaurant June 1, 2001 14.3. In accordance with the aforesaid agreement(s), the assessee made following payments to the aforesaid parties towards consultancy/technical assistance/technical know-how obtained from such vendors towards settingup of restaurant(s): RHW Hotel Management Pvt. Ltd. Rs. 18,75,195 Yorkshire Global Restaurant Rs. 27,80,375 Rs. 46,55,570 14.4. Payment of Rs. 18,75,195 was made to RHW Hotel Management (P) Ltd. during the period relevant to assessment year 2001-02. The said expenditure was debited, as pre-paid expense, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t (Super Star) associated with it and return any property, used in the restaurant, owned by the vendor/Operator. In such circumstances, it could not be said that the assessee acquired any proprietary rights in the know-how/technical assistance fees, so as to constitute payments made to RHW Management Services Ltd. as capital expenditure. 14.10.Terms of franchisee agreement entered with Yorkshire Hotel, are salso similar wherein, too, the assessee only had the right to use the know-how and brand name of the franchiser to run the restaurant during the currency of the agreement, without any ownership/disposition rights in the same or enduring advantage in the capital field. In such circumstances, the assessee did not acquire any capital asset. 14.11. Reliance, in this regard, is placed on the following decisions, wherein it has been consistently held that payment made for obtaining access to information and restricted license to use of know-how, utilized towards carrying on business, should be treated as revenue expenditure: - CIT v. Ciba India Ltd. 69 ITR 692 (SC) - Alembic Chemical Works Co. Ltd. v. CIT 177 ITR 377 (SC) - CIT vs. British India Corpn. Ltd. 165 ITR 51 (SC) - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (s) in the business of running the restaurant, without acquisition of any capital asset, the payments made cannot be regarded as capital expenditure. 14.14. Insofar as the contention of the lower authorities that as the consultancy fees was paid in relation to new business, viz., running of restaurants, the same should be considered as capital expenditure, assessee submitted as under: 14.15. In the present case, as submitted above, the assessee was already engaged in the business of construction. The new venture of opening and running of restaurant(s), in line with the main objects of the assessee, only an extension of the existing business. The test for determining whether different ventures constitutes same business, as has been enunciated by the Supreme Court in various above decisions, is to find out if there is any interconnection, interlacing, interdependence or unity embracing different ventures. The aforesaid interdependence/interlacing of different ventures can be established by existence of common management, common business organization/administration and common fund. 14.16.Reliance is placed on the following decisions: - Produce Exchange Corporation 77 ITR 739 (SC) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 405 (Del.) CIT v. Tata Chemicals Ltd: 256 ITR 395 (Bom.) Addl. CIT v. Aniline Dye Stuffs & Pharmaceuticals Pvt. Ltd.: 138 ITR 843(Bom) Kesoram Industries and Cotton Mills Ltd vs CIT: 196 ITR 845 (Cal .) Hindustan Aluminim Corporation Ltd. v. CIT: 159 ITR 673 (Cal.) CIT v. Rane (Madras) Ltd.: 215 CTR 250 (Chenn.) Prem Spinning and Weaving Mills Co. Ltd. v. CIT : 98 ITR 20 (All.) CIT v. Shah Theatres P. Ltd. : 169 ITR 499 (Raj.) CIT v. Malwa Vanaspati & Chemicals Co. Ltd., 149 CTR 283 (MP) CIT v. Kerala State Industrial Development Corporation Ltd.: 182 ITR 62 (Ker.) CCIT v. Senapathy Whitely Ltd. : 101 CTR 31 (Kar.) CIT v. Hindustan Machine Tools Ltd.: 175 ITR 212 (Kar.) 14.21.Tthe assessee had made payment of Rs.18,75,195 to RHW Hotel Management Services Ltd. in the immediately preceding assessment year, viz., 2001-02. However, since the said restaurant business commenced operations during the relevant previous year, the aforesaid expenditure was claimed business deduction in the return of income for the relevant assessment year, therefore, the said expenditure was allowable expenditure in A.Y. 2001-02. 14.22. Without prejudice to the above, in the event i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d provide all assistance at every stage for day to day running of the business. Such expenditures are not included in this one time fee. Recurring expenditures on operators are being claimed and allowed separately. This development fee is an one time payment. The assessee who was hitherto unknown in this business of hospitality is now running "world class restaurant-cum-bar" and is a much sought after location. Obviously this asset of enduring nature has been created due to the professional help received. This amount therefore has been rightly treated as capital expenditure. I,therefore, dismiss this ground of appeal of the assessee and uphold the stand taken by the Assessing Officer. The Assessing Officer however is directed to allow depreciation as per rules." 16.1. A perusal of the facts clearly show that assessee and the operators i.e. M/s RHW Hotel Management Services Ltd., agreed on a formula for two types of fee. The amount in question for A.Y. 2001-02 & 2002-03 was on account of providing of technical know-how and expert knowledge prior to the commencement. By own admission of assessee it was not engaged into hospitality business and diversified from business of construct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Ld. Commissioner of Income Tax (Appeals) has erred in deleting the addition of Rs. 3,02,65,204/- made on account of additional notional annual letting value of flats." 21. Apropos ground no. 1 the assessee contends as under: 21.1. During he relevant previous year ending 31-3-2002 the assessee claimed an amount of Rs. 2,24,077/- on account of electricity bills pertaining to financial year 2000-01, but which was received and acknowledged/ accounted for payment during the relevant assessment year. Simply because the aforesaid charges were paid in relation to electricity consumed in the preceding financial year, it cannot be said that the aforesaid expenses are prior period expenses. The liability in respect of aforesaid charges crystallized during the relevant year only, on making of the claim by the Electricity Board and its acceptance by the assessee. 21.2. The Gujarat High Court in the case of Saurashtra Cement & Chemical Industries V. CIT 213 ITR 523 held that merely because an expense relates to a transaction of an earlier year, it does not become a liability payable in the earlier year, if the liability was determined and crystallized in the year in question on the basis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... confirmed that income cannot be taxed on notional basis by estimating ALV. Since the facts of this case are identical to the facts in the earlier years, I follow the order of my predecessor in the case of the appellant for assessment year 2001-02 and the addition of Rs. 1,87,09,177/- made on account of notional annual letting value of the unsold flats is deleted in appeal." 26. The learned DR supports the order of AO. 27. Learned counsel for the assessee, on the other hand, contends that CIT(A) in deleting the addition in question has relied on earlier order of the ITAT in assessee's own case for A.Y. 1989-90. Learned counsel further submitted that the ITAT Delhi Bench 'A' vide its order dated 10-6-2009 in assessee's own case for A.Y. 2004-05 also has decided identical issue in favour of the assessee, by following observations: 3. The assessee is in the business of real estate, development of mini townships, promotion, development and construction of houses, flats, villas and commercial complexes etc. The assessee, in the course of its business, was in possession of various commercial and residential flats and spaces etc. which were laying in its stock as on 31-3-2003. Accordin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rred the disallowance to be attributable to deferred revenue expenditure, however, there is a finding that the assessee started its business during A.Y. 2002-03, CIT(A) though has given the relief but there is no finding that the amount in question is attributable to recurring fee or royalty on running of the restaurant. We have already held that the expenditure pertaining to consultancy prior to commencement of business will not be allowable, however, the royalty or fee relatable to day to day running of business will be allowable. Since the finding about the nature of expenditure is not clear from the order of lower authorities, we set aside the issue back to the file of AO to verify and if the amount in question is found to be relatable to day to day running of restaurant business post commencement, the same may be allowed. Ground is allowed for statistical purposes only. 33. Apropos ground no. 2, respectfully following our earlier order in assessee's own case, we uphold the order of CIT(A) deleting the notional rental income on the unsold flats and space held by the assessee company as stock-in-trade. This ground of revenue is dismissed. 34. Apropos ground no. 3 i.e. deductio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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