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TMI Blog2016 (7) TMI 536X X X X Extracts X X X X X X X X Extracts X X X X ..... cern to convert advance already lying with the sister concern into revenue expenditure of this magnitude is highly unpalatable. We find ourselves in complete agreement with the observations and findings of the CIT(A) for dismissal of the claim of the assessee. The assessee has neither demonstrated the necessity to incur this expenditure to establish bonafide nor has demonstrated the actual expenditure incurred. Notwithstanding, the aforesaid claim in the nature of revenue expenditure when the project itself has apparently not commenced cannot be approved. - Decided against assessee - ITA.No.1556/Hyd/2014 - - - Dated:- 6-7-2016 - SHRI D. MANMOHAN, VICE PRESIDENT AND SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER For The Assessee : Shri S. Rama Rao For the Revenue : Shri K.J. Rao ORDER PER PRADIP KUMAR KEDIA, A.M. This appeal filed by the assessee is directed against the Order of the Ld. CIT(A)-II, Hyderabad dated 16.07.2014 for the A.Y. 2010-2011. The solitary issue arising in the present appeal is disallowance of ₹ 1,50,00,000 claimed as revenue expenditure by the assessee towards business promotion expenses. 2. Briefly stated, the assessee is in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee contended before the CIT(A) that the A.O. is not correct in stating that the property development has not started. The initial development expenditure such as land use conversion, advertisement cost, architect fees and site preparation expenses were incurred by NPDPL during the F.Ys. 2007-08 to 2009-10. The sanction of HMDA for constructing the building was granted on 25.09.2012. The delay in implementing the project was due to bad real estate market in the light of Telangana agitation in 2012. It was further contended on behalf of the assessee before the CIT(A) that the A.O. is not correct in stating that the payment was made by way of journal entry on 31.03.2010. Assessee made total investment of ₹ 18,39,52,980 since 2007 till the date of MOU i.e. 23.12.2009. Out of payment made for the last several years, the journal entry was passed on the date of the MOU towards business promotion expenses of ₹ 1.50 crores. Assessee further contended that on the impugned upfront payment of ₹ 1.50 crores, TDS of ₹ 3 lakhs as applicable @ 2% was also deducted. All the investments over a period of several years were made through the account payee cheques. The total of s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing of project brochures. (b) The appellant failed to submit the details whether this ₹ 1.5 crores was spent for intended purposes or not. On the other hand, the appellant explained that out of ₹ 1.5 crores, amount spent by NPDPL during F.Y.2010-11 was ₹ 7,71,369/- (towards consultancy charges, project maintenance and transportation) and amount spent in 2012 to 2014 was ₹ 6,06,642/- (towards electrical, consultancy etc.). So there was actually no necessity to incur this expenditure. Even on the date of passing this appeal order the amount was not spent. (c) The project is still on and not completed as on the date. (d) All the evidence on record suggest that the journal entry on the last date of accounting year of ₹ 1.5 crores was made only to reduce the profits in the last minute. (e) As per the information submitted by the appellant, there are two accounts of Arunachala Logistics Pvt. Ltd. in the books of NPDPL. These are (i) General ledger account (ii) Project investment account. As per the information submitted by the appellant, in general ledger account, there was an accumulated balance of ₹ 17,40,9 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s retrieval in the event of winding up of the project. The amount incurred has gone irretrievably as a business loss for which the assessee is left with no remedy. The Ld. A.R. heavily relied upon the MOU, copy which has been placed on record at page Nos. 55 to 58 of the paper book. The Ld. A.R. adverted our attention to clause-3 of the MOU wherein the fact of investment of ₹ 18,39,52,980 towards the project is recorded. He thereafter, referred to other clauses whereby the assessee inter alia, was under contractual obligation to incur sales and business promotion expenses and marketing expenses such as advertisement, sales promotion, gift schemes, sales incentives, participation in property exhibition, hoardings, printing of project broachers etc., to the extent of ₹ 1.50 crores. He submitted that pursuant to the business contract, the expenditure has been incurred and rightly claimed as revenue expenditure in the hands of the assessee. The Ld. A.R. referred to page-64 of the paper book and submitted that the project had kick started earlier and the permission was accorded for conversion of the agricultural land into non- agricultural purpose by the appropriate authorit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has been recognized as made towards development of residential project. When we see the manner in which the aforesaid payment of ₹ 18,39,52,980 has been made with reference to the ledger extracts submitted by the assessee, we find that there are large number of transactions of payments and receipts both since April 2007. It is self evident from the ledger account that the payments have been exchanged inter se by both the parties frequently as an open mutual and current account. The manner in which the transactions has been executed in a regular interval over a period of time clearly gives an impression that these payments were made as well as received back as a part of accommodation to the sister concern. The CIT(A) has demonstrated in its order that the building permission was granted by the HMDA on 25.09.2012 i.e., much later to the MOU giving raise to the purported obligation of sales promotion expenses. We do not find any answer to the purport of incurring such huge expenses as claimed at the stage when the project itself is yet to make any serious headway. The facts do not coincide. The assessee could not support the need for such exorbitant expenditure at the stage when ..... X X X X Extracts X X X X X X X X Extracts X X X X
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