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TMI Blog2025 (2) TMI 859X X X X Extracts X X X X X X X X Extracts X X X X ..... 39; its main objective of development of notified area. Further, by incurring these expenditure, the appellant authority would not be deriving any revenue in future as is the finding of the AO himself. Further, these expenditure cannot be said to be income generating apparatus of the appellant authority and in my view, by incurring these expenditure, the appellant would not be deriving any benefit of enduring nature. Also find that these expenditure have consistently been claimed by the appellant for the last many years and even in the subsequent ears these expenditure have been claimed by the appellant. It has been claimed that the assessments of the appellant since A.Y. 2003-04 are consistently being framed u/s 143(3) and in none of the assessments, any adverse view on this issue has been taken by any of the AOs. It has further been contended that all these assessment orders were also subject matter of appeals before the appellate authorities. From the copies of the assessment orders of various other assessment years filed by the appellant before me, I found that in none of the other assessment years, any part of these expenditure have been disallowed for the reasons has brought ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in assessment-order that the expenses claimed by assessee are forming part of WIP/stock, therefore when it is so the claim of assessee is revenue-neutral because on one hand the assessee has debited expenditure to P&L A/c and on other hand there is a credit in P&L A/c in the form of WIP/stock. Ld. AR submitted that no disallowance is warranted in such a situation when there is effectively no claim by assessee.
We find sufficient merit in the submission of Ld. AR. We agree that once the impugned expenses are included in closing inventory, effectively there is no deduction claimed by assessee and no disallowance is warranted. Therefore, the deletion made by CIT(A) is valid. X X X X Extracts X X X X X X X X Extracts X X X X ..... .1 I have gone through the assessment order, the written submissions of the appellant as reproduced above and after considering the fact that on the issue raised in this ground, since the appeal of the appellant stands admitted in the Hon'ble M.P. High Court against the order of Hon'ble ITAT, Indore Bench. Therefore, the issue will be decided finally after the decision of Hon'ble M.P. High Court. Meanwhile keeping in view the history of the case, the facts brought out above and respectfully following the decision of Hon'ble ITAT, this ground of appeal is dismissed." AY 2012-13: 3.4 I have considered the facts of the case and the written submissions of the appellant. There is no infirmity in the order of the A.O. in holding that in view of the absence of registration u/s 12AA and the prevailing order of Hon'ble ITAT, the total income of the assessee is to be treated as taxable. As and when the order of Hon'ble High Court is received, appeal effect to the same will be given accordingly. For the moment, no directions to the AO are called for. " 6. However, the CIT(A) has not given similar finding/direction while passing impugned orders in quantum-appeal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... us these are part of the revenue expenditure. Ld. AO however was not satisfied and treated the expenditure as capital in nature and allowed the expenses to the extent of 1/5th of the total expenses, thereby giving benefit of expenditure of Rs. 3,93,41,355/- and disallowed the remaining 4/5th amount at Rs. 15,73,65,419/-. The assessee succeeded in getting relief from Ld. CIT(A) and the impugned disallowance was deleted. 9. Ld. DR vehemently argued supporting the order of the Ld. AO and it was also submitted that the assessee is engaged in development of colonies. None of the alleged expenses are having any nexus with the projects undertaken by the assessee i.e. Indore Development Authority (IDA). The claim of expenses is allowed only if they are incurred for earning the revenue. Since the alleged expenses have no correlation with the project undertaken by the assessee, the same should have been disallowed. 10. Per Contra Ld. counsel for the assessee vehemently argued referring to the following written submissions: 1. That, the assessee Authority is a Statutory Authority constituted under section 38 of 'Madhya Pradesh Nagar Tatha Gram Nivesh Adhiniyam, 1973', under a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . CIT(A). The ld. CIT(A), vide para 4.2 to 4.2.3 at page no. 9 to 11 of his Order, was pleased to delete the entire addition made on this count. 8. The addition so deleted by the ld. CIT(A) deserves to be maintained in view of the following : i) The AO has not disputed that the assessee authority has genuinely incurred these expenditure in pursuance of its objectives for which it has been constituted under an enactment of State Legislation. The AO has also not doubted the genuineness of the incurrence of expenditure as claimed by the assessee authority. ii) The expenses incurred by the assessee Authority under the head City Environmental & Development Expenses do not have any connection with the various schemes developed by the assessee. In other words, by incurring such expenditure, the stock of the assessee Authority does not get affected. Further, the entire expenditure have been incurred for the development of the notified area without having any accretion to its asset or without creating any benefit of enduring nature. iii) The assessee Authority is required to incur these expenses for the general development and maintenance of the city of Indore. For example, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case prevailing in the assessment year under consideration and those prevailing in the aforesaid assessment years. In such a situation, taking an adverse view in the assessment year under consideration by the learned AO is completely unjustified and unwarranted. For such proposition, we place reliance on the decision of the Hon'ble Supreme Court in the case of Radha Soami Satsang Vs. CIT (1992) 193 ITR 321 (SC). 11. Ld. counsel for the assessee also requested for admission of additional evidences under Rule 29 read with Rule 18(4) of the Appellate Tribunal Rules,1963 filed in support of the claim that the expenditure incurred under the City Environmental Development and Preservation Expenses are revenue in nature. The prayer made by the assessee requesting for deletion of additional evidences reads as follows: "In the above context, it is most humbly submitted and prayed as under: 1. That, two separate appeals against the Appellate Orders dated 31- 05-2016 and 16-09-2016 passed by the learned Commissioner of Income-Tax (Appeals)-II, Indore, have been preferred by the Revenue before this Hon'ble Bench for the captioned assessment years. One of the grounds of app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... idering the entirety of facts and circumstances, the AO has not been justified in making the impugned addition. It is found that in the instant case, the AO has not doubted the genuineness of the City Environmental Development and Preservation Expenses aggregating to Rs. 19,67,06,774/- claimed by the appellant. It is also not the case of the AO that these expenses have not been incurred by the appellant in pursuing its core activities. The AO has only disputed the nature of the expenditure claimed by the appellant as revenue. According to the AO, the expenditure is that of capital in nature. The AO without assessing any basis held that only 1/5th of the, total expenditure of Rs. 19,67,06,774/- claimed by the appellant is allowable for the assessment year under consideration. According to the appellant, the remaining 4/5th part of the expenditure has never been allowed to it in the subsequent years. 4.2.2. I have gone through the audited Income & Expenditure Account of the appellant for the relevant assessment year which is placed on record. I find that in the audited accounts, the appellant has claimed expenditure aggregating to Rs 4,10,97,853/ - and Rs. 82,78,48,077/respectivel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the appellant for the last many years and even in the subsequent ears these expenditure have been claimed by the appellant. It has been claimed that the assessments of the appellant since A.Y. 2003-04 are consistently being framed under s. 143(3) of the I.T. Act,1961 and in none of the assessments, any adverse view on this issue has been taken by any of the AOs. It has further been contended that all these assessment orders were also subject matter of appeals before the appellate authorities. From the copies of the assessment orders of various other assessment years filed by the appellant before me, I found that in none of the other assessment years, any part of these expenditure have been disallowed for the reasons has brought down by the AO in the instant case. I find merit in the contention of the appellant that in the income-tax proceedings, the principle of res judicata does not apply but certainly the principle of consistency applies. Accordingly, in absence of any change in the facts and circumstances of the case, an Assessing Officer cannot be permitted to take a different view from that consistently taken by his predecessors. In view of the above discussion, I am of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also because the impugned expenses have direct bearing with the overall business model of the assessee, find no reason to interfere in the finding of Ld. CIT(A) who has deleted the impugned disallowance. Ground No.1 of Revenue's appeal stands dismissed." 12. Ld. DR for revenue did not show any change in facts or law governing the issue or non-applicability of earlier view of Co-ordinate Bench for any reason. Therefore, keeping the consistency, we uphold the deletion of disallowance made by CIT(A). The revenue's grounds qua this issue are dismissed. Issue No. (ii) - Deduction of 'Contribution & Aid Expenses': 13. The assessee claimed deduction of 'Contribution & Aid Expenses" given to other bodies/institutions which the AO disallowed but in first- appeal, the CIT(A) reversed AO's action and deleted disallowance. For this issue, after hearing learned Representatives of both side, we find that the same is also decided in assessee's favour by Co-ordinate Bench of ITAT, Indore in the very same ITA No. 870/Ind/2016 order dated 31.10.2019 for earlier AY 2011-12, the relevant portion of order is re-produced below: "38. Apropos to ground no. 2 which relates to disallowance of three e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nding of the learned AD that the expenses do not meet the objects of the appellant Authority is factually incorrect. It is submitted that the objects of the appellant Authority are that of charitable in nature and the same are covered under the last limb of the expression 'Charitable Purpose' as defined under s.2(1S) of the Act i.e. 'General Public Utility'. Therefore, it cannot be said that the aforesaid contributions made by the appellant Authority are not in consonance with the objects of the appellant Authority. 4. Your Honour, it is submitted that the appellant Authority is required to make contributions toward such Pradarshanis and Utsavs in order to maintain and continue the proud tradition of the city of Indore. Further, every year, the closed mills of Indore make request to the Commissioner, Indore and to the Chairman of the appellant Authority for making contribution towards construction of Jhankis. Therefore, the appellant Authority, being a Statutory Authority constituted under section 38 of 'Madhya Pradesh Nagar Tatha Gram Nivesh Adhiniyam, 1973~ is also statutorily required to make such contributions on such counts. Xerox copies of note sheets p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e matter is pending before the Hon'ble Jurisdictional High Court. Thus, the assessee authority has treated the activities carried out by the assessee in the course of business and not for the purpose of charity. 42. Now looking to the nature of alleged expenditure which have been incurred towards Jhanki-Pradarshani & Seminar, Devi Ahilya Utsav & Malwa Utsav which primarily are not directly related to the business activity of the assessee but as we discuss earlier in the preceding paras that the assessee authority is working as a quasi-Government Authority and works under the directions of the State Government. Against the benefits of getting the premium lands, housing projects, other development project from the Government assessee is also casted with the responsibility of incurring expenditure on the public utility programs. The assessee is able to earn profits because the State Government give the benefit of providing powers to acquire urban and rural land for various projects at concessional rates. Government is able to gets land at concessional rates because it has to work in public interest and also provide various facilities, such as public amenities flyovers, tree pla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see has been treated and taxed under the head profits and gains of business and profession. In the given facts, it would be incongruous for the Revenue to urge that the purpose and goal behind the activities undertaken by the respondent-assessee was not commercial but charity as the intent and motive behind them was not to earn profit. The expenditure incurred to carry out social and economic development would in this background constitute a 'business' or 'commercial' activity undertaken by the respondent assessee. It would be a, contradiction in terms, if we hold that the expenditure would be non-deductible expenditure or expenditure without business expediency. Under section 37 of the Act it does not matter whether or not the expenditure was in the nature of donation or Section 8OG of the Act was not attracted. The conditions stated in Section 37 of the Act matter and constitute the test. Expenditure incurred in furtherance of and connected with the business and commercial activities for which the respondent-assessee was established cannot be disallowed as expenditure not relatable and incurred for 'business' purposes. 15. On the question of capital exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the assessee after developing the Schemes and selling the properties to the customers, transfers the Schemes to the Indore Municipal Corporation, which further looks after various amenities in respect of the Schemes/Colonies. Such Schemes after selling the customers and transferring/ handing over to IMC are not owned by the assessee authority. It has no authority/ right over such schemes/ projects. Thus, the expenses incurred on such transferred or already sold projects of the assessee authority are not allowable as business expenditure. Also, from the Schedule 20 and assessee's submission itself it is seen that such expenses are of capital nature such as construction of roads and building, landscaping and garden development etc. The assessee also didn't contend these facts. The assessee relied upon the same argument that the same expenses were allowed in previous assessment years. However, the same arguments are not acceptable in view of the detailed discussion made in para 5.3 above in this order. In view of all the above facts and circumstances, the expenses claimed in the head Schemes transferred to Indore Municipal Corporation amounting to Rs.3,70,13,057/- by the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... affected. Further, the entire expenditure have been incurred for the repairs and maintenance of the schemes already transferred to IMC without having any accretion to its asset or without creating any benefit of enduring nature. 3. As regard the finding of the AO to the effect that the 'Expenses for Schemes transferred to Indore Municipal Corporation' were not incurred wholly and exclusively for the purposes of business or for the purposes of earning of income, it is submitted that the appellant Authority is required to incur these expenses which are within the very objects of the appellant Authority for which it has been constituted. 4. It shall be pertinent to note that the expenses under the head 'Expenses for Schemes transferred to Indore Municipal Corporation' have been regularly incurred by the appellant Authority from the past several years. It shall also be worthwhile to note that the appellant Authority is consistently undergoing scrutiny assessments under s. 143(3) of the Act for other assessment years as well and in all such years, the expenses incurred by the appellant Authority under the head 'Expenses for Schemes transferred to Indore Municipa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elhi High Court held that, it would be incongruous for the Revenue to urge that the purpose and goal behind the activities undertaken by the respondent-assessee was not commercial but charity as the intent and motive behind them was not to earn profit. The expenditure incurred to carry out social and economic development would in this background constitute a "business' or 'commercial' activity undertaken by the respondent assessee. It would be a, contradiction in terms, if we hold that the expenditure would be non-deductible expenditure or expenditure without business expediency, Under section 37 of the Act it does not matter whether or not the expenditure was in the nature of donation or Section 80G of the Act was not attracted. The conditions stated in Section 37 of the Act matter and constitute the test. Expenditure incurred in furtherance of and connected with the business and commercial activities for which the respondent assessee was established cannot be disallowed as expenditure not relatable and incurred for 'business' purposes. Maintenance and upkeep of various completed projects is part of the appellant's business which is urban development. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mes developed by assessee which the assessee was obligated to incur even after transfer of those schemes to IMC. (ii) Ld. AR further submitted that the assessee is a wing of State Govt.; it maintains every voucher/document of expenses incurred; its accounts are duly audited by various auditors; there is a system of approval of every penny spent at all levels by authorities; every expenditure is incurred as per pre-set procedure which at times includes inviting bids/tenders. Therefore, there cannot be slightest doubt qua the necessity and genuineness of expenses incurred by assessee. He submitted that the AO has nowhere doubted the genuineness of expenses claimed by assessee. (iii) The assessee has claimed such expenses consistently in earlier years and the assessing authority has allowed the same in scrutiny assessments u/s 143(3). Ld. AR has filed a chart at Page No. 37 of Written-Submission showing status of assessee from AY 2008-09 onwards to show that no disallowance was made in earlier years. However, contrary to this, the AO has made disallowance for the first time in AY 2014-15 and thereafter followed the same tune. Ld. AR submitted that he is consciously aware that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncurred; the assessee's accounts are duly audited by various auditors; there is a system of approval of every penny spent at all levels by authorities; every expenditure is incurred as per pre-set procedure which includes inviting bids/tenders. Therefore, looking into these aspects, there cannot be any doubt qua the necessity and genuineness of expenses incurred by assessee. Even in assessment-order, the AO has not doubted the genuineness of expenses claimed by assessee. That apart, it is also noteworthy that the assessee has claimed such expenses consistently in earlier years and the assessing authority has allowed the same in scrutiny assessments u/s 143(3). The disallowance has been made for the first time in AY 2014-15 without any change in facts. It is an accepted principle that the tax authorities have to be consistent in approach unless there is any change in facts or law. We find that the Ld. CIT(A) has deleted AO's disallowance by taking a judicious approach having regard to these facts. Therefore, we do not find any reason to interfere in the order of CIT(A), the same is hereby upheld. Consequently, the revenue's grounds qua this issue are dismissed. Issue No. (iv) - Ded ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion are claimed as revenue expenditure. The AO held that such expenses include capital expenditure being part of capital assets earning rent and disallowed 10% of expenses also on the ground that the benefits of such expenses shall be of enduring nature and the appellant shall reap the benefits beyond the current assessment year. Pertinently, the genuineness of the said expenses is not in dispute. These expenses are not a direct cost of any specific project but are indirect costs incurred by the assessee for development of land allotted by government or municipal corporation. The said expenses have been incurred for the main objective of the assessee and these expenses cannot be tagged with any specific project as the expenses are indirect expenses of the entire activity. As per accounting standards all direct costs shall be capitalized and the indirect costs are charged to revenue. 7.3 Accounting Standard 2 governs valuation of inventories. 'Cost' comprises all of the costs of purchase, cost of completion and other costs incurred "in bringing the inventories to their present location and condition". Non-specific expenditure as well as the selling cost should not be carried forw ..... X X X X Extracts X X X X X X X X Extracts X X X X
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