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TMI Blog2006 (4) TMI 182X X X X Extracts X X X X X X X X Extracts X X X X ..... he whims and fancies of the CIT(A). 3. That the learned CIT(A) has ignored the contention of the assessee that the nature of these expenses are revenue and Dy. CIT in asst. yr. 1988-89 given appeal effects of Hon'ble Tribunal order has allowed. 4. That learned CIT(A) has even ignored the fact that these expenses have been incurred by a third party on the basis of an agreement and the assessee has remitted the expenses to Dalmia Resorts International (P) Ltd. and the details were furnished. 5. That the appellate ordor is full of surmises and conjectures and has been passed by violating all the norms of natural justice. 6. That the assessee craves leave to amend, alter or raise any other ground of appeal at the time of hearing not having been mentioned herein." 2. The facts common for all the assessment years are that the assessee was a private limited company engaged in the business of manufacture of cigarettes on behalf of M/s Golden Tobacco Company Ltd. Subsequently, the company decided to expand and diversify its business into resort-cum-hotel. The company entered into an agreement with partnership-firm of Pahalgam viz., namely, M/s Green Hotels, whereunder the said par ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... laim of the assessee. The assessee filed an appeal before the Tribunal, Amritsar Bench. The Tribunal, Amritsar Bench vide its order dt. 31st March, 1993 in ITA No. 5861 Asr/1992 for the asst. yr. 1988-89 accepted the claim of the assessee that expenditure incurred was revenue in nature and the assessee was entitled to deduction of the same. However, the matter was restored to the file of the AO for examining the admissibility of such revenue expenditure in accordance with law and subject to scrutiny. The relevant findings recorded by the Tribunal in the aforesaid order are as under: "Here in the present case, the business had commenced, inasmuch as, the assessee had even received payments from the intending members and had derived advantage. The frustration of the business subsequently could not have the effect of denying the assessee its claim of expenditure on the ground that the business was in its initial stages and the expenditure incurred was only of capital nature. 26. We are not dealing in detail with the judicial precedents cited for the assessee because it is not the Revenue's case that a different management was controlling the Holiday Resorts business and that the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Tribunal, Amritsar Bench for the asst. yr. 1988-89 and restored the matter to the file of AO for verification and scrutiny of details of the various expenses, i.e., whether these were allowable or not. The AO again completed the assessment under s. 144 at an income of Rs. 27,27,360 disallowing the claim of the assessee for the expenses on the ground that these were capital in nature. The learned CIT(A) again set aside the assessment vide his order dt. 30th March, 1999 directing the AO to verify the details of the various expenses to see whether same were allowable under the Act. The AO again completed the set aside assessment under s. 144 on 28th Feb., 2001. The relevant extracts from the assessment order for the asst. yr. 1989-90 appear on pp. 2 to 4 of the CIT(A)'s order dt. 22nd July, 2002. The reason given by the AO for making disallowance of the expenses were that the said expenditure was capital in nature because business had not since commenced in respect of this project. 3.3 Aggrieved, the assessee filed an appeal against the assessment order before the CIT(A). The CIT(A) vide his order dt. 22nd July, 2002 again referred to the order of the Tribunal for the asst. yr. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was again subject-matter of appeal before the CIT(A). The CIT(A) vide his order dt. 23rd July, 2002 restored the matter to the file of the AO for scrutiny and examination of the expenses as to whether these were incurred wholly and exclusively for the purposes of assessee's business. This was done on the same line as for the earlier assessment years. 3.6 For the asst. yr. 1992-93, the AO completed the assessment under s. 143(3) on 30th Dec., 1994 at income of Rs. 32,91,243 by making disallowance of the expenses relating to 'resort division' on the ground that the same were capital in nature and by repeating the earlier orders. This assessment was set aside by the CIT(A) vide order dt. 30th March, 1996. Again, the AO completed assessment under s. 144 on 28th Feb., 2001 on income of Rs. 11,80,687 by disallowing the expenses relating to resort division by referring to the earlier assessment orders. The assessee filed an appeal against the said order and the CIT(A) vide his order dt. 23rd July, 2002 restored the matter to the file of AO for verification of the details of the expenses as to whether the expenditure was incurred for the purpose of assessee's business or not. 3.7 In or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s for the various assessment years and observed that a perusal of the assessment records for the asst. yrs. 1989-90 to 1991-92 showed that during three rounds of the assessment proceedings, the assessee failed to produce any details, bills and vouchers, etc. in respect of expenses. The assessee had only filed break-up of the expenses under the various heads from which genuineness of the same and the fact whether these expenses were incurred wholly or exclusively for the purpose of business could have not been examined. Thus, the learned CIT(A) observed that the assessee failed to fulfil the conditions laid down under s. 37 of the Act to establish that the expenditure was incurred wholly and exclusively for the purpose of business. He, therefore, upheld the disallowance of entire expenditure in the rectification orders passed under s. 154 for these assessment years and the same order was followed for the asst. yr. 1992-93. 3.9 Before parting with the facts of case, we wish to mention that the Department had filed a reference application under s. 256(1) against order dt. 31st March, 1993 of Tribunal, Amritsar Bench for the asst. yr. 1988-89. This was rejected by the Tribunal. There ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cts which are apparent from records. The learned CIT(A) is not vested with the powers to call for details and examine the allowability of the claim in rectification proceedings. He relied on the decision of Hon'ble Delhi High Court in the case of J.N. Sahni vs. ITAT Ors. (2002) 174 CTR Del) 367 : (2002) 257 ITR. 16 (Del), where it was held that the Tribunal is not vested with any power to review its own order and has no power to recall its order passed on merits in rectification proceedings. He further relied on the judgment of Hon'ble Punjab Haryana High Court in the case of CIT vs. Vardhaman Spinning (1997) 139 CTR (P H) 322 : (1997) 226 ITR 296 (P H), where it was held that the power of the Tribunal under s. 254(2) of the Act is limited only to rectify the mistakes which are apparent from record. He submitted that the power of the CIT(A) under s. 154 is similar to the power of the Tribunal vested under s. 254(2) of the Act. Thus, he contended that the action of the CIT(A) in rectifying the order under s. 154 was without jurisdiction and hence illegal and invalid. He further argued that assuming for a while that the learned CIT(A) had rightly invoked the provisions of s. 154 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r stated that despite three rounds of assessment proceedings and the proceedings before the CIT(A), the assessee has not been able to produce bills and vouchers to establish the genuineness of the expenditure and the fact that the said expenditure was incurred wholly and exclusively for the purpose of assessee's business. Thus, he submitted that the learned CIT(A) was justified in sustaining the disallowance of the said expenses under s. 37(1) of the Act. 6. We have heard both the parties at some length and given our thoughtful consideration to the rival contentions, examined the facts, evidence and material placed on record. We have also gone through the orders of the authorities below and referred to relevant pages of the paper book to which our attention has been drawn. In our view, the following issues need to be decided by this Bench: (i) Whether the action of the learned CIT(A) in directing the AO to examine allowability of the expenditure after verification of the details, bills and vouchers, etc, tantamounted to setting aside the assessments? (ii) Whether the action of CIT(A) in rectifying the orders under s. 154 was within the scope and ambit of powers vested with hi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yr. 1988-89, This being the case, I am of the opinion that the disallowance made by the AO in respect of resort division amounting to Rs. 65,14,836 is not justified, and, therefore, stands deleted. However, while giving effect to this order the AO should examine the allowability of these expenses according to the law by reference to relevant vouchers, books of account, etc. after necessary examination, These directions are in accordance with the directions issued by the Hon'ble Tribunal in appellant's case for the asst. yr. 1988-89." From the bare reading of the aforesaid order, it is obvious that the directions given by the CIT(A) were based on the directions issued by the Tribunal for the asst, yr. 1988-89, where the matter was restored to the file of the AO. If the learned CIT(A) had intended to delete the disallowance as it is, there was no need for him to direct the AO to scrutinize the details and examine the genuineness and admissibility of the expenses as to whether these have been incurred wholly and exclusively for the purpose of assessee's business. Obviously, if on verification, the AO was of the view that the assessee had failed to prove the genuineness of the expens ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esorting to provisions of s. 154 of the Act is to be seen in the light of above legal position. It is a fact that while deciding the present appeals, the learned CIT(A) referred to the decision of the Tribunal, Amritsar in the case of the assessee for the asst. yr. 1988-89 where it was held that the impugned expenditure was in the nature of revenue. However, the Tribunal had not deleted the disallowance itself. The matter was restored to the file of the AO for scrutiny and verification of the details from the point of view of allowability of the same. It may be mentioned that even if the expenditure falls in the category of revenue, the allowability of the same is subject to the provisions of the Act. For example, sub-s. (1) of s. 37 provides that only such expenditure can be allowed as deduction which is not a capital expenditure, not personal expenses of the assessee and it must be laid out or expended wholly and exclusively for the purpose of business. Explanation to s. 37(1) of the Act further prohibits deduction of the expenditure incurred by an assessee for any purpose which is an offence or which is prohibited by law. Sec. 40A(3) of the Act prohibits cash payments of expendi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6/Asr/1995 confirmed the action of the CIT(A) for restoring the matter to the file of the AO by relying on the decision of the Tribunal for the asst. yr. 1988-89. The same is the position in regard to other two orders of the Tribunal dt. 20th Jan., 2003 for the asst. yrs. 1989-90 to 1991-92 and order dt. 25th March, 2004 for the asst. yr. 1992-93. Since the matter had only been restored to the file of the AO for examination and scrutiny of the claim of the assessee for deduction of the expenses, it could not be said that there was a merger of the order of CIT(A) with that of the Tribunal so far as merits of the claim was concerned. The Tribunal had not recorded any findings on the merits of the claim except that nature of expenditure was revenue. So far as the orders of CIT(A) dt. 23rd July, 2002 are concerned, the learned counsel for the assessee conceded before us that appeals were not filed by the assessee against the said orders. It appears that Revenue too had not filed appeals against the orders of the CIT(A) dt. 23rd July, 2002. The matter has only now come up before Tribunal. Therefore, we do not find any merit in the submissions of the assessee that the orders of the CIT(A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... disallowing the claim merely on the ground that expenditure incurred related to the period before the commencement of the business of the project and, therefore, was capital in nature. Such findings of the AO have not been approved by the Tribunal and it is for the same reason that the matter was restored to the file of the AO for verification of expenses in earlier appeals. In other words, the AO had not found any infirmity in the claim of the assessee for allowability of the expenses as per provisions of the Act. Now the question is when the issue came up before the CIT(A), while deciding the appeals on 23rd July, 2002, the same CIT(A) thought it better to again restore the issue to the file of the AO for examination and scrutiny of the expenses with reference to books of account, bills and vouchers, etc. Obviously, no further investigation was carried out by the AO as the assessee pointed out to AO that the learned CIT(A) had no power to set aside the assessments after 1st June, 2001. It is also a fact that during the course of appeal proceedings, the learned CIT(A) did not remand the case to the AO for verification of the expenses and then to obtain the remand report. It is als ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t snatched away from the assessee, what was allowed by the Tribunal by holding that the said expenditure was revenue in nature. We, therefore, find no merit in the action of the CIT(A) in disallowing the claim of the assessee for deduction of various expenses claimed in the returns of income filed moreso in the rectification proceedings under s. 154. 6.7 Now the question is whether any useful purpose will be served in again setting aside the impugned orders and restoring the issue to the file of AO. We have already observed that the matter was restored to the file of the AO thrice with repeated directions to verify the claim of the assessee for deduction of expenses. The AO repeatedly made the same disallowance on the ground that the expenditure was capital in nature. Even for the asst. yr. 1988-89, the AO while completing the set aside assessment did not find any fault with the claim of the assessee for deduction of expenses and allowed the deduction. The facts of the case for the assessment years under reference are the same as for the asst. yr. 1988-89. This matter is now 15 years old and has been subject-matter of protracted litigation. During this period, the assessments hav ..... X X X X Extracts X X X X X X X X Extracts X X X X
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