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Income Tax Appellate Tribunal, “C” BENCH, MUMBAI
Before: SHRI M. BALAGANESH, AM & MS. KAVITHA RAJAGOPAL, JM
O R D E R Per Kavitha Rajagopal, J M:
This is an appeal filed by the Revenue, challenging the order of the learned Commissioner of Income Tax (Appeals) (‘ld.CIT(A) for short), National Faceless Appeal Centre (‘NFAC’ for short) u/s.250 of the Income Tax Act, 1961 (‘the Act'), pertaining to the Assessment Year (‘A.Y.’ for short) 2017-18.
The Revenue has challenged the ld. CIT(A)’s order in allowing the advertisements, sales and marketing expenses of Rs.3,13,29,373/- and also on restricting the receipts on on-money to 35% of the total receipts by relying on the order of the Hon’ble Income Tax Settlement Commission u/s. 245D(4) of the Act.
The appeal is time barred by two days for which the learned Departmental Representative (ld. DR for short) had prayed for condoning the said delay by relying on (A.Y. 2017-18) Dy. CIT vs. M/s. Citra Properties Ltd. the decision of the Hon'ble Apex Court in the case of suo moto Writ Petition No. 3 of 2021, where the limitation period was extended. We hereby condone the delay of two days as there was ‘sufficient cause’ for the delay.
The brief facts are that the assessee is engaged in the business of development of real estate projects and other related ancillary activities. The assessee company filed its return of income dated 14.09.2017, declaring a total loss of Rs.69,03,234/- and book loss u/s. 115JB at Rs.67,88,843/-. The assessee revised its return dated 06.02.2018, declaring total loss at Rs.54,35,407/- and book loss u/s. 115JB at Rs.67,88,843/-. The same was processed u/s. 143(1) of the Act. Pursuant to a search action carried out in the case of India Bulls dated 30.07.2016, the assessee company being a group entity was selected for scrutiny and the assessment order dated 30.12.2018 was passed u/s. 143(3) of the Act r.w.s. 153C of the Act where the A.O. had assessed the total income at Rs.14,15,05,090/- and book loss u/s. 115JB of the Act u/s. 4,95,59,244/- by making various additions/disallowances.
The assessee was in appeal before the ld. CIT(A), challenging the disallowance of advertising, sales and marketing expenses, amounting to Rs.5,13,68,651/- and against the addition on account of on-money amounting to Rs.2,92,36,175/- and addition on account of extrapolation of on-money amounting to Rs.10,80,55,464/-, along with the other grounds. The ld. CIT(A) allowed the grounds of appeal filed by the assessee on the ground that the A.O’s disallowance on the fact that the assessee has not earned any income during the impugned year, was not a valid ground for disallowing the business expenditure pertaining to the advertisement, sales and marketing expenses and the (A.Y. 2017-18) Dy. CIT vs. M/s. Citra Properties Ltd. addition on on-money and on extrapolation of the on-money was deleted by the ld.
CIT(A) by placing reliance on the order of the Hon’ble Income Tax Settlement Commission made with respect to other 16 entities of the India Bulls group.
Aggrieved by the order of the ld. CIT(A), the Revenue is in appeal before us.
The ld. DR for the Revenue contended that the A.O. had disallowed the same due to the fact that the assessee had not earned any revenue during the impugned year and that the assessee has failed to submit the details or explanation for justifying the allowability of the expenses. The ld. DR further stated that the A.O. has allowed the same to be capitalized to work in progress (WIP) account. The ld. DR relied on the assessment order.
The learned Authorised Representative (ld. AR for short) for the assessee, on the other hand, controverted the same and stated that the impugned expenses are in the nature of sales expenses and the ld. AR further stated that the A.O. has not disputed the veracity of the expenditure incurred and had rather disallowed the same only on the ground that the assessee has not earned any revenue during the impugned year. The ld.AR further stated that the A.O. has not considered the sales made in subsequent years and has also ignored the advance amount received from parties which was the result of advertisement made by the assessee. The ld. DR further stated that the A.O. has erred in capitalizing the selling cost with inventories and that the expenses on advertisement, marketing and sales are mandatory for promoting the assessee’s business. The ld. CIT(A) has allowed the said expenses by placing reliance on the various decisions of the Hon'ble High Court’s and (A.Y. 2017-18) Dy. CIT vs. M/s. Citra Properties Ltd. has relied on the decision of the Hon’ble Gujarat High Court in the case of Smt. Viramati Ramkrishnav vs. CIT [1981] 131 ITR 659 (Guj) and held that the expenses pertaining to advertisement, sales and marketing are to be allowed based on the propositions laid down in the above said judgment and the A.O.’s action in capitalizing the same to WIP was held to be not in accordance with the law. The ld. CIT(A) had directed the A.O. not to add the advertisement, sales and marketing expenses to WIP.
The ld. AR relied on the decision of the co-ordinate bench in the assessee’s case for A.Y. 2016-17 which has allowed similar expenses on advertisement, sales and marketing.
We have heard the rival submissions and perused the material available on record.
It is evident that the co-ordinate bench has allowed the expenditure claimed on advertisement, sales and marketing by the assessee for A.Y. 2016-17 which was disallowed by the A.O. and allowed by the ld. CIT(A) in appeal by the assessee. The co- ordinate bench has placed reliance on the decision of the ld. CIT(A) who has in turn relied on the proposition laid down by the Hon’ble Gujarat High Court in the case of Smt.
Virmati Ramkrishna vs. CIT [1981] 131 ITR 659 and the Tribunal has held that the said expenses was allowable as ‘business expenditure’ as per the provision of section 37 of the Act in which case also the A.O. has not questioned the genuinity of the expenses. The Hon’ble Tribunal has stated that earning of income is not a criteria for allowability of the business expenditure when the said expenditure was incurred wholly in the course of business activity. The co-ordinate bench has also laid its hands on the proposition laid down by the Hon’ble Gujarat High Court in allowing the business expenditure and the (A.Y. 2017-18) Dy. CIT vs. M/s. Citra Properties Ltd. criteria for the eligibility of claiming of the expenditure which are expended for the purpose of business. As this issue has been already dealt with by the co-ordinate bench for A.Y. 2016-17, we do not find any justification in deciding otherwise. The order of the ld. CIT(A) has no infirmity and, we therefore, dismiss ground nos. 1 & 2 raised by the Revenue.
Ground Nos. 3, 4 & 5 pertains to the charging of 35% of the total receipts from on-money on the basis of the order of the Hon’ble Settlement Commission passed u/s. 245D(4) of the Act. It is observed that the A.O. has made addition on account of on- money and extrapolation of the on-money based on the documents seized during the search action carried out in the India Bulls cases. It is observed that the impugned unaccounted cash receipts and payments were recorded in the cash transaction record (CTR for short) in the pen drive/laptop of Shri Ashok Sharma, the group Chief Financial Officer (CFO) and that in case of group entities of India Bulls, the Hon’ble Settlement Commission vide its order dated 30.04.2019 passed u/s. 245(D)(4) of the Act had confirmed 35% of the on-money as ‘unaccounted income’, as against 10% of gross on- money offered by the said entities. The ld. CIT(A) restricted the addition on on-money amounting to Rs.2,92,66,175/- to 35% of the total amounting to Rs.1,02,32,661/- on the ground that the Hon’ble Settlement Commission’s order pertaining to other entities were on similar facts as that of the assessee and thereby deleted the balance addition amounting to Rs.1,90,03,513/-. It is also pertinent to point out that in assessee’s case for A.Y. 2016-17, on similar facts the Tribunal has held the addition on on-money to be restricted to the extent of 35% of the total on-money by stating that the order of the (A.Y. 2017-18) Dy. CIT vs. M/s. Citra Properties Ltd. Hon’ble Settlement Commission is appealed before the Hon'ble High Court, does not bar the ld. CIT(A) from adhering to the said order. The Tribunal also held that unless any of the order passed by the Revenue authority is stayed, it does not prevent the lower authorities to rely on the said decision. By holding so, the Tribunal has restricted the addition to 35% of the total on-money. As in this appeal also, the facts are identical to that of A.Y. 2016-17, we find no justification in interfering with the decision of the tribunal in the previous year. From the above observation, we find no infirmity in the order of the ld. CIT(A). Hence, the ground nos.3, 4 & 5 raised by the Revenue are dismissed.
In the result, the appeal filed by the Revenue is dismissed.
Order pronounced in the open court on 03.02.2023 Sd/- Sd/- (M. Balaganesh) (Kavitha Rajagopal) Accountant Member Judicial Member Mumbai; Dated : 03.02.2023 Roshani, Sr. PS Copy of the Order forwarded to : 1. The Appellant 2. The Respondent 3. The CIT(A) 4. CIT - concerned 5. DR, ITAT, Mumbai 6. Guard File BY ORDER,