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Income Tax Appellate Tribunal, BENCH, NAGPUR
Before: SHRI D. KARUNAKARA RAO, AM & SHRI PARTHA SARATHI CHAUDHURY, JM
आदेश / ORDER PER PARTHA SARATHI CHAUDHURY, JM :
This appeal preferred by the assessee emanates from the order of the Ld. CIT(Appeals)-III, Nagpur dated 27.03.2015 for the assessment year 2011- 12 as per the grounds of appeal on record.
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At the time of hearing through video conference, the Ld. AR of the assessee submitted that he is not pressing ground Nos. 1 & 2. In view of the submissions of the Ld. AR, ground Nos.1 & 2 raised in appeal by the assessee are dismissed as ‘not pressed’.
Now, the grounds left for adjudication are Grounds No. 3 & 4 which are as follows:
“3. Without prejudice to ground No.1 & 2 raised above for deletion, the learned CIT Appeals has erred in law and on facts in not allowing telescoping of cash in hand of Rs.94,29,214/- & Rs.10,00,000/- from the amounts available due to surrender of income/expenditure during the course of search, when no investment/assets/ expenditure was found in relation to such surrender. 4. On the facts and circumstances of the case and in law, the learned assessing officer has erred in holding that the expenditure of Rs.95,00,000/- incurred for construction of road and toilet is a capital expenditure and that the same has not been incurred wholly and exclusively for business purpose and hence, not allowable and the learned CIT Appeals has erred in confirming the same. In the alternate and without prejudice to the above, the learned Assessing Officer has erred in not allowing depreciation of Rs.9,50,000/- on the said expenditure of Rs.95,00,000/- treated by him as capital expenditure. 5. The appellant craves leave to add or amend any ground of appeal with the permission of the Hon’ble Members.”
The brief facts pertaining to Ground No.3 are that during the course of search action cash of Rs.3,50,000/- was found from the residential premises of Shri Ajay Saraf and cash of Rs.6,50,000/- found in the locker No.38 maintained with State Bank of Mysore, Hospet jointly in the name of Shri Ajay Saraf and Smt. Anju Saraf. Shri Ajay Saraf declared the cash found as additional income in his statement recorded u/s.132(4) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) on 28.09.2010. The AR submitted before the Assessing Officer that the cash of Rs.10 lakhs found from the residence and locker belonging to Mr. Ajay Saraf is out of the cash generated by the assessee on surrender of additional income in A.Y.2010-11.
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The Assessing Officer, however, made the addition on the ground that nexus between the cash generated out of inflated overbooked expenditure and cash found is not established.
The Ld. CIT(Appeals) at Para 8.3 of his order observed that cash of Rs.3.5 Lakhs was found from the residence of Shri Ajay Saraf and cash of Rs.6.5 Lakhs was found from the locker with SBM, Hospet in the name of Shri Ajay Saraf. The Ld. AR of the assessee has further contented that the cash found of Rs.10 Lakhs is out of the cash available with the assessee, generated on account of inflated overbooked expenditure, declared as additional income in A.Y.2010-11. The Ld. AR of the assessee thus has laid emphasis on the telescoping benefit without explaining the cash found. Thereafter, at Para 8.4, the Ld. CIT(Appeals) held as follows:
“8.4 The contention raised by the AR of the appellant that the telescoping benefit of cash available with the assessee generated by way of inflated overbooked expenditure in the year 2010-11 which has been declared as additional income ought to have been allowed, does not carry much substance in the sense firstly that the appellant has not been able to establish a nexus between the inflated overbooked expenditure and the generation of cash out of it. Secondly that each assessment year is independent and separate assessment year, the allowability of any claim should arise from the regular books of account maintained by the assessee, if such benefit is claimed in any other assessment year instead of same assessment year. Since the cash balance shown by the appellant as opening cash balance as on 01.04.2010 relevant to the assessment year under appeal, does not support the contention raised by the assessee, therefore, the claim for telescoping benefit does not sustain. The addition made by the AO is confirmed.”
Before us, the assessee has prayed for telescoping benefit of cash available with the assessee generated by way of inflated overbooked expenditure in the year 2010-11 which has been declared as additional income. On perusal of the order of Assessing Officer as well as the order of Ld. CIT(Appeals), it is apparent that the assessee was unable to explain the
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cash found. He had been harping upon providing telescoping benefit with regard to cash found vis-a-vis surrendering the amount as additional income during the course of search in assessment year 2010-11. We are of the considered view that this issue needs detailed verification since neither the Assessing Officer nor the Ld. CIT(Appeals) stated anything regarding telescoping of cash found. We deem it fit and proper to set aside the order of the Ld. CIT(Appeals) on the issue and restore the matter back to his file to adjudicate the issue after complying with the principles of natural justice. We order accordingly. Thus, ground No.3 raised in appeal by the assessee is allowed for statistical purposes.
With regard to Ground No.4, the brief facts are that the Assessing Officer in the course of assessment proceedings found that the assessee has debited an amount of Rs.95,00,000/- in the profit & loss account under the head ‘corporate Social responsibility’ which according to the Assessing Officer is not an allowable expenditure being not wholly and exclusively incurred for the purpose of business of the assessee. The Ld. AR of the assessee submitted that out of Rs.95,00,000/-, Rs.75,00,000/- was incurred for development of road in Hospet city as ‘corporate social responsibility’ and balance amount of Rs.20,00,000/- was incurred for land purchase and construction of toilets as part of ‘corporate social responsibility’.
The Ld. CIT(Appeals) at Para 9.3 of his order observed that the assessee, however, has not been able to demonstrate as to how the construction of road and toilets on the behest of local authority, meant for public use and falling outside the business premises of the assessee would serve the purpose of business. In other words, the nexus between the
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expenditure incurred on development of road and construction of toilets owned by the local authority by the assessee and the use of such road and toilets for the purpose of business of the assessee has not been established. The assessee is not the owner of the assets on which the expenditure has been incurred and the same belong to the local authority of Hospet City. The Ld. CIT(Appeals) at Para 9.4 of his order has further observed that such construction of roads and toilets for local authority by the assessee is in the nature of donation for social cause which is not classified to be eligible for deduction under the Income Tax Act, 1961. Therefore, the Ld. CIT(Appeals) upheld the addition made by the Assessing Officer.
At the time of hearing through video conference, the Ld. AR of the assessee invited our attention at Page 47 of the paper book and referred to the decision of the Co-ordinate Bench of the Tribunal, Nagpur in assessee’s own case in ITA No.18/Nag/2013 & ITA No.19/Nag/2013 dated 22.05.2015 wherein the question before the Tribunal was as follows:
“Ground no.2 of the assessee : “The learned CIT(Appeals) erred in law and on facts by holding that the payment of Rs.20,47,500/- made by the assessee to the Tahsildar of the City as their contribution towards construction of Road is neither a capital expenditure nor a revenue expenditure.”
On this issue, the Tribunal has held as follows:
“12. We are of the considered opinion, the decision relied upon by the Learned Counsel of the assessee in the case of Laxmi Sugar Mills Pvt. Ltd. Vs. CIT 82 ITR 376 (Supreme Court) and Gwalior Rayon Silk Mfg Company Ld. Vs. CIT 172 ITR 131 are more appropriate to the facts of the case.
In the case of Laxmi Sugar Mills (supra.), the Hon’ble Apex Court has observed as under:
“The assessee, a private company on the business of manufacture and sale of sugar, paid to the Cane Development Council certain
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amounts by way of contribution for the construction and development of roads between the various sugarcane producing centers and the sugar factories of the assessee. This expenditure was incurred under a statutory obligation for the development of roads which were originally the property of the Government of roads which were originally the property of the Government and remained so even after the improvement had been done. There was no findings that the roads were to be altogether newly made or that the assessee would get an enduring benefit from these roads: Held, that the expenditure was not of a capital nature had to be allowed as an admissible deduction in computing the profits of the assessee’s business. The expenditure was incurred for the purpose of facilitating the running of its motor vehicles and other means employed for transportation of sugarcane to its factories and was therefore incurred for running the business or working it with a view of producing profits without the assessee gaining any advantage of an enduring benefit itself.” 14. Similarly, Hon’ble Madhya Pradesh High Court decision in the case of Gwalior Rayon Silk Mfg. Company Ltd. (supra.) also supports the case of the assessee. In this case, it was held that :
“Construction of road facilities the business operations of the assessee and enabled the management and conduct of the business to be carried on more efficiently and profitably. Though the advantage was of a long duration, it was not an advantage into capital field. Similar was the situation with reference to tube- wells construction of assessee towards construction of road and tube wells, was therefore, deductable as revenue expenditure.” 15. In the background of the above facts and discussion, we are of the considered opinion that an amount of Rs.20,47,500/- paid to Tahsildar for contribution towards construction of road is allowable as revenue expenditure. Hence, assessee’s appeal in this ground is allowed.”
Respectfully following our decision in ITA No.18/Nag/2013 & ITA No.19/Nag/2013 (supra.), the amount of Rs.75,00,000/- spent for road is held to be allowed as revenue expenditure. The balance amount of Rs.20,00,000/- is to be added in the hands of the assessee as capital expenditure. Since we have adjudicated this issue by bifurcating the amount of revenue expenditure and capital expenditure, the alternative ground raised by the assessee in respect of depreciation on capital expenditure becomes academic in nature. Thus, ground No.4 raised in appeal by the assessee is partly allowed.
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In the result, appeal of the assessee is partly allowed for statistical purposes.
Order pronounced on 21st day of January, 2020.
Sd/- Sd/- D. KARUNAKARA RAO PARTHA SARATHI CHAUDHURY ACCOUNTANT MEMBER JUDICIAL MEMBER ऩुणे / Pune; ददनाांक / Dated : 21st January, 2020. SB आदेश की प्रनिलऱपप अग्रेपषि / Copy of the Order forwarded to : अऩीऱाथी / The Appellant. 1. प्रत्यथी / The Respondent. 2. 3. The CIT(Appeals)-III, Nagpur. 4. The CIT(Central, Nagpur. 5. ववभागीय प्रतततनधध , आयकर अऩीऱीय अधधकरण, नागऩुर / DR, ITAT, Nagpur. गार्ड फ़ाइऱ / Guard File. 6.
// True Copy// आदेशानुसार / BY ORDER,
तनजी सधिव / Private Secretary आयकर अऩीऱीय अधधकरण, ऩुणे / ITAT, Pune.
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Date 1 Draft dictated on 17.01.2020 Sr.PS/PS 2 Draft placed before author 20.01.2020 Sr.PS/PS 3 Draft proposed and placed JM/AM before the second Member 4 Draft discussed/approved by AM/JM second Member 5 Approved draft comes to the Sr.PS/PS Sr. PS/PS 6 Kept for pronouncement on Sr.PS/PS 7 Date of uploading of order Sr.PS/PS 8 File sent to Bench Clerk Sr.PS/PS 9 Date on which the file goes to the Head Clerk 10 Date on which file goes to the A.R 11 Date of dispatch of order