Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, HYDERABAD BENCHES “A”, HYDERABAD
Before: SHRI RAMA KANTA PANDA & SHRI K. NARASIMHA CHARY
आदेश / ORDER PER K. NARASIMHA CHARY, J.M: Aggrieved by the order passed by the learned Commissioner of Income Tax (Appeals)-4, Hyderabad, in the case of Navayuga Infra Projects Private Limited (“the assessee”) for the assessment year 2016-17, assessee preferred this appeal.
At the outset, learned AR submitted that the facts involved for the assessment year 2016-17 are identical to the facts involved for the assessment year 2014-15 in ITA No. 1724/Hyd/2018. Learned DR does not dispute this fact.
It could be seen that by order of the even date, the appeal in (AY. 2014-15) was disposed-of following the view taken in ITA No. 1723/Hyd/2018 (AY. 2014-15). For the sake of completeness, we extract the relevant portions of the said order here under,-
“6. We have gone through the record in the light of the submissions made on either side. According to the Memorandum and Articles of Association of the assessee, its business is to invest and fund the infrastructure projects for development, operation, maintenance etc. Orders of the authorities below do not spell out about the setting up of business by the assessee and they do not reflect any enquiry into the contention of the assessee that pursuant to the concession agreements, the assessee started investments in the SPVs more than three years back, toll collections also started in some of the cases and since the project has to go for twenty years, the toll earnings/annuities will start accruing. Apparently, the expenditure of the assessee is disallowed solely on the ground that the expenditure incurred by the assessee prior to the generation of income from its business cannot be allowed as a deduction, nor can it be adjusted against any other income under any other head.
In the case of PCIT vs. Tudor India (P.) Ltd. [2019] 111 taxmann.com 450 (Gujarat), the High Court of Gujarat, held that:
“It has been held by our courts that it is not for the revenue authorities to dictate to the assessee as to how he should conduct his business and it is not for them to tell the assessee as to what expenditure the assessee can incur. We may refer to a few of these authorities to elucidate the point. In Eastern Investment Ltd. v. CIT, [1951] 20 ITR 1, it was held by the Supreme Court that "there are usually many ways in which a given thing can be brought about in business circles but it is not for the Court to decide which of them should have been employed when the Court is deciding a question under Section 12(2) of the Income Tax Act". It was further held in this case that "it is not necessary to show that the expenditure was a profitable one or that in fact any profit was earned". In CIT v. Walchand & Co. etc., [1967] 65 ITR 381, it was held by the Supreme Court that in applying the test of commercial expediency for determining whether the expenditure was wholly and exclusively laid out for the purpose of business, reasonableness of the expenditure has to be judged from the point of view of the businessman and not of the Revenue. It was further observed that the rule that expenditure can only be justified if there is corresponding increase in the profits was erroneous. It has been classically observed by Lord Thankerton in Hughes v. Bank of New Zealand, [1938] 6 ITR 636 that "expenditure in the course of the trade which is unremunerative is none the less a proper deduction if wholly and exclusively made for the purposes of trade. It does not require the presence of a receipt on the credit side to justify the deduction of an expense". The question whether an expenditure can be allowed as a deduction only if it has resulted in any income or profits came to be considered by the Supreme Court again in CIT v. Rajendra Prasad Moody, [1978] 115 ITR 519, and it was observed as under: — "We fail to appreciate how expenditure which is otherwise a proper expenditure can cease to be such merely because there is no receipt of income. Whatever is a proper outgoing by way of expenditure must be debited irrespective of whether there is receipt of income or not. That is the plain requirement of proper accounting and the interpretation of Section 57(iii) cannot be different. The deduction of the expenditure cannot, in the circumstances, be held to be conditional upon the making or earning of the income." It is noteworthy that the above observations were made in the context of Section 57(iii) of the Act where the language is somewhat narrower than the language employed in Section 37(1) of the Act. This fact is recognised in the judgment itself. The fact that the language employed in Section 37(1) of the Act is broader than Section 57(iii) of the Act makes the position stronger.
In the case of Sassoon J. David & Co. (P.) Ltd. v. CIT, [1979] 118 ITR 261 (SC), the Supreme Court referred to the legislative history and noted that when the Income Tax Bill of 1961 was introduced, Section 37(1) required that the expenditure should have been incurred "wholly, necessarily and exclusively" for the purposes of business in order to merit deduction. Pursuant to public protest, the word "necessarily" was omitted from the section. The position emerging from the above decisions is that it is not necessary for the assessee to show that any legitimate expenditure incurred by him was also incurred out of necessity. It is also not necessary for the assessee to show that any expenditure incurred by him for the purpose of business carried on by him has actually resulted in profit or income either in the same year or in any of the subsequent years. The only condition is that the expenditure should have been incurred "wholly and exclusively" for the purpose of business and nothing more. It is this principle that inter alia finds expression in the OECD guidelines, in the paragraphs which we have quoted above.”
As rightly contended by the learned AR, the impugned order does not deal with the aspect of setting up of business by the assessee. If the business is set up, the position of law is clear that earning income is not sine qua non for allowing the expenditure, but what is required is that the expenditure should have been incurred "wholly and exclusively" for the purpose of business and nothing more. Since the setting up and conduct of business is a verifiable fact, entitlement of assessee depends upon such a finding of fact.
We, therefore, set aside the impugned order and restore the appeal to the file of the learned CIT(A) to cause verification of the fact of setting up and conduct of business and basing on it to take a view according to law. 10. In the result, appeal in (AY.2014-15) is treated as allowed for statistical purposes.”
In view of the identical facts involved in both these years, while following the view taken in ITA 1724/Hyd/2018, we set aside the impugned order and restore the appeal to the file of the learned CIT(A) for verification of facts indicated therein and disposal of the appeal according to law.
In the result, appeal of the assessee is treated as allowed for statistical purposes. Order pronounced in the open court on this the 29th day of December, 2023.