ADANI LOGISTICS LTD. ( FORMERLY KNOWN AS INLAND CONWARE PVT. LTD.),AHMEDABAD vs. THE DY.CIT.,CIRCLE-1, AHMEDABAD

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ITA 2274/AHD/2015Status: DisposedITAT Ahmedabad15 March 2018AY 2011-124 pages
AI SummaryPartly Allowed

What did the Tribunal hold?

The tribunal upheld the disallowance of professional fees and PF/ESI contributions, stating the assessee failed to prove the revenue nature of the expenditure and the non-deposit of contributions was disallowed by the High Court. However, it allowed the deduction for expenses on increasing authorized share capital based on the principle of consistency, as it was allowed in previous years.

What were the facts?

The assessee claimed professional fees for land as revenue expenditure, but the AO and CIT(A) treated it as capital expenditure. The assessee also failed to deposit employees' PF/ESI contributions within the due date and claimed deduction for expenses incurred for increasing authorized share capital.

What were the issues?

Whether professional fees for land are capital or revenue expenditure and whether expenses for increasing authorized share capital are allowable for deduction.

Which sections of the Income-tax Act were involved?

Section 35D

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Income Tax Appellate Tribunal, “C” BENCH, AHMEDABAD

Before: SHRI RAJPAL YADAV & SHRI AMARJIT SINGH

For Appellant: Shri P.M. Mehta, AR
Hearing: 24/01/2018Pronounced: 21/03/2018

PER RAJPAL YADAV, JUDICIAL MEMBER:

Assessee is in appeal before the Tribunal against order of ld.CIT(A)-1, Ahmedabad dated 3.6.2015 passed for the Asstt.Year 2011-12.

2.

In the first ground of appeal, grievance of the assessee is that the ld.CIT(A) has erred in confirming addition at Rs.20,67,444/-.

3.

Brief facts of the case are that the assessee has filed its return of income on 23.9.2011 declaring total loss at Rs.21,73,29,993/-. The case of the assessee was selected for scrutiny assessment and notice under section 143(2) was issued by the AO. On scrutiny of the accounts it revealed to the AO that

ITA No.2274/Ahd/2015 2 tax auditors in Form No.3CD at column no.17 stated that appellant has debited professional fee for land of Rs.20,48,000/- and other professional fees of Rs.19,444/- in the profit & loss account, which are capital nature. The assessee has claimed while filing return this expenditure as revenue. The ld.AO did not accept this stand of the assessee and relied upon the tax audit report and treated it as a capital expenditure. Appeal to the ld.CIT(A) did not bring any relief to the assessee.

4.

With the assistance of the ld.representatives, we have gone through the record carefully. The case of the assessee is that it is engaged in the business in providing logistic services for the purpose of carrying business on the land acquired in earlier years, it has incurred professional charges for work like documentation, approval pertaining to changes of land use from office of Town and Country Planning etc. The ld.CIT(A) on an analysis of these details recorded a finding that the assessee failed to establish that land on which the above expenditure was incurred was to be used for business purpose. According to the ld.CIT(A) any expenditure incurred by an assessee until the asset being put to use for business purpose is to be capitalized. After considering the finding of the ld.CIT(A) we are of the view that the assessee failed to demonstrate as to how these expenditure are of revenue in nature. The assessee has not used the above land for the purpose of business in this year. We do not find any error in the finding of ld.CIT(A), hence, this ground of appeal is rejected.

5.

In ground no.2, grievance of the assessee is that the ld.CIT(A) has erred in confirming disallowance of Rs.5,47,438/-.

6.

With the assistance of the ld.representatives, we have gone through the record carefully. It emerges out from the record that the assessee failed to

ITA No.2274/Ahd/2015 3 make payment of employees’ contribution to PF and ESI within the due date provided in these Acts. After perusal of the order of ld.CIT(A), we are of the view that Hon’ble jurisdictional High Court in the case of Gujarat State Road Transport Corpn., 366 ITR 170 has held that if an assessee fails to deposit employees’ contribution in relevant fund within due date provided in P.F. Act, then expenditure would not be allowed as deduction. Considering order of the ld.CIT(A) this ground of appeal is rejected.

7.

In the next ground of appeal, grievance of the assessee is that the ld.CIT(A) has erred in confirming disallowance of 2,61,960/-.

8.

Brief facts of the case are that the assessee has claimed deduction of Rs.2,61,960/- under section 35D of the Act. The ld.AO while making disallowance observed that expenditure was incurred for increase in authorized share capital. The ld.AO further put reliance upon the decision of the Hon’ble Delhi High Court in the case of CIT Vs.Hindustan Insecticides Ltd., 250 ITR 338 where is held that expenses incurred for increasing the authorized share capital are not covered by the provisions of section 35D(2) of the Act and thus, the same are not allowable under section 35D of the Act. On appeal, the ld.CIT(A) upheld the disallowance.

9.

Before us, the ld.counsel for the assessee contended this is the fifth year of claim. In the earlier four years, expenditure has been allowed. The assessee amortized expenditure for five years and claimed one-fifth each. The ld.CIT(A) has not disputed this fact also. The ld.DR on the other hand contended that since claim is not admissible inherently, it cannot be allowed to the assessee on the basis that in earlier year it was granted.

10.

On due consideration of the above facts of the case, we are of the view that since the amortized expenditure was allowed in the earlier four years, it

ITA No.2274/Ahd/2015 4 should be allowed in the subsequent years also. The AO did not dispute its allowance for earlier four years. Therefore, on the principle of consistency, it should not be disallowed in the last year. We allow this ground of appeal and delete disallowance.

11.

In the result, appeal of the assessee is partly allowed.

Order pronounced in the Court on 21st March, 2018 at Ahmedabad.

Sd/- Sd/- (AMARJIT SINGH) (RAJPAL YADAV) ACCOUNTANT MEMBER JUDICIAL MEMBER

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