ASCENDAS IT PARK (PUNE) PRIVATE LIMITED,,PUNE vs. DEPUTY COMMISSIONER OF INCOME TAX,, PUNE

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH “B”, PUNE BEFORE SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER AND SHRI S. S. VISWANETHRA RAVI, JUDICIAL MEMBER आयकर अपील सं. / ITA No.966/PUN/2017 िनधा�रण वष� / Assessment Year: 2013-14 Ascendas IT Park (Pune) Vs. DCIT, Circle- 1(1), Private Limited, Pune. Unit No.607 & 608, 6th Floor, Amar Business Park, Survey No.105 (3), Baner, Pune- 411045. PAN : AAFCA4840E Appellant Respondent Assessee by : Smt. Chandni Shah Revenue by : Shri M. G. Jasnani Date of hearing : 22.03.2022 Date of pronouncement : 27.04.2022 आदेश / ORDER PER INTURI RAMA RAO, AM: This is an appeal filed by the assessee directed against the order of ld. Commissioner of Income Tax (Appeals)- 1, Pune [‘CIT(A)’ for short] dated 31.01.2017 for the assessment year 2013-14. 2. The appellant raised the following ground of appeal :- “Ground 1: Treating general management fees paid by the Appellant to be capital in nature On the facts and circumstances of the case and in law, the Learned Commissioner of Income Tax (Appeals) erred in confirming the action

2 ITA No.966/PUN/2017 of the Learned Assessing Officer holding that general management fees of INR 1,41,15,081 paid by the appellant to Ascendas Services (India) Private Limited for availing general management services should be regarded as capital in nature. The Appellant craves leave to add to, alter or omit, all or any of the above grounds of appeal and to submit such statements, documents and papers as may be considered necessary either at or before the appeal hearing.” 3. Briefly, the facts of the case are that the appellant is a private limited company incorporated under the provisions of the Companies Act, 1956. It is engaged in the business of IT/ITES Parks on a SEZ land located at Phase-III of Rajiv Gandhi InfoTech Park, Hinjewadi, Pune. The return of income for the assessment year 2013-14 was filed on 13.09.2013 declaring total income of Rs.1,17,51,610/-. Against the said return of income, the assessment was completed by the Dy. Commissioner of Income Tax, Circle- 1(1), Pune (‘the Assessing Officer’) vide order dated 04.01.2016 passed u/s 143(3) of the Income Tax Act, 1961 (‘the Act’) at a total income of Rs. 2,58,66,690/-. While doing, the Assessing Officer disallowed general management fees paid by the appellant to Ascendas Services (India) Private Limited (ASIPL) of Rs.1,41,15,081/- on the ground that the general management fees was not revenue expenditure and should be capitalized as the project

3 ITA No.966/PUN/2017 is still under construction. The factual matrix of the case is as under : It is stated before the Assessing Officer that the appellant company does not have own employee and personnel to look after the accounting, administrative works and, therefore, it had appointed one company, namely, ASIPL towards engagement services of providing general management functions. During the course of proceedings for the assessment year under consideration, the appellant company paid as sum of Rs.1,41,15,081/- towards the said services to ASIPL in terms of the agreement entered on 18.12.2015 between appellant company and ASIPL. The nature of services provided is mentioned in the letter addressed by the Assessing Officer on 28.12.2015, which is extracted in para 4.1 of the assessment order. The Assessing Officer denied the claim of the appellant company that it is of revenue expenditure as expenditure is incurred to carry on the business of the assessee does not result into creation of any capital assets and, therefore, the same should be allowed as revenue expenses placing reliance on the decision of the Hon’ble Supreme Court in the case of Empire Jute Co. Ltd. vs. CIT, 124 ITR 1 (SC), also the decision of the Hon’ble Delhi High Court in the case of ACIT vs. Asahi India Safety Glass, 15 taxmann.com

4 ITA No.966/PUN/2017 382 (Delhi) and the decision of the Hon’ble Punjab & Haryana High Court in the case of CIT vs. Oriental Carpet Manufactures (India) P. Ltd., 86 ITR 543 (P&H). It was also pleaded that similar expenditure incurred in the earlier years was allowed as revenue expenditure and, therefore, on the principle of consistency, the same should be allowed as revenue expenditure placing reliance on the decision of the Hon’ble Supreme Court in the case of RadhasoamiSatsang vs. CIT, 193 ITR 321 (SC) and the decisions of the Hon’ble Delhi High Court in the case of (i) CIT vs. Neo Poly Pack (P) Ltd., 245 ITR 492 (Delhi) and (ii) CIT vs. Dalmia Promoters Developers (P) Ltd., 281 ITR 346 (Delhi). However, the Assessing Officer rejected the claim of the assessee on the ground that the appellant company is still in the process of developing the IT/ITES Parks and, therefore, the revenue expenditure incurred till the completion of the project should be capitalized and should add to the cost of the project. Accordingly, he denied the claim. 4. On the issue of principle of consistency, the Assessing Officer held that the principle of res-judicata have no application in the income-tax proceedings, as each year is separate and distinct assessment year.

5 ITA No.966/PUN/2017 5. Being aggrieved by the above order of assessment, an appeal was filed before the ld. CIT(A), who vide impugned order confirmed the findings of the Assessing Officer. 6. Being aggrieved by the above decision of the ld. CIT(A), the appellant is in appeal before us. 7. It is submitted before us that the expenditure incurred for running the business, which are not directly relatable to fixed asset is allowable as revenue expenditure placing reliance on the decision of the Co-ordinate Bench of the Tribunal in the case of M/s. Surya Infra IT Parks Pvt. Ltd. vs. CIT in ITA No.863/Hyd/2014 for the assessment year 2009-10, order dated 30.11.2015. It is also submitted that in the previous year the claim of the assessee came to be allowed. Hence, on the principle of consistency, in this year, the claim should be allowed by the Assessing Officer. In support of this, the assessment orders for the previous assessment years have been filed before us. 8. On the other hand, ld. CIT-DR placed reliance on the orders of the lower authorities. 9. We heard the rival submissions and perused the material on record. The issue in the present appeal relates to the allowability of general management fees incurred when the assessee is still in the

6 ITA No.966/PUN/2017 process of completing the project of IT/ITES project. Admittedly, during the previous year relevant to the assessment year under consideration, the appellant is in the process of setting-up of a SEZ project for IT/ITES project, the real nature of the expenditure is not in doubt. Both the Assessing Officer as well as the ld. CIT(A) took a stand that since the appellant is a process of setting up a SEZ project, the revenue expenditure incurred till the completion of the projects are required to be capitalized. However, before us, for the first time, the ld. Counsel took a plea that the assessee is into real estate business and it can be said that the assessee had commenced the business, moment, office is setup. Therefore, the crucial fact which is required to be determined in the present case is whether the assessee can be said to have commenced/setup business in the facts of the present case or not. The issue whether the assessee has setup business or not, is question of fact which is required to be decided on the basis of evidence/material on record. In the present case, except making a bald statement before us that the assessee is engaged in real estate business, no evidence was filed before us. The material on record clearly shows the assessee is into process of setting up SEZ project, wherein, SEZ provider creates assets in the form of building and let out/the building. This activity cannot said

7 ITA No.966/PUN/2017 to be in relation to the real estate business. Therefore, it is a case where the assessee in the process of SEZ project and all the project expenditures have been directly related to the project, the decision of the Hon’ble Supreme Court in the case of Challapalli Sugars Ltd. vs. CIT, 98 ITR 167 (SC) is squarely applicable to the present case. In the said decision, the Hon’ble Supreme Court held that the revenue expenditure incurred till the business is set-up should only add to the capital cost of the project. The relevant part of the said judgment of the Hon’ble Supreme Court is as under :- “It would appear from the above that the accepted accountancy rule for determining the cost of fixed assets is to include all expenditure necessary to bring such assets into existence and to put them in working condition. In case money is borrowed by a newly started company which is in the process of constructing and erecting its plant, the interest incurred before the commencement of production on such borrowed money can be capitalised and added to the cost of the fixed assets which have been created as a result of such expenditure. The above rule of accountancy should, in our view, be adopted for determining the actual cost of the assets in the absence of any statutory definition or other indication to the contrary. We have already referred to section 208 of the Companies Act which makes provision for payment of interest on share capital in certain contingencies. Clause (b) of sub-section (1) of that section provides that in case interest is paid on share capital issued for the purpose of raising money to defray the expenses of constructing any work or building or the provision of any plant in contingencies mentioned in that section, the sum so paid by way of interest may be charged to capital as part of the cost of construction of the work or building or the provision of the plant. The above provision thus gives statutory recognition to the principle of capitalising the interest in case the interest is paid on money raised to defray expenses of the construction of any work or building or the provision of any plant in contingencies mentioned in that section even though such money constitutes share capital. The same principle, in our opinion, should hold good if interest is paid on money not raised by way of share capital but taken on loan

8 ITA No.966/PUN/2017 for the purpose of defraying the expenses of the construction of any work or building or the provision of any plant. The reason indeed would be stronger in case such interest is paid on money taken on loan for meeting the above expenses. .......... It may be mentioned that as against the view taken by the Andhra Pradesh High Court in the judgment which is the subject-matter of the appeal, three other High Courts have taken the contrary view and have held that interest paid in such circumstances can be capitalised and included in the actual cost of the machinery and plant. The decision of the Calcutta High Court in which the contrary view has been taken is the subject-matter of appeal before us. The view of the Calcutta High Court has been followed by the Madras High Court and the Allahabad High Court. The decision of the Madras High Court is in the case of Commissioner of Income-tax v. L.G. Balakrishnan and Bros. (P.) Ltd. [1974] 95 ITR 284, while that of the Allahabad High Court is in the case of Commissioner of Income-tax v. J.K. Cotton & Wvg. Mills Ltd. [1975] 98ITR 153 (All).After giving the matter our consideration, we are unable to subscribe to the view taken by the Andhra Pradesh High Court. The correct view in the matter, in our opinion, has been taken by the Calcutta High Court and we affirm the same.” 10. In the light of the above discussion, we uphold the action of the lower authorities in disallowing claim for allowance of expenditure. Thus, we do not find any merit in the present appeal filed by the assessee company on merits of the issue in appeal. 11. As regards to the application of principle of consistency, in the previous year the claim of the assessee came to be allowed by the Assessing Officer. However, the action of the Assessing Officer in the present year taking different view following the decision of the Hon’ble Supreme Court in the case of Challapalli Sugars Ltd. (supra), cannot be faulted with. The doctrine res-judicata has no application to the income-tax proceedings merely because the claim

9 ITA No.966/PUN/2017 came to be in the earlier years, it is does not mean that the Assessing Officer should allow the same when he is conscious of the non-allowability of the claim in view of well settled position of law in this issue. Thus, we are of the considered opinion that claim of appellant cannot be allowed invoking the principle of consistency. Accordingly, the same is dismissed. 12. In the result, the appeal filed by the assessee stands dismissed. Order pronounced on this 27th day of April, 2022. Sd/- Sd/- (S. S. VISWANETHRA RAVI) (INTURI RAMA RAO) JUDICIAL MEMBER ACCOUNTANT MEMBER पुणे / Pune; �दनांक / Dated : 27th April, 2022. Sujeet आदेश क� �ितिलिप अ�ेिषत / Copy of the Order forwarded to : अपीलाथ� / The Appellant. 1. ��यथ� / The Respondent. 2. 3. The CIT(A)-1, Pune. 4. The Pr. CIT-1, Pune. िवभागीय �ितिनिध, आयकर अपीलीय अिधकरण, “B” ब�च, 5. पुणे / DR, ITAT, “B” Bench, Pune. गाड� फ़ाइल/ Guard File. 6. आदेशानुसार / BY ORDER, // True Copy // Senior Private Secretary आयकर अपीलीय अिधकरण, पुणे / ITAT, Pune.