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Income Tax Appellate Tribunal, ‘B’ BENCH, PUNE
IN THE INCOME TAX APPELLATE TRIBUNAL ‘B’ BENCH, PUNE SHRI R.S. SYAL, VICE PRESIDENT AND PARTHA SARATHI CHAUDHURY, JM ITA No. 1425/PUN/2018 : Assessment Year : 2015-16
Solapur sugar Ltd., 91 Padmavati Complex Saat, Rasta Civil Lines, SOLAPUR – 413 003 PAN: AAOCS 9122 L :Appellant Vs. The Asstt. C.I.T. Cir. 2, Solapur : Respondent
Appellant by : Shri Pramod Shingte Respondent by : Shri Arvind Desai
Date of Hearing : 10-08-2022 Date of Pronouncement : 17-08-2022
ORDER PER PARTHA SARATHI CHAUDHURY, JM : This appeal preferred by the assessee emanates from the order of the ld. CIT(A)-7, Pune dated 20-06-2018 for A.Y. 2015-16 as per the following ground of appeal.
“On the facts and in the circumstances of the case, and in law the lower authorities erred in disallowing the indexed cost of expenditure of Rs. 13,18,124/- by not treating them as capital expenditure which is contrary to the commercial practice and principles of accounting and the lower authorities ought to have applied in order to find out the net capital gain. 2. The solitary grievance of the assessee is that the revenue authorities have disallowed the indexed cost of expenses of Rs. 13,18,124/- by not treating the same as capital expenditure.
The brief facts of the case are that the assessee has e-filed return of income on 31-10-2015 declaring total income of Rs. 10,62,89,980/-. Survey u/s 133(2) of the Income-tax Act, 1961 (hereinafter referred to as “the Act”) was conducted on 23-2-2015 on the sister concern M/s. Mehul Construction Pvt. Ltd., and the assessee declared additional income of Rs. 10,76,57,870/- as
ITA No. 1425/PUN/2018 Solapur Sugar Ltd. A.Y. 2015-16
capital gain. The assessee sold part of the land to M/s. GokulMauli Sugars Ltd., on which capital gain has arisen. During the assessment proceedings, the A.O noted that the assessee has declared long term capital gain of Rs. 10,62,89,980/- which is short by Rs. 13,67,890/- from declaration. The assessee explained that the expenditure incurred like auditors‟ fees, advertisement, bank commission, licence fees, etc. were capitalised and apportioned in ratio of the land area. The A.O rejected the explanation of the assessee and invoking the provision of section 55(1)(b) of the Act observed that these expenses of Rs 13,18,124/- are not cost of improvement and there is no nexus to capital asset. The A.O rejected the computed long term capital gain at Rs. 10,76,08,110/-.
The ld. CIT(A) vide para 5.5 of his order observed that ostensibly, the expenses incurred on auditors fees, advertisement, bank commission, legal expenses, licence fees, printing and stationary, salary, bonus to staff and travelling expenses were pre-operative expenses as the sugar production has not yet started. The only issue whether these expenses can be capitalised as cost of improvement towards the land. It was rightly observed by the ld. CIT(A) that these pre-operative/preliminary expenses are covered and allowable u/s 35D at the time of commencement of production. The expenses which are not allowable u/s 35D has to be capitalised. Nexus must be there in capitalisation of pre-operative expenses to the asset. The A.O has rightly observed that none of these expenses have direct nexus in improvement of the land. Even at the appellate stage, the assessee could not demonstrate the factual matrix as to which part of expenses are related to the improvement of the land. The assessee relied on the decision of Hon‟ble Supreme Court in the case of Chellapalli Sugars Ltd. Vs. CIT (1975) 98 ITR 0167(SC). However, it does not support the case of the assessee as no such interest expenses were there.
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Moreover, the proviso to section 36 clause (1) sub-clause (iii) also makes the interest on capital asset to be disallowed till it commences production. The assessee could not demonstrate any nexus in improvement of land to pre- operative expenses. Hence, it cannot be capitalised. Even reliance placed by the assessee in the case of Cosmic Kitchen Pvt. Ltd. I.T.A. No. 5549/D/2010 is also mis-placed since the facts in assessee‟s case are substantially different where none of the expenses have been incurred towards improvement of the land.
We are of the considered view that it has been rightly observed by the ld. CIT(A) that whatever expenses the assessee is claiming are pre-operative expenses and they are allowable u/s 35D of the Act. The other expenses which are not allowable u/s 35D needs to be capitalised, but there has to be a direct nexus between such capitalisation of pre-operative expenses to the concerned asset. In this case, neither before the Revenue authorities nor before us, the assessee was able to explain the direct nexus of these expenses with the improvement of the land. Even the case laws relied on by the assessee is substantially different on facts. Since in the case of the assessee, the expenses were not incurred towards improvement of land, hence we do not find any reason to interfere with the findings of the ld. CIT(A) which is hereby upheld. Grounds of appeal of the assessee are dismissed.
In the result, appeal of the assessee is dismissed.
Order pronounced in the open Court on this 17th August 2022.
Sd/- sd/- (R.S. SYAL) (PARTHA SARATHI CHAUDHURY) VICE PESIDENT JUDICIAL MEMBER Pune; Dated, this 17th day of August 2022 Ankam
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Date
Copy of the Order forwarded to : 1. The Appellant. 2. The Respondent. 3. The Pr. CCIT, Pune. 4. The CIT(A)-7, Pune 5. The D.R. ITAT „A‟ Bench Pune. 6. Guard File BY ORDER,
Sr. Private Secretary ITAT, Pune.
ITA No. 1425/PUN/2018 Solapur Sugar Ltd. A.Y. 2015-16
1 Draft dictated on 10-08-2022 Sr.PS 2 Draft placed before author 10-08-2022 Sr.PS 3 Draft proposed and placed before the second JM/AM Member 4 Draft discussed/approved by second Member AM/JM 5 Approved draft comes to the Sr. PS/PS Sr.PS/PS 6 Kept for pronouncement on 17-08-2022 Sr.PS/PS 7 Date of uploading of order 17-08-2022 Sr.PS/PS 17-08-2022 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