M/S DCM SHRIIRAM AQUA FOODS LTD.,,NEW DELHI vs. DCIT, NEW DELHI

The present appeal has been filed by assessee against order dated 4.03.2016 passed by Ld.CIT (A) 37, New Delhi for assessment year 2013-14 on the following grounds of appeal:

It has been submitted that the assessee was incorporated on 01.01.1993, for purpose of carrying on business of fishery and hatchery. For this purpose, land was purchased in Pondicherry during the financial years 1994-95 and 1995-96, with a view to commence the business during the relevant financial years. The total cost incurred by assessee towards purchase of land was Rs. 28.13 Lacs and the cost incurred on improvement of the land by way of leveling, construction of bonds etc was Rs.116.60 Lacs. It was observed by Assessing Officer that cost of land was shown in the fixed assets and the cost of improvement was shown under the head capital work in progress in the balance sheet. Apart from the above, assessee was also incurring other expenses for administration and other activities and an aggregate expenditure of Rs. 466.85 lacs was incurred till 31.03.1997 which was shown as pre-operative expenses. The assessee had given certain capital advances which were also shown under the head capital work in progress. It also debited the cost of maintenance of the land to the profit and loss account. Assessee however, could not set up the business on account of restrictions imposed by Hon’ble Supreme Court vide its order dated 11.12.1996. Therefore, the activities of assessee had been at a standstill from 31.03.1997 to 31.03.2011.

During the financial year ended on 31.03.2012, Government of Pondicherry acquired major portion of the Land purchased by assessee under the Land Acquisition Act, 1894, for which assessee was to be compensated with an amount of Rs.194.95 lacs. Assessees therefore, in the books of accounts for financial year ended on 31.03.2012 considered the aforesaid amount of compensation receivable from Government and made necessary accounting entries and profit of Rs. 188.31 Lacs was determined.

Ld. AO during the course of the assessment proceedings required the assessee to provide necessary evidence regarding cost of improvement. Assessee vide letter dated 13.11.2015, explained the inability to submit the evidences as the period involved during which the cost was incurred was more than 20 years old and the assessee was not having any records pertaining to financial years 1994-95 to 1996-97. It also submitted that amount incurred as cost of improvement was reflected in the books of account since then as capital work in progress until 31.03.2012, when the land was acquired by the Government. It was also submitted that once the land was acquired assessee had written off the expenses.

The Assessing Officer was of the opinion that as the expenses were not supported by any vouchers it could not be allowable since the business or the project had not started and the expenses were of capital in nature by relying upon the decision of ITAT Lucknow bench in the case of Ramendra Vikram Singh vs. ITO in to 79/LUC/08 decided on 27/02/2009. Ld. AO also disallowed expenses incurred during the year amounting to Rs. 5,79,948/- which were routine expenses incurred by assessee in the nature of contract wages, travelling and conveyance, security expenses etc., for the reason that business had not commenced.

Aggrieved by the order of Ld.AO, the assessee preferred an appeal before Ld. CIT(A) who upheld the disallowance made by Assessing Officer in respect of the cost of improvement in determination of the capital gain/capital loss in respect of the land acquired by the government.

Aggrieved by the order of Ld. CIT(A) of assessee is in appeal before us now.

Ld. AR has submitted that the books of accounts maintained by assessee have not been rejected by the authorities below for all these assessment years from 1994- 95 onwards. He further, submitted that the vouchers pertaining to the cost of improvement relates to financial years 1994-95 to 1996-97, which are almost a decade old and it was impossible for the assessee to produce them during the relevant period. He submitted that audited accounts of assessee for all the years from 1994-95 has never been doubted by Assessing Officer, and amount pertaining to cost of improvement being Rs. 116.35 lacs stood accepted by Revenue in the preceding years. He submitted that Assessing Officer should not have disallowed the claim of the assessee merely because assessee could not produce vouchers for the expenses incurred which was almost 20 years old.

Ld. AR brought to our notice “Notes forming part of the accounts”, for the year ending 31st of March 1995 which reproduced by Ld. CIT (A) in his order at page 11 wherein Note 4 which states that all projects within the coastal regulation zone has been put on hold due to interim order passed by Hon’ble Supreme Court dated 09.03.1995 where an Hon’ble Supreme Court had directed the States not to permit the setting up of any industry within the coastal regulation zone. Further, in the “Notes forming part of accounts” for year ending March 31st 1997, Note 3, states that Hon’ble Supreme Court vide its order dated 12.12.1996 directed that aqua projects shall be allowed to be developed outside the coastal regulation zone after the projects are granted approval by any authority to be constituted by the Central Government in this regard. He submitted that due to these legal difficulties, the project could not be implemented the expenditure incurred on improvement of the land could not be capitalized in the books of accounts and the same was separately shown under the head work in progress with the intention to capitalise the same as and when the project would be cleared. He further submitted that the project however could not be started and was finally abandoned. The expenditure of Rs. 116.60 lacs incurred by assessee was continued to be shown as work in progress.

Ld. AR submitted that all the expenses were made towards improvement of the land. He further submitted that the only reason for rejecting the claim of the assessee is that the assessee could not produce the evidence for incurring such huge expenses. Ld. AR submitted that the Companies Act Section 209 requires, the assessee to maintain books of accounts for a period not less than 8 years immediately preceding the current year together with the vouchers relevant to any entry in such books of account and under Income Tax Act the assessee is supposed to maintain the records for a period not less than 6 years immediately preceding the current year together with the vouchers relevant for any entry in the books of account. He submitted that assessing officer had called for the vouchers pertaining to assessment year 1994-95 which is almost more than 20 years old. He thus submitted that it would not have been practically possible for the assessee to produce the bills and vouchers which were 20 years old.

On the contrary, Ld. DR are placed his reliance upon Para nos. 6 and 7 of the order passed by Ld. CIT (A) wherein Ld. CIT (A) of holds the view of Assessing Officer by observing as under:

He thus relying upon the order passed by Ld. CIT (A) submitted that the expenses incurred by the assessee under the head work in progress is nothing but pre-operative expenses which should not be allowed as the business of the assessee was never set up.

We have perused the submissions advanced by both the sides in the light of the records placed before us. It is a undisputed fact that Assessing Officer has not recorded any finding that the books of accounts maintained by the assessee were incorrect rendering it impossible to determine the profits and despite that he went to complete the assessment. The assessment order further does not indicate that Assessing Officer has noticed any inconsistency or infirmity in the audit report.

On the other hand, the Assessing Officer has accepted the audited accounts of the assessee in all the preceding years wherein the expenses appear under the head work in progress amounting to Rs.116.60 Lacs. The explanation given by the assessee that they had incurred such expenses towards the improvement of the land has not been Page 9 of 11 controverted by Assessing Officer. There is no infirmity pointed out in the profit and loss account for any of the preceding assessment years or the years under consideration.

In our considered view, the facts being admitted by the authorities below itself would amount to evidence in support of the claim of assessee. Further, assessee cannot be expected to maintain the of voucher regarding expenses which are almost 20 years old. As no mistaker having been found by Assessing Officer in the books of accounts for all the preceding assessment years and the assessment year under consideration, he was not justified in disallowing the claim of the assessee. We are accordingly, inclined to allow the grounds raised by the assessee. In the result appeal filed by the assessee stands allowed.