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Income Tax Appellate Tribunal, “A”, BENCH MUMBAI
Before: SHRI R.C.SHARMA, AM & SHRI RAVISH SOOD, JM
आदेश / O R D E R PER R.C.SHARMA (A.M):
This is an appeal filed by the assessee against the order of CIT(A) for the assessment year 2009-2010 in the matter of order passed u/s.143(3) of the IT Act wherein the following grounds have been taken by the assessee.
1. On the facts and in the circumstances of the case, the learned CIT(A) erred in law and in facts in confirming the disallowance of hotel expenses of Rs.54,72,091/- as being not incurred for purpose of business.
2. The learned CIT(A) erred in not admitting the evidence in the form of Board resolution dated 31st July 2007, which approved the reimbursement of Rs.54,72,091/- incurred for Mr. Samyak Veera, who was appointed as an advisor of the company on Corporate Property Development matters.
Lodha Properties Development Pvt. Ltd.,
Rival contentions have been heard and record perused.
Facts in brief are that assessee is engaged in development and construction of Real Estate Properties. During the course of assessment proceedings, assessing officer stated that the assessee had incurred expenses of Rs.56,04,604/- under the head travelling and conveyance viz. Travelling expenses of Rs.1,32,513/- and Hotel expenses at Mumbai amounting to Rs.54,72,091/-. The assessee was asked to produce the hotel expenses bills and was also asked why the hotel expenses should not be disallowed on the ground that it was incurred for non-business purposes. In response the assessee submitted that the hotel expenses Rs.54,72,091/- incurred for stay of Shri Samyak Veera, who stayed in India as a strategic investor for monitoring project. Since he is non- resident and hence company has incurred hotel expenses for his stay in India. Hotel expenses incurred is in the nature of revenue expenditure and not in the nature of capital expenditure and expended wholly and exclusively for the purpose of the business or profession hence should be allowed as revenue expenditure. 4. The submission made by the assessee was not accepted by assessing officer on the ground that the assessee is a very reputed builder and developer and has wide network of construction activities monitored by highly qualified engineers supervisors and other skilled laboures. Hence the question of monitoring by any individual client does not arise unless there is some personal obligation by the Directors. Hence the expenses Lodha Properties Development Pvt. Ltd., incurred of Rs.54,72.091/- at Taj Wellington Mews, Mumbai for the period from 1st May 2008 to 27.10.2008 cannot be treated as business expenses and accordingly was added to the total income of the assessee.
By the impugned order CIT(A) confirmed the action of the AO by observing that payment made by assessee company for the reimbursement of boarding and lodging expenses are in the nature of personal expenditure of Shri Samyak Veera and therefore, will not be treated as business expenses of the assessee.
Against the above order of CIT(A), assessee is in further appeal before us.
We have considered rival contentions and carefully gone through the orders of the authorities below. We had also deliberated on the judicial pronouncements relied on by learned AR in the case of CIT vs. Discovery Communication India (Delhi High Court) – 370 ITR 57. Delhi High Court in case of Yum Restaurants India Pvt. Ltd., - 371 ITR139 in support of the proposition that expenditure laid out and expended wholly and exclusively for the purpose of the business is to be allowed.
In support of the above contentions, learned AR had also relied on the following judicial pronouncements: .
Sassocn J. David and Co. (P.) Ltd. Vs. CIT[118 ITR 0261] [SC] 2. CIT Vs. Dhanrajgirji Raja Narasingirji [91ITR 44][SC] 3. CIT V Malayalam Plantations Ltd. [053 ITR 0140] [SC] 4. Bralco Metal Industries Pvt. Ltd. Vs. CIT[206 ITR 477] Lodha Properties Development Pvt. Ltd., 5. CIT Vs. GOPAL RAO EKBOTE and RAMACHANDRA RAJU P. JJ. [076 ITR 0664] [AP] 9. On the other hand, learned DR relied on the order of the lower authorities and contended that expenditure so incurred was personally in nature and cannot be branded as incurred wholly and exclusively for the purpose of business.
We have considered rival contentions and carefully gone through the orders of the authorities below. We had also deliberated on the judicial pronouncements referred by learned AR in the context of factual matrix of the instant case. From the record we found that during the year under consideration, the assessee company was in the process of developing a project of 30 storeys building at Walkeshwar, Mumbai. Being a huge project in south Mumbai, Mr. Samyak Veera (hereinafter referred as Mr. Veera) was interested in the project. Therefore, Mr. Veera has invested Rs. 40,38,56,125/- in the assessee company by way of 1 % Convertible/Redeemable Preference Shares and Rs.12,71,97,953/- by way of advance booking against fiat; thus, the total investment made by Mr.Veera in the assessee company was Rs.53,10,54,078/- (i.e. Rs.40,38,56,125 + 12,71,97,953/-). We found from record that the project at Walkeshwar was surrounded by many in-adversities (like the tenants residing at the land were not ready to vacate the land and the appellant was not getting the approval from the statutory authorities etc.). Therefore, pending the approval from statutory authorities and getting the vacant land by removing the tenants, the amount so received from Shri Lodha Properties Development Pvt. Ltd., Veera has been advanced by assessee company to various companies engaged in the business of real estate development at interest.
We also found that amount received from Mr. Samyak Veera was interest free. Mr. Samyak Veera is a non-resident Indian having no residence in India. Mr. Samayak Veera was interested in making substantial investment in real estate in India through the assessee company and the assessee company wanted to use the financial potential of Mr. Veera by persuading him to invest huge amount in its group. Mr. Veera being a non-resident having no place of residence, the assessee acted prudently by providing lodging and boarding to Mr. Samyak Veera for using his financial potential for its business purposes. The amount of Rs. 40.38 crores has been received in Jan 2007 and the same has been refunded to Mr. Veera in Aug, 2009; thus, the assessee used the interest free fund of Mr. Veera for Two and half years(31 months). As per material placed on record amount invested by Mr. Samyak Veera was Rs.53,10,54,078/- against which the assessee company has incurred hotel expenses of Rs. 54,72,091/-; which is only 1.03% of the total investment made by Mr. Veera. Had the assessee borrowed the same amount from some financial institution, it would have incurred an interest expenses at an average rate of 12% which is much higher than the expenses incurred by the assessee company by way of hotel expenses (i.e. only 1.03%).
From the record we also found that the investment made 'by Mr. Veera was very huge and keeping in view the potential investment in Lodha Properties Development Pvt. Ltd., future, it was mutually agreed between the assessee and Mr. Veera that the later shall be in Mumbai for sometimes to observe the project. It is also matter of record that Mr. Veera was also appointed as an advisor to the company for advising on Corporate Development Properties matters vide board resolution dated 31st July, 2007 and it was also resolved that the assessee shall reimburse the lodging, boarding; travelling and conveyance expenses incurred by Mr.Veera during his stay in Mumbai. As mutually agreed between the assessee and Mr. Veera and decided by the assessee in board meeting, the assessee has reimbursed the hotel and travelling expenses of Mr. Veera and debited the same to the profit and loss A/c and claimed the same as business expenditure which is commercially justified in view of the facts stated herein above.
We had also carefully gone through the MOU entered by Samyak Veera for observing the project.
Mr. Veera was not "only" a purchaser of flat but also a strategic investor in the assessee company having invested Rs.40.40 crores in preference shares of the assessee company. However he was also an advisor on Corporate Properties matter. Vide board resolution dated 31st July, 2007 it was decided in the board meeting that assessee shall reimburse the lodging, boarding, travelling and conveyance expenses incurred by Mr.Veera during his stay in Mumbai. In view of the board resolution passed by the assessee company, assessee company was under obligation to incur hotel expenses for Mr. Samyak Veera.
Lodha Properties Development Pvt. Ltd., 15. Hon’ble Delhi High Court in the case of Discovery Communication India(supra) held as under:- The words "wholly and exclusively" though not synonymous and are sufficiently wide and not restricted to expenditure solely incurred for the purpose of earning of profits. For an amount to be treated as an admissible expenditure under section 37(1) of the Income-tax Act, 1961, the amount should be for the purpose of business and not for the purpose of earning income. Whether an expenditure was wholly and exclusively incurred or laid out for the purpose of business or profession must be determined from the assessee's perspective and choice. It is subjective. What one assessee may want to incur, another may not like to incur. The quantum may also differ and vary. Section 37(1) does not curtail or prevent an assessee from incurring an expenditure which he feels and wants to incur for the purpose of business. Expenditure incurred may directly or indirectly benefit the business in the form of increased turnover, better profit, growth, etc. As long as the expenditure incurred is "wholly and exclusively" for the purpose of business, the Assessing Officer cannot by applying of his own mind, disallow whole or a part of the expenditure. The Assessing Officer cannot question the reasonableness by putting himself in the arm-chair of the businessman and assume status or character of the assessee. However, exception can be created by a statutory provision like section 40A(2), when the Revenue as per the statutory mandate may have jurisdiction to examine the issue of price/consideration. For incurring advertisement expenditure, in the relevant years, there were no statutory stipulations. When the expenditure is incurred for the assessee's own business, the mere fact that the expenditure would endure to the benefit of a third party or the third party incidentally obtains some advantage, would not affect or detract from the finding that the expenditure was wholly and exclusively was for the assessee's business. For example, a retail trader may advertise different products which may incidentally benefit the manufacturers but this does not mean that the advertisement expenditure fails to meet the requirement of "wholly and exclusively".
Similarly in the case of YUM Restaurants India Pvt. Ltd., (Supra), Hon’ble Delhi High Court observed as under:- In examining a claim for deduction under section 37(1) of the Income Tax Act, 1961, on the ground of commercial expediency, what is to be seen is not whether it was compulsory for the assessee to make the payment but