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Income Tax Appellate Tribunal, DELHI BENCHES : G : NEW DELHI
Before: SHRI R.S. SYAL, AM & MS SUCHITRA KAMBLE, JM
Assessee By : Shri Gautam Jain, Advocate & Shri Piyush Kamal, Advocate Department By : Ms Anima Bernwal, Sr. DR Date of Hearing : 17.05.2016 Date of Pronouncement : .05.2016 ORDER PER R.S. SYAL, AM: These two cross appeals – one by the assessee and the other by the Revenue – arise out of the order passed by the CIT(A) on 14.3.2013 in relation to the assessment year 2009-10.
The only issue raised by the Revenue in its appeal is against the deletion of addition to the extent of Rs.45,37,471/- out of Diesel and Electricity expenses. The first ground of the assessee’s appeal relates to the same issue, namely, the sustenance of the remaining addition to the tune of Rs.3 lac out of the total disallowance of Diesel and Electricity expenses made by the AO amounting to Rs.48,37,471/-.
Succinctly, the facts of the case are that the assessee, during the year in question was mainly engaged in the business of building maintenance and dealings in mutual fund. During the course of assessment proceedings, it was observed that the assessee was charging 20% margin on cost of services rendered on maintenance, lighting and air conditioning.
The assessee debited a sum of Rs.4,40,21,870/- on account of Electricity and power expenses, comprising of Electricity charges amounting to Rs.2.71 crore and Diesel charges amounting to Rs.1.66 crore. As against the incurring of expenses to the above extent, the assessee made recoveries only to the tune of Rs.1,74,09,883/-. On being called upon to justify the consumption of Electricity and Diesel expenses, the assessee submitted a cost sheet, working out the expenses incurred by it on 2 maintenance of common area, operation charges, etc., at Rs.6.40 per sq. feet. From the expenses incurred on electricity, power and fuel, the assessee reduced a sum of Rs.1.74 crore towards Electricity billed and a sum of Rs.67.77 lac towards Extra hour charges billed. The balance amount of Rs.1.98 crore was divided by the total area and the cost was worked out at Rs.6.44 per sq. feet. The assessee added both the figures totaling to Rs.12.84 per sq. feet and a service charge of Rs.2.57, being 20%, was added to it, which gave rate of Rs.15.41 per sq. feet. The AO observed that in certain cases electricity was charged @ Rs.4.73 which was almost equal to the cost to the assessee on the basis of electricity charges of DHBVN, Gurgaon. Besides, it was further observed that on 25.10.2008, Generator was shown to have run only for one hour and the consumption of diesel was shown at 590 litres. On 24.10.2008, the diesel was shown to have run for 1.15 hours and the consumption of diesel was only 230 litres. On 22.10.2008, the Generator was run for seven hours and the consumption of diesel was 980 litres. In the above background of the facts, the AO came to hold that the figures given by the assessee were not reliable. He, therefore, made disallowance @ 20% of Electricity billed 3 at Rs.1.74 crore and Extra hours charges billed at Rs.67.77 lac, which resulted into an addition of Rs.48,37,471/-. In appeal, the ld. CIT(A) observed that there was only some justification on the part of the AO inasmuch as the diesel expenses were not properly shown because of its operation for a limited period of time. He also found weight in the argument advanced on behalf of the assessee that all the payments for diesel were made to BPCL and the amounts were paid through cheques and the electricity charges were paid to the Electricity Board. In view of certain discrepancies pointed out by the AO, the ld. CIT(A) sustained the addition at Rs.3 lac on account of certain leaks or use of diesel for non- business purposes. Both the sides are in appeal on their respective stands.
We have heard the rival submissions and perused the relevant material on record. There is no dispute on the fact that the assessee paid electricity charges to the Electricity Board, Gurgaon and diesel was purchased from BPCL and the payments were made through cheques.
This shows that the expenses were genuinely incurred by the assessee.
The AO has not referred to any investigation carried out by him divulging that the actual recoveries made from the residents were more than those 4 reflected in the books of account of the assessee. This shows that the figures of expense incurred and recoveries made by the assessee are genuine. The fact that the assessee could not recover the entire amount from the residents, cannot, per se, lead to the conclusion that either the expenses were bogus or inadequate recoveries were made. Under such circumstances, we are not inclined to uphold the view point taken by the AO in making disallowance at an ad hoc rate of 20%. The factual details given by the AO about the consumption of diesel shown by the assessee vis-à-vis the number of hours for which the generator worked, which remained uncontroverted by the ld. AR, manifest that there may be some non-business purpose in the consumption of diesel. In our considered opinion, the ld. CIT(A) was justified in estimating such sum at Rs.3.00 lac. Ergo, we uphold the impugned order on this score, thereby dismissing the corresponding grounds raised by both the sides.
The only other issue which survives in the assessee’s appeal is against the confirmation of disallowance of Rs.14,11,727/-. The facts apropos this issue are that the assessee paid legal charges amounting to Rs.14,11,727/- to BSR & Co. Vide letter dated 31.10.2011, the assessee 5 submitted that it was a real estate company and had planned to take loan from the banks for developing the unsold land, held as stock in trade. In this view of the matter, the assessee got the valuation done for which such payment was made. The assessee also contended that since the amount was spent on its land, held as inventory, the expenditure on its legal and consultancy services was deductible. On perusal of e-mail sent by Vikash Tewari dated 8.7.2008 along with the advance invoice of the BSR & Co., it was observed by the AO that the valuations were got done for two companies, namely, M/s Sarvamangalam Builders and Developers Pvt. Ltd. and SB Developers Ltd. (the assessee). The AO observed that this valuation was in respect of two companies and, hence, the entire amount could not be debited to the Profit & Loss Account of the assessee alone.
Thereafter, it was opined that the valuation was got done for developing the unsold land and the project was yet to start, hence, the entire amount was capital expenditure. The ld. CIT(A) upheld the addition.
After considering the rival submissions and perusing the relevant material on record, we firstly find it as undisputed fact that the assessee had shown certain land as its stock-in-trade which was unsold and the 6 payment was made by the assessee to BSR & Co., for valuation of some property. Since the property in question happened to be inventory, any expenditure incurred in connection with developing of such land, cannot assume the character of a capital expenditure. We, therefore, overturn the impugned order on this score.
The next finding recorded in the orders is about payment of Rs.14,11,727/- having been made for valuation done by two companies, namely, the assessee and M/s Sarvamangalam Builders and Developers Pvt. Ltd. Once a property is held as stock in trade and the assessee gets is valuation done, then such an expenditure has to be allowed as deduction.
However, it is only such expenditure that relates to the property(ies) of the assessee held as stock in trade, that deduction can be allowed. It goes without saying, that any expenditure incurred in respect of valuation done for the property of M/s Sarvamangalam Builders and Developers Pvt. Ltd., cannot be allowed as deduction in the hands of the assessee. In this regard, the ld. AR contended that e-mail reporting the valuation done for two companies was wrong. However, he could not bring to our notice the invoices raised by BSR & Co., on the assessee for a sum of Rs.14.11 lac. 7 The only invoice referred to by the ld. AR in the name of the assessee is for a sum of Rs.7 lac and odd. The other invoice of M/s BSR & Co. was stated to be not available with the ld. AR, for which it was urged that the matter may be referred back to the AO for verification to this limited point. We agree with the same and send the matter back to the AO for examining the all the invoices raised by BSR & Co. totaling Rs.14.10 lac and odd. It is hereby directed that deduction be allowed only to the extent of invoices raised on the assessee in respect of the properties held by it as stock in trade. The remaining expenditure, if any, be disallowed.
In the result, the appeal of the Revenue is dismissed and that of the assessee is partly allowed for statistical purposes.
The order pronounced in the open court on 18.05.2016.