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2016 (6) TMI 182 - PUNJAB & HARYANA HIGH COURT

2016 (6) TMI 182 - PUNJAB & HARYANA HIGH COURT - TMI - Disallowance of expenses incurred as maintenance of colonies - revenue or capital expenditure - Held that:- The assessee's business was to provide housing to the general public in the State of Haryana after development of housing colonies. The maintenance work was to be carried out by the respective municipal committees or local authorities. With regard to particular colonies at South Vihar and Narnaul, as per decision of the Board, the asse .....

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ishable - Decided in favour of assessee. - ITA No. 420 of 2015 - Dated:- 25-5-2016 - Ajay Kumar Mittal And Raj Rahul Garg, JJ. For the Appellant : Mr. Yogesh Putney, Advocate -revenue. For the Respondent : Ms. Radhika Suri, Sr. Advocate with Ms. Rinku Dahiya, Advocate with Ms. Rajni Pal, Advocate ORDER Ajay Kumar Mittal, J. 1. This order shall dispose of ITA Nos.411 and 420 of 2015 as learned counsel for the parties are agreed that the questions of law involved in both the appeals are identica .....

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the case, the learned ITAT has erred in deleting the addition made on account of disallowance of expenses incurred as maintenance of colonies of Rs. 3,25,96,429/-? ii) Whether the expenditure to the tune of Rs. 3,25,96,429/- incurred by the respondent assessee-Board towards maintenance of colonies is a capital expenditure and not allowable under Section 37 of the Income Tax Act, 1961? 3. A few facts relevant for the decision of the controversy involved as narrated in ITA No.420 of 2015 may be n .....

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ce of colonies. The assessee Board submitted its reply on 16.11.2012 and furnished the details of the maintenance of colonies. The assessee Board was called upon on 16.11.2012 to show cause as to why the expenditure claimed towards the maintenance of colonies be not capitalized as expenditure in the nature of capital expenditure. The assessee submitted its reply on 3.12.2012 stating that the expenditure incurred on maintenance of colonies should not be capitalized as the land is procured by it f .....

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ly submitted by the assessee found the same to be not tenable and disallowed the expenditure to the tune of Rs. 3,25,96,429/- claimed as revenue expenditure under section 37 of the Act and held the expenditure as capital in nature on the grounds that the expenditure incurred was of enduring nature and will last for longer period; permanent assets were being created by incurring such expenditure and no income was being received against such expenditure vide order dated 14.1.2013 (Annexure A.1). A .....

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revenue. It may be noted that a corrigendum dated 2.9.2015, was issued by the Tribunal in the case of ITA No.741/Chd/2014 to the effect that since the appeal i.e. ITA No.741/Chd/2014 relates to assessment year 2011- 12, the assessment year in question at the title of the order be read as 2011- 12 instead of 2010-11. 4. We have heard learned counsel for the parties. 5. Learned counsel for the appellant-revenue relied upon judgment of the Apex court in Arvind Mills Limited vs. Commissioner of Inc .....

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R 293 to argue that the amount spent was revenue in nature. The roads for which repair had been carried out did not belong to the assessee and in such circumstances, the CIT(A) and the Tribunal were justified in deciding the issue in favour of the assessee. 7. The CIT(A) after examining the matter has recorded a categorical finding that the assessee is providing housing to the general public in the State of Haryana after development of housing colonies. Thereafter, the maintenance of colonies is .....

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nature. The relevant findings recorded by the CIT(A) read thus:- 6.1. In the present case, the appellant is engaged in providing housing to the general public in the State of Haryana after development of housing colonies. After construction of housing colonies they are allotted to the individual allottee and once the colonies are sold off, thereafter, the maintenance of colonies is undertaken by the respective Municipal committees or local authorities. As the appellant has submitted that colonie .....

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e passage of time. The State services needed replacement/upgradation of roads, park, water supply, sewerage, street light, boundary wall etc. 6.2. In view of above facts, it is noted that the colonies were in existence which were basically in the nature of stock in trade as after development of these colonies these were not in possession of appellant. The expenses incurred on the existing infrastructure were in the nature of repair and maintenance which shows that there was no creation of any ne .....

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such expenditure has accrued on any assets belonging to and/or held by the appellant. Considering the reasons discussed in above paras and judicial pronouncements cited by the appellant, I am of the view that the expenditure on account of maintenance of colonies is revenue in nature. Hence, the AO is directed to delete the addition of Rs. 3,21,25,745/-. 8. While concurring with the findings recorded by the CIT(A), the Tribunal noticed that the expenses were incurred by the assessee for maintenan .....

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15 which reads as under:- 110. Ground No.4 - After hearing both the parties we find that during assessment proceedings the AO noticed that the assessee authority was in the business of acquiring land and developing it and after development of the land, the same was sold in auction. It was maintaining various sectors even after completion, for different time period ranging from 5-13 years depending on the same. That means that maintenance and development in respect of developed sectors and undeve .....

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wed as revenue expenditure. The Assessing Officer noted that if the assessee was following cash system of accounting whereas AS7 provides that accounting for such contract has to be on accrual system, therefore, according to him the expenses in relation to developing the sectors were to be capitalized. He further observed that the total administrative expenses were Rs. 30,40,02,391/-. Since a separate addition on account of CPF contribution was made and this amount was reduced from total, was di .....

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Supreme Court in case of Tuticorin Alkali Chemicals and Fertilizers Limited vs. CIT, 227 ITR 172 (SC), Accounting Standards were made for general guidelines and accounting purposes and the same cannot be used for determining tax liability. He further observed that no project can be completed without general administration expenses and accordingly confirmed the addition. 113. Before us, the learned counsel for the assessee reiterated the submissions made before the learned CIT(A). He further sub .....

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account then value of the opening stock and closing stock should be adjusted accordingly. 114. On the other hand, the learned DR for the revenue submitted that administrative expenses were incurred jointly for developed and developing sectors. The Assessing Officer has asked for bifurcation of the same which was not given. She further submitted that even if the assessee was following cash system of accounting and when the assessee was not showing receipt from a particular project then the expen .....

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siness of purchase and developing the land and selling the same after the development of the same and therefore, administrative expenses incurred are clearly in the field of revenue. Further, the assessee was following cash system of accounting, therefore, once cash has been spent or outgone from the assessee, same has to be treated as expenditure. Therefore, we set aside the order of the learned CIT(A) and delete the addition. 8. Though in that case the issue was mainly decided on the basis tha .....

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xpenses, therefore, in our opinion, the assessee was under obligation to maintain this colony for which such expense is a necessity. Therefore, we find nothing wrong with the order of learned CIT(A) and confirm the same. 9. In L.H.Sugar Factory and Oil Mills (P:) Limited's case relied upon by the learned counsel for the respondent-assessee, the assessee therein was carrying on business in manufacture and sale of sugar. The assessee contributed Rs. 50,000/- to the State of UP towards meeting .....

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addition to or expansion of the profit making apparatus of the assessee. The relevant observations made by the Apex Court read thus:- Now it is clear on the facts of the present case that by spending the amount of Rs. 50,000, the assessee did not acquire any asset of an enduring nature. The roads which were constructed around the factory with the help of the amount of Rs. 50,000 contributed by the assessee belonged to the Government of Uttar Pradesh and not to the assessee. Moreover, it was only .....

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outflow of manufactured of sugar from the factory to the market centres. There can be no doubt that the construction of these roads facilitated the business operations of the assessee and enabled the management and conduct of the assessee's business to be carried on more efficiently and profitably. It is no doubt true that the advantage secured for the business of the assessee was of a long duration in as much as it would last so long as the roads continued to be in motorable condition, but .....

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to show any illegality or perversity in the findings recorded by the CIT(A) as well as the Tribunal. 11. Adverting to the judgment relied upon by the learned counsel for the appellant revenue, it may be noticed that in Arvind Mills Limited's case (supra), the assessee company was running a textile mill and had to pay certain amount called betterment charge towards the Bombay Town Planning Scheme under Section 66 of the Bombay Town Planning Act, 1954. Under the scheme, the lands of different .....

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