GST Helpdesk   Subscription   Demo   New User   Login      
Tax Management India .com
TMI - Tax Management India. Com
Extracts
Home List
← Previous Next →

2016 (7) TMI 536 - ITAT HYDERABAD

2016 (7) TMI 536 - ITAT HYDERABAD - TMI - Genuineness of expenditure - Disallowance of business promotion expenses as revenue expenditure - Held that:- The manner in which the transactions has been executed in a regular interval over a period of time clearly gives an impression that these payments were made as well as received back as a part of accommodation to the sister concern. The CIT(A) has demonstrated in its order that the building permission was granted by the HMDA on 25.09.2012 i.e., mu .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

have been stated to be actually incurred in the subsequent years. In the circumstances, a mere journal entry and MOU with sister concern to convert advance already lying with the sister concern into revenue expenditure of this magnitude is highly unpalatable. We find ourselves in complete agreement with the observations and findings of the CIT(A) for dismissal of the claim of the assessee. The assessee has neither demonstrated the necessity to incur this expenditure to establish bonafide nor ha .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

st the Order of the Ld. CIT(A)-II, Hyderabad dated 16.07.2014 for the A.Y. 2010-2011. The solitary issue arising in the present appeal is disallowance of ₹ 1,50,00,000 claimed as revenue expenditure by the assessee towards business promotion expenses. 2. Briefly stated, the assessee is in the business of logistics and real estate development. It filed its return of income for A.Y. 2010-2011 declaring total income of ₹ 3,82,01,623. The A.O. on verification of the books of account noti .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

perty development has also not commenced and therefore, the question of spending such huge amount towards marketing expenses like advertisements, sales promotion, gift schemes, sales incentives, participation in property exhibition, hoardings, printing of project broachers etc., does not arise. Taking note of the journal entry passed towards purported payment on 31.03.2010, the A.O. observed that it only implies that a part of the investment was artificially diverted towards revenue expenditure. .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

IT(A) that the assessee has already invested an amount of ₹ 18.40 crores up to 23.12.2009 i.e., date of MOU. As per the MOU profit derived from the project is agreed to be equally shared between the assessee and NPDPL. The assessee submitted that as per clause-3 of MOU, assessee is required to make upfront payment of ₹ 1.50 crores to NPDPL towards its share of commitment of business promotion expenses. In pursuance thereof, amount of ₹ 1.50 crores was paid towards business prom .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

e sanction of HMDA for constructing the building was granted on 25.09.2012. The delay in implementing the project was due to bad real estate market in the light of Telangana agitation in 2012. It was further contended on behalf of the assessee before the CIT(A) that the A.O. is not correct in stating that the payment was made by way of journal entry on 31.03.2010. Assessee made total investment of ₹ 18,39,52,980 since 2007 till the date of MOU i.e. 23.12.2009. Out of payment made for the l .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

hrough account payee cheques, the payment of ₹ 1.50 crores is to be deemed as payment through account payee cheque. It is further case of the assessee before the CIT(A) that the assessee had undertaken real estate business with NPDPL in earlier years also and reported income out of such real estate business for F.Ys. 2004-05 and 2005-06. Hence, it is not the first time that the assessee has entered into real estate business with NPDPL. The CIT(A) noticed that the assessee and the NPDPL are .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

The assessee had been making advances to NPDPL since 2007. However, there seems to be no formal agreement between the assessee and NPDPL that advances were attributable to development project. The permission for converting the land from agriculture to non- agriculture purpose was granted by the appropriate authority on 12.06.2007. Building permission was granted by HMDA on 25.09.2012. Much prior to the obtaining of building permission, the assessee claims that he has incurred ₹ 1.50 crores .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

2012, the necessity to pay ₹ 1.5 crores in 2009 itself, there was no necessity to pay amount towards business promotion expenses and marketing expenses such as advertisement, sales promotion, gifts, sales incentives, participation in property exhibitions, hoardings, printing of project brochures. (b) The appellant failed to submit the details whether this ₹ 1.5 crores was spent for intended purposes or not. On the other hand, the appellant explained that out of ₹ 1.5 crores, a .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ate of accounting year of ₹ 1.5 crores was made only to reduce the profits in the last minute. (e) As per the information submitted by the appellant, there are two accounts of Arunachala Logistics Pvt. Ltd. in the books of NPDPL. These are - (i) General ledger account (ii) Project investment account. As per the information submitted by the appellant, in general ledger account, there was an accumulated balance of ₹ 17,40,90,000/ - as on 31.03.2010. This balance was accumulated over a .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

e case, I am of the opinion that the appellant diverted an amount of ₹ 1.50 crores from its investment account and paid the same to NPDPL as revenue expenditure, in order to reduce its profits for A.Y.2010-11. Therefore, the addition made by the Assessing Officer is confirmed. 4. Aggrieved by the order of the CIT(A) the assessee is before the Tribunal for redressal of grievance as per grounds of appeal noted herein. 2. The Deputy Commissioner of Income Tax, Hyderabad and the Commissioner o .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

d. A.R. for the assessee Mr. S. Rama Rao submitted that the impugned amount of ₹ 1.50 crores towards sales promotion was made as per a written MOU. The payments were made by account payee cheque in the first place and therefore, obligation arisen by way of MOU for incurring sales promotion expenditure was met by appropriating the aforesaid amount by way of a journal entry. He submitted that once the book entry has been passed in discharge of its obligation which are revenue expenditure by .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

vestment of ₹ 18,39,52,980 towards the project is recorded. He thereafter, referred to other clauses whereby the assessee inter alia, was under contractual obligation to incur sales and business promotion expenses and marketing expenses such as advertisement, sales promotion, gift schemes, sales incentives, participation in property exhibition, hoardings, printing of project broachers etc., to the extent of ₹ 1.50 crores. He submitted that pursuant to the business contract, the expen .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ected. The relevant journal entries towards appropriation of amount in keeping with obligations cast upon the assessee as per MOU was also adverted. The Ld. A.R. accordingly contended that the A.O. as well as the CIT(A) has misdirected itself on facts and in law in rejecting the bonafide claim of business promotion expenses and pleaded for its reversal. 6. The Ld. D.R., on the other hand, strongly relied upon the orders of the A.O. as well as the CIT(A) and submitted that the facts and circumsta .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

se the amount was purportedly spent. Ld. D.R. further stressed that in these facts and circumstances of the case where the journal entry has merely passed on the last day of the financial year as an afterthought to claim revenue expenditure when the project itself has not started, there is no justification in the grounds raised by the assessee. He therefore, submitted that no interference with the order of the CIT(A) is called for. 7. We have considered the rival contentions and perused the orde .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

MOU is dated 23rd December, 2009 wherein it is recorded that an investment of ₹ 18,39,52,980 made till the date of execution of the MOU has been taken cognizance towards project. It means the advance given to NPDPL earlier has been recognized as made towards development of residential project. When we see the manner in which the aforesaid payment of ₹ 18,39,52,980 has been made with reference to the ledger extracts submitted by the assessee, we find that there are large number of tra .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

 

 

 

 

 



|| Home || Acts and Rules || Notifications || Circulars || Schedules || Tariff || Forms || Case Laws || Manuals ||

|| About us || Contact us || Disclaimer || Terms of Use || Privacy Policy || TMI Database || Members || Site Map ||

© Taxmanagementindia.com [A unit of MS Knowledge Processing Pvt. Ltd.] All rights reserved.

Go to Mobile Version