IN INCOME TAX APPELLATE TRIBUNAL DELHI BENCH F , NEW DELHI BEFORE SHRI J. SUDHAKAR REDDY, ACCOUNTANT MEMBER AND SHRI KULDIP SINGH, JUDICIAL MEMBER ITA No. 2293/Del/2013 AY: 2008-09 Rose Advertising (P) Ltd. vs. ITO, Ward 15(4) CD 12, Vishaka Enclave New Delhi Pitampura New Delhi 110 088 PAN: AAACR 1077 M ITA No. 2827/Del/2013 AY: 2008-09 ITO Ward 15(4) vs. Rose Advertising P.Ltd. New Delhi CD 12, Pitampura Vishakha Enclave Delhi 110 034 ITA No. 2294/Del/2013 A.Y: 2009-10 Rose Advertising (P) Ltd. vs. ITO, Ward 15(4) New Delhi New Delhi & ITA No. 2828/Del/2013 AY: 2009-10 ITO, Ward 15(4), N.Del. vs. Rose Advtg. P.Ltd., N.Del. (Appellant) (Respondent) 1 Assessee by : Sh. Ved Jain, Adv. And Sh. Pranjal Srivastava, Adv. Department by : Sh. F.R.Meena, Sr.D.R. ORDER PER J.SUDHAKAR REDDY, ACCOUNTANT MEMBER These are Cross Appeals for Assessment year (A.Y.) 2008-09 and 2009-10. As issues arising in all these appeals are common, for sake of convenience they are heard together and are disposed of by way of this common order. 2. Facts of case:- assessee is Company and is carrying on business of Advertising Agency. It filed its return of income for A.Y. 2008-09 on 27.9.2008 declaring total income of Rs.9,96,00,424/- and for A.Y. 2009-10 on 30.9.2009 declaring Rs.17,84,270/-. assessments for both A.Ys were completed u/s 143(3) of Income Tax Act, 1961 (the Act). Assessing Officer (A.O.) assessed total income of assessee for A.Y. 2008-09 at 2 Rs.3,87,28,170/- and for A.Y. 2009-10 at Rs.2,79,67,100/-. 2.1. On appeal First Appellate Authority (FAA) granted part relief in both years. Aggrieved, both assessee as well as Revenue are in appeal before us. 2.2. We have heard Mr.Ved Jain, Ld.Counsel for assessee and Shri F.R.Meena, Ld.Sr.D.R. on behalf of Revenue. We have carefully considered rival contentions, papers on record, orders of authorities below. 3. We would dispose of issues that arise in these appeals ground-wise, after considering facts on record and submissions of both parties as well as case laws cited. 4. We first take up assessee s appeal in ITA 2293/Del/13 for A.Y. 2008-09. 5. Ground no.1 is general in nature. 6. Ground no.2A and 2B are disputing disallowance of Rs.62,46,183/- being expenditure incurred by assessee for construction and fabrication of Dhallows. 6.1. Facts of this disallowance are, M/s Delhi Waste Management Pvt.Ltd. entered into agreement with one M/s 3 Green Line, for construction of Dhallows. assessee entered into agreement with M/s Green Line by which this work of constructions of Dhallows was entrusted to assessee. As per terms of agreement sites were handed over to assessee on 1.9.2006 and agreement was valid from 1.9.2006 to 18.12.2009. assessee claimed expenditure incurred by it on construction/fabrication of Dhallows by spreading same over period of three years. A.O. disallowed claim on following grounds. 1. No specific obligation of assessee to undertake renovation of dhallows. 2. Absence of Agreements between assessee and contractors who constructed them. 3. Common nomenclature/description on Bill/invoices raised for construction of dhallows. 4. Absence of any digital evidence so as to prove condition ,of dhallows before and after renovation/construction by assessee. 6.2. assessee carried matter in appeal. 6.3. After admitting additional evidence and calling for remand report Ld.CIT(A) observed as follows 6.2 objection of Assessing Officer and rejoinder of appellant for considering additional evidence, as reproduced above, has been considered. In lieu of natural 4 justice, report of Assessing Officer on examination of evidence on merits is being considered. On this ground of appeal, Assessing Officer submitted his report on merit dated 3/12/2012 as under. With reference to disallowance of amortization claimed on expenses incurred on construction of Dhallows of Rs. 62,46,183/-. During course of assessment proceedings for captioned assessment year, it was noticed that assessee company had entered into agreement with M/s Green Line, who in turn had already entered into agreement with one M/s Delhi Waste Management Private Limited, which company was principal contractor of MCD for contract of operate, maintain and manage depilated dhallows. It was observed that huge expense was incurred by assessee company during captioned assessment year on renovation/construction of dhallows, which assessee had contended, were in bad and depilated condition. copies of agreement between MCD and Delhi Waste Management Pvt. Ltd. and further agreements between Delhi Waste Management Pvt. Ltd and one M/s Green line and lastly that of M/s Green Line awarding contract to operate, maintain and manage dhallows at various locations in Delhi had been placed on records during assessment proceedings. Analysis of cumulative perusal of these agreements and relevant observations in this regard had been elaborately contained in assessment order for captioned assessment year and also is not being further discussed for want of 5 brevity. Nonetheless major observations for disallowance of expenses incurred pertained to:- 1. No specific obligation of assessee to undertake renovation of dhallows. 2. Absence of Agreements between assessee and contractors who constructed them. 3. Common nomenclature/description on Bill/invoices raised for construction of dhallows. 4. Absence of any digital evidence so as to prove condition ,of dhallows before and after renovation/construction by assessee. In this regard, assessee had not filed any new evidence, so as to fortify his contentions. However, during course of remand proceeding, assessee has furnished detailed photographs of dhallows showing extent of renovation/construction got carried/undertaken by it through various contractors. assessee had also been contending that requisite finance/loan for renovation was sanctioned to it, by M/s Karnataka Bank Limited, as per page3 75 to 77 of paper book. It is noticed from these pages that 63 no. of Dhallows had been offered as collateral security of value of Rs.189 lakhs by assessee to its bank. Also page 75 of paper book reveals that amount of Rs.100 lakhs has been sanctioned by bankers as term loan for erection, repair and maintenance and to carry out advertisement in dhallow (garbage Station). 6 6.4. Thereafter Ld.CIT(A) held as follows: (a) expenditure on construction/fabrication incurred by assessee results on benefit of enduring nature and is not of revenue in nature. Dhallows are not owned by assessee company and are on lease for period of more than three years. (b) Dhallows are like base or structures for putting up display boards and are akin to land or building leased out only for purpose of putting up hoardings for display of advertisement. (c ) liability to renovate any such site will be with owner of site so that it can be used for purpose of displaying advertisememt. assessee company can thus not claim that it was its liability to replace to reconstruct Dhallows. Even if it is presumed that renovation of Dhallows was carried out by assessee company for purpose of display of advertisements, expenses are clearly capital in nature and it has been incurred on land or site on which advertisements are displayed. Thus disallowance made by A.O. was upheld on ground that expenditure is in capital field. 7 (d) Since ownership of Dhallows vests with MCD, depreciation was not admissible on this expenditure. 7. After hearing rival contentions we hold as follows. 8. At page 53 to 57 of paper book copy of concession agreement between MCD and M/s Delhi Waste Management P.Ltd. is placed. At pages 58 to 71 of paper book, copy of agreement between Delhi Waste Management Pvt.Ltd. and M/s Green Line is placed. At pages 72 to 88 of paper book, copy of agreement between M/s Green Line and assessee company has been placed. perusal of these agreements and other papers on record demonstrate that expenditure has been incurred by assessee in pursuance of agreement entered into with M/s Green Line. Para 4 of agreement specifically states that agreement shall be co-terminous with agreement between M/s Green Line and M/s Delhi Waste Management Pvt.Ltd. assessee has taken credit facilities from M/s Karnataka Bank for construction/fabrication of these Dhallows. assessee submitted bills and vouchers as evidence of having incurred this expenditure. Confirmation letters from contractors, as well as photographs and copies of bank 8 statements evidencing payments to contractors have also been filed. loan was specifically granted by M/s Karnataka Bank for purpose of construction and renovation of Dhallows. On face of such overwhelming evidence, in our view Ld.CIT(A) has rightly upheld genuineness of expenditure incurred. 8.1. Hence this issue of genuineness of expenditure is decided in favour of assessee. 9. Now we take up issue of allowability of this expenditure. contract as per agreement is for period of three years. assessee was required to incur expenditure on certain property which was not owned by assessee. assessee earned revenues for incurring this expenditure. benefit that accrues to assessee for incurring this expenditure is spread over period of three years. Under these circumstances conclusion of Ld.CIT(A) that expenditure is in capital filed, in our view is not correct. assessee, as contractor and agreement holder has incurred certain expenditure wholly and exclusively for purpose of his business. nature of expenditure is construction and renovation of Dhallows, on 9 property which does not belong to him. There is no enduring benefit that arises to assessee. expenditure is in revenue field. 9.1. CBDT in its Circular no.09/2014 dt. 23rd April, 2014, on issue of construction of expenditure incurred for development of road/ highways, which assets do not belong to assessee at para 4, 5 and 6 held as follows. 4. There is no doubt that where assessee incurs expenditure on project for development of roads/highways, he is entitled to recover cost incurred by him towards development of such facility (comprising of construction cost and other pre- operative expenses) during construction period. Further, expenditure incurred by assessee on such BOT projects brings to it enduring benefit in form of right to collect toll during period of agreement. Hon'ble Supreme Court in case of Madras Industrial Investment Corporation Ltd. vs. CIT in 225 ITR 802allowed spreading over of liability over number of years on ground that there was continuing benefit to company over period. Therefore, analogously, expenditure incurred on infrastructure project for development of roads/highways under BOT agreement may be treated as having been made/incurred for purposes of business or profession of assessee and same may be allowed to be spread during tenure of concessionaire agreement. 10 5. in view of above, Central Board of Direct Taxes, in exercise of powers conferred under section 119of Acthereby clarifies that cost of construction on development of infrastructure facility of roads/highways under BOT projects may be amortized and claimed as allowable business expenditure under Act. 6. amortization allowable may be computed at' rate which ensures that whole of cost incurred in creation of infrastructural facility of road/highway is amortized evenly over period of concessionaire agreement after excluding time take for creation of such facility. 9.2. In our view, spirit of this Circular applies to facts of present case, as there is no doubt that assessee has incurred expenditure in pursuance of contractor on asset not owned by it benefit of which is for period of three years. 9.3. CBDT relied on decision of Hon ble Supreme Court in case of Madras Industrial Corporation Ltd. vs. CIT (1997) 225 ITR 802. Mumbai Bench of Tribunal in case of ITO vs. Shreyas Shipping Ltd. (2002) (5) TMI 203- ITAT Bombay H Bench in its order dt. 24th May, 2002 had at para 17 held as follows. 11 17. From discussion in foregoing paragraphs we find that legal position in nutshell is that computation of income under heads 'Profits and gains of business or profession' or 'Income from other sources' should be made in accordance with method of accounting regularly employed by assessee as long as method of accounting is such as income may properly be deduced therefrom. In such scenario we find it hard to accept proposition that under Income-tax Act there is watertight compartmentalisation of expenditure to be either allowed in one single year as revenue expenditure or to be disallowed altogether as capital expenditure. As matter of fact, complexities and variety of businesses that assessees do carry on would simply militate against such inflexible approach. There are hundreds of assessments being completed in cases of builders and construction firms based on' Project Completion Method'. Under this method, even revenue expenditure incurred by assessee year after year is simply carried forward as "Work-in-progress" to be finally reckoned with in year when project is substantially completed or sales are substantially executed. These cases are standard examples of deferred revenue expenditure. There can be myriad similar situations. Having regard to this, Hon'ble Supreme Court have held in case of Madras Industrial Investment Corpn. Ltd., that general rule that revenue expenditure must be allowed in its entirety in year in which it is incurred admits of exceptions and on contrary there may be cases where rigid observations of general rule may result into very distorted picture of profits of particular year. 12 9.4. concept of deferred revenue expenditure is not new to Income Tax law. When income is to be matched with expenditure year wise, expenditure is spread over period of contract. 9.5. In view of above discussion and taking strength on Circular of CBDT no.09/2014, and as claim of assessee is apread over three years, we are of considered opinion that claim of assessee for deduction of only 1/3rd of expenditure for each year should be allowed. 9.3. In result ground no.2 is allowed. 10. Ground no.3 and 4 are against addition of Rs.3 lakhs and Rs.2,50,000/- respectively being share application money received, from two different persons u/s 68 of Act. Ld.CIT(A) had upheld this addition on ground that: (a) confirmation received by assessee from M/s Electronic Galary India Pvt.Ltd. has certain discrepancies and that in case of Shri Manohar Lal Gupta, bank statement of party could not be furnished. 13 10.1. On careful consideration of these submissions, we find that assessee has filed (i) affidavit from parties confirming transaction, (ii) confirmation of account, (iii) PAN details, (iv) copy of Income Tax returns of those persons. In case of M/s Electronics Galary of India Ltd. copy of bank statement. Only in case of Shri Manohar Lal Gupta, assessee could not obtain copy of his bank account. assessee has discharged its burden of proof. A.O. has not done any investigation or verification. He simply rejected evidence filed by assessee. There is no enquiry by A.O. 10.2. On these facts we examine legal position. a) In case of CIT vs. Gangeshwari Metal P.Ltd. in ITA no.597/2012 judgement dt. 21.1.2013, Hon'ble High Court after considering decisions in case of Nova Promoters and Finlease Pvt.Ltd. 342 ITR 169 and judgment in case of CIT vs. Lovely Exports 319 ITR (Sat.5)(S.C.) held as follows. "As can be seen from above extract, two types of cases have been indicated. One in which Assessing Officer 14 carries out exercise which is required in law and other in which Assessing Officer (sits back with folded hands' till assessee exhausts all evidence or material in his possession and then comes forward to merely reject same on presumptions. present case falls in latter category. Here Assessing Officer after noting facts, merely rejected same. This would be apparent from observations of Assessing Officer in assessment order to following effect- "Investigation made by Investigation Wing of department clearly showed that this was nothing but sham transaction of accommodation entry. assessee was asked to explain as to why said amount of Rs.l,11,50,000/- may not be added to its income. In response, assessee has submitted that there is no such credit in books of assessee. Rather, assessee company has received share application money for allotment of its share. It was stated that actual amount received was Rs. 55,50,000/- and not Rs.l,11,50,000/- as mentioned in notice. assessee has furnished details of such receipts and contention of assessee in respect of amount is found 15 correct. As such unexplained amount is to be taken at Rs.55,50,000/-. assessee has further tries to explain source of this amount of Rs.55,50,000/- by furnishing copies of share application money, balance4 sheet, etc. of parties mentioned above and asserted that question of addition in income of assessee does not arise. This explanation of assessee has been duly considered and found not acceptable. This entry remains unexplained in hands of assessee as has been arrived by Investigation wing of department. As such entries of Rs. 55,50,000/- received by assessee are treated as unexplained cash credit in hands of assessee and added to its income. Since I am satisfied that assessee has furnished inaccurate particulars of its income, penalty proceedings under Section 271(1)(c ) are being initiated separately. " facts of Nova Promoters and Finlease (P) Ltd. (supra) fall in former category and that is why this Court decided in favour of revenue in that case. However, facts of present case are clearly distinguishable and fall in second category and are more in line with facts of Lovely Exports (P) Ltd. (supra). There was clear lack of inquiry on part of 16 Assessing Officer once assessee had furnished all material which we have already referred to above. In such eventuality no addition can be made under Section 68 of Income Tax Act, 1961. Consequently, question is answered in negative. decision of Tribunal is correct in law. " case on hand clearly falls in category where there is lack of enquiry on part of A.O. as in case of Gangeshwari Metals (supra). b) In case of Finlease Pvt.Ltd. 342 ITR 169 (supra) in ITA 232/2012 judgement dt. 22.11.2012 at para 6 to 8, it is held as follows. 6. This Court has considered submissions of parties. In this case discussion by Commissioner of Income Tax (Appeals) would reveal that assessee has filed documents including certified copies issued by ROC in relation to share application, affidavits for directors, form 2 filed with ROC by such applicants confirmations by applicant for company's shares, certificates by auditors etc. Unfortunately, Assessing Officer chose to base himself merely on general inference to be drawn from reading of 17 investigation report and statement of Mr.Mahes Garg. To elevate inference which can be drawn on basis of reading of such material into judicial conclusions would be improper, more so when assessee produced material. least that Assessing Officer ought to have done was to enquire into matter by, if necessary, invoking his powers under Section 131 summoning share applicants or directors. No effort was made in that regard. In absence of any such finding that material disclosed was untrustworthy or lacked credibility Assessing Officer merely concluded on basis of enquiry report, which collected certain facts and statements of Mr. Mahesh Garg that income sought to be added fell within description of S. 68 of Income Tax Act, 1961. 7. Having regard to entirety of facts and circumstances, Court is satisfied that finding of Tribunal in this case accords with ratio of decision of Supreme Court in Lovely Exports (supra). 8. decision in this case is based on peculiar facts which attract ratio of Lovely Exports (supra). Where assessee adduces evidence in support of share application monies, it 18 is open to Assessing Officer to examine it and reject it on tenable grounds. In case he wishes to rely on report of investigation authorities, some meaningful enquiry ought to be conducted by him to establish link between assessee and alleged hawala operators, such link was shown to be present in case of Nova Promoters & Finlease (P) Ltd. (supra) relied upon by revenue. We are therefore not to be understood to convey that in all cases of share capital added under Section 68, ratio of Lovely Exports (supra) is attracted, irrespective of facts, evidence and material." 14. Thus clear distinction has been made out in cases where AO has conducted certain investigations and in cases where AO merely rejected evidences filed by assessee and made addition based on presumptions. 10.3. Applying propositions laid down in these case laws to facts of this case, we have to necessarily delete these additions, as assessee has discharged burden of proof that lay on it and A.O. has not conducted any enquiry and has not brought any evidence on record in 19 support of addition. In result these additions are deleted. 10.4. In result ground nos. 3 and 4 are allowed. 11. Ground no.5 is against disallowance of commission expenses paid to persons covered u/s 40A(2)(b) of Act. AO had made disallowance of Rs.70,70,512/- and that there is no basis for payment of such commission. Ld.CIT(A) restricted addition to Rs.6,54,982/- on ground that commission was paid to persons covered u/s 40A(2)(b) of Act. 12. After hearing rival contentions we find that assessee had submitted confirmations from Mr.Pranav Jindal and Ms. Supriya Jindal and also copies of their income tax returns wherein commission has been duly accounted, for along with copies of bank statements. details of services rendered by parties, contracts received as result of such services rendered have been furnished. A.O. issued notices u/s 133(6) of Act to parties and 20 they have responded to these notices and confirmed transactions. Under these circumstances we hold that payment of commission is genuine. We also note that commission paid to these parties have been accepted by Revenue in earlier years. So on principle of consistency also this finding of A.O. is to be reversed. 12.1. Ld.CIT(A) justified disallowance on ground that: (a) their statements have not been recorded u/s 133(6)/133(1) of Act by A.O.; (b) no specific justification was filed by assessee; (c) These persons are son and daughter in law of Director of assessee company; 12.2. We do not see any merit in disallowing this claim of assessee on these grounds. 12.3. If AO has not recorded statement, then how can assessee be held responsible for it. Merely being relatives of Directors does not go to prove that claim is false. assessee has filed details as to services rendered by these two people. Hence we uphold contentions of assessee and allow this appeal of assessee. 21 12.4. In result this appeal of assessee is allowed. 13. This brings us to Revenue s appeals in ITA 2827/Del/13 for A.Y. 2008-09. grounds of Revenue read as under. 1. Ld.CIT(A) has erred in law and on facts in allowing relief to assessee on basis of additional evidences filed by assessee during appellate proceedings. 2. Ld.CIT(A) has erred in law and on facts in admitting said additional evidences without giving speaking reasons which is essential condition laid down in Rule 46A(2) of Income Tax Rules for admission of such evidences. 3. appellant craves to be allowed to add any fresh grounds of appeal and/or delete or amend any of grounds of appeal. 14. After hearing rival contentions we find that Ld.CIT(A) admitted additional evidence on ground of natural justice. schedule of hearing and opportunity given by A.O. are brought out from pages 12 to 14 of Ld.CIT(A) s order. 22 Under these circumstances we are of considered opinion that additional evidences filed by company under Rule 29 of ITAT Rules should be admitted in interest of justice. While doing so we rely on decision of Hon ble Delhi High Court in case of CIT vs. Text Hundred Industries Ltd. (2013) 351 ITR 57 wherein it is held as under. "13. aforesaid case law clearly lays down neat principle of law that discretion lies with Tribunal to admit additional evidence in interest of justice once Tribunal affirms opinion that doing so would be necessary for proper adjudication of matter. This can be done even when application is filed by one of parties to appeal and it need not to be suo motto action of Tribunal. aforesaid rule is made enabling Tribunal to admit additional evidence in its discretion if Tribunal holds view that such additional evidence would be necessary to do substantial justice in matter. It is well settled that procedure is handmade of justice and justice should not be allowed to be choked only because of some inadvertent error or omission on part of one of parties to lead evidence at appropriate stage. Once it is found that party intending to lead evidence before Tribunal for first time was prevented by sufficient cause to lead such evidence and that this evidence would have material bearing on issue which needs to be decided by Tribunal and ends of justice demand admission of such evidence, Tribunal can pass order to that effect. Hon ble Delhi High Court in case of CIT vs. Virgin Securities & Credits P.Ltd. 332 ITR 396 at para 8 held as follows. "8. aforesaid contention appears to be devoid of any merit. It is matter of record that before admitting additional evidence, CIT (A) had obtained remand report from AO. While submitting his report, AO had not objected to admission of additional evidence, but had merely reiterated contentions in assessment orders. it is only after considering remand report, CIT(A) had admitted additional 23 evidence. It cannot be disputed that this additional evidence was crucial to disposal of appeal and had direct bearing on quantum of claim made by assessee. Plea of assessee which was taken before AO remains same. AO had taken adverse note because or non-production of certain documents to support plea and it was in these circumstances additional evidence was submitted before CIT(A). It cannot be said not is it case of Revenue that additional evidence is not permissible at all before first appellate authority. On contrary, Rule 46A of Act permits (IT (A) to admit additional evidence if he finds that same is crucial for disposal of appeal. In facts of this case, therefore, we are of opinion that on this aspect, no substantial question of law arises 14.1. Applying propositions laid down therein to facts of case on hand we find no infirmity in order of Ld.CIT(A) in admitting additional evidence under Rule 46A. In result this appeal of Revenue stands dismissed. 15. We now take up ITA 2294/Del/13 which is assessee s appeal for A.Y. 2009-10. 16. Ground no.1 is against disallowance of deferred revenue expenditure on construction of Dhallows. This issue has arisen during A.Y. 2008-09 in assessee s appeal as 24 ground no.1. Consistent with view taken therein we allow this ground of assessee. 16.1. Ground no.2 is on disallowance of commission amounting to Rs.8,70,750/- by Ld.CIT(A) u/s 40A(2)(b) of Act. This issue is identical with ground no.5 for A.Y. 2008-09. Consistent with view taken therein this ground of assessee is allowed. 17. Hence this appeal by assessee for A.Y. 2009-10 is allowed. 18. ITA 2827/Del/13 is revenue s appeal for A.Y. 2009- 10. Both grounds of Revenue dispute action of Ld.CIT(A) in admitting additional evidence under Rule 46A. 18.1. This issue is similar to issue dealt by us in Revenue s appeal for A.Y. 2008-09. Consistent with view taken therein we dismiss this appeal of Revenue. 25 19. In result both appeals of assessee in ITA nos. 2293/Del/13 for A.Y.2008-09 and 2294/Del/13 for A.Y. 2009-10 are allowed. Both appeals by Revenue in ITA 2826/Del/13 for A.Y. 2008-09 and ITA 2828/Del/13 for A.Y. 2009-10 are dismissed. Order pronounced in Open Court on 30th Sept.2016. Sd/- Sd/- (KULDIP SINGH) (J. SUDHAKAR REDDY) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 30th Sept. 2016 Manga 26 Copy forwarded to: - 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR, ITAT - TRUE COPY - By Order, ASSISTANT REGISTRAR ITAT, New Delhi 27 Rose Advertising (P) Ltd. v. ITO, Ward 15(4), New Delhi