M/S.southern Foundation P.ltd v. The Assistant Commissioner Of Income Taxcompany Circle – Iv(6),Chennai-34

IN THE HIGH COURT OF JUDICATURE AT MADRAS CORAM THE HONOURABLE MR.JUSTICE K.RAVIRAJA PANDIANANDTHE HONOURABLE MR.JUSTICE M.M.SUNDRESH TAX CASE (APPEAL) NO.460 OF 2004 M/s.Southern Foundation P.Ltd.,No.51, Bheemasena Gardens,Mylapore, Chennai-4. ..Appellant Vs The Assistant Commissioner of Income TaxCompany Circle – IV(6),Chennai-34. ..Respondent Appeal against the order of the Income Tax Appellate Tribunaldated 03.01.2003 andmadein ITA.No.680(Mds)2001 for the AssessmentYear 1997-98. Appeal against order of the Commissioner of Income Tax(Appeals)IV, Chennai-600 034 made in I.T.Appeal No.97/2000-01 dated23.02.2001 and against the order of Deputy Commissioner of Income TaxCompany Circle IV(6) Chennai, made in G.I.No./P.A.No.1704S andyuearsof the Assessment 1997-98 dated 21.03.2000. For Appellant : Mr.R.Venkatanarayanan for Mr.Subburaya Aiyar PadmanabhanFor Respondent: Mr.J.Narayanaswamy JUDGMENT (JUDGMENT WAS DELIVERED BY K.RAVIRAJA PANDIAN,J) Not satisfied with the order of the Tribunal dated 3.1.2003 inITA No.680/Mds/2001 relating to the assessment year 1997-98, theassessee has filed this appeal. 2. The appeal has been admitted on the following substantialquestion of law: “Whether on the facts and in the circumstancesof the case, the Income Tax Appellate Tribunal is right https://hcservices.ecourts.gov.in/hcservices/ in disallowing the direct expenditure incurred towardsvarious projects as claimed by the appellant?” 3.The facts culled out from the statement of facts containedin the memorandum of grounds are as follows: The assessee is engaged in the business of promotion of realestate and construction. For the assessment year 1997-98, theassessee filed return of income on 28.11.1997 admitting the totalincome of Rs.1,08,720/-. While completing the assessment, among otherdisallowances, the Assessing Officer disallowed a sum ofRs.12,29,025/- towards direct expenses, namely, site electricity,site expenses, commission, rent etc. The Assessing Officer chose todisallow the direct expenditure in respect of four projects namelyYesodha, Blossom, Gayathri and Krishna arcade. On appeal, theCommissioner confirmed the disallowances on the ground that theassessee was following the project completion method and theappellant did not offer any income from those projects. 4.Aggrieved against the order of the Commissioner, theassessee preferred an appeal to the Tribunal on the premise that thedirect expenditure claimed by the assessee by way of siteelectricity, site expenses, commission, rent etc. are directexpenses, which are incurred by the appellant on day to day basis.Those expenses are in the nature of period cost allowable in the yearin which the expenditure was incurred. However, the Tribunal, withoutconsidering those facts, disallowed the claim of the appellant on theground that the appellant, having followed the project completionmethod, ought to have realised some income in order to claimexpenditure. 5.Before us, it is contended by the learned counsel for theassessee that though the assessee is fair enough to accept thatcertain excess amount need not be allowed, the authorities under theAct ought to have allowed the expenses towards brokerage andcommission pertaining to those projects. On the other hand, learnedcounsel for the Revenue submitted that the disallowance, which is putin issue before the Appellate Authority is the very same amount, forwhich, the assessee admitted for disallowance before the AssessingOfficer and that the claim of expenses need not be considered evenbefore this court. They have taken alternate plea that this amountcan be considered in respect of future assessment year where theproject earn income, which clearly shows that they are not specificabout the expenditure for which they are seeking deduction. 6.We have heard the learned counsel on either side andperused the material on record. We are unable to appreciate the wayin which the assessee filed the appeal. It is clear from theassessment order where the amount of Rs.12,29,025/- claimed asexpenses has been accepted by the assessee itself that the claim should be disallowed. For the sake of clarity, we reproduce theobservation available in the assessment order, which is as follows: “The assessee’s AR was asked to explain that whythe assessee company has not offered any income from theabove said four projects and why construction cost wasclaimed against those projects. In response to same, theassessee’s AR explained that the assessee company has notoffered any income from the said four projects becausethese projects are not yet started. The assessee’s AR alsoexpained that those projects are not yet started is evidentfrom the facts that the assessee company has not claimedany land cost against those projects. Since the said fourprojects were not started by 31.3.97 and no income wasoffered against those projects, so the assessee’s AR wasasked to explain that why construction cost claimed againstthese projects should not be disallowed following thepercentage completion method. In response to same, theasseessee’s AR explained that they dont have any objectionin disallowance of direct expenses related to these fourprojects. Entire cost of construction is direct expensesonly and hence the cost of construction claimed againstfollowing projects are disallowed and added back to totalincome:-1) Yashoda:Rs. 2,04,925/-2) Blossom:Rs. 3,29,112/-3) Gayathri:Rs. 35,000/-4) K. Arcade:Rs. 6,59,988/- --------------TOTAL: Rs.12,29,025/- --------------” However, the assessee filed an appeal by stating that the commissionand brokerage in respect of procurement of land have not been grantedas expenses incurred by the assessee. Both before the First AppellateAuthority and the Tribunal, this stand has been taken by theassessee. We are unable to appreciate the arguments of the learnedcounsel for the assessee, as what was disallowed by the AssessingOfficer was on the consent given by the assessee regarding expensesas direct expenditure on the projects in a sum of Rs.12,29,025/-.Apart from that, the amount of brokerage or commission has never beenconsidered in the assessment order. An issue which is not availablein the assessment order has been taken on appeal before the twoAuthorities below and ultimately before us also. We do not find anymerit in this appeal to consider the issue, which has never beenconsidered before any of the Authorities below. 7.In the above stated facts and circumstances of the case,the appeal is dismissed as the question of law raised does not arisefrom the orders of the Tribunal. Sd/Asst.Registrar/true copy/Sub Asst.RegistrarRSTo1. The Assistant Registrar, Appellate Tribunal, Rajaji Bhavan, Besant Nagar, Chennai-90.2. The Commissioner of Income Tax (Appeals)IV, Chennai-600 034.3. The Deputy Commissioner of Income Tax, Company Circle – IV (6), Chennai-34.4. The Assistant Commissioner of Income Tax, Company Circle IV(6), Chennai-600 034.T.C.(A) NO.460 OF 2004AKR (CO)GSK 17.12.2009.