The Commissioner Of Income Tax-I v. Ajwa Fun World & Resorts Ltd.....opponent(S

O/TAXAP/1197/2007 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD TAX APPEAL NO. 1197 of 2007 FOR APPROVAL AND SIGNATURE: HONOURABLE MR.JUSTICE KS JHAVERI andHONOURABLE MR.JUSTICE K.J.THAKER ================================================================ 1 Whether Reporters of Local Papers may be allowed to see the judgment ?the judgment ? 2 To be referred to the Reporter or not ? 3 Whether their Lordships wish to see the fair copy of the judgment ?judgment ? 4 Whether this case involves a substantial question of law as to the interpretation of the Constitution of India, 1950 or any order made thereunder ?to the interpretation of the Constitution of India, 1950 or any order made thereunder ? 5 Whether it is to be circulated to the civil judge ? ================================================================ THE COMMISSIONER OF INCOME TAX-I,....Appellant(s) Versus AJWA FUN WORLD & RESORTS LTD.....Opponent(s) ================================================================ Appearance: MR KM PARIKH, ADVOCATE for the Appellant(s) No. 1MR RK PATEL, ADVOCATE for the Opponent(s) No. 1 ================================================================ CORAM: HONOURABLE MR.JUSTICE KS JHAVERIand HONOURABLE MR.JUSTICE K.J.THAKER Date : 24/12/2014 ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE KS JHAVERI) 1. Being aggrieved and dissatisfied with the impugned order passed by the Income Tax Appellate Tribunal, Ahmedabad Bench ‘C’ (hereinafter referred to as ‘the Tribunal’) dated 03.01.2007 in ITA No. 1540/Ahd/2002 for the Assessment Year 1996-97, the revenue has preferred the present Tax Appeal. 1.1This court, while admitting this appeal, has formulated the following substantial question of law for consideration: “Whether on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in confirming the order of the CIT(A) allowing the claim of Rs. 11,59,369/- being the preoperative expenses on advertisement and plantation relating to the business of water sports incurred before the commencement of this business?” 2. The assessee, is engaged in the business of running an amusement park and started a new business of water sports which became operative in July 1995 which is the period relevant to the assessment period under consideration. The assessee had incurred expenses on advertisement and plantation relating to water part out of which part of expense was incurred before the commencement of water park. Tehse expenses were capitalised in the books of account and the assessee had claimed only 1/10[th] of these expenses as pre- operative expenses amortized. However, in the computation of total income, the entire amount was claimed as revenue expenditure. The Assessing Officer disallowed this expenditure and considered it as capital expenditure. On appeal, the CIT (Appeals) allowed the same and deleted the disallowance. 3. On appeal before the Tribunal by the revenue, by impugned order, Tribunal dismissing the appeal, upheld the order passed by CIT(A). 4. Being aggrieved and dissatisfied with the impugned order passed by the Tribunal, the revenue has preferred the present Tax Appeal for consideration of the aforesaid substantial question of law. operative expenses amortized. However, in the computation of total income, the entire amount was claimed as revenue expenditure. The Assessing Officer disallowed this expenditure and considered it as capital expenditure. On appeal, the CIT (Appeals) allowed the same and deleted the disallowance. 3. On appeal before the Tribunal by the revenue, by impugned order, Tribunal dismissing the appeal, upheld the order passed by CIT(A). 4. Being aggrieved and dissatisfied with the impugned order passed by the Tribunal, the revenue has preferred the present Tax Appeal for consideration of the aforesaid substantial question of law. 5.Mr. K.M. Parikh, learned advocate appearing for the revenue submitted that the Tribunal relying upon the decision of this Court in the case of CIT vs. Alembic Glass Industries Ltd reported in 103 ITR 715 (Guj) and the Tribunal’s own decision in respect of the same assessee for the assessment year 1995-96 has wrongly upheld the order passed by the CIT(A). He submitted that advertisement and plantation expenses in the present case were covered by section 37(1) and not by section 36(1)(iii) as construed by the Tribunal. 6.Mr. R.K. Patel, learned advocate appearing for the respondent – assessee submitted that the Tribunal is justified in considering that the expenditure in question had been incurred for the expansion of the existing business which in the present case is water recreation activities and therefore there was no reason for interfering with the findings of CIT(A). 7.We have heard learned counsel for the parties and have perused the record of the case. The CIT(A) deleted the disallowance with the observation that the new project was only an expansion of the existing business because both were carrying out recreational activities. The assessee had incurred various expenses relating to setting up and commencement of business of water park. These expenses may be termed as preoperative i.e., expenses before the operation of the business starts but these are definitely expenses which could be termed as incurred on expansion of the existing one. The Tribunal has upheld the observations made by the CIT(A) and concluded that the ratio in the decision of this Court in the case of Alembic Glass Industries is applicable to the facts of the present case. The Tribunal relying on the decision of the ITAT in ITA No. 1116/Ahd/1999 for the assessment year 1995-96 vide order dated 14.09.2005 has rightly allowed the claim of the assessee. We are in complete agreement with the concurrent findings arrived at by the Tribunal and CIT(A) and do not see any reason for interference. 8.In the premises aforesaid, we answer the question raised in the present appeal in favour of assessee and against the revenue. We hold that the Tribunal was right in law in confirming the order of the CIT(A) allowing the claim of Rs. 11,59,369/- being the preoperative expenses on advertisement and plantation relating to the business of water sports incurred before the commencement of this business. Appeal stands dismissed accordingly. divya (K.S.JHAVERI, J.) (K.J.THAKER, J)