Delhi High Court

The Commissioner Of Income Tax ... vs Punj Lloyd Ltd. on 4 May, 2010

Author: Badar Durrez Ahmed

              THE HIGH COURT OF DELHI AT NEW DELHI
%                                 Judgment Delivered on: 04.05.2010

+            ITA 513/2009 and 552/2009
THE COMMISSIONER OF INCOME TAX Delhi V                     ... Appellant

                                  - versus -
PUNJ LLOYD LTD.                                          ... Respondent
Advocates who appeared in this case:
For the Appellant   : Ms Sonia Mathur
For the Respondent  : Mr Ajay Vohra and Ms Kavita Jha

CORAM:-
HON'BLE MR JUSTICE BADAR DURREZ AHMED
HON'BLE MR JUSTICE V.K. JAIN

     1.    Whether Reporters of local papers may be allowed to
           see the judgment?
     2.    To be referred to the Reporter or not?

     3.    Whether the judgment should be reported in Digest?

BADAR DURREZ AHMED, J. (ORAL)

1. These appeals, in respect of Assessment Years 2003-04 and 2004-

05, arise out of the Income Tax Appellate Tribunal's common order dated

03.10.2008 passed in ITA No. 2867/Del/2007 and 2868/Del/2007

respectively. Notice was issued by this Court on 10.08.2009 on this appeal

only on two issues. The first issue is with regard to the disallowance of

deduction under Section 80HHB of the Income Tax Act, 1961. The Revenue

was of the view that the assessee had failed to attribute any head office

expenses to the foreign branches of the assessee company and that the

Assessing Officer has correctly estimated an amount of Rs 1.5 crores relating

to the Assessment Year 2003-04 and Rs 1 crore relating to the Assessment

Year 2004-05 as being the expenditure attributable to the foreign projects and

consequently made an addition of Rs 30 lakhs in respect of the Assessment

Year 2003-04 and a sum of Rs 20 lakhs relating to the Assessment Year

2004-05. The said amounts were computed being 20 per cent of the

aforesaid expenditure attributable to the foreign projects. The said addition

was made on account of the disallowance of the deduction under Section

80HHB to the aforesaid extent.

2. The second issue relates to the addition of Rs 10 lakhs made by

the Assessing Officer on account of the expenditure allegedly incurred by the

assessee on behalf of other companies alleged to have been in occupation of

the building taken on lease by the assessee. The said addition was deleted

by the Commissioner of Income Tax (Appeals) as well as by the Income Tax

Appellate Tribunal.

3. Insofar as the first issue is concerned, the Assessing Officer was

of the view that the company has not attributed any part of its head office

expenses to the foreign branches of the assessee company. Since no details

were provided to the Assessing Officer in this regard, the Assessing Officer

was left with no alternative but to estimate the aforesaid amounts of Rs 1.5

crores and Rs.1 crore as being attributable to the foreign projects and

subsequent thereto the aforesaid additions were made in respect of each of

the assessment years in question on account of the disallowance of deduction

under Section 80HHB. The Tribunal came to the conclusion that the

disallowance by the Assessing Officer was not on account of any defect

pointed out in the accounts of the assessee. Nor had the Assessing Officer

pointed out any defect with regard to the computation of the profits of the

foreign projects which were eligible under Section 80 HHB. Consequently,

the Tribunal took the view that the decision of the Commissioner of Income

Tax (Appeals) in deleting the said allowance made by the Assessing Officer

was correct. The Tribunal concluded that the Assessing Officer had merely

deleted the disallowance on the basis of presumption without bringing any

material on record. The Tribunal, therefore, confirmed the findings of

Commissioner of Income Tax (Appeals).

4. We have heard the counsel for the parties and are of the view that

a part of the head office expenses, on principle, are to be attributed to the

foreign projects. This is also not disputed by Mr Vohra, who appears on

behalf of the respondent/assessee. However, it is also clear that the

Assessing Officer has merely taken some ad hoc figure and attributed the

same towards expenditure on foreign projects as a part of the head office

expenses. The manner in which the Assessing Officer has come to the

computation of Rs 1.5 crores and Rs 1 crore as being attributable to the

foreign projects is not at all based on facts or any logic. But, at the same

time, as pointed out above, it is undeniable that some part of the head office

expenses are to be attributed to the foreign projects. It is for this reason that

we are of the view that the Tribunal's order to this extent ought to be set

aside and the matter be remanded to the Assessing Officer to compute, on the

basis of some rationale, the exact amount of head office expenses which

could be attributed to the foreign projects in respect of each of the years.

However, such re-computation would be subject to the maximum that was

allocated to him in this round. It is ordered accordingly.

5. Insofar as the second issue is concerned, we find that the

Assessing Officer relied upon the observation of the Special Auditor to the

effect that some common expenditure had been allocated to some of the sister

concerns of the assessee company who were also located in the same

building at 17-18 Nehru Place, New Delhi. The Special Auditor observed

that they were unable to verify whether the allocation made by the assessee

company in respect of the common expenditures was appropriate and fair and

as to whether the entire common expenditure had been allocated.

Consequently, the Special Auditor observed that this aspect needed detailed

examination.

6. Pursuant to the said remarks of the Special Auditor, the Assessing

Officer issued a questionnaire to the assessee to furnish details with regard to

the common expenses and the actual allocation of such common expenses

alongwith a detailed working thereof. In response to the said questionnaire,

the assessee company submitted their letter dated 22.11.2006 wherein they

pointed out that the commercial building situated at 17/18 Nehru Place, New

Delhi was not owned by the assessee company. The said commercial

building was owned by somebody else and it was run as a business centre

and the assessee company was one of the occupants operating from the said

premises on a lease arrangement. The assessee company also explained that

the lease rent was paid by the assessee company for the area occupied by it. It

was also explained that whenever any other company occupies any portion,

out of the area taken by the assessee on lease, the assessee company recovers

rental from such other company and that such recoveries are included under

the head - "other income" -as per the Profit & Loss Account of the Assessee

company. However, assessee company also submitted that there are some

other companies, other than those operating within the premises taken on

lease by the assessee company, which are also located in the same building

and such other companies have their own separate arrangement with the

business centre.

7. Despite the above explanation, the Assessing Officer observed

that there are still some common expenses like water, electricity, watch and

ward staff facility, minor repairs, maintenance of common areas, etc. for

which no documentary evidence regarding sharing of such common expenses

were furnished by the assessee. Consequently, the Assessing Officer, on an

estimated basis, which, according to him, was a fair estimate, concluded that

an amount of Rs 10 lakhs would be the expenditure relating to the other

entities and, therefore, an addition of Rs 10 lakhs was made.

8. The Tribunal returned the finding on this aspect of the matter in

para 23 of the impugned order. The finding is as under:

"We have considered the rival submission. It is noticed that the AO has not brought on record any evidence to show that any portion of the premises as occupied by the assessee is being used by any other company or companies. It is further noticed that the ld. CIT(A) has taken into consideration the fact that the AO has not disputed the fact that the other companies operating from the said premises are not occupying the leased area and having their own separate arrangement with the business centre. It is further noticed that the disallowance as made by the AO is only on presumptions and on an adhoc basis. It is further noticed that no evidence has been brought or found to show that the assessee has incurred any expenditure that relates to any other companies."

9. From the above extract, it is apparent that the Tribunal was of the

view that the Assessing Officer has not brought on record any evidence to

show that any portion of the premises, as occupied by the assessee, was being

used by any other company or companies. This finding is clearly contrary to

the record inasmuch as the assessee itself admitted in its reply to the

questionnaire submitted by the Assessing Officer that in the portion taken on

lease by the assessee company, certain other companies were also operating.

Though, the assessee made it clear that such other companies were paying

lease rentals to the assessee company for use of such space and the same are

reflected in P&L Account. As a result of this, we are of the view that the

finding of the Tribunal that no evidence had been brought or found to show

that the assessee had incurred any expenditure in relation to any other