M/S. L & T Infocity Limited, Hyderabad vs Department Of Income Tax
- CitationITA.No.1765/Hyd/2011
Ratio decidendi
The rule this decision rests on
Where an assessee claims expenditure against consultancy receipts, the Assessing Officer cannot disallow direct expenses that are specifically attributable to that income without giving any reason for doing so; such direct expenditure is allowable where it is not shown to be fictitious or wrong. Where common expenses are apportioned on a pro rata basis between the assessee's main business and its consultancy income, the apportionment may be adjusted by the Tribunal according to the relative resource intensity of each activity, so that a reasonable proportion of those indirect expenses is allowed against the consultancy income rather than disallowed in full.
Written by Miss Lucy from the judgment below, not taken from a headnote.
Judgment
As delivered
ACIT, Circle 16(1) M/s. L & T Infocity Ltd., Hyderabad. vs. Hyderabad. PAN AAACL5895R (Appellant) (Respondent)
For Revenue : D Sudhakar Rao CIT.DR For Assessee : Smt. Anitha Sumant.
Date of Hearing : 20.11.2014 Date of Pronouncement : 02.01.2015
ORDER
PER B. RAMAKOTAIAH, A.M.
This is a Revenue appeal against the order of Ld. CIT(A)-V, dated 19.07.2011. Revenue has raised the following grounds:
1. "The CIT(A) ought to have appreciated the fact that income from consultancy does not have any direct or immediate nexus with the assessee's main business activity i.e., development, operation, maintenance of industrial parks, infrastructure projects etc.,
2. The CIT(A) erred in allowing the expenditure of Rs.41,05,279 claimed as expenses related to 'Consultancy Income', since it does not relate to the main business activity i.e., development, operation, maintenance of industrial parks, infrastructure projects etc.,
3. Revenue audit objection on the above issue is pending in this case and the case is covered by the Board's 2 ITA.No.1765/Hyd/2011 M/s. L & T Infocity Ltd., Hyderabad
Instruction No.3/2011 as per which further appeal has to be preferred where revenue audit objection is accepted by the department."
2. Briefly stated, assessee company is engaged in the business of development, maintenance and operation of industrial parks. The return of income filed by assessee was scrutinized and assessee's claim u/s. 80IA was allowed as such. However, Ld. CIT-IV, noticed that assessee has claimed deduction on consultancy income and interest also and so proceedings u/263 were initiated and assessment was set aside for examining the issues as raised in those proceedings. That order of Ld. CIT was not contested. In the consequent proceedings A.O. examined the consultancy income. The firm receipts on this were at Rs.2,76,31,011. Assessee claimed direct expenditure of Rs.35,89,856 and proportionate expenditure out of common expenses at 11% to an extent of Rs.29,59,252 totaling to Rs.65,49,108. However, A.O. allowed only an amount of Rs.24,43,830 pertaining to professional charges. He disallowed without any reason direct expenses of advertisement and publicity of Rs.3,69,332 and travelling and conveyance at Rs.7,86,794 and indirect expenditure was disallowed stating that no amount can be apportioned towards consultancy charges.
3. On further appeal, Ld. CIT(A) examined the contentions and allowed expenditure 100% of direct expenditure and 70% of indirect expenditure claimed, stating as under :
"5.2. I have considered carefully the facts and evidence. I find, first of all, that the claim of expenditure is not totally without any merit or reason. It would be unfair and unrealistic to state that out of the 10 heads of expenditure given in the written submissions above, only the 3 ITA.No.1765/Hyd/2011 M/s. L & T Infocity Ltd., Hyderabad
professional and consultancy charges are allowable and the balance like travelling, conveyance, publicity, electricity charges, staff expenses do not at all pertain to the employees who provided professional consultancy. This would indeed be beyond human probability.
5.3. First of all, the advertisement and travelling charges are factual to the activity of consultancy and not apportioned. The Assessing Officer has not stated that the claim to be fictitious or wrong. Therefore, these charges are allowable and I direct the Assessing Officer to do so.
5.4. Regarding the other expenses i.e., staff expenses, rent, electricity charges, telephone, office maintenance, sundries and depreciation, the apportionment is on pro data basis. The act of providing consultancy requires less physical resources as compared to the main business of the appellant and therefore, the weightage given for apportionment of these expenses to other income should be more. I therefore, direct the Assessing Officer to allow 70% of the claim of the apportioned expenses as claimed by the appellant in addition to allowance of the claims of advertisement and travelling as already discussed above. The appellant gets relief accordingly."
4. After considering the rival contentions, we do not see any merit in Revenue grounds. A.O. has disallowed not only indirect expenditure but also direct expenditure without any valid reasons. The order of Ld. CIT(A) is justified on facts. Hence, the same is upheld.
5. In the result, Revenue appeal is dismissed.
Order pronounced in the open Court on 02.01.2015.
Sd/- Sd/- (SAKTIJIT DEY) (B.RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER Hyderabad, Dated 02nd January, 2015 VBP/- 4 ITA.No.1765/Hyd/2011 M/s. L & T Infocity Ltd., Hyderabad
Copy to
1. Asst. Commissioner of Income Tax, Circle 16(1) Hyderabad.
2. M/s. L & T Infocity Ltd., 1-Q4-A1, First Floor, Cyber Towers, Hitech City, Madhapur, Hyderabad.
3. CIT(A)-V, Hyderabad.
5. CIT-IV, Hyderabad.
6. D.R. ITAT "B" Bench, Hyderabad.
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