TaxTMI 
TaxTMI 
2016 (7) TMI 536
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....are of business promotion expenses as per the Memorandum of Understanding (in short "MOU") dated 23.12.2009. The A.O. observed that the amount is paid as upfront fee and no details were furnished regarding utilisation of the amount for which it was meant to be spent. Moreover, the property development has also not commenced and therefore, the question of spending such huge amount towards marketing expenses like advertisements, sales promotion, gift schemes, sales incentives, participation in property exhibition, hoardings, printing of project broachers etc., does not arise. Taking note of the journal entry passed towards purported payment on 31.03.2010, the A.O. observed that it only implies that a part of the investment was artificially diverted towards revenue expenditure. He accordingly, proceeded to disallow the expenditure of Rs. 1.50 crores claimed towards business promotion expenses. 3. Aggrieved by the order of the A.O. assessee filed an appeal before the Ld. CIT(A). Before the Ld. CIT(A), assessee reiterated its submissions made before the A.O. and also referred to the MOU dated 23.12.2009 with NPDPL to develop real estate project called "United Villas" located at Tella....
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....e, it is not the first time that the assessee has entered into real estate business with NPDPL. The CIT(A) noticed that the assessee and the NPDPL are inter-connected and sister concerns having common shareholding. The CIT(A) observed that in the accounts maintained by NPDPL for the assessee, the entry of Rs. 1.50 crores was not found to be reflected as on 31.03.2010. The CIT(A) referred to clause-3 of the impugned MOU and observed that in what manner the amount of Rs. 1.50 crores was to be paid was not mentioned in the MOU at all. The CIT(A) further observed that as submitted by the assessee himself, the project had started in 2007. The assessee had been making advances to NPDPL since 2007. However, there seems to be no formal agreement between the assessee and NPDPL that advances were attributable to development project. The permission for converting the land from agriculture to non- agriculture purpose was granted by the appropriate authority on 12.06.2007. Building permission was granted by HMDA on 25.09.2012. Much prior to the obtaining of building permission, the assessee claims that he has incurred Rs. 1.50 crores towards its share for business promotion expenses and marketi....
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.... account only. 3.4.7. Keeping in view the overall facts and circumstances of the case, I am of the opinion that the appellant diverted an amount of Rs. 1.50 crores from its investment account and paid the same to NPDPL as revenue expenditure, in order to reduce its profits for A.Y.2010-11. Therefore, the addition made by the Assessing Officer is confirmed." 4. Aggrieved by the order of the CIT(A) the assessee is before the Tribunal for redressal of grievance as per grounds of appeal noted herein. "2. The Deputy Commissioner of Income Tax, Hyderabad and the Commissioner of Income Tax (Appeals)-II, Hyderabad erred in disallowing the business promotion of expenses of Rs. 1.50 crores paid to M/s. Nivee Property Developers P. Ltd., Hyderabad without considering the facts of the case. 3. The Deputy Commissioner of Income Tax, Hyderabad and the Commissioner of Income Tax (Appeals)-II, Hyderabad erred in holding that the investment of Rs. 1.50 crores was diverted by the appellant towards revenue expenditure to reduce its profits for the A.Y. 2010-2011." 5. The Ld. A.R. for the assessee Mr. S. Rama Rao submitted that the impugned amount of Rs. 1.50 crores towards sales promot....
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....en objectively analysed by the CIT(A) which cannot be faulted. Ld. D.R. submitted that both the companies are sister concerns manned by close relatives. The payment has been made by the assessee to NPDPL as well as received over number of years. the payment made is in the nature of advance. The amount of Rs. 18,39,52,980 was made prior to even entering of the MOU. Coupled with this, the assessee has failed to demonstrate the actual expenditure incurred for which purpose the amount was purportedly spent. Ld. D.R. further stressed that in these facts and circumstances of the case where the journal entry has merely passed on the last day of the financial year as an afterthought to claim revenue expenditure when the project itself has not started, there is no justification in the grounds raised by the assessee. He therefore, submitted that no interference with the order of the CIT(A) is called for. 7. We have considered the rival contentions and perused the orders of the authorities below and material/ documents referred to us in the course of hearing. The assessee has claimed Rs. 1.50 crores as business expenditure purportedly incurred towards business and sales promotion expenses ....