Expenses that are incurred wholly and exclusively for business purposes are deductible even if associated with a consortium or AOP structure.

आदेश/ORDER

PER SHRI MAKARAND V. MAHADEOKAR, AM:

This appeal by the Assessee is directed against the order dated 11th January, 2024 passed by the Commissioner of Income Tax (Appeals)-13, Ahmedabad [hereinafter referred to as “the Ld.CIT(A)] for the Assessment Year (AY) 2021-22 in the matter of an appeal filed by the assessee against the assessment order dated 08/02/2023 passed by the Assessing Officer (hereinafter referred to as “AO”) under section 143(3) r.w.s. 144C of the Income Tax Act, 1961 (hereinafter referred to as “the Act”).

Facts of the Case:

2. The assessee is a foreign company having a project office in India under the name of Tehran Jonoob Technical and Construction Company PJS (hereinafter referred to as "the Assessee Company"). The assessee is engaged in the business of construction and gas pipeline projects.

2.1. For the AY 2021-22, the Assessee Company filed its Income Tax Return on 15th March, 2022 declaring a business loss of Rs.4,07,37,276/-. The return included a deduction claim towards selling expenses amounting to Rs.56,00,000/- as business expenses under Section 37 (1) of the Act.

2.2. During the assessment proceedings, the AO disallowed the claim of selling expenses of Rs.56,00,000/- and added the same to the total income of the assessee on the ground that these expenses were not allowable under Section 37 (1) of the Act. Consequently, the business loss to be carried forward was reduced by Rs.56,00,000/-.

3. Aggrieved by this addition, the Assessee Company preferred an appeal before the Ld.CIT(A). The Ld.CIT(A), in the appellate order dated 11th January-2024, upheld the addition made by the AO. Against this order of the Ld.CIT(A), the Assessee Company is now in appeal before us with the following grounds of appeal:

Ground No. 1: General

The learned Commissioner of Income Tax (Appeals), Ahmedabad-13 erred on facts and in law by disallowing expenses of Rs.56,00,000/- on account of selling expenses during the course of first appeal proceedings in the case of Tehran Jonoob Technical and Construction Company PJS (hereinafter referred to as “Appellant”) in its appellate order dated 11th January, 2024 passed under section 250 of the Act.

Ground No. 2: Disallowance of Selling Expense of Rs.56,00,000/-

While disallowing the selling expenses, the learned CIT(A) has erred on the following grounds:

• The learned CIT (A) has erred in facts by not considering the clause-7 of the MOU or Consortium deed, which clearly specified that “this deed shall be operating from the effective date of the contract” i.e. HPCL contract were applied by the consortium members.

• The learned CIT (A) failed to appreciate the fact that selling expenses have been incurred by the Appellant wholly and exclusively for the purpose of carrying on its business and to expand and getting additional work contract.

• The learned CIT (A) failed to understand that appellant is into the business of construction of pipeline with government companies wherein all bidding of work is done through tender and while applying tender, there is a standard procedure of Earnest money deposit via bank Guarantee and expenses are incurred in connection thereof which are normal/routine business expenses laid out wholly and exclusively for expanding business and getting additional work in form of work contract.

• The learned CIT (A) has failed to appreciate the facts that incorporation of AOP is later in sequence of events than allotment of work order or contract. Since, there is no dispute about the facts that an appellant was not been awarded with the contract, whether a question of Incorporation of AOP is out of place and has no locus standi in the eyes of the law.

• The learned CIT (A) e