Kakinada Infrastructure Holdings Private Limited Vs DCIT (ITAT Hyderabad)
ITAT Hyderabad Condones 506-Day Delay, Allows Advertisement Expenditure, and Admits Additional Grounds on Alleged Coerced Share Sale
The Hyderabad Bench of the ITAT, in the case of Kakinada Infrastructure Holdings Pvt. Ltd. (AY 2021-22), condoned a delay of 506 days in filing the appeal, holding that the delay was supported by sufficient and bona fide cause. The Tribunal accepted the assessee’s explanation that, after receiving substantial relief from the CIT(A), it initially chose to buy peace and not litigate further, and decided to appeal only after the AO levied a penalty of ₹9.55 crore u/s 270A, exposing the assessee to the risk of prosecution. Relying on Collector v. MST Katiji and a long line of Tribunal precedents, the ITAT reiterated that substantial justice must prevail over technicalities and that acting on professional legal advice constitutes a valid cause for condonation.
On merits, the Tribunal deleted the disallowance of ₹15.30 lakh towards advertisement expenditure incurred on sponsoring and distributing devotional books carrying the assessee’s name and business details. It held that a company cannot incur “personal expenditure”, and that advertisement need not yield immediate or direct income to be allowable u/s 37(1). Applying the ratio of CIT v. Sundaram Finance Ltd. (Madras HC) and CBDT Circular No. 200 (1976), the ITAT held that advertising through souvenirs/books is a recognised mode of business promotion, and the expenditure was incurred wholly and exclusively for business purposes.
The Tribunal also admitted additional grounds raised for the first time before it, relating to taxability of long-term capital gains on sale of shares of Kakinada Seaports Ltd. The assessee contended that the share sale was executed under threat and coercion, rendering it a voidable contract, and that the transaction was subsequently reversed/cancelled in substance after change of government and initiation of criminal and ED proceedings, restoring the assessee to its original position. Holding that these grounds arose from subsequent developments and went to the root of taxability under the real income doctrine, the ITAT admitted them for adjudication in line with NTPC v. CIT and Jute Corporation of India Ltd. principles.
FULL TEXT OF THE ORDER OF ITAT HYDERABAD
