M/s. Nishit Constructin Co. P. Ltd., Indore V. The ACIT 1(2), Indore

CO 6/IND/2014

• Counselvise Citation: [2016] 123 COUNSELVISE.COM (IT) 2630 (ITAT-INDORE)
• Duration Of Justice: 2 year(s) 7 month(s) 16 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 21-12-2016
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2002-2003
• Appeal Filed On: 05-05-2014
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: MOHD JAVED
• Keywords: Business expenditure
• Section: 69C; 43B; 37(1); 147; 37

Judgement Text

NISHIT CONSTRUCTION ITA NO. 101/IND/201 & CO NO.6/IND/2014 1 , , IN THE INCOME TAX APPELLATE TRIBUNAL, INDORE BENCH, INDORE .., ..!', #$ # !% BEFORE SHRI D.T. GARASIA, JUDICIAL MEMBER AND SHRI O.P. MEENA, ACCOUNTANT MEMBER I.T.A. NO. 101/IND/2014 ASSESSMENT YEAR: 2002-03 ACIT 1(2) INDORE :: APPELLANT VS M/S NISHIT CONSTRUCTION CO. LTD. INDORE ./ PAN: AABCN 8168N :: RESPONDENT CO NO. 6/IND/2014 ARISING OUT OF ITA NO. 101/KND/2014 M/S NISHIT CONSTRUCTION CO. LTD. INDORE :: OBJECTOR VS ACIT 1(2) INDORE :: RESPONDENT REVENUE BY SHRI MOHD. JAVED ASSESSEE BY SHRI SUDHIR PADLIA ! ' #$ DATE OF HEARING 19.12.2016 %&'( #$ DATE OF PRONOUNCEMENT 21.12.2016 NISHIT CONSTRUCTION ITA NO. 101/IND/201 & CO NO.6/IND/2014 2 * O R D E R PER SHRI D.T. GARASIA, JM THE REVENUE IS IN APPEAL AND THE ASSESSEE HAS FILED THE CROSS OBJECTION AGAINST THE ORDER OF THE LEARNED CIT( A)-I, INDORE, DATED 14.11.2013. 2. THE SUM AND SUBSTANCE OF THE GROUNDS OF APPEAL RAISED BY THE REVENUE IS THAT THE LEARNED CIT(A) WAS N OT JUSTIFIED IN ALLOWING THE EXPENDITURE INCURRED IN CONSTRUCTING A BUILDING DECLARED AS ILLEGAL CONSTRUCTIO N AND DEMOLISHED AS A WHOLE BY THE ORDER OF THE JURISDICTIO NAL HIGH COURT WHICH WAS DISALLOWED BY THE ASSESSING OFFI CER IN VIEW OF EXPLANATION TO SECTION 37(1) OF THE ACT. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS ENGAGED IN BUSINESS OF CONSTRUCTION OF BUILDING. IN THE YEAR UNDER CONSIDERATION THE ASSESSEE CONSTRUCTED A BUILDIN G NAMED DAWA BAZAR AT INDORE. THE ASSESSEE FOLLOWED THE PROJECT COMPLETION METHOD OF SHOWING PROFITS AND HAS NISHIT CONSTRUCTION ITA NO. 101/IND/201 & CO NO.6/IND/2014 3 CLAIMED IN THE RETURN THAT AS FAR AS THE DAWA BAZAR CONSTRUCTION WAS CONCERNED, THE SAME WAS COMPLETED IN THIS ASSESSMENT YEAR. ACCORDINGLY THE ASSESSEE FILED T HE CONSTRUCTION ACCOUNT AS WELL AS THE P&L ACCOUNT OF THE DAWA BAZAR SITE AND HAS SHOWN PROFITS OF RS.1,03,47,791/ - ON THE SAME. THE ASSESSEE HAS TAKEN THIS PROFIT ON THE DAWA BAZAR SITE TO THE CONSOLIDATED P&L ACCOUNT WHERE F OR THE ENTIRE COMPANY, THE TOTAL PROFITS OF THE YEAR INCL UDING THE DAWA BAZAR AND THE OTHER CONTRACT SITES ARE RS.1,07,81,944/-. IN THE COMPUTATION OF INCOME AFTER MAKING CERTAIN ADDITIONS ON ACCOUNT OF DISALLOWANCE U/S 43B OF THE ACT AND THE PROVISION OF INCOME TAX FOR RS.8,70,000/- THE TOTAL INCOME HAS BEEN SHOWN AT RS.1,18,07,246/-. THIS WHOLE AMOUNT HAS BEEN SET OFF AGAINST THE BROUGHT FORWARD BUSINESS LOSES OF A.Y. 199 9-00 CLAIMED TO BE AT RS. 2,36,74,166/-. THE ASSESSING OFF ICER OBSERVED THAT THE ASSESSEE DID NOT MAINTAIN ANY BOOKS OF NISHIT CONSTRUCTION ITA NO. 101/IND/201 & CO NO.6/IND/2014 4 ACCOUNTS IN ORDER TO VERIFY THE DIFFERENT EXPENDITUR E INCURRED AT THE CONSTRUCTION SITES. THE ASSESSING OF FICER SPECIFICALLY REQUIRED THE ASSESSEE TO SUBMIT THE DETAI LS OF EXPENDITURE BUT THE ASSESSEE FAILED TO DO SO. THE ASS ESSING OFFICER, THEREFORE, IN VIEW OF SECTION 69C OF THE A CT OBSERVED THAT SINCE THE EXPLANATION OF THE ASSESSEE REGARDING THE EXPENDITURE INCURRED IS NOT SATISFACTORY, DISALLOWED RS.1,43,53,246/- U/S 69C OF THE ACT. ON APPEAL, THE LEARNED CIT(A) DELETED THE SAME. NOW THE REVENUE IS I N APPEAL BEFORE THE TRIBUNAL. 3. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE SIDES. WE FIND THAT THE TRIBUNAL HAS DECIDED AN IDENTI CAL ISSUE IN THE CASE OF THE ASSESSEE ITSELF IN ITA NO. 301/IND/2012 AND VIDE ITS ORDER DATED 2.1.2013 THE TRIBUNAL DISMISSED THE APPEAL OF THE ASSESSEE WITH THE FOLLOWING OBSERVATIONS :- NISHIT CONSTRUCTION ITA NO. 101/IND/201 & CO NO.6/IND/2014 5 THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF CIT(A) DATED 29.12.2012 FOR THE ASSESSMENT YEAR 1999- 2000. 2. THE REVENUE IS AGGRIEVED BY CIT(A)S ACTION FO R ALLOWING THE EXPENDITURE INCURRED ON CONSTRUCTION WITHIN THE MEA NING OF EXPLANATION TO SECTION 37(1) AND TREATING THE SAME AS BUSINESS LOS S. 3. RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORDS PERUSED. FACTS IN BRIEF ARE THAT THE ASSESSEE IS ENGAGED IN BUSINESS OF CON STRUCTION OF BUILDING. IN THE YEAR 1989, THE ASSESSEE ENTERED INTO AGREEMENT FOR CONSTRUCTION OF BUILDING UNDER THE NAME AND STYLE OF RAJ TOWERS. THE ASSESSEE INCURRED EXPENDITURE ON CONSTRUCTION OF VARIOUS FLOORS, WHICH WERE SUBSEQUE NTLY REMOVED BY THE ORDER OF MUNICIPAL CORPORATION. THE EXPENDITURE SO INCURR ED WAS CLAIMED AS A LOSS BY THE ASSESSEE IN THE PROCESS OF COMPLETING ASSESS MENT U/S 147 READ WITH SECTION 143(3). THE ASSESSING OFFICER HELD THAT EXP ENDITURE SO INCURRED ON CONSTRUCTION WAS ILLEGAL, THEREFORE, CANNOT BE ALLO WED AS PER EXPLANATION TO SECTION 37(1). 4. BY THE IMPUGNED ORDER, THE LD. CIT(A) ALLOWE D ASSESSEES CLAIM AFTER HAVING THE FOLLOWING OBSERVATIONS :- 4.3.2 THE ASSESSING OFFICERS CASE IS BASED ON EXP LN. TO SECTION 37(1) PROHIBITING DISALLOWANCE OF ANY EXPENDITURE INCURRE D FOR ANY PURPOSE WHICH IS AN OFFENCE OR WHICH IS PROHIBITED BY LAW. THE AMOUN T SPENT ON CONSTRUCTION OF BUILDING, WHICH WAS LATER DEMOLISHED EVEN IF TREATE D AS EXPENDITURE AT THAT STAGE CANNOT BE TREATED AS EXPENDITURE INCURRED FOR ANY PURPOSE WHICH IS AN OFFENCE OR PROHIBITED IN LAW. THE AMOUNT WAS SPENT IN REGULAR COURSE OF BUSINESS BY APPELLANT ON DEVELOPMENT OF PROPERTY IN QUESTION. IT WAS EMPHASIZED BY A. R. PRESENT THAT CONSTRUCTION BEYON D SANCTIONED PLAN CANNOT BE CALLED ANY OFFENCE AS SUCH AND IT IS SO CALLED E VERY BUILDING CONSTRUCTED BY BUILDER AND DEVELOPER WOULD HAVE TO BE CALLED A ILL EGAL CONSTRUCTION. IT WAS NISHIT CONSTRUCTION ITA NO. 101/IND/201 & CO NO.6/IND/2014 6 ALSO EMPHASIZED THAT VERY OFTEN EXTRA CONSTRUCTION DONE BEYOND SANCTIONED PLAN OR BEYOND PERMISSIBLE CONSTRUCTED AREA LIMIT W AS LATER REGULARIZED BY CIVIL AUTHORITIES BY COLLECTING SOME EXTRA AMOUNT. LASTLY IT WAS EMPHASIZED THAT EVEN OTHERWISE SUCH LOSS WAS ALLOWABLE IN VIEW OF H ON'BLE S.C. DECISION IN THE CASE OF T. A. QURESHI (SUPRA). 4.3.3 THERE IS APPARENT FORCE IN THE CONTENTION OF THE APPELLANT. SIMILAR ISSUE OF CLAIM OF LOSS ON ACCOUNT OF GOVERNMENT ACTION WA S EXAMINED IN A RECENTLY DECIDED APPEAL IN THE CASE OF SHRI PREETAM SINGH LU THRA ASSESSMENT YEAR 2006- 07 (APPEAL N. IT-293/08-09) DECIDED ON 24.01. 2012 AND FOLLOWING THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF T. A. QURESHI VS. CIT, 287 ITR 584( S. C.), SUCH CLAIM OF LOSS WAS ALLOWED. BROADL Y THE FACTS ARE SIMILAR. IT WILL BE APPROPRIATE TO EXTRACT THE FINDINGS OF HON'BLE S UPREME COURT IN THE CASE OF TA QURESHI (SUPRA) AS UNDER : THE FINDING OF FACT OF THE TRIBUNAL IS THAT ASSESS EE WAS ENGAGED IN MANUFACTURE AND SELLING OF HEROIN. THUS, THE IT AUT HORITIES THEMSELVES HAVE RECORDED A FINDING THAT THE ASSESSEE WAS ENGAGED IN MANUFACTURE AND SELLING OF HEROIN. NO DOUBT THE ORDER OF THE TRIBUN AL WAS SUBSEQUENTLY RECALLED BY THE TRIBUNAL, BUT SINCE WITH ULTIMATE O RDER THE TRIBUNAL HAS HELD THAT THE HEROIN SEIZED WAS ASSESSEES STOCK-IN-TRAD E IT IS IMPLICIT THAT THE TRIBUNAL REITERATED THE VIEW THAT THE ASSESSEE WAS DOING THE BUSINESS OF MANUFACTURE AND SALE OF HEROIN. ONCE THE IT AUTHORI TIES RECORD SUCH A FINDING OF FACT, IT FOLLOWS THAT ANY LOSS FROM SUCH A BUSINESS IS A BUSINESS LOSS. THE ASSESSEE WAS COMMITTING A HIGHLY IMMORAL ACT IN ILLEGALLY MANUFACTURING AND SELLING HEREOIN. HOWEVER, CASES A RE TO BE DECIDED BY COURT ON LEGAL PRINCIPLES AND NOT ON ONES OWN MORA L VIEWS. LAW IS DIFFERENT FROM MORALITY. THE EXPLANATION TO S. 37 HAS REALLY NOTHING TO DO WITH THE PRESENT CASE AS IT IS NOT A CASE OF A BUSINESS EXPE NDITURE, BUT OF BUSINESS LOSS. BUSINESS LOSSES ARE ALLOWABLE ON ORDINARY COM MERCIAL PRINCIPLES IN COMPUTING PROFITS. NISHIT CONSTRUCTION ITA NO. 101/IND/201 & CO NO.6/IND/2014 7 ONCE IT IS FOUND THAT THE HEROIN SEIZED FORMED PART OF THE STOCK-IN-TRADE OF THE ASSESSEE, IT FOLLOWS THAT THE SEIZURE AND CONFI SCATION OF SUCH STOCK-IN- TRADE HAS TO BE ALLOWED AS A BUSINESS LOSS. LOSS OF STOCK-IN-TRADE HAS TO BE CONSIDERED AS A TRADING LOSS. CIT VS. DR. T. A. QUR ESHI, - (2005), 197 CTR (MP) 683: (2005) 275 ITR 352 (MP) SET ASIDE; CIT VS. PIA RA SINGH, (1980) 17 (HON'BLE SUPREME COURT) 111: (1980) 124 ITR 40(HON' BLE SUPREME COURT) AND CIT VS. S.N.A.S.A. ANNAMALAI CHETTIAR, 1973 CTR (S.C.) 233: AIR 1973 S.C. 1032 FOLLOWED. 5. AGAINST THE ABOVE ORDER, THE REVENUE IS IN FURTHER APPEAL BEFORE US. 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND H AVE GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW AND DELIBERATED ON THE JUDGMENT OF HON'BLE SUPREME COURT RELIED ON BY THE LD. CIT(A) IN HIS OR DER WITH REFERENCE TO THE FACTUAL MATRIX OF THE INSTANT CASE. FROM THE RECORD , WE FOUND THAT EXPENDITURE SO INCURRED ON CONSTRUCTION OF BUILDING WAS IN THE NORMAL COURSE OF ASSESSEES BUSINESS OF CONSTRUCTION. DUE TO CERTAIN DEVIATION IN CONSTRUCTION PLAN AND THE ORDER OF MUNICIPAL CORPORATION, THE BUILDING WAS DE MOLISHED, THEREFORE, THE ASSESSEE COULD NOT SELL THE SAID PROPERTY. THE EXPE NDITURE SO INCURRED ON CONSTRUCTION WAS CLAIMED AS BUSINESS EXPENDITURE. H OWEVER, THE ASSESSING OFFICER TREATED -: 7: - 7 THE CONSTRUCTION EXPENDIT URE AS ILLEGAL AND NOT ALLOWABLE UNDER EXPLANATION TO SECTION 37(1). WE AL SO FOUND THAT THE ENTIRE INVESTMENT WAS MET OUT BY THE ASSESSEE COMPANY AS P ER THE CLAUSE NO. 1 OF THE ABOVE AGREEMENT AND AS PER CLAUSE NO.(13) & 115 ) OF ABOVE AGREEMENT THE LOSS IF ANY INCURRED HAS TO BE BORNE BY THE ASS ESSEE COMPANY UP TO THE DATE OF DEMOLISHING THE BUILDING WAS TREATED AS BUS INESS LOSS, AS THE ASSESSEE IS ENGAGED IN THE BUSINESS OF CONSTRUCTION OF COMME RCIAL COMPLEX AND IS A REGULAR BUSINESS OF THE ASSESSEE COMPANY. SIMILAR I SSUE HAS BEEN DEALT WITH BY THE HON'BLE SUPREME COURT IN THE CASE OF T. A. QURE SHI, 287 ITR 584, WHEREIN SUCH CLAIM OF LOSS WAS ALLOWED AS BUSINESS EXPENDIT URE. IN THE INSTANT CASE, THE ASSESSEE HAS CLAIMED BUSINESS LOSS ONLY BECAUSE IT COULD NOT GET ANY REALIZATION OUT OF THE CONSTRUCTION COST INCURRED B Y IT. IT IS NOT THE CASE OF NISHIT CONSTRUCTION ITA NO. 101/IND/201 & CO NO.6/IND/2014 8 REVENUE THAT THE ASSESSEE HAS PAID ANY ILLEGAL GRAT ITUDE TO ANY GOVERNMENT OFFICIALS AND THE SAME HAVE BEEN CLAIMED AS EXPENDI TURE NOR IT IS A CASE OF REVENUE THAT THE ASSESSEE WAS DOING ANY ILLEGAL BUS INESS. BUSINESS OF ASSESSEE WAS CONSTRUCTION OF BUILDING AND COST WAS INCURRED THEREON AND -: 8: - 8 THE SAME WAS CLAIMED AS A LOSS DUE TO NON REALIZATION I N SALE PROCEEDS ON SUCH CONSTRUCTION WHICH WAS REMOVED BY THE ORDER OF MUNI CIPAL AUTHORITIES. 7. IN VIEW OF THE ABOVE DISCUSSION, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF CIT(A) FOR ALLOWING EXPENDITURE WHICH WAS TREATED B Y THE ASSESSEE AS A LOSS. 8. IN THE RESULT, THE APPEAL OF THE REVENUE IS DIS MISSED. WE, THEREFORE, FOLLOWING THE ABOVE ORDER OF THE TRI BUNAL, HOLD THAT THE LEARNED CIT(A) WAS JUSTIFIED IN ALLOWING THE EXPENDITURE INCURRED IN CONSTRUCTION OF A BUILDING D ECLARED AS ILLEGAL CONSTRUCTION AND DEMOLISHED AS A WHOLE BY THE ORDER OF THE HON'BLE JURISDICTIONAL HIGH COURT WHICH WAS DISALLOWED BY THE ASSESSING OFFICER IN VIEW OF EXPL AANTION TO SECTION 37(1) OF THE ACT. 4. SO FAR AS THE CROSS OBJECTION OF THE ASSESSEE IS CONCERNED, THE LEARNED COUNSEL FOR THE ASSESSEE DID N OT PRESS THE SAME. NISHIT CONSTRUCTION ITA NO. 101/IND/201 & CO NO.6/IND/2014 9 5. IN THE RESULT, THE APPEAL OF THE REVENUE AND THE CR OSS OBJECTION OF THE ASSESSEE STAND DISMISSED. THE ORDER HAS BEEN PRONOUNCED IN OPEN COURT ON 21 DECEMBER, 2016. SD/- AS/- ( ..!') (..) #$ (O.P.MEENA) (D.T.GARASIA) ACCOUNTANT MEMBER J UDICIAL MEMBER )'* / DATED : 21 DECEMBER, 2016. DN/