M/s. Vardhman Estates Ltd, New Delhi V. DCIT, New Delhi

ITA 1048/DEL/2009

• Counselvise Citation: [2011] 135 COUNSELVISE.COM (IT) 0271 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 11 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-02-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: H
• Next Hearing Date: 22-02-2011
• Assessment Year: 2001-2002
• Appeal Filed On: 20-03-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: REENA S PURI
• Keywords: Depreciation; Search and seizure; Revenue expenditure
• Section: 69C; 153A; 263; 132

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH H : NEW DELHI BEFORE SHRI RAJPAL YADAV, JM AND SHRI SHAMIM YAHYA, AM ITA NO.1048/DEL/2009 ASSESSMENT YEAR : 2001-02 M/S VARDHMAN ESTATES LTD., AH-31, SHALIMAR BAGH, DELHI. PAN NO.AAACV5429K. VS. DY.COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-15, NEW DELHI. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI SALIL AGGARWAL, ADVOCATE. RESPONDENT BY : MS.REENA S.PURI, CIT-DR. ORDER PER SHAMIM YAHYA, AM : THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF LEARNED CIT(A) DATED 3.2.2009 AND PERTAINS TO AY 2001-02. 2. THE ISSUE RAISED IS THAT CIT(A) ERRED IN DIRECTING THE AO T O SUBSTITUTE A SUM OF `8,63,513/- IN PLACE OF AN ADDITION MADE U/S 69C OF THE IN COME TAX ACT OF `9,36,509/-. ITA-1048/DEL/2009 2 3. IN THIS CASE, SEARCH AND SEIZURE OPERATIONS U/S 132 OF THE ACT WERE CONDUCTED ON 17.3.2006. IN RESPONSE TO A NOTICE ISSUED U/S 153A OF T HE IT ACT, THE RETURN OF INCOME WAS FILED ON 11.8.2006 DECLARING INCOME OF `1,23,710/-. AO DETERMINED THE TOTAL INCOME OF THE ASSESSEE AT `10,66,358/- BY MAKING ADDITION OF `9,36,509/- ON ACCOUNT OF UNEXPLAINED EXPENS ES IN STOCK AND `6,139/- TOWARDS CAR EXPENSES. UPON ASSESSEES APPEAL, THE ADDITION MADE BY THE AO WAS DELETED BY THE CIT(A). HOWEVER, LEA RNED CIT(A) NOTED THAT IN THE EXPENDITURE INCURRED ON VARIOUS PROJECTS ON HAN D, THE ASSESSEE COMPANY HAS ALSO CLAIMED `5,51,052/- UNDER ADMINISTRATIVE AND OTHER EXPENSES AS WELL AS INTEREST OF `9,31,758/-. LEARNED CIT(A) OBSERVED THAT ASSESSEE HAS CLAIMED BOTH THESE EXPENSES ALONGWITH DEPRECIATION AGAIN ST THE GROSS PROFIT DERIVED. LEARNED CIT(A) OBSERVED THAT THE ENTIRE STOCK IS NOT PUT TO SALE DUE TO INCOMPLETE WORK OF CONSTRUCTION, HENCE HE HELD THAT INTEREST CLAIMED OF `9,31,758/- IS DIVIDED INTO TWO PARTS ONE PORTION IS INCLUDED IN THE WORK IN PROGRESS AND BALANCE IS ALLOWED AS DEDUCTION. THUS, HE HELD THAT A SUM OF `68,245/- IS ALLOWED DEDUCTION UNDER THE HEAD INTEREST INCURRED ON THE COST OF CONSTRUCTION SOLD DURING THE YEAR. WHILE DOING SO, THE COST OF CONSTRUCTION SOLD DURING THE YEAR OF `34,53,381/- IS FURTHER ENH ANCED BY `5,51,052/- WHICH IS INCURRED AS A REVENUE EXPENDITURE IN THE CURRENT YEAR. THE TOTAL OF THESE TWO OF `40,04,433/- IS DIVIDED BY THE TOTAL CUMULATIVE COST OF CONSTRUCTION OF `5,46,72,735/- IS MULTIPLIED BY INTEREST CLAIME D OF `9,31,758/- ITA-1048/DEL/2009 3 AND THE BALANCE OF `8,63,513/- IS REQUIRED TO BE DISALLOWED AND ADDE D TO THE WORK IN PROGRESS. 4. AGAINST THIS ORDER OF LEARNED CIT(A), ASSESSEE IS IN APPEAL BEFORE US. LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT LEARNED CIT(A) H AS TOTALLY ERRED IN MAKING ENHANCEMENT OF AN ITEM WHICH THE AO HAS NOT AT ALL CONSIDERED. IN THIS REGARD, HE REFERRED TO THE DECISION OF HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. SARDARI LAL & CO. 251 ITR 864 WHEREIN IT WAS HELD THAT WHENEVER THE QUESTION OF TAXABILIT Y OF INCOME FROM A NEW SOURCE OF INCOME IS CONCERNED WHICH HAD NOT BEEN CONSIDERED BY THE AO, THE JURISDICTION TO DEAL WITH THE SAME IN APPROPRIATE CASE MA Y BE DEALT WITH U/S 147/148 AND SECTION 263 IF REQUISITE CONDITIONS ARE FU LFILLED. IT IS INCONCEIVABLE THAT IN THE PRESENCE OF SUCH SPECIFIC PROVISIONS, A SIMILA R POWER IS AVAILABLE TO THE FIRST APPELLATE AUTHORITY I.E. CIT(A). T HEREFORE, CIT(A) HAD NO POWER TO TAX A NEW SOURCE OF INCOME. RELYING UPON THIS CASE LAW, L EARNED COUNSEL FOR THE ASSESSEE CONTENDED THAT THE ACTION OF CIT(A) IS TOTALL Y AGAINST THIS CASE LAW EXPOUNDED BY THE JURISDICTIONAL HIGH COURT. 5. LEARNED DR, ON THE OTHER HAND, SUBMITTED THAT THIS CASE LAW IS NOT AT ALL APPLICABLE ON THE FACTS OF THIS CASE INASMUCH AS IT IS THE SAM E SOURCE OF INCOME FROM WHICH ADDITION HAD BEEN SUGGESTED BY THE LEARNED CIT(A) I.E. THE ITA-1048/DEL/2009 4 REAL ESTATE BUSINESS OF THE ASSESSEE AND NO NEW SOURCE OF INCOME HAD BEE N TAKEN INTO ACCOUNT. 6. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORDS IN THE LIGHT OF PRECEDENT RELIED UPON. WE FIND THAT SECTION 251(1)(A) PROV IDES THAT IN DISPOSING OF AN APPEAL, THE COMMISSIONER (APPEALS) SHALL HAVE THE FOLLOW ING POWERS:- (A) IN AN APPEAL AGAINST AN ORDER OF ASSESSMENT, HE MAY CONFIRM, REDUCE, ENHANCE OR ANNUL THE ASSESSMENT. 7. FROM THE ABOVE, IT IS CLEAR THAT LEARNED CIT(A) IS EMPOWERE D TO ENHANCE THE ASSESSMENT. THE CASE LAW SUBMITTED BY THE LEARNED COUNSEL FOR THE ASSESSEE DOES NOT SUPPORT THE CASE OF THE ASSESSEE AS NO NEW SOURCE OF INCOME HAD BEEN BROUGHT ON BY THE LEARNED CIT(A). HE HAS ONLY A NALYZED THE SAME SOURCE OF INCOME I.E. THE INCOME DERIVED BY THE ASSESSEE FROM T HE REAL ESTATE BUSINESS. HENCE, THIS SUBMISSION OF THE ASSESSEE IS FOUND DEVOID O F COGENCY. 8. ANOTHER ISSUE RAISED BY THE LEARNED COUNSEL FOR THE ASSESSEE IN THIS REGARD IS THAT SECTION 36(1)(III) MANDATES THAT THE AMOUNT OF IN TEREST PAID IN ITA-1048/DEL/2009 5 RESPECT OF CAPITAL BORROWED FOR THE PURPOSE OF BUSINESS OR PROFESSION IS TO BE PROVIDED AS DEDUCTION. HENCE, HE CLAIMED THAT THE AMOUNT OF INT EREST HAS BEEN USED FOR THE PURPOSE OF BUSINESS AND HENCE, THE SAME SHOULD BE ALLOWED. HE FURTHER SUBMITTED THAT THE PROVISO TO THE SAID SECTI ON WHICH DEBARS ALLOWANCE OF INTEREST IN RESPECT OF ASSETS TILL THE DATE WHE N SUCH ASSET WAS FIRST PUT TO USE WAS INTRODUCED BY THE FINANCE ACT, 2003 W.E. F. 1.4.2004. HE CLAIMED THAT ASSESSEES ASSESSMENT YEAR IS 2001-02 AND THEREFOR E, IT IS NOT HIT BY THE SAID PROVISO. 9. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS. WE FIND THAT TH E QUESTION HERE IS NOT INTEREST ON CAPITAL BORROWED. RATHER, THE QUESTION IS OF INTEREST TO BE ALLOCATED TO THE STOCKS AND THAT THE SALES MADE DUR ING THE YEAR. WE DO NOT FIND ANY COGENCY IN THIS LINE OF ARGUMENT OF THE ASSESSEE . 10. LASTLY, THE LEARNED COUNSEL FOR THE ASSESSEE HAS SUBMITTED TH AT NO OPPORTUNITY HAS BEEN GIVEN TO THE ASSESSEE WITH RESPECT TO THIS ENHA NCEMENT MADE BY THE LEARNED CIT(A) NOR ANY NOTICE IN THIS REGARD HAS BEE N ISSUED TO HIM. 11. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS IN THIS REGARD. WE FIND CONSIDERABLE COGENCY IN THE SUBMISSION OF THE LEARNED COUNSEL FOR THE ITA-1048/DEL/2009 6 ASSESSEE IN THIS REGARD. ASSESSEE HAS NOT BEEN GIVEN ANY OPPORTUNI TY TO REBUT THE POINTS RAISED BY THE LEARNED CIT(A) IN HIS ORDER. HE NCE, WE REMIT THE ISSUE TO THE FILE OF THE LEARNED CIT(A) TO GRANT THE ASSESS EE NECESSARY OPPORTUNITY AND ISSUE THE REQUISITE NOTICE IN THIS REGARD. 12. IN THE RESULT, THIS APPEAL BY THE ASSESSEE STANDS ALLOWED FOR STATISTICAL PURPOSES. DECISION PRONOUNCED IN THE OPEN COURT ON 25 FEBRUARY, 2011. SD/- SD/- (RAJPAL YADAV) (SHAMIM YAHYA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 25.02.2011. VK. COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT ASSISTANT REGISTRAR ITA-1048/DEL/2009 7