Hemraj Shankarlal Mundada, Pune V. Income-tax Officer,

ITA 1066/PUN/2016

• Counselvise Citation: [2018] 119 COUNSELVISE.COM (IT) 1605 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 6 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-11-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 27-09-2018
• Assessment Year: 2011-2012
• Appeal Filed On: 20-05-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: VIPIN K GUJARATHI

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, PUN E BEFORE SHRI R.S. SYAL, VP AND SHRI VIKAS AWASTHY, JM / ITA NO.1066/PUN/2016 / ASSESSMENT YEAR : 2011-12 SHRI HEMRAJ SHANKARLAL MUNDADA, 16/1, PARVATI CHAMBERS, OPP. KRISHNA SOCIETY, PUNE-411 038 PAN : AAXPM1636P .... / APPELLANT / V/S. THE INCOME TAX OFFICER, WARD 3(1), PUNE. / RESPONDENT ASSESSEE BY : SHRI VIPIN K. GUJARATHI REVENUE BY : SHRI PANKAJ GARG / DATE OF HEARING : 19.11.2018 / DATE OF PRONOUNCEMENT : 26.11.2018 / ORDER PER VIKAS AWASTHY, JM THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORD ER OF COMMISSIONER OF INCOME TAX (APPEALS)-3, PUNE DATED 15.03.20 16 FOR THE ASSESSMENT YEAR 2011-12. 2. SHRI VIPIN K. GUJARATHI APPEARING ON BEHALF OF THE ASSESS EE NARRATING THE FACTS OF CASE SUBMITTED THAT ASSESSEE IS A BUILDER AN D DEVELOPER. THE ASSESSEE IS FOLLOWING PROJECT COMPLETION METHOD FOR RECKONIN G PROFITS OF THE 2 ITA NO. 1066/PUN/2016 A.Y.2011-12 HOUSING PROJECT. DURING SCRUTINY ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER MADE ADDITION OF RS.14,06,671/- IN RESPECT OF INTEREST FREE ADVANCES GIVEN TO RELATIVES AND SISTER CONCERNS. THE ASSESSEE HAD GIVEN INTEREST FREE ADVANCES TO THE FOLLOWING PERSONS: I) ANJALI R MUNDADA RS. 1,00,000/- II) R.B KHARADE RS. 2,75,000/- III) SAJ REALTORS RS.41,25,000/- IV) SANGRAM PATIL RS.22,25,000/- V) SANJAY RUIKAR RS. 2,00,000/- TOTAL RS.87,25,000/- THE LD. AR SUBMITTED THAT A PERUSAL OF THE BALANCE SHEE T AT PAGE 5 OF THE PAPER BOOK WOULD SHOW THAT OWN FUNDS OF THE ASSES SEE ARE MUCH MORE THAN THE LOANS AND ADVANCES GIVEN BY ASSESSEE TO SISTE R CONCERNS/RELATIVES. HENCE, NO DISALLOWANCE IS CALLED FOR IN THE LIGHT OF DECISION B Y THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. RELIANCE UTILITIES A ND POWER LTD. REPORTED AS 313 ITR 340. 2.1 THE LD. AR SUBMITTED THAT DURING ASSESSMENT PROCEED INGS, THE ASSESSING OFFICER FURTHER MADE ADDITIONS ON FOLLOWING COUNTS: - COMMISSION ON SALE OF FLATS RS. 21,65,596/- - BANK FINANCE CHARGES AND INTEREST RS.1,42,31,004/- - FLAT CANCELLATION COMPENSATION RS. 5,39,002/- TOTAL RS.1,69,35,602/- 3 ITA NO. 1066/PUN/2016 A.Y.2011-12 THE LD. AR SUBMITTED THAT THOUGH ALL THESE AMOUNTS WERE DEBITED TO P & L ACCOUNT UNDER THE HEAD OTHER EXPENSES, HOWEV ER, ALL THESE EXPENDITURES WERE CAPITALIZED WHILE COMPUTING CLOSING WORK IN PROG RESS. THE ASSESSING OFFICER IN SCRUTINY ASSESSMENT PROCEEDINGS HAS FAILED TO APPRECIATE THAT THE EXPENDITURES HAVE BEEN CAPITALIZE D AND WERE NOT SEPARATELY CLAIMED AS EXPENDITURE IN THE ASSESSMENT YEA R UNDER APPEAL. IN PROCEEDINGS BEFORE THE COMMISSIONER OF INCOME TAX (APPEALS ), THE ASSESSEE REITERATED THE SUBMISSIONS AND FURTHER EXPLAINED THAT ENT IRE CONSTRUCTION COST OF CURRENT FINANCIAL YEAR HAS BEEN CARRIED FORWARD A S WORK IN PROGRESS. HOWEVER, THE COMMISSIONER OF INCOME TAX (APPEALS) FAILED TO AP PRECIATE THE CONTENTIONS OF THE ASSESSEE AND CONFIRMED THE FINDINGS OF ASSESSING O FFICER. 3. ON THE OTHER HAND, SHRI PANKAJ GARG REPRESENTING THE DEPARTMENT VEHEMENTLY DEFENDED THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS) AND PRAYED FOR DISMISSING THE APPEAL OF ASSESSEE. THE LD. DR SUBMITTED THAT ASSESSEE AFTER DEBITING THE EXPENDITURE IN RESPECT OF COMMISSION ON SALE OF FLATS, BANK FINANCE CHARGES AND INTEREST AND FLAT CAN CELLATION CHARGES IN THE P & L ACCOUNT HAS NOT ADDED BACK THE SAME IN THE COMPUTATION OF INCOME AT THE TIME OF FILING RETURN OF INCOME. HENCE, IT CANNOT BE INFERRED THAT THE ASSESSEE HAS CLAIMED EXPEND ITURE IN THE CURRENT FINANCIAL YEAR. 4. WE HAVE HEARD THE SUBMISSIONS MADE BY REPRESENTATIVE S OF RIVAL SIDES AND HAVE PERUSED THE ORDERS OF AUTHORITIES BELOW. THE ASSESSEE IN APPEAL HAS RAISED FIVE GROUNDS. - GROUND NO.1 AND 2 IS IN RESPECT OF DISALLOWANCE OF BANK INTEREST AND FINANCE CHARGES TO THE TUNE OF RS.1,42,31,004/-. 4 ITA NO. 1066/PUN/2016 A.Y.2011-12 - IN GROUND NO. 3 OF THE APPEAL, ASSESSEE HAS ASSAILED DISA LLOWANCE OF INTERESTS RS.14,06,671/- ON INTEREST FREE ADVANCES TO SIST ER CONCERNS/RELATIVES. - IN GROUND NO. 4, THE ASSESSEE HAS ASSAILED DISALLOWANCE OF COMPENSATION PAID ON CANCELLATION OF FLATS OF RS.5,39,002/- - THE ASSESSEE HAS RAISED ADDITIONAL GROUND OF APPEAL CHA LLENGING DISALLOWANCE OF COMMISSION PAID RS.21,65,596/- 5. FIRST WE SHALL TAKE UP THE ISSUE OF INTEREST FREE ADVAN CES TO SISTER CONCERN AND RELATIVES RAISED IN GROUND NO.3 OF THE APPEAL. THE ASSESS EE HAS PAID BANK FINANCE CHARGES AND INTEREST TO THE TUNE OF RS .1,42,31,004/-. THIS INCLUDES INTEREST ON VEHICLE LOAN AND OTHER CREDIT FACILIT IES. ADMITTEDLY, THE ASSESSEE HAD ADVANCED RS.87.25 LACS TO SISTER CONCE RNS AND RELATIVES WITHOUT CHARGING INTEREST. THE ASSESSING OFFICER DISALLOWED IN TEREST TO THE TUNE OF RS.14,06,671/- ON NOTIONAL BASIS IN RESPECT OF ABOV EMENTIONED INTEREST FREE ADVANCES. A PERUSAL OF THE BALANCE SHEET AT PAGE 5 OF THE PAPER BOOK SHOWS THAT OWN FUNDS OF THE ASSESSEE IN CA PITAL ACCOUNT ARE TO THE TUNE OF RS.12,11,33,809/-. THUS, OWN FUNDS OF THE ASSE SSEE ARE SUFFICIENT TO COVER INTEREST FREE ADVANCES MADE TO SISTER CONCERNS/RELATIVES. THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. RE LIANCE UTILITIES AND POWER LTD. (SUPRA.) HAS HELD THAT WHERE BOTH INTEREST FREE FUNDS AND INTEREST BEARING FUNDS ARE AVAILABLE AND THE INTEREST FREE FUNDS ARE MORE THAN THE INVESTMENT MADE, THE PRESUMPTION IS THAT THE IN VESTMENTS ARE MADE OUT OF INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE . IN THE LIGHT OF THE RATIO LAID DOWN BY THE HON'BLE JURISDICTIONAL HIGH COURT , WE FIND MERIT IN THE SUBMISSION OF THE ASSESSEE. HENCE, DISALLOWANCE OF INT EREST EXPENDITURE RS.14,06,671/- IN RESPECT OF INTEREST FREE ADVA NCES MADE TO 5 ITA NO. 1066/PUN/2016 A.Y.2011-12 SISTER CONCERNS/RELATIVES IS DIRECTED TO BE DELETED. ACCOR DINGLY, GROUND NO. 3 OF THE APPEAL IS ALLOWED. 6. IN SO FAR AS OTHER ADDITIONS I.E. BANK INTEREST AND FINA NCE CHARGES RS.1,42,31,004/-, DISALLOWANCE OF COMPENSATION PAID ON CANCELLAT ION OF BOOKING FLATS RS.5,39,002/- AND COMMISSION ON SALE OF FLATS RS.21,65,596/- ARE CONCERNED, THE CONTENTION OF THE ASSES SEE IS THAT THE SAME HAVE BEEN CAPITALIZED. A PERUSAL OF THE P & L ACCOU NT OF THE ASSESSEE FOR THE FINANCIAL YEAR 2010-11 AT PAGE 32 TO 34 SHOWS TH AT THESE EXPENDITURES HAVE BEEN DEBITED TO P & L ACCOUNT. THE A SSESSEE HAS ALSO PLACED ON RECORD RETURN OF INCOME ALONG WITH COMPUTATION AT PAGE 1 AND 2 OF THE PAPER BOOK. A PERUSAL OF THE COMPUTATION OF INCOME REVEALS THAT THE ASSESSEE HAS CARRIED NEGATIVE BALANCE OF P & L ACCOUNT, WHILE COMPUTING TOTAL INCOME, HOWEVER, AFORE-MENTIONED AMOUNTS HAVE NOT B EEN ADDED BACK WHILE COMPUTING THE TOTAL INCOME. THIS ITSELF SHOWS THAT THE ASSESSEE HAS CLAIMED THE EXPENDITURES IN THE CURRENT ASSESSMENT YEAR . PURPORTED CAPITALIZATION OF EXPENDITURE BY ADDING THE SAME TO CLOSING WORK IN PROGRESS WOULD NOT RESULT IN NULLIFYING THE EFFECT OF DEBITING EXPENDITURE IN P & L ACCOUNT, UNLESS THE SAME HAS BEEN ADDED BACK W HILE COMPUTING TOTAL TAXABLE INCOME OF THE RELEVANT ASSESSMENT YEAR. WE DO NOT FIND MERIT IN THE SUBMISSIONS OF THE LD. A.R. OF ASSESSEE. THE FINDING OF A UTHORITIES BELOW QUA THE ABOVE MENTIONED THREE ADDITIONS ARE UPHELD . ACCORDINGLY, GROUND NOS. 1, 2, 4 AND ADDITIONAL GROUND RAISED IN THE APPEAL ARE DISMISSED BEING DEVOID OF ANY MERIT . 7. THE GROUND NO. 5 RAISED IN APPEAL IS GENERAL IN NATURE AND HENCE, REQUIRES NO ADJUDICATION. 6 ITA NO. 1066/PUN/2016 A.Y.2011-12 8. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED IN THE TERMS AFORESAID. ORDER PRONOUNCED ON MONDAY, THE 26 TH DAY OF NOVEMBER, 2018. SD/- SD/- R.S. SYAL VI KAS AWASTHY VICE-PRESIDENT JUDICIAL MEMBER / PUNE; / DATED : 26 TH NOVEMBER, 2018. SB !'#$%&%# / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT. 2. / THE RESPONDENT. 3. THE CIT (APPEALS)-3, PUNE. 4. THE PR. CIT-2, PUNE. 5. '#$ %%&' , ( &' , )*+ , / DR, ITAT, B BENCH, PUNE. 6. $,- ./ / GUARD FILE. // TRUE COPY // (0 / BY ORDER, %1 &+ / PRIVATE SECRETARY ( &' , / ITAT, PUNE.