ITO 21(1)(4), MUMBAI V. PARESH H. PUJARA & HARSHAD K. PUJARA, MUMBAI

ITA 1143/MUM/2010

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 59754 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 11 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-01-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 17-01-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 11-02-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A K NAYAK
• Assessee Lawyers: ASHOK GOSAR

Judgement Text

IN THE INCOME TAX APPELLATE TRIB UNAL MUMBAI BENCHES C, MUMBAI BEFORE SHRI R.S.SYAL, AM AND SHRI R.S.PADVEKAR, JM ITA NO.1143/MUM/2010 : ASST. YEAR 2006-2007 THE INCOME TAX OFFICER WARD 21(1)(4) MUMBAI. M/S.PARESH H.PUJARA & HARSHAD K.PUJARA, 11 SWASTIL PLAZA V.L.MEHTA MARG, JVPD VILE PARLE (WEST), MUMBAI 400 049. PAN : AAFFP6278B. (APPELLANT) VS. (RESPONDENT) APPELLANT BY : SHRI A.K.NAYAK RESPONDENT BY : SHRI ASHOK GOSAR DATE OF HEARING : 17.01.2012. DATE OF PRONOUNCEMEN T :25.01.2012 O R D E R PER R.S.SYAL, AM : THIS APPEAL BY REVENUE IS DIRECTED AGAINST THE ORDE R PASSED BY THE COMMISSIONER OF INCOME-TAX (APPEALS) ON 24.11.2009 IN RELATION TO THE ASSESSMENT YEAR 2006-2007. 2. THE ONLY ISSUE IS AGAINST THE DIRECTION OF THE L EARNED CIT(A) TO THE A.O. FOR REDUCING CLOSING WORK-IN-PROGRESS BY ` 51,07,095 BEING THE AMOUNT DISALLOWED BY THE A.O. U/S 41(1) OF THE ACT. BRIEFL Y STATED THE FACTS OF THE CASE ARE THAT THE ASSESSEE, A BUILDER, FILED ITS RETURN SHOWING SUNDRY CREDITORS TO THE TUNE OF ` 1.52 CRORE. THE A.O. CALLED UPON THE ASSESSEE TO FI LE CONFIRMATIONS FROM THESE CREDITORS. THE ASSESSEE FURNISHED ALL TH E CONFIRMATIONS EXCEPT M/S.SEPHIRE LAND DEVELOPERS AND M/S.AMAR TRADERS, T O WHOM SUM OF ` 30,00,000 AND ` 21,07,095 RESPECTIVELY WAS SHOWN AS PAYABLE. APPLYI NG THE PROVISIONS OF SECTION 41(1) THE A.O. MADE ADDITION OF ` 51.07 LAKH. THE LEARNED CIT(A) OBSERVED THAT THE ASSESSEE WAS FOLLOWING PRO JECT COMPLETION METHOD. HE OPINED THAT IF THE CORRESPONDING EXPENDITURE TO THESE CREDITORS WAS NOT GENUINE, THEN SUCH AMOUNT SHOULD BE REDUCED FROM TH E VALUE OF WORK-IN- PROGRESS. HE HELD ACCORDINGLY AND DELETED THE ADDIT ION U/S 41(1) OF THE ACT. ITA NO.1143/MUM/2010 M/S.PARESH H.PUJARA & HARSHAD K.PUJARA. 2 3. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PERU SING THE RELEVANT MATERIAL ON RECORD IT IS OBSERVED AS AN ADMITTED PO SITION THAT THE ASSESSEE FOLLOWED PROJECT COMPLETION METHOD. ADMITTEDLY THE CONFIRMATIONS IN RESPECT OF THESE TWO PARTIES WERE NOT FILED AND THE DEBIT AGAI NST THESE TWO CREDITORS REPRESENTED EXPENDITURE DEBITED TO THE PROFIT AND L OSS ACCOUNT. IT IS NOT THE CASE OF THE REVENUE THAT THE EXPENDITURE IN RESPECT OF T HESE TWO AMOUNTS WAS RELATABLE TO ANY PROJECTS COMPLETED DURING THE YEAR . AS SUCH IT IMPLIES THAT THE SAID EXPENDITURE RELATED TO THE PROJECTS UNDER PROG RESS. WITH THE CREDIT OF THIS AMOUNT TO THE ACCOUNTS OF THE PARTIES REFERRED TO A BOVE, IT WAS DEBITED TO THE PROFIT AND LOSS ACCOUNT AS REPRESENTING EXPENDITURE . SINCE THE PROJECT WAS INCOMPLETE, IT WAS CORRESPONDINGLY ADDED TO THE CRE DIT SIDE OF THE PROFIT AND LOSS ACCOUNT REPRESENTING CLOSING WORK-IN-PROGRESS. IN O THER WORDS THE NET EFFECT OF DEBITING SUCH EXPENDITURE TO THE PROFIT AND LOSS AC COUNT AND CORRESPONDINGLY ADDING IT TO THE WORK-IN-PROGRESS ON THE CREDIT SID E OF THE PROFIT AND LOSS ACCOUNT HAS EFFECT OF NOT CLAIMING ANY DEDUCTION FO R THE EXPENDITURE IN THIS YEAR. IT IS ONLY WHEN THE PROJECT GETS COMPLETED TH AT THE CLOSING WORK-IN- PROGRESS OF THIS YEAR WOULD STAND INCLUDED IN THE C OST OF THE PROJECT THAT THE QUESTION OF DEDUCTION SHALL BE ALLOWED. IF THIS EXP ENDITURE OF ` 51.07 LAKH HAS REMAINED UNPROVED BEFORE THE ASSESSING OFFICER IT IMPLIES THAT IT SHOULD HAVE NEITHER BEEN INCLUDED IN THE EXPENDITURE ACCOUNT TO THE DEBIT SIDE OF THE PROFIT AND LOSS ACCOUNT NOR SHOULD HAVE BEEN INCLUDED IN T HE WORK-IN-PROGRESS ON THE CREDIT SIDE OF THE PROFIT AND LOSS ACCOUNT. THAT BE ING THE POSITION, IN OUR CONSIDERED OPINION, THE LEARNED CIT(A) WAS JUSTIFIE D IN DIRECTING THE A.O. TO EXCLUDE THE AMOUNT OF ` 51.07 LAKH FROM THE CLOSING WORK-IN-PROGRESS. 4. THERE IS NO APPLICABILITY OF SECTION 41 (1) OF THE ACT IN VIEW OF THE REASON THAT THIS SECTION PRESUPPOSES THE ALLOWANCE OR DEDUCTION OF THE AMOUNT IN THE SAME OR AN EARLIER YEAR SO AS TO BECOME ELIG IBLE FOR TAXABILITY U/S 41(1). ITA NO.1143/MUM/2010 M/S.PARESH H.PUJARA & HARSHAD K.PUJARA. 3 AS THE ASSESSEE HAS NOT CLAIMED ANY DEDUCTION FOR ` 51.07 LAKH IN THE CURRENT YEAR OR IN AN EARLIER YEAR, THERE CAN BE NO QUESTI ON OF APPLYING SECTION 41(1) TO MAKE ADDITION FOR THE EQUAL AMOUNT IN THE INSTANT Y EAR. WE, THEREFORE, UPHOLD THE IMPUGNED ORDER ON THIS SCORE. 5. IN THE RESULT, THE APPEAL IS DISMISSED. ORDER PRONOUNCED ON THIS 25 TH DAY OF JANUARY, 2012. SD/- SD/- (R.S.PADVEKAR) (R.S.SYAL) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI : 25 TH JANUARY, 2012. DEVDAS* COPY TO : 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT CONCERNED 4. THE CIT(A)-XXI, MUMBAI. 5. THE DR/ITAT, MUMBAI. 6. GUARD FILE. TRUE COPY. BY ORDER ASSISTANT REGISTRAR, ITAT, MUMBAI.