M/s. Ganesh Developers & Co., Pune V. Addl.CIT, Range-2, Pune

ITA 1266/PUN/2011

• Counselvise Citation: 126624514 RSA 2011
• Duration Of Justice: 1 year(s) 8 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-06-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2007-2008
• Appeal Filed On: 03-10-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SHARI SANTOSH KUMAR
• Keywords: Period of limitation; Reasonable cause; Revenue expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B , PUNE BEFORE: SHRI G. S. PANNU, ACCOUNTANT MEMBER AND SHRI R.S. PADVEKAR, JUDICIAL MEMBER ITA NO. 1266 / P N/ 20 11 ASSESSMENT YEAR : 2007 - 08 M/S. GANESH DEVELOPERS & CO., PLOT N O . 49, S.NO. 635, MAHESH SOCIETY, BIBVEWADI, PUNE VS. ADDL. C.I.T., RANGE - 2, PUNE (APPELLANT) (RESPONDENT) PAN NO. AADFG8101F APPELLANT BY: SHRI M.K. KULKARNI RESPONDENT BY: SHARI SANTOSH KUMAR DATE OF HEARING : 19 - 06 - 2013 DATE OF PRONOUNCE MENT : 24 - 06 - 2013 ORDER P ER R.S. PADVEKAR , JM : - THIS APPEAL IS FILED BY THE ASSESSEE CHALLENGING THE IMPUGNED ORDER OF THE LD. CIT(A) - II, PUNE DATED 01 - 07 - 2011 FOR THE A.Y. 2007 - 08. THERE IS A DELAY OF 3 DAYS IN FILING OF THE APPEAL. LEARNED COUNS EL SUBMITS THAT LAST DATE OF FILING OF THE APPEAL WAS FRIDAY AND THEREAFTER THE TRIBUNAL WAS CLOSED ON SATURDAY AND SUNDAY AND HENCE, THE APPEAL WAS FILED FOR MONDAY. HE PLEADED FOR CONDONING THE SMALL DELAY IN FILING THE PRESENT APPEAL. WE HAVE ALSO HEA RD THE LD. DR CONSIDERING THE REASONS GIVEN BY THE ASSESSEE. IN OUR OPINION THERE IS A REASONABLE CAUSE FOR NOT FILING THE APPEAL IN PERIOD OF LIMITATION. WE ACCORDINGLY CONDONED THE DELAY OF 3 DAYS AND ADMIT THE APPEAL FOR FILING. THE ASSESSEE HAS TAKE N THE FOLLOWING EFFECTIVE GROUND, THE GROUND NO. 1 READS AS UNDER: 1. ON THE FACTS & CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) - II, PUNE ERRED IN CONFIRMING THE DISALLOWANCE OF INTEREST OF RS.16,22, 306/ - MADE BY THE A.O. HOLDING THAT IT WAS NOT REVEN UE EXPENDITURE. THE EXPENDITURE WAS ALLOWABLE AS REVENUE EXPENDITURE AND LD. A.O. WAS NOT ENTITLED TO CAPITALIZE IT. IT BE ALLOWED ACCORDINGLY. 2 ITA NO. 1266/PN/2011, GANESH DEVELOPERS & CO., PUNE 2. THE FACTS PERTAINING TO THE ISSUE ARE AS UNDER. THE ASSESSEE FIRM IS ENGAGED IN THE BUSINESS OF BUILDIN G CONSTRUCTION AND ALSO PURCHASE AND SALE OF LAND. THE ASSESSEE FILED THE RETURN OF INCOME DECLARING TOTAL INCOME OF RS.1,97,68,033/ - FOR THE A.Y. 2007 - 08. THE ASSESSEES CASE WAS SELECTED FOR SCRUTINY AND ASSESSMENT HAS BEEN COMPLETED U/S.143(3) OF THE INCOME - TAX ACT. THE ASSESSING OFFICER MADE THE DISALLOWANCE OF THE INTEREST OUT OF THE TOTAL INTEREST DEBITED TO THE PROFIT AND LOSS ACCOUNT OF RS.39,70,608/ - BY MAKING THE FOLLOWING OBSERVATIONS. 3. IT IS OBSERVED THAT IN THE BALANCE SHEET OF THE ASSESS EE FIRM HAS DECLARED CLOSING STOCK OF JUST RS.19.69 LAKHS WHEREAS THE VALUE OF INVESTMENTS AS PER BALANCE SHEET WAS TO EXTENT OF RS.9.22 CRORES. IN ADDITION, THE CURRENT ASSETS ARE ALSO SHOWN AT RS.2.32 CRORES. VIDE ORDER SHEET ENTRY DATED 10 - 12 - 2009, IT WAS POINTED OUT TO THE ASSESSEE THAT SINCE HE IS FOLLOWING PROJECT COMPLETION METHOD OF ACCOUNTING, THE INTEREST PAID TO THE BANK SHOULD ALSO BE CAPITALIZED IN RESPECTIVE PROJECT. THE SAME SHOULD BE TREATED AS EXPENDITURE AS AND WHEN THE INCOME FROM SUCH PROJECT IS SHOWN. IN RESPONSE, THE ASSESSEE SUBMITTED DETAILS OF THE INTEREST PAYMENT GIVING THE DETAILED BREAKUP OF THE SAME, WHICH IS REPRODUCED AS UNDER: BANK INTEREST DETAILS: SL. NO. NAME OF THE BANK INTEREST AMOUNT PARTICULAR 1 SYNDICATE BANK, CC A/C NO. 5324101004045 525,109.00 CASH CREDIT INTEREST 2 RA JARSHI SHAHU BANK, CC A/C NO. 180 326,121.00 CASH CREDIT INTEREST 3 AJIT SAHAKARI BANK, CC A/C NO. 102 328,696.00 CASH CREDIT INTEREST 4 BHARATI SAHAKARI BANK, CASH C. A/C NO. 28364 2,299,871.00 FOR BAVDHAN PROPERTY PURCHASES 5 ICICI BANK, SKODA CAR LOAN 12,431.29 CAR LOAN INTEREST 6 PUNJAB NATIONAL BANK, TL A/C 11421, OPTRA CAR LOAN 36,000.00 CAR LOAN INTEREST 7 RAJARSHI SHAHU BANK LOAN A/C NO. 0000503 442,380.00 FOR S. NO. 3 AMBEGAON PROPERTY PURCHASE TOTAL 3,970,608.29 3 ITA NO. 1266/PN/2011, GANESH DEVELOPERS & CO., PUNE 4. THE ASSESSING OFFICER FURTHER OBSERVED THAT THE AMOUNT OF INTEREST PAID TO BHARATI SAHAKARI BANK WAS AGAINST THE TERM LOAN TAKEN FOR THE PURCHASE OF BAVDHAN PROPERTY WHICH HAS BEEN SOLD DURING THE YEAR. IN VIEW OF THESE FACTS, THE INTEREST OF RS.22,99,871/ - IS HELD AS ALLOWABLE DURING THE A.Y. 2007 - 08 SINCE THE PROFITS FROM LAND SALE HAS ALSO BEEN BOOKED DURING THE YEAR. THE INTEREST ON CAR LOAN IS ALSO TREATED AS ALLOWABLE IN VIEW OF ITS SPECIFIC NATURE. HOWEVER, THE INTEREST PAID BY THE ASSESSEE TO RAJARSHI SHAHU BANK OF RS.4,42,380/ - ON TERM LOAN TAKEN FOR PURCHASE OF LAND AT S.NO. 3, AMBEGAON IS DIRECTLY ATTRIBUTABLE TO S AID LAN D WHICH IS REFLECTED UNDER THE HEAD OF INVESTMENT AND DEPOSITS BY THE ASSESSEE. THE AS SESSING OFFICER FURTHER OBSERVED THAT F ROM THE ANALYSIS OF THE BALANCE SHEET OF THE ASSESSEE, IT IS SEEN THAT AS AGAINST TOTAL OF INVESTMENTS, DEPOSITS AND CURRENT ASSETS OF RS.11.5 CRORES, THE CAPITAL AVAILABILITY IS OF RS.4.41 CRORES. THE SHORT FALL HAS BEEN MET BY THE ASSESSEE BROADLY FROM THE OVER DRAW N FROM CC A/C MAINTAINED IN 3 DIFFERENT BANKS AS LISTED ABOVE. THE ASSESSING OFFICER HAS NOTED THAT THE TOTAL INTEREST PAYMENT DEBITED IN THE PROFIT & LOSS A/C ON ACCOUNT OF CC LOAN OF RS.11,79,926/ - HAS TO BE DISALLOWED AS REVENUE EXPENDITURE AND W OULD BE TREATED AS AN EXPENDITURE TO BE CLUBBED IN THE WIP OF ASSESSEES PROJECT , S INCE ASSESSEE IS OFFERING HIS INCOME ON PROJECT COMPLETION BASIS. THE TOTAL DISALLOWANCE OF INTEREST, THEREFORE HAS BEEN WORK E D OUT OF RS.16,22,306/ - . 5. THE ASSESSEE CHALLENGING THE DISALLOWANCE BEFORE THE LD. CIT(A) BUT WITHOUT SUCCESS THE LD. CIT(A) RELIED ON THE DECISION OF THE ITAT SPECIAL BENCH IN THE CASE OF WALL STREET CONSTRUCTION LTD. VS. JT. CIT (2006) 102 TTJ (MUMBAI ) (SB) . THE LD. CIT(A) CONFIRMED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. NOW THE ASSESSEE IS IN APPEAL BEFORE US. 4 ITA NO. 1266/PN/2011, GANESH DEVELOPERS & CO., PUNE 6. WE HAVE HEARD THE RIVAL SUBMISSIONS OF THE PARTIES AND PERUSED THE RECORD. THE LEARNED COUNSEL TOOK US THROUGH THE SMALL COM PILATION OF THE PAPER BOOK. HE SUBMITS THAT THE ASSESSEE CONSISTENTLY FOLLOWING THE PROJECT COMPLETION METHOD AND DEBITING THE INTEREST TO THE PROFIT AND LOSS ACCOUNT. HE SUBMITS THAT THOUGH THERE ARE DIFFERENT PROJECTS UNDER T AKEN BY THE ASSESSEE FIRM B UT INTEREST ALLOCATION IS NOT MADE AND THIS METHOD IS ACCEPTED BY THE DEPARTMENT IN THE PRECEDING AS WELL AS SUBS EQUENT YEAR S . HE RELIED ON THE DECISION OF THE ITAT, PUNE IN THE CASE OF THAKKAR DEVELOPERS 115 TTJ 841, PUNE AND HE PLEA D ED FOR DELETING THE ADDITION. WE HAVE ALSO HEARD THE LD. DR. 7. WE FIND THAT THE ASSESSEE HAS WORKED OUT THE WIP INDEPENDENTLY IN RESPECT OF DIFFERENT PROJECTS. THE ASSESSEE HAS PREPARED THE PROFIT AND LOSS ACCOUNT AND DEBITED THE AMOUNT OF THE INTEREST AS WELL AS BANK CHA RGES WITHOUT ANY BIFURCATION OR PROJECT WISE ALLOCATION. THIS METHOD IS CONSISTENTLY FOLLOWED BY THE ASSESSEE. SO FAR AS THE DECISION OF THE HON'BLE SPECIAL BENCH IN THE CASE OF WALL STREET CONSTRUCTION LTD . (SUPRA) , IN SAID CASE THE ASSESSEE HAD IDENTIF IED THE INTEREST COST AND HAVE ALLOCATED SUCH COST TO DIFFERENT PROJECTS IN THE BOOKS OF ACCOUNT BUT DEDUCTION IN RESPECT OF INTEREST IS CLAIMED U/S. 36 ( 1 ) ( III ) AGAINST THE INCOME OF SOME OTHER PROJECTS WHICH ARE COMPLETED DURING THE RELEVANT YEARS. IN O U R OPINION THE FACTS IN THE CASE OF WALL STREET CONSTRUCTION LTD. (SUPRA) ARE DIFFERENT THAN THE ASSESSEES CASE. THERE IS NO DISPUTE ABOUT THE FACT THAT THE ASSESSEE IS FOLLOWING THE PROJECT S COMPLETION METHOD FOR RECOGNIZING THE REVENUE BUT AT THE SAME T IME DEBITING THE INTEREST TO THE COMMON PROFIT AND LOSS ACCOUNT WITHOUT ANY IDENTIFICATION, SO NO DISTINCTION CAN BE MADE I.E COMPLETED PROJECTS AND PROJECT UNDER CONSTRUCTION. HENCE, THERE IS NO JUSTIFICATION OF DISALLOW ING THE INTEREST CLAIM ED B Y THE AS SESSEE . W E ACCORDINGLY ALLOW THE GROUND NO. 1 AND DELETE THE ADDITION MADE BY THE ASSESSING OFFICER. 5 ITA NO. 1266/PN/2011, GANESH DEVELOPERS & CO., PUNE 8. SO FAR AS GROUND NO. 2 IS CONCERNED IT IS ONLY SUPPORTING THE GROUND NO. 1. GROUND NO. 3 IS CHARGING OF THE INTEREST WHICH IS A CONSEQUENTIAL. 9. IN THE RESULT, ASSESSEES APPEAL IS ALLOWED. PRONOUNCED IN THE OPEN COURT ON 24 - 06 - 20 1 3 SD/ - SD/ - ( G.S. PANNU ) ( R.S. PADVEKAR ) ACCOUNTANT MEMBER JUDICIAL MEMBER RK /PS PUNE , DATED : 24 TH JUNE, 20 1 3 COPY TO 1 ASSESSEE 2 DEPARTMENT 3 THE CIT(A) - II, PUNE 4 THE C CIT , PUNE 5 THE DR, ITAT, B BENCH, PUNE . 6 GUARD FILE. //TRUE COPY// BY ORDER PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL PUNE