BHOOMI CONSTRUCTION PROJECTS, NAVI MUMBAI V. ACIT CEN CIR 2, THANE

ITA 1268/MUM/2013

• Counselvise Citation: 126819914 RSA 2013
• Duration Of Justice: 2 year(s) 3 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-05-2015
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 07-05-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 14-02-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: S J SINGH
• Keywords: Business income; Search and seizure; Proportionate interest; Capital expenditure
• Section: 143(3); 153A; 145

Judgement Text

B IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, MUMBAI BEFORE SHRI G.S. PANNU, ACCOUNTANT MEMBER & SHRI AMIT SHUKLA, JUDICIAL MEMBER ./ I.T.A. NO. 1267 /MUM/2013 ( / ASSESSMENT YEAR : 2008-2009 BHOOMI CONSTRUCTION PROJECTS, PLOT NO. 8, SECTOR 11, OPP. JUINAGAR RAILWAY STATION, SANPADA, NAVI MUMBAI 400 075, / VS. ACIT, CENTRAL CIRCLE - 2, THANE, ROOM NO. 13, A WING, 6 TH FLOOR, ASHER IT PARK, ROAD NO. 16Z, WAGLE INDL. ESTATE, THANE 600 604. ./ PAN :AAHEB9743D ( / APPELLANT ) .. ( / RESPONDENT ) ./ I.T.A. NO. 2174 /MUM/2013 ( / ASSESSMENT YEAR : 2008-2009 ACIT, CENTRAL CIRCLE - 2, THANE, ROOM NO. 13, A WING, 6 TH FLOOR, ASHER IT PARK, ROAD NO. 16Z, WAGLE INDL. ESTATE, THANE 600 604. / VS. BHOOMI CONSTRUCTION PROJECTS, PLOT NO. 8, SECTOR 11, OPP. JUINAGAR RAILWAY STATION, SANPADA, NAVI MUMBAI 400 075, ./ PAN :AAHEB9743D ( / APPELLANT ) .. ( / RESPONDENT ) ITA 1267,2174,1268& 2175/MUM/13 2 ./ I.T.A. NO. 1268 /MUM/2013 ( / ASSESSMENT YEAR : 2009-2010 BHOOMI CONSTRUCTION PROJECTS, PLOT NO. 8, SECTOR 11, OPP. JUINAGAR RAILWAY STATION, SANPADA, NAVI MUMBAI 400 075, / VS. ACIT, CENTRAL CIRCLE - 2, THANE, ROOM NO. 13, A WING, 6 TH FLOOR, ASHER IT PARK, ROAD NO. 16Z, WAGLE INDL. ESTATE, THANE 600 604. ./ PAN :AAHEB9743D ( / APPELLANT ) .. ( / RESPONDENT ) ./ I.T.A. NO. 2175 /MUM/2013 ( / ASSESSMENT YEAR : 2009-2010 ACIT, CENTRAL CIRCLE - 2, THANE, ROOM NO. 13, A WING, 6 TH FLOOR, ASHER IT PARK, ROAD NO. 16Z, WAGLE INDL. ESTATE, THANE 600 604. / VS. BHOOMI CONSTRUCTION PROJECTS, PLOT NO. 8, SECTOR 11, OPP. JUINAGAR RAILWAY STATION, SANPADA, NAVI MUMBAI 400 075, ./ PAN :AAHEB9743D ( / APPELLANT ) .. ( / RESPONDENT ) A SSESSEE BY MS. RITIKA AGARWAL R E SPONDENT BY : SHRI S.J. SINGH CIT - D.R / DATE OF HEARING : 07-05-2015 / DATE OF PRONOUNCEMENT :15-05-2015 [ !' / O R D E R PER AMIT SHUKLA, J.M . : THE AFORESAID CROSS APPEALS HAVE BEEN FILED BY THE REVENUE AS WELL AS ASSESSEE AGAINST SEPARATE IMPUGNED ORDERS DATED 29- 11-2012, PASSED BY THE ITA 1267,2174,1268& 2175/MUM/13 3 LD. CIT(A) 1, THANE FOR THE QUANTUM OF ASSESSMENT PASSED U/S 153A R.W.S. 143(3) OF THE INCOME TAX ACT, 1961 (THE ACT) FOR THE ASSESSMENT YEARS 2008- 09 AND 2009-10. 2. FIRST, WE SHALL TAKE UP REVENUES APPEAL IN ITA NO. 2174/MUM/2013 FOR A.Y. 2008-09, VIDE WHICH THE FOLLOWING GROUND H AS BEEN RAISED:- WHETHER ON FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, CIT(A) WAS JUSTIFIED IN DELETING THE ADDITION MADE BY THE ASSE SSING OFFICER ON ACCOUNT OF INCOME WHICH WAS DISCLOSED WITHOUT ANY T HREAT OR COERCION AND WHICH WAS NOT RETRACTED TILL THE DATE OF FILING OF RETURN. 3. EXACTLY SIMILAR GROUND HAS BEEN RAISED BY THE RE VENUE IN ITA NO. 1267/MUM/2013 FOR A.Y. 2009-10 ALSO. 4. BRIEF FACTS OF THE CASE ARE THAT, THE ASSESSEE I S A PARTNERSHIP FIRM HAVING TWO PARTNERS, NAMELY, SHRI VIJAY RAVJI GAJRA AND SHRI AMRUT KANJI NISAR, WHICH CAME INTO EXISTENCE, W.E.F. 1-1-2007. THE ASSESSEE FIRM IS ENGAGED IN THE BUSINESS OF BUILDER AND DEVELOPER AN D HAD UNDERTAKEN THE DEVELOPMENT OF A PROJECT, NAMELY, ELLORA FIESTA I N NAVI MUMBAI. A SEARCH AND SEIZURE ACTION U/S 132(1) OF THE ACT WAS CARRIE D OUT IN THE CASE OF GAJRA GROUP ON 19-2-2009. DURING THE COURSE OF SEARCH PRO CEEDING, A SUM OF RS. 15 CRORES WAS VOLUNTARILY ADMITTED AND OFFERED FOR WHO LE AS A GAJRA GROUP. OUT OF THE SAID DECLARATION OF RS. 15 CRORES, SUM OF RS . 63 LAKHS PERTAINS TO THE ASSESSEE FOR A.Y. 2008-09 ON ACCOUNT OF INCOME FROM THE PROJECT AND RS. 73 LAKHS FOR A.Y. 2009-10. HOWEVER, AT THE TIME OF TH E FILING OF THE RETURN OF INCOME, THE ASSESSEE DID NOT OFFER THIS INCOME IN T HE RETURN OF INCOME FILED IN RESPONSE TO NOTICE U/S 153A. ACCORDINGLY, THE ASSES SEE WAS REQUIRED TO SHOW CAUSE AS TO WHY THE INCOME OF RS. 63 LAKHS SHOULD N OT BE ADDED TO THE INCOME OF THE PROJECT ON THE BASIS OF PERCENTAGE C OMPLETION METHOD AS VOLUNTARILY ADMITTED AND OFFERED BY THE ASSESSEE DU RING THE COURSE OF SEARCH PROCEEDING, IN THE STATEMENT RECORDED U/S 132(4). I N RESPONSE, THE ASSESSEE SUBMITTED THAT ITS HOUSING PROJECT COMMENCED FROM 2 9-9-2007 AND DURING ITA 1267,2174,1268& 2175/MUM/13 4 THE YEAR UNDER CONSIDERATION IT WAS AN ONGOING PROJ ECT. FOR THE PERIOD UNDER CONSIDERATION, THE PROFIT & LOSS ACCOUNT INDICATE N ET PROFIT OF RS. 6,48,882/-, INDIRECT INCOME OF RS. 7,93,984/- AND WORK IN PROGR ESS (WIP) AT RS. 8,03,75,941/-. THE COST OF THE LAND SHOWN IN THE CU RRENT ASSETS WAS AT RS. 24,49,84,000/-AND STAMP DUTY AND REGISTRATION CHARG ES PAID WERE SHOWN AT RS. 22,90,000/-. IT WAS SUBMITTED THAT INCOME SHOWN IN THE RETURN OF INCOME WAS ONLY INDIRECT INCOME AND NO ELEMENT OF BUSINESS INCOME FROM THE PROJECT WAS SHOWN IN THE RETURN OF INCOME, BECAUSE THE ASSE SSEE WAS FOLLOWING PROJECT COMPLETION METHOD FOR THE REVENUE RECOGNI TION AND NOT THE PERCENTAGE COMPLETION METHOD. IT WAS STATED THAT ASSESSEE WAS FOLLOWING ACCOUNTING STANDARD 9 FOR THE REVENUE RECOGNITION AS PRESCRIBED IN THE CASE OF BUILDER. RELIANCE WAS ALSO PLACED ON SEVERAL DEC ISIONS THAT PROJECT COMPLETION METHOD IS AN WELL ACCEPTED METHOD OF ACC OUNTING FOR THE BUILDERS AND DEVELOPERS. THE ASSESSEES SUBMISSION IN THIS R EGARD HAVE BEEN INCORPORATED BY THE A.O. FROM PAGES 2 TO 4 OF HIS A SSESSMENT ORDER. HOWEVER, THE A.O. REJECTED THE ASSESSEES CONTENTION MERELY ON THE GROUND THAT DURING THE COURSE OF SEARCH PROCEEDING, THE ASSESSEE ITSEL F HAS OFFERED THE INCOME ON ESTIMATED BASIS FOR THE ASSESSMENT YEARS 2008-09 AN D 2009-10 AND ACCORDINGLY, AS PER THE DISCUSSION APPEARING AT PAG E 5 OF THE ASSESSMENT ORDER, HE ADDED AN AMOUNT OF RS. 63 LAKHS AS INCOME OF THE YEAR UNDER PERCENTAGE COMPLETION METHOD. 5. BEFORE THE LD. CIT(A), THE ASSESSEE CONTENDED TH AT IT HAD OFFERED ADDITIONAL INCOME ONLY AFTER BEING WRONGLY GUIDED B Y THE SEARCH PARTY THAT THE DEVELOPERS HAD TO COMPULSORILY FOLLOW THE PERC ENTAGE COMPLETION METHOD FOR THE CALCULATION OF PROFITS. THIS WAS A COMPLETE MISREPRESENTATION OF FACTS REGARDING THE APPLICABILITY OF THE ACCOUNT ING STANDARDS BY THE SEARCH PARTY TO THE ASSESSEE DURING THE COURSE OF SEARCH P ROCEEDING. THE BUILDERS AND DEVELOPERS ARE GOVERNED BY REVISED AS -9 WHICH PRESCRIBE REVENUE RECOGNITION ON THE COMPLETION OF THE PROJECT AND TH ERE ARE VARIOUS DECISIONS ITA 1267,2174,1268& 2175/MUM/13 5 WHICH HAVE ALSO ENDORSED THE SAME PROPOSITION. FURT HER, THE ASSESSEE SUBMITTED THAT IT IS NOT A CONTRACTOR BUT REAL ESTA TE DEVELOPER AND THE PROJECT COMPLETION METHOD IS ALSO ONE OF THE REVISED METHOD S OF ACCOUNTING THE INCOME. THE LD. CIT(A) AFTER CONSIDERING THE ASSESS EES SUBMISSION AND REASONING OF THE A.O., HELD THAT FOR THE PURPOSE OF RECOGNITION OF INCOME IN THE CASE OF A CONTRACTOR OR DEVELOPER AS PER AS 7, TH ERE ARE TWO METHODS OF ACCOUNTING FOR REALIZATION OF REVENUE IN THE CONSTR UCTION BUSINESS VIZ. (I) PERCENTAGE COMPLETION METHOD & (II) COMPLETED CONTR ACT METHOD AND BOTH ARE RECOGNIZED FOR DISCLOSING THE PROFIT. THERE IS NO SPECIFIC METHOD PRESCRIBED BY THE INCOME TAX ACT FOR REVENUE RECOGNITION IN THE C ASE OF BUILDER OR REAL ESTATE DEVELOPER. IT IS THE DISCRETION OF THE DEVELOPER/BU ILDER TO ADOPT ANY OF THE TWO METHOD OF REVENUE RECOGNITION WHICH IS BEST SUITED. THEREAFTER, HE NOTED DOWN THE ENTIRE FACTS AND THE STATEMENT RECORDED DU RING THE COURSE OF SEARCH & SURVEY OPERATION, AND DELETED THE ADDITION AFTER OBSERVING AND HOLDING AS UNDER:- 5. IN THE INSTANT CASE, THE PROJECT OF THE APPELLA NT 'ELLORA FIESTA' AT SANPADA, NAVI MUMBAI, HAS COMMENCED CONSTRUCTION VI DE COMMENCEMENT CERTIFICATE GRANTED BY THE NAVI MUMBAI MUNICIPAL CORPORATION ON 29/09/2007. A SEARCH AND SEIZURE ACT ION U/S.132(1) WAS CARRIED OUT AT THE PREMISES OF THE ASSESSEE ON 19/0 2/2009 AND DURING THE SEARCH OPERATIONS, IN A STATEMENT RECORDED DURI NG THE COURSE OF SURVEY U/S.133A IN THE CASE OF SHRI RAMESH GAJRA AT THE BUSINESS PREMISES OF MIS. TRIVENI DEVELOPERS ON 20102/2009, VIDE QUESTION 9, THE SURVEY PARTY POINTED OUT THAT AS PER THE ACCOUNTING STANDARD AS-15 ISSUED BY THE ICAI, THE PERCENTAGE COMPLETION METHO D HAS BEEN MADE COMPULSORY IN THE CASE OF DEVELOPERS W.E.F. 01/04/2 004. AFTER BEING TOLD SO, SHRI RAMESH GAJRA AGREED TO OFFER THE ADDITIONA L INCOME OF RS. 63,00,0001- AS ON 31/03/2008 ON BEHALF OF THE APPEL LANT FIRM FOR TAXATION ON THE BASIS OF THE PERCENTAGE COMPLETION METHOD, EVEN THOUGH THE PROJECT WAS COMPLETED UPTO 13% ONLY, THE FACT W HICH HAS BEEN RECORDED BY THE AD ALSO IN THE ASSESSMENT ORDER FOR THE YEAR UNDER CONSIDERATION. SINCE THE PROJECT OF THE APPELLANT H AD JUST BEGUN IN THE YEAR UNDER CONSIDERATION MERELY SIX MONTHS BACK I.E . ON 29/09/2007 AND THE SAME BEING A LONG TERM PROJECT, IT WOULD BE TOTALLY UNREALISTIC TO ESTIMATE THE NET PROFIT AND OFFER THE SAME FOR TAXA TION WITHIN A PERIOD OF SIX MONTHS AND TAXING THE SAME ON PERCENTAGE COMPLE TION METHOD, WHEN THE PROJECT IS JUST 13% COMPLETED. ITA 1267,2174,1268& 2175/MUM/13 6 4.6. THE CONTENTION OF THE AO THAT THE APPELLANT HA D VOLUNTARILY OFFERED THE ADDITIONAL INCOME ON PERCENTAGE COMPLETION METH OD IS NOT CORRECT. THE APPELLANT HAD MADE THE OFFER OF ADDITIONAL INCO ME FOR THE YEAR UNDER CONSIDERATION IN A LETTER OF OFFER FILED BY THE GAJ RA GROUP BEFORE THE ADDL. DIT (INV.) KALYAN ON 12/04/2009. THE PERUSAL OF THE ABOVE LETTER FILED BEFORE THE ADDL. DIT (INV.) KALYAN, CLEARLY SHOWS T HAT THE APPELLANT HAD OFFERED THE ADDITIONAL INCOME FOR THE A.Y. 2008-09 AND 2009-10 AFTER THE DIRECTION OF THE SEARCH PARTY TO THE EFFECT THAT TH E DECLARATION OF THE INCOME ON PERCENTAGE COMPLETION METHOD HAS BEEN MAD E COMPULSORY BY THE AS-15 W.E.F. 01/04/2004 AND TO BE FOLLOWED AS P ER SECTION 145 OF THE I.T. ACT 1961. IT WAS ONLY AFTER SUCH GUIDANCE AND DIRECTION GIVEN BY THE SEARCH/SURVEY PARTY THAT THE APPELLANT CAME OUT THE DECLARATION OF ADDITIONAL INCOME FOR THE YEAR UNDER CONSIDERATION. THIS FACT HAS BEEN STATED EVEN IN THE LETTER OF OFFER DATED: 12/04/200 9 FILED BEFORE THE ADDL. DIT (INV.) KALYAN. IN MY OPINION, GIVING SUCH A GUI DANCE OR ADVICE IN THE STATEMENT RECORDED DURING THE SURVEY WAS BEYOND THE JURISDICTION OF THE SEARCH/SURVEY PARTY. ON SUCH AN ADVICE, THE APPELLA NT OFFERED THE ESTIMATED ADDITIONAL INCOME FOR THE PERIOD UNDER CO NSIDERATION WHICH IS AN ESTIMATED FIGURE WITHOUT ANY REAL WORKING OF THE PROFITS. FROM THE FACTS MENTIONED ABOVE, IT CAN BE OBSERVED THAT THE ACT OF OFFERING THE ADDITIONAL INCOME WAS NOT VOLUNTARY BUT UNDER A MIS BELIEF INCULCATED BY THE SEARCH PARTY THAT THE DECLARATION OF THE PROFIT S ON PERCENTAGE COMPLETION METHOD IS MANDATORY AS PER AS-15 AND SEC TION 145 OF THE I.T. ACT, 1961. THUS, THE OFFER OF INCOME WAS NOT VOLUNT ARY BUT UNDER THE GUIDANCE AND DIRECTION GIVEN BY THE SEARCH PARTY TO DO THE SAME. EVEN IN THE LETTER OF OFFER, NOWHERE IT IS MENTIONED THA T THE APPELLANT IS OFFERING THE ABOVE ADDITIONAL INCOME VOLUNTARILY AND THEREFO RE THE ARGUMENT OF THE AO THAT THE APPELLANT OFFERED THE ABOVE ADDITIO NAL INCOME FOR THE YEAR UNDER CONSIDERATION VOLUNTARILY, IS NOT CORREC T. EVEN SECTION 145 OF THE INCOME-TAX ACT, 1961 PROVIDES THAT THE BUSINESS INCOME OF THE ASSESSEE FOR AN ASSESSMENT YEAR SHALL BE COMPUTED B ASED ON THE METHOD OF ACCOUNTING CONSISTENTLY FOLLOWED BY THE A SSESSEE AND IN THE INSTANT CASE THE METHOD BEING REGULARLY FOLLOWED IS THE PROJECT COMPLETION METHOD, WHICH CANNOT BE DISTURBED UNLESS THERE ARE STRONG REASONS FOR THE SAME TO DO SO. THE AO HAS NOT GIVEN ANY REASON FOR ADOPTING THE PERCENTAGE COMPLETION METHOD IN THE INSTANT CASE AN D THEREFORE HIS ACTION OF DOING THE SAME CANNOT BE JUSTIFIED. 4.7. FURTHER, THE AO WHILE APPLYING THE PERCENTAGE COMPLETION METHOD IN THE INSTANT CASE, HAS NOT EXAMINED THE BOOKS OF ACC OUNTS AND SIMPLY PROCEEDED TO WORK OUT THE INCOME OF THE APPELLANT F OR THE YEAR UNDER CONSIDERATION ON THE BASIS OF THE ESTIMATED WORKING GIVEN DURING SEARCH PROCEEDINGS. THE ARGUMENT OF THE AO THAT THE APPELL ANT HAD RECEIVED ADVANCES ON THE BOOKINGS AMOUNTING TO RS. 7,64,67,7 30/- DURING THE PERIOD UNDER CONSIDERATION CANNOT BE THE BASIS FOR THE DETERMINING THE PROFITS OF THE APPELLANT. IN ORDER TO REJECT THE ME THOD OF CALCULATING THE PROFITS OF THE APPELLANT AND SUBSTITUTING IT WITH P ERCENTAGE COMPLETION METHOD. THE AO SHOULD HAVE EXAMINED THE BOOKS OF AC COUNTS FOR THE ITA 1267,2174,1268& 2175/MUM/13 7 PERIOD UNDER CONSIDERATION, WHICH ARE ADMITTEDLY PR OPERLY MAINTAINED, AND POINTED OUT THE DEFECTS IN SUCH BOOKS OF ACCOUN TS AND THEN PROCEED TO REJECT THE REGULAR METHOD OF ACCOUNTING BEING FO LLOWED BY THEM APPLYING THE PROVISIONS OF SECTION 145. AFTER REJEC TION OF THE BOOKS OF ACCOUNTS, THE AO SHOULD HAVE WORKED OUT THE SALES A FTER ALLOWING THE, EXPENDITURE FOR THE PERIOD AND ESTIMATE THE PROFITS BY APPLYING THE PERCENTAGE COMPLETION METHOD. THE AO SIMPLY PROCEED ED TO TAX THE PROFITS OF THE APPELLANT FIRM ON PERCENTAGE COMPLET ION METHOD BY RELYING ON THE STATEMENT OF THE PARTNER OF THE FIRM SHRI RA MESH GAJRA DURING SURVEY AT THE BUSINESS PREMISES OF M/S. TRIVENI DEV ELOPERS ON 20102/2009 AND ON THE BASIS OF WORKING GIVEN THEREA FTER FOR THE ADDITIONAL INCOME. WITHOUT FOLLOWING A PROPER PROCE DURE LAID DOWN UNDER THE I.T. ACT, THE AO CANNOT REJECT THE METHOD OF AC COUNTING REGULARLY BEING FOLLOWED BY THE APPELLANT AND ARBITRARILY SUBSTITUT ING THE SAME WITH ANY ALTERNATIVE METHOD. 4.8. THERE IS A MERIT IN THE CONTENTION OF THE APPE LLANT THAT THE METHODS OF REVENUE RECOGNITION AS PRESCRIBED UNDER AS-7 ARE FO R THE CONTRACTORS AND IN THE CASE OF BUILDERS OR THE REAL ESTATE DEVELOPE RS THE REVISED AS-9 IS THE PRESCRIBED METHOD FOR REVENUE RECOGNITION. THE ACCOUNTING STANDARDS HAVE BEEN REVISED FROM 01/04/2003 AND AS PER THE RE VISED STANDARDS AND AS-7 IS PRESCRIBED FOR THE CONTRACTORS AND REVI SED AS-9 HAS BEEN PRESCRIBED FOR THE REAL ESTATE DEVELOPERS OR THE BU ILDERS. IT HAS BEEN PRESCRIBED IN THE AS-9 THAT THE REVENUE IN THE CASE OF REAL ESTATE SALES SHOULD BE RECOGNISED WHEN ALL THE FOLLOWING CONDITI ONS ARE SATISFIED :- I) THE SELLER HAS TRANSFERRED TO THE BUYER ALL SIGN IFICANT RISKS AND REWARDS OF OWNERSHIP AND THE SELLER RETAINS NO EFFE CTIVE CONTROL OF THE REAL ESTATE TRANSFERRED TO A DEGREE USUALLY ASS OCIATED WITH THE OWNERSHIP; II) AT THE TIME OF THE TRANSFER OF ALL SIGNIFICANT RISKS AND REWARDS OF OWNERSHIP, IT IS NOT UNREASONABLE TO EXPECT THE ULT IMATE COLLECTIONS; AND III) NO SIGNIFICANT UNCERTAINTY EXISTS REGARDING TH E AMOUNT OF CONSIDERATION THAT WILL BE DERIVED. 4.9. IF THE ABOVE PRESCRIBED REVISED ACCOUNTING STA NDARDS AS-9 FOR THE REAL ESTATE DEVELOPERS ARE APPLIED TO THE PROJECT O F THE APPELLANT, CAN IT BE DEFINITELY CONCLUDED THAT THE APPELLANT HAS TRANSFE RRED TO THE BUYER ALL SIGNIFICANT RISKS AND REWARDS OF OWNERSHIP AND THE APPELLANT RETAINS NO EFFECTIVE CONTROL OF THE SHOPS / FLATS TRANSFERRED TO A DEGREE USUALLY ASSOCIATED WITH THE OWNERSHIP OR CAN IT BE CONCLUDE D THAT NO SIGNIFICANT UNCERTAINTY EXISTS REGARDING THE AMOUNT OF CONSIDER ATION THAT WILL BE DERIVED ULTIMATELY FROM THE SALES EFFECTED IN RESPE CT OF THIS PROJECT. LOOKING AT-THE STAGE OF THE PROJECT OF THE APPELLAN T, WHICH IS COMPLETE ONLY TO THE EXTENT OF 13%, IT CANNOT BE SAID WITH C ERTAINTY THAT IT HAS ITA 1267,2174,1268& 2175/MUM/13 8 REACHED TO A LEVEL WHERE THE SELLER HAS TRANSFERRED TO THE BUYER ALL SIGNIFICANT RISKS AND REWARDS OF OWNERSHIP AND THE SELLER RETAINS NO EFFECTIVE CONTROL OF THE SHOPS/ FLATS TRANSFERRED. THE PROJECT OF THE APPELLANT IS AT INITIAL STAGE AND IT WOULD BE TOTAL LY UNREALISTIC TO ASSESS THE PROFITS FROM THIS PROJECT DURING THE PERIOD UND ER CONSIDERATION BECAUSE THE REVENUE CANNOT BE RECOGNIZED AT THIS ST AGE AS THERE CAN BE SUBSEQUENT CANCELLATION OF THE SALES MADE DURING TH E PERIOD OR EVEN INCREASE IN THE PROFITS ACCORDING TO THE PREVAILING MARKET CONDITIONS. IN SUCH A SITUATION, IT WOULD NOT BE POSSIBLE TO ASSES S THE CORRECT PROFITS IN ANY YEAR EXCEPT THE YEAR IN WHICH THE PROJECT IS CO MPLETED. THEREFORE, APPLYING THE PERCENTAGE COMPLETION METHOD TO ASSESS THE PROFITS OF THE APPELLANT FOR THE YEAR UNDER CONSIDERATION WOULD BE UNREALISTIC AND UNREASONABLE. 6. THE LD. CIT(A) FURTHER REQUIRED THE A.O. TO FURN ISH VARIOUS DETAILS AS ENUMERATED IN PARA 4.13, SO AS TO ASCERTAIN AS TO W HICH METHOD OF ACCOUNTING THE ASSESSEE HAS BEEN GENERALLY FOLLOWING IN THE OT HER PROJECTS. HOWEVER, THE A.O. DID NOT RESPONDED TO THE SAME AND ACCORDINGLY, THE LD. CIT(A) HELD THAT THE PROJECT COMPLETION METHOD FOLLOWED BY THE ASSES SEE IS AN ACCEPTED METHOD AND THERE IS NO REASON TO DEVIATE FROM SUCH METHOD WITHOUT ANY STRONG REASON AND FINALLY HE DELETED THE ADDITION M ADE ON ACCOUNT OF PROFIT AFTER APPLYING THE PERCENTAGE COMPLETION METHOD. 7. BEFORE US, THE LD. CIT-DR STRONGLY RELIED UPON T HE ORDER OF THE A.O. AND SUBMITTED THAT, ONCE THE ASSESSEE ITSELF HAS ACCEPT ED TO OFFER THE INCOME AS PER THE PERCENTAGE COMPLETION METHOD AT THE TIME OF SEARCH, THEN WITHOUT ANY COMPELLING REASON THE ASSESSEE COULD NOT HAVE RETRA CTED ON THE GROUND THAT IT HAS BEEN FOLLOWING PROJECT COMPLETION METHOD. THIS WAS CLEARLY AN AFTER THOUGHT. THUS, THE ORDER OF THE A.O. SHOULD BE SUS TAINED. 8. ON THE OTHER HAND, THE LD. COUNSEL FOR THE ASSES SEE, MS. RITIKA AGARWAL STRONGLY RELIED UPON THE ORDER OF THE LD. CIT(A) AN D SUBMITTED THAT THE A.O. HIMSELF IN THE ASSESSMENT YEAR 2012-13 HAD COMPLETE D THE ASSESSMENT ON THE BASIS OF PROJECT COMPLETION METHOD WHEN THE S AID PROJECT WAS COMPLETED. NOW, THE REVENUE IS TAKING DIFFERENT STA ND, THAT IN THE EARLIER YEAR THE REVENUE SHOULD BE RECOGNIZED AS PER PERCENTAGE COMPLETION METHOD AND ITA 1267,2174,1268& 2175/MUM/13 9 IN THE SUBSEQUENT YEAR IT SHOULD BE ON THE BASIS OF PROJECT COMPLETION METHOD. THIS, SHE SUBMITTED CANNOT BE UPHELD. IN SU PPORT, SHE FILED A COPY OF ASSESSMENT ORDER DATED 25-2-2015 FOR THE A.Y. 2012- 13. 9. WE HAVE HEARD THE RIVAL SUBMISSIONS AND ALSO PER USED THE RELEVANT FINDINGS GIVEN IN THE IMPUGNED ORDER. THE SOLE REAS ON FOR MAKING THE ADDITION BY THE A.O. IS THAT, AT THE TIME OF SEARCH THE ASSE SSEE HAD OFFERED TO DISCLOSE THE INCOME ON THE BASIS OF PERCENTAGE COMPLETION ME THOD WHICH HAS BEEN RETRACTED LATER ON. HOWEVER, THERE IS NO FINDING TH AT THE ASSESSEE HAS BEEN FOLLOWING PERCENTAGE COMPLETION METHOD REGULARLY SI NCE BEGINNING OR IN ANY OTHER PROJECT. THERE IS NO SUCH EVIDENCE OR DOCUMEN TS WHICH HAVE BEEN FOUND DURING THE COURSE OF SEARCH INDICATING THAT THE ASS ESSEE HAD BEEN FOLLOWING PERCENTAGE COMPLETION METHOD REGULARLY. IF THE ASSE SSEE HAS BEEN FOLLOWING ONE OF THE RECOGNIZED METHODS AS PRESCRIBED BY AS-9 , THEN IT CANNOT BE HELD THAT THE REVENUE CAN IMPOSE A DIFFERENT METHOD UPON THE ASSESSEE UNLESS THERE IS A FINDING OF FACT THAT SUCH A METHOD IS NO T REFLECTING THE TRUE PROFITS OF THE ASSESSEE. NOW IT HAS ALSO BEEN BROUGHT ON RECOR D BY THE LD. COUNSEL THAT IN THE SUBSEQUENT YEAR I.E. IN THE YEAR OF COMPLETI ON OF THE PROJECT IN A.Y. 2012-13, THE REVENUE ITSELF HAS ACCEPTED THE PROJEC T COMPLETION METHOD FOR RECOGNITION OF REVENUE AND ACCORDINGLY, HAS ASSESSE D THE INCOME OF THE PROJECT ON THE SAME METHOD. THUS, A CONTRARY VIEW C ANNOT BE TAKEN FOR THIS YEAR. MOREOVER, THE FINDING RECORDED BY THE LD CIT (A) AFTER DETAIL DISCUSSION AS INCORPORATED ABOVE IS NOT ONLY FACTUALLY CORRECT BUT ALSO LEGALLY SUSTAINABLE AND THEREFORE SUCH A FINDING AND CONCLUSION OF THE LD. CIT(A) IS AFFIRMED AND THE GROUNDS RAISED BY THE REVENUE IS DISMISSED. 10. SINCE SIMILAR GROUND HAS BEEN RAISED BY THE REV ENUE IN THE A.Y. 2009- 10 AND SIMILAR FINDING HAS BEEN GIVEN BY THE A.O. A ND THE LD. CIT(A), THEREFORE, THE FINDING GIVEN UPON WILL MUTATIS-MUTA NDIS AND ACCORDINGLY, THE GROUNDS RAISED BY THE REVENUE IN A.Y. 2009-10 IS AL SO DISMISSED. ITA 1267,2174,1268& 2175/MUM/13 10 11. IN THE RESULT, APPEAL OF THE REVENUE FOR ASSESS MENT YEARS 2008-09 & 2009-10 ARE DISMISSED. 12. NOW, WE SHALL TAKE UP THE APPEAL OF THE ASSESSE E IN ITA NO. 1267/MUM/2013 FOR A.Y. 2008-09, VIDE WHICH FOLLOWIN G GROUNDS HAVE BEEN RAISED:- BECAUSE, LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN UPHOLDING THE ESTIMATED DISALLOWANCE OF INTEREST U/S. 36(1 )(III) ON LOANS OF RS. 82,00,000/- AND DIRECTING THE AO TO RECALCULATE THE SAME IGNORING THE FACT THAT THE ADVANCES WERE MADE FOR BUSINESS PURPO SE AND SHOULD NOT BE CONSIDERED FOR INTEREST DISALLOWANCE. 2. BECAUSE, LD. CIT(A) HAS ERRED IN LAW AND ON FACT S IN UPHOLDING THE ADDITION OF RS.433,348/- PAID TO NMMC ON ACCOUNT OF STATUTORY DEPOSITS, TO THE TOTAL INCOME. 3. BECAUSE, LD. CIT(A) HAS ERRED IN LAW AND ON FACT S IN UPHOLDING THE ADDITION OF RS.16,292/- PAID TOWARDS PROFESSIONAL F EES FOR REGISTRATION OF TRADEMARK WITH LOGO ON THE GROUND THAT THE SAME IS IN THE NATURE OF CAPITAL EXPENDITURE. WITHOUT PREJUDICE TO THE ABOVE BECAUSE, LD. CIT(A) HAS ERRED IN NOT APPRECIATING T HAT EVEN IF THE ABOVE EXPENSES WE DISALLOWABLE, THE SAME OUGHT TO B E REDUCED FROM THE WIP INSTEAD OF MAKING A SEPARATE ADDITION. 13. BRIEF FACTS QUA THE DISALLOWANCE OF RS. 6,80,85 3/- ON ACCOUNT OF PROPORTIONATE INTEREST U/S 36(1)(III) ARE THAT, THE A.O. ON PERUSAL OF THE BALANCE SHEET NOTED THAT THE ASSESSEE HAD ADVANCED INTEREST FREE LOAN OF RS. 32 LAKHS ON 18-6-2007 TO M/S GAHLOT CONSTRUCTION A ND RS. 50 LAKHS ON 14-8-2007 TO M/S KONARK ENTERPRISES, AGGREGATING TO RS. 82 LAKHS. ON THE OTHER HAND, THE ASSESSEE HAS ALSO BORROWED INTEREST BEARING SECURED AND UNSECURED LOAN FOR WHICH IT HAS DEBITED INTEREST CO ST OF RS. 45,33,852/- IN WORK-IN-PROGRESS ACCOUNT. IN RESPONSE TO THE SHOW C AUSE AS TO WHY INTEREST SHOULD NOT BE DISALLOWED ON INTEREST FREE LOAN, THE ASSESSEE SUBMITTED AND STATED AS UNDER:- ITA 1267,2174,1268& 2175/MUM/13 11 IN THIS RESPECT WE HAVE TO STATE THAT THE ADVANCES GIVEN TO M/S GAHLOT CONSTRUCTION ARE FOR A SHORT TERM BASIS. WITH RESPE CT TO THE ADVANCES GIVEN TO M/S KONARK ENTERPRISES WE HAVE TO STATE TH AT THE SAID ADVANCES ARE GIVEN FOR PLOT OF LAND. SECONDLY OUR A BOVE CLIENT IS FOLLOWING PROJECT COMPLETION METHOD WHEREIN ALL THE EXPENSES ARE DEBITED TO WORK-IN-PROGRESS ACCOUNT. EVEN IF THE IN TEREST IS PROPORTIONATELY DISALLOWED, IT SHOULD NOT BE ADDED TO THE TOTAL INCOME BUT IT SHOULD BE REDUCED FROM WORK-IN-PROGRESS. 14. HOWEVER, THE A.O. REJECTED THE ASSESSEES CONT ENTION AND HELD THAT INTEREST FREE FUNDS BORROWED BY THE ASSESSEE WILL B E UTILIZED FOR THEIR OWN BUSINESS PURPOSES AND SUCH BORROWED FUNDS SHOULD RE MAIN IN THE BUSINESS. HE ALSO REJECTED THE ARGUMENT OF THE ASSESSEE FOR R EDUCING THE ALLOWABLE INTEREST FROM WORK-IN-PROGRESS. ACCORDINGLY, HE DI SALLOWED THE PROPORTIONATE INTEREST OF RS. 6,80,853/- U/S 36(1)(III) OF THE AC T AFTER TAKING THE AVERAGE RATE OF INTEREST AT 8%. 15. BEFORE THE LD. CIT(A), THE ASSESSEE STATED THA T THE ADVANCE TO M/S KONARK ENTERPRISES WAS GIVEN TO ACQUIRE A PLOT OF L AND FOR THE PURPOSE OF BUSINESS ONLY, HOWEVER, SUCH TRANSACTION COULD NOT TAKE PLACE AND AS THE LAND IN QUESTION HAD BECOME SUBJECT MATTER OF LITIG ATION BETWEEN THE SAID PARTY AND THE STATE OF MAHARASHTRA. THE ASSESSEE AL SO FILED A COPY OF SUIT PETITION BETWEEN THE TWO PARTIES. AFTER CALLING FO R THE REMAND REPORT IN THIS REGARD, THE LD. CIT(A)HELD THAT THE ASSESSEE COULD NOT PROVE THAT ADVANCE WAS ON ACCOUNT OF PURCHASE OF LAND IN QUESTION, BECAUSE THE ADVANCE OF RS. 50 LAKHS WAS GIVEN TO M/S KONARK ENTERPRISES ON 14-8-2 007, WHEREAS M/S KONARK ENTERPRISES HAD SHOWN THAT LAND IN QUESTION HAVE BEEN PURCHASED BY THEM ON 27-2-2007. SIMILARLY, THE LOAN AMOUNTING T O RS. 32 LAKHS WAS GIVEN TO M/S GAHLOT CONSTRUCTION WHICH IS FOR NON-BUSINES S PURPOSES. ACCORDINGLY, HE CONFIRMED THE DISALLOWANCE. 16. BEFORE US, MS. RITIKA AGARWAL SUBMITTED THAT, FIRST OF ALL, THE ASSESSEE HAD HUGE INTEREST FREE FUNDS IN THE FORM OF CAPITAL WHICH WAS RS. 2,85,45,093/-, WHEREAS THE ADVANCE GIVEN WAS ONLY R S. 82 LAKHS. IN SUPPORT ITA 1267,2174,1268& 2175/MUM/13 12 OF HER CONTENTION, SHE DREW OUR ATTENTION TO THE BA LANCE SHEET AS ON 31-3- 2008 AND ALSO THE COPY OF LEDGER ACCOUNT OF THE PAR TNER REFLECTING THE OPENING BALANCE OF THE CAPITAL ACCOUNT. IF THE ASSESSE HAD SUFFICIENT INTEREST FREE FUNDS, THEN PRESUMPTION IS THAT ADVANCE HAS BEEN GI VEN OUT OF SUCH INTEREST FREE FUNDS. IN SUPPORT OF HER CONTENTION, SHE STRON GLY RELIED UPON THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. RELIANCE UTILITIES AND POWER LTD. [2009] 313 ITR 340 (BOM.). APART FROM TH IS, SHE SUBMITTED THAT THE ADVANCE OF RS. 50 LAKHS WAS GIVEN TO M/S KONARK ENTERPRISES FOR PURCHASE OF PLOT OF LAND WHICH IS EVIDENT FROM THE COPY OF CONFIRMATION GIVEN BY THE SAID PARTY, WHICH WAS FILED BEFORE THE A.O. AS WELL AS BEFORE THE LD. CIT(A). IN THE SAID CONFIRMATION IT HAS BEEN CLEARL Y STATED THAT THE AMOUNT OF RS. 50 LAKHS WAS IN THE NATURE OF ADVANCE FOR THE P URCHASE OF PLOT OF LAND. HOWEVER, THE SAID PLOT HAD BECOME SUBJECT MATTER OF LITIGATION AND THEREFORE, THE TRANSACTION HAS NOT YET TAKEN PLACE. THERE IS N O MATERIAL ON RECORD TO SHOW THAT THIS WAS NOT FOR PURCHASE OF LAND. AS REG ARDS THE ALLEGATION OF THE LD. CIT(A) THAT IN THE SUIT PETITION FILED BY M/S K ONARK ENTERPRISES WHICH SHOWS THAT THE LAND IN QUESTION HAS ALREADY BEEN PU RCHASED BY THEM BEFORE THE DATE OF ADVANCE, SHE SUBMITTED THAT IT WILL NOT MAKE ANY DIFFERENCE AS LONG AS THE PARTY TO WHOM ADVANCE WAS GIVEN WAS TOWARDS PURCHASE OF PLOT WHICH HAS BEEN CONFIRMED BY THE SAID PARTY. SO FAR AS THE ASSESSEE IS CONCERNED, IT HAS GIVEN MONEY FOR PURCHASING THE PLOT OF LAND FRO M M/S KONARK ENTERPRISES FOR ITS BUSINESS PURPOSE AND, THEREFORE, SUCH AN AD VANCE GIVEN FOR THE PURPOSES OF BUSINESS, NO DISALLOWANCE OF INTEREST I S CALLED FOR. LASTLY, SHE SUBMITTED THAT THE INTEREST HAS BEEN CAPITALIZED BY THE ASSESSEE AS THE ASSESSEE HAS BEEN FOLLOWING PROJECT COMPLETION METH OD, WHERE ALL THE EXPENSES HAVE BEEN DEBITED TO WIP ACCOUNT AND IF AN Y DISALLOWANCE IS CALLED FOR, THE SAME SHOULD BE REDUCED FROM THE WIP ACCOUN T AND NO ADDITION SHOULD BE MADE ON THIS ACCOUNT. REGARDING LOAN OF RS. 32 LAKHS GIVEN TO SISTER CONCERN M/S GAHLOT CONSTRUCTION, SHE SUBMITT ED THAT THE SAID LOAN TOO ITA 1267,2174,1268& 2175/MUM/13 13 WAS GIVEN TO THE OTHER FIRM IN WHICH THERE WERE COM MON PARTNERS. THIS LOAN WAS GIVEN FOR THE PURPOSE OF BUSINESS ONLY. 17. ON THE OTHER HAND, THE LD. D.R. STRONGLY RELIE D UPON THE ORDER OF THE LD. CIT(A) AND SUBMITTED THAT SO FAR AS THE FIRST PLEA OF THE ASSESSEE IS CONCERNED, THAT THE ASSESSEE HAD INTEREST FREE FUNDS, THE SAME WAS NOT TAKEN BEFORE THE AUTHORITIES BELOW, THEREFORE, THE ASSESSEE NEEDS TO PROVE THE CO-RELATION BETWEEN THE ADVANCE GIVEN AND THE INTEREST FREE ADV ANCE. SUCH A PLEA CANNOT BE ENTERTAINED AND IF THE SAME IS ADMITTED THEN THE MATTER SHOULD BE RESTORED BACK TO THE FILE OF THE A.O. REGARDING THE SECOND P LEA, HE SUBMITTED THAT THE FINDING OF THE LD. CIT(A) SHOULD BE UPHELD WHICH BA SED ON APPRECIATION OF FACTS. 18. WE HAVE HEARD THE RIVAL CONTENTIONS AND ALSO P ERUSED THE RELEVANT MATERIAL PLACED ON RECORD. THE ASSESSEE HAD GIVEN ADVANCE OF RS. 50 LAKHS TO M/S KONARK ENTERPRISES AND RS. 32 LAKHS TO ITS SIST ER CONCERN, M/S GAHLOT CONSTRUCTION, WHICH IS A PARTNERSHIP FIRM IN WHICH THERE ARE COMMON PARTNERS. SO FAR AS THE ADVANCE OF RS. 50 LAKHS, IT IS SEEN FROM THE RECORD THAT THE SAID AMOUNT WAS GIVEN FOR PURCHASE OF PLOT OF L AND PERTAINING TO SURVEY NO. 187, HISSA 4A, SITUATED AT VILLAGE KHARGHAR, TA LUQ PANVEL. SINCE THE ASSESSEE IS THE DEVELOPER OF THE PROJECT, THE SAID LAND WAS INTENDED TO BE PURCHASED FOR DEVELOPING THE PROJECT AT PANVEL. HOW EVER, THE TRANSACTION COULD NOT BE MATERIALIZED AS THERE WAS LITIGATION B ETWEEN M/S KONARK ENTERPRISES AND THE STATE OF MAHARASHTRA. THIS IS E VIDENT FROM THE COPY OF PETITION FILED BEFORE THE AUTHORITIES BELOW. ONCE THE ADVANCE HAS BEEN GIVEN FOR THE PURCHASE OF PLOT OF LAND WHICH IS FOR BUSIN ESS PURPOSES THEN NO ADVERSE INFERENCE CAN BE DRAWN SO AS TO DISALLOW TH E INTEREST ON THE GROUND THAT THE SAME IS FOR NON-BUSINESS PURPOSE. SIMILARL Y, THE LOAN TO THE PARTNERSHIP FIRM HAS BEEN IN WHICH THE PARTNERS ARE COMMON. THE SAID FIRM TOO IS ENGAGED IN THE BUSINESS OF DEVELOPER. FURTHE R, FROM THE PERUSAL OF THE ITA 1267,2174,1268& 2175/MUM/13 14 BALANCE SHEET AS POINTED OUT BY THE LD. COUNSEL, IT IS SEEN THAT INTEREST FREE FUNDS IN THE FORM OF CAPITAL IS MORE THAN RS. 2.85 CRORES, WHEREAS THE ADVANCE/LOAN GIVEN IS ONLY RS. 82 LAKHS AND ONCE TH E ASSESSEE HAD INTEREST FREE FUNDS, THEN PRESUMPTION CAN BE DRAWN THAT THE SAME HAS BEEN GIVEN FROM INTEREST FREE FUNDS. THIS PROPOSITION HAVE BE EN UPHELD BY THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF RELIANCE U TILITIES AND POWER LTD. (SUPRA) WHEREIN THE HONBLE HIGH COURT OBSERVED AND HELD AS UNDER:- IF THERE BE INTEREST-FREE FUNDS AVAILABLE TO AN AS SESSEE SUFFICIENT TO MEET ITS INVESTMENTS AND AT THE SAME TIME THE ASSES SEE HAD RAISED A LOAN IT CAN BE PRESUMED THAT THE INVESTMENTS WERE F ROM THE INTEREST- FREE FUNDS AVAILABLE. IN OUR OPINION THE SUPREME CO URT IN EAST INDIA PHARMACEUTICAL WORKS LTD.'S CASE (SUPRA) HAD THE OC CASION TO CONSIDER THE DECISION OF THE CALCUTTA HIGH COURT IN WOOLCOMB ERS OF INDIA LTD. 'S CASE (SUPRA) WHERE A SIMILAR ISSUE HAD ARISEN. BEFO RE THE SUPREME COURT IT WAS ARGUED THAT IT SHOULD HAVE BEEN PRESUM ED THAT IN ESSENCE AND TRUE CHARACTER THE TAXES WERE PAID OUT OF THE P ROFITS OF THE RELEVANT YEAR AND NOT OUT OF THE OVERDRAFT ACCOUNT FOR THE R UNNING OF THE BUSINESS AND IN THESE CIRCUMSTANCES THE APPELLANT W AS ENTITLED TO CLAIM THE DEDUCTIONS. THE SUPREME COURT NOTED THAT THE ARGUMENT HAD CONSIDERABLE FORCE, BUT CONSIDERING THE FACT THAT T HE CONTENTION HAD NOT BEEN ADVANCED EARLIER IT DID NOT REQUIRE TO BE ANSW ERED. IT THEN NOTED THAT IN WOOCOMBERS OF INDIA LTD.S CASE (SUPRA) THE CALCUTTA HIGH COURT HAD COME TO THE CONCLUSION THAT THE PROFITS WERE SU FFICIENT TO MEET THE ADVANCE TAX LIABILITY AND THE PROFITS WERE DEPOSITE D IN THE OVERDRAFT ACCOUNT OF THE ASSESSEE AND IN SUCH A CASE IT SHOUL D BE PRESUMED THAT THE TAXES WERE PAID OUT OF THE PROFITS OF THE YEAR AND NOT OUT OF THE OVERDRAFT ACCOUNT FOR THE RUNNING OF THE BUSINESS. IT NOTED THAT TO RAISE THE PRESUMPTION, THERE WAS SUFFICIENT MATERIAL AND THE ASSESSEE HAD URGED THE CONTENTION BEFORE THE HIGH COURT. THE PRI NCIPLE THEREFORE WOULD BE THAT IF THERE ARE FUNDS AVAILABLE BOTH INT EREST-FREE AND OVERDRAFT AND/OR LOANS TAKEN, THEN A PRESUMPTION WO ULD ARISE THAT INVESTMENTS WOULD BE OUT OF THE INTEREST-FREE FUND GENERATED OR AVAILABLE WITH THE COMPANY, IF THE INTEREST-FREE FU NDS WERE SUFFICIENT TO MEET THE INVESTMENTS. IN THIS CASE THIS PRESUMPTION IS ESTABLISHED CONSIDERING THE FINDING OF FACT BOTH BY THE CIT (AP PEALS) AND ITAT. THUS, ON THIS COUNT ALSO NO DISALLOWANCE IS CALLED FOR. LASTLY, WE AGREE WITH THE ALTERNATIVE CONTENTION OF THE LD. COUNSEL THAT THE ASSESSEE HAS BEEN FOLLOWING PROJECT COMPLETION METHOD AND SUCH INTE REST COST HAVE BEEN CAPITALIZED IN THE ACCOUNT, THEN NO DISALLOWANCE CA N BE MADE IN THIS YEAR. ITA 1267,2174,1268& 2175/MUM/13 15 ACCORDINGLY THE DISALLOWANCE OF INTEREST FOR A SUM OF RS. 6,80,853/- STANDS DELETED AND THE ASSESSEES GROUND ON THIS SCORE IS ALLOWED. 19. IN GROUND NO. 2, THE ASSESSEE HAS CHALLENGED TH E ADDITION OF RS. 4,33,348/- PAID TO NMMC ON ACCOUNT OF STATUTORY DEP OSITS TO THE TOTAL INCOME. 20. THE A.O. NOTED THAT THE ASSESSEE HAD DEBITED AN AMOUNT OF RS. 35,59,491/- ON ACCOUNT OF COMMENCEMENT CERTIFICATE EXPENSES PAID TO NMMC TO WORK-IN-PROGRESS. ON VERIFICATION OF RECEI PT OF PAYMENT, HE FOUND THAT A SUM OF RS. 2,12,140/- IS TOWARDS SECURITY DE POSIT, RS. 98,104/- IS TOWARDS DEBRIS DEPOSITS, RS. 98,104/- IS TOWARDS MO SQUITO DEPOSIT AND RS. 25,000/- IS TOWARDS TREE PLANTATION DEPOSITS WHICH AGGREGATES TO RS. 4,33,348/-. HE HELD THAT SUCH DEPOSIT CANNOT BE ALL OWED. THE ASSESSEE, HOWEVER, SUBMITTED THAT SUCH EXPENSES ARE INCURRED FOR PROCURING THE COMMENCEMENT CERTIFICATE OF THE PROJECT AND THESE A RE NOT REFUNDABLE AND NOT RECEIVED EVEN AFTER COMPLETION OF THE PROJECT. FURTHER, SINCE THE ASSESSEE HAS BEEN FOLLOWING PROJECT COMPLETION METHOD, WHERE IN ALL THE EXPENSES HAVE BEEN DEBITED TO WIP, THEREFORE, SUCH DISALLOWANCE C ANNOT BE ADDED TO THE TOTAL INCOME BUT WILL GO TO REDUCE THE WIP. THE AC TION OF THE A.O. HAS BEEN AFFIRMED BY THE LD. CIT(A). 21. AFTER HEARING BOTH THE SIDES, FIRST OF ALL, WE DO NOT FIND ANY REASON TO DISALLOW THE SAID AMOUNT, BECAUSE THE ASSESSEE HAS DEBITED THE SAME TO WIP AND IF AT ALL ANY DISALLOWANCE IS CALLED FOR, THEN THE SAME WILL GO TO REDUCE FROM THE WIP. IT CANNOT BE ADDED TO THE TOTAL INCOM E OF THE ASSESSEE DURING THE YEAR. ON THIS GROUND ALONE, WE DO NOT FIND ANY REASON TO UPHOLD SUCH DISALLOWANCE. ACCORDINGLY, GROUND NO. 2 RAISED BY THE ASSESSEE IS TREATED AS ALLOWED. ITA 1267,2174,1268& 2175/MUM/13 16 22. IN GROUND NO. 3, THE ASSESSEE HAS CHALLENGED TH E ADDITION OF RS. 16,292/- PAID TOWARDS PROFESSIONAL FEES FOR REGISTR ATION OF TRADEMARK WITH LOGO ON THE GROUND THAT THE SAME IS CAPITAL EXPENDI TURE. 23. IN THIS REGARD, THE ASSESSEE HAD CONTENDED THAT THIS EXPENSE HAS BEEN DEBITED TO WIP AND, THEREFORE, IN VIEW OF THE REASO NING GIVEN ABOVE, THE SAME CANNOT BE DISALLOWED AND ADDED TO THE INCOME OF THE ASSESSEE FOR THIS YEAR, BECAUSE IF AT ALL THE DISALLOWANCE IS CALLED FOR, I T WILL GO TO REDUCE THE WIP ONLY. ACCORDINGLY, THE DISALLOWANCE MADE IN THIS Y EAR CANNOT BE SUSTAINED. GROUND NO. 3 IS ALLOWED. 24. GROUND NO. 4 IS ALTERNATIVE ARGUMENT WHICH HAS ALREADY BEEN DEALT FOR AND NO SEPARATE ADJUDICATION IS REQUIRED. 25. IN THE RESULT, ASSESSEES APPEAL IN ITA NO. 126 7/MUM/2013 FOR A.Y. 2008-09 IS ALLOWED. 26. IN ITA NO. 1268/MUM/2013 FOR A.Y. 2009-10, THE FOLLOWING GROUNDS HAVE BEEN RAISED BY THE ASSESSEE:- BECAUSE, LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN UPHOLDING THE ESTIMATED DISALLOWANCE OF INTEREST U/S.36(L)(III) O N LOANS AMOUNTING TO RS.2,67,00,OOOI- AND DIRECTING THE AO TO RECALCULAT E THE SAME IGNORING THE FACT THAT THE ADVANCES WERE MADE FOR BUSINESS P URPOSE AND SHOULD NOT BE CONSIDERED FOR INTEREST DISALLOWANCE. WITHOUT PREJUDICE TO THE ABOVE 2. BECAUSE, LD. CIT(A) HAS ERRED IN NOT APPRECIATIN G THAT EVEN IF THE ABOVE EXPENSE IS DISALLOWABLE, THE SAME OUGHT TO BE REDUCED FROM THE WIP INSTEAD OF MAKING A SEPARATE ADDITION. 27. IT HAS BEEN ADMITTED BY BOTH PARTIES THAT THIS ISSUE IS SIMILAR TO GROUND NO. 1 RAISED BY THE ASSESSEE IN APPEAL FOR A.Y. 200 8-09, EXCEPT FOR THE FACT THAT THE ASSESSEE HAD GIVEN ADVANCE OF RS. 2,72,50, 000/- TO THREE MORE ITA 1267,2174,1268& 2175/MUM/13 17 PARTIES, OTHER THAN M/S GAHLOT CONSTRUCTIONS AND M/ S KONARK ENTERPRISES. THE DETAILS OF SUCH ADVANCES ARE AS UNDER:- SN PARTICULAR DATE AMOUNT (RS.) 1 GAHLOT CONSTRUCTIONS 18/06/2007 32,00,000/- 2 KONARK ENTERPRISES 14/08/2007 50,00,000/- 3 RAJA MIRANI 05/08/2008 30/08/2008 03/08/2008 11/10/2008 29/10/2008 TOTAL 50,00,000/- 25,00,000/- 15,00,000/- 15,00,000/- 15,00,000/- 1,20,00,000/- 4 RAMESH L. BHANUSHALI 16/12/2008 23/01/2009 63,00,000/- 2,00,000/- AS REGARDS THE LOAN/ADVANCE GIVEN TO M/S KONARK ENT ERPRISES AND M/S GAHLOT CONSTRUCTIONS, THE SAME IS COMING FROM EARLI ER YEARS, THEREFORE, THE FINDING GIVEN THEREIN WILL APPLY MUTATIS-MUTANDIS I N THIS YEAR ALSO. AS REGARDS THE ADVANCE GIVEN TO RAJA MIRANI, THE SAME WAS GIVE N FOR THE PURCHASE OF PLOT OF LAND AT PANVEL WHICH WAS AUCTIONED BY THE COURT RECEIVER AFTER REFERENCE TO DEBT RECOVERY TRIBUNAL. THE SAID PURCHASE OF PLOT W AS MADE BY M/S GAJRA GROUP THROUGH ITS NOMINEE SHRI RAJA RATILAL MIRANI. THE DEED OF CONVEYANCE IN RESPECT OF THIS PROPERTY WAS ALSO EXECUTED ON 3- 6-2008. LATER ON, THE ASSESSEE FIRM ENTERED INTO A JOINT DEVELOPMENT AGRE EMENT WITH RAJA RATILAL MIRANI AND, THEREFORE, THE SAME WAS FOR BUSINESS PU RPOSE. SIMILARLY, LOAN GIVEN TO OTHER TWO PERSONS WERE ALSO FOR THE PURPOS E OF BUSINESS AND SAME ARGUMENT HAS BEEN PLACED BEFORE US THAT IT IS OUT O F SURPLUS FUNDS. LASTLY, IT HAS BEEN CONTENDED THAT THE INTEREST DEBITED TO THE WIP, THEREFORE, NO DISALLOWANCE CAN BE MADE IN THIS YEAR. 28. AFTER HEARING BOTH THE PARTIES, WE FIND THAT SO FAR AS THE ADVANCE/LOAN GIVEN TO RAJA MIRANI, THE SAME APPEARS TO BE PURELY FOR BUSINESS PURPOSE, THERERE, NO DISALLOWANCE IS CALLED FOR. REGARDING OTHER TWO PARTIES ALSO, IT IS SEEN THAT THE ASSESEE HAD INTEREST FREE FUNDS IN TH E CAPITAL ACCOUNT WHICH ITA 1267,2174,1268& 2175/MUM/13 18 WAS AT RS. 3,52,58,440/-, WHEREAS THE ADVANCE GIVEN TO THESE TWO PARTIES COMES TO RS. 70 LAKHS AND IF OTHER ADVANCES ARE ALS O TAKEN INTO CONSIDERATION, THEN THE SAME IS APPROXIMATELY RS. 2.72 CRORES. THU S IN VIEW OF THE DECISION IN THE CASE OF RELIANCE UTILITIES & POWER LTD. (SUP RA), NO DISALLOWANCE OF INTEREST CAN BE MADE ON THE GROUND THAT INTEREST FR EE FUNDS HAVE BEEN GIVEN FOR THE PURPOSE OF BUSINESS. THUS, THE DISALLOWANCE OF INTEREST ON PROPORTIONATE BASIS IS DELETED. 29. LASTLY, IN ANY CASE, NO DISALLOWANCE CAN BE MAD E TO THE INCOME OF THE ASSESSEE IN THIS YEAR AS THE ASSESSEE HAD DEBITED T HE SAID EXPENSES TO THE WIP AND ANY DISALLOWANCE IS MADE, THEN IT WILL GO T O REDUCE THE WIP. HENCE, NO ADDITION CAN BE MADE ON THIS GROUND ALSO. 30. IN THE RESULT, BOTH THE APPEALS OF TH E ASSESSEE ARE ALLOWED, WHEREAS BOTH THE APPEALS OF THE REVENUE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 15 TH MAY, 2015. !' # $% &! ' 15-05-2015 ( ) SD/- SD/- (G.S. PANNU) (AMIT SHUKLA ACCOUNTANT MEMBER JUDICIAL MEMBER $ 4 MUMBAI ; &! DATED 15-05-2015 [ .5../ R.K. , SR. PS ITA 1267,2174,1268& 2175/MUM/13 19 ! '#$% &%# / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. 6 () / THE CIT(A) 4,, MUMBAI 4. 6 / CIT 3, MUMBAI 5. 9:( 55;< , ;< , $ 4 / DR, ITAT, MUMBAI A BENCH 6. (>? @ / GUARD FILE. ' / BY ORDER, 9 5 //TRUE COPY// (/') * ( DY./ASSTT. REGISTRAR) , $ 4 / ITAT, MUMBAI