KYRA INVESTMENTS, MUMBAI V. ITO 15(1)(1), MUMBAI

ITA 1365/MUM/2011

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 88425 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-02-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: I
• Next Hearing Date: 29-12-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 15-02-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SACHIDANAND DUBEY
• Assessee Lawyers: MAYUR KISNADWALLA; MAYUR DHAMI
• Keywords: Revenue expenditure
• Section: 143(3)

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL I , BENCH MUMBAI , BEFORE SHRI R.C.SHARMA , A M & SHRI VIJAY PAL RAO , J M ITA NO. 1365 / MUM/20 1 1 ( ASSESSMENT YEAR : 200 7 - 0 8 ) KYRA INVESTMENTS, 8/40, GRANT BUILDING, ARTHUR BUNDER ROAD, COLABA, MUMBAI - 400 005 VS. ITO, 15 (1)( 1 ) , MUMBAI - 7 PAN/GIR NO. : A AGF K 3932 P ( A PPELLANT ) .. ( RESPONDENT ) /ASSESSEE BY : SHRI MAYUR KISNADWALLA & SHRI MAYUR DHAMI /REVENUE BY : SHRI SACHIDANAND DUBEY DATE OF HEARING : 29 TH DECEMBER,2014 DATE OF PRONOUNCEMENT : 18 TH FEBRUARY, 201 5 O R D E R PER R.C.SHARMA ( A .M.) : TH IS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF CIT(A) , DATED 22 - 12 - 2010, FOR THE ASSESSMENT YEAR 200 7 - 0 8 , IN THE MATTER OF ORDER PASSED U NDER SECTION 143(3) OF THE I.T. ACT, WHEREIN FOLLOWING GROUND HAS BEEN TAKEN BY THE ASSESSEE : - 1. THE L EARNED CIT(A) - 26 HAS ERRED IN DISALLOWING THE ADMINISTRATIVE AND FINANCIAL EXPENSES TO VARIOUS PROJECTS ARBITRARILY ON THE GROUNDS THAT THESE EXPENSES ARE RELATED TO VARIOUS PROJECTS, HOWEVER, THE FACT IS THAT THIS EXPENSES ARE GENERAL OFFICE EXPENSES AND WOULD BE INCURRED EVEN IF NO PROJECTS ARE ON GOING. THE SAME METHOD HAS BEEN ADOPTED SINCE INCEPTION AND HAS BEEN ALLOWED DURING THE ASSESSMENT IN THE PREVIOUS YEARS ALSO. IN VIEW OF THE ABOVE THE APPELLANT CRAVES THE BASIS ON WHICH THE DISALLOWANCE IS MADE UNJUSTIFIED AND SHOULD BE DELETED. ITA NO. 1365 /20 11 2 2. RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORD PERUSED. FROM THE RECORD WE FOUND THAT ASSESSEE IS ENGAGED IN B UILDING AND CONSTRUCTION ACTIVITY. DURING THE YEAR UNDER CONSIDERATION, ADMINISTRATIVE AND FINANCIAL EXPENSES OF RS, 25,31,478/ - WAS DISALLOWED BY THE ASSESSING OFFICER BY ALLOCATING THE INDIRECT EXPENSES OF RS.47,96,487/ - TO THE VARIOUS PROJECTS. THE AO MENTIONED THAT ASSESSEE HAD UNDERT AKEN 3 PROJECTS AS DEVELOPERS VIZ. VILLA KAVARANA & CLEFEPETE AT, BANDRA (W) AND PRANETA AT JUHE, MUMBAI, OUT OF THE PROJECTS, KAVARANA IS COMPLETED DURING THE YEAR HOWEVER, OTHER TWO PROJECTS WERE ON GOING AND THE PROJECT VIZ. PRAAETA WAS COMPLETED ONLY UPTO 75%, AND CLEFEPETE UPTO 15% . DUE TO THAT THE INVESTMENT IN THESE PROJECTS WERE SHOWN AS WORK - IN - PR OGRESS . AC CORDING TO THE AO , ASSESSEE HAS PREPARED A CONTRACT AND PROFIT AND LOSS ACCOUNT SHOWING NET INCO ME FROM PRANE T A AND CLEFEPETE PROJECT HOWEVER, I N P & L ACCOUNT, ASSESSEE HAD DEBITED OFFICE EXPENSES OF RS.47,96, 487/ - AND ENTIRE OFFICE EXPENSES HAD BEEN CLAIMED AGAINST THE GROSS PROFIT OF KAVARANA PROJECT, WHICH ACCORDING TO THE AO IS NOT ALLOWABLE BECAUSE SUCH EXPE NSES ARE ALSO RELEVANT AND RELATED TO OTHER TWO PROJECTS, THEREFORE, IN VIEW OF THIS, THE AO ISSUED A NOTICE U/S.142(1) DATED 10.12.2009 ASKING THE ASSESSEE AS TO WHY ENTIRE OFFICE EXPENSES SHOULD BE ALLOWED IN RESPECT OF PROFIT OF KAVARANA PROJECT AND WH Y THERE SH OULD NOT BE RE - ALLOCATION OF THE OFFICE EXPENSES PROPORTIONATELY IN RESPECT OF OTHER PROJECTS OF WHICH INDEPENDENT PROFIT IS NOT TAKEN IN THE ACCOUNTS. THE REPLY OF THE ASSESSEE DATED 14.12.2009 WAS CONSIDERED BY THE ASSESSING OFFICER BUT WAS NOT FOUND TO BE ACCEPTABLE, HENCE HE HAS PROPORTIONATELY DISALLOWED THE EXPENDITURE . THE AO NOTED THAT IN RESPECT ITA NO. 1365 /20 11 3 OF KAVARANA PROJECT, ASSESSEE SHOWN GROSS PROFIT OF RS.50,82,965/ - BUT DEBITED THE ENTIRE OFFICE EXPENSES OF RS.47,96,487/ - AND SHOWN THE PROFIT ONLY OF RS.9,38,608 / - INCLUDING RENT OF RS. 6,30,000/ - , THUS, ACCORDING TO THE AO, THERE IS VERY LESS PROFIT DISCLOSED BY THE ASSESSEE IN RESPECT OF THE PROJECT KAVARANA AND EXPENSES RELATED TO OTHER PROJECT HAS NOT BEEN CAPITALIZED AND FURTHER HE HAS OBS ERVED THAT A SSESSEE IS NOT ABLE TO SPECIF Y THE PROJECT - WISE EXPENSES HENCE, SUCH OFFICE EXPENSES HAVE BEEN ALLOCATED PROPORTIONATELY AS RS.22 ,65,008/ - TO THE KAVARANA PROJECT AND INCONSEQUENCE HAS DISALLOWED AN AMOUNT OF RS. 25,31,478/ - AS EXPENDITURE RELEV ANT TO OTHER PROJECT S AND HAS ADDED TO THE TOTAL INCOME OF THE ASSESSEE. WE FOUND THAT THE ASSESSEE HAS DEBITED INTEREST EXPENDITURE OF RS. 12,81,690/ - UNDER THE HEAD OFFICE EXPENSES WHEREAS THERE IS SUBSTANTIAL INTEREST BEARING LOAN OF RS. 2,98,25,519/ - F ROM ZOROASTRIAN CO - OP BANK LTD. WHICH HAS NOT BEEN FULLY UTILIZED IN RESPECT OF KAVARANA PROJECT ONLY BUT BY OTHER PROJECTS ALSO. SUCH INTEREST EXPENSES ARE LIABLE TO APPORTIONED PROJECTWISE. ALL OTHER EXPENSES WERE INDIRECT EXPENSES LIABLE TO BE DEBITED T O PROFIT AND LOSS ACCOUNT. 3. THE ISSUE REGARDING APPORTIONMENT OF INTEREST EXPENDITURE PERTAINING TO PARTICULAR PROJECT IS REQUIRED TO BE TREATED AS WORK - IN - PROGRESS IN RESPECT OF THE CONTRACTS NOT COMPLETED, HAS BEEN DECIDED BY ITAT SPECIAL BENCH IN THE CASE OF WALL STREET CONSTRUCTION LTD., 101 ITD 156(MUM)(SB) , WHEREIN IT WAS HELD THAT WHERE THE ASSESSEE WAS FOLLOWING PROJECT COMPLETION METHOD OF ACCOUNT, THE INTEREST IDENTIFIABLE WITH THAT PROJECT SHOULD BE ALLOWED ONLY IN THE YEAR WHEN THE PROJECT IS COMPLETED AND THE INCOME FROM THAT PROJECT IS OFFERED FOR TAXATION, SUCH ITA NO. 1365 /20 11 4 INTEREST EXPENDITURE CANNOT BE DEDUCTED AS PERIOD COST FROM YEAR TO YEAR. THE TRUE PROFITS IN SUCH A CASE CAN BE DETERMINED ONLY WHEN THE ENTIRE COST OF THE PROJECT, DIRECT OR INDIREC T, INCLUDING FINANCE COST IS ADDED TO THE VALUE OF WORK - IN - PROGRESS. 4. IN VIEW OF THE ABOVE DISCUSSION, WE RESTORE THE MATTER BACK TO THE FILE OF AO FOR DETERMINING PRECISELY THE FINANCE COST ATTRIBUTABLE TO THE PROJECT WHICH HAS NOT BEEN COMPLETED. SUCH FINANCE COST IS NOT REQUIRED TO BE ALLOWED AS REVENUE EXPENDITURE AGAINST THE PROFIT ON PROJECTS WHICH HAVE BEEN COMPLETED. THE ASSESSEE IS ALSO DIRECTED TO FURNISH COMPLETE DETAILS WITH REGARD TO THE FUNDS UTILIZED FOR VARIOUS PROJECTS, SO THAT INTEREST PERTAINING TO THE SAME CAN BE DETERMINED AND ADDED TO THE WORK IN PROGRESS. THE ONLY INTEREST PERTAINING TO THE PROJECTS WHICH HAVE BEEN COMPLETED IS REQUIRED TO BE ALLOWED AS REVENUE EXPENDITURE AGAINST THAT PROJECT. WE DIRECT ACCORDINGLY. 5 . IN THE RESU LT, APPEAL FILED BY THE ASSESSEE IS ALLOWED IN PART FOR STATISTICAL PURPOSES . ORDER PRONOUNCED IN THE OPEN COURT ON THIS 18 TH FEB . 201 5 . 18 TH FEB ,201 5 SD/ - SD/ - ( ) ( VIJAY PA L RAO ) ( ) ( R.C.SHARMA ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI ; DATED 18 / 0 2 /201 5 /PKM , PS COPY OF TH E ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. / THE CIT(A) , MUMBAI. 4. / CIT 5. / DR, ITAT, MUMBAI ITA NO. 1365 /20 11 5 / BY ORDER, ( ASSTT. REGISTRAR) / ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY//