Shri Arun Pitamber Sheth, Pune V. ACIT, Pune

ITA 1441/PUN/2012

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 2630 (ITAT-PUNE)
• Duration Of Justice: 3 year(s) 7 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-02-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 24-11-2015
• Assessment Year: 2004-2005
• Appeal Filed On: 28-06-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Business expenditure; Revenue expenditure
• Section: 143(3); 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A , PUNE , , BEFORE MS. SUSHMA CHOWLA, JM AND SHRI PRADIP KUMAR KEDIA , A M . / ITA NO. 1439 /PN/20 1 2 / ASSESSMENT YEAR: 2001 - 02 SHRI ARUN PITAMBER SHETH, 150 - A, SUNITA BUNGALOW, DAULATRAM MANDIR ROAD, MUKUNDNAGAR, PUNE 4110 37 . / APPELLANT PAN: A CGPS6044Q VS. THE ASST. COMMISSIONER OF INCOME TAX, CIRCLE 3 , PUNE . / RESPONDENT CIRCLE 3 , PUNE . / RESPONDENT . / ITA NO S . 1440 & 1441 /PN/201 2 / ASSESSMENT YEAR S : 2003 - 04 & 2004 - 05 SHRI ARUN PITAMBER SHETH, 150 - A, SUNITA BUNGALOW, DAULATRAM MANDIR ROAD, MUKUNDNAGAR, PUNE 411037 . / APPELLANT PAN: ACGPS6044Q VS. THE DY . COMMISSIONER OF INCOME TAX, CIRCLE 3, PUNE . / RESPONDENT / APPELLANT BY : SHRI M.K. KULKARNI / RESPONDENT BY : SHRI DHEERAJ KUMAR JAIN ITA NO S. 1439 TO 1441/PN/2012 ARUN PITAMBER SHETH 2 / DATE OF HEARING : 22 . 0 2 .201 6 / DATE OF PRONOUNCEMENT: 26 . 0 2 .201 6 / ORDER PER SUSHMA CHOWLA, JM: OUT OF T HIS BUNCH OF APPEAL S , ONE APPEAL FILED BY THE ASSESSEE IS AGAINST ORDER OF CIT (A) - II, PU NE , DATED 2 9 . 03 .201 2 RELATING TO ASSESSMENT YEAR 200 1 - 0 2 AGAINST ORDER PASSED UNDER SECTION 250 OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT) . THE OTHER TWO APPEALS FILED BY THE ASSESSEE ARE AGAINST CONSOLIDATED ORDER OF CIT (A) - II, PUNE , DATED 30 . 03 .20 1 2 RELATING TO ASSESSMENT YEAR S 200 3 - 0 4 AND 2004 - 05 AGAINST RESPECTIVE ORDER S PASSED UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT) . 2. THIS BUNCH OF APPEALS RELAT ING TO THE SAME ASSESSEE WERE HEARD TOGETHER AND 2. THIS BUNCH OF APPEALS RELAT ING TO THE SAME ASSESSEE WERE HEARD TOGETHER AND ARE BEING DISPOSED O F BY THIS CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. THE ISSUE RAISED IN ALL THE APPEALS IS IDENTICAL AND WE PROCEED TO DECIDE THE PRESENT APPEALS AFTER REFERRING TO THE FACTS IN ITA NO.1439/PN/2012 RELATING TO ASSESSMENT YEAR 2001 - 02. 3. THE ASSESS EE IN ITA NO. 1439 /PN/201 2 HAS RAISED THE FOLLOWING GROUNDS OF 3. THE ASSESS EE IN ITA NO. 1439 /PN/201 2 HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: - 1) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. C I T(A) OUGHT TO HAVE PASSED A 'SPEAKING ORDER' AS WARRANTED BY S. 250(6) OF THE ACT AND OUGHT TO HAVE FOLLOWED THE DIREC TIONS OF THE HON'BLE TRIBUNAL ISSUED WHILE DECIDING THE APPEAL OF THE ASSESSEE FOR A. Y. 2001 - 02 IN ITA NO. 1595 S/P N /200 5 DT. 21 ST JULY 2006. THE ORDER OF THE LD. C I T(A) BEING NOT IN CONSONANCE WITH THE PROVISION OF LAW BE QUASHED ALLOWING THE APPEAL. 2) O N THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. C I T(A) FAILED TO TAKE INTO ACCOUNT THE EXPENSES DISALLOWED WERE DEBITED IN THE ACCOUNTS AND ALSO FORMED THE PART AND PARCEL OF CLOSING WIP THE ACCOUNTS AND ALSO FORMED THE PART AND PARCEL OF CLOSING WIP THE VALUATION OF WHICH WAS DONE BY THE APPELLANT BY A METHOD CONSISTENTLY FOLLOWED BY IT. IT IS ABSURD TO DISALLOW EXPENSES WITHOUT DISTURBING THE CLOSING WIP WHICH ACTION IS CONTRARY TO ACCOUNTING PRINCIPLES. THE LD. ITA NO S. 1439 TO 1441/PN/2012 ARUN PITAMBER SHETH 3 C I T(A) FAILED TO CONSIDER THE CONSISTENT METHOD FOLLOWED FOR VALUATION OF WIP AND SIMPLY CONFIRMED THE DISALLOWANCE AS MADE BY A.O. 3) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. C I T(A) OUGHT TO HAVE CONSIDERED THAT THE PROPOSITION THAT THE DISALLOWANCE OF EXPENSES MEANS SUCH EXPENSES WERE NEVER INCURRED FOR THE PURPOSES OF THE BUSINESS AS THEY WERE NOT GENUINE. IN THE CIRCUMSTANCES THE LD. C I T(A) WAS UNDER AN OBLIGATION TO CONSIDER THE EFFECT OF HIS DECISION IN CONFIRMING THE DISALLOWANCES OF EXPENSES SO MADE BY A.O. ON THE CLOSING WIP WHICH WAS THEN WITHOUT SUCH COM PONENT OF EXPENSES. THE LD. C I T(A) FAILED IN THIS RESPECT AND THEREFORE, HIS DECISION TO CONFIRM THE DISALLOWANCE MADE BY A.O. COULD NOT BE UPHELD. IT BE QUASHED. 4) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. C I T(A) HAVING ACCEPTED THE ACCOUNTING METHOD CONSISTENTLY FOLLOWED BY THE ASSESSEE IN AS MUCH AS THE CONTRACT RECEIPTS IN FULL MENTIONED IN THE AGREEMENTS EXECUTED WITH CUSTOMER WAS CREDITED TO INCOME ACCOUNT IN TRADING ACCOUNT, EVEN THOUGH THEY WERE NOT ACCRUED UNDER S.5 OF TH E ACT, THE ADDITION ON ACCOUNT OF EXPENSES HELD MUST HAVE BEEN DEBITED TO TRADING ACCOUNT AND THEREBY INCREASING THE VALUE OF CLOSING WIP AMOUNTS TO TAXATION OF THE SAME INCOME TWICE IN THE SAME YEAR. THE ADDITION BEING UNWARRANTED BE DELETED. 5) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW IT IS THE LD. C I T(A) WHO HAS OBSERVED THAT 'WORK - IN - PROGRESS' IS A RECEIPT OF THE BUSINESS AS A RESULT OF WORK DONE DURING THE YEAR. WHETHER WHEN ASSESSEE WAS CREDITING THE ENTIRE AGREEMENT VALUE TO INCOME I N TRADING A/C THE WORK - IN - PROGRESS FIGURE IN TRADING ACCOUNT WHICH IS NOT A PROJECT COMPLETION METHOD AS OBSERVED BY LD. C I T(A) AND THEREFORE, INCOME ARRIVED AT WOULD BE A DISTORTED FIGURE OF INCOME NOT PERMISSIBLE UNDER THE LAW? 6) WHETHER ON THE FACTS A ND CIRCUMSTANCES OF THE CASE AND IN LAW WHEN LD. C I T(A) 6) WHETHER ON THE FACTS A ND CIRCUMSTANCES OF THE CASE AND IN LAW WHEN LD. C I T(A) CONFIRMS THE ACTION OF THE A. O. IN ENHANCING THE VALUE OF CLOSING WIP BY RS. 38,28,448/ - THE LD. C I T(A) THEN OUGHT TO HAVE DIRECTED THE A. O. TO CONSIDER THIS AS AN OPENING WIP FOR A. Y. 2002 - 03 AS PER SETTLED PRINCIPLES OF LAW? 7) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW - THE LD. C I T(A) FAILED TO APPRECIATE THE DIRECTIONS ISSUED BY HON'BLE TRIBUNAL VIDE PARA 14 OF THE ORDER. IN SUM AND SUBSTANCE THE HON'BLE TRIBUNAL DIRECTED THE LD. C I T(A) WHETHER INCOME, PROFITS AND GAINS CAN PROPERLY BE DEDUCED THEREFROM AND TO PROCEED ACCORDING TO HIS JUDGMENT ON THIS QUESTION. THE LD. C I T(A) FAILED TO ANSWER THIS QUESTION. SIMPLY BY ENHANCING CLOSING STOCK IT CANNOT BE SAID INCOME, PROFIT AND GAINS CANNOT BE DEDUCED THEREFROM. THE BASIC DIRECTIONS HAVE NOT BEEN FOLLOWED. 8) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW AND IN THE CONTEXT THE LD. CIT (A) WAS NOT JUSTIFIED IN CONFIRMING THE DISALLOWANCE OF SUPERVISION CHARGES OF RS.3,60,565/ - MADE BY THE A. O. THE DISALLOWANCE BE QUASHED. 9) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW AND IN THE CONTEXT THE LD. CIT(A) WAS NOT JUSTIFIED IN CONFIRMING THE DISALLOWANCE OF SITE EXPENSES OF RS. 98,461/ - MADE BY THE A. O. THE DISALLOWANCE BE QUASHED. 10) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW AND IN THE CONTEXT THE LD. CIT(A) WAS NOT JUSTIFIED IN CONFIRMING THE DISALLOWANCE OF SOCIETY CHARGES OF RS. 82,815/ - MADE BY THE A. O. THE DISALLOWANCE BE QUASHED. 11) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW AND IN THE CONTEXT THE LD. CIT(A) WAS NOT JUSTIFIED IN CONFIRMING THE DISALLOWANCE OF INTEREST ON LOAN OF RS. 10 ,36,730/ - MADE BY THE A. O. THE DISALLOWANCE BE QUASHED. ITA NO S. 1439 TO 1441/PN/2012 ARUN PITAMBER SHETH 4 12) ON THE FACTS AND CIRCUMSTANCES OF THE CA SE AND IN LAW AND IN THE CONTEXT THE LD. CIT(A) WAS NOT JUSTIFIED IN CONFIRMING THE DISALLOWANCE OF METER EXPENSES (MSE B ) OF RS.22,49,872/ - MADE BY THE A. O. THE DISALLOWANCE BE QUASHED. 13) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LEVY OF INTEREST U/S 234 B AND 234C IS NOT JUSTIFIED AND IN THE CIRCUMSTANCES IT BE DELETED. 14) THE APPELLANT CRAVES/LEAVE TO ADD, AMEND OR ALTER ANY OF THE ABOVE GROUNDS OF APPEAL. 4. BRIEFLY, IN THE FACTS OF THE PRESENT CASE, THE ASSESSEE WAS A BUILD ING C ONTRACTOR CARRYING ON THE CONSTRUCTION OF OWNERSHIP SCHEM ES OF SHOPS / RESIDENTIAL FLATS , ETC . DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAS SHOWN CLOSING WORK - IN - PROGRESS OF RS. 2,57,50,000/ - IN THE TRADING ACCOUNT. THE ASSESSEE WAS ASKED TO EXPLAIN THE METHOD ADOPTED FOR VALUATION OF WORK - IN - PROGRESS. THE SUBMISSIONS OF THE ASSESSEE IN THIS REGARD THAT AGAINST RECEIPTS ON ACCOUNT OF BOOKING OF FLATS DECLARED AT RS. 3,16,10,690/ - , T HE TOTAL VALUATION OF WORK - IN - PROGRESS WAS RS.2.57 CRORES. THE METHOD WHICH WAS CONSISTENTLY FOLLOWED FOR WORKING OUT THE WORK - IN - PROGRESS WAS EXPLAINED BY THE ASSESSEE, WHICH WAS INCORPORATED UNDER PARA 6 OF THE ASSESSMENT ORDER. THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAD ESTIMATED THE WORK - IN - PROGRESS BY ADOPTING PERCENTAGE COMPLETION METHOD AND THE SAID WORK - IN - PROGRESS HAD NO RELEVANCE WITH ACTUAL EXPENDITURE INCURRED. FURTHER, ON GOING THROUGH THE PROFIT & LOSS ACCOUNT, THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HA D INCURRED CERTAIN EXPENSES WHICH THOUGH PERTAIN TO THE TRADING ACCOUNT, BUT WERE DEBITED TO THE PROFIT & LOSS ACCOUNT. THE EXPENSES WERE AS UNDER: - 1. SUPERVISION CHARGES RS. 3,60,565/ - 2. SITE EXPENSES RS. 98,161/ - 3. SOCIETY EXPENSES RS . 82,815/ - 4. INTEREST ON LOAN RS. 10, 36,730/ - 5. METER EXPENSES (MSEB) RS. 22,49,872/ - --------------------- RS.38,28,448/ - ============ ITA NO S. 1439 TO 1441/PN/2012 ARUN PITAMBER SHETH 5 5. THE ASSESSING OFFICER THUS, CONSIDERED THE EXPENSES AS PART OF TRADING ACCOUNT AN D INCLUDED THE SAME IN CLOSING WORK - IN - PROGRESS RESULTING IN ADDITION OF RS. 38,28,448/ - TO BE MADE TO THE VALUE OF CLOSING STOCK. THE INCOME OF THE ASSESSEE WAS THUS, ENHANCED TO THAT EXTENT. 6. BEFORE THE CIT(A), THE ASSESSEE EXPLAINED THE DETAILS OF PROJECTS UNDERTAKEN AND ALSO THE DETAILS OF CLOSING VALUE OF WORK - IN - PROGRESS. FURTHER, THE ASSESSEE CHALLENGED THE ADDITION OF RS. 38,28,448/ - AND POINTED OUT THAT WHERE WHETHER THE SAID EXPENSES COULD BE CONSIDERED AS DIRECT EXPENSES DEBITABLE TO TRADING ACCOUNT. THE ASSESSEE IN TURN, EXPLAINED THE NATURE OF EACH OF THE EXPENSES BEFORE THE CIT(A) AND THE SUBMISSIONS OF THE ASSESSEE IN THIS REGARD ARE INCORPORATED AT PAGES 9 TO 13 OF THE APPELLATE ORDER. THE CIT(A) IN THE FIRST ROUND, UPHELD THE ORDER OF ASSESSING OFFICER, WHICH WAS AGITATED BEFORE THE TRIBUNAL AND THE TRIBUNAL RESTORED THE ISSUE BACK TO THE FILE OF CIT(A) FOR DE NOVO EXAMINATION OF THE ISSUE. IN THE SECOND ROUND OF THE APPELLATE PROCEEDINGS, THE CIT(A) WAS OF THE VIEW THAT THE EXPENSES WHICH WERE DIRECTLY ATTRIBUTABLE TO ANY PARTICULAR CONTRACT SHOULD BE CHARGED TO THE CONTRACT ACCOUNT OR THE TRADING ACCOUNT AND THUS, WOULD FORM PART OF WORK - IN - PROGRESS. VIDE PARA 4.2 AT PAGES 21 ONWARDS, THE CIT(A) TOOK NOTE OF THE INDIVIDUAL DISALLOWA NCES MADE BY THE ASSESSING OFFICER AND WAS OF THE VIEW THAT WHERE THE EXPENSES WERE DIRECTLY RELATABLE TO THE PROJECT WHICH WERE YET TO BE COMPLETED, THEN THE EXPENDITURE HAS TO BE PART OF WORK - IN - PROGRESS AND THE PROPORTIONATE COST IS TO BE SPREAD ON EACH UNIT. THE OBJECTION OF THE ASSESSEE WAS THAT THE SAME WAS ALLOWABLE AS BUSINESS EXPENDITURE AND WAS ALSO CLAIMED AS BUSINESS EXPENDITURE BY DEBITING TO THE PROFIT & LOSS ACCOUNT. THE CIT(A) WAS OF THE VIEW THAT ALL THE DIRECT EXPENSES OF THE PROJECT , SO ME DIRECTLY RELATED TO A PARTICULAR PROJECT AND SOME OF THE EXPENSES ARE DIRECT NATURE BUT INCURRED IN RESPECT OF VARIOUS PROJECTS , NEED TO BE ALLOCATED TO VARIOUS PROJECTS AS PROJECT COST AND THUS, FORM PART OF WORK - IN - PROGRESS. THE CIT(A) FURTHER VIDE P ARA 4.3 ITA NO S. 1439 TO 1441/PN/2012 ARUN PITAMBER SHETH 6 OBSERVED THAT THE EXPENSES SUCH AS OFFICE RENT, OFFICE SALARY, AUDIT FEES, OFFICE EXPENSES MAY BE CLAIMED AS EXPENDITURE FROM YEAR TO YEAR DEPENDING ON METHOD CONSISTENTLY FOLLOWED. HOWEVER, THE INTEREST EXPENDITURE CLAIMED BY THE ASSESSEE AT RS.1 0,36,730/ - UNDER SECTION 36(1)( III ) OF THE ACT WAS TAKEN AS PART OF WORK - IN - PROGRESS . A S W HERE THE ASSESSEE WAS NOT ENGAGED IN ANY OTHER BUSINESS, THE PRE SUMPTION WAS THAT THE LOAN AMOUNT TAKEN BY IT WAS UTILIZED FOR THE CONSTRUCTION BUSINESS. SIMILARLY, THE CIT(A) WAS OF THE VIEW THAT WHERE THE ASSESSEE WAS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING AND WHERE THE LOANS WERE UTILIZED FOR VARIOUS PROJECTS COMPLETED OR OTHERWISE AS WELL AS FOR OTHER BUSINESS PURPOSES AND MEETING INDIRECT EXPENSES, WAS AN UND ISPUTED FACT. SINCE THE ASSESSEE HAD NOT GIVEN BREAK - UP OF THE EXPENDITURE INCURRED FOR THE VARIOUS PROJECTS FOR WHICH, IT HAD CLAIMED THAT THE REVENUE EXPENDITURE UNDER SECTION 36(1)(III) OF THE ACT, HENCE, APPLYING THE MATCHING CONCEPT, THE SAID EXPENDI TURE WAS TREATED AS PART OF WORK - IN - PROGRESS. SIMILARLY, THE OTHER EXPENDITURE CLAIMED BY THE ASSESSEE WAS ALSO DISALLOWED ON SIMILAR GROUNDS. 7. THE ASSESSEE IS IN APPEAL AGAINST THE ORDER OF CIT(A). 8. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASS ESSEE POINTED OUT THAT THE ASSESSEE WAS A BUILDING CONTRACTOR AND CERTAIN EXPENSES WERE CLAIMED AS ALLOWABLE UNDER SECTION 37(1) OF THE ACT. HOWEVER, THE ASSESSING OFFICER AND THE CIT(A) HELD THAT THE SAID EXPENDITURE WAS TRADING EXPENDITURE AND SINCE THE PROJECTS UNDERTAKEN BY THE ASSESSEE WERE UNDER CONSTRUCTION , THEN THE SAID COSTS WERE TO BE PART OF WORK - IN - PROGRESS TO BE APPORTIONED AGAINST THE UNITS SOLD BY THE ASSESSEE. OUR ATTENTION WAS DRAWN TO THE NATURE OF EXPENDITURE BOOKED BY THE ASSESSEE AND IT WAS POINTED OUT THAT ALL THESE EXPENSES WERE ALLOWABLE AS REVENUE EXPENDITURE IN THE HANDS OF ASSESSEE. 9. THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE ON THE OTHER HAND, PLACED RELIANCE ON THE ORDER OF CIT(A). ITA NO S. 1439 TO 1441/PN/2012 ARUN PITAMBER SHETH 7 10. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE ISSUE ARISING BEFORE US IS WHETHER THE EXPENDITURE CLAIMED BY THE ASSESSEE IS REVENUE IN NATURE, WHICH IN TURN, IS ALLOWABLE IN THE HANDS OF ASSESSEE UNDER SECTION 37(1) OF THE ACT OR SINCE THE ASSESSEE WAS FOLLOWIN G PROJECT COMPLETION METHOD, THE SAID EXPENSES WERE TO BE CARRIED FORWARD AS WORK - IN - PROGRESS , TO BE ALLOWED IN THE RESPECTIVE YEAR WHEN THE UNITS WERE SOLD. 11. IN THE FACTS OF THE PRESENT CASE, THE ASSESSEE WAS ENGAGED IN THE DEVELOPMENT OF BUILDINGS AND WAS UNDERTAKING SE VERAL PROJECTS, WHICH WERE AT DIFFERENT STAGES OF COMPLETION. THE ASSESSEE HAD BIFURCATED THE EXPENSES AS BEING RELATABLE TO THE COST OF CONSTRUCTION OF PROJECTS UNDERTAKEN BY THE ASSESSEE AND DEPENDING ON THE STAGE OF COMPLETION HAD CREDITED THE AMOUNTS TO WORK - IN - PROGRESS. CERTAIN EXPENSES WERE CLAIMED AS REVENUE EXPENDITURE BY THE ASSESSEE, WHICH HA D BEEN ALLOWED BY THE ASSESSING OFFICER. THE SAID SYSTEM OF RECOGNIZING THE WORK - IN - PROGRESS AND THE CLAIM OF REVENUE EXPENDITURE HAS BEEN CONSISTENTLY FOLLOWED BY THE ASSESSEE AND HAS BEEN APPLIED BY THE ASSESSING OFFICER FROM YEAR TO YEAR. HOWEVER, THE ASSESSING OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS WAS OF THE VIEW THAT CERTAIN EXPENSES DEBITED TO THE PROFIT & LOSS ACCO UNT WERE IN FACT TRADING EXPENSES AND THE SAME HAD TO BE PART OF WORK - IN - PROGRESS. A METHOD OF ACCOUNTING CONSISTENTLY FOLLOWED CANNOT BE DISTURBED UNLESS IT IS ESTABLISHED THAT THERE IS CHANGE IN FACTS OF THE CASE. THE FIRST SUCH EXPENDITURE CONSIDERED BY THE ASSESSING OFFICER WAS SUPERVISION CHARGES OF RS.3,60,565/ - . THE PERUSAL OF THE ASSESSMENT ORDER DOES NOT REFLECT AS TO WHY THE SAID SUPERVISION CHARGES HAS BEEN CONSIDERED AS WORK - IN - PROGRESS BY THE ASSESSING OFFICER AS AGAINST THE CLAIM OF THE ASS ESSEE THAT SIMILAR EXPENDITURE IS BEING ALLOWED FROM YEAR TO YEAR AS REVENUE EXPENDITURE. BEFORE THE CIT(A), THE ASSESSEE HAS FURNISHED DETAILS OF ALLOWABILITY OF THE SAID EXPENDITURE, WHICH READ S AS UNDER: - ITA NO S. 1439 TO 1441/PN/2012 ARUN PITAMBER SHETH 8 1) A.Y. 1998 - 99 RS. 8 , 7 0, 468 2) A. Y. 1999 - 00 RS.8,98,000 3) A.Y. 2000 - 01 RS.11,08,946 4) A.Y. 2001 - 02 RS.10,36,730 12. SIMILARLY, IN RESPECT OF SOCIETY CHARGES , THE CLAIM OF THE ASSESSEE WAS THAT WHENEVER SUCH EXPENDITURE WAS INCURRED, THEN IT WAS DEBITED TO THE PROFIT & LOSS ACCOUNT AND WAS CLAIMED AS BUSINESS EXPENDITURE . I N ASSESSMENT YEAR 1999 - 2000 , T HE ASSESSEE HAD PAID RS. 20,000/ - AND IN ASSESSMENT YEAR 2000 - 01 HAD PAID RS.82,815/ - . ANOTHER EXPENDITURE CLAIMED BY THE ASSESSEE WAS SITE EXPENSES OF RS.98,461/ - , WHICH WAS ALSO CLAIMED IN THE EARLIER YEARS AND ALLOWED IN THE HANDS OF ASSESSEE. FURTHER, THE ASSESSEE HAD CLAIMED INTEREST PAYMENT ON LOAN / DEPOSIT WHICH WAS CLAIMED AS DEDUCTION UNDER SECTION 36(1)(III) OF THE ACT. THE CLAIM S MADE BY THE ASSESSEE IN THE EARLIER YEARS WERE AS UNDER: - 1) A.Y. 1998 - 99 RS.1,50,000 2) A.Y. 1999 - 00 RS.1,50,000 3) A.Y. 2000 - 01 RS.1,80,000 3) A.Y. 2000 - 01 RS.1,80,000 4) A.Y. 2001 - 02 RS.3,60,565 13. ANOTHER EXPENDITURE CLAIMED BY THE ASSESSEE WAS THE PAYMENT TO MSEB OF RS.22,49,872/ - I.E. ON ACCOUNT OF TRANSFORMER INSTALLATION CHARGES INCLUDING THE COST OF TRANSFORMER AT RS. 8,65,328/ - AND SERVICE LINE CONNECTION CHARGES PAID AT RS. 13,24,4 0 0/ - . THE EXPLANATION OF THE ASSESSEE IN RESPECT OF THE SAID EXPENSES WAS THAT FROM THIS STEP DOWN TRANSFORMER THE MSEB AUTHORITI ES DISTRIBUTE ELECT RICITY CONNECTIONS TO THE ASSESSEE. THE MSEB PROVIDES THE SERVICE LINES TO ALL ADJOINING SCHEME S FROM THIS TRANSFORMER AND AFTER THE INSTALLATION OF SAID TRANSFORMER, COST OF WHICH WAS BORNE BY THE ASSESSEE, BECOMES THE PROPERTY OF MSEB . FURTHER, COST OF THE SERVICE LINES CONNECTION PAID TO MSEB WERE RS. 13,24,400/ - BY WHICH THE ELECTRICITY IS TRANSMITTED TO THE PREMISES OF THE ASSESSEE. THE SAID EXPENDITURE WAS ALSO CLAIMED AS BUSINESS EXPENDITURE UNDER SECTION 37(1) OF THE ACT. ITA NO S. 1439 TO 1441/PN/2012 ARUN PITAMBER SHETH 9 14. THE FIRST ASPECT OF THE ISSUE IS WHETHER THE ASSESSEE WHILE FOLLOWING PERCENTAGE COMPLETION METHOD, IS ENTITLED TO CLAIM CERTAIN EXPENDITURE AS PART OF ITS WORK - IN - PROGRESS AND CERTAIN OTHER EXPENDITURE AS BUSINESS EXPENDITURE. UNDOUBTEDLY, WHERE THE ASS ESSEE IS RUNNING ITS BUSINESS, CERTAIN EXPEN SES HAVE TO BE INCURRED FROM DAY TO DAY FOR THE RUNNING OF BUSINESS. WHERE THE EXPENDITURE IS RELATABLE TO DAY TO DAY RUNNING OF THE BUSINESS, THE SAID EXPENDITURE IS ALLOWABLE AS REVENUE EXPENDITURE IN THE HAND S OF ASSESSEE IRRESPECTIVE OF THE FACT THAT THE ASSESSEE WAS FOLLOWING PERCENTAGE COMPLETION METHOD OF RECOGNIZING ITS REVENUE. THE EXPENSES ADMITTEDLY, WHICH ARE RELATABLE TO THE COST OF CONSTRUCTION OF PROJECT ARE TO BE ALLOWED AS AN EXPENDITURE IN THE HANDS OF ASSESSEE ON RECOGNITION OF REVENUE TO WHICH IT RELATES. HOWEVER, THE RECOGNITION OF WORK - IN - PROGRESS BY THE ASSESSEE DOES NOT IMPLY THAT ALL THE OTHER EXPENSES ARE ALSO TO BE TREATED AS WORK - IN - PROGRESS . T HE NATURE OF EXPENDITURE INCURRED BY THE ASSESSEE DECIDES ITS ALLOWABILITY AS BUSINESS EXPENDITURE. 15. NOW, WE PROCEED TO TAKE UP THE CASE OF PAYMENTS MADE UNDER METER EXPENSES TO MSEB. THE ASSESSEE HAD DEBITED SUM OF RS. 8,65,328/ - ON ACCOUNT OF TRANSFORMER INSTALLATION CHARGES INCLUDING TH E COST OF TRANSFORMER. AS POINTED OUT BY THE ASSESSEE THAT THE COST OF SAID TRANSFORMER WAS BORNE BY THE ASSESSEE, WHICH IN TURN, WAS UTILIZED BY MSEB AUTHORITIES TO DISTRIBUTE ELECTRIC ITY CONNECTION TO THE ASSESSEE. ADMITTEDLY, AFTER THE INSTALLATION, T HE TRANSFORMER BECOMES THE PROPERTY OF MSEB AND MSEB IS AT LIBERTY TO TRANSMIT ELECTRICITY TO PERSONS OTHER THAN THE ASSESSEE. FURTHER, THE ASSESSEE HAD PAID SUM OF RS. 13,24,400/ - AGAINST THE COST OF SERVICE LINE CONNECTION. THIS EXPENDITURE WAS ALSO INC URRED IN RELATION TO THE PROVISION OF ELECTRICITY CONNECTION TO THE ASSESSEE. SUCH EXPENDITURE INCURRED BY THE ASSESSEE FOR CARRYING ON OF ITS BUSINESS FROM DAY TO DAY IS BUSINESS EXPENDITURE AND ALLOWABLE IN THE HANDS OF ASSESSEE UNDER SECTION 37(1) OF T HE ACT AND CANNOT BE PART OF WORK - IN - PROGRESS OF THE EXPENDITURE WHICH ARE INCURRED BY THE ASSESSEE . THE EXPENDITURE INCURRED FOR COMMERCIAL EXIGENCY OF CARRYING ON OF ITS BUSINESS, AS HELD BY VARIOUS HONBLE HIGH ITA NO S. 1439 TO 1441/PN/2012 ARUN PITAMBER SHETH 10 COURTS AND HONBLE SUPREME COURT IS AN AL LOWABLE EXPENDITURE IN THE HANDS OF ASSESSEE. WITH REGARD TO ALLOWABILITY OF EXPENDITURE OF METER EXPENSES (MSEB), WE FIND SUPPORT FROM THE RATIO LAID DOWN BY CHANDIGARH BENCH OF TRIBUNAL IN CHIEF PROJECT MANAGER, RAILWAY ELECTRIFICATION, INDIAN RAILWAY V S. ITO (TDS) IN ITA NOS.1069 TO 1075/CHD/2009, R ELATING TO ASSESSMENT YEARS 2000 - 01 TO 2005 - 06 & 2007 - 08, ORDER DATED 30.12.2011 . ACCORDINGLY, WE HOLD SO. 16. THE NEXT ITEM OF EXPENDITURE IS THE INTEREST EXPENDITURE CLAIMED UNDER SECTION 36(1)(III) OF TH E ACT. THE ASSESSEE IS IN THE BUSINESS OF DEVELOPER AND ONCE THE ASSESSEE HAS PURCHASED LAND FOR THE DEVELOPMENT PURPOSE, THEN THE ASSESSEE HAS STARTED ITS BUSINESS AND UNDER SECTION 36(1)(III) OF THE ACT, IT IS VERY CLEARLY PROVIDED THAT THE INTEREST PAI D ON BORROWED FUNDS, WHICH IN TURN, HAS BEEN UTILIZED FOR THE PURPOSE OF CARRYING ON OF THE BUSINESS OF ASSESSEE IS DULY ALLOWABLE AS BUSINESS EXPENDITURE. IN THIS REGARD, WE FIND SUPPORT FROM THE RATIO LAID DOWN BY PUNE BENCH OF TRIBUNAL IN M/S. KUMAR CO MPANY VS. JCIT IN ITA NO.900/PN/2013 AND CROSS APPEAL IN ITA NO.1147/PN/2013, RELATING TO ASSESSMENT YEAR 2009 - 10, ORDER DATED 29.01.2016. HENCE, THE INTEREST EXPENDITURE CLAIMED BY THE ASSESSEE WHERE THE ASSESSEE IS FOLLOWING PERCENTAGE COMPLETION METHOD IS DULY ALLOWABLE AS EXPENDITURE IN THE HANDS OF ASSESSEE. 17. SIMILARLY, THE SOCIETY CHARGES OF RS.82,815/ - IS TO BE ALLOWED AS EXPENDITURE. FURTHER, THE SITE EXPENSES OF RS.98,461/ - AND SUPERVISION CHARGES OF RS. 3,60,555/ - ARE RELATABLE TO CARRYING ON OF PROJECTS AND THE SAME ARE TO BE TAKEN AS PART OF WORK - IN - PROGRESS. THE CLAIM OF THE ASSESSEE BEFORE US IS THAT SIMILAR EXPENDITURE WAS ALLOWED IN THE EARLIER YEAR . HOWEVER, WE FIND NO MERIT IN THE CLAIM OF ASSESSEE AS NATURE OF EXPENDITURE ITSELF S HOWS IT IS IN RELATION OF CONSTRUCTION ACTIVITIES CARRIED ON BY THE ASSESSEE AND THE SAME IS REJECTED. THUS, THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE ARE PARTLY ALLOWED. ITA NO S. 1439 TO 1441/PN/2012 ARUN PITAMBER SHETH 11 1 8 . THE ISSUE IN ASSESSMENT YEAR S 2003 - 04 AND 2004 - 05 IS IDENTICAL TO THE ISSUE B EFORE US AND FOLLOWING THE SAME PARITY OF REASONING, WE DIRECT THE ASSESSING OFFICER TO ALLOW EXPENDITURE ON ACCOUNT OF SOCIETY CHARGES, INTEREST ON LOAN AND MSEB METER EXPENSES AND DISALLOW THE CLAIM OF THE ASSESSEE IN RESPECT OF SUPERVISION CHARGES AND SITE EXPENSES. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE IN BOTH THE YEARS ARE THUS, PARTLY ALLOWED. 1 9 . IN THE RESULT, ALL THE APPEALS OF THE ASSESSEE ARE PARTLY ALLOWED. ORDER PRONOUNCED O N THIS 26 TH DAY FEBRUARY , 201 6 . SD/ - SD/ - (PRADIP KUMAR KEDIA ) (SUSHMA CHOWLA) / ACCOUNTANT MEMBER / JUDICIAL MEMBER / ; TH / PUNE ; D ATED : 26 TH FEBRUARY , 201 6 . GCVSR / COPY OF THE ORDER IS FORWARDED TO : 1. / T HE APPELLANT ; 2. / THE RESPONDENT; 3. ( ) / THE CIT (A) - II , PUNE ; 4. / THE CIT - II, PUNE ; 5. , , / DR A , ITAT, PUNE; 6. / GUARD FILE . / BY ORDER , // TRUE COPY // / SR. PRIVATE SECRETARY , / ITAT, PUNE