DYNAMIC ASSOICATES, DOMBIVALI V. ASST CIT CIR 3, KALYAN

ITA 1460/MUM/2015

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 9913 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 4 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-07-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Next Hearing Date: 07-04-2017
• Assessment Year: 2011-2012
• Appeal Filed On: 11-03-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Business income; Deemed to accrue or arise in india

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, MUMBAI BEFORE SHRI RAJENDRA , AM AND SHRI AMARJIT SINGH, JM / I .T.A. NO. 1460 / MUM/ 20 1 5 ( / ASSESSMENT YEAR: 2011 - 1 2 ) DYNAMIC ASSOCIATES 1 ST FLOOR, WADAL BLDG. NEAR DNS BANK, DOMBIVAL I (E) MUMBAI PIN:421201 / VS. ASST CIT CIR 3 RANI MANSION, 2 ND FLOOR, MURBAD RD KALYAN WEST MUMBAI PIN: ./ ./ PAN/GIR NO. : AAEFD 6312 L ( / APPELLANT ) .. ( / RESPONDENT ) / DATE OF HEARING : 28 .0 4 .2017 / DATE OF PRONOUNCEMENT : 14.07 .2017 / O R D E R PER AMARJIT SINGH, J M: THE ASSE SSEE HAS FILED THE PRESENT APPEAL AGAINST THE ORDER DATED 22.01.2015 PASSED BY THE COMMISSIONER OF INCOME TAX (APPEALS) - 1 , MUMBAI [HEREINAFTE R REFERRED TO AS THE CIT(A)] RELEVANT TO THE A.Y. 2011 - 12 . 2 . THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS: - 1 . THE LD. CIT(A) - 1 HAS ERRED IN PARTLY ALLOWING THE APPEAL WHICH IS NOT CORRECT. 2. THE TOTAL EXPENSES INCURRED BY THE ASSESSEE TO GET HIS COMMODITY AS SALEABLE IS PART AND PARCEL OF EXPENSES INCURRED BY THE ASSESSEE FULLY ALLOWABLE AS BUSINESS DEDUCTIO N. HOWEVER THE PARTIAL RELIEF EFFECT GRANTED BY CIT(A) - 1 FOUND ASSESSEE BY : SHRI N .A. KULKARNI (AR ) REVENUE BY: SHRI ABANI KANTA NAYAK (DR) DYNAMIC ASSOCIATES 2 NOT JUSTIFIED. HOWEVER YOU ARE REQUESTED TO CONSIDER THE SAME AT YOUR STAGE AND GRANT US THE RELIEF CLAIMED BY THE ASSESSEE . 3.THE CIT(A) - 1 HAS UPHOLDING THE ORDERS OF AO BASED UPON FAIR MAR KET VALUE U/S 23 OF IT ACT, 1961 TO THE EXTEND OF RS.11.60,919/ - WHICH IS NOT PROPER AND JUST BECAUSE THE ACTIVITY OF THE ASSESSEE BEING ASSESSED U.S 28 OF I.T. ACT, 1961. THE AO HAS FAILED TO PROVE THAT NE I THER THE PROPERTY WAS LET - OUT NOR RECEIVED ANY INCOME. MAY BE DEEMED INCOME FROM SUCH PROPERTY. THIS MATTER IS REQUESTED TO YOUR HONOR TO SETTLE AT YOUR STAGE. 4. THE APPELLANT PRAYS THAT BOTH THE ADDITION TO BE STRUCK DOWN BEFORE YOUR HONOR. HENCE THERE IS NO PROPER JUSTIFICATION FOR SUCH ADDITIO N BEING CONSIDER. 3 . THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE FILED ITS RETURN OF INCOME ON 20.09.2011 DECLARING TOTAL INCOME TO THE TUNE OF RS. NIL. THE RETURN WAS PROCESSED U/S 143(1) OF THE ACT 1961. THE CASE WAS SELECTED FOR SCRUTINY AND A CCORDINGLY NOTICE U/S 143(2) WAS ISSUED AND SERVED UPON THE ASSESSEE . THE ASSESSEE FIRM AS IN THE PREVIOUS YEAR IS A BUILDER & DEVELOPER. DURING THE SCRUTINY PROCEEDINGS , THE DETAILS OF REVENUE, EXPENSES, ASSETS AND LIABILITIES HAVE BEEN CALLED FOR EXAMINA TION . AT THE TIME OF ASSESSMENT , IT WAS OBSERVED THAT THE ASSESSEE HAS DEBITED AN AMOUNT OF RS. 8,06,597/ - O N ACCOUNT OF ARCHITECT FEES AND AN AMOUNT OF RS.12,49,660/ - ON ACCOUNT OF REPAIR AND MAINTENANCE TOTAL TO THE TUNE OF RS. 20,56,257/ - . THEREAFTER, TH E NOTICE WAS GIVEN BUT FINDING NO SATISFACTORILY EXPLANATION , THE SAID AMOUNT I.E., TO THE TUNE OF RS.20,56,257/ - WAS ADDED TO THE INCOME OF THE ASSESSEE. IT WAS ALSO OBSERVED THAT THE THERE WAS AN OPENING STOCK OF RS. 1,57,63,205/ - REPRESENTING CONSTRUCTED AND UNSOLD FLATS AT RS.82,84,164 / - IN CLOSING STOCK . T HEREAFTER, SHOW CAUSE NOTICE WAS GIVEN FOR THE ASSESSMENT OF HOUSE RENT FOR THE ASSESSMENT OF INCOME FROM HOUSE PROPERTY IN VIEW OF THE PROVISIONS U/S 23(1) READ WITH SECTION 23(4) OF THE ACT. THEREAFT ER, THE INCOME FROM HOUSE PROPERTY WAS ASSESSED TO THE TUNE OF RS. 11,60,919/ - . AFTE R CONDUCTING STATUTORY DEDUCTION DYNAMIC ASSOCIATES 3 OF 30% TOTAL INCOME TO THE ASSESSEE WAS ASSESSED TO THE TUNE OF RS. 32,17,180/ - . ISSUE NO.1 &2 : - 4 . THE ASSESSEE HAS CHALLENGED THE CONFIRM ATION OF THE ADDITION TO THE TUNE OF RS. 13,06,257/ - ON THE GROUND OF THAT THE SAID ADDITION IS NOT BASED UPON ANY COGENT AND CONVINCING DOCUMENT. THE LD. REPRESENTATIVE OF THE ASSESSEE HAS ARGUED THAT THE ASSESSEE HAS RIGHTLY CLAIMED THE EXPENSES TO THE TU NE OF R S . 8,06,597/ - ON ACCOUNT OF ARCHITECT FEES TO THE TUNE OF RS. 12,49,660/ - AND ON ACCOUNT OF REPAIR AND MAINTENANCE EXPENSES TOTAL TO THE TUNE OF RS . 20,56,257/ - WHICH IS REQUIRED TO BE ALLOWED IN TOTO THEREFORE THE FINDING OF THE CIT(A) IS NOT JUSTI FIABLE HENCE IS LIABLE TO BE SET ASIDE AND THE EXPENSES ARE LIABLE TO BE ALLOWED IN THE INTEREST OF JUSTICE. ON THE OTHER HAND, THE LD. REPRESENTATIVE OF THE REVENUE HAS PLACED R ELIANCE UPON THE ORDER PASSED BY THE CIT(A) IN QUESTION. WE HAVE HEARD THE ARG UMENT ADVANCED BY THE LD REPRESENTATIVE OF THE PARTIES AND PERUSED THE RECORD . THE ASSESSEE HAS CLAIMED THE EXPENSES ON ACCOUNT OF ARCHITECT FEES TO THE TUNE OF RS .8,06,597/ - AND ON ACCOUNT OF REPAIR AND MAINTENANCE TO THE TUNE OF RS. 12,49,660/ - TOTAL TO T HE TUNE OF RS .20,56,257/ - . N O EVIDENCE OF ANY KIND WAS GIVEN BY THE ASSESSEE IN SUPPORT OF HIS CLAIM. NO ANY DOCUMENTARY EVIDENCE OF ANY KIND WAS GIVEN ON ACCOUNT OF REPAIR AND MAINTENANCE AMOUNT . N O BILLS, VOUCHERS, CONTRACTORS OR ANY OTHER SUPPORTING DO CUMENTS WER E PRODUCED IN SUPPORT OF THE CLAIM. THERE IS NO ARCHITECT FEES RECEIPT. TO EXPLAIN MORE, I T NECESSARY DYNAMIC ASSOCIATES 4 TO ADVERT THE FINDING OF THE CIT(A) ON THIS ISSUE FOR THE SHAPE OF CONVENIENCE. : - REGARDING ARCHITECT FEES, IT IS CLAIMED THAT THE APPELLANT HAVE TO PAY AN AMOUNT OF RS. 3,96,597/ - AS AGAINST OLD OUTSTANDING AMOUNT OF RS. 54,667/ - , PAYABLE TO ARCHITECT. THE BALANCE AMOUNT OF RS. 4,10,000/ - , PAID TO THE ADVOCATE, CLAIMED TO HAVE BEEN PAID RS. 2 LAKHS FOR OLD MATTERS AND RS. 2 LAKHS FOR THE CURRE NT MATTERS. THE LD. AR, HOWEVER, COULD NOT SUBSTANTIATE WITH DOC UMENTARY EVIDENCE ABOUT THE NATURE OF SERVICES RENDERED AND THE PURPOSE OF PAYMENTS MADE. HE ALSO COULD NOT PRODUCE DOCUMENTARY EVIDENCE REGARDING NATURE OF WORK ACTUALLY CARRIED OUT BY THE AR CHITECT AND ADVOCATE, TO WHOM THE ABOVE PAYMENTS WERE MADE LIKEWISE, THE EXPENDITURE INCURRED FOR REPAIRS AND MAINTENANCE AMOUNTING TO RS 12,49,660/ - , THE AR COULD NOT PRODUCE DOCUMENTARY EVIDENCE, BILLS AND VOUCHERS, VENDORS I CONTRACTORS, ALONG WITH SUPP ORTING DOCUMENTS, TO JUSTIFY THE ABOVE EXPENDITURE IN THE ABSENCE OF CONNECTED / EXACT DOCUMENTARY EVIDENCE IN RESPECT OF THE ABOVE AMOUNT IT IS NOT POSSIBLE TO ASCERTAIN WHETHER THE EXPENDITURE WERE ACTUALLY INCURRED IN RESPECT OF THE PARTITIONS, AS CLAIM ED ABOVE OR INCURRED FOR SOME OTHER WORK / PROJECTS THE PERUSAL OF THE PROFIT & LOSS ACCOUNT REVEALS THAT THE APPELLANT HAD SHOWN OPENING STOCK AT RS. 1.57 CRORES, SALES OF FLATS / SHOPS AT KS. 1.78 CRORES, CLOSING STOCK AT RS 82.84 LAKHS AND GP OF RS 1.04 CRORES AGAINST THIS G P, THE APPELLANT HAS DEBITED VARIOUS EXPENSES, AS ABOVE, INCLUDING ACCOUNTANT CHARGES RS 10,000/ - , AUDIT FEES RS. 18,500/ - , BROKERAGE RS. 5.87 LAKHS, ELECTRICITY R. 28,147/ - , INTEREST RS.43,200/ - , MUNICIPAL CHARGES RS. 1,11,861/ - , PR OFESSIONAL FEES RS. 5,000/ - AND SALARY RS. 59,240/ - . THIS CLEARLY INDICATE THAT IN ORDER TO SUPPRESS THE TAXABLE INCOME, THE APPELLANT HAS DEBITED AN AMOUNT OF RS. 30 LAKHS IN THE PROFIT & LOSS ACCOUNT UNDER YARIOUS HEADS TO REDUCE THE PROFIT AT RS. 74,34, 170/ - , AS AGAINST ACTUAL PROFIT OF RS. 103.53 LAKHS. 6.2. DURING THE COURSE OF APPELLATE PROCEEDINGS, THE LD. AR SHOWN HIS INABILITY TO FURNISH ANY FURTHER DETAILS AND REQUESTED TO DECIDE THE ISSUE ON MERIT AND FURTHER PRAYED THAT REASONABLE EXPENDITURE MA Y BE ALLOWED. CONSIDERING THE FACTS IN ENTIRETY, THE NATURE I.E. PARTITIONING OF THE BIG OFFICE INTO SEVEN SMALL OFFICES AND IN THE ABSENCE OF HEAD - WISE /ITEM - WISE DETAILS OF EXPENSES, ALONG WITH DYNAMIC ASSOCIATES 5 SUPPORTED DOCUMENTARY EVIDENCE, IN MY CONSIDERED OPINION, IT IS REASONABLE TO ALLOW EXPENDITURE OF RS.7,50,000/ - AS AGAINST RS.20,56,257/ - , CLAIMED BY THE APPELLANT. THEREFORE, THE REMAINING AMOUNT OF RS.13,06,257/ - (RS.20,56,257/ - TO 7,50,000/ - ) IS HEREBY CONFIRMED. THE APPEAL OF THE APPELLANT ON THIS GROUND IS ALL OWED ACCORDINGLY. 5 . ON APPRAISAL OF THE ABOVE SAID FINDING OF THE CIT(A) , WE OBSERVED THAT NO EVIDENCE OF ANY KIND WAS FURNISHED BEFORE THE AO BY THE ASSESSEE IN SUPPORT OF HIS CLAIM AND NO EVIDENCE OF ANY KIND WAS FURNISHED BEFORE THE CIT(A) IN SUPPOR T OF HIS CLAIM. THERE SHOULD BE ON SOME BASIS TO ALLOW THE CLAIM OF THE ASSESSEE IF ANY . NO DOC UMENTARY EVIDENCE OF ANY KIND WAS PRODUCED BEFORE US TO JUSTIFY THE CLAIM OF THE ASSESSEE. THE FACTUAL POSITION IS THE SAME . NO TENGIBLE MATERIAL OF ANY KIND WAS PRODUCED BEFORE US. THEREFORE, TAKING INTO ACCOUNT OF ALL THESE FACTS AND CIRCUMSTANCES WE ARE OF THE VIEW THAT THE CIT(A) HAS PASSED THE ORDER ON THIS ISSUE JUDICIOUSLY AND CORRECTLY WHICH IS NOT REQUIRED TO INTERFERE WITH AT THIS APPELLATE STAGE. THEREF ORE, THIS ISSUE IS HEREBY DECIDED IN FAVOUR OF THE REVENUE. ISSUE NO.3 : - 6 . UNDER THIS ISSUE THE ASSESSEE HAS CHALLENGED THE CONFIRMATION OF THE ORDER OF THE AO IN WHICH THE NOTIONAL RENTAL VALUE OF UNSOLD PROPERTY TO THE TUNE OF RS . 11,60,919/ - W AS CONFI RMED. THE OPENING STOCK OF THE ASSESSEE WAS TO THE TUNE OF RS .1,57,63,205/ - REPRESENTING CONSTRUCTED AND UNSOLD FLAT WAS TO THE TUNE OF RS .82,84,164/ - IN CLOSING STOCK. N OTICE WAS GIVEN TO THE ASSESSEE TO CHARGE AT FAIR MARKET RENT AS PER PROVISIONS SECT ION 23(1) REA D WITH SECTION 23(4) OF THE ACT. AFTER GETTING THE REPLY, T HE FAIR MARKET RENT ON THE BASIS OF DYNAMIC ASSOCIATES 6 MUNICIPAL VALUATION , THE INCOME FROM HOUSE PROPERTY WAS ASSESSED TO THE TUNE OF R S.11,60,919/ - AFTER THE STATUTORY DEDUCTION @ OF 30%. THE SAID FIND ING WAS CONFIRMED BY THE CIT(A) . T HE LD. REPRESENTATIVE OF THE ASSESSEE HAS ARGUED THAT THE NOTIONAL INCOME FROM THE VACANT FLAT IS NOT LIABLE TO BE ASSESSED IN THE CIRCUMSTANCES WHE N THE PROPERTY WAS NOT LET OUT AND NO IN COME WAS RECEIVED, T HEREFORE, THE FINDING OF THE CIT( A) IS WRONG AGAINST LAW AND FACTS AND IS LIABLE TO BE SET ASIDE IN VIEW OF LAW SETTLED IN CHENNAI PROPERTY A ND INVESTMENTS LTD. VS. CIT AND M/ S. C. R. DEVELOPMENT P. LTD VS. JCIT ITA. NO.4277/M/2012M UMBAI DATED 13.05.2015 . THE FACTUAL P OSITION IS NOT IN DISPUTE . T HE OPENING STOCK WAS TO THE TUNE OF RS. 1,57,63,205/ - AND CLOSING STOCK WAS TO THE TUNE OF RS. 82,84,164/ - REPRESENTING CONSTRUCTED AND UNSOLD FLATS. THERE IS NOTHING ON RECORD THAT THESE FL ATS WERE SOLD OR GIVEN ON LEASE /RENT . N O TIONAL INCOME WAS ASSESSED ON THE BASIS OF FAIR/MUNICIPAL VALUATION . THE SAID CONTROVERSY HAS ALREADY BEEN DECIDED BY THE ABOVE MENTIONE D LAW (SUPRA). THE ASSESSEE IS A BUILDER & DEVELOPER WHICH IS MAIN OBJECT OF THE ASSESSEE . T HE FLATS REMAINED UNSOLD AT THE END OF THE YEARS WHICH IS STOCK IN TRADE. ESTIMATING THE RENTAL INCOME IS NOT JUSTIFIABLE SPECIFICALLY IN THE CIRCUMSTANCES WHEN THESE FLATS WERE NOT GIVEN ON RENT AND THERE WAS NO INTENTION TO LET OUT THESE FLATS. THE FLATS WERE STOCKING TRADE AND ONL Y THE INCOME ARISING OUT OF THE SALE IS LIABLE TO BE TAXED AS BUSINESS INCOME. THEREFORE, IN VIEW OF SAID CIRCUMSTANCES AND VIEW OF THE LAW SETTLED IN: - DYNAMIC ASSOCIATES 7 1 . CHENNAI PROPERTY A ND INVESTMENTS LTD. VS. CIT 2. M/ S. C.R. DEVELOPMENT P . LTD VS. JCIT ITA.NO.4277/M /2012 M UMBAI B ENCH . WE ARE OF THE VIEW THAT THE ASSESSMENT OF NOTIONAL RENTAL INCOME OF THE UNSOLD FLAT IS AN UNJUSTIFIABLE. THEREFORE, WE DELETE THE SAID ADDITION TO THE TUNE OF RS. 11,60,919/ - . ACCORDINGLY, THIS ISSUE IS DECIDED IN FAVOUR OF THE ASSESSEE A GAINST THE REVENUE. ISSUE NO. 4: - 7 . ISSUE NO. 4 IS GENERALLY IN NATURE WHICH NOWHERE REQUIRED ANY ADJUDICATION. 8 . IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS HEREBY ORDERED TO BE ALLOWED PARTLY . ORDER PRONOUNCED IN THE OPEN COURT ON 14.07. 2017 SD/ - SD/ - ( RAJENDRA ) (AMARJIT SINGH) / ACCOUNTANT MEMBER / JUDICIAL MEMBER MUMBAI; DATED : 14.07. 2017 V.P.SINGH / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE. / BY ORDER, //TRUE COPY// / / (DY./ASSTT. REGISTRAR) DYNAMIC ASSOCIATES 8 , / ITAT, MUMBAI