KKB DEVELOPERS P. LTD, MUMBAI V. ITO 9(2)(2), MUMBAI

ITA 1681/MUM/2010

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 75606 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 11 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-02-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 19-02-2014
• Assessment Year: 2006-2007
• Appeal Filed On: 04-03-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: M L PERUMAL
• Keywords: Business expenditure; Cost of acquisition; Corroborative evidences

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES A MUMBAI . . , / , BEFORE SHRI I.P. BANSAL, JUDICIAL MEMBER /AND SHRI SANJAY ARORA, ACCOUNTANT MEMBER . / ITA NO. 1681/MUM/2010 ' ' ' ' # # # # / ASSESSMENT YEAR 2006-07 KKB DEVELOPERS PVT. LTD., PLOT NO.263, SWASTI SADAN, 6 TH ROAD, KHAR (WEST), MUMBAI 400052 ' ' ' ' / VS. THE ITO WARD 9(2)(2), AAYKAR BHAVAN, MK ROAD, MUMBAI 400020. $ ./ % ./ PAN/GIR NO. : AACCK 1948A ( $& / APPELLANT ) .. ( '($& / RESPONDENT ) APPELLANT BY : SHRI SHALIN S. DIVATIA RESPONDENT BY : SHRI M.L.PERUMAL ' ) *+ / DATE OF HEARING : 19/02/2014 ,# ) *+ / DATE OF PRONOUNCEMENT : 19/02/2014 - / O R D E R PER I.P.BANSAL, JM: THIS IS AN APPEAL FILED BY THE ASSESSEE. IT IS DI RECTED AGAINST AN ORDER PASSED BY LD. CIT (A)-20, MUMBAI DATED 17/12/2009 F OR THE ASSESSMENT YEAR 2006-07. THE GROUNDS OF APPEAL READ AS UNDER: I. THE LEARNED CIT (APPEALS)-20 ERRED IN CONFIRMING THE ORDER OF THE ASSESSING OFFICER ESTIMATING THE COST OF CONSTRUCTION RS.1,00 0/- PER SQUARE FOOT. 2. THE LEARNED CIT (APPEALS)-20 ERRED IN CONFIRMING THE ORDER OF THE ASSESSING OFFICER DISALLOWING THE ENTIRE ADMINISTRATIVE AND S ELLING EXPENSES INCURRED BY THE APPELLANT WHILE ALLOWING DEDUCTION FOR DEVELOPMENT RIGHT PURCHASE AND FEES, CHARGES PAID TO BMC. . / ITA NO. 1681/MUM/2010 ' ' ' ' # # # # / ASSESSMENT YEAR 2006-07 2 3. THE LEARNED CIT (A)-20 ERRED IN HOLDING THAT THE SELLING AND ADMINISTRATIVE EXPENSES INCURRED BY THE APPELLANT WERE DEEMED TO H AVE BEEN CONSIDERED BY THE ASSESSING OFFICER WHILE ESTIMATING THE CONSTRUCTION COST RS.1,000/- PER SQ. FOOT. . 2. IN THE PRESENT CASE ASSESSEE BEING DEVELOPER OF PREMISES HAD CONSTRUCTED 10 FLATS. THE ASSESSEE WAS REQUIRED TO SUBMIT THE COST OF CONSTRUCTION SHOWN BY IT ALONG WITH SUPPORTING EVIDENCE FOR STEEL, TIL ES AND CEMENT QUANTITY WISE ALONG WITH ORIGINAL PURCHASE BILLS FOR THE SAME. A CCORDING TO AO NO REPLY WAS FILED BY THE ASSESSEE TILL THIRD WEEK OF DECEMBER , 2008 AND ONLY IN THE FOURTH WEEK OF DECEMBER, 2008 DIRECTOR OF THE ASSESSEE CO MPANY APPEARED, WHEN SOME DETAILS WERE FILED WHICH DID NOT INCLUDE TH E QUANTITY WISE DETAILS OF THE MATERIALS USED FOR THE CONSTRUCTION. THE ASSESSEE ALSO DID NOT FILE PURCHASE BILLS FOR THE SAME. IN VIEW OF THE SITUATION, AO O BSERVED THAT COST OF CONSTRUCTION SHOWN BY THE ASSESSEE IS NOT VERIFIED AND ASSESSEE HAS FAILED TO SUBSTANTIATE ITS CLAIM AND DID NOT PRODUCE INFORMA TION REQUIRED FOR ASCERTAINING THE SAME. THE AO TOOK THE CONSTRUCTI ON COST OF THE ASSESSEE @ 1000/- PER SQ.FT. AND THE INCOME OF THE ASSESSEE WA S COMPUTED AS UNDER: A SALE CONSIDERATION (AS PER ACCOUNTS OF ASSESSEE) RS. 2,88,06,000 B COST INCURRED (I) COST OF CONSTRUCTION (CONSIDERING @ 1000 PSF.) (15800 X 1000) (II) TDR COST (III) PAYMENTS TO TENANTS (IV) COMPENSATION ON FLAT DEPOSIT TOTAL COST: RS. 1,58,00,000 RS. 37,94,310 RS. 39,00,000 RS. 10,50,000 RS.2,45,44,310 NET PROFIT (A-B) RS. 42,61,690 ADD: DIVIDEND AND FD INTEREST RS. 1,28,261/- TOTAL INCOME RS. 43,89,951 AN APPEAL WAS FILED BEFORE LD. CIT(A) AND FOLLOWIN G GROUNDS WERE RAISED : 1. THE LEARNED ASSESSING OFFICER ERRED IN COMPUTIN G THE TOTAL INCOME OF THE APPELLANT WITHOUT ALLOWING DEDUCTION FOR THE FOLLOWING EXPENS ES: A. DEVELOPMENT RIGHTS PURCHASE RS. 2,00,000 . / ITA NO. 1681/MUM/2010 ' ' ' ' # # # # / ASSESSMENT YEAR 2006-07 3 B. FEES, CHARGES, ETC. PAID TO BRIHANMUMBAI MAHANAGARPALIKA CORPORATION (BMC) IN CONNECTION WIT H THE CONSTRUCTION OF BUILDING RS. 16,85,166 C. ADMINISTRATION, SELLING, GENERAL AND OTHER EXPE NSES RS. 27,61,414 2. THE LEARNED ASSESSING OFFICER ERRED IN ESTIMATI NG COST OF CONSTRUCTION @ RS.1000/- PER SQUARE FOOT WHEN THE COST OF CONSTRUCTION AS PE R THE APPELLANTS PROFIT & LOSS ACCOUNT IS ONLY RS.979.22 PER SQUARE FOOT. 2.1 IT WAS PLEADED BEFORE LD. CIT(A) THAT AO HAS I GNORED DETAILED BILL WISE BREAKUP OF EXPENSES ON STEEL, CEMENT, TILES ETC. AND OTHER EXPENSES WHICH WERE SUBMITTED DURING THE ASSESSMENT PROCEEDINGS. IT WAS SUBMITTED THAT FOLLOWING EXPENSES WERE NOT ALLOWED BY THE AO: DEVELOPMENT RIGHT PURCHASE RS. 2,00,000 FEES, CHARGES PAID TO BMC RS. 16,85,166 ADMINISTRATIVE AND SELLING EXPENSES RS. 27,61,414 RS. 46,46,580 2.3 IN RESPECT OF AN AMOUNT OF RS.2.00 LACS, IT WA S SUBMITTED THAT THE SAID SUM WAS ALLOWABLE AS THE SAME WAS GIVEN TO ERSTWH ILE OWNERS AS DEVELOPMENT RIGHT AND AGREEMENT WAS ALSO ON RECORD. IT WAS FUR THER SUBMITTED THAT AO ALSO DID NOT ALLOW DEDUCTION OF FEE AND CHARGES PAID TO BMC OF A SUM OF RS.16,85,166/-. IT WAS SUBMITTED THAT BMC IS A STA TUTORY BODY AND PAYMENT MADE TO IT ARE SUPPORTED BY ADEQUATE PROOF. IT WA S FURTHER SUBMITTED THAT AO ALSO DID NOT ALLOW SELLING, ADMINISTRATIVE AND GENE RAL EXPENSES AGGREGATING TO RS.27,61,414/-, AS THE SAME WERE PAID TOWARDS STAF F SALARIES, WAGES, PROFESSIONAL FEES, DIRECTORS REMUNERATION ETC. AND WAS IN THE NATURE OF BUSINESS EXPENDITURE. IT WAS SUBMITTED THAT AO WA S NOT RIGHT IN HOLDING THAT NO DETAILS WERE SUBMITTED. IT WAS SUBMITTED THAT IN ABSENCE OF DETAILS, THE AO COULD NOT HAVE ALLOWED DEDUCTION FOR EXPENSES L IKE TDR PURCHASE COST, COMPENSATION TO TENANTS ON FLAT DEPOSITS AND PAYME NT TO TENANTS, ALL IN AGGREGATING TO A SUM OF RS.87,44,310/-. LD. CIT(A ) DID NOT AGREE WITH SUCH CONTENTION OF THE ASSESSEE. HE NOTICED THAT AO HA S MERELY ESTIMATED THE COST OF CONSTRUCTION AS NO QUANTITATIVE DETAILS OF BUILD ING MATERIALS CONSUMED AND . / ITA NO. 1681/MUM/2010 ' ' ' ' # # # # / ASSESSMENT YEAR 2006-07 4 PROOF OF SUCH MATERIAL WAS FURNISHED IN ORDER TO VE RIFY THE EXPENSES CLAIMED TO HAVE BEEN INCURRED AND SUCH CLAIM OF THE AO HA S NOT BEEN REFUTED BY THE ASSESSEE. IN THE FINANCIAL STATEMENT FILED ALONG W ITH THE RETURN, THE LD. CIT(A) HAS NOTICED THAT A LUMPSUM TOTAL AMOUNT OF RS.2,88, 62,583/- WAS CLAIMED IN THE P&L ACCOUNT TOWARDS PURCHASE EXPENSES, DETAI LS WERE GIVEN IN SCHEDULE 10 OF THE FINANCIAL STATEMENT. IT WAS OBSERVED BY LD. CIT(A) THAT THERE WAS NO CLASSIFICATION ON HEAD OR SUB-HEAD OF THE EXPENSE S AS COST OF CONSTRUCTION, ADMINISTRATIVE AND SELLING EXPENSES AS CLAIMED BY THE ASSESSEE BEFORE HIM. IT WAS FURTHER OBSERVED THAT THE ASSESSEE DID NOT FURN ISH THE DETAILS WHICH ARE CLAIMED BY IT TO HAVE BEEN FURNISHED BEFORE AO. T HE ITEM WHICH HAVE BEEN ALLOWED BY THE AO ARE FOUND MENTIONED IN THE SCHEDU LE. THEREFORE, LD. CIT(A) OBSERVED THAT THE AO DID NOT TAKE THOSE ITEMS FROM ANY DETAILS FURNISHED BY THE ASSESSEE. THE DETAILS WHICH ARE CLAIMED TO BE FURNISHED BEFORE AO CONTAINS MERELY THE NAME OF THE PARTIES, BILL NOS. AND AMOUNT FOR PURCHASE OF STEEL, TILES AND CEMENT. ACCORDING TO LD. CIT(A) S UCH DETAILS DO NOT MEET THE REQUIREMENT OF THE AO. THEREFORE, HE OBSERVED THAT AO WAS RIGHT IN ESTIMATING THE COST OF CONSTRUCTION AT RS.1000/- PER SQ.FT. LD. CIT(A) OBSERVED THAT THE ASSESSEE DID NOT CHALLENGED THE SAME ON MERIT EXCE PT STATING THAT ITS COST OF CONSTRUCTION ITSELF IS LOWER THAN THE COST ESTIMA TED BY THE AO. IT WAS CLAIMED BY THE ASSESSEE THAT ITS COST OF CONSTRUCTION IS A SUM OF RS.979.22 PER SQ.FT. IT IS OBSERVED BY LD. CIT(A) THAT AO HAS ALREADY HELD THAT SUCH CLAIM OF THE ASSESSEE IS UNVERIFIABLE AND IN ABSENCE OF COGENT M ATERIAL SUCH CLAIM COULD NOT BE ACCEPTED. THEREFORE, LD. CIT(A) HELD THAT THE R ELIEF CLAIMED BY THE ASSESSEE ON ACCOUNT OF ADMINISTRATIVE AND SELLING EXPENSES W AS NOT ACCEPTABLE AND SUCH EXPENSES IS DEEMED TO HAVE BEEN CONSIDERED BY THE A O WHILE GRANTING BENEFIT OF COST OF CONSTRUCTION ESTIMATED BY HIM. HOWEVER, LD. CIT(A) HAS OBSERVED THAT IN VIEW OF FRESH MATERIAL FILED BEFORE HIM TO SUPPORT THE EXPENSES OF RS.16,85,166/- TO BMC AND RS.2.00 LACS TOWARDS DEVE LOPMENT RIGHT WAS CREDITABLE AND THESE PAYMENTS ARE REFLECTED IN SCHE DULE 10, THEREFORE, HE DIRECTED THE AO TO EXAMINE THEM AND ALLOW THESE EXP ENSES SUBJECT TO HIS . / ITA NO. 1681/MUM/2010 ' ' ' ' # # # # / ASSESSMENT YEAR 2006-07 5 SATISFACTION. IT IS IN THIS MANNER LD. CIT(A) HAS DISPOSED OF THE APPEAL. THE ASSESSEE IS AGGRIEVED AND HENCE, HAS FILED AFOREMEN TIONED GROUNDS OF APPEAL. 3. AFTER NARRATING THE FACTS IT WAS SUBMITTED BY LD . AR THAT THE ADMINISTRATIVE AND SELLING EXPENSES CANNOT BE PART OF THE CONSTRUCTION COST AND FOR THIS PURPOSE LD. AR RELIED UPON PARA NO.1 9 OF AS 7 WHICH DEFINE THE CONTRACT COST. THE COPY OF AS-7 IS FILED AT PAGES 10 TO 12 OF THE PAPER BOOK. IT WAS SUBMITTED BY HIM THAT IF THE ADMINISTRATIVE AN D SELLING EXPENSES ARE EXCLUDED THEN THE CONSTRUCTION COST OF THE ASSESSEE WOULD BE LESS THAN THE CONSTRUCTION COST ADOPTED BY THE AO. THEREFORE, LD . AR SUBMITTED THAT APPROPRIATE RELIEF SHOULD BE GRANTED TO THE ASSESSE E. 4. ON THE OTHER HAND, LD. DR RELIED UPON THE ORDE R OF AO AND LD. CIT(A). 5. WE HAVE HEARD BOTH THE PARTIES AND THEIR CONTENT IONS HAVE CAREFULLY BEEN CONSIDERED. THE FINDING RECORDED BY LD. CIT(A) ARE DISCUSSED IN DETAIL IN THE ABOVE PART OF THIS ORDER. LD. CIT(A) HAS RETURNED A FINDING THAT THERE WAS NO ACCOUNTING HEAD OR SUB-HEAD WAS MAINTAINED BY THE ASSESSEE FOR THE COST OF CONSTRUCTION IN THE MANNER TO SEGREGATE SUCH EXPEN SES INTO VARIOUS CATEGORIES INCLUDING ADMINISTRATIVE AND SELLING EXP ENSES AS CLAIMED BY THE ASSESSEE. SUCH EXERCISE HAS BEEN DONE BY THE ASSES SEE ONLY AFTER DISALLOWANCE IS MADE BY THE AO, I.E. IN THE APPEAL FILED BEFORE LD. CIT(A). IT IS A MATTER OF FACT THAT ASSESSEE DID NOT FILE REQUIRE D DETAILS BEFORE THE AO AND IN ABSENCE OF SUCH DETAILS THE AO HAS ESTIMATED COST O F CONSTRUCTION. IT MAY BE A CASE WHERE ASSESSEE MAY NOT HAVE GOT SUFFICIENT TI ME TO PRODUCE ALL THE DOCUMENTS AS THE ENQUIRY STATED BY THE AO IN THIS REGARD WAS FIRST STARTED BY THE LETTER DATED 25/11/2008 AND 15/12/08 AND THE DI RECTOR OF THE ASSESSEE APPEARED BEFORE HIM IN THE 4 TH WEEK OF DECEMBER AND ASSESSMENT WAS COMPLETED BY AN ORDER DATED 26/12/2008. IT IS ALSO EVIDENT FROM THE ORDER OF LD. CIT(A) THAT ASSESSEE HAD FILED FRESH MATERIAL BEFORE HIM ON THE BASIS OF WHICH HE HAS REFERRED THE MATTER TO THE FILE OF AO FOR EXAMINATION OF THE . / ITA NO. 1681/MUM/2010 ' ' ' ' # # # # / ASSESSMENT YEAR 2006-07 6 PAYMENT OF RS.16,85,166/- TO BMC AND RS.2.00 LACS T OWARDS PURCHASE OF DEVELOPMENT RIGHT. KEEPING IN VIEW ALL THESE FACTS , WE ARE OF THE OPINION THAT IT WILL SERVE THE INTEREST OF JUSTICE IF THE MATTER IS RESTORED BACK TO AO WITH A DIRECTION TO RE-ADJUDICATE THE ISSUE RAISED IN THE PRESENT APPEAL DENOVO, AS PER LAW, AFTER GIVING THE ASSESSEE A REASONABLE OPPORTU NITY OF HEARING. WE DIRECT ACCORDINGLY. FOR STATISTICAL PURPOSES THE APPEAL F ILED BY THE ASSESSEE IS CONSIDERED TO BE ALLOWED IN THE MANNER AFORESAID. 6. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES IN THE MANNER AFORESAID. ORDER PRONOUNCED IN THE OPEN COURT ON 19/02/201 4 - ) ,# . /'0 19/02/2014 ) 1 SD/- SD/- ( / SANJAY ARORA ) ( . . / I.P. BANSAL ) / ACCOUNTANT MEMBER / JUDICIAL MEMBER MUMBAI; /' DATED 19 /02/2014 - - - - ) )) ) '*2 '*2 '*2 '*2 32#* 32#* 32#* 32#* / COPY OF THE ORDER FORWARDED TO : 1. $& / THE APPELLANT 2. '($& / THE RESPONDENT. 3. 4 ( ) / THE CIT(A)- 4. 4 / CIT 5. 251 '*' , , / DR, ITAT, MUMBAI 6. 16 7 / GUARD FILE. -' -' -' -' / BY ORDER, (2* '* //TRUE COPY// 8 88 8 / 9 9 9 9 (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI . ' . ./ VM , SR. PS