ANTHONY JOSEPH PATTATHU, MUMBAI V. ASST. C.I.T.19(2), MUMBAI

ITA 1707/MUM/2011

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 70818 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 5 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-08-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2007-2008
• Appeal Filed On: 01-03-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: O P SINGH
• Assessee Lawyers: AJAY R SINGH; DR SHIVARAM
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH I, MUMBAI BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA, JUDICIAL MEMBER ITA NO. 1051/MUM/2011 ASSESSMENT YEAR : 2007-08 ACIT - 19(2) ROOM NO.315, 3 RD FLOOR PIRAMAL CHAMBERS, LALBAUG PAREL MUMBAI-400 012. VS. SHRI ANTHONY JOSEPH PATTATHU 45-C, PATTATHU HOUSE KURLA KALINA ROAD, KALINA SANTACRUZ(E) MUMBAI-400 029. PAN NO.AABPP 2903 L (APPELLANT) (RESPONDENT) ITA NO. 1707/MUM/2011 ASSESSMENT YEAR : 2007-08 SHRI ANTHONY JOSEPH PATTATHU MUMBAI-400 029. PAN NO.AABPP 2903 L VS. ACIT - 19(2) MUMBAI-400 012. (APPELLANT) (RESPONDENT) ASSESSEE BY : DR. SHIVARAM AND SHRI AJAY R. SINGH REVENUE BY : SHRI O.P. SINGH DATE OF HEARING : 06/08/2013 DATE OF PRONOUNCEMENT : 14 / 0 8 /2013 O R D E R PER B. RAMAKOTAIAH, AM: THESE TWO ARE CROSS APPEALS BY ASSESSEE AND REVENUE AGAINST ORDERS OF CIT(A)-30, MUMBAI DATED 26.11.2010. THE I SSUE IN THESE APPEALS IS WITH REFERENCE TO THE DISALLOWANCE OF EX PENSES CLAIMED BY THE ASSESSEE. ITA NO.1051 & 1707/M/11 A.Y.07-08 ANTHONY J OSEPH PATTATHU 2 2. BRIEFLY STATED, THE ASSESSEE IS A PROPRIETOR OF M/S. PATTATHU BROTHERS ENGAGED IN THE BUSINESS AS BUILDER, DEVEL OPER AND CONTRACTOR. THE ASSESSEE STARTED A PROJECT AISHWARYA ON 01.12 .1992 AND COMPLETED IT ON 06.06.2003. AS ON OCT. 2003, 25 FLATS WERE UN SOLD AND ASSESSEE COULD SELL 20 FLATS AS A BLOCK TO M/S. FEDERAL BANK . DURING THE YEAR THE ASSESSEE HAS SHOWN RECEIPTS TO AN EXTENT OF RS.9.23 CRORES AND AFTER REDUCING WORK-IN-PROGRESS AND OTHER EXPENDITURES, O FFERED INCOME OF RS.1.21 CRORES. THE AO WAS OF THE OPINION THAT THE ASSESSEE HAVING COMPLETED THE PROJECT IN OCTOBER, 2003 CAN NOT CLAI M ANY EXPENDITURE ON THE SALE OF AISHWARYA PROJECT AND AFTER DISCUSSION ALLOWED ONLY AN AMOUNT OF RS.9,12,042/- EXPENDITURE AND BALANCE AMO UNT OF RS.71,72,185/- WAS DISALLOWED. THE ASSESSEE CONTEST ED BEFORE CIT(A) SUBMITTING THAT EVEN THOUGH THE PROJECT WAS COMPLET ED IN OCTOBER 2003 THE FLATS WHICH REMAINED UNSOLD WERE OFFERED TO FED ERAL BANK AND ULTIMATELY BANK PURCHASED ONLY 20 FLATS AND AS PER THE PROVISIONS OF MAHARASHTRA OWNERSHIP FLATS ACT, 1963, IT IS THE DU TY OF THE DEVELOPER TO INCUR EXPENSES FOR MAINTENANCE OF PROPERTY AND FURT HER ASSESSEE ALSO UNDERTOOK TO CARRY OUT SUBSTANTIAL REPAIRS, RENOVAT ION AND ADDITION OF AMENITIES WHILE OFFERING THE FLATS TO FEDERAL BANK. IT WAS FURTHER SUBMITTED THAT THE ASSESSEE HAS CLAIMED SIMILAR EXP ENDITURE IN EARLIER YEARS WHICH THE AO HAS ALLOWED AND THEREFORE, THE D ISALLOWANCE OF THE EXPENDITURE WAS NOT WARRANTED, AS THE ASSESSEE HAS MAINTAINED BOOKS OF ACCOUNT AND AO HAS NOT FOUND OUT ANY MISTAKES IN TH E SAME. 3. LD. CIT(A) AFTER CONSIDERING THE ARGUMENTS HAS A LLOWED THE AMOUNT OF RS.57,37,748/- RESTRICTING THE DISALLOWANCE OF A MOUNT TO RS.14,34,437/- IE. TO AN EXTENT OF 20% OF THE EXPEN DITURE. HIS ORDER ON THE ISSUE IS AS UNDER :- ITA NO.1051 & 1707/M/11 A.Y.07-08 ANTHONY J OSEPH PATTATHU 3 10. I HAVE CAREFULLY GONE THROUGH THE ASSESSMENT ORDER, THE FACTUAL MATRIX OF THE CASE AND THE SUBMISSIONS OF T HE APPELLANT. THE LEARNED AR OF THE APPELLANT HAS SUBMITTED THAT AS P ER PROVISIONS OF THE MAHARASHTRA OWNERSHIP FLATS (REGULATION OF THE PROMOTION OF CONSTRUCTION, SALE MANAGEMENT AND TRANSFER) ACT., 1 963 IT IS THE DUTY OF THE DEVELOPER TO INCUR EXPENSES ON MAINTENA NCE OF PROPERTY AND PAY MUNICIPAL AND LOCAL TAXES TILL POSSESSION O F THE BUILDING IS GIVEN TO SOCIETY AS SUCH EXPENSES ON RAW MATERIAL, LABOUR, CONSUMABLE STORES INCURRED FOR BUILDING MAINTENANCE ARE NECESSARILY & EXCLUSIVELY INCURRED FOR BUSINESS & A RE ALLOWABLE. THE AO HAS MENTIONED IN THE ASSESSMENT ORDER THAT THE AISHWARYA PROJECT HAD ATTAINED COMPLETION IN F.Y. 2003-04. I N THIS REGARD IT IS SUBMITTED BY THE LD. AR THAT THE DEPARTMENT HAS CON SISTENTLY PASSED ASSESSMENT ORDERS U/S. 143(3) OF THE IT ACT, 1961 FOR (HE A.Y. 2003-04, 2004-05, 2005-06 & 2006-07 AND 2007-0 8. IT IS ONLY IN THE PRESENT A.Y. I.E. 2007-08 THAT THE EXPENSES CLAIMED BY THE APPELLANT HAVE BEEN DISALLOWED TO THE EXTENT OF RS. 71,72,185/-. THE DETAILS OF EXPENSES CLAIMED BY THE APPELLANT UPTO A .Y.2006-07 ARE AS UNDER: A.Y. 2003-04 RS.1,19,74,082 A. Y. 2004-05 RS. 1,18,53,154 A.Y. 2005-06 RS. 66,23,86 9 A. Y. 2006-07 RS. 1,91,63,4 72 11. IT IS ALSO SUBMITTED BY THE LD. AR THAT NO MAJ OR DISALLOWANCES HAVE BEEN MADE BY THE AD IN RESPECT O F THE AFORESAID EXPENSES DESPITE THE FACT THAT FOR A.Y. 2005-06 & 2 006-07 EXPENSES HAVE BEEN CLAIMED & ALLOWED AFTER THE COMPLETION OF THE AISHWARYA PROJECT. THEREFORE, THE LD. AR FURTHER SUBMITTED T HAT THE AC IS NOT JUSTIFIED IN DISALLOWING THE EXPENSES ON THE GROUND THAT AISHWARYA PROJECT WAS COMPLETED IN F.Y. 2003-04 AND HENCE IN THE A.Y. 2007- 08 EXPENSES CANNOT BE ALLOWED TO THE APPELLANT. THE LD. AR OF THE APPELLANT HAS ALSO FURNISHED DETAILS OF THE EXPENSE S OF RS. 80,84,227/- WHICH HAVE BEEN CLAIMED FOR THE AL. UND ER CONSIDERATION FROM WHICH IT IS SEEN THAT THE MAJOR EXPENSES ARE ON ACCOUNT OF INTEREST ON BANK LOAN, LABOUR CHARGES AN D WAGES & SALARY. 12. I FIND CONSIDERABLE FORCE IN THE ARGUMENT OF T HE APPELLANT THAT LIKE THE PAST YEARS, EXPENSES SHOULD HAVE BEEN ALLO WED THIS YEAR ALSO. HOWEVER, I HAVE SEEN FROM THE ASSESSMENT ORDE R OF EARLIER YEARS THAT ADHOC EXPENSES HAVE BEEN DISALLOWED ON A CCOUNT OF ITA NO.1051 & 1707/M/11 A.Y.07-08 ANTHONY J OSEPH PATTATHU 4 PERSONAL & NON VERIFIABLE NATURE OF EXPENSES. THE REFORE, THE ELEMENT OF NON-VERIFIABILITY N SOME OF THE EXPENSES IS THERE ON ACCOUNT OF EXPENSES BEING NOT FULLY VOUCHED AND SUP PORTED BY THIRD PARTY BILLS. THEREFORE, IT WILL BE IN THE FITNESS O F THINGS AND WILL BE JUST AND FAIR IF 20% OF THE EXPENSES ARE DISALLOWED AND BALANCE EXPENSES ARE ALLOWED TO THE APPELLANT. THE WORKING OF WHICH IS AS UNDER: RS. 80,84, 227 LESS:- EXP. ALLOWED BY THE AO RS. 9,12,042 === ======== RS.71,72,18 5 LESS:-DISALLOWAN CE OF 20% RS. 14,34,437 === ======== BALANCE ALLOWABL E RS. 57,37,748 13. AO IS DIRECTED TO ALLOW RS.57,37,748/- TO THE A PPELLANT ON ACCOUNT OF EXPENSES WHILE WORKING OUT THE PROFIT OF THE AISHWARYA PROJECT. THESE GROUNDS ARE PARTLY ALLOWED. BOTH ASSESSEE AND REVENUE ARE AGGRIEVED ON THE ABOV E ORDER. 4. IN THE REVENUE APPEAL, THE REVENUE HAS RAISED TH E FOLLOWING GROUND:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE AC SE AND IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS .57,37,748/- ON ACCOUNT OF EXPENSES CLAIMED AGAINST PROJECT AISHWAR YA MADE BY THE ASSESSING OFFICER, JUST BECAUSE THE EXPENSES WERE A LLOWED BY THE DEPARTMENT FOR ASSESSMENT YEARS 2003-04, 2004-05, 2 005-06 AND 2006-07 IGNORING THE FACT THAT: A) THE ASSESSEE HAS FAILED TO PRODUCE DETAILS IN SUPPO RT OF THE EXPENSES CLAIMED AGAINST THE PROJECT AISHWARYA FOR THE YEAR UNDER CONSIDERATION. B) THE PROJECT WAS COMPLETED IN 2003 AND THOUGH THERE WERE SOME UNSOLD FLATS WHICH WERE ALSO SOLD LATER TO FED ERAL BANK IN OCTOBER 2003. C) DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE HA S ACQUIRED PLOTS OF LAND FOR DEVELOPMENT, SOLD LAND A T COCHIN ETC. D) AO HAS ALLOWED EXPENDITURE RELATABLE TO THE PROJECT ON PRO RATA BASIS AT RS.9,12,042/-. ITA NO.1051 & 1707/M/11 A.Y.07-08 ANTHONY J OSEPH PATTATHU 5 5. AFTER CONSIDERING THE RIVAL CONTENTIONS AND EXAM INING THE ORDERS OF AO AND CIT(A), WE DO NOT SEE ANY REASON TO CONSIDER THE REVENUE GROUND. FIRST OF ALL, THE AO HAS NOT BROUGHT ANYTHING ON RE CORD TO DISALLOW THE EXPENDITURE. EVENTHOUGH THE BUILDING MAY BE COMPLET ED IN 2003, ASSESSEE COULD SELL THE UNSOLD FLATS ONLY DURING TH E YEAR AND HAS TO INCUR BOTH MAINTENANCE AND RENOVATION EXPENSES AND FURTHE R AMENITIES WERE OFFERED TO THE BANK WHILE SELLING THE APARTMENTS. T HEREFORE, ORDER OF CIT(A) TO THE EXTENT THAT EXPENDITURE IS ALLOWABLE TO THE ASSESSEE DOES NOT REQUIRE ANY MODIFICATION. THEREFORE, REVENUE GR OUND IS REJECTED. 6. IN THE ASSESSEES APPEAL THE ASSESSEE HAS RAISED THE FOLLOWING GROUND. 1. THE LD. CIT(A) ON THE FACTS AND IN THE CIRCUMST ANCES OF THE CASE AND IN LAW ERRED IN DISALLOWING 20% OF THE EXP ENSES OF RS.71,72,185/- 2. THE LD. CIT(A) ON THE FACTS AND IN THE CIRCUMSTA NCES AND IN LAW ERRED IN DISALLOWING EXPENSES OF RS.14,34,437/- . 7. IT WAS SUBMITTED THAT THE CIT(A) HAD ALLOWED THE CLAIM OF THE ASSESSEE AS REGARDS TO THE EXPENSES, HOWEVER, THE L D. CIT(A) RESTRICTED THE DISALLOWANCE TO 20% OF RS.71,72,185/- ON THE GR OUND THAT CERTAIN EXPENSES WERE NOT VERIFIABLE OR WERE PERSONAL IN NA TURE WITHOUT ANY BASIS OR REASONS, AS COMPLETE DETAILS OF THE EXPENDITURE WERE FURNISHED DURING THE ASSESSMENT AS WELL AS APPELLATE PROCEEDINGS. IF ANY EXPENDITURE WAS NON-VERIFIABLE OR PERSONAL IN NATURE, THE SAME OUGH T TO HAVE BEEN BROUGHT TO NOTICE OF THE ASSESSEE. AS THERE IS NO D EFECT IN THE BOOKS OF ACCOUNTS MAINTAINED BY ASSESSEE, ADHOC DISALLOWANCE OF 20% MAY BE DELETED. 8. AFTER CONSIDERING THE RIVAL CONTENTIONS AND EXAM INING THE NATURE OF EXPENDITURE, WE DO NOT FULLY AGREE WITH THE LD. CIT (A)S RESTRICTION OF ITA NO.1051 & 1707/M/11 A.Y.07-08 ANTHONY J OSEPH PATTATHU 6 EXPENDITURE TO 20% . THE DETAILS OF EXPENDITURE AS EXTRACTED IN THE ORDER OF CIT(A), PAGE-6 DO INDICATE THAT THERE WAS AN INT EREST AMOUNT ON BANK LOAN PAID TO AN EXTENT OF RS.18,35,432/- WHICH CANN OT BE RESTRICTED ON ADHOC BASIS. LIKEWISE, FINANCE CHARGES WERE TO THE EXTENT OF RS.2,11,290/- WHICH ALSO WERE PAID TO THE BANK FOR LOAN PROCESSING. IN ADDITION, THERE ARE BANK CHARGES ALSO OF RS.24,607/ -. AN AMOUNT OF RS.50,002/- PAID AS DONATION WAS ALREADY DISALLOWED BY THE ASSESSEE IN THE COMPUTATION. THEREFORE, ADHOC DISALLOWANCE ON T HE ENTIRE AMOUNT WITHOUT EXAMINING THE NATURE OF EXPENDITURE CANNOT BE PERMITTED. AS SEEN FROM THE ASSESSMENT ORDERS IN THE OTHER YEARS, WHICH WERE RELIED ON BY THE CIT(A), EXPENDITURE PERTAINING TO TELEPHONE, ELECTRICITY AND TRAVELLING EXPENDITURE WERE ONLY DISALLOWED ON ADHO C BASIS. THEREFORE, PARTIALLY MODIFYING THE ORDER OF CIT(A), WE DIRECT THE AO TO RESTRICT THE DISALLOWANCE OF 20% ON CONVEYANCE, ELECTRICITY, MOT OR CAR EXPENSES, STAFF WELFARE AND TELEPHONE CALL CHARGES AND 10% ON DEPRE CIATION CLAIMED AS ASSESSEE IS AN INDIVIDUAL AND USE FOR PERSONAL PURP OSE CANNOT BE RULED OUT. THEREFORE, WHILE PERMITTING THE GROUNDS PARTIA LLY, CIT(A)S ORDER STANDS MODIFIED TO THAT EXTENT. GROUNDS PARTLY ALLO WED. 9. IN THE RESULT, REVENUE APPEAL IS DISMISSED WHERE AS ASSESSEES APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 14 TH AUGUST, 2013. SD/- SD/- (AMIT SHUKLA) JUDICIAL MEMBER (B. RAMAKOTAIAH) ACCOUNTANT MEMBER MUMBAI, DATED: 14/08/2013. JV. ITA NO.1051 & 1707/M/11 A.Y.07-08 ANTHONY J OSEPH PATTATHU 7 COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT(A) CONCERNED, MUMBAI THE DR BENCH TRUE COPY BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.