CASA BELLA DEVELOPERS P.LTD, MUMBAI V. ITO 6(2)(1), MUMBAI

ITA 1710/MUM/2016

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 5416 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 4 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-07-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2009-2010
• Appeal Filed On: 22-03-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: RAM TIWARI
• Keywords: Competent authority
• Section: 143(3); 142(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES H, MUMBAI BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER & SHRI G MANJUNATHA, ACCOUNTANT MEMBER ITA NO.1710/MUM/2016 ASSESSMENT YEAR : 2009-10 CASA BELLA DEVELOPERS PRIVATE LIMITED, 111, INDUSTRIAL AREA, SION (W), MUMBAI 400 022 PAN AACCC9148E VS. ITO 6(2)(1), MUMBAI (APPELLANT) RESPONDENT) APPELLANT BY : SHRI DALPAT SHAH RESPONDENT BY : SHRI RAM TIWARI DATE OF HEARING : 05 .0 6 .201 8 DATE OF PRONOUNCEMENT : 25 .0 7 . 201 8 O R D E R PER G MANJUNATHA, ACCOUNTANT MEMBER THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST ORDER OF THE CIT(A)-12, MUMBAI, DATED 13.01.2016, AND IT PERTAINS TO ASSESS MENT YEAR 2009-10. THE ASSESSEE HAS RAISED FOLLOWING GROUNDS OF APPEAL:- 1. (A) THE CIT(APPEALS) WAS NOT CORRECT IN CONFIRM ING THE DISALLOWANCE OF RS 22,91,738/- REPRESENTING CONSTRUCTION EXPENSE S INCURRED BY THE APPELLANT AFTER 15.04.2008 AND DIRECTING THE A.O. T O (I) ALLOW THE EXPENSES FOR THE WORK IN PROGRESS OF THE PART BALANCE OF THE PROJECT-WING B AND (II) ALLOW SOME OF THE MINOR EXPENSES INCURRED ON PANTI NG DUE TO LEAKAGE ETC. (B) THE FIRST APPELLATE AUTHORITY FAILED TO NOTICE THAT THE APPELLANT HAS BEEN FOLLOWING THE PROJECT COMPLETION BASIS IN CARR YING ON ITS BUSINESS AS LAND DEVELOPER AND BUILDER AND IS THEREFORE ENTITLE D TO CLAIM EXPENSES ITA NO.1710/MUM/2016 CASA BELLA DEVELOPERS P LTD. 2 PERTAINING TO THE FLATS SOLD IN THE YEAR IN WHICH S UBSTANTIAL SALES OF FLATS WERE MADE. (C) THE C.I.T (APPEALS) SHOULD HAVE SEEN THAT EVEN AFTER OBTAINING PART OCCUPANCY CERTIFICATE FROM THE CIDCO, THE APPELLANT HAD TO INCUR EXPENSES TO COMPLY WITH THE DIRECTIONS ISSUED IN TH E PART OCCUPANCY CERTIFICATE DATED 10.06.2008. (D) THE FIRST APPELLATE AUTHORITY OUGHT TO HAVE SEE N THAT EVEN AFTER OBTAINING PART OCCUPANCY CERTIFICATE, EXPENSES WERE INCURRED BY THE APPELLANT TO FIX LEAKAGES AND OTHER DEFICIENCIES PO INTED OUT BY THE PURCHASES OF FLATS. 2 THE C.I.T. (APPEALS) FAILED TO CONSIDER THE F OLLOWING DECISIONS PLACED BEFORE HER IN SUPPORT OF THE APPELLANT'S CLAIM (I) DECISION DATED 7.1.2011 IN M/S ADITI DEVELOPERS VS ASST. COMMISSIONER OF INCOME TAX IN IT NO.3302/M/2010. (II) DECISION DATED 20.5.2011 IN MANTRI DEVELOPERS VS ITO-ITA NO. 2819/M/2010 (III) DECISION DATED 6.2.2013 IN ADITYA BUILDERS VS CIT IN ITA NO. 2220/M/2012. (IV) DECISION DATED 17.2.2015 IN ACIT VS PARAS BUIL D CALL PVT. LTD. ITA NO. 234&4316/DEL/2010. 3. WITHOUT PREJUDICE TO THE GROUND MENTIONED AT 1 ABOVE, THE APPELLANT CLAIMS THAT THE FIRST APPELLATE AUTHORITY SHOULD HAVE ALLOWED CONSTRUCTION EXPENSES AMOUNTING TO RS. 13,37,447 IN CURRED BETWEEN 16.4.2008 AND 10.6.2008 (DATE OF PART OCCUPANCY CER TIFICATE). (A) THE C.I.T. (APPEALS) WAS NOT CORRECT IN REJECT ING THE CLAIM OF THE APPELLANT REGARDING INTEREST OF RS. 27,56,11 1 ON THE BASIS THAT THE APPELLANT HAS BEEN FOLLOWING THE MERCANTIL E SYSTEM OF ACCOUNTING. (B) HERE AGAIN THE FIRST APPELLATE AUTHORITY FAILE D TO NOTICE THAT THE APPELLANT FOLLOWED BE PROJECT COMPILATION BASIS IN OFFERING ITS INCOME FOR INCOME TAX. (C) THE C.I.T (APPEALS) FAILED TO CONSIDER THE FOLL OWING DECISIONS PLACED BEFORE HER: (I) DECISION DATED 22.09.2005 IN WALL STREET CONS TRUCTION LIMITED VS. JOINT C.I.T REPORTED AT 5 SOT 103 (MUM) (SB) ITA NO.1710/MUM/2016 CASA BELLA DEVELOPERS P LTD. 3 (II) C.I.T. VS LOKHANDWALA CONSTRUCTION INDUSTRIES LTD REPORTED AT 260 ITR 579(BOM) 5. THE CIT(APPEALS HAS NOT CONSIDERED THE DETAILS S HOWING HE AMOUNTS OF TAX DEDUCTED AT SOURCE FROM THE INTEREST PAID TO THE LOAN CREDITORS AND THE FACT THAT THE SAME WAS PAID INTO GOVT. ACCOUNT, IN GIVING DIRECTION TO THE AO TO VERIFY THE SAME. 6 (A) THE FIRST APPELLANT AUTHORITY WAS NOT JUSTIF IED IN CONFIRMING THE DISALLOWANCE OF RS.99,377/- OUT OF THE EXPENSES INCURRED BY THE DIRECTOR OF THE APPELLANT COMPANY INC ARRYING O N THE BUSINESS OF THE APPELLANT. (B) THE CIT (APPEALS) FAILED TO APPRECIATE THE FACT S OF APPELLANT'S CASE THAT THE CONSTRUCTION-SITE IS LOCATED 60 KMS A WAY FROM THE REGISTERED OFFICE OF APPELLANT. IT WAS NECESSARY TO INCUR SUCH EXPENSES. (C) AT ANY RATE THE APPELLANT CLAIMS THAT THE DISAL LOWANCE OF RS. 99,377 IS ARBITRARY. 7. (A) THE FIRST APPELLATE AUTHORITY WAS NO T CORRECT IN CONFIRMING THE DIRECTIONS ISSUED BY THE AO THAT THE FOLLOWING AMOU NTS SHOULD BE REDUCED OUT OF THE EXPENSES IN COMPLETING THE IT ASSESSMENT FOR THE A.Y. 2010- 11 (I) OUT OF CONSTRUCTION EXPENSES INCURRED AFTER 15. 4.2008 RS. 705580 (II) OUT OF INTEREST PAID RS. 648789 (III) DISALLOWANCE OF EXPENSES PERTAINING TO EARLIE R YEARS (OUT OF 653153) RS. 153883 (IV) OUT OF EXPENSES INCURRED BY DIRECTOR IN CARRYI NG ON BUSINESS OF THE APPELLANT RS. 30595 (V) DISALLOWANCES U/S 40(A)(IA) AS EXPENSES RELATIN G TO THE EARLIER YEARS RS. 173590 (B) THE CIT (APPEALS) SHOULD HAVE SEEN THAT NO DIRE CTION CAN BE GIVEN BY THE AO IN SO FAR AS SUCH DIRECTION RELATED TO THE NEXT ASSESSMENT YEAR. (C) THE FIRST APPELLATE AUTHORITY HAS NOT CONSIDERE D THE ASST. ORDER FOR AY 2010-11, PLACED BEFORE WHEREIN THE AO ACCEPTED THE FIGURES FURNISHED BY THE APPELLANT. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E COMPANY, ENGAGED IN THE BUSINESS AS BUILDER AND DEVELOPER, DID NOT FILE RET URN OF INCOME FOR A.Y. 2009-10 ITA NO.1710/MUM/2016 CASA BELLA DEVELOPERS P LTD. 4 U/S. 139(1) OF THE INCOME TAX ACT, 1961. THEREAFTE R, THE ASSESSING OFFICER ISSUED NOTICE U/S. 148, DATED 08.03.2013, AND CALLED UPON THE ASSESSEE TO FILE RETURN OF INCOME. IN RESPONSE, THE ASSESSEE HAS FILED RETURN OF INCOME ON 01.04.2013 DECLARING TOTAL INCOME OF ` 6,97,560/-. THE CASE WAS SELECTED FOR SCRUTINY AN D NOTICES U/S. 143(2) & 142(1) OF THE ACT WERE ISSUED . IN RESPONSE TO NOTICES, THE AR OF THE ASSESSEE APPEARED FROM TIME TO TIME AND FILE D VARIOUS DETAILS AS CALLED FOR. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AS SESSING OFFICER NOTICED THAT THE ASSESSEE IS A BUILDER AND UNDERTOOK DEVELOPMENT OF RESIDENTIAL CUM COMMERCIAL PROJECT AT NALASOPARA ON PLOT NO.,67 & 68, SURVEY N O.7 & 8, VILLAGE MORE, TALUKA VASAI, THANE DISTRICT. THE ASSESSING OFFICER FURTH ER OBSERVED THAT THE ASSESSEE HAS NOT DECLARED ANY INCOME FROM THE PROJECT AND, THERE FORE, CALLED UPON TO EXPLAIN AS TO WHY NO INCOME HAS BEEN DECLARED EVEN THOUGH PROJ ECT WAS COMPLETED AND OCCUPATION CERTIFICATE WAS OBTAINED DURING THE FINA NCIAL YEAR RELEVANT TO A.Y. 2009- 10. IN RESPONSE, THE ASSESSEE HAS FILED ITS JUSTIF ICATION FOR NOT OFFERING INCOME FROM THE PROJECT. THE ASSESSING OFFICER AFTER CONSIDERI NG RELEVANT SUBMISSIONS OF THE ASSESSEE, COMPLETED ASSESSMENT U/S. 143(3) ON 24.03 .2014, DETERMINING TOTAL INCOME AT ` 51,96,050/- BY MAKING ADDITIONS TOWARDS DISALLOWAN CES OF EXPENSES INCURRED TOWARDS PROJECT AFTER OBTAINING COMPLETION CERTIFICATE FROM THE AUTHORITIES, DISALLOWANCES OF INTEREST PAID FOR LAST THREE FINAN CIAL YEARS ON LOANS AND ADVANCES AND DISALLOWANCE OF EXPENSES INCURRED BY THE DIRECT OR FOR FAILURE TO FILE NECESSARY EVIDENCES. 3. AGGRIEVED BY THE ASSESSMENT ORDER, THE ASSESSEE PREFERRED APPEAL BEFORE THE CIT(A). BEFORE THE CIT(A), THE ASSESSEE SUBMITTED THAT EXPENDITURE INCURRED TOWARDS PROJECT IS FOR COMPLETING CERTAIN ADDITIONA L WORKS AS DESIRED BY THE OCCUPANTS OF THE FLAT LIKE FIXATION OF ALUMINUM SLI DING, FABRICATION WORK, ADDITIONAL ELECTRICAL FITTINGS, POLISHING AND OTHER PLUMBING W ORKS, PAINTING, POP WORK, ETC., WHICH ARE INCURRED AFTER OBTAINING COMPLETION CERTI FICATE FROM THE AUTHORITIES. THEREFORE, THE ASSESSING OFFICER ERRED IN DISALLOWI NG SUCH EXPENSES PROPORTIONATELY BY ALLOCATING EXPENSES TO TWO DIFFERENT PROJECTS. I N SO FAR AS DISALLOWANCE OF INTEREST IS CONCERNED, THE ASSESSEE SUBMITTED THAT IT IS FOL LOWING MERCANTILE SYSTEM OF ACCOUNTING, AS PER WHICH IT HAS PROVIDED INTEREST O N LOAN DURING THE YEAR UNDER ITA NO.1710/MUM/2016 CASA BELLA DEVELOPERS P LTD. 5 CONSIDERATION INCLUDING FOR EARLIER TWO ASSESSMENT YEARS, FOR WHICH NECESSARY EXPLANATION HAS BEEN FILED BEFORE THE ASSESSING OFF ICER. THE SAID INTEREST HAS BEEN PAID TO THE LENDERS AFTER DEDUCTING NECESSARY TDS A PPLICABLE AS PER THE LAW AND, HENCE, THE ASSESSING OFFICER WAS INCORRECT IN DISAL LOWING INTEREST EXPENDITURE. SIMILARLY, IN SO FAR AS DISALLOWANCE OF EXPENSES IN CURRED BY DIRECTOR ON BEHALF OF THE COMPANY IS CONCERNED, THE ASSESSEE SUBMITTED THAT T HE DIRECTOR- MS. FALGUNI DHURUVA HAS EXPENDED VARIOUS EXPENSES, WHICH ARE IN CURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE. THE A SSESSEE HAS FILED NECESSARY EVIDENCES BEFORE THE ASSESSING OFFICER, BUT THE ASS ESSING OFFICER HAS IGNORED ALL EVIDENCES FILED BY THE ASSESSEE TO MAKE DISALLOWANC E, WHICH IS INCORRECT. 4. THE CIT(A) AFTER CONSIDERING RELEVANT SUBMISSION S OF THE ASSESSEE DISMISSED THE APPEAL FILED BY THE ASSESSEE, WHEREIN SHE HAD U PHELD ADDITIONS MADE BY THE ASSESSING OFFICER TOWARDS DISALLOWANCES OF EXPENSES INCURRED TOWARDS PROJECT AFTER OBTAINING COMPLETION CERTIFICATE FROM THE AUTHORITI ES BY STATING THAT ONCE COMPLETION CERTIFICATE IS OBTAINED FOR THE PROJECT, NO FURTHER EXPENSES ARE REQUIRED TO BE EXPENDED AND, HENCE, THERE IS NO MERIT IN THE ARGUM ENTS OF THE ASSESSEE THAT IT HAS INCURRED VARIOUS EXPENSES TOWARDS COMPLETION OF THE PROJECT. THE CIT(A) FURTHER OBSERVED THAT ALTHOUGH THE ASSESSEE CLAIMED TO HAVE INCURRED VARIOUS EXPENSES SUCH EXPENSES MIGHT BE INCURRED FOR THE REMAINING P ART OF THE PROJECT AND, THEREFORE, DIRECTED THE ASSESSING OFFICER TO ALLOW EXPENSES FOR WORK-IN-PROGRESS FOR THE PART OF THE BALANCE PROJECT I.E. WING B. ACC ORDINGLY, THE EXPENSES INCURRED AFTER OBTAINING OCCUPATION CERTIFICATE IS NOT ALLOW ABLE FOR THE PROJECT WHICH IS COMPLETED AND OCCUPATION CERTIFICATE IS GRANTED. I N SO FAR AS DISALLOWANCE OF INTEREST IS CONCERNED, THE CIT(A) OBSERVED THAT SIN CE THE ASSESSEE IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING, IT NEEDS TO PROVID E ALL EXPENDITURE RELATING TO THE PARTICULAR PERIOD WHETHER THE SAME HAD BEEN PAID OR NOT. IN THIS CASE, THE ASSESSEE CLAIMS TO HAVE NOT PAID INTEREST FOR EARLIER TWO YE ARS TO PROVIDE FOR SUCH INTEREST DURING THE CURRENT FINANCIAL YEAR SO AS TO REDUCE I TS TAXABLE INCOME. THEREFORE, THE CIT(A) OPINED THAT THE ASSESSING OFFICER WAS RIGHT IN DISALLOWING INTEREST PERTAINING TO PREVIOUS ASSESSMENT YEARS. THE CIT(A) FURTHER O BSERVED THAT IN SO FAR AS INTEREST EXPENSES FOR THE CURRENT ASSESSMENT YEAR I.E. A.Y. 2009-10 IS CONCERNED, IF THE ITA NO.1710/MUM/2016 CASA BELLA DEVELOPERS P LTD. 6 ASSESSEE HAS CREDITED INTEREST INCOME TO THE RESPEC TIVE LENDERS ACCOUNT AND DEDUCTED TDS THEN, THE SAME MAY BE ALLOWED FOR THE YEAR UNDER CONSIDERATION. AS REGARDS DISALLOWANCE OF EXPENSES INCURRED BY THE DI RECTOR OF THE ABOVE COMPANY IS CONCERNED, THE LEARNED CIT(A) UPHELD THE ADDITIONS MAD BY THE ASSESSING OFFICER BY OBSERVING THAT ASSESSEE HAS FAILED TO FURNISH ANY E VIDENCE IN THE FORM OF BILLS AND VOUCHERS. SIMILARLY, THE CIT(A) REJECTED THE GROUN D TAKEN BY THE ASSESSEE TOWARDS ADJUSTMENT PROPOSED BY THE ASSESSING OFFICER TO WOR K-IN-PROGRESS FOR A.Y. 2010-11 TO THE EXTENT OF 23.54% OF TOTAL EXPENSES DISALLOWE D. AGGRIEVED BY ORDER OF THE CIT(A), ASSESSEE IS IN APPEAL BEFORE US. 5. THE FIRST ISSUE THAT CAME UP FOR CONSIDERATION I S DISALLOWANCE OF EXPENSES INCURRED FOR THE PROJECT AFTER 15.04.2008. THE FACT S WITH REGARD TO THE IMPUGNED DISPUTE ARE THAT DURING THE YEAR UNDER CONSIDERATIO N TOTAL AREA CONSIDERED FOR SALES IS WORKED OUT AT 76.46% AND THE BALANCE 23.54% IS T REATED AS WORK-IN-PROGRESS BEING THE SECOND PHASE OF THE TOTAL AREA UNDER CONS TRUCTION. THE ASSESSEE HAS BOOKED TOTAL EXPENDITURE INCURRED FOR THE PROJECT @ 76.46% FOR THE CURRENT FINANCIAL YEAR AND THE BALANCE EXPENSES REPRESENTING 23.54% H AS BEEN ALLOCATED TO WORK-IN- PROGRESS. SIMILARLY, THE ASSESSEE HAS BOOKED REVEN UE FROM SALE OF 76.46% OF CONSTRUCTED AREA. THE ASSESSING OFFICER DISALLOWED CONSTRUCTION EXPENSES OF ` 22,91,738/- BEING 76.46% OF TOTAL EXPENSES OF ` 33,73,918/- INCURRED AFTER 15.04.2008. ACCORDING TO THE ASSESSING OFFICER, AS SESSEE HAS OBTAINED COMPLETION CERTIFICATE FROM ARCHITECT ON 15.04.2008 AND THE PA RT OCCUPANCY CERTIFICATE FROM CIDCO ON 10.06.2008, THEREFORE, WHATEVER EXPENDITUR E WAS INCURRED AFTER 15.04.2008, CANNOT BE DEDUCTED FROM 76.46% OF PROJE CT COMPLETED AND SOLD DURING THE CURRENT FINANCIAL YEAR. IT IS THE CONTENTION O F THE ASSESSEE THAT IT HAS OBTAINED PART OCCUPANCY CERTIFICATE FROM THE ARCHITECT ON 15 .04.2008 AND FROM CIDCO ON 10.06.2008 TO ENSURE TIMELY COMPLETION AND TO SHOW DELIVERY OF PLOTS TO THE CUSTOMERS. HOWEVER, AT THE TIME OF OBTAINING COMPL ETION CERTIFICATE THE PROJECT WAS NOT FULLY COMPLETE FOR OCCUPANCY AND SOME MINOR WOR K LIKE POP WORK, INSTALLATION OF GRILLS & FABRICATION, INTERNAL PAINTINGS, ALTERATIO NS IN LOCATIONS OF WASH BASIS, ALTERATION IN WINDOWS ETC. AND OTHER SMALL WORK WER E PENDING, FOR WHICH THE ASSESSEE HAS INCURRED VARIOUS EXPENSES AFTER 15.04. 2008. THE ASSESSEE FURTHER ITA NO.1710/MUM/2016 CASA BELLA DEVELOPERS P LTD. 7 CLAIMED THAT THE DETAILS OF EXPENSES INCURRED AFTER 15.04.2008 HAS BEEN FURNISHED TO THE ASSESSING OFFICER ALONG WITH NECESSARY SUPPORTI NG EVIDENCE. 6. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL AVAILABLE ON RECORD. THERE IS NO DISPUTE WITH REGARD TO THE FACT THAT TH E ASSESSEE HAS DEVELOPED THE PROJECT IN TWO PHASES. THE FIRST PHASE CONSISTS OF BLOCK A AND THE SECOND PHASE CONSISTS OF BLOCK B. THE ASSESSEE CLAIMS THAT IT HAS COMPLETED 76.46% OF THE TOTAL PROJECT AND SOLD IT DURING THE CURRENT FINANCIAL YE AR. THE ASSESSEE ALSO BOOKED REVENUE FROM SALE OF 76.46% OF THE TOTAL BUILT UP A RE AND CORRESPONDING EXPENSE DURING THE CURRENT FINANCIAL YEAR. IT IS ALSO AN ADMITTED FACT THAT THE ASSESSEE HAS OBTAINED COMPLETION CERTIFICATE FROM THE ARCHITECT ON 15.04.2008. THE ASSESSEE HAS ALSO OBTAINED PART COMPLETION CERTIFICATE FROM THE EXECUTIVE ENGINEER OF CIDCO ON 10.06.2008 ON BLOCK A. THE ASSESSEE HAS TREATED INCOMPLETE PORTION OF BLOCK B AS WORK-IN-PROGRESS AND WHATEVER EXPENSES INCURRED ON THE PROJECT HAS BEEN ALLOCATED TO WORK-IN-PROGRESS @23.54%. TO THIS EXT ENT THERE IS NO DISPUTE. THE ONLY DISPUTE IS WITH REGARD TO ALLOWABILITY OF EXPE NSES INCURRED AFTER 15.04.2008. THE ASSESSEE CLAIMS TO HAVE INCURRED A SUM OF ` 33,73,918/- AFTER 15.04.2008, FOR REMAINING WORK TO BE COMPLETED IN THE PROJECT LIKE POP WORK, INSTALLATION OF GRILLS & FABRICATION, INTERNAL PAINTINGS, ALTERATIONS IN LOC ATIONS OF WASH BASIS, ALTERATION IN WINDOWS ETC. THE ASSESSEE HAS GIVEN VARIOUS REASON S FOR INCURRING SUCH EXPENSES. ACCORDING TO HIM, FLAT OWNERS SOMETIMES DEMAND ADDI TIONAL WORK TO BE CARRIED ON AS PER THEIR REQUIREMENTS. THEREFORE, TO SATISFY I TS CUSTOMERS NEEDS IT HAD TO CARRY OUT SOME REPAIR WORK AND ALTERATIONS FOR WHICH IT H AS INCURRED EXPENSES AFTER 15.04.2008. 7 HAVING HEARD BOTH THE SIDES, WE DO NOT FIND ANY M ERIT IN THE ARGUMENTS OF THE ASSESSEE FOR THE REASON THAT THE ASSESSEE ITSEL F HAS CLAIMED THAT THE PROJECT HAS BEEN COMPLETED IN ALL RESPECT TO THE EXTENT OF 76.4 6% AND ALSO IT HAD OBTAINED COMPLETION CERTIFICATE FROM THE ARCHITECT ON 15.04. 2008 AND PART COMPLETION CERTIFICATE FROM CIDCO ON 10.06.2008. ONCE, THE PR OJECT HAS BEEN COMPLETE IN ALL RESPECT AND THE AUTHORITIES HAVE ISSUED OCCUPANCY C ERTIFICATE ON BEING SATISFIED WITH THE COMPLETION OF THE WORK, THEN THE ASSESSEE CANNOT CLAIM THAT IT HAS INCURRED ITA NO.1710/MUM/2016 CASA BELLA DEVELOPERS P LTD. 8 SUCH A HUGE EXPENDITURE FOR CARRYING OUT FURTHER WO RK IN THE PROJECT. ALTHOUGH, THE ASSESSEE CLAIMED TO HAVE INCURRED VARIOUS EXPENDITU RE LIKE POP WORK, INSTALLATION OF GRILLS & FABRICATION, INTERNAL PAINTINGS, ALTERATIO NS IN LOCATIONS OF WASH BASIS, ALTERATION IN WINDOWS ETC., IT FAILS TO SUBSTANTIAT E SUCH CLAIM WITH NECESSARY EVIDENCE IN THE BACKDROP OF OBTAINING COMPLETION CE RTIFICATE FOR THE PROJECT. THEREFORE, WE ARE OF THE CONSIDERED VIEW THAT THE A SSESSING OFFICER WAS RIGHT IN DISALLOWING EXPENSES INCURRED AFTER 15.04.2008 @76. 46% AND BALANCE AMOUNT OF 23.54% TO BE REDUCED FROM WORK-IN-PROGRESS. 8. COMING TO THE ALTERNATIVE CLAIM OF THE ASSESSEE THAT ALTHOUGH IT HAS OBTAINED COMPLETION CERTIFICATE FROM THE ARCHITECT ON 15.04. 2008, THE FACT REMAINS THAT IT HAS OBTAINED PART OCCUPANCY CERTIFICATE FROM THE COMPET ENT AUTHORITIES I.E. FROM CIDCO ON 10.06.2008, HENCE, AT LEAST EXPENDITURE INCURRED FOR THE PERIOD FROM 16.04.2008 TO 10.06.2008 SHOULD BE ALLOWED. WE FIND THAT THE ASSESSEE CLAIMS TO HAVE INCURRED A SUM OF ` 13,37,447/- BETWEEN 16.04.2008 AND 10.06.2008 I.E. THE DATE OF PARTIAL OCCUPANCY CERTIFICATE OBTAINED FROM THE COMPETENT A UTHORITY. THE ASSESSEE CLAIMS THAT IT HAS FILED NECESSARY EVIDENCE BEFORE THE ASS ESSING OFFICER TO JUSTIFY THOSE EXPENSES. WE FIND THAT ALTHOUGH THE ASSESSEE HAS O BTAINED COMPLETION CERTIFICATE FROM ITS ARCHITECT ON 15.04.2008, WHAT IS RELEVANT IS THE COMPLETION CERTIFICATE OBTAINED FROM THE COMPETENT AUTHORITY I.E. CIDCO ON 10.06.2008. THEREFORE, WE ARE OF THE CONSIDERED VIEW THAT WHATEVER EXPENDITUR E HAS BEEN INCURRED BETWEEN 16.04.2008 AND 10.06.2008 NEEDS TO BE ALLOWED, IF T HE ASSESSEE SUBSTANTIATED INCURRING VARIOUS EXPENSES FOR THE WORK STATED TO B E CARRIED OUT IN THE PROJECT. HENCE, WE DIRECT THE ASSESSING OFFICER TO CALL FOR NECESSARY ENQUIRIES IN THE LIGHT OF THE CLAIM ALONG WITH NECESSARY EVIDENCE AND IF THE ASSESSING OFFICER FIND THAT THE ASSESSEE HAS SUBSTANTIATED EXPENSES INCURRED WITH N ECESSARY EVIDENCES, THEN THE ASSESSING OFFICER IS DIRECTED TO ALLOW THE EXPENSES INCURRED BETWEEN 16.04.2008 AND 10.06.2008 OF ` 13,37,447/. 9. THE NEXT ISSUE THAT CAME UP FOR CONSIDERATION IS DISALLOWANCE OF INTEREST OF ` 21,07,322/-. DURING THE YEAR, THE ASSESSEE HAS DE BITED INTEREST TO LOANS AND ADVANCES FOR F.YS. 2005-06, 2006-07 AND 2009-10. T HE ASSESSEE CLAIMS THAT DURING ITA NO.1710/MUM/2016 CASA BELLA DEVELOPERS P LTD. 9 THE EARLIER PERIOD THE COMPANY HAS NOT PAID ANY INT EREST BECAUSE OF INADEQUACY OF PROFIT. HOWEVER, THE MANAGEMENT HAS DECIDED TO PAY INTEREST ON LOANS RETROSPECTIVELY FROM F.Y. 2005-06 ONWARDS, ACCORDIN GLY, IT PAID INTEREST FOR F.Y. 2005-06 ` 8,26,413/- FOR F.Y. 2006-07 ` 9,62,444/- AND FOR F.Y. 2008-09 ` 9,67,254/-. THE ASSESSING OFFICER DISALLOWED INTE REST CLAIMED BY THE ASSESSEE ON THE GROUND THAT ASSESSEE HAS INFLATED EXPENDITURE T O REDUCE INCIDENCE OF TAX FOR THE YEAR UNDER CONSIDERATION, WHICH IS EVIDENT FROM THE FACT THAT EVEN THOUGH IT IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING IT HAS NO T PROVIDED FOR ANY INTEREST IN THE EARLIER FINANCIAL YEARS. THE ASSESSING OFFICER FUR THER OBSERVED THAT ONCE MERCANTILE SYSTEM OF ACCOUNTING IS FOLLOWED, ALL EXPENSES INCU RRED FOR THE PARTICULAR PERIOD NEEDS TO BE PROVIDED IN THE BOOKS OF ACCOUNT WHETHE R THE SAME HAS BEEN PAID OR NOT. SINCE THE ASSESSEE HAS NOT CHOSEN TO PAY ANY INTEREST FOR EARLIER PERIOD AND PAID INTEREST DURING THE CURRENT FINANCIAL YEAR, DI SALLOWED INTEREST PAID BY THE ASSESSEE AND APPORTIONED ON THE BASIS OF COMPLETION OF PROJECT AND, ACCORDINGLY, 76.46% OF INTEREST HAS BEEN DISALLOWED AND THE BALA NCE AMOUNT OF ` 6,48,749/- BEING 23.54% IS REDUCED FROM WORK-IN-PROGRESS. 10. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THERE IS NO DISPUTE WITH REGARD TO THE FACT THAT TH E ASSESSEE IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING. IT IS ALSO UNDISPUTED FACT T HAT THE ASSESSEE HAS NOT PROVIDED ANY INTEREST FOR THE EARLIER TWO FINANCIAL YEARS. THE ASSESSEE HAS PROVIDED INTEREST FOR THE CURRENT FINANCIAL YEAR INCLUDING F.Y. 2005- 06 AND 2006-07. THE ASSESSEE HAS GIVEN REASONS FOR PROVIDING SUCH INTEREST THAT DURI NG CURRENT FINANCIAL YEAR THE PROJECT HAS YIELDED GOOD RETURN THEREFORE, THE MANA GEMENT HAS DECIDED TO PAY INTEREST RETROSPECTIVELY FROM F.Y. 2005-06 ONWARDS. THE ASSESSEE FURTHER CLAIMS THAT SUCH INTEREST HAS BEEN PAID AFTER DEDUCTING AP PLICABLE TDS AS PER THE PROVISIONS OF THE ACT. HAVING HEARD BOTH THE SIDES , WE DO NOT FIND ANY MERITS IN THE ARGUMENTS OF THE ASSESSEE FOR THE REASON THAT THE A SSESSEE CANNOT PICK AND CHOOSE TO PAY INTEREST ON LOANS AND ADVANCES ACCORDING TO ITS CONVENIENCE. IF LOANS HAVE BEEN TAKEN WITH INTEREST, THE ASSESSEE, WHO IS FOLL OWING MERCANTILE SYSTEM OF ACCOUNTING HAVE TO PROVIDE FOR INTEREST IN THE BOOK S OF ACCOUNT WHETHER SUCH INTEREST HAS BEEN PAID OR NOT. IN THIS CASE, ON PE RUSAL OF FACTS, WE FIND THAT ITA NO.1710/MUM/2016 CASA BELLA DEVELOPERS P LTD. 10 ASSESSEE CLAIMS THAT IT HAS NOT PAID AND ALSO NOT C HOSEN TO PAY INTEREST IN THE EARLIER PERIOD DUE TO INADEQUACY OF PROFITS. DURIN G THE CURRENT FINANCIAL YEAR, THE ASSESSEE HAS PAID INTEREST RETROSPECTIVELY FROM A.Y . 2006-07 ONWARDS. THE ASSESSEE HAS NOT GIVEN ANY REASONS FOR PAYING INTER EST FOR EARLIER PERIOD. WE FURTHER NOTICE THAT ONCE MERCANTILE SYSTEM OF ACCOU NTING IS FOLLOWED, THE ASSESSEE NEEDS TO PROVIDE ALL EXPENSES INCURRED FOR THE PERI OD IN THE BOOKS OF ACCOUNT WHETHER OR NOT PAID DURING THE RELEVANT PERIOD. TH EREFORE, WE ARE OF THE CONSIDERED VIEW THAT THE ASSESSING OFFICER WAS CORRECT IN DISA LLOWING INTEREST FOR EARLIER TWO FINANCIAL YEARS 2005-06 AND 2006-07. IN SO FAR AS A.Y. 2009-10 IS CONCERNED, THE ASSESSEE HAS PAID INTEREST OF ` 9,67,254/- FOR THE CURRENT FINANCIAL YEAR. THE ASSESSEE HAS GIVEN REASONS FOR PAYMENT OF SUCH INTE REST. THE ASSESSEE CLAIMS TO HAVE PAID INTEREST AFTER DEDUCTING NECESSARY TDS. THE ASSESSING OFFICER HAS NOT DISPUTED THESE FACTS. ONCE THE ASSESSING OFFICER H AS ACCEPTED THE FACT THAT INTEREST HAS BEEN PAID AFTER DEDUCTING APPLICABLE TDS, THEN THERE IS NO REASON FOR THE ASSESSING OFFICER TO DISALLOW INTEREST PAID FOR THE CURRENT FINANCIAL YEAR. THE LEARNED CIT(A) AFTER CONSIDERING THE RELEVANT FACTS HAS DIR ECTED THE ASSESSING OFFICER TO VERIFY WHETHER INTEREST FOR THE YEAR HAS BEEN REALL Y PAID OR ONLY PROVISION HAS BEEN MADE IN THE BOOKS OF ACCOUNT. WE DO NOT CONCUR WIT H THE FINDINGS OF THE CIT(A) IN SO FAR AS A.Y. 2009-10 IS CONCERNED FOR THE REASON THAT THE TREATMENT OF INTEREST IN THE BOOKS OF ACCOUNT IS IRRELEVANT WHETHER THE SAME HAS BEEN PAID OR PROVIDED IN THE BOOKS OF ACCOUNT. WHAT IS RELEVANT IS THE ASSE SSEE HAS PAID INTEREST AFTER DEDUCTING NECESSARY TDS APPLICABLE AS PER LAW. IN THIS CASE, THE LOWER AUTHORITIES HAVE NOT DISPUTED THE FACT THAT THE ASSESSEE HAS PA ID INTEREST AFTER DEDUCTING APPLICABLE TDS. THEREFORE, WE ARE OF THE CONSIDERE D VIEW THAT THE ASSESSING OFFICER HAS ERRED IN DISALLOWING INTEREST FOR A.Y. 2009-10 AND, HENCE, WE DIRECT HIM TO ALLOW INTEREST PAID FOR A.Y. 2009-10. 11. THE NEXT ISSUE THAT CAME UP FOR CONSIDERATION I S DISALLOWANCE OF EXPENSES INCURRED BY THE DIRECTOR ON BEHALF OF THE COMPANY. THE ASSESSING OFFICER HAS DISALLOWED EXPENDITURE INCURRED BY THE DIRECTOR ON THE GROUND THAT ASSESSEE HAS FAILED TO FILE ANY EVIDENCE TO PROVE THAT THE DIREC TOR HAS INCURRED EXPENSES WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE. IT IS THE CONTENTION OF ITA NO.1710/MUM/2016 CASA BELLA DEVELOPERS P LTD. 11 THE ASSESSEE THAT THE DIRECTOR HAD INCURRED VARIOUS EXPENSES ON BEHALF OF THE COMPANY AND SUCH EXPENSES ARE INCURRED WHOLLY AND E XCLUSIVELY FOR THE PURPOSE OF BUSINESS. THE REASON FOR INCURRING EXPENSES BY THE DIRECTOR IS THAT THE PROJECT EXECUTED BY THE ASSESSEE IS ALMOST 60 KM AWAY FROM THE REGISTERED OFFICE AND THE DIRECTOR TRAVELS TO THE PROJECT OFFICE BY INCURRING VARIOUS EXPENSES LIKE TRAVELLING ETC. AND LATER THE ASSESSEE COMPANY REIMBURSED SUCH EXPE NSES. THE RELEVANT DETAILS HAVE BEEN FILED BEFORE THE ASSESSING OFFICER. 12. HAVING HEARD BOTH THE SIDES, WE FIND THAT THE A SSESSING OFFICER HAS DISALLOWED EXPENSES INCURRED BY THE DIRECTOR ON BEH ALF OF THE COMPANY WITHOUT ASSIGNING ANY REASONS AND CONCLUDED THAT THE ASSESS EE HAS NOT FILED ANY DETAILS IN RESPECT THEREOF. BUT, IT IS THE CLAIM OF THE ASSES SEE THAT IT HAS FILED NECESSARY DETAILS IN RESPECT OF EXPENDITURE INCURRED BY THE D IRECTOR AND REIMBURSED BY THE COMPANY. THE FACTS ARE CONTRADICTING EACH OTHER. THEREFORE, WE ARE OF THE CONSIDERED VIEW THAT THE ISSUE NEEDS TO BE RE-EXAMI NED BY THE ASSESSING OFFICER IN THE LIGHT OF CLAIM OF THE ASSESSEE. HENCE, WE SET ASIDE THE ISSUE TO THE FILE OF THE ASSESSING OFFICER AND DIRECT HIM TO CALL NECESSARY INQUIRIES AND TAKE DECISION IN ACCORDANCE WITH LAW. 13. THE NEXT ISSUE THAT CAME UP FOR CONSIDERATION I S REDUCTION OF CERTAIN EXPENSES FROM WORK-IN-PROGRESS WHILE COMPLETING THE INCOME TAX ASSESSMENT FOR A.Y. 2010-11. THE ASSESSING OFFICER HAS DISALLOWED CERTAIN EXPENSES ON THE BASIS OF PROJECT COMPLETION RATIO AS PER WHICH IT HAS DISALL OWED 76.46% OF EXPENSE FOR THE CURRENT FINANCIAL YEAR AND REMAINING 24.54% HAS BEE N REDUCED FROM WORK-IN- PROGRESS. IT IS THE CLAIM OF THE ASSESSEE THAT THE ASSESSING OFFICER MAY DISALLOW CERTAIN EXPENSES FOR THE CURRENT FINANCIAL YEAR WHI LE COMPLETING ASSESSMENT, BUT HE DOES NOT HAVE ANY POWER TO GIVE DIRECTIONS FOR THE SUBSEQUENT ASSESSMENT YEAR WHEN THE MATTER IS NOT PENDING BEFORE HIM. WE FIND THAT THE ASSESSING OFFICER HAS DISALLOWED CERTAIN EXPENSES LIKE CONSTRUCTION EXPEN SES, INTEREST PAID ON LOANS AND EXPENSES INCURRED BY THE DIRECTOR AND ALLOCATED SUC H EXPENSES @76.46% FOR THE CURRENT FINANCIAL YEAR AND 23.54% TO BE REDUCED FRO M THE WORK-IN-PROGRESS FOR THE NEXT FINANCIAL YEAR. ACCORDING TO THE ASSESSING OF FICER, THE EXPENSES CLAIMED BY THE ITA NO.1710/MUM/2016 CASA BELLA DEVELOPERS P LTD. 12 ASSESSEE ARE NOT ALLOWABLE DEDUCTION AND, HENCE, TO THE EXTENT PROJECT COMPLETED DURING THE CURRENT FINANCIAL YEAR AND OFFERED TO TA X, THE ASSESSING OFFICER HAS DISALLOWED EXPENSES PERTAINING TO THE PROJECT COMPL ETED DURING THE CURRENT YEAR AND BALANCE AMOUNT HAS BEEN DIRECTED TO BE REDUCED FROM THE WORK-IN-PROGRESS. NO DOUBT THE ASSESSING OFFICER HAS DISALLOWED CERTAIN EXPENSES FOR CURRENT FINANCIAL YEAR FOR THE REASONS STATED IN THE ASSESSMENT ORDER , BUT GIVING DIRECTIONS TO REDUCE THE REMAINING PART OF EXPENSES WHILE COMPLETING THE ASSESSMENT FOR A.Y. 2010-11 IS BEYOND THE SCOPE OF THE ASSESSING OFFICER. WHETHER A PARTICULAR EXPENSE IS ALLOWABLE OR NOT AND IT NEEDS TO BE EXCLUDED FROM T HE VALUE OF WORK-IN-PROGRESS, HAS TO BE DECIDED WHILE COMPLETING ASSESSMENT FOR A .Y. 2010-11. THEREFORE, WE ARE OF THE CONSIDERED VIEW THAT THE ASSESSING OFFICER E RRED IN GIVING DIRECTIONS TO REDUCE REMAINING PART OF THE EXPENSES FROM WORK-IN-PROGRES S WHILE COMPLETING ASSESSMENT FOR A.Y. 2010-11. HENCE, WE SET ASIDE THE DIRECTIO N GIVEN BY THE ASSESSING OFFICER FOR A.Y. 2010-11. HOWEVER, THE ASSESSING OFFICER I S AT LIBERTY TO TAKE NECESSARY STEPS, IF PERMISSIBLE UNDER LAW FOR THE A.Y. 2010-1 1 IN ACCORDANCE WITH LAW. 14. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON THIS DAY OF 2 5 TH JULY 2018. SD/- SD/- (JOGINDER SINGH) (G MANJUNATHA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED : 25 TH JULY, 2018. COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE C I T(A), MUMBAI. 4. THE C I T 5. THE DR, H BENCH, ITAT, MUMBAI BY ORDER //TRUE COPY// (ASSISTANT REGISTRAR) INCOME TAX APPELLATE TRIBUNAL, MUMBAI