A.G. DEVELOPERS, MUMBAI V. ITO WD 12(3)(1), MUMBAI

ITA 1913/MUM/2009

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 1860 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 1 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-04-2010
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 13-04-2010
• Assessment Year: 2005-2006
• Appeal Filed On: 26-03-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: VIKRAM GAUR
• Assessee Lawyers: PANKAJ JAIN
• Keywords: Business expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH A, MUMBAI. BEFORE SHRI R.V. EASWAR, SENIOR VICE-PRESIDENT AND SHRI J. SUDHAKAR REDDY, ACCOUNTANT MEMBER. I.T.A. NO. 19 13/MUM/2009. ASSESSMENT YEAR : 2005-06. A.G. DEVELOPERS, THE INCOME TAX OFFICER, 115, MAKER CHAMBERS-III, VS. WARD-12(3)(1), NARIMAN POINT, MUMBAI. MUMBAI 400 021. PAN AAAFA3958M APPELLANT RESPONDENT APPELLANT BY : SHRI PANKAJ JAIN. RESPONDENT BY : SHRI VIKRAM GAUR. O R D E R PER J. SUDHAKAR REDDY, A.M. THIS IS AN APPEAL FILED BY THE ASSESSEE DIRECTED AGAINST THE ORDER OF THE CIT(APPEALS)-XII, MUMBAI DATED 13-02-2 009 FOR ASSESSMENT YEAR 2005-06. 2. FACTS IN BRIEF : THE ASSESSEE IS A PARTNERSHIP FIRM AND IS ENGAGED IN THE BUSINESS OF CONSTRUCTION OF RESIDENTIAL AND COMMERC IAL COMPLEXES AS WELL AS IN TRADING IN SHARES AND SECURITIES. THE ASSESS EE FOLLOWS PROJECT COMPLETION METHOD OF ACCOUNTING. THIS METHOD IS CON SISTENTLY FOLLOWED AND THE ASSESSEE HAS BEEN OFFERING, INCOME FOR TAX , WHEN THE PROJECTS ARE COMPLETED. 2 3. THE ASSESSEE HAS COMPLETED A PROJECT CALLED SA NGAM DURING THE FINANCIAL YEAR 2004-05 RELEVANT TO THE A SSESSMENT YEAR 2005- 06. ONE FLAT IN THE ABOVE PROJECT WAS SOLD FOR RS.3 3,18,509/-. OTHER UNSOLD FLATS WERE SHOWN AS STOCK IN TRADE. THE AO F OUND THAT THE ASSESSEE CLAIMED VARIOUS EXPENSES AMOUNTING TO RS.10,52,58 6/- WHICH INCLUDE, INTEREST PAYMENT TO BANK OF RS.1,43,466/-. ON BANK INTEREST, THE AO HELD THAT THE INTEREST IS PAID ON LOANS TAKEN FOR OTHER ONGOING PROJECTS OF THE ASSESSEE, NAMELY, TRIVENI PROJECT AND CLUB HOUSE AN D HENCE CANNOT BE ALLOWED AS A REGULAR BUSINESS EXPENDITURE. HE ADDED THIS AMOUNT TO THE TOTAL INCOME AND ALLOWED THE ASSESSEE TO CAPITALIZE THE SAME WITH OTHER ON-GOING PROJECTS. AS REGARDS THE PROFIT EARNED ON SALE OF CLOSING STOCK OF SANGAM PROJECT, THE AO DISALLOWED THE CLAIM OF RS.9 .84 LAKHS ON THE GROUND THAT ALL THE EXPENSES IN QUESTION ARE REQUIR ED TO BE CAPITALIZED AS WORK IN PROGRESS OF ON-GOING PROJECTS AND NOT ALLOW ABLE IN THE CURRENT YEAR FOR THE REASON THAT THE ASSESSEE FOLLOWS PROJE CT COMPLETION METHOD. AS REGARDS EXPENDITURE REGARDING BROKERAGE ON FLATS , MAINTENANCE OF UNSOLD FLATS, MISCELLANEOUS EXPENDITURE ETC., THE A MOUNTS WERE DISALLOWED ON THE GROUND THAT SUPPORTING DETAILS WERE NOT FURN ISHED AND THAT DETAILS REGARDING TDS ON BROKERAGE WAS ALSO NOT MADE. AGGRI EVED, THE ASSESSEE CARRIED THE MATTER IN APPEAL WITHOUT SUCCESS. FURTH ER AGGRIEVED, THE ASSESSEE IS BEFORE US ON THE FOLLOWING GROUNDS : 1. THE COMMISSIONER OF INCOME TAX (APPEALS)-XII, MUMBA I ERRED IN HOLDING THAT THE INCOME TAX OFFICER, WARD-12(3)(1), MUMBAI WAS RIGHT IN DISALLOWING EXPENDITURE ON INTEREST AMOUNT ING TO RS.1,43,466/- AS PROJECT COST ON THE GROUND HAT THE SAME IS RELATABLE TO THE PROJECT UNDER CONSTRUCTION. THE APPELLANTS P RAY THAT THE SAID INTEREST DOES NOT RELATE TO ANY PARTICULAR PROJECT AND PRAYS THAT THE ITO BE DIRECTED TO ALLOW THE INTEREST DEDUCTION OF RS.1,43,466/-. 3 WITHOUT PREJUDICE TO ABOVE, THE APPELLANTS SUBMIT T HAT THE ABOVE DEDUCTION SHOULD BE ALLOWED IN THE YEAR IN WHICH TH E ABOVE ONGOING PROJECTS ARE COMPLETED. 2. THE CIT(A) ERRED IN CONFIRMING THE ADDITION OF RS.9 ,83,659/- MADE BY THE ITO ON THE GROUND THAT THE EXPENDITURE PERTA INS TO PROJECT COMPLETED IN THE EARLIER YEAR WITHOUT APPRECIATING THE FACT THAT THE LIABILITY FOR THE SAME WAS CRYSTALLIZED/INCURRED DU RING THE RELEVANT PREVIOUS YEAR. THE APPELLANT PRAYS THAT THE ITO BE DIRECTED TO ALLOW THE DEDUCTION OF RS.9,83,659/- CLAIMED BY THEMN. 4. THE LEARNED COUNSEL FOR THE ASSESSEE, MR. PANKA J JAIN, SUBMITTED THAT THE INTEREST EXPENDITURE IS ON ACCOU NT OF AN OVERDRAFT TAKEN BY THE ASSESSEE. HE SUBMITTED THAT THIS IS MERELY A PERIOD COST AND NOT RELATABLE TO ANY PROJECT AND HENCE SHOULD BE ALLOW ED IN THIS YEAR. HE FILED A PAPER BOOK RUNNING INTO 15 PAGES AND DREW T HE ATTENTION OF THE BENCH TO THE ASSESSMENT ORDER PASSED FOR THE ASSES SMENT YEAR 2004-05 ON 27-12-2006 WHEREIN AT PARA 2 THE AO HAD ACKNOWLEDGE D THE FACT THAT THE ASSESSEE HAD SHOWN PROFITS ON SANGAL PROJECT. HE S UBMITTED THAT ONCE IN THE EARLIER YEAR IT IS ACCEPTED BY THE REVENUE THAT THE SANGAM PROJECT IS COMPLETED, THEN ALL EXPENDITURE RELATABLE TO THAT P ROJECT SHOULD BE CONSIDERED AS COST OF THAT PROJECT AND A DEDUCTION SHOULD BE GIVEN FROM THE REVENUES OF THAT PROJECT. ON THE ISSUE OF BROKE RAGE, HE DREW THE ATTENTION TO PAGE 13 OF THE PAPER BOOK WHICH IS A C OPY OF THE TDS CERTIFICATE IN FORM NO.16-A, EVIDENCING THE PAYMENT OF BROKERAGE. HE POINTED OUT THAT THE DATE OF CHALLAN WAS ERRONEOUSL Y MENTIONED AS 7-6- 2004 AND NOT 7-7-2004 AND THIS TYPOGRAPHICAL ERROR CAN BE EASILY IDENTIFIED BY THE FACT THAT THE DATE OF PAYMENT WAS ONLY 26-6-2004. ON THE OTHER EXPENDITURE HE DREW THE ATTENTION OF THE BENC H THAT THE NOTICE FOR PAYMENT OF LAND REVENUE AT PAGE 14, PAYMENT MADE TO SECURITY GUARDS AT PAGE 15 ETC. HE FILED COPIES OF THE DECISION IN THE CASE OF SPECIAL BENCH OF THE MUMBAI TRIBUNAL IN THE CASE OF WALL STREET C ONSTRUCTION LTD. & 4 ANR. VS. JCIT 101 ITD 156 AND THE CASE OF PANCHAVAT I DEVELOPERS ITA NO.6393/MUM/2003 AND THE CASE OF VISHNU INDUSTRIAL GASES P. LTD. (HIGH COURT OF DELHI) IN ITR NO. 229/1988, ORDER DA TED 6 TH MAY, 2008. 5. THE LEARNED DR, MR. VIKRAM GAUR, ON THE OTHER H AND, CONTROVERTED THE ARGUMENTS OF THE LEARNED COUNSEL F OR THE ASSESSEE AND SUBMITTED THAT THE LETTER AT PAGE 9 OF THE ASSESSEE S PAPER BOOK IS A SELF SERVING LETTER AND CANNOT BE CONSIDERED AS EVIDENCE . SIMILARLY HE REFERRED TO PAGE 12 OF THE ASSESSEES PAPER BOOK AND SUBMITT ED THAT THIS LETTER IS WRITTEN BY THE ASSESSEE TO ONE OF THE FLAT OWNERS A ND HENCE CANNOT BE TAKEN AS EVIDENCE. HE BASICALLY RELIED ON PARA 2.3 AND PARA 3.3 OF THE CIT(APPEALS) ORDER AND SUBMITTED THAT THE INTEREST EXPENDITURE IN QUESTION PERTAIN TO LOANS TAKEN AND UTILISED FOR ON -GOING PROJECTS AND BASED ON THE ASSESSEES OWN ACCOUNTING POLICIES CAN NOT BE ALLOWED IN THE CURRENT ASSESSMENT YEAR. ON CAPITALIZATION OF EXPEN DITURE, HE RELIED ON THE ORDER OF THE AO AS WELL AS THE CIT(APPEALS). 6. RIVAL CONTENTIONS HEARD. ON A CAREFUL CONSIDERA TION OF THE FACTS AND CIRCUMSTANCES OF THE CASE AND A PERUSAL O F THE PAPERS ON RECORD AND THE ORDERS OF THE AUTHORITIES BELOW AS WELL AS THE CASE LAWS CITED, WE HOLD AS FOLLOWS. 7. AS FAR AS PAYMENT OF INTEREST IS CONCERNED, IT IS ON AN OVER DRAFT ACCOUNT. THE DETAIL WHETHER THE OVERDRAFT ACC OUNT IS A GENERAL ACCOUNT OR A PROJECT SPECIFIC ACCOUNT IS NOT EMANAT ING FROM THE RECORD. IF THE OVERDRAFT ACCOUNT DOES NOT HAVE NEXUS WITH ANY PARTICULAR ON-GOING PROJECT, THEN THE QUESTION OF CAPITALIZING THIS EXP ENDITURE AS DIRECT COST OF ANY ONE PROJECT DOES NOT ARISE. BUT IF THE OVERDRAF T IN QUESTION IS PROJECTS SPECIFIC, THEN IN OUR CONSIDERED OPINION, THE VIEW OF THE AO THAT THE INTEREST SHOULD BE CAPITALIZED AS WORK IN PROGRESS OF THAT PARTICULAR PROJECT 5 IS TO BE UPHELD. AS THE FACTS ARE NOT CLEAR, WE SET ASIDE THE MATTER TO THE FILE OF THE AO FOR VERIFYING THE SAME AND DISPOSING OF THE ISSUE ON THE LINES INDICATED ABOVE. 8. COMING TO THE SECOND ISSUE OF PROJECT EXPENDITU RE, THE UNDISPUTED FACT IS THAT PROJECT SANGAM WAS COMPLETE D DURING THE YEAR 2003-04 RELEVANT TO THE ASSESSMENT YEAR 2004-05. TH E CIT(APPEALS) OBSERVATION AT PARA 3.3 ON THIS ASPECT ARE EXTRACTE D FOR READY REFERENCE : IN THE ABOVE FACTS, THE OBSERVATION OF THE ASSESSI NG OFFICER, THAT THE PAYMENT PERTAINING TO CONTRACTOR AND DEVEL OPMENT EXPENSES RELATE TO EARLIER YEARS AND COULD HAVE CAP ITALIZED AS WORK- IN-PROGRESS WHEN THE SANGAM PROJECT WAS UNDER CONST RUCTION, SEEMS TO BE A CORRECT VIEW. 9. WE DO NOT AGREE WITH THESE OBSERVATIONS. AS LON G AS THE EXPENDITURE IS NOT DOUBTED AND AS LONG AS THE EXPEN DITURE PERTAINS TO THAT PARTICULAR PROJECT, IT HAS TO BE TAKEN AS PART OF T HE PROJECT COST AND ALLOWED AS A DEDUCTION FROM THE REVENUES EARNED FROM THAT P ARTICULAR PROJECT. MERE FACT THAT THE ASSESSEE HAD NOT ESTIMATED THIS EXPENDITURE AND PROVIDED FOR THE SAME WHILE COMPUTING THE PROJECT C OST IN THE EARLIER YEAR, DOES NOT DISENTITLED IT FROM CLAIMING THE EXPENDITU RE. THE ASSESSEE HAS INCURRED THESE EXPENDITURE AND THE EXPENDITURE PERT AINS TO THIS SANGAM PROJECT JUST BECAUSE IT HAS NOT DEBITED TO SANGAM P ROJECT IN THE PREVIOUS YEAR, NO DISALLOWANCE CAN BE MADE. THUS WE ALLOW TH IS PLEA OF THE ASSESSEE. 6 10. COMING TO THE SUBMISSIONS OF DETAILS, WE ARE O F THE CONSIDERED OPINION THAT THE ASSESSEE SHOULD BE GIVE N ONE MORE OPPORTUNITY AND THE FACTS HAVE TO BE VERIFIED BY TH E AO. THE ASSESSEE IN ITS PAPER BOOK HAS FILED VARIOUS DETAILS AND STATES THAT THE FINDING OF THE AO THAT THE DETAILS WERE NOT FURNISHED IS NOT CORRE CT. WE ARE OF THE OPINION THAT IN THE INTEREST OF JUSTICE, THIS GROUN D SHOULD BE SE ASIDE TO THE FILE OF THE AO FOR FRESH ADJUDICATION. 11. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS A LLOWED IN PART. ORDER PRONOUNCED ON THIS 30 TH DAY OF APRIL, 2010. SD/- SD/- (R.V. EASWAR) (J. SUDHAKAR REDDY) SENIOR VICE-PRESIDENT. ACCOUNTANT MEMBER. MUMBAI, DATED : 30 TH APRIL, 2010. WAKODE COPY FORWARDED TO : 1. APPELLANT. 2. RESPONDENT 3. C.I.T. 4. CIT(A) 5. DR, A-BENCH. (TRUE COPY) BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI BENCHES, MUMBAI.