M/s. Shree Constructions, Dhule V. Asstt. CIT, Cir.3(1), Dhule, Dhule

ITA 2/PUN/2010

• Counselvise Citation: 224514 RSA 2010
• Duration Of Justice: 1 year(s) 11 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-12-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 14-12-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 04-01-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE BEFORE SHRI I C SUDHIR, JUDICIAL MEMBER AND SHRI G.S. PANNU, ACCOUNTANT MEMBER ITA NO 02/PN/10 (ASSTT. YEAR: 2006-07) M/S SHREE CONSTRUCTIONS, APPELLANT 48 NEHRU HOUSING SOCIETY, DEOPUR, DHULE 424 005 PAN AAOFS 7687M VS. ASSTT.COMMISSIONER OF INCOME-TAX, .. RESPONDENT CIR. 3(1), DHULE APPELLANT BY: SHRI SUNIL GANOO RESPONDENT BY: SMT NEERA MALHOTRA DATE OF HEARING : 14.12.2011 DATE OF PRONOUNCEMENT : 23.12.2011 ORDER PER G.S. PANNU, AM THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDE R OF THE COMMISSIONER OF INCOME-TAX (APPEALS)-I, NASHIK DATED 27.1 1.2009, WHICH IN TURN HAS ARISEN FROM THE ORDER DATED 31.12.2008 PASSED BY T HE ASSESSING OFFICER UNDER SECTION 143(3) OF THE INCOME-TAX ACT, 1961 (IN SH ORT THE ACT), PERTAINING TO THE ASSESSMENT YEAR 2006-07. 2. IN THIS APPEAL, THE SOLITARY ISSUE RAISED BY THE ASSESSE E RELATES TO AN ADDITION OF RS 20,92,771/- CONFIRMED BY THE COMMISSIONE R OF INCOME-TAX (APPEALS) ON ACCOUNT OF DISALLOWANCE OF ASSESSEES CLAIM OF LOSS ON ACCOUNT OF WORK-IN-PROGRESS. IN BRIEF, THE RELEVANT FACTS ARE AS FOL LOWS. THE ASSESSEE IS A PARTNERSHIP FIRM WHICH HAS CARRIED OUT THE BUSINESS OF T OLL COLLECTION CONTRACTING. 2 FOR THE YEAR UNDER CONSIDERATION, IT FILED A RETURN O F INCOME DECLARING TOTAL INCOME OF RS 47,29,160/- WHICH WAS ACCOMPANIED BY THE PRESCRIBED AUDIT RETURN UNDER SECTION 44AB OF THE ACT AS WELL AS THE BALANCE SHEET AND T RADING, PROFIT & LOSS ACCOUNT. IN THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAD SHOWN OPENING WORK-IN-PROGRESS OF RS 20,92,772/- WHEREAS THE SAID AMOUNT WAS NOT FIGURING AS CLOSING STOCK. T HE ASSESSEE EXPLAINED THAT THE SAID WORK-IN-PROGRESS REFLECTED INCOMP LETE CONSTRUCTION ON TWO PLOTS BEARING NOS. 64 AND 65 AT SATSANG COLONY, DHULE , WHICH WERE SOLD DURING THE YEAR FOR A TOTAL CONSIDERATION OF RS 11,00,000/-. SINCE THE PLOTS WERE SOLD, THE COST OF INCOMPLETE CONSTRUCTION FORMING PART OF THE WORK-I N-PROGRESS WAS DEBITED IN THE PROFIT & LOSS ACCOUNT, AND CLAIMED AS A LOSS. THE ASSESSING OFFICER SHOW- CAUSED THE ASSESSEE TO EXPLAIN THE JUSTIFICATION OF THE LO SS. THE ASSESSEE SUBMITTED THAT AFTER PURCHASING THE TWO PLOTS IN THE FI NANCIAL YEAR 2000-01, ASSESSEE STARTED A REAL ESTATE PROJECT ON THE SAID PLOTS AND CONSTRUCTION WAS ALSO STARTED, BUT BEFORE COMPLETION, THE PLOTS WERE SOLD DU RING THE YEAR UNDER CONSIDERATION. IN SUPPORT, THE ASSESSEE FURNISHED COPIES O F THE PLAN, BROCHURES SHOWING THE PROPOSED PROJECT, PHOTOGRAPHS OF ACTUAL CONST RUCTION, ETC. IT WAS ALSO POINTED OUT THAT THE OPENING WORK-IN-PROGRESS OF R S 20,92,772/- COMPRISED OF EXPENSES INCURRED IN THE PRECEDING FINANCIAL YEARS END ING ON 31.3.2002, 31.3.2003, AND 31.3.2004 OF RS 16,06,731/-, RS 4,24,7 71/- AND RS 50,560/- RESPECTIVELY. THE ASSESSEE EXPLAINED THAT IT WAS UNSUCCESSFUL IN CONSTRUCTING THE RESIDENTIAL PROJECT AND THE PLOTS WERE SOLD, THEREFOR E, THE LOSS IN QUESTION PERTAINING TO THE SAID PROJECT WAS ACCORDINGLY CLAIMED. T HE ASSESSING OFFICER, HOWEVER, HELD THAT THE LOSS CLAIMED ON ACCOUNT OF SALE OF PLOTS WHEREIN WORK-IN- PROGRESS WAS DONE, WAS A FICTITIOUS LOSS AND THEREFORE, HE DISALLOWED A SUM OF RS 20,92,772/- REPRESENTING OPENING WORK-IN-PROGRESS DE BITED TO THE TRADING AND PROFIT & LOSS ACCOUNT. THE ADDITION SO MADE BY THE ASSESSIN G OFFICER HAS SINCE BEEN SUSTAINED BY THE COMMISSIONER OF INCOME-TAX (APPEA LS) AGAINST WHICH THE ASSESSEE IS IN APPEAL BEFORE US. 3 3. BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSEE HAS SU BMITTED THAT THE REASONS ADVANCED BY THE LOWER AUTHORITIES TO DISALLOW TH E LOSS ARE NOT RELEVANT AND IT IS POINTED OUT THAT THE SALE CONSIDERATION OF TH E PLOTS WAS DULY CREDITED TO THE PROFIT & LOSS ACCOUNT AND, IN THIS VIEW OF THE MATT ER, EXPENSES TOWARDS THE PURCHASE OF PLOTS AS ALSO EXPENDITURE ON INCOMPLETE CONSTR UCTION THEREON WERE LIABLE TO BE SET OFF AGAINST THE SALE CONSIDERATION A ND THE LOSS WAS ALLOWABLE. IN ORDER TO SUBSTANTIATE THE EXISTENCE OF INCOMPLETE CONSTRU CTION OF THE PLOTS SOLD, A REFERENCE TO ACTUAL PHOTOGRAPHS OF THE SITE HAS BEEN M ADE AND IT WAS STATED THAT THE SAME WERE ALSO PLACED BEFORE THE LOWER AUTHORITIES . IT IS FURTHER POINTED OUT THAT THE STAMP DUTY WAS LIABLE TO BE PAID BY THE PUR CHASER AND, THEREFORE, MERELY BECAUSE THE CONSIDERATION STATED IN THE SALE DEED WAS LO WER THAN THE MARKET PRICE EVALUATED FOR THE PURPOSES OF STAMP DUTY WOULD NO T SHOW ANY UNDERSTATEMENT OF CONSIDERATION BY THE ASSESSEE. IT IS ALSO POINTED OUT THAT THOUGH THE SALE DEED EXECUTED DOES NOT INDICATE SPECIFICAL LY THE INCOMPLETE CONSTRUCTION, YET IT IS QUITE CLEAR ON FACTS THAT THE SAME EXISTED AND, THEREFORE, EXPENSES ON SUCH CONSTRUCTION ARE LIABLE TO BE CONSIDERED WHILE COMPUTING INCOME/LOSS FROM THE SALE OF PLOTS. IN THIS MANNER, THE ADDITION MADE BY THE LOWER AUTHORITIES IS SOUGHT TO BE ASSAILED. 4. ON THE OTHER HAND, THE LEARNED DEPARTMENTAL REPR ESENTATIVE, APPEARING FOR THE REVENUE, HAS DEFENDED THE ADDITION MADE BY THE ASSESSING OFFICER BY POINTING OUT THAT THE CONSTRUCTION WAS CARRIED OUT BY TH E ASSESSEE WITHOUT COMPLETING THE NECESSARY FORMALITIES AND ALSO THE FACT T HAT THE SAME DID NOT FORM PART OF THE SALE DEED AND, THEREFORE, THERE WAS NO CON SIDERATION FOR THE SAID INCOMPLETE CONSTRUCTION. IN THIS VIEW OF THE MATTER, THE CLAIM OF LOSS ON ACCOUNT OF THE WORK-IN-PROGRESS OF THE INCOMPLETE CONSTRUCTION HAS B EEN RIGHTLY DENIED BY THE LOWER AUTHORITIES. 5. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS. I N THIS CASE, THE PERTINENT FACTS ARE THAT THE ASSESSEE SOLD TWO PLOTS OF L AND FOR A CONSIDERATION OF RS 11 LAKHS IN TERMS OF SALE DEED DATED 16.5.2005. THE S ALE CONSIDERATION HAS 4 BEEN CREDITED TO THE TRADING PROFIT AND LOSS ACCOUNT. TH E ASSESSING OFFICER NOTICED THAT THERE WAS AN OPENING WORK-IN-PROGRESS OF RS 20,92,772/- DEBITED IN THE TRADING PROFIT & LOSS ACCOUNT, WHICH WAS EXPLAINED TO BE EXPENSES INCURRED ON CONSTRUCTION OF RESIDENTIAL COMPLEX ON THE STATED PL OTS OF LAND, WHICH WERE INCURRED IN THE PRECEDING YEARS ENDING ON 31.3.2002, 31.3.2003 AND 31.3.2004. THE ASSESSEE CLAIMED THAT SUCH WORK-IN-PROGRESS REFLECTED I NCOMPLETE CONSTRUCTION CARRIED OUT ON THE STATED PLOTS OF LAND AND THE SAME WAS CLAIMED AS A DEBIT IN THE PROFIT & LOSS ACCOUNT SINCE THE TWO PLOTS OF LAND WERE SOLD DURING THE YEAR UNDER CONSIDERATION. THE ASSESSING OFFICER HAS REJ ECTED THE PLEA ON THE GROUND THAT THE SALE DEED OF THE PLOTS OF LAND DID NO T SPECIFICALLY MENTION TRANSFER OF ANY INCOMPLETE STRUCTURE AND SECONDLY, IT WAS OBSERVED THAT THERE WERE CERTAIN DISCREPANCIES IN THE PERMISSION OBTAINED FOR CONSTRUCTION, E TC., IN TERMS OF WHICH THE ASSESSING OFFICER OBSERVED THAT THE CONSTRUCTION CLAIMED WAS STARTED BY THE ASSESSEE WITHOUT COMPLYING THE NECESSARY TECHNICAL FORMALITI ES. AS PER THE ASSESSING OFFICER, IT WAS UNACCEPTABLE THAT THE ASSESSEE WOULD UNDERTAKE CONSTRUCTION WITHOUT COMPLETING NECESSARY TECHNICAL FORMALI TIES. THIRDLY, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE PURCHASED THE PLOT S OF LAND FOR A CONSIDERATION OF RS 10,22,343/- IN THE YEAR ENDING 31. 3.2001 AND AFTER HAVING INVESTED RS 21 LAKHS APPROXIMATELY FOR CONSTRUCTION WITH OUT PROPER PERMISSION FROM THE LOCAL AUTHORITIES, IT WAS INCOMPREHENSIBLE THAT ASSESSEE WOULD SELL THE PLOTS FOR A CONSIDERATION OF ONLY RS 11 LAKHS. IT WAS ALSO NOTICED BY THE ASSESSING OFFICER THAT THE STATED CONSIDERATION FOR THE PLOTS AT RS 11 LAKHS WAS FOUND TO BE INADEQUATE BY THE STAMP VALUATION AUTHORITIES. FOR A LL THE ABOVE REASONS, THE ASSESSING OFFICER WAS OF THE OPINION THAT THE ASSESSEE HAS FABRICATED THE ENTIRE TRANSACTION IN CONNIVANCE WITH THE PURCHASER TO REDUCE THE PROFIT AND TO SET OFF THE FICTITIOUS LOSS AGAINST THE OTHER BUSINESS INCOME. IT IS IN THIS BACKGROUND, THE ASSESSING OFFICER HELD THAT THE ASSESSEE FIRM HAS TRIED TO CLA IM A FICTITIOUS LOSS OF RS 20,92,772/- ON ACCOUNT OF INCOMPLETE CONSTRUCTION, I.E . WORK-IN-PROGRESS. 5 6. WE HAVE PERUSED THE ORDERS OF THE AUTHORITIES BELOW AND FIND THAT THE ASSESSEE CLAIMED TO HAVE EXPENDED THE AMOUNT OF RS 20,92, 772/- IN THE EARLIER YEARS TOWARDS CONSTRUCTION OF STRUCTURE AND THE SAME HAS BEE N CARRIED FORWARD AS WORK-IN-PROGRESS IN THE BEGINNING OF THE CURRENT YEA R. THE ASSESSING OFFICER IN SUB-PARA (D) OF PARA VI OF THE ASSESSMENT ORDER HAS NOTE D THAT IN THE INCOME-TAX RETURNS FOR THE LAST 4-5 YEARS, ASSESSEE HAS BEEN SHOWING T HE INCOMPLETE CONSTRUCTION. THERE IS NO CASE MADE OUT BY THE REVENUE AT ANY STAGE SUCH EXPENSES RECORDED IN THE PAST YEARS ARE FALSE. THEREFORE, IN THIS BACKGROUND, THE ONUS IS ON THE REVENUE TO ESTABLISH THAT THE STATED WOR K-IN-PROGRESS REFLECTS ANY FICTITIOUS LOSS. CONSIDERING THE OBJECTIONS BROUGHT OUT BY THE ASSESSING OFFICER, IN OUR VIEW, THE ONUS SO CAST ON THE REVENUE HAS NOT BEEN DISCHARGED. IN SO FAR AS THE SALE OF PLOTS OF LAND IS CONCERNED, THERE IS NO DISPUT E THAT THE SALE DEED DOES NOT CONTAIN ANY REFERENCE TO THE INCOMPLETE STRUCTURE O N THE STATED LAND. BUT, THE SAID ABSENCE DOES NOT PROVE THAT THE INCOMPLETE CONSTRUCT ION DID NOT EXIST ON THE LAND INASMUCH AS THE EXPENDING OF MONEY ON CONSTRUCTIO N IN PAST YEARS STANDS ACCEPTED. THEREFORE, IF THE EXISTENCE OF INCOMPLETE CONST RUCTION CANNOT BE DISPROVED, IT FOLLOWS THAT UPON TRANSFER OF THE PLOTS OF LAND THE INCOMPLETE STRUCTURE ALSO GOES AWAY FROM THE ASSESSEE. THE CONSIDERATIO N RECEIVED BY THE ASSESSEE IN TERMS OF THE SALE DEED HAS BEEN CREDITED TO TH E PROFIT & LOSS ACCOUNT AND THE PROFIT/LOSS FROM THE PROJECT IS TO BE COMP UTED AFTER DEDUCTING COMPLETE EXPENSES INCLUDING THE EXPENDITURE INCURRED ON THE INCOMPLETE CONSTRUCTION. UNDER THESE CIRCUMSTANCES, IN OUR VIEW, THE A SSESSING OFFICER WAS NOT JUSTIFIED IN HOLDING THAT THE IMPUGNED LOSS WAS A FICTITIOUS LOSS. MOREOVER, THE ASSESSING OFFICERS ASSERTION OF FABRICATION OF TRANSACTION IN CONNIVANCE WITH THE PURCHASER IS MERELY AN UNSUBSTANTIATED ALLEGATION AND IS ENTIRELY WITHOUT ANY BASIS. THE LOSS IN QUESTION HAS BEEN SET-OFF AGAINST OTHER BUSINESS INCOME FROM CONTRACTING OF TOLL COLLECTIONS. THE SAME BEING PERMISSIBL E IN LAW, WE FIND THAT THE REVENUE AUTHORITIES WERE NOT JUSTIFIED IN MAKING THE I MPUGNED ADDITION. AT THIS POINT, WE MAY ALSO REFER TO THE OBJECTION OF THE ASSE SSING OFFICER THAT THE 6 CONSTRUCTION APPEARED TO HAVE BEEN STARTED BY THE ASSESSEE IN THE PAST WITHOUT COMPLETING THE NECESSARY TECHNICAL FORMALITIES. THE AFORE SAID OBJECTION, EVEN IF CORRECT, DOES NOT DISPROVE THE FACT THAT CERTAIN EXPENDIT URE HAS BEEN INCURRED BY THE ASSESSEE ON INCOMPLETE STRUCTURE IN THE PAST YEARS, AS A DMITTED BY THE ASSESSING OFFICER THAT SUCH EXPENDITURE WAS REFLECTED BY TH E ASSESSEE IN ITS INCOME-TAX RETURNS FOR PAST YEARS. THEREFORE, IN THIS BACKGROUND OF THE MATTER, THE ACTION OF THE ASSESSING OFFICER IN DENYING THE IMPUG NED CLAIM IS NOT TENABLE HAVING REGARD TO THE FACTS AND MATERIAL ON RECORD. ACCO RDINGLY, WE SET ASIDE THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS) AND DIRECT THE ASSESSING OFFICER TO DELETE THE IMPUGNED ADDITION. 7. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED. DECISION PRONOUNCED IN THE OPEN COURT ON THE 23 RD DAY OF DECEMBER, 2011 SD/- SD/- (I C SUDHIR) (G.S. PANNU) JUDICIAL MEMBER ACCOUNTANT MEM BER PUNE, DATED: 23 RD DECEMBER, 2011 B COPY TO:- 1) APPELLANT 2) RESPONDENT 3) THE CIT(A)-I, NASHIK 4) THE CIT-I, NASHIK 5) DR, B BENCH, ITAT, PUNE. 6) GUARD FILE TRUE COPY BY ORDER SR. PS, I.T.A.T., PUNE