ACIT 12(1), MUMBAI V. JAIN BUILDERS (VASAI), MUMBAI

ITA 264/MUM/2010

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 8521 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-02-2011
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: I
• Next Hearing Date: 10-11-2010
• Assessment Year: 2006-2007
• Appeal Filed On: 11-01-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: A K NAYAK
• Assessee Lawyers: ASHOK J PATIL
• Keywords: Opportunity of being heard

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES I, MUMBAI BEFORE SHRI. D.K. AGARWAL (J.M.) AND SHRI T.R. SOOD (A.M.) ITA NO.264/MUM/2010 ASSESSMENT YEAR : 2006-2007 ACIT 12(1) R.NO.117, AAYAKAR BHAVAN, M.K. RD., MUMBAI 400 020. VS. JAIN BUILDERS (VASAI) 221, ISHAQ MANZIL, LAMINGTON RD., MUMBAI 400 007. PAN : AAEFJ6972G (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI A.K. NAYAK RESPONDENT BY : SHRI ASHOK J. PATIL O R D E R PER D.K. AGARWAL, J.M. THIS APPEAL PREFERRED BY THE REVENUE IS DIRECTED AGAIN ST THE ORDER DATED 27.10.2009 PASSED BY THE LEARNED CIT(A) F OR THE ASSESSMENT YEAR 2006-07. 2. BRIEFLY STATED FACTS OF THE CASE ARE THAT THE ASSESSEE I S A PARTNERSHIP FIRM ENGAGED IN THE BUSINESS OF BUILDERS & LAND DEVELOPERS, FILED RETURN OF INCOME AT ` 31,24,060/-. DURING THE ASSESSMENT PROCEEDINGS IT WAS INTERALIA OBSERVED BY THE ASSESSI NG OFFICER THAT DURING THE YEAR, THE ASSESSEE FIRM HAS SOLD A PLOT OF LAND FOR ` 1,25,00,000/-. AGAINST THE SALE CONSIDERATION, THE EXPENSE CLAIMED ARE COST OF LAND ` 30,62,154/-, ADMINISTRATION & OTHER EXPENSES ` 28,80,209/- AND BROUGHT FORWARD EXPENDITURE NOT PERTAINING TO THE CURRENT FINANCIAL YEAR ` 41,47,255/-. IN ALL, AN EXPENDITURE OF ` 1,00,89,618/- HAS BEEN CLAIMED AGAINST THE SALE ITA NO.264/MUM/2010 A.Y.: 2006-2007 2 PROCEEDS. THE ASSESSEE WAS ASKED TO SHOW AS TO HOW THE BRO UGHT FORWARD EXPENDITURE OF ` 41,47,255/- NOT PERTAINING TO THE YEAR UNDER CONSIDERATION IS ADMISSIBLE. AT THE SAME TIME, OUT OF THE ADMINISTRATIVE & OTHER EXPENSES, THERE IS AN ACCUMULATED CLAIM OF INTEREST OF ` 17,43,036/-. THE MAJORITY OF INTEREST PORTION IS N OT PERTAINING TO CURRENT FINANCIAL YEAR. IT WAS SUBMITT ED THAT THE ASSESSEE IS MAINTAINING ITS ACCOUNTS ON THE CASH BASIS AND TH EREFORE ALL THE EXPENSES WERE DEBITED TO THE CURRENT YEARS PROFIT & LOSS ACCOUNT. IT WAS ALSO STATED THAT SUCH EXPENDITURE ARE ALLOWABLE AS ASSESSEE FOLLOWS PROJECT COMPLETION METHOD. IT WAS FURTHER STAT ED THAT SINCE ASSESSEE IS FOLLOWING PROJECT COMPLETION METHOD, THE PROV ISION OF SECTION 72(3) OF THE I.T. ACT ARE NOT APPLICABLE. IT WAS ALSO MENTIONED THAT FOR THE SAKE OF CONVENIENCE AND FOR THE BETTER UN DERSTANDING AMONGST THE PARTNERS, SAID EXPENSES WERE DEBITED TO PRO FIT & LOSS A/C ON YEAR-TO-YEAR BASIS. THE ASSESSING OFFICER AFTER CONSIDE RING THE ASSESSEES SUBMISSIONS OBSERVED THAT IN FORM NO.3CD, COL. NO.1 1(A) THE METHOD OF ACCOUNTING MENTIONED IS MERCANTILE AND NOT CASH SYSTEM OF ACCOUNTING AS CONTENDED BY THE ASSESSEE. HE FURTH ER OBSERVED THAT IN TAX AUDIT REPORT NOWHERE IT IS MENTI ONED THAT ASSESSEE IS FOLLOWING PROJECT COMPLETION METHOD FOR THE COMPUTATION OF INCOME/PROFIT. HE FURTHER OBSERVED THAT ON PERUSAL O F THE PAST RECORDS, IT IS EVIDENT THAT THE ASSESSEE FIRM HAS FILED I TS RETURN OF INCOME FROM YEAR-TO-YEAR WITH PROFIT & LOSS A/C. AND BA LANCE SHEET. IN THESES RETURNS, NOWHERE IT IS STATED THAT ASSESSEE IS FO LLOWING PROJECT COMPLETION METHOD AS WELL AS CASH SYSTEM OF ACCOUNT ING FOR MAINTAINING THE BOOKS OF ACCOUNTS. HE FURTHER OBSERVED THAT AS A MATTER OF FACT, FOR THE ASSESSMENT YEAR 1994-95, A DETA ILED ORDER U/S.143(3) HAS BEEN PASSED BY THE ASSESSING OFFICER ON 31.0 3.1997. IN THIS SCRUTINY ASSESSMENT ALSO, NOWHERE IT IS STATED OR M ENTIONED ITA NO.264/MUM/2010 A.Y.: 2006-2007 3 THAT ASSESSEE IS FOLLOWING CASH SYSTEM OF ACCOUNTING. THE A SSESSING OFFICER ON GOING THROUGH THE DETAILS FILED, OBSERVED T HAT THE INTEREST ON THE LOANS BORROWED HAVE BEEN PAID FROM YEAR TO YEAR WITH TAX DEDUCTED AT SOURCE. A LEDGER ACCOUNT OF ALL THE LOAN CRE DITORS HAVE BEEN FURNISHED TO INDICATE THAT THE INTEREST BEING PAI D FROM YEAR TO YEAR AND A SEPARATE ACCOUNT IS MAINTAINED EACH YEAR. HE FURTHER OBSERVED THAT IN THE RETURN OF INCOME FILED EARLIER T O ASSESSMENT YEAR 2006-07, NOWHERE IT IS MENTIONED THAT EXPENSE INCURRED ARE BEING ACCUMULATED AND SHOWN AS WORK-IN-PROGRESS. THE LOSSES INCUR RED ON ACCOUNT OF PAYMENT OF INTEREST ON LOANS AS WELL AS OTHE R ADMINISTRATIVE & ESTABLISHMENT EXPENSES WERE NEVER SOUGHT TO BE ALLOWED TO BE CARRIED FORWARD. IN VIEW OF FOREGOING OBSERVATIONS AND MORE PARTICULARLY, RELYING ON THE TAX AUDIT REPORT, THAT IS FILED FOR THE FIRST TIME IN THE CURRENT ASSESSMENT YEAR FOR THE ASSESSMENT YEAR 2006-07, THE ASSESSING OFFICER HELD THAT THE ASSESSEE-FIRM IS KEEPING THEIR BOOKS ON MERCANTILE BASIS AND ALSO SHOWING THE INCOME/LOSSE S FROM YEAR TO YEAR AND THE ASSESSEE FIRM IS NOT FOLLOWING PRO JECTS COMPLETION METHOD. THEREFORE THE ASSESSING OFFICER DISALLOWED BROUG HT FORWARDED EXPENSES OF ` 47,41,255/- AND ADDED BACK TO THE ASSESSEES TOTAL INCOME FOR THE YEAR UNDER ASSESSMENT. THE ASSESSING OFFICER FURTHER DISALLOWED ` 13 LAKHS OUT OF INTEREST OF ` 17,43,036/- KEEPING IN VIEW THE POSSIBILITY OF PAYMENT OF SOME INTEREST PERTAINING TO CURRENT FINANCIAL YEAR OUT OF TOTAL PAYMENT OF ` 17,43,036/-. FURTHER THE ASSESSING OFFICER IN THE ABSENCE OF ANY SUPPORTING MATERIAL ALSO DISALLOWED PAYMENT OF ARCHITECT FEES ` 2,00,000/- AND ACCORDINGLY COMPLETED THE ASSESSMENT ON AN INCOME OF ` 93,65,320/- VIDE ORDER DATED 01.12.2008 PASSED U/S.143(3) OF THE INCOME TAX A CT, 1961 (THE ACT). ITA NO.264/MUM/2010 A.Y.: 2006-2007 4 3. ON APPEAL THE LEARNED CIT(A) AFTER CONSIDERING THE ASSESSMENT ORDERS FOR THE ASSESSMENT YEARS 1989-90 AND 1994-95 AND THE ACCOUNTS OF THE ASSESSEE OBSERVED THAT IN THE PRESENT CASE, NO PROFITS HAVE BEEN SHOWN IN THE EARLIER YEAR ONLY EXPENSE HAVE BEEN SHOWN AS CAPITALISED WHICH ARE MAINLY INTEREST EXPENDITURE AND A CCORDINGLY DIRECTED THE ASSESSING OFFICER TO COMPUTE THE INCOME ON TH E BASIS OF PROJECT COMPLETION METHOD. 4. BEING AGGRIEVED BY THE ORDER OF THE LEARNED CIT( A) THE REVENUE IS IN APPEAL BEFORE US CHALLENGING IN ALL THE GROUNDS THE DIRECTION OF THE LEARNED CIT(A) TO COMPUTE THE INCOME UNDER PROJECT CO MPLETION METHOD AND IN DELETING THE DISALLOWANCE OF BROUGHT F ORWARD EXPENSE ` 47,41,255/- AND ADMINISTRATION AND OTHER EXPENSES OF ` 13 LAKHS. 5. AT THE TIME OF HEARING THE LD DR SUBMITS THAT FOR THE REASONS AS MENTIONED IN THE ASSESSMENT ORDER, THE LEARNED CIT(A) W AS NOT JUSTIFIED IN DIRECTING THE ASSESSING OFFICER TO COMPUTE THE INCOME ON THE BASIS OF PROJECT COMPLETION METHOD AND IN DELETING THE DISALLOWANCE OF BROUGHT FORWARD EXPENSES OF ` 47,41,255/- AND DISALLOWANCE OF ADMINISTRATION EXPENSES AND OTHER EXPENSE S ` 13 LAKHS. HE, THEREFORE, SUBMITS THAT THE DISALLOWANCE MAD E BY THE ASSESSING OFFICER BE RESTORED. 6. ON THE OTHER HAND, THE LEARNED COUNSEL FOR THE ASSE SSEE WHILE RELYING ON THE ORDER OF THE LEARNED CIT(A) SUBMITS TH AT SINCE THE ASSESSEE IS FOLLOWING THE PROJECT COMPLETION METHOD THERE FORE, THE LEARNED CIT(A) WAS FULLY JUSTIFIED IN DELETING THE D ISALLOWANCE MADE BY THE ASSESSING OFFICER. THE RELIANCE WAS ALSO PLACED ON THE DECISION OF HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. LOKHANDWALA ITA NO.264/MUM/2010 A.Y.: 2006-2007 5 CONSTRUCTION INDS. LTD. 260 ITR 579 [2003] (BOM.) FO R THE PROPOSITION THAT THE ASSESSEE IS ENTITLED TO DEDUCTION OF INTEREST. 7. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE RI VAL PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FIN D THAT IN THIS CASE LAND WAS ACQUIRED IN THE YEAR 1987 WHICH WAS LYING AS I T IS WITHOUT ANY DEVELOPMENT. DURING THE YEAR, THE ASSESSEE FIRM SOLD PLOT OF LAND FOR ` 1,25,00,000/- AND HAS CLAIMED VARIOUS EXPENSES ON THE G ROUND THAT THE ASSESSEE IS FOLLOWING THE PROJECT COMPLETION METHOD T HEREFORE, ACCORDING TO HIM IN THE YEAR OF SALE OF LAND THE EXPEN SES CLAIMED UNDER THE HEAD ADMINISTRATION AND OTHER EXPENSES ` 28,80,209/- AND BROUGHT FORWARD EXPENSES ` 41,47,255/- ARE ALLOWABLE, BESIDES COST OF LAND ` 30,62,154/-. HOWEVER, WE FIND THAT THERE IS NO IOT A EVIDENCE TO SHOW THAT THE ASSESSEE HAS CARRIED OUT ANY CONSTRUCTION ON THE SAID PLOT OF LAND AND THIS FACT HAS ALSO BEEN ADMITTED BY T HE LEARNED COUNSEL FOR THE ASSESSEE AT THE TIME OF PRESENT HEARING T HAT NO CONSTRUCTION HAS BEEN TAKEN PLACE ON THE SAID PLOT OF LA ND. IT WAS ALSO ADMITTED BY THE LEARNED COUNSEL FOR THE ASSESSEE THA T THE LAND WAS SHOWN BY THE ASSESSEE AS STOCK-IN-TRADE AND SAME WAS SOLD I N THE YEAR UNDER CONSIDERATION. IN THIS VIEW OF THE MATTER AND KEEPING IN VIEW THAT NO CONSTRUCTION ACTIVITY HAS BEEN CARRIED OUT BY THE ASSESSEE AFTER ACQUISITION OF LAND IN THE YEAR 1987 AND COST OF LAND WAS TREATED BY THE ASSESSEE AS STOCK-IN-TRADE, WE ARE OF THE VIEW THA T THE LEARNED CIT(A) WAS NOT JUSTIFIED IN HOLDING THAT THE INCOME O F THE ASSESSEE IS TO BE COMPUTED ON THE BASIS OF THE PROJECT COMPLETION M ETHOD. SINCE THERE IS NO ACTIVITY OF CONSTRUCTION, KEEPING IN VIEW TH AT THE ASSESSEE IS FOLLOWING THE MERCANTILE SYSTEM OF ACCOUNTING AND IN THE ABSENCE OF ANY DETAILS OF BROUGHT FORWARD EXPENDITURE OF ` 41,47,255/- AND ALSO AS TO HOW THE SAME ARE ALLOWABLE IN THE YEAR UNDER CON SIDERATION IN ITA NO.264/MUM/2010 A.Y.: 2006-2007 6 THE ABSENCE OF ANY PROJECT CARRIED ON BY THE ASSESSEE WE AR E OF THE VIEW THAT THE ASSESSING OFFICER WAS JUSTIFIED IN DISALLOWIN G THE SAME AND THE LEARNED CIT(A) HAS ERRED IN DIRECTING THE ASSESSI NG OFFICER TO COMPUTE THE INCOME ON THE BASIS OF THE PROJECT COMPLETIO N METHOD. THE GROUNDS TAKEN BY THE REVENUE IN THIS REGARD IS, THEREFORE, ALLOWED. 8. AS REGARDS THE DISALLOWANCE OF INTEREST ` 13 LAKHS WE FIND THAT THE ASSESSING OFFICER OUT OF INTEREST CLAIMED ` 17,43,036/- HAS DISALLOWED ` 13 LAKHS ON ESTIMATE BASIS. ACCORDING TO LEARNED COUNSE L FOR THE ASSESSEE THE INTEREST IS ALLOWABLE IN VIEW OF THE DECISION OF HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF LOKHAND WALA CONSTRUCTION INDS. LTD.(SUPRA). AFTER CONSIDERING THE FACTS OF THE CASE AND KEEPING IN VIEW THAT SINCE THIS ISSUE HAS NOT BEEN P ROPERLY EXAMINED EITHER BY THE ASSESSING OFFICER OR BY LEARNED C IT(A) THAT THE INTEREST WAS PAID FOR THE BUSINESS PURPOSES, WE ARE OF TH E VIEW THAT IN THE INTEREST OF JUSTICE THE MATTER SHOULD GO BACK TO THE FILE OF THE ASSESSING OFFICER AND ACCORDINGLY WE SET ASIDE THE ORDER PASSE D BY THE REVENUE AUTHORITIES ON THIS ACCOUNT AND SEND BACK TO THE FILE OF THE ASSESSING OFFICER WHO SHALL DECIDE THE SAME AFRESH AND IN TH E LIGHT OF OUR OBSERVATION HEREIN ABOVE AND ACCORDING TO LAW INCLU DING THE DECISION IN LOKHANDWALA CONSTRUCTION INDS. LTD.(SUPRA) RELIED ON THE LEARNED COUNSEL FOR THE ASSESSEE AFTER PROVIDING REASONABL E OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. THE GROUN DS TAKEN BY THE REVENUE IN THIS REGARD ARE THEREFORE PARTLY ALLOWED FOR THE STATISTICAL PURPOSES. ITA NO.264/MUM/2010 A.Y.: 2006-2007 7 9. IN THE RESULT, REVENUES APPEAL STANDS PARTLY ALLOWE D FOR THE STATISTICAL PURPOSES. ORDER PRONOUNCED ON THIS 9 TH DAY OF FEBRUARY, 2011. SD/- (T.R. SOOD) ACCOUNTANT MEMBER SD/- (D.K. AGARWAL) JUDICIAL MEMBER MUMBAI, DATED 9 TH FEBRUARY, 2011. JANHAVI COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. COMMISSIONER OF INCOME TAX (APPEALS)- , MUM BAI 4. COMMISSIONER OF INCOME TAX, CITY- , MUMBAI 5. DEPARTMENTAL REPRESENTATIVE, BENCH , MUMBAI //TRUE COPY// BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI