CITYWOOD BUILDERS P.LTD, MUMBAI V. DCIT 14(1)(2) , MUMBAI

ITA 2687/MUM/2019

• Counselvise Citation: [2021] 108 COUNSELVISE.COM (IT) 6358 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 11 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-04-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2013-2014
• Appeal Filed On: 30-04-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: V SREEKAR
• Assessee Lawyers: IRA BAHL
• Keywords: Depreciation
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, MUM BAI BEFORE SHRI MAHAVIR SINGH, VP & SHRI M. BALAGANESH, AM ITA NO. 2687/MUM/2019 (ASSESSMENT YEAR 2013-14) CITYWOOD BUILDERS PVT. LTD. UNIT NO. 116, 1 ST FLOOR, REHAB BUILDING NO.4, AKRUTI ANNEX, ROAD NO.7, MAROL MIDC, ANDHERI (E), MUMBAI-400093 VS. DCIT-14(1)(2), R. NO. 470, 4 TH FLOOR, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI-400020. (APPELLANT) (RESPONDENT) PAN NO. AANCS0962R APPELLANT BY : MS. IRA BAHL (AR) RESPONDENT BY : SHRI V. SREEKAR (DR) DATE OF HEARING : 06.04.2021 DATE OF PRONOUNCEMENT : 16.04.2021 O R D E R PER M. BALAGANESH, AM: 1. THIS APPEAL OF THE ASSESSEE ARISES OUT OF THE OR DER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) -21, MUMBAI [H EREINAFTER REFERRED TO AS THE LD CITA] IN APPEAL NO. CIT(A)-21/DCIT-14(1)(2)/ IT-407/2016-17 DATED 15.03.2019 AGAINST THE ORDER PASSED BY THE LEARNED DY. COMMISSIONER OF INCOME TAX, RANGE 14(1)(2), MUMBAI [HEREINAFTER REF ERRED TO AS THE LD AO] UNDER SECTION [U/S] 143(3) OF THE INCOME TAX ACT, 1 961 [HEREINAFTER REFERRED TO AS THE ACT] DATED 29.3.2016 FOR THE ASSESSMENT YE AR 2013-14. PAGE | 2 ITA NO. 2687 MUM 2019-CITYWOOD BUILDERS PVT. LTD. 2. THE ONLY ISSUE TO BE DECIDED IN THIS APPEAL IS A S TO WHETHER THE LD. COMMISSIONER OF INCOME TAX (APPEALS [FOR SHORT THE CIT(A)] WAS JUSTIFIED IN UPHOLDING THE DISALLOWANCE OF PRIOR PERIOD INTEREST EXPENSES OF RS. 7,61,59,332/- WHICH RELATES TO WORK-IN-PROGRESS IN THE FACTS AND CIRCUMSTANCES OF THE INSTANT CASE. 3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. WE FIND THAT ASSESSEE-COMPANY IS ENGAGED IN THE BUSINESS OF REAL ESTATE DEVELOPMENT AND HAD DERIVED LOSS FROM BUSINE SS DURING THE YEAR. THE RETURN OF INCOME FOR THE ASSESSMENT YEAR (AY) 2013- 14 WAS FILED ON 30.11.2013 DECLARING NET LOSS OF RS. 2,68,68,902/- WHICH WAS L ATER REVISED ON 31.03.2015 DECLARING NET LOSS OF RS. 2,72,40,409/-. 4. WE FIND THAT THE ASSESSING OFFICER (AO) DURING T HE SCRUTINY ASSESSMENT PROCEEDINGS OBSERVED THAT ASSESSEE HAS DEBITED AN A MOUNT OF RS. 7,61,59,332/- TOWARDS PRIOR PERIOD INTEREST EXPENSES PERTAINING T O AY 2012-13. THE ASSESSEE SUBMITTED BEFORE THE AO THAT THE SAID INTEREST EXPE NSES HAS BEEN DEBITED TO THE COST OF INVENTORY AND DULY INCLUDED IN THE CLOSING STOCK OF INVENTORY OF RS. 63,49,03,661/-. IN EFFECT, THE ASSESSEE PLEADED THA T IT HAD NOT CLAIMED ANY EXPENDITURE OR DEDUCTION TOWARDS THE SAID PRIOR PER IOD INTEREST AND THAT THE SAME HAS ONLY BEEN DEBITED TO WORK-IN-PROGRESS. 5. WE FIND THAT THE AO WITHOUT UNDERSTANDING AND AP PRECIATING THESE CONTENTIONS OF THE ASSESSEE PROCEEDED TO MAKE DISAL LOWANCE ON PRIOR PERIOD PAGE | 3 ITA NO. 2687 MUM 2019-CITYWOOD BUILDERS PVT. LTD. EXPENSES IN THE ASSESSMENT, WHICH WAS UPHELD BY THE LD. CIT(A). WE FIND THAT THE GENUINENESS OF THE INCURRENCE OF THE AFORESAID INTEREST EXPENDITURE OF RS. 7,61,59,332/- HAS NOT BEEN DOUBTED BY THE REVENUE. WE FIND THAT ASSESSEE HAD FILED A DETAILED NOTE BEFORE THE LOWER AUTHORITIES STATING THAT IT HAS RECORDED THIS INTEREST EXPENSES OF RS. 761,59,332/- AS PRIOR PER IOD ADJUSTMENT IN THE PROFIT & LOSS ACCOUNT I.E. AFTER PROFIT AFTER TAX. HOWEVER , THIS INTEREST EXPENSE HAS BEEN DEBITED TO THE COST OF INVENTORY AND FORMS PAR T OF CLOSING INVENTORY OF RS. 63,49,03,661/- AS SHOWN IN NOTE-18 OF PROFIT & LOSS ACCOUNT I.E. CHANGES IN INVENTORY. 6. WE HAVE GONE THROUGH THE DETAILED BREAK UP OF IT EMS INCLUDED IN THE CLOSING WORK-IN-PROGRESS WHICH ADMITTEDLY INCLUDE T HIS INTEREST EXPENSES OF RS. 761,59,332/-. FOR THE SAKE OF CONVENIENCE, THE SAID WORKING IS REPRODUCED HEREUNDER: PAGE | 4 ITA NO. 2687 MUM 2019-CITYWOOD BUILDERS PVT. LTD. RECONCILIATION OF EXPENSES TRANSFERRED TO P&L A/C A ND CAPITALISED TO INVENTORY GROUP & ACCOUNT HEADS P&L WIP OPENING WIP ADD: ADDITIONAL EXPENSES 22,86,369 56,17,74,204 11,95,88,418 ADMIN OH BALANCES WRITTEN BACK CONTM. TO PF & OTHER FUND DEPRECIATION DIRECTORS FEES & TRAVELLING DONATION EMPLOYEE-STAFF WELFARE OTHER EXPENSE SALARY, BONUS, ETC. FINANCE OH INTEREST EXPENSE INTEREST ON DELAYED PYMT. FINANCE OH-INCOME INTEREST INCOME ON FD INTEREST INCOME ON LOAN MARKETING & SELLING OH BROKERAGE PREMIUM ON CANCELLATION OF FLAT MUNICIPAL CHARGES OTHER DIRECT EXP. PROF. FEE LEGAL & PROF. FEES REHAB CONTRN. LAND COST REHAB RENT LAND COST REMOVAL OF HTMENTS LAND COST ADD: BUDGETED EXPENSES ADMIN OH OTHER EXPENSE MARKETING & SELLING OH ADVERTISEMENT MUNICIPAL CHARGES OTHER DIERCT EXP. REHAB CONTRN. LAND COST MATERIAL & LABOUR OTHER EXPENSE VEDANT CONSTRN. OTHER DIRECT EXP. (1) 5,52,036 4,09,978 10,37,392 2,86,424 2,02,088 2,02,088 1,34,504 2,74,264 14,40,000 20,000 80647 4,41,373 52,10,393 7,61,59,332 (16,402) (16,87,927) 89,94,000 1,282 43,64,952 9,00,000 1,31,22,000 1,01,50,000 3,10,67,952 58,26,096 2,47,536 5,65,034 64,01,317 16,55,415 1,63,72,554 PAGE | 5 ITA NO. 2687 MUM 2019-CITYWOOD BUILDERS PVT. LTD. GRANT TOTAL 24,88,457 15,0 6,56,370 LESS: TRANSFERRED TO COGS (7,75,26,913) CLOSING WIP 63,49,03,661 7. ADMITTEDLY, THIS INTEREST EXPENSE OF RS. 7.61 CR ORES THOUGH PERTAINS TO AY 2012-13 WAS NEVER CLAIMED AS DEDUCTION BY THE ASSES SEE. IF DUE PROVISION HAS BEEN MADE ON MERCANTILE BASIS THEN THE SAME WOULD H AVE GOT INCLUDED IN THE OPENING WORK-IN-PROGRESS OF RS. 56.17 CRORES AND TH E OPENING WORK-IN-PROGRESS THEREON WOULD HAVE INCREASED BY RS. 7.61 CRORES BEI NG THE INTEREST EXPENSES. SINCE NO PROVISION WAS MADE BY THE ASSESSEE IN AY 2 012-13 FOR THIS INTEREST EXPENSE, IT WAS NOT INCLUDED IN THE OPENING WORK-IN -PROGRESS AT RS. 56.17 CRORES. 8. WE FIND THAT ASSESSEE HAD INCLUDED THE SAME IN T HE CLOSING WORK-IN- PROGRESS IN AY 2012-13. HENCE THIS IS A CLEAR CASE OF OMISSION OF BOOKING AN EXPENDITURE TO THE CLOSING WORK IN PROGRESS, WHICH WAS RECTIFIED DURING THE YEAR UNDER CONSIDERATION. IN ANY CASE, WE FIND THAT ASSE SSEE HAS NOT CLAIMED ANY DEDUCTION FOR THE SAME WARRANTING ANY DISALLOWANCE. HENCE, WE ALSO FIND THAT ASSESSEE HAS FURNISHED PROFIT & LOSS ACCOUNT FOR TH E YEAR ENDED ON 31.03.2013 WITHOUT INTEREST EXPENSES AND WITH INTEREST EXPENSES TO DRIVE HOME THE POINT THAT LOSS FOR THE YEAR REMAINS THE SAME IN BO TH THE SCENARIO AT RS. 2,89,01,857/-. FOR THE SAKE OF CONVENIENCE BOTH THE SAID PROFIT & LOSS ACCOUNT ARE REPRODUCED HEREUNDER: PAGE | 6 ITA NO. 2687 MUM 2019-CITYWOOD BUILDERS PVT. LTD. STATEMENT OF PROFIT AND LOSS FOR THE YEAR ENDED 31 ST MARCH, 2013 (WITHOUT INTEREST EXPENSE) PARTICULARS AMOUNT (DR.) PARTICULARS AMOUNT (CR.) TO OPENING INVENTORY TO COST OF CONSTRUCTION TO EMPLOYEE BENEFIT EXPENSE TO FINANCE COSTS TO DEPRECIATION AND AMORTIZATION TO OTHER EXPENSES TO PROFIT BEFORE EXTRA ORDINARY ITEMS AND TAX TO PRIOR PERIOD ADJUSTMENT 56,17,74,204 4,52,87,138 54,25,544 10,37,932 2,74,264 2,67,13,525 (289,01,857) - BY REVENUE FROM OPERATIONS BY SHARE OF PROFITS/ (LOSS) FROM JOINT VENTURES AND PARTNERSHIP FIRMS BY CLOSING INVENTORY (WITHOUT INTEREST COST) BY LOSS FOR THE YEAR 5,11,62,091 17,04,330 5,87,44,329 __________ 61,16,10,750 (2,89,01,857) 2,89,01,857 NOTE: 1. EXTRACT OF PROFIT & LOSS ACCOUNT WITHOUT INTERES T COST AMOUNTING TO RS. 7,61,59,332/- (CAPITALISED AND NOT FORMING PART OF PROFIT & LOS A COUNT) 2. INTEREST COST AMOUNTING TO RS. 7,61,59,332/- CA PITALIZED TO COST OF INVENTORY AND IS NOT PASSED THROUGH PROFIT & LOSS ACCOUNT. PAGE | 7 ITA NO. 2687 MUM 2019-CITYWOOD BUILDERS PVT. LTD. STATEMENT OF PROFIT AND LOSS FOR THE YEAR ENDED 31 ST MARCH, 2013 (WITH INTEREST EXPENSE) PARTICULARS AMOUNT (DR.) PARTICULARS AMOUNT (CR.) TO OPENING INVENTORY TO COST OF CONSTRUCTION TO EMPLOYEE BENEFIT EXPENSE TO FINANCE COSTS TO DEPRECIATION AND AMORTIZATION TO OTHER EXPENSES TO PROFIT BEFORE EXTRA ORDINARY ITEMS AND TAX TO PRIOR PERIOD ADJUSTMENT 56,17,74,204 4,52,87,138 54,25,544 10,37,932 2,74,264 2,67,13,525 4,72,57,475 68,77,70,082 7,61,59,332 __________ 7,61,59,332 __________ BY REVENUE FROM OPERATIONS BY SHARE OF PROFITS/ (LOSS) FROM JOINT VENTURES AND PARTNERSHIP FIRMS BY CLOSING INVENTORY (INCLUDES INTEREST OF PRIOR PERIOD OF RS. 7,61,59,332) TO LOSS FOR THE YEAR 5,11,62,091 17,04,330 63,49,03,661 __________ 68,77,70,082 4,72,57,475 2,89,01,857 7,61,59,332 NOTE: 1. EXTRACT OF PROFIT & LOSS ACCOUNT WITH INTEREST C OST CREDITED TO CLOSING INVENTORY AND DEBITED TO PROFIT & LOS ACCOUNT 2. INTEREST COST FORMING PART OF CLOSING STOCK AS WELL AS PRIOR PERIOD ADJUSTMENT AMOUNTS TO RS. 7,61,59,332/-. PAGE | 8 ITA NO. 2687 MUM 2019-CITYWOOD BUILDERS PVT. LTD. 9. FROM THE ABOVE, IT CAN BE SAFELY CONCLUDED THAT LOSS FOR THE YEAR CONTINUES TO REMAIN THE SAME AND HENCE THE CONTENTION OF THE ASSESSEE THAT IT HAD NOT CLAIMED ANY DEDUCTION IN THE RETURN OF INCOME FOR T HE AY 2013-14 TOWARDS PRIOR PERIOD INTEREST DESERVES TO BE ACCEPTED AND ACCORDI NGLY THE GROUNDS RAISED BY THE ASSESSEE ARE ALLOWED. 10. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWE D. ORDER PRONOUNCED IN THE OPEN COURT ON 16.04.2021 SD/- SD/- MAHAVIR SINGH M. BALAGANESH (VICE-PRESIDENT) (ACCOUNTANT MEMBER) MUMBAI, DATED: 16.04.2021 SK.PS COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ) ( / THE CIT(A) 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. ' / GUARD FILE. BY ORDER, //TRUE COPY// (ASSTT.REGISTRAR) ITAT, MUMBAI