SHREE KRISHNA SAI DEVELOPMENT CORPORAITON, MUMBAI V. ADDL CIT RG 17(2), MUMBAI

ITA 3304/MUM/2013

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 8365 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 3 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-08-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Assessment Year: 2009-2010
• Appeal Filed On: 29-04-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SHRI
• Assessee Lawyers: R C JAIN
• Keywords: Proportionate interest

Judgement Text

J IN THE INCOME TAX APPELLATE TRIBUNAL J BENCH, MUMBAI BEFORE S/SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER AND SANJAY GARG, JUDICIAL MEMBER . . , , ./ I.T.A. NO.3304 /MUM/2013 ( ! / ASSESSMENT YEAR : 2009-2010 SHREE KRISHNA SAI DEVELOPMENT CORPORATION, DADABAZAR STORES, BHARTIYA KRIDA MANDIR, 57, NAIGAON CROSS ROAD, WADALA, MUMBAI 400 031. / VS. A. C.I.T. RANGE 17(2), PIRAMAL CHAMBERS, LALBAUG, MUMBAI 400 012. ! ./ PAN : AAKFS7230F ( !' / APPELLANT ) .. ( #$!' / RESPONDENT ) A PPELLANT BY SHRI R.C. JAIN R E SPONDENT BY : SHRI PANKAJ KUMAR % &' ( )* / DATE OF HEARING : 04-08-2014 +,-. ( )* / DATE OF PRONOUNCEMENT : 22-08-2014 [ / / O R D E R PER SANJAY GARG, JUDICIAL MEMBER : : , THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER OF LD. CIT(A) -29, MUMBAI DATED 7-2-2013. 2. THE ASSESSEE HAS RAISED TWO EFFECTIVE GROUNDS IN HIS APPEAL. GROUND NO. 1 RELATES TO THE METHODS OF ACCOUNTING AND THE OTHE R RELATES TO THE CONFIRMATION OF DISALLOWANCE OF INTEREST AMOUNTING TO RS. 75 LACS U/S 36(1)(III) OF THE INCOME TAX ACT, 1961. ITA 3304/M/13 2 3. FIRST, WE SHALL TAKE UP THE ISSUE RAISED BY THE ASSESSEE IN GROUND NO. 1 RELATING TO THE METHODS OF ACCOUNTING. THE RELEVANT FACTS OF THE CASE GIVING RISE TO THIS ISSUE ARE THAT THE ASSESSEE IS A PARTN ERSHIP FIRM WHICH IS ENGAGED IN THE BUSINESS OF BUILDERS AND PROPERTY DEVELOPERS . THE RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION WAS FILED BY THE ASSES SEE ON 30-09-2009 DECLARING TOTAL INCOME OF RS. 1,94,42,5231/-. THE ASSESSEE HAS BEEN FOLLOWING PROJECT COMPLETION METHOD SINCE VERY LONG WHICH HAS BEEN ACCEPTED BY THE DEPARTMENT UP TO A.Y. 2008-09. HOWEVER DURI NG THE YEAR RELEVANT TO A.Y. 2009-10, THE A.O. OBSERVED THAT THE ASSESSEES ACCOUNTING METHOD I.E. PROJECT COMPLETION METHOD WAS WRONG AND ACCORDINGLY ASSESSED THE INCOME OF THE ASSESSEE ON THE BASIS OF PERCENTAGE COMPLETION METHOD AND ADDED A SUM OF RS. 35,63,937/- TO THE INCOME OF THE ASSESSEE. 4. ON APPEAL, THE LD. CIT(A) OBSERVED THAT IN RESPE CT OF SAVGAN PROJECT, THE STAGE OF COMPLETION OF THE PROJECT IN QUESTION WAS ONLY 22.55% AT THE END OF THE RELEVANT YEAR AND IF THE LAND COST IS EXCLUDED, THE STAGE OF COMPLETION COMES TO ONLY 19.95%. HE THEREFORE HELD THAT THE P ROJECT OF THE ASSESSEE HAS NOT BEEN COMPLETED BY 30% AND ACCORDINGLY ITS INCOM E WAS NOT TO BE ESTIMATED IN THE RELEVANT YEAR. HOWEVER, HE UPHELD THE FINDINGS OF THE A.O. THAT THE ASSESSEES METHOD OF ACCOUNTING I.E. PROJE CT COMPLETION METHOD COULD NOT BE ACCEPTED. HE HELD THAT AS PER REVISED AS-7, IF THE OUTCOME OF THE CONTRACT COULD BE RELIABLY ESTIMATED AND EXPECTED P ROFITS COULD BE REASONABLY ESTIMATED, PERCENTAGE COMPLETION METHOD SHOULD BE F OLLOWED. AGGRIEVED BY THE ORDER OF THE LD. CIT(A), THE ASSESSEE HAS PREFE RRED THIS APPEAL BEFORE US. 4. WE HAVE HEARD THE RIVAL CONTENTIONS AND ALSO PER USED THE RELEVANT MATERIAL AVAILABLE ON RECORD. ADMITTEDLY, THE PROJ ECT COMPLETION METHOD IS ONE OF THE RECOGNIZED METHODS OF ACCOUNTING. THE A SSESSEE HAS BEEN FOLLOWING THIS METHOD OF ACCOUNTING SINCE INCEPTION OF ITS BUSINESS/PROJECTS WHICH HAS NEVER BEEN OBJECTED TO BY THE REVENUE AUT HORITIES EXCEPT THE ITA 3304/M/13 3 PRESENT YEAR UNDER CONSIDERATION. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT EVEN IN THE SUBSEQUENT YEARS I.E. ASSESSMENT Y EARS 2010-11 AND 2011- 12, THE PROJECT COMPLETION METHOD FOLLOWED BY THE A SSESSEE HAS BEEN ACCEPTED BY THE DEPARTMENT. HE HAS SUBMITTED THAT EXCEPT THE YEAR UNDER CONSIDERATION, PROJECT COMPLETION METHOD WAS REGULA RLY AND CONSISTENTLY FOLLOWED BY THE ASSESSEE AND THE SAME HAS NEVER BEE N AGITATED BY THE DEPARTMENT. IN OUR VIEW, THE ACTION OF THE REVENUE AUTHORITIES IN REJECTING THE ASSESSEES ACCOUNTING METHOD, WHICH HAS BEEN REGULA RLY AND CONSISTENTLY FOLLOWED BY THE ASSESSEE, IS NOT JUSTIFIED. THE ACC OUNTING METHOD FOLLOWED BY THE ASSESSEE IS ONE OF THE RECOGNIZED METHODS OF AC COUNTING AND THE REVENUE AUTHORITIES COULD NOT POINT OUT ANY DEFECT IN THE S AME. UNDER THESE CIRCUMSTANCES, WE DO NOT FIND ANY JUSTIFIABLE REASO N ON THE PART OF THE REVENUE AUTHORITIES IN DIRECTING THE ASSESSEE TO FO LLOW PERCENTAGE COMPLETION METHOD. ACCORDINGLY, THE ORDER OF THE LD. CIT(A) I S SET ASIDE AND THE ACTION OF THE ASSESSEE IN FOLLOWING PROJECT COMPLETION METHOD IS HELD TO BE JUSTIFIED. 5. IN GROUND NO. 2, THE ASSESSEE HAS CHALLENGED THE CONFIRMATION OF DISALLOWANCE OF INTEREST U/S 36(1)(III) OF THE INCO ME TAX ACT, 1961. 6. THE A.O. DURING THE COURSE OF ASSESSMENT PROCEED INGS OBSERVED THAT THE ASSESSEE HAD GIVEN INTEREST FREE LOAN OF RS. 75 LACS TO RELATIVE SMT. VIMLA KHANDELWAL IN THE PRECEDING YEAR. HE ALSO NOTED FRO M THE BALANCE SHEET OF THE ASSESSEE THAT THE ASSESSEE HAD CLAIMED EXPENDITURE IN RESPECT OF INTEREST PAID ON THE BORROWED FUNDS. HE THEREFORE MADE DISALLOWAN CE OF PROPORTIONATE INTEREST IN RESPECT OF INTEREST FREE LOAN AMOUNT GI VEN BY THE ASSESSEE TO ITS RELATIVE. 7. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE LOANS WERE NOT ADVANCED DURING THE RELEVANT YEAR BUT DURING THE PR ECEDING ASSESSMENT YEAR AND IN THAT YEAR NO SUCH DISALLOWANCE WAS MADE BY T HE A.O. U/S 36(1)(III) OF ITA 3304/M/13 4 THE ACT. HE HAS FURTHER INVITED OUR ATTENTION TO T HE BALANCE SHEET OF THE ASSESSEE ENDING 1-4-2007 TO 31-3-2008 & 1-4-2008 TO 31-3-2009 TO SHOW THAT THE LOAN LIABILITY AS ON 31-3-2008 WAS AT RS. 7,54,02,430.25 BUT THE SAME WAS REDUCED TO RS. 5,35,10,491.98 AS ON 31-3-2 009 AND TO SUBMIT THAT THE ASSESSEE HAS REDUCED ITS LOAN LIABILITY SUBSTAN TIALLY. HE HAS FURTHER INVITED OUR ATTENTION TO THE FACT THAT THE ASSESSEE HAD ITS OWN SUFFICIENT FUNDS AVAILABLE OUT OF WHICH LOANS WERE ADVANCED. HE HAS FURTHER SUBMITTED THAT THERE WAS NO NEXUS BETWEEN THE INTERESTS INCURRED O N THE BORROWED CAPITAL FOR BUSINESS PURPOSE AND BETWEEN INTEREST FREE LOANS AD VANCED TO ITS RELATIVES. 8. THE LD. D.R., ON THE OTHER HAND HAD STRONGLY REL IED UPON THE ORDERS OF LOWER AUTHORITIES. 9. WE HAVE HEARD THE RIVAL SUBMISSIONS AND ALSO PER USED THE RELEVANT MATERIAL AVAILABLE WITH US. ON PERUSAL OF THE BALA NCE SHEET AVAILABLE IN THE FILE, IT REVEALS THAT THE ASSESSEE HAD ITS OWN SUFF ICIENT FUNDS AVAILABLE TO GRANT INTEREST FREE LOANS AND ADVANCES. THE HONBLE BOMB AY HIGH COURT IN THE CASE OF CIT VS. RELIANCE UTILITIES AND POWER LTD. (2009) 313 ITR 340 (BOM) HAS HELD THAT IF THERE ARE FUNDS AVAILABLE TO THE ASSESSEE, BOTH INTEREST FREE AND OVERDRAFT AND/OR LOANS TAKEN, THEN A PRESUMPTION WO ULD ARISE THAT INVESTMENTS WOULD BE OUT OF THE INTEREST FREE FUNDS GENERATED OR AVAILABLE WITH THE ASSESSEE, IF THE INTEREST FREE FUNDS WERE SUFFICIENT TO MEET THE INVESTMENTS. IN THE PRESENT CASE, THE LOANS WERE N OT ADVANCED DURING THE YEAR UNDER CONSIDERATION BUT DURING THE PREVIOUS YE AR. THE LOAN LIABILITY OF THE ASSESSEE HAS REDUCED SUBSTANTIALLY DURING THE Y EAR UNDER CONSIDERATION AS THE ASSESSEE HAS MADE REPAYMENT OF LOAN. UNDER THESE CIRCUMSTANCES, IT CAN BE SAFELY HELD THAT THE ASSESSEE HAS USED HIS O WN MONEY FOR THE ADVANCEMENT OF LOAN AND THE ADDITIONS MADE BY THE A .O. ON THIS ISSUE ARE NOT SUSTAINABLE IN THE EYES OF LAW AND THE SAME ARE ACC ORDINGLY ORDERED TO BE DELETED. ITA 3304/M/13 5 10. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOW ED. ORDER PRONOUNCED IN THE OPEN COURT ON 22-08 -2014. / ( +,-. % 0 1 23 22-08-2014 , ( ' - SD/- SD/- (N.K. BILLAIYA) (SANJAY GARG) ACCOUNTANT MEMBER JUDICIAL MEMBER % ' MUMBAI ; 2 DATED 22-08-2014 [ &.>../ RK , SR. PS #$ % &'() *#)!' / COPY OF THE ORDER FORWARDED TO : 1. !' / THE APPELLANT 2. #$!' / THE RESPONDENT. 3. % ?) ( ) / THE CIT(A) 11,, MUMBAI 4. % ?) / CIT 23, MUMBAI 5. B&C #>)>DE , * DE. , % ' / DR, ITAT, MUMBAI J BENCH 6. F G' / GUARD FILE. #$ / BY ORDER, $B) #>) //TRUE COPY// +/, - ( DY./ASSTT. REGISTRAR) , % ' / ITAT, MUMBAI