ANJANI KUMAR COMPANY P. LTD, MUMBAI V. ACIT 2(1)(1), MUMBAI

ITA 3474/MUM/2017

• Counselvise Citation: [2018] 123 COUNSELVISE.COM (IT) 0907 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 4 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-10-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2012-2013
• Appeal Filed On: 12-05-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Revenue expenditure
• Section: 143(3)

Judgement Text

1 ITA 3474/MUM/2017 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH A, MUMBAI BEFORE SHRI JOGINDER SINGH(JUDICIAL MEMBER) AND SHRI G MANJUNATHA (ACCOUNTANT MEMBER) I.T.A NO.3474/MUM/2017 (ASSESSMENT YEAR: 2012-13) M/S ANJANI KUMAR COMPANY PVT LTD, 306, RAJ CHAMBER MANUBHAI ROAD, MALAD (E) MUMBAI-400 096 PAN : AABCA1474E VS ACIT-2(1)(1), MUMBAI APPELLANT RESPONDENT APPELLANT BY NONE RESPONDENT BY SHRI NITIN WAGHMODE DATE OF HEARING 03-10-2018 DATE OF PRONOUNCEMENT 03-10-2018 O R D E R PER G MANJUNATHA, AM : THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGA INST ORDER OF THE CIT(A)-3, MUMBAI DATED 06-02-2017 AND IT PERTAINS T O AY 2012-13. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL :- 1. THE HON'BLE CIT(A) HAS ERRED IN CONFIRM ING THE ORDER OF LD. ASSESSING OFFICER BY DISALLOWING EXPENSES TO THE TUNE OF RS 1 1,26,059/- BEING THE PART OF OTHER EXPENSES WHICH HAS BEEN DEBITED AND CLAIMED I N PROFIT & LOSS ACCOUNT AS PART OF WORK IN PROGRESS (WIP) WITHOUT CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE. THE DISALLOWED EXPENSES WERE CAPITALIS ED TO THE WIP. IT IS TO STATE THAT DIRECT EXPENSES RELATED TO PROJECT WERE ALREADY CAP ITALIZED BY APPELLANT COMPANY AND INDIRECT EXPENSES WHICH COULD NOT BE DIRECTLY A LLOCATED HAS BEEN CLAIMED IN PROFIT AND LOSS ACCOUNT AND THEREFORE, CAPITALISATI ON OF SUCH EXPENSES BASED ON PROPORTION OF WIP TO TOTAL ASSETS IS UNJUSTIFIABLE AND THEREFORE, SUCH ADDITION MADE OF RS 11,26,059/- FOR THE YEAR UNDER CONSIDERATION SHOULD BE DELETED. 2 ITA 3474/MUM/2017 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E COMPANY IS ENGAGED IN THE BUSINESS OF DEVELOPMENT AND CONSTRUC TION OF BUILDING, FILED ITS RETURN OF INCOME FOR AY 2012-13 ON 26-09- 2012 DECLARING TOTAL INCOME OF RS.39,46,147. THE CASE WAS SELECTED FOR SCRUTINY AND THE ASSESSMENT WAS COMPLETED U/S 143(3) OF THE ACT, ON 08-02-2015 DETERMINING TOTAL INCOME AT RS.50,72,210 BY MAKING ADDITION TOWARDS DISALLOWANCE OF PROPORTIONATE REVENUE EXPENDITURE C LAIMED BY THE ASSESSEE FOR RS.11,26,059. 3. AGGRIEVED BY THE ASSESSMENT ORDER, ASSESSEE PREF ERRED APPEAL BEFORE THE CIT(A). BEFORE THE CIT(A), THE ASSESSEE SUBMITTED THAT THE AO WAS ERRED IN DISALLOWING REVENUE EXPENSES BEING MCGM PROPERTY TAX AND OTHER EXPENSES DEBITED TO THE P&L ACCOUNT O N ADHOC BASIS WITHOUT ASSIGNING ANY REASONS AS TO HOW SUCH REVENU E EXPENDITURE IS DIRECTLY RELATED TO WORK-IN-PROGRESS. THE ASSESSEE FURTHER SUBMITTED THAT IT HAS DEBITED ALL DIRECT EXPENSES INCURRED ON THE PROJECT TO WORK-IN- PROGRESS ACCOUNT; HOWEVER, THE REMAINING EXPENSES I N THE NATURE OF REVENUE EXPENSES HAS BEEN DEBITED TO P&L ACCOUNT. THEREFORE, THE AOS ACTION OF DISALLOWING EXPENSES ON ADHOC BASIS, WITHOUT ASSIGNING ANY REASONS, IS INCORRECT. THE LD.CIT(A), AFTER CO NSIDERING RELEVANT SUBMISSIONS OF THE ASSESSEE HELD THT THE ASSESSEE H AS NOT PRODUCED ANY EVIDENCE TO JUSTIFY ITS CLAIM OF EXPENSES DEBIT ED TO P&L ACCOUNT TO 3 ITA 3474/MUM/2017 BE TREATED AS ALLOWABLE REVENUE EXPENDITURE. MERE ACADEMIC DISCUSSION IS NOT SUFFICIENT TO DELETE THE ADDITION MADE BY THE AO BY CAPITALIZING THE EXPENSES RELATABLE TO WORK-IN-PRO GRESS. THEREFORE, HE OPINED THAT THERE IS NO ERROR IN ALLOCATION OF OTHE R EXPENSES TO WORK-IN- PROGRESS ACCOUNT AND HENCE, UPHELD ADDITION MADE BY THE AO AND DISMISSED THE APPEAL FILED BY THE ASSESSEE. AGGRIE VED BY THE ORDER OF LD.CIT(A), THE ASSESSEE IS IN APPEAL BEFORE US. 4. NONE APPEARED FOR THE ASSESSEE. WE HAVE HEARD T HE LD.DR AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE ASSE SSEE IS ENGAGED IN THE BUSINESS OF DEVELOPMENT AND CONSTRUCTION OF BUI LDING. DURING THE YEAR UNDER CONSIDERATION, IT HAS DEVELOPED A PROJEC T AND WHATEVER DIRECT EXPENSES INCURRED ON THE PROJECT HAS BEEN CAPITALIZ ED TO WORK-IN- PROGRESS ACCOUNT. THE ASSEASSEE HAS DEBITED CERTAI N EXPENDITURE INCLUDING MCGM PROPERTY TAX, BAD DEBT WRITTEN OFF A ND OTHER EXPENSES TO P&L ACCOUNT. THE AO HAS ALLOWED MCGM PROPERTY TAX AND TDR SCRUTINY FEES ALONGWITH BAD DEBT WRITTEN OFF, AS CL AIMED BY THE ASSESSEE. IN RESPECT OF OTHER EXPENSES OF RS.24,74,231, THE A O HAS REJECTED THE EXPLANATIONS OF THE ASSESSEE FOR ALLOCATION OF 10% OF SUCH EXPENSES TO WORK-IN-PROGRESS ACCOUNT AND RE-WORKED OTHER EXPENS ES ON THE BASIS OF WORK-IN-PROGRESS ACCOUNT TO TOTAL ASSETS AND DETERM INED DISALLOWANCE OF RS.11,26,059. NEITHER, THE ASSESSEE HAS FURNISHED ANY DETAILS AND 4 ITA 3474/MUM/2017 REASONS FOR ALLOCATING ADHOC 10% OF OTHER EXPENSES TO WORK-IN-PROGRESS ACCOUNT NOR THE AO HAS GIVEN ANY REASONS FOR ADOPTI NG THE BASIS OF CAPITAL DEPLOYMENT, I.E. WORK-IN-PROGRESS RATIO TO THE TOTAL ASSETS RATIO TO ALLOCATE OTHER EXPENSES. THE ASSESSEE AS WELL AS T HE AO HAS GONE ON ADHOC BASIS OF ALLOCATION OF EXPENSES. FROM THIS, IT IS CLEAR THAT NEITHER THE ASSESSEE HAS JUSTIFIED TREATMENT OF OTHER EXPEN SES BEING REVENUE IN NATURE, NOR THE AO HAS PROVED THAT THESE EXPENSES A RE DIRECTLY RELATABLE TO THE PROJECT UNDERTAKEN BY THE ASSESSEE TO BE CAP ITALIZED TO WORK-IN- PROGRESS ACCOUNT. THEREFORE, WE ARE OF THE CONSIDE RED VIEW THAT NEITHER THE ASSESSEE HAS JUSTIFIED ITS ALLOCATION OF 10% EX PENSES TO WORK-IN- PROGRESS NOR THE AO HAS JUSTIFIED IN ALLOCATING THE EXPENDITURE ON THE BASIS OF WORK-IN-PROGRESS TO TOTAL ASSET RATIO. UN DER THESE CIRCUMSTANCES, TO RESOLVE THE DISPUTE, WE ARE OF TH E CONSIDERED VIEW THAT A REASONABLE PERCENTAGE OF EXPENDITURE DEBITED UNDE R THE HEAD OTHER EXPENSES NEEDS TO BE ALLOCATED TO WORK-IN-PROGRESS ACCOUNT. ACCORDINGLY, WE DIRECT THE AO TO ALLOCATE 25% OF OT HER EXPENSES OF RS.24,74,231 AS DIRECTLY RELATED TO THE PROJECT TO BE CAPITALIZED UNDER THE HEAD WORK-IN-PROGRESS ACCOUNT. WE, ORDER ACCORDI NGLY. 5. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. 5 ITA 3474/MUM/2017 ORDER PRONOUNCED IN THE OPEN COURT ON 03 RD OCTOBER, 2018. (JOGINDER SINGH) (G MANJUNATHA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DT : 03 RD OCTOBER, 2018 PK/- COPY TO : 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR /TRUE COPY/ BY ORDER SR.PS, ITAT, MUMBAI