B. JEEJEEBHOY VAKAHARIA & ASSOCIATES, MUMBAI V. ITO 12(3)(4), MUMBAI

ITA 3657/MUM/2012

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 7834 (ITAT-MUMBAI)
• Duration Of Justice: 7 year(s) 4 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-10-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2006-2007
• Appeal Filed On: 23-05-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: K MADHUSUDHAN LD
• Assessee Lawyers: D V LAKHANILD AR MNIJO
• Keywords: Business income
• Section: 69C; 40A(3); 234B; 69; 154

Judgement Text

1 ITA NO.3657/MUM/2012 B. JEEJEEBHOY VAKHARIA & ASSOCIATES ASSESSMENT YEAR-2006-07 IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, MUMBAI , , BEFORE SHRI SAKTIJIT DEY, JM AND SHRI MANOJ KUMAR AGGARWAL, AM ./ I.T.A. NO.3657/MUM/2012 ( / ASSESSMENT YEAR:2006-07) B. JEEJEEBHOY VAKHARIA & ASSOCIATES 83, JOLLY MAKER CHAMBER II NARIMAN POINT, MUMBAI-400 021 / VS. INCOME TAX OFFICER - 12(3)4 1ST FLOOR, AAYKAR BHAVAN NEW MARINE LINES, MUMBAI-400 020. <= >? @./@./PAN/GIR NO. AAAFB-7376-G ( IJ / APPELLANT ) : ( MNIJ / RESPONDENT ) IJO/ APPELLANT BY : SHRI D.V. LAKHANI-LD. AR MNIJO / RESPONDENT BY : SHRI K. MADHUSUDHAN - LD. CIT - DR / DATE OF HEARING : 01/10/2019 / DATE OF PRONOUNCEMENT : 14/10/2019 / O R D E R MANOJ KUMAR AGGARWAL (ACCOUNTANT MEMBER):- 1.1 AFORESAID APPEAL BY ASSESSEE FOR ASSESSMENT YEA R [AY] 2006-07 CONTEST THE ORDER OF LD. COMMISSIONER OF INCOME-TAX (APPEALS)-23 MUMBAI, [IN SHORT REFERRED TO AS CIT(A)], APPEAL NO. CIT(A)-23/12(3)(4)/IT- 376/2010-11 DATED 22/11/2011 ON FOLLOWING GROUNDS OF APPEAL:- 2 ITA NO.3657/MUM/2012 B. JEEJEEBHOY VAKHARIA & ASSOCIATES ASSESSMENT YEAR-2006-07 1. ON THE FACTS & CIRCUMSTANCES OF THE CASE THE LEA RNED COMMR. OF INCOME TAX (A) HAS ERRED IN CONFIRMING THAT THE SUM OF RS.10,00,00 0/- BEING THE AMOUNT RECEIVED BY THE APPELLANT ON SALE OF SCRAP IS CHARGEABLE TO TAX. THE APPELLANT PRAYS THAT THE ADDITION MADE BY THE LEARNED ASSESSING OFFICER AND CONFIRMED BY LEARNED CIT (A) IS NOT JUSTIFIED AND MAY BE DELETED. 2. ON THE FACTS & CIRCUMSTANCES OF THE CASE THE LEARNED COMMR. OF INCOME TAX (A) HAS ERRED IN CONFIRMING THE ADDITIONS MADE OF RS.3, 00,000/- U/S 40 A (3) OF INCOME TAX ACT, 1961. THE APPELLANT PRAYS THAT THE ADDITION MAY BE DELETED. 3. ON THE FACTS & CIRCUMSTANCES OF THE CASE THE LEARNED COMMR. OF INCOME TAX HAS ERRED CONFIRMING THE INVOCATION THE PROVISIONS OF SECTION 69 C OF INCOME TAX ACT,1961. THE APPELLANT PRAYS THAT THE BASIC CONDIT IONS STIPULATED U/S 69 C ARE NOT SATISFIED. THE APPELLANT PRAYS THAT ADDITIONS M ADE BY INVOKING PROVISIONS OF SECTION 69C MAY BE DELETED. 4. ON THE FACTS & CIRCUMSTANCES OF THE CASE THE APPELLANT PRAYS THAT THEY HAVE NOT INCURRED ANY EXPENDITURE WHICH IS UNEXPLAINED. THE PROVISIONS OF SECTION 69 C ARE NOT APPLICABLE IN RESPECT OF THE EXPENDITURE IN CURRED BY THE APPELLANT AS THE APPELLANT HAS EXPLAINED THE SOURCE OF THE EXPENDITU RE INCURRED IN A.Y. 2006-07. 5. ON THE FACTS & CIRCUMSTANCES OF THE CASE THE APPELLANT PRAYS THAT ADDITIONS MADE U/S 69 C AMOUNTING TO RS.14,34,000/- MAY BE DELETED . 6. THE LEARNED CIT(A) HAS ERRED IN CONFIRMING L EVYING OF INTEREST U/S. 234A AT RS.3,95,714/-. THE APPELLANT DENIES THE LIABILITY O F PAYMENT OF INTEREST U/S. 234A. ON THE FACTS & CIRCUMSTANCES OF THE CASE THE APPELL ANT SUBMIT THAT LEVY OF INTEREST U/S. 234A AT RS. 3,95,7147- IS NOT JUSTIFI ED AND BE DELETED. 7. THE LEARNED ASSESSING OFFICER HAS ERRED IN LEVYI NG INTEREST U/S. 234B AT RS.5,24,550/-. THE APPELLANT DENIES THE LIABILITY O F PAYMENT OF INTEREST U/S. 234B. ON THE FACTS & CIRCUMSTANCES OF THE CASE THE APPELL ANT SUBMIT THAT LEVY OF INTEREST U/S. 234B AT RS.5,24,550/- IS NOT JUSTIFIE D AND BE DELETED. 8. THE APPELLANT PRAYS THAT THERE IS A REASONABL E CAUSE FOR FILING APPEAL LATE. THE APPELLANT PRAYS THAT THE DELAY MAY BE CONDONED AND APPEAL MAY BE ADMITTED. 1.2 THE REGISTRY HAS NOTED A DELAY OF 36 DAYS IN FI LING OF THE APPEAL, THE CONDONATION OF WHICH HAS BEEN SOUGHT BY THE ASSESSE E VIDE CONDONATION PETITION DATED 19/05/2012 BY SUBMITTING THAT THE AS SESSEE HAD PREFERRED A RECTIFICATION APPLICATION U/S 154 BEFORE LD. ASSESS ING OFFICER AGAINST ORDER GIVING EFFECT AND WAS UNDER A BONA-FIDE BELIEF THAT THE APPEAL WAS NOT BE PREFERRED BEFORE TRIBUNAL. KEEPING IN VIEW THE PERI OD OF DELAY AND EXPLANATION FURNISHED BY THE ASSESSEE, THE BENCH FO RMED AN OPINION THAT IN THE INTEREST OF JUSTICE, THE DELAY WAS TO BE CONDON ED. THEREFORE, WE 3 ITA NO.3657/MUM/2012 B. JEEJEEBHOY VAKHARIA & ASSOCIATES ASSESSMENT YEAR-2006-07 PROCEED TO DISPOSE-OFF THE APPEAL ON MERITS AS PER ARGUMENT ADVANCED BY BOTH THE REPRESENTATIVES. WE HAVE HEARD AND CONSIDE RED THE ARGUMENTS, PERUSED RELEVANT MATERIAL ON RECORD AND DELIBERATED ON JUDICIAL PRONOUNCEMENTS AS CITED BEFORE US. AS EVIDENT FROM GROUNDS OF APPEAL, THE ASSESSEE IS CONTESTING THE ADDITION OF RS.10 LACS B EING SALE OF SCARP MATERIAL, ADDITION OF RS.3 LACS U/S 40A (3) AND AN ADDITION OF RS.14.34 LACS U/S 69C. GROUND NOS. 6 & 7 CONTEST LEVY OF INTEREST U/S 234A/234B. THE INTEREST BEING MANDATORY AND CONSEQUENTIAL, WOULD N OT REQUIRE ANY ADJUDICATION ON OUR PART. 2.1 FACTS ON RECORD WOULD REVEAL THAT THE ASSESSEE BEING RESIDENT FIRM STATED TO BE ENGAGED AS BUILDER WAS ASSESSED U/S 14 3(3) R.W.S. 153C ON 29/12/2010 WHEREIN THE INCOME OF THE ASSESSEE WAS D ETERMINED AT RS.27.34 LACS AFTER CERTAIN ADDITIONS AS AGAINST NIL RETURN FILED BY THE ASSESSEE ON 12/03/2010. THE PARTNERS OF THE FIRM CO NSISTED OF 6 CORPORATE ENTITIES. THESE CORPORATE ENTITIES ENTERED INTO 6 S EPARATE DEVELOPMENT AGREEMENT WITH ONE CONCERN NAMELY M/S USHA DEVELOPM ENT CO-OPERATIVE HOUSING SOCIETY LTD. (UDCHSL) FOR DEVELOPMENT OF CE RTAIN LAND AT GOREGAON. ACCORDINGLY, THESE 6 ENTITIES FORMED PART NERSHIP FIRM I.E. ASSESSEE FOR DEVELOPMENT OF THE PLOTS. THE DEVELOPM ENT RIGHTS WERE ORIGINALLY OBTAINED BY M/S UDCHSL FROM M/S PAHADI G OREGAON LAND DEVELOPMENT PVT. LTD. VIDE AGREEMENT DATED 28/07/19 88. SUBSEQUENTLY, THE SAID CONCERN WAS DISSOLVED AND THE SUCCESSORS T O THE CONCERNS WERE M/S BEELINE IMPEX PVT. LTD. (BIPL) AND M/S PEARL CO SMETICS & CHEMICALS PVT. LTD. (PCPL). 4 ITA NO.3657/MUM/2012 B. JEEJEEBHOY VAKHARIA & ASSOCIATES ASSESSMENT YEAR-2006-07 2.2 THE ASSESSEE ENTERED INTO A MOU ON 22/12/2001 W ITH M/S SAHARA INDIA COMMERCIAL CORPORATION LTD. (SICCL) FOR DEVEL OPMENT OF LAND WHEREIN SICCL WAS TO FUND THE PROJECT AND THE FSI W AS TO BE SHARED BETWEEN THE ASSESSEE AND SICCL IN CERTAIN PROPORTIO NS. ACCORDINGLY, SICCL ADVANCED A SUM OF RS.25 CRORES TO THE ASSESSE E. HOWEVER, THE PROJECT COULD NOT TAKE OFF DUE TO SUSPENSION OF PER MISSIONS BY AUTHORITIES AND SICCL FILED SUIT TO RESTRAIN THE ASSESSEE FROM ALIENATING THE LAND OR CREATING A THIRD-PARTY RIGHT IN THE STATED PROPERTY . 2.3 MEANWHILE, IN ANOTHER LITIGATION PROCEEDINGS BY M/S BIPL & M/S PCPL AGAINST M/S UDCHSL WHEREIN THE ASSESSEE WAS ALSO A DEFENDANT, IN THE MATTER OF GRANTING OF DEVELOPMENT RIGHTS VIDE CONVE YANCE DEED DATED 19/07/1988, THE SAID SUIT WAS DECIDED OUT OF COURT WHEREBY THE DEED OF CONVEYANCE WAS CANCELLED AND SINCE THE AMOUNT PAYAB LE BY M/S UDCHSL COULD NOT BE PAID, ONLY A SMALL PORTION OF THE LAND WAS ALLOWED TO BE CONTINUED IN THE POSSESSION OF M/S UDCHSL. 2.4 THE DOCUMENTARY SUPPORTING IN CONNECTION WITH A BOVE TRANSACTIONS WERE FOUND DURING THE COURSE OF SEARCH PROCEEDINGS AT THE PREMISES OF TWO OTHER ENTITIES, WHICH WERE OPERATING FROM THE SAME PREMISES AS THAT OF THE ASSESSEE. CONSEQUENTLY, PROCEEDINGS U/S 153C WAS IN ITIATED FOR AYS 2003- 04 TO 2007-08. IT TRANSPIRED THAT THE ASSESSEE OBTA INED LOANS FROM VARIOUS CONCERNS AND UTILIZED THE SAME MAINLY FOR ADVANCING LOANS TO PARTNERS AND OTHER GROUP CONCERNS AND TOWARDS CREATION OF WORK-I N-PROGRESS (WIP). DURING THE YEAR, THE AMOUNT OF WIP INCREASED FROM R S.12.14 CRORES TO RS.12.94 CRORES I.E. REFLECTED INCREASE OF RS.0.80 CRORES. THE ASSESSEE 5 ITA NO.3657/MUM/2012 B. JEEJEEBHOY VAKHARIA & ASSOCIATES ASSESSMENT YEAR-2006-07 SUBMITTED THAT SINCE THERE WAS NO TAXABLE INCOME FR OM PROJECTS, NO RETURN OF INCOME WAS EVER FILED FOR ALL THE YEARS. THE LAS T RETURN WAS STATED TO BE FILED FOR AY 2001-02. 2.5 UPON PERUSAL OF CASH BOOK, IT TRANSPIRED THAT T HE ASSESSEE WAS IN RECEIPT OF RS.10 LACS IN CASH FROM SALE OF SCRAP. I T WAS SUBMITTED THAT THE SAID AMOUNT WAS REDUCED FROM WIP. HOWEVER, THE ASSE SSEE DID NOT FILE ANY SUPPORTING TO SHOW THAT AMOUNT WAS REDUCED FROM WIP . MOREOVER, THE SALE OF SCRAP, IN THE OPINION OF LD. AO, COULD NOT BE CO -RELATED TO THE WIP AND THE EXPENSES DEBITED TO PROFIT & LOSS ACCOUNT COULD NOT BE CONSIDERED AS INCURRED FOR EARNING THE INCOME FROM SALE OF SCARP. ACCORDINGLY, THE SAID INCOME OF RS.10 LACS WAS BROUGHT TO TAX AS BUSINESS INCOME. 2.6 DURING THE COURSE OF SEARCH PROCEEDINGS, CERTAI N DOCUMENTS PERTAINING TO ASSESSEE WERE FOUND AND UPON PERUSAL, IT TRANSPIRED THAT THE ASSESSEE WAS SHOWN TO HAVE INCURRED EXPENSES OF RS. 23.94 LACS TOWARDS SECURITY AND GUARDING INCLUDING PAYMENT TO POLICEME N ETC. THE ASSESSEE EXPLAINED THE SOURCE TO THE EXTENT OF RS.18.33 LACS AND FOR THE BALANCE, IT WAS SUBMITTED THAT IT DID NOT INCUR ANY EXPENDITURE . IT WAS ALSO SUBMITTED THAT TOTAL EXPENSES WERE ONLY RS.20.29 LACS AND NOT RS.23.94 LACS. HOWEVER, UPON PERUSAL OF DOCUMENTS, LD.AO FOUND THA T THE EXPENSES INCURRED WERE, IN FACT, RS.37.67 LACS OUT OF WHICH AN AMOUNT OF RS.5 LACS WAS STATED TO BE PAID IN CASH. THE DETAILS OF THE S AME HAVE ALREADY BEEN EXTRACTED IN PARA-9 OF THE QUANTUM ASSESSMENT ORDER . THEREFORE, IT WAS CONCLUDED THAT THE ASSESSEE COULD NOT EXPLAIN THE S OURCE TO THE EXTENT OF RS.14.34 LACS WHICH WAS ADDED U/S 69C. OUT OF CASH PAYMENT, 20% OF THE 6 ITA NO.3657/MUM/2012 B. JEEJEEBHOY VAKHARIA & ASSOCIATES ASSESSMENT YEAR-2006-07 EXPENDITURE WAS DISALLOWED U/S 40A(3) WHICH RESULTE D INTO AN ADDITION OF RS.3 LACS IN THE HANDS OF THE ASSESSEE. FINALLY, TH E INCOME WAS COMPUTED AT RS.27.34 LACS. 3.1 BEFORE LEARNED FIRST APPELLATE AUTHORITY, THE A SSESSEE SUBMITTED THAT SCRAP WAS IN THE FORM OF RESIDUAL CONSTRUCTION MATE RIAL, GUNNY BAGS, WASTE PIECES OF STEEL BARS ETC. AND GENERATED IN THE COUR SE OF DEVELOPMENT ACTIVITY AND INEXTRICABLY LINKED TO DEVELOPMENT ACT IVITY CARRIED OUT BY THE ASSESSEE. THEREFORE, THESE RECEIPTS WOULD GO ON TO REDUCE THE COST OF PROJECT AND THEREFORE, THE SAME HAS RIGHTLY BEEN DE DUCTED FROM WIP ACCOUNT. RELIANCE WAS PLACED ON THE DECISION OF HON BLE SUPREME COURT RENDERED IN BOKARO STEEL LTD. 236 ITR 315. HOWEVER, THE SAID SUBMISSIONS COULD NOT FIND FAVOR WITH LD. CIT(A) WH O UPHELD THE ACTION OF LD. AO IN TREATING THE SCRAP SALE AS BUSINESS INCOM E. 3.2 REGARDING DISALLOWANCE OF 20% OF CASH EXPENDITU RE U/S 40A(3), THE ASSESSEE SUBMITTED THAT IT DID NOT CARRY OUT ANY BU SINESS ACTIVITY AND NO INCOME WAS COMPUTED UNDER THE HEAD PROFITS & GAINS OF BUSINESS AND THEREFORE, THE DISALLOWANCE AT THE MOST, COULD BE R EDUCED FROM WIP ACCOUNT. HOWEVER, DISREGARDING THE SAME, THE DISALL OWANCE MADE BY LD. AO WAS CONFIRMED. 3.3 REGARDING ADDITIONS MADE U/S 69C, THE ASSESSEE SUBMITTED THAT OUT OF TOTAL EXPENDITURE OF RS.37.67 LACS, THE AMOUNT OF R S.12.73 LACS WAS PAID BY CHEQUE WHILE AMOUNT OF RS.15 LACS WAS SPENT IN C ASH SINCE THE DISALLOWANCE U/S 40A(3) WAS MADE BY LD.AO AT 20% RE SULTING INTO ADDITION OF RS.3 LACS IN THE HANDS OF THE ASSESSEE. THEREFOR E, THE BALANCE AMOUNT 7 ITA NO.3657/MUM/2012 B. JEEJEEBHOY VAKHARIA & ASSOCIATES ASSESSMENT YEAR-2006-07 LEFT WOULD BE RS.9.94 LACS AND NOT RS.14.34 LACS AS DETERMINED BY LD. AO WHICH MAY BE ADDED WITH A VIEW TO CONCLUDE THE MATT ER. THE LD. FIRST APPELLATE AUTHORITY, AFTER APPRECIATION OF FACTUAL MATRIX DIRECTED LD. AO TO VERIFY THE CHEQUE PAYMENTS AND ADD THE DIFFERENTIAL AMOUNT TO THE INCOME OF THE ASSESSEE. UPON PERUSAL OF ORDER GIVING EFFEC T DATED 07/02/2012, IT IS OBSERVED THAT THE INCOME HAS BEEN RE-COMPUTED AT TH E SAME FIGURES AND NO RELIEF HAS BEEN GRANTED TO THE ASSESSEE. AGGRIEVED, THE ASSESSEE IS IN FURTHER APPEAL BEFORE US. 4. WE HAVE CAREFULLY CONSIDERED THE FACTUAL MATRIX AS ENUMERATED BY US IN THE PRECEDING PARAGRAPHS. SO FAR AS THE ADDITION OF RS.10 LACS REPRESENTING SALE OF SCRAP IS CONCERNED, IT IS OBSE RVED THAT THE ASSESSEE WAS UNDERTAKING DEVELOPMENT OF CERTAIN PROJECT AND SOLE ACTIVITY BEING CARRIED OUT BY THE ASSESSEE WAS CONSTRUCTION ACTIVI TY. THE SAME IS EVIDENT FROM THE FACT THAT WIP STOOD AT RS.12.93 CRORES AT YEAR-END. IT IS ALSO UNDISPUTED FACT THAT THE ASSESSEE WAS FOLLOWING PRO JECT COMPLETION METHOD OF ACCOUNTING TO OFFER INCOME UNDER THE PROJECT. TH EREFORE, THE SCRAP GENERATED OUT OF CONSTRUCTION / DEVELOPMENT ACTIVIT Y, IN OUR CONSIDERED OPINION WAS INEXTRICABLY LINKED WITH ASSESSEES MAI N ACTIVITY AND THEREFORE, THE SAME WOULD RIGHTLY GO ON TO REDUCE WIP. THEREFO RE, THIS ADDITION WOULD NOT BE SUSTAINABLE IN LAW. THE ASSESSEE HAS RIGHTLY DEDUCTED THE SAME FROM WIP. ON THE SIMILAR ANALOGY, THE DISALLOWANCE MADE BY LD. AO U/S 40A(3) @20% OF CASH EXPENDITURE WOULD NOT BE SEPARA TE ITEM OF ADDITION BUT SINCE NO EXPENDITURE HAS BEEN CLAIMED BY THE AS SESSEE DURING THE YEAR, THE SAME WOULD GO ON TO REDUCE WIP ACCOUNT. T HEREFORE, LD. AO IS 8 ITA NO.3657/MUM/2012 B. JEEJEEBHOY VAKHARIA & ASSOCIATES ASSESSMENT YEAR-2006-07 DIRECTED TO REDUCE THE SAID DISALLOWANCE OF RS.3 LA CS FROM WIP ACCOUNT. GROUND NO. 1 STAND ALLOWED. GROUND NO.2 STAND PARTL Y ALLOWED. 5. GROUND NOS. 3 TO 5 ARE RELATED WITH ADDITIONS U/ S 69C. UPON PERUSAL OF FACTUAL MATRIX, WE FIND THAT TOTAL EXPENDITURE FOUN D TO BE INCURRED BY THE ASSESSEE WAS RS.37.67 LACS. OUT OF THIS EXPENDITURE , THE AMOUNT PAID THROUGH CHEQUES WAS RS.12.73 LACS. THE CASH EXPENDI TURE IS STATED TO BE MADE TO THE EXTENT OF RS.15 LACS, FOR WHICH THE ASS ESSEE HAS ALREADY BEEN SADDLED WITH DISALLOWANCE U/S 40A(3) @20%. THIS WOU LD LEAVE UNEXPLAINED BALANCE OF RS.9.94 LACS. THE SAME WOULD STAND CONFI RMED IN VIEW OF THE FACT THAT THE SOURCE OF THE SAME REMAINED UNEXPLAIN ED. HENCE, THE ADDITION TO THE EXTENT OF RS.9.94 LACS STANDS CONFIRMED. THE SE GROUNDS STAND PARTLY ALLOWED. 6. RESULTANTLY, THE APPEAL STANDS PARTLY ALLOWED TO THE EXTENT INDICATED IN THE ORDER. ORDER PRONOUNCED IN THE OPEN COURT ON 14 TH OCTOBER, 2019. SD/- SD/- (SAKTIJIT DEY) (MANOJ KUMAR AGGARWAL) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; DATED : 14/10/2019 SR.PS:-JAISY VARGHESE TU VU / COPY OF THE ORDER FORWARDED TO : 1. IJ / THE APPELLANT 2. MNIJ / THE RESPONDENT 9 ITA NO.3657/MUM/2012 B. JEEJEEBHOY VAKHARIA & ASSOCIATES ASSESSMENT YEAR-2006-07 3. ( ) / THE CIT(A) 4. / CIT CONCERNED 5. [ \M ] , ] , / DR, ITAT, MUMBAI 6. \ _` / GUARD FILE / BY ORDER, / (DY./ASSTT.REGISTRAR) , / ITAT, MUMBAI.