Modi Ventures, Sec'bad, Hyderabad V. ITO, Ward-10(4), Hyderabad, Hyderabad

ITA 386/HYD/2016

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 6183 (ITAT-HYDERABAD)
• Duration Of Justice: 10 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-02-2017
• Appeal Filed By: Assessee
• Bench Allotted: A
• Next Hearing Date: 26-10-2016
• Assessment Year: 2006-2007
• Appeal Filed On: 23-03-2016
• Court: TRIBUNAL
• Department Lawyers: SUMAN MALIK
• Assessee Lawyers: S RAMA RAO
• Keywords: Depreciation; Revenue expenditure
• Section: 80IB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES A (SMC), HYDERABAD BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER I.T.A. NO. 386/HYD/2016 ASSESSMENT YEAR: 2006-07 MODI VENTURES, SECUNDERABAD [PAN: AAJFM0646D] VS INCOME TAX OFFICER, WARD-10(4), HYDERABAD (APPELLANT) (RESPONDENT) FOR ASSESSEE : SHRI S. RAMA RAO, AR FOR REVENUE : SMT SUMAN MALIK, DR DATE OF HEARING : 25-01-2017 DATE OF PRONOUNCEMENT : 08-02-2017 O R D E R THIS IS AN APPEAL BY ASSESSEE AGAINST THE ORDER OF TH E COMMISSIONER OF INCOME TAX (APPEALS)- 9, HYDERABAD DATED 08-12-2015 CONFIRMING THE DISALLOWANCE MADE BY THE A SSESSING OFFICER (AO) IN THE ASSESSMENT. ASSESSEE HAS RAISED THE FOLLOWING TWO GROUNDS: 2. THE LEARNED COMMISSIONER OF INCOME-TAX(APPEALS) ERRED IN CONFIRMING THE DISALLOWANCE MADE BY THE ASSESSING O FFICER OF RS. 8,64,871/-. 3. THE LEARNED COMMISSIONER OF INCOME-TAX(APPEALS) ERRED IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER IN R EJECTING THE CLAIM FOR DEDUCTION U/S. 80IB(10) OF THE I.T. ACT. GROUND NOS. 1 & 4 ARE GENERAL IN NATURE. 2. BRIEFLY STATED, ASSESSEE-FIRM IS ENGAGED IN THE BUS INESS OF CONSTRUCTION OF RESIDENTIAL APARTMENTS IN A COMPREHENSIV E GROUP I.T.A. NO. 386/HYD/2016 MODI VENTURES :- 2 - : HOUSING SCHEME. ASSESSEE FILED RETURN OF LOSS AT RS . 1,56,514/-. AS THE PROJECT IS PENDING, IT HAS CONSIDERED 25% ON I NSTALMENTS RECEIVED DURING THE YEAR AT 5,52,500/- AND PROFIT AT 8 % ON CONTRACT RECEIPTS DURING THE YEAR AT RS. 2,40,000/-. IN ADDITIO N TO THE ABOVE TWO ESTIMATED INCOMES, ASSESSEE ALSO OFFERED BOOKING AMOUNT FORFEITED AT RS. 10,000/- AND INTEREST ON FDR AT RS. 58,867/-. AS AGAINST THESE RECEIPTS, ASSESSEE CLAIMED VARIOUS EXPE NDITURES WHICH RESULTED IN LOSS. IN THE COURSE OF ASSESSMENT P ROCEEDINGS, THE AO NOTICED THAT ASSESSEES SHARE IN THE TOTAL NUMBER OF BLOCKS IN WHICH 350 APARTMENTS ARE TO BE CONSTRUCTED WAS 253 AN D ASSESSEE COULD NOT RECEIVE ADVANCE TO AN EXTENT OF 47 APARTMENTS. ACCORDINGLY, HE HAS PROPOSED EXPENDITURE CLAIM SHOUL D BE PRO-RATA DISALLOWED RELATING TO BALANCE OF THE APARTMENTS WHICH A RE CAPITALISED. ASSESSEE HOWEVER, SUBMITTED THAT THE COST OF CONSTRUCTION AND OTHER EXPENDITURE PERTAINING TO THE PRO JECT WAS CAPITALISED AND ASSESSEE HAS NOT OFFERED INCOME ON THE PROJECT SINCE THE PROJECT IS NOT COMPLETE. BUT ASSESSEE HAS ES TIMATED THE INCOME ON THE ADVANCES RECEIVED AND OTHER MISCELLANE OUS CONSTRUCTION WORK UNDERTAKEN FOR THE PROSPECTIVE BUYERS IN THE PROJECT. IT WAS FURTHER SUBMITTED THAT WHATEVER EXPENDITURE PERTAINING TO PROJECT WAS CAPITALISED AND WHATEVER EXPE NDITURE WHICH IS REVENUE IN NATURE FOR DAY TO DAY MANAGEMENT OF THE FIRM WAS CLAIMED IN THE P&L A/C. IT WAS FURTHER SUBMITTED TH AT IN CASE AO DID NOT ACCEPT ASSESSEES CONTENTIONS, ASSESSEE BEI NG ELIGIBLE FOR DEDUCTION U/S. 80IB, SAME SHOULD BE ALLOWED, AS LOSS MAY BECOME PROFIT. AO HOWEVER, DID NOT ACCEPT. HE WAS OF THE OPINION THAT METHOD OF ESTIMATION OF INCOME ON THE ADVANCES SEEMS TO BE EMPIRICAL. SHE WAS OF THE OPINION THAT TRUE PROFITS OF THE BUSINESS CANNOT BE DEDUCED FROM THE METHOD EMPLOYED BY ASSESSEE AND IT I.T.A. NO. 386/HYD/2016 MODI VENTURES :- 3 - : ONLY GIVES A DISTORTED PICTURE OF THE PROFITS. ACCORDIN GLY, OUT OF RS. 10,36,404/- EXPENDITURE CLAIMED, AO ALLOWED ONLY RS . 1,92,533/- BEING 47/253 AND DISALLOWED THE BALANCE AMOUNT OF RS . 8,34,871/-. ASSESSEE CONTESTED THE ISSUE BEFORE THE LD . CIT(A), BUT LD. CIT(A) CONFIRMED THE SAME BY STATING AS UNDER: 4.3 THE ASSESSEES CONTENTIONS ARE NOT ACCEPTABLE AS THE ASSESSING OFFICER HAS NEVER DISPUTED THAT THESE EXPENSES WERE NOT INCURRED FOR THE PURPOSES OF BUSINESS. BUT HAS ONLY MADE PRORATE DI SALLOWANCE OF EXPENDITURE CLAIMED. IT IS SEEN FROM THE FILE THAT THE ASSESSEE ADMITTED INCOME RELATABLE ONLY TO THE ADVANCES RECEIVED FROM 47 BUYERS OF FLATS WHILE EXPENDITURE HAS BEEN CLAIMED IN RESPECT OF 25 3 FLATS WHICH IS UNREASONABLE. THEREFORE AS POINTED OUT BY THE ASSE SSING OFFICER THE TRUE PROFITS OF THE BUSINESS CANNOT BE DEDUCED FROM THE METHOD EMPLOYED BY THE ASSESSEE. THEREFORE THE RESTRICTION OF THE EXP ENDITURE PROPORTIONATE TO THE INCOME ADMITTED ON ADVANCES IS THE ONLY OPTION AVAILABLE TO THE ASSESSING OFFICER. HENCE, IN THESE CIRCUMSTANCES, I AM OF THE CONSIDERED OPINION THAT THE ASSESSING OFFICER HAS RIGHTLY DISA LLOWED THE PRORATE EXPENDITURE CLAIMED ON THE ADVANCES OF FLATS. 3. LD. COUNSEL REFERRING THE P&L A/C AND SCHEDULES THEREON SUBMITTED THAT WHATEVER IS THE PROJECT EXPENDITURE, THE SAM E WAS CAPITALISED AND SHOWN IN WORK-IN-PROGRESS AND WHATEV ER THE EXPENDITURE BEING REVENUE IN NATURE NOT RELATABLE TO WO RK-IN- PROGRESS HAS BEEN CLAIMED IN THE P&L A/C. SINCE ASSE SSEES PROJECT IS PENDING, IT HAS ESTIMATED THE INCOME ON THE SALE OF FLATS ON THE BASIS OF INSTALMENTS RECEIVED DURING THE YEAR. FURTHE R, IT WAS ALSO SUBMITTED THAT CERTAIN MISCELLANEOUS CONSTRUCTION WORKS AR E UNDERTAKEN ON BEHALF OF THE BUYERS, AND ON THAT CONSTR UCTION WORK, 8% OF THE CONTRACT WORK IS CONSIDERED AS INCOME . THUS, ASSESSEE OFFERED INCOME ON ESTIMATION BASIS. THE EXPE NDITURE CLAIMED IN THE P&L A/C IS REVENUE IN NATURE FOR DAY TO DAY ACTIVITIES OF THE FIRM AND CANNOT BE RELATED TO WORK-IN- PROGRESS. IT WAS SUBMITTED THAT ENTIRE EXPENDITURE CLAIMED IS ALLOWABL E AS I.T.A. NO. 386/HYD/2016 MODI VENTURES :- 4 - : REVENUE EXPENDITURE. FURTHER IN THE ALTERNATE, IT WA S SUBMITTED THAT ASSESSEE IS ELIGIBLE FOR DEDUCTION U/S. 80IB AND SO THE DISALLOWED AMOUNT SHOULD BE CONSIDERED FOR ALLOWING THE DEDUCTION U/S. 80IB. 4. LD.DR, HOWEVER, SUBMITTED THAT BOTH AO AND CIT(A) A RE MORE THAN REASONABLE IN ALLOWING THE EXPENDITURE; THEREFORE , THERE IS NO MERIT IN ASSESSEES SUBMISSIONS. 5. I HAVE CONSIDERED THE RIVAL CONTENTIONS AND PERUSED THE PAPER BOOK FILED IN THIS REGARD. I AM UNABLE TO UNDE RSTAND ON WHAT BASIS A PROPORTIONATE EXPENDITURE CAN BE DISALLO WED. ASSESSEE HAS NOT COMPLETED THE PROJECT. WHATEVER IS TH E DIRECT EXPENDITURE PERTAINING TO THE PROJECT HAS ALREADY BEE N CAPITALISED. AS CAN BE SEEN FROM THE COMPUTATION OF INCOME OFFERED BY ASSESSEE IN THE P&L A/C, ASSESSEE HAS NOT CLAIMED ANY OF THE EXPENDITURES INCURRED ON THE PROJECT AS EXPENDITURE BUT OFFERED INCO ME ON ESTIMATION BASIS ON THE INSTALMENTS RECEIVED TOWARDS SALE PRICE. AS AGAINST THIS, THE CLAIM OF EXPENDITURE MADE IN THE P& L A/C IS PERTAINING TO THE DAY TO DAY RUNNING OF BUSINESS. AS S EEN FROM THE P&L A/C, EXPENDITURE PERTAINING TO ADVERTISEMENT CHARGE S, PRINTING AND STATIONERY, DEPRECIATION, MARKETING FEE, INTEREST ON UNSECURED LOANS, REGISTRATION CHARGES, AUDIT FEE, POSTING AND COU RIER ETC., ARE REVENUE IN NATURE AND CANNOT BE CAPITALISED TO THE PROJE CT. I AM OF THE OPINION THAT ASSESSEES EXPENDITURE CLAIM HAS TO B E ALLOWED AS SUCH AGAINST THE INCOMES OFFERED DURING THE YEAR. I F ASSESSEE IS NOT OFFERING THE INCOME ON A PERCENTAGE COMPLETION ME THOD, BUT IS COMPUTING ON PROJECT COMPLETION METHOD MAY BE THE TOTAL EXPENDITURE INCURRED, INCLUDING THE DAY TO DAY RUNNING I.T.A. NO. 386/HYD/2016 MODI VENTURES :- 5 - : EXPENDITURE, COULD HAVE BEEN CAPITALISED AND INCOMES WILL BE OFFERED ONLY AT THE END OF THE COMPLETION OF PROJECT. B UT ASSESSEE HAS CHOSEN A DIFFERENT METHOD OF OFFERING INCOMES ON AN ESTIMATION BASIS ON THE BASIS OF THE INSTALMENTS RECEIVED DURING THE YEAR. SINCE THE DAY TO DAY RUNNING EXPENDITURE, PARTICULARLY THAT WHICH CANNOT BE CAPITALISED TO THE PROJECT, HAS TO BE ALLOWED AS A REVENUE EXPENDITURE, I DO NOT FIND ANY MISTAKE IN ASSESSEES CLAIM. IN FACT AO SHOULD NOT HAVE UNDERTAKEN PROPORTIONATE DISALLOWANC E. EVEN ONE WERE TO CONSIDER PROPORTIONATE DISALLOWANCE, ASSE SSEE IS CONSTRUCTING TOTAL 350 FLATS, WHEREAS AO CONSIDERED ON LY THE SHARE OF ASSESSEE AT 253 FLATS IGNORING THAT THE TOTAL PROJECT CO NSIST OF FLATS TO BE BUILT FOR OWNERS SHARE AS WELL. 5.1. BE THAT AS IT MAY, SINCE I AM NOT IN AGREEMENT WITH THE PROPORTIONATE DISALLOWANCE, I DIRECT THE AO TO ALLOW T HE REVENUE EXPENDITURE AS CLAIMED. SINCE, THIS RESULTS IN LOSS, THE ISSUE OF CLAIM OF DEDUCTION U/S. 80IB BECOMES ACADEMIC IN NATU RE, AND THERE IS NO NEED TO EXAMINE THIS AT PRESENT. THEREFORE , ASSESSEES GROUND NO.2 IS ALLOWED AND GROUND NO. 3 IS DISMISSE D AS ACADEMIC IN NATURE. 6. IN THE RESULT, APPEAL OF ASSESSEE IS PARTLY ALLOWED . ORDER PRONOUNCED IN THE OPEN COURT ON 8 TH FEBRUARY, 2017 SD/- (B. RAMAKOTAIAH) ACCOUNTANT MEMBER HYDERABAD, DATED 8 TH FEBRUARY, 2017 TNMM I.T.A. NO. 386/HYD/2016 MODI VENTURES :- 6 - : COPY TO : 1. MODI VENTURES, SECUNDERABAD. C/O. SRI S. RAMA RA O, ADVOCATE, FLAT NO. 102, SHRIYAS ELEGANCE, 3-6-643, STREET NO. 9, HIMAYAT NAGAR, HYDERABAD. 2. THE INCOME TAX OFFICER, WARD-10(4), HYDERABAD. 3. COMMISSIONER OF INCOME TAX(APPEALS)-9, HYDERABAD . 4. THE PR. COMMISSIONER OF INCOME TAX-6, HYDERABAD. 5. D.R. ITAT, HYDERABAD. 6. GUARD FILE.