Anmol Apartments Pvt.Ltd., Ahmedabad V. The Income tax Officer,Ward-1(2), Ahmedabad

ITA 4134/AHD/2008

• Counselvise Citation: [2009] 114 COUNSELVISE.COM (IT) 7738 (ITAT-AHMEDABAD)
• Duration Of Justice: 6 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-07-2009
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 15-07-2009
• Assessment Year: 2004-2005
• Appeal Filed On: 26-12-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: D S CHAUDHARY
• Assessee Lawyers: G S PATEL
• Keywords: Depreciation
• Section: 274

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AT AHMEDABAD AHMEDABAD B BENCH (BEFORE S/SHRI T.K. SHARMA, JUDICIAL MEMBER AND D.C.AGRAWAL, ACCOUNTANT MEMBER) ITA.NO.4134/AHD/2008 [ASSTT.YEAR : 2004-2005] ANMOL APARTMENTS PVT. LTD. C/O. NAGINDAS & MANEKLAL 91-B, ANUPAM BLDG. NO.2 2 ND FLOOR, SWASTIK SOCIETY COMMERCE COLLEGE ROAD NAVRANGPURA, AHMEDABAD. VS. ITO, WARD-1(2) AHMEDABAD. ASSESSEE BY : SHRI G.S.PATEL REVENUE BY : SHRI D.S.CHAUDHARY O R D E R PER D.C.AGRAWAL, ACCOUNTANT MEMBER : THIS APPEAL IS FILED BY THE ASSESSEE AGAINST THE ORDER OF CIT(A)-VI, AHMEDA BAD DATED 21.10.2008. THE FOLLOWING GROUNDS ARE RAISED IN THE APPEAL: 1. I) THE APPELLANTS SUBMIT THAT THE LD.CIT(A) HAS ERRED IN CONFIRMING THE ADDITION OF RS.31,90,928/- U/S.41(1) OF THE ACT THOUGH IT IS NEITHER CONTROVERTED BY THE AO NOR BY THE LD.CIT (A) THE FACT THAT THE DEVELOPMENT CHARGES OF RS.31,90,928/- WHICH ARE WRI TTEN OFF, WERE NOT ALLOWED AS DEDUCTION IN ANY OF THE EARLIER ASSESSME NT YEARS AND THUS THE PROVISIONS OF SECTION 41(1) ARE NOT APPLICABLE IN T HE CASE OF THE APPELLANTS. II) THE APPELLANTS FURTHER SUBMIT THAT THE LD.CIT(A ) HAS ERRED IN RELYING ON BOMBAY HIGH COURT DECISION REPORTED IN ( 2004) 139 TAXMAN 70(BOM), WHEREIN 100% DEPRECIATION WAS ALLOWED U/S. 32(1)(II) IN EARLIER YEARS AND AS SUCH THE PROVISIONS OF SECTION 41(1) WERE APPLIED IN THAT CASE. WHILE IN CASE OF THE APPELLANTS, IT IS ADMITTED FACT THAT NO SUCH EXPENDITURE WAS ALLOWED AS DEDUCTION IN EARLIE R YEARS AND HENCE SECTION 41(1) IS NOT APPLICABLE. 2. THE APPELLANT SUBMIT THAT THE LD.CIT(A) HAS ERR ED IN CONFIRMING ADDITION OF 49,358/- BEING 50% OUT OF ADMINISTRATIV E AND GENERAL EXPENSES AS NOT VERIFIABLE. ITA.NO.4134/AHD/2008 -2- 2. THE ISSUE RAISED IN GROUND NO.1 IS ABOUT SUSTAIN ING OF ADDITION OF RS.31,90,928/-. THE FACTS OF THE CASE ARE THAT THE ASSESSEE COMPANY IS CARRYING OUT DEVELOPMENT OF THE FLATS FOR ITS MEMBERS ON NO PROFIT NO LOSS BASIS. IT FLOATED A SCHEME, NAMELY, ANMOL APARTMENTS CONSIS TING OF 12 FLATS. THIS COMPANY HAD TWO DIRECTORS VIZ. MR.MANOJ J. PATEL AND MR.DEEPAK B. PATEL HAVING SHARE CAPITAL OF RS.12,000/- IN THE YEAR UND ER CONSIDERATION. THE AUTHORISED SHARE CAPITAL OF THE COMPANY WAS 10000 S HARES. OUT OF THAT 9880 SHARES ARE HELD BY MR.MANOJ PATEL AND THE BALANCE 1 20 SHARES BY 12 MEMBERS WHO HAVE AGREED TO PURCHASE FLATS IN THE SCHEME DEV ELOPED BY THE COMPANY. THESE TWELVE MEMBERS BECAME SHARE HOLDER IN THE CAP ACITY AS FLAT OWNERS AS AND WHEN THEY HAVE PURCHASED THE FLATS IN THE SCHEM E. THE LAND WAS PURCHASED IN THE VERY FIRST YEAR OF THE INCORPORATION IN A.Y. 1997-98. THIS COMPANY ENGAGED M/S.ANIS CONSTRUCTION PVT. LTD., FOR CARRYI NG OUT CONSTRUCTION OF FLATS, WHICH WERE ALLOTTED TO DIFFERENT MEMBERS. DURING T HE YEAR UNDER CONSIDERATION, THE ASSESSEE COMPANY WROTE OFF CREDI TORS FOR THE CAPITAL GOODS, AMOUNTING TO RS.31,90,928/-. THE AO SOUGHT TO TAX UNDER SECTION 41(1) OF THE ACT. IT WAS EXPLAINED TO THE AO IN THIS REGARD THA T M/S.ANIS CONSTRUCTION (ACP FOR SHORT) PVT. LTD. HAS TAKEN THE DEVELOPME NT WORK OF THE PROJECT. AFTER NEGOTIATION, THEY HAVE AGREED TO REDUCE DEVEL OPMENT CHARGES BY A SUM OF RS.31,90,928/-, THEREFORE, THE SAME WAS REDUCED FRO M THE CREDITORS FOR CAPITAL GOODS AND ALSO FROM THE FIXED ASSETS. THE AO DID N OT ACCEPT THE ABOVE CONTENTIONS AND HELD THAT THE ASSESSEE HAS INCURRED EXPENDITURE ON ACCOUNT OF PURCHASE OF LAND AND DEVELOPMENT CHARGES HAVE BEEN PAID TO ACP. OUT OF TOTAL PAYMENT OF RS.50,50,668/- AS DEVELOPMENT CHAR GES, THE ASSESSEE HAS WRITTEN BACK RS.31,90,928/-, AND THEREFORE, THE SAM E WOULD REPRESENT INCOME OF THE ASSESSEE UNDER SECTION 41(1) OF THE ACT. HE AC CORDINGLY MADE ADDITION. THE LEARNED CIT(A) EXAMINED THE ISSUE AND CALLED FO R DETAILS THROUGH A REMAND REPORT FROM THE AO AND THEREAFTER CONFIRMED THE ADD ITION BY HOLDING THAT THE SUM OF RS.31,90,928/- BEING OUTSTANDING PAYMENT HAS BEEN WRITTEN BACK, AND THEREFORE WOULD BE TAXABLE UNDER SECTION 41(1). ITA.NO.4134/AHD/2008 -3- 3. AGAINST THIS, LEARNED AR SUBMITTED THAT THE PRIM ARY CONDITION FOR TAXING THE AMOUNT UNDER SECTION 41(1) IS THAT THIS AMOUNT SHOULD HAVE BEEN ALLOWED AS DEDUCTION WHILE COMPUTING INCOME OF THE ASSESSEE IN ANY EARLIER YEAR. IN THE PRESENT CASE, THE ASSESSEE HAS NOT CLAIMED ANY DEDU CTION ON THIS AMOUNT WHILE COMPUTING EXPENSES INCURRED FOR RUNNING THE COMPANY . HE REFERRED TO THE PROFIT AND LOSS AND BALANCE SHEET OF THE COMPANY FR OM THE ASSESSMENT YEAR 1997-98 ONWARDS. ACCORDING TO THESE DOCUMENTS, THE ASSESSEE HAS DEBITED A SUM OF RS.23,366/- IN A.Y.1998-99 ON AUDITORS REMU NERATION, BANK CHARGES AND SALARY EXPENSES AND MISCELLANEOUS EXPENSES. IN A.Y.2000-2001 TOTAL EXPENSES UNDER THESE FOUR HEADS AND ALSO ON SOME OT HER ITEMS HAS BEEN DEBITED AT RS.84,624/-. IN A.Y.2002-2003, TOTAL EXPENSES UNDER THIS HEAD AMOUNTING TO RS.96,247/-. IN A.Y.2003-2004 IT AMOUNTED TO RS .54,518/-. IN A.Y.2004- 2005 SUCH EXPENSES AMOUNTED TO RS.1,00,517/-. THUS , TOTAL EXPENSES IN FIVE YEARS WAS CLAIMED AT RS.3,41,596/-. THE ASSESSEE R ECEIVED A SUM OF RS.3,30,000/- FROM MEMBERS AS MAINTENANCE DEPOSITS LEAVING A BALANCE OF RS.11,596/- AS NET EXPENDITURE. THUS ACCORDING TO THE LEARNED AR NO AMOUNT ON DEVELOPMENT CHARGES HAD BEEN CLAIMED AS REVENUE EXPENSES. FURTHER, NO DEPRECIATION ON DEVELOPMENT CHARGES HAS BEEN CLAIME D. RELIANCE WAS PLACED BY THE LEARNED CIT(A) IN THE DECISION OF HONBLE BO MBAY HIGH COURT IN NECTOR BEVERAGES PVT. LTD. VS. CIT, 267 ITR 385 = 1 39 TAXMAN 70. IN THAT CASE DEPRECIATION HAD BEEN GRANTED BY THE DEPARTMEN T ON THE ASSETS, WHICH WERE SOLD AS SCRAP. THEREFORE, MONEY RECEIVED ON SALE O F THE ASSETS WOULD BE COVERED UNDER SECTION 41(1) OF THE ACT. HOWEVER, I N THE PRESENT CASE, THIS IS NOT THE CASE. NO DEPRECIATION HAS BEEN CLAIMED OR ALLOWED, THUS, NEITHER WHOLE NOR PART OF THE DEVELOPMENT CHARGES HAVE BEEN PASSE D THROUGH THE TRADING ACCOUNT/PROFIT AND LOSS ACCOUNT OR COMPUTATION OF T AXABLE INCOME. AGAINST THIS, LEARNED DR RELIED ON THE ORDERS OF AUTHORITIE S BELOW AND ALSO THE DECISION OF HONBLE BOMBAY HIGH COURT CITED SUPRA. ITA.NO.4134/AHD/2008 -4- 4. WE HAVE HEARD LEARNED DR AND LEARNED AR AND CARE FULLY PERUSED THE MATERIAL ON RECORD. FOR THE SAKE OF CONVENIENCE, W E REPRODUCE SECTION 41(1) AS UNDER: 41.(1) WHERE AN ALLOWANCE OR DEDUCTION HAS BEEN M ADE IN THE ASSESSMENT FOR ANY YEAR IN RESPECT OF LOSS, EXPENDITURE OR TRADING LIABILITY INCURRED BY THE ASSESSEE (HEREINAFTER REFERRED TO AS THE FIRST-MENT IONED PERSON) AND SUBSEQUENTLY DURING ANY PREVIOUS YEAR, (A) THE FIRST-MENTIONED PERSON HAS OBTAINED, WHET HER IN CASH OR IN ANY OTHER MANNER WHATSOEVER, ANY AMOUNT IN RESPECT OF S UCH LOSS OR EXPENDITURE OR SOME BENEFIT IN RESPECT OF SUCH TRAD ING LIABILITY BY WAY OF REMISSION OR CESSATION THEREOF, THE AMOUNT OBTAI NED BY SUCH PERSON OR THE VALUE OF BENEFIT ACCRUING TO HIM SHALL BE DE EMED TO BE PROFITS AND GAINS OF BUSINESS OR PROFESSION AND ACCORDINGLY CHARGEABLE TO INCOME-TAX AS THE INCOME OF THAT PREVIOUS YEAR, WHE THER THE BUSINESS OR PROFESSION IN RESPECT OF WHICH THE ALLOWANCE OR DEDUCTION HAS BEEN MADE IS IN EXISTENCE IN THAT YEAR OR NOT; OR (B) THE SUCCESSOR IN BUSINESS HAS OBTAINED, WHETH ER IN CASH OR IN ANY OTHER MANNER WHATSOEVER, ANY AMOUNT IN RESPECT OF WHICH L OSS OR EXPENDITURE WAS INCURRED BY THE FIRST-MENTIONED PER SON OR SOME BENEFIT IN RESPECT OF THE TRADING LIABILITY REFERRE D TO IN CLAUSE (A) BY WAY OF REMISSION OR CESSATION THEREOF, THE AMOUNT O BTAINED BY THE SUCCESSOR IN BUSINESS OR THE VALUE OF BENEFIT ACCRU ING TO THE SUCCESSOR IN BUSINESS SHALL BE DEEMED TO BE PROFITS AND GAINS OF THE BUSINESS OR PROFESSION, AND ACCORDINGLY CHARGEABLE TO INCOME-TA X AS THE INCOME OF THAT PREVIOUS YEAR. A BARE READING OF THE ABOVE SECTION CLEARLY SHOWS THAT PROVISION OF SECTION 41(1) CAN BE INVOKED ONLY WHEN THE ALLOWANC E OR DEDUCTION HAS BEEN MADE IN ANY ASSESSMENT YEAR IN RESPECT OF LOSS OR E XPENDITURE OR TRADING LIABILITY INCURRED BY THE ASSESSEE AND SUBSEQUENTLY DURING THE PREVIOUS YEAR, IT HAS RECEIVED A BENEFIT BY WAY OF REMISSION OR CESSA TION OF SUCH LIABILITY. WITHOUT GOING INTO FURTHER CONDITIONS REQUIRED TO T AX SUCH REMISSION OR CESSATION OF LIABILITY AS MENTIONED IN THE SECTION, IT IS SUFFICIENT FOR THE PURPOSE OF DISPOSAL OF THIS APPEAL THAT IF THE FIRST AND PR IMARY CONDITION IS NOT SATISFIED, THEN ANY WRITING BACK IN THE BOOKS OF ACCOUNTS CANN OT BE TAXED UNDER SECTION 41(1). HONBLE MADRAS HIGH COURT IN THE CASE OF NA RAYAN CHETTIAR INDUSTRIES VS. IT, 277 ITR 426 HELD THAT SECTION 41(1) GIVES A LEGAL FICTION AND HENCE IT HAS TO BE STRICTLY COMPLIED WITH, IF ANY ADDITION T O THE INCOME SOUGHT TO BE ITA.NO.4134/AHD/2008 -5- MADE BY THE REVENUE. UNLESS AN ALLOWANCE OR DEDUCT ION HAS BEEN MADE IN EARLIER YEAR, IN RESPECT OF LOSS OR EXPENDITURE OR TRADING LIABILITY, THERE COULD BE NO ADDITION UNDER SECTION 41(1). SIMILAR VIEW WA S EXPRESSED BY HONBLE PUNJAB AND HARYANA HIGH COURT IN THE CASE OF CIT VS . SWASTIK METAL WORKS, 274 ITR 280 AND HONBLE DELHI HIGH COURT IN CIT VS. DELHI AUTOMOBILES, 272 ITR 381 WHEREIN UNILATERAL WRITING OFF UNCLAIME D BALANCE OF DEBT BY THE ASSESSEE WERE NOT HELD TAXABLE. HONBLE GUJARAT HI GH COURT IN CIT VS. CHETAN CHEMICALS PVT. LTD., 267 ITR 770 HELD, ON THE FACTS THAT REMISSION OF LOANS BY CREDITORS IN RESPECT OF WHICH, NO DEDUCTION WAS ALL OWED IN EARLIER YEARS, WOULD NOT BE TAXABLE UNDER SECTION 41(1). IN VIEW OF THE ABOVE, WE HOLD THAT AUTHORITIES WERE NOT JUSTIFIED IN TAXING THE SUM OF RS.31,90,928/- AS INCOME UNDER SECTION 41(1) OF THE ACT, WHEN THIS SUM WAS N OT CLAIMED AS DEDUCTION IN ANY EARLIER YEARS. THIS GROUND OF THE ASSESSEE IS ALLOWED. 5. NEXT GROUND RELATES TO SUSTAINING 50% OF ADMINIS TRATIVE/GENERAL EXPENSES OF RS.49,358/- ON THE GROUND THAT THEY ARE NOT VERIFIABLE. LEARNED AR AT THE OUTSET POINTED OUT THAT THE ASSESSEE HAS BEE N REIMBURSED WITH A SUM OF RS.3,30,000/- BY MEMBERS, AND THEREFORE WHAT IS LEF T AS EXPENDITURE IS ONLY RS.11,596/-. THIS COMPANY WAS RUNNING FOR ALMOST F IVE YEARS, AND THEREFORE, THE EXPENDITURE TO THIS EXTENT WOULD BE NATURAL AND NOMINAL. CONSIDERING THE ARGUMENTS OF BOTH SIDE, WE ALLOW THE CLAIM OF THE A SSESSEE. AS A RESULT, THIS GROUND OF THE ASSESSEE IS ALLOWED. 6. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED . ORDER PRONOUNCED IN OPEN COURT ON 24 TH JULY, 2009. SD/- SD/- (T.K. SHARMA) JUDICIAL MEMBER (D.C. AGRAWAL) ACCOUNTANT MEMBER PLACE : AHMEDABAD DATE : 24-07-2009 ITA.NO.4134/AHD/2008 -6- COPY OF THE ORDER FORWARDED TO: 1) : ASSESSEE 2) : RESPONDENT 3) : CIT(A) 4) : CIT CONCERNED 5) : DR, ITAT. BY ORDER DR, ITAT, AHMEDABAD