LALANI CONSTRUCTIONS P.LTD, MUMBAI V. ITO WD 9(2)(2), MUMBAI

ITA 4275/MUM/2012

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 2010 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 4 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-11-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 26-09-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 21-06-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A RAMACHANDRAN
• Assessee Lawyers: RAJESH B GUPTE
• Keywords: Business income
• Section: 143(3); 37(1); 145

Judgement Text

A IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, MUMBAI BEFORE SHRI MAHAVIR SINGH, JUDICIAL MEMBER AND SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER ./ I.T.A. NO. 4275 /MUM/2012 ( / ASSESSMENT YEAR : 2009-10) LALANI CONSTRUCTIONS PVT. LTD., 7 TH FLOOR,LALANI AURA, BEHIND NATIONAL COLLEGE, OFF. S.V. ROAD, NEAR BMC CLINIC, BANDRA (W), MUMBAI 400050. / V. THE ITO WARD 9(2)(2), AAYAKAR BHAWAN, MARINE LINES, MUMBAI 400 020. ./ PAN : AAACL0768P ( / APPELLANT ) .. ( / RESPONDENT ) ASSESSEE BY SHRI RAJESH B. GUPTE REVENUE BY : SHRI A. RAMACHANDRAN / DATE OF HEARING : 26-09-2016 / DATE OF PRONOUNCEMENT : 16-11-2016 / O R D E R PER RAMIT KOCHAR, ACCOUNTANT MEMBER THIS APPEAL, FILED BY THE ASSESSEE, BEING ITA NO. 4275/MUM/2012, IS DIRECTED AGAINST THE APPELLATE ORDER DATED 12 TH APRIL, 2012 PASSED BY LEARNED COMMISSIONER OF INCOME TAX (APPEALS)- 20,MUMBAI (HE REINAFTER CALLED THE CIT(A)), FOR THE ASSESSMENT YEAR 2009-10, THE APPE LLATE PROCEEDINGS BEFORE THE LEARNED CIT(A) ARISING FROM THE ASSESSMENT ORDE R DATED 31 ST OCTOBER, 2011 PASSED BY THE LEARNED ASSESSING OFFICER (HEREI NAFTER CALLED THE AO) U/S 143(3) OF THE INCOME TAX ACT,1961 (HEREINAFTER CALL ED THE ACT). ITA 4275/MUM/2012 2 2. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE IN THE MEMO OF APPEAL FILED WITH THE INCOME TAX APPELLATE TRIBUNAL, MUMBA I (HEREINAFTER CALLED THE TRIBUNAL) READ AS UNDER:- I. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN CO NFIRMING THE ADDITION MADE BY THE ASSESSING OFFICER OF EXPENSES WH ICH WERE NOT OF PRIOR PERIOD. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN ASS UMING THAT THE ASSESSEE SHOULD HAVE MADE PROVISIONS FOR EXPENSES W HICH WERE NOT FORESEEN BY HIM AS THEY WERE NOT FOR THE PRIOR PERIO D. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS A BUILDER AND DEVELOPER. DURING THE COURSE OF ASSESSMENT PROCEEDI NGS U/S. 143(3) READ WITH SECTION 143(2) OF THE ACT, THE ASSESSEE WAS ASKED T O JUSTIFY THE EXPENSES OF RS. 3,81,098/- BEING COST OF SALES OF HILL ROAD PRO PERTY WHEREBY THE ASSESSEE FAILED FURNISH ANY REASONS OF EXPENDITURE THAT THE SAME ARE RELATED TO ITS BUSINESS INCOME EARNED DURING THE YEAR AND PERTAINE D TO THE PROJECT SHOWN IN LAST YEAR BEING COST OF SALES. THE A.O. HELD THA T IF THE EXPENSES UNDER THE HEAD COST OF SALES WERE GENUINE AND EXIGIBLE TO THE PROJECT, THE ASSESSEE SHOULD HAVE MADE PROVISION IN THE BOOKS OF ACCOUNT OF THE LAST YEAR ACCORDINGLY. INSTEAD, THE ASSESSEE HAS CLAIMED THE SAID EXPENDITURE IN THE PROFIT AND LOSS ACCOUNT WITHOUT MAKING ANY PROVISIO N OF EXPENDITURE IN EARLIER YEARS. SINCE THESE ARE NOT RELATED TO ANY OF THE PR OJECTS UNDER TAKEN BY THE ASSESSEE (WIP), NOR TO THE INCOME EARNED DURING THE YEAR I.E. INCOME FROM OTHER SOURCES, HENCE THE SAME WERE NOT ALLOWABLE WI THIN THE MEANING OF SECTION 37(1) OF THE ACT, VIDE ASSESSMENT ORDER DAT ED 31.10.2011 PASSED BY THE AO U/S 143(3) OF THE ACT . ITA 4275/MUM/2012 3 4.AGGRIEVED BY THE ASSESSMENT ORDER DATED 31.10.201 1 PASSED BY THE A.O. U/S 143(3) OF THE ACT, THE ASSESSEE CARRIED THE MAT TER BEFORE THE LD. CIT(A) BY FILING FIRST APPEAL. 5. BEFORE THE LD. CIT(A) , THE ASSESSEE SUBMITTED THAT THIS EXPENSE RELATES TO THE PROJECT WHICH WAS COMPLETED IN THE PRECEDING YEAR AND THE SAME WERE DISALLOWED BY THE A.O. ON THE BASIS OF THAT THEY WE RE PRIOR PERIOD EXPENSES. THE ASSESSEE SUBMITTED THAT THE EXPENSES WERE INCUR RED DURING THE RELEVANT ASSESSMENT YEAR AND THE PAYMENTS WERE ALSO MADE DUR ING THE RELEVANT ASSESSMENT YEAR. THE ASSESSEE COMPLETED THE PROJECT IN MARCH, 2008 AND HANDED OVER THE SAME AFTER OCCUPANCY CERTIFICATE WA S RECEIVED IN MARCH 2008. IT WAS SUBMITTED THAT THE PROJECT WAS SOLD TO PUSTI ENTERPRISES PVT. LTD. NO PROVISIONS WERE MADE TOWARDS THE EXPENSES AS THE NA TURE OF EXPENSES INCURRED AFTER THE COMPLETION OF THE PROJECT WERE T OWARDS WATER CONNECTION, ACCESSORIES REQUIRED IN THE FIRE FIGHTING EQUIPMENT S AND OTHER MINOR WEAR AND TEAR ELECTRIC, PLUMBING AND MISCELLANEOUS WORK RELA TED TO THE PROJECT HILL ROAD PROJECT. IT WAS SUBMITTED THAT THE ENTIRE PROJ ECT OF COMMERCIAL MALL SOLD TO PUSTI ENTERPRISES PVT. LTD. WERE OF RS. 0.77 CRO RES AND THE DETAILS OF EXPENDITURE WERE FURNISHED ALONG WITH NATURE OF WOR K CARRIED OUT. AS REGARDS TO THE CONTRACTUAL EXPENSES OF RS. 2,03,259/- PAID TO VARIOUS PARTIES WERE PURELY TOWARDS MAINTENANCE AND REPAIRING OF THE PRO JECT, BMC CHARGES OF RS. 1,14,379/- WAS PAID FOR NEW WATER CONNECTION AND RO AD OPENING CHARGES. IT WAS SUBMITTED THAT THE WATER CONNECTION IS ALWAYS G IVEN AFTER OCCUPANCY CERTIFICATE WAS ISSUED. THERE WAS SOME MINOR EXPEN SES TOWARDS PURCHASE OF MATERIAL WHICH WERE INCURRED AMOUNTING TO RS. 11,91 0/-. IT WAS ALSO SUBMITTED THAT IN ORDER TO CARRY OUT THESE EXPENSES , THE ASSESSEE HAD TO INCUR SITE EXPENSE CHARGES TOWARDS SUPERVISION CHARGES, P URCHASE OF SAND AND BRICKS, THUS IT WAS SUBMITTED THAT NONE OF THESE EX PENSES WERE OF PRIOR PERIOD AND THE EXPENSES INCURRED WERE NECESSARY EXPENSES A ND WHICH COULD HAVE BEEN INCURRED ONLY AFTER COMPLETION AND HANDING OVE R OF THE PROJECT. IT WAS ITA 4275/MUM/2012 4 SUBMITTED THAT ASSESSEE HAD ALSO INCURRED EXPENSES TOWARDS CONVEYANCE AND REGISTRATION CHARGES AND PAYMENT OF STAMP DUTY FOR ITS PROJECT ROYAL MANOR WHICH WAS AN EARLIER PROJECT AND EXPENSES WERE INCU RRED DURING THE YEAR AS CONVEYANCE WAS ENTERED WITH THE SOCIETY DURING THE RELEVANT ASSESSMENT YEAR. THE LD. CIT(A) OBSERVED THAT THIS ISSUE RELATES TO PRIOR PERIOD ITEM AND IN EXERCISE OF THE POWERS CONFERRED BY SUB-SECTION (2) OF SECTION 145 OF THE ACT, THE CENTRAL GOVERNMENT VIDE F.NO.132/7/95-TPL DATED 25 TH JANUARY, 1996 HAS NOTIFIED TWO ACCOUNTING STANDARD (AS) WHICH HAS COME INTO EFFECT FROM 01.04.1996 AND, THEREFORE, APPLIES TO THE ASSESSMEN T YEAR 1997-98 AND SUBSEQUENT YEARS. AS-I RELATES TO DISCLOSURE OF ACC OUNTING POLICIES WHEREAS AS-II RELATES TO DISCLOSURE OF PRIOR PERIOD AND EX TRAORDINARY ITEMS AND CHANGES IN ACCOUNTING POLICIES. THE LD. CIT(A) OBSE RVED THAT IN THE PRECEDING YEAR THE ASSESSEE CARRIED A PROJECT AT HILL ROAD WH ICH WAS COMPLETED AND INCOME OFFERED TO TAXATION DURING ASSESSMENT YEAR 2 008-09. NO NEW PROJECT HAD BEEN UNDERTAKEN IN THE PREVIOUS YEAR RELEVANT T O THE IMPUGNED ASSESSMENT YEAR . THIS EXPENDITURE CLEARLY WAS NOT IN THE NATURE OF A CONTINGENCY BUT KNOWN TO THE ASSESSEE AS THEY WERE INCURRED AS PER THE TERMS & CONDITIONS OF SALE AGREEMENT. THE LIABILITY WAS DETERMINED AND CRYSTALLIZED IN FINANCIAL YEAR RELEVANT TO THE ASSE SSMENT YEAR 2008-09 AS THE ASSESSEE WAS MAINTAINING ITS ACCOUNTS AS PER MERCAN TILE BASIS. UNDER THESE CIRCUMSTANCES, THE ASSESSEE SHOULD HAVE MADE PROVIS ION IN THE RELEVANT YEARS AND IN THIS YEAR THE SAME SHOULD HAVE BEEN DISCLOSE D AS PRIOR PERIOD ITEMS AS PER AS-II, BUT THE ASSESSEE FAILED TO DO SO AND, HE NCE, IN THE ABSENCE OF ANY PROJECT BEING CARRIED OUT, THE LD. CIT(A) HELD THAT THE SAME CANNOT BE CLAIMED IN THE PREVIOUS YEAR RELEVANT TO THE IMPUGNED ASSES SMENT YEAR AND ACCORDINGLY THE LEARNED CIT(A) CONFIRMED THE ASSESS MENT ORDER OF THE A.O. , VIDE APPELLATE ORDER DATED 12.04.2012 PASSED BY LEA RNED CIT(A). ITA 4275/MUM/2012 5 6. AGGRIEVED BY THE APPELLATE ORDERS DATED 12.04.20 12 PASSED BY THE LD. CIT(A) , THE ASSESSEE IS IN APPEAL BEFORE THE TRIBU NAL. 7. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE EXPENSES WERE INCURRED AFTER THE PROJECT WAS COMPLETED AND ON THE REQUEST OF THE BUYER THESE EXPENSES WERE INCURRED RELATING TO WATER CONN ECTION, ACCESSORIES REQUIRED IN THE FIRE FIGHTING EQUIPMENTS AND OTHER MINOR WEAR AND TEAR EXPENSES ELECTRIC, PLUMBING AND MISCELLANEOUS WORK RELATED TO THE PROJECT HILL ROAD. ALTHOUGH THE PROJECT WAS SOLD IN MARCH 2008, THESE ARE NOT PRIOR PERIOD EXPENSES BUT WERE INCURRED DURING THE PREVIO US YEAR RELEVANT TO THE IMPUGNED ASSESSMENT YEAR. 8. ON THE OTHER HAND ,THE LD. D.R. RELIED ON THE OR DER OF THE LD. CIT(A). 9. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND ALS O PERUSED THE MATERIAL AVAILABLE ON RECORD. WE HAVE OBSERVED THAT THE ASSE SSEE HAS INCURRED CERTAIN EXPENSES WHICH ARE RELATED TO THE ASSESSEES PROJEC T WHICH WAS SOLD IN THE PRECEDING YEAR . IT IS THE SUBMISSION OF THE ASSES SEE THAT THESE EXPENSES INCURRED BY THE ASSESSEE ARE RELATED TO THE PROJECT WHICH IS ALREADY SOLD BUT ON THE COMPLAINT OF THE BUYER TO MEET THE EXPENSES TO COVER THE DEFICIENCY IN THE PROJECT LIKE WATER CONNECTION, ACCESSORIES REQU IRED IN THE FIRE FIGHTING EQUIPMENTS AND OTHER MINOR WEAR AND TEAR EXPENSES E TC. WHICH ARE REQUIRED TO COMPLY WITH THE TERMS AND CONDITIONS OF THE SALE AGREEMENT AND TO HONOUR THE COMMITMENT TO RECTIFY MINOR DEFICIENCIES AND DE FECTS IN THE PROJECT AS POINTED OUT BY THE BUYER. THE PROJECT WAS SOLD IN T HE PRECEDING YEAR BUT BASED ON THE MINOR DEFECTS AND DEFICIENCIES POINTED OUT BY THE BUYER DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR, THESE EXPENSES WERE INCURRED BY THE ASSESSEE DURING THE PREVIOUS YEAR R ELEVANT TO THE IMPUGNED ASSESSMENT YEAR TO RECTIFY THOSE MINOR DEFECT AND D EFICIENCIES POINTED OUT BY BUYERS AND HENCE CANNOT BE CONSIDERED TO BE PRIOR P ERIOD EXPENSES AS THE ITA 4275/MUM/2012 6 SAME WERE ARISEN, ACCRUED AND INCURRED IN THE IMPUG NED ASSESSMENT YEAR AND ARE WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF BUSINESS OF THE ASSESSEE. IN OUR CONSIDERED VIEW, THESE ARE NOT PRIOR PERIOD EXPENSES BUT HAVE ARISEN , ACCRUED AND INCURRED DURING PREVIOUS YEAR RELEVANT TO IMPUGNED ASSESSMENT YEAR AND ARE WHOLLY AND EXCLUSIVELY CONNECTED WITH THE PROJECT WHICH WAS ALREADY SOLD IN MARCH, 2008 AND HENCE HAVE DIRECT A ND LIVE NEXUS WITH THE BUSINESS CARRIED ON BY THE ASSESSEE . THUS, BASED O N OUR DETAILED DISCUSSION AND REASONING AS SET-OUT ABOVE , WE ORDER DELETION OF THE ADDITIONS OF RS.3,81,098/- AS MADE BY THE AO AND SUSTAINED BY TH E LEARNED CIT(A). WE ORDER ACCORDINGLY. 10. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IN ITA NO. 4275/MUM/2012 FOR THE ASSESSMENT YEAR 2009-10 IS AL LOWED AS INDICATED ABOVE. ORDER PRONOUNCED IN THE OPEN COURT ON 16 TH NOVEMBER, 2016. # $% &' 16-11-2016 ( ) SD/- SD/- (MAHAVIR SINGH) (RAMIT KOCHAR) JUDICIAL MEMBER ACCOUNTANT MEMBER $ MUMBAI ; & DATED 16-11-2016 .9../ R.K. R.K. R.K. R.K. , EX. SR. PS ITA 4275/MUM/2012 7 !'#$%&%# / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. : ( ) / THE CIT(A)- CONCERNED, MUMBAI 4. : / CIT- CONCERNED, MUMBAI 5. =>( 99?@ , ?@ , $ / DR, ITAT, MUMBAI E BENCH 6. (BC D / GUARD FILE. / BY ORDER, = 9 //TRUE COPY// / ( DY./ASSTT. REGISTRAR) , $ / ITAT, MUMBAI