DHAVAL CONSTRUCTION & DEVELOPERS P.LTD, MUMBAI V. ITO 4(1)(4), MUMBAI

ITA 4623/MUM/2016

• Counselvise Citation: [2018] 119 COUNSELVISE.COM (IT) 4600 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 3 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-10-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2009-2010
• Appeal Filed On: 05-07-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SWA
• Keywords: Revenue expenditure
• Section: 143(3); 147

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL SMC BENCH, MUMBAI BEFORE SHRI SAKTIJIT DEY , JUDICIAL MEMBER ITA NO. 4623 / MUM . /2016 ( ASSESSMENT YEAR : 20 09 10 ) DHAVAL CONSTRUCTION & DEVELOPERS P. LTD. 402, CENTRE POINT CO. OPERATIVE SOCIETY LTD., JN. OF S.V. ROAD & JUHU TARA ROAD SANTACRUZ (W), MUMBAI 400 054 PAN AABCD4501F . APPELLANT V/S INCOME TAX OFFICER WARD 4 (1)(4), MUMBAI . RESPONDENT ASSESSEE BY : SHRI SATISH R. MODY REVENUE BY : SHRI SWAPAN KUMAR BEPARI DATE OF HEARING 24 .0 9 .2018 DATE OF ORDER 12.10.2018 O R D E R A FORESAID APPEAL HA S BEEN FILED BY THE ASSESSEE CHALLENGING THE ORDER DATED 5 TH APRIL 2013 , PASSED BY THE LEARNED COMMISSIONER (APPEALS) 9 , MUMBAI, FOR THE ASSESSMENT YEAR 20 09 10 . 2 . GROUND NO.1, BEING GENERAL IN NATURE DOES NO T REQUIRE ADJUDICATION . 3 . GROUND NO.2, IS NOT PRESSED, HENCE, DISMISSED. 2 DHAVAL CONSTRUCTION & DEVELOPERS P. LTD. 4 . THE ONLY SURVIVING GROUND IS GROUND NO.3, WHEREIN THE ASSES SEE HAS CHALLENGED DISALLOWANCE/ DEDUCTION OF INTEREST FROM WORK IN PROGRESS (WIP). 5 . BRIEF FACTS ARE, THE ASSES SEE A COMPANY IS ENGAGED IN THE BUSINESS OF DEVELOPMENT OF PLOTS AND CONSTRUCTION OF BUILDING. FOR THE ASSESSMENT YEAR UNDER DISPUTE, THE ASSESSEE FILED ITS RETURN OF INCOME ON 28 TH SEPTEMBER 2009, DECLARING NIL INCOME. THE RETURN OF INCOME FILED BY THE ASSESSEE WAS PROCESSED UNDER SECTION 143(1) OF THE INCOME TAX ACT, 1961 (FOR SHORT THE ACT ). SUBSEQUENTLY, THE ASSESSING OFFICER HAVING FOUND THAT IN THE ASSESSMENT ORDER PASSED UNDER SECTION 143(3) OF THE ACT FOR ASSES SMENT YEAR 2008 09 INTEREST PAID OF ` 8,09,716, WAS DISALLOWED AND REDUCED FROM THE WORK IN PROGRESS , RE OPENED THE ASSESSMENT UNDER SECTION 147 OF THE ACT . DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER OBSERVED THAT THE INTEREST PAID OF ` 8,09, 716, WAS NEITHER ALLOWED TO BE CAPITALIZED NOR ALLOWED AS REVENUE EXPENDITURE IN THE ASSESSMENT ORDER PASSED IN THE ASSESSMENT YEAR 2008 09. THEREFORE, HE WANTED TO EXAMINE THE ALLOWABILITY OF INTEREST PAID IN THE IMPUGNED ASSESSMENT YEAR. EXAMINING THE BA LANCE SHEET OF THE ASSESSEE, THE ASSESSING OFFICER FOUND THAT THAT THE OUTSTANDING LOAN TAKEN AS ON 1 ST APRIL 2008 WAS ` 1,77,71,437. HE FURTHER FOUND THAT OUT OF THE SAID AMOUNT AN AMOUNT OF ` 1,69,08,410, WAS OBTAINED FROM A PARTNERSHIP 3 DHAVAL CONSTRUCTION & DEVELOPERS P. LTD. FIRM NAMELY M/S. HIRALAL JETHALAL PARIKH, WHEREIN ONE OF THE DIRECTORS OF THE ASSESSEE IS A PARTNER. HE NOTED THAT INTEREST OF ` 26,26,776, WAS PAID ON THE SAID LOAN @ 15% PER ANNUM AND THE CLOSING BALANCE OF OUTSTANDING LOAN AS ON 31 ST THREE 2009, WAS ` 1,94,81,218. FROM THE TOTAL INTEREST COST ALLOCATED PROJECT WISE FROM 31 ST MARCH 2004 TO 31 ST MARCH 2009, THE ASSESSING OFFICER FOUND THAT THE ASSESSEE WAS ALLOCATING 12.39% OF THE INTEREST COST TO MANORI PROJECT AND 87.61% TO SUNRISE PROJECT. THE ASSESSING OFFICER OBSERVED THAT THE AMOUNT OF LOAN ALLOCABLE TO MANORI PROJECT IS ` 90 LAKH. THUS, HE ALLOWED CAPITALIZATION OF ` 13,30,280, TOWARDS INTEREST COST TO WIP FOR THE MANORI PROJECT AND THE BALANCE AMOUNT OF ` 12,96,496 WAS DISALLOWED. CONSEQUENTLY, HE REDUCED THE WIP OF THE PROJECT TO ` 1,46,08,030 FROM ` 1,59,04,526 SHOWN BY THE ASSESSEE. ACCORDINGLY, HE COMPLETED THE ASSESSMENT. 6 . BEING AGGRIEVED OF THE ASSESSMENT ORDER SO PASSED, THE ASSESSEE PREFERRED APPEAL BEFORE THE FIRST APPELL ATE AUTHORITY. HOWEVER, THE LEARNED COMMISSIONER (APPEALS) FOLLOWING THE ORDER OF HIS PREDECESSOR IN OFFICE FOR THE ASSESSMENT YEAR 2008 09 UPHELD THE DEDUCTION OF INTEREST PAID FROM WORK IN PROGRESS. 7 . THE LEARNED AUTHORISED REPRESENTATIVE REITERATING THE STAND TAKEN BEFORE THE DEPARTMENTAL AUTHORITIES SUBMITTED , IN THE RELEVANT PREVIOUS YEAR THE ASSESSEE HAS CARRIED OUT CONSTRUCTION WORK IN 4 DHAVAL CONSTRUCTION & DEVELOPERS P. LTD. RESPECT OF ONL Y MANORI PROJECT. HE, THEREFORE SUBMITTED , THERE IS NO JUSTIFICATION IN DISALLOWING THE INTEREST COST OF ` 12,96,496. HE SUBMITTED , WHEN THE DEPARTMENT IS NOT DOUBTING THE GENUINENESS OF THE LOAN TAKEN AND INTEREST EXPENDITURE INCURRED BY THE ASSESSEE AND THERE IS NO ALLEGATION BY THE DEPARTMENT THAT THE LOAN WAS UTILISED FOR NON BUSINESS PURPOSE , EITHER T HE INTEREST EXPENDITURE INCURRED BY THE ASSESSEE IS TO BE CAPITALISED OR ALLOWED AS DEDUCTION UNDER SECTION 36(1)(III) OF THE ACT. DRAWING MY ATTENTION TO THE BALANCE SHEET OF THE ASSESSEE AS ON 31 ST MARCH 2009, THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED , SUNDRY DEBTORS HAVE REDUCED AND WORK IN PROGRESS HAS INCREASED. FURTHER, THE ASSESSEE HAS NOT AVAILED ANY FRESH LOAN. THEREFORE, IT IS PROVED BEYOND DOUBT THAT THE BORROWED FUND WAS UTILISED TOW ARDS CONSTRUCTION OF THE PROJECT. HE SUBMITTED , IF ONLY THE COST OF LAND IS ` 90 LAKH, THEN IT CANNOT BE SAID THAT THE ASSESSEE HAS NOT ANY EXPENDITURE FOR CONSTRUCTION OF THE PROJECT. 8 . THE LEARNED DEPARTMENTAL REPRESENTATIVE RELIED UPON THE OBSERVATIONS OF THE ASSESSING OFFICER AND THE LEARNED COMMISSIONER (APPEALS). 9 . I HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSED MATERIALS ON RECORD. IT IS EVIDENT ON RECORD, THE ASSESSEE WAS CONSTRUCTING TWO PROJECTS VIZ. SUNRISE PROJECT AND MANORI PROJECT AND IN RESP ECT OF BOTH THESE PROJECTS THE ASSESSEE WAS FOLLOWING PROJECT COMPLETION METHOD 5 DHAVAL CONSTRUCTION & DEVELOPERS P. LTD. OF ACCOUNTING AND ACCORDINGLY EXPENDITURE INCURRED WAS CAPITALIZED TO THE RESPECTIVE PROJECT COST. IT IS ALSO A FACT ON RECORD THAT SUNRISE PROJECT GOT COMPLETED IN THE ASSESSM ENT YEAR 2007 08 AND THE ASSESSEE ALSO OFFERED INCOME IN RESPECT OF THE SAID PROJECT AS PER PROJECT COMPLETION METHOD OF ACCOUNTING FOLLOWED BY IT. IT IS RELEVANT TO OBSERVE THAT IN ASSESSMENT YEAR 2008 09 AS WELL AS THE IMPUGNED ASSESSMENT YEAR, THE ASSES SEE WAS HAVING ONLY ONE INCOMPLETE PROJECT VIZ. MANORI PROJECT. THE DEPARTMENT HAS NEITHER DOUBTED THE GENUINENESS OF OF LOAN AVAILED OR INTEREST EXPENDITURE INCURRED BY ASSESSEE. A PART OF THE INTEREST EXPENDITURE HAS BEEN DISALLOWED ONLY ON THE REASONING THAT IN PAST YEARS ASSESSEE HAS ALLOCATED INTEREST EXPENDITURE ON PROPORTIONATE BASIS BETWEEN TWO PROJECTS. UNDISPUTEDLY, IN THE IMPUGNED ASSESSMENT YEAR THERE IS ONLY ONE INCOMPLETE PROJECT. THEREFORE, INTEREST EXPENDITURE HAS TO BE CAPITALISED TO THE WO RK IN PROGRESS OF THE INCOMPLETE PROJECT AS PER ACCOUNTING STANDARD (AS) 16. MORE SO, WHEN THERE IS NO ALLEGATION BY THE DEPARTMENT THAT INTEREST EXPENDITURE IS FOR NON BUSINESS PURPOSE. THEREFORE, I DELETE THE DISALLOWANCE OF INTEREST EXPENDITURE OF ` .12 ,96,496 AND DIRECT THE ASSESSING OFFICER TO ALLOW ASSESSEES CLAIM OF CAPITALISATION . ACCORDINGLY, GROUNDS RAISED BY THE ASSESSEE ARE ALLOWED . 6 DHAVAL CONSTRUCTION & DEVELOPERS P. LTD. 10 . IN THE RESULT, ASSESSEES APPEAL IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 12.10.2018 SD/ - SAKTIJIT DEY JUDICIAL MEMBER MUMBAI, DATED: 12.10.2018 COPY OF THE ORDER FORWARDED TO : ( 1 ) THE ASSESSEE; ( 2 ) THE REVENUE; ( 3 ) THE CIT(A); ( 4 ) THE CIT, MUMBAI CITY CONCERNED; ( 5 ) THE DR, ITAT, MUMBAI; ( 6 ) GUARD FILE . TRUE COPY BY ORDER PRADEEP J. CHOWDHURY SR. PRIVATE SECRETARY (SR. PRIVATE SECRETARY) ITAT, MUMBAI