DCIT CC 4(3) CEN RG 4, MUMBAI V. KUKREJA CONSTRUCTION CO, MUMBAI

ITA 5153/MUM/2015

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 9295 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 10 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-09-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2012-2013
• Appeal Filed On: 30-10-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAJESH KUMAR YADAV
• Section: 80IB; 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH A, MUMBAI BEFORE D.T. GARASIA, JUDICIAL MEMBER AND SHRI G. MANJUNATHA, ACCOUNTANT MEMBER ITA NO.5153/M/2015 ASSESSMENT YEAR: 2012-13 DCIT, CC 4(3), CENTRAL RANGE 4, MUMBAI VS. M/S. KUKREJA CONSTRUCTION CO., LALAASIS, PLOT NO.210, 11 TH ROAD, CHEMBUR, MUMBAI-400 071 PAN: AABFK 0413C (APPELLANT) (RESPONDENT) PRESENT FOR: ASSESSEE BY : SHRI J.P. BAIRAGRA, A.R. REVENUE BY : SHRI RAJESH KUMAR YADAV, D.R. DATE OF HEARING : 01.08.2017 DATE OF PRONOUNCEMENT : 20.09.2017 O R D E R PER D.T. GARASIA , JUDICIAL MEMBER: THE PRESENT APPEAL HAS BEEN PREFERRED BY THE REVEN UE AGAINST THE ORDER DATED 27.08.2015 OF THE COMMISSIONER OF I NCOME TAX (APPEALS) [HEREINAFTER REFERRED TO AS THE CIT(A)] R ELEVANT TO ASSESSMENT YEAR 2012-13. 2. THE SHORT FACTS OF THE CASE ARE THAT THE ASSESSE E IS A PARTNERSHIP FIRM ENGAGED IN BUSINESS OF CIVIL CONSTRUCTION AND REAL ESTATE DEVELOPMENT. IT FILED THE RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION ON 24.09.12. THE ASSESSING OFFICER ( HEREINAFTER REFERRED TO AS THE AO) HAS RESTRICTED THE DEDUCTION CLAIM UNDER ITA NO.5153/M/2015 M/S. KUKREJA CONSTRUCTION CO. 2 SECTION 80IB AMOUNTING TO RS.10,79,38,834/- AS AGAI NST RS.12,05,36,264/- CLAIMED BY THE ASSESSEE. THE AO HAS DEALT THIS ISSUE IN PARA 7 OF THE ASSESSMENT ORDER. THE AO HA S RECOMPUTED THE DEDUCTION AS UNDER: SR. NO. PARTICULARS SAI DEEP LAV KUSH BLUE BELL TOTAL A DEDUCTION U/S 80IB CLAIMED AS PER RETURN OF INCOME 85168326 12551476 22816462 120536264 B LESS : INDIRECT EXPENSES ALLOCABLE TO ELIGIBLE UNITS 8573074 1250493 2425553 12249120 C LESS: OTHER INCOME NOT ELIGIBLE FOR DEDUCTION U/S 80IB 238010 30270 80030 238010 REVISED DEDUCTION U/S 80IB [A-(B- C)] 76357242 1127-713 20310879 107938834 3. MATTER CARRIED TO THE LD. CIT(A) AND THE LD. CIT (A) HAS PARTLY ALLOWED THE CLAIM BY OBSERVING AS UNDER: 9. I HAVE CAREFULLY CONSIDERED THE ISSUE. IT IS A FACT THAT THE APPELLANT IS ENGAGED IN CONSTRUCTION OF VARIOUS PROJECTS DURING THE YEAR, WHICH ARE IN DIFFERENT STAGES OF COMPLETION, SOME ARE COMPLETE AND FINISHE D AND SOME ARE UNDER VARIOUS STAGES OF CONSTRUCTION. THEN THE ISSUE IS AS TO WHA T SHOULD BE A REASONABLE CRITERIA TO ALLOCATE INDIRECT EXPENSES, AMONG VARIOUS PROJEC TS. THE MOST NATURAL PRESUMPTION OF APPORTIONING THE INDIRECT EXPENSES W OULD BE IN PROPORTION TO THE RESPECTIVE WIPS OF THE PROJECTS, WHICH GIVES AN IDE A ABOUT THE DIRECT COSTS INCURRED IN DIFFERENT PROJECTS IN THAT PARTICULAR YEAR. HOWE VER, THE AO HAS APPORTIONED THE INDIRECT EXPENSES IN THE RATIO OF TURNOVER/SALES OF DIFFERENT PROJECTS DURING THE YEAR. HOWEVER, I AM OF THE VIEW THAT APPLYING INDIRECT EX PENSES IN PROPORTION TO RESPECTIVE TURNOVER/SALES WOULD CREATE A VERY SKEWE D POSITION, AS THERE WILL BE ITA NO.5153/M/2015 M/S. KUKREJA CONSTRUCTION CO. 3 PROJECTS WHICH WERE COMPLETED IN EARLIER YEARS AND ONLY SALES OF LEFT OVER FLATS HAPPENED IN THIS YEAR THEREFORE NEGLIGIBLE INDIRECT EXPENSES WILL BE INVOLVED. BUT IF INDIRECT EXPENSES ARE ALLOCATED TO THESE PROJECTS I N THE RATIO OF SALES, RELATIVELY HIGHER PROPORTION OF INDIRECT EXPENSES WILL COME TO SUCH PROJECTS, WHICH WILL BE IRRATIONAL. AS AGAINST THIS, THE PROJECTS UNDER CO NSTRUCTION, WHERE NO SALES TOOK PLACE , WILL INVOLVE SIGNIFICANT INDIRECT EXPENSES BUT WILL GET NIL ALLOCATION OF SUCH EXPENSES WHICH WILL NOT BE PROPER , AS MOST OF SUCH EXPENDITURE IS RELATING TO PROJECTS UNDER CONSTRUCTION .. IT IS RELEVANT TO ME NTION OVER HERE THAT INDIRECT EXPENSES ARE IN NATURE OF ARCHITECURAL FEES, SUPERV ISION CHARGES , SECURITY EXPENSES, WATER ELECTRICITY CHARGES , STAFF WELFARE ETC. WHIC H WILL HAVE MORE RELEVANCE TO THE ONGOING PROJECTS THAN THE COMPLETED PROJECTS . THER EFORE COMPLETED PROJECTS WILL HAVE NEGLIGIBLE OR VERY SMALL ELEMENT OF INDIRECT E XPENSES . IN LIGHT OF THE ABOVE DISCUSSION A MORE RATIONAL APPROACH WOULD BE TO APP ORTION SUCH EXPENSES IN RATIO OF DIRECT EXPENDITURE. IT IS IN THESE CIRCUMSTANCES THAT THE HON. TRIBUNAL VIDE THEIR ORDER DATED 29/6/2010 IN ASSESSEE'S OWN CASE FOR A. Y. 2005-06 HAS HELD THAT INDIRECT EXPENSES SHOULD BE APPORTIONED IN PROPORTI ON TO THE COST INCURRED ON VARIOUS PROJECTS DURING THE YEAR AS REPRESENTED BY 'WORK IN PROGRESS' IN THE DIFFERENT PROJECTS. THE AO HAS MADE NO CASE IN THE ASSESSMENT ORDER THAT APPORTIONMENT OF INDIRECT EXPENSES IN THE RATIO OF RESPECTIVE TURNOVER OR SALES WOULD BE LOGICALLY MORE SOUND. THEREFORE, RESPECTFU LLY FOLLOWING THE RATIO OF THE SAID DECISION OF THE ITAT, THE A0 IS DIRECTED TO AP PORTION THE INDIRECT EXPENSES IN THE RATIO OF RESPECTIVE DIRECT EXPENSES OF DIFFEREN T PROJECTS OF THE APPELLANT. IF THE INDIRECT EXPENDITURE OF RS.2,11,46,827/- AS PER ASS ESSMENT ORDER IS APPORTIONED IN THE RATIO OF DIRECT EXPENSES , THE POSITION WORKS O UT TO AS UNDER :- SR. NO. NAME OF THE PROJECT DIRECT EXPENSES RATIO ALLOCATION OF INDIRECT EXPENSES A) BLUE BELL 9,37,536 1.48% 3,13,845 B) LUV KUSH 1,64,898 0.26% 55,201 C) SAI DEEP 33,78,617 5.35% 11,31,011 D) GOLF SCAPPE 6,22,78,168 87% 1,84,23,336 E) TRISHUL APT. 36,54,713 5.79% 12,23,435 TOTAL 6,31,70,968 100% 2,11,46,827 10. THEREFORE THE ALLOCATION OF INDIRECT EXPENSES F OR 80 LB PROJECTS NAMELY BLUE BELL, LUV KUSH AND SAL DEEP WORKS OUT TO RS. 3,13,8 45 + RS.55,201 + RS.11,31,011 = RS.15,00,057/-. CONSEQUENTLY THE PROFITS OF THESE P ROJECTS AND DEDUCTION U/S 801B(10) WILL GET REDUCED BY RS.15,00,057/-, AS AGA INST FIGURE WORKED OUT BY THE AO. THUS DISALLOWANCE MADE BY THE AO IS CONFIRMED T O THE EXTENT OF RS. 15,00,057/- AND REMAINING AMOUNT IS DIRECTED TO BE DELETED . TH IS GROUND IS ACCORDINGLY PARTLY ALLOWED. 4. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE P ARTIES. WE FIND THAT THE LD. CIT(A) HAS RELIED UPON THE DECISI ON OF ITAT IN THE ITA NO.5153/M/2015 M/S. KUKREJA CONSTRUCTION CO. 4 OWN CASE OF THE ASSESSEE FOR A.Y. 2005-06 AND HAS H ELD THAT INDIRECT EXPENSES SHOULD BE APPORTIONED AND APPORTIONED TO T HE COST INCURRED ON VARIOUS PROJECTS DURING THE YEAR REPRESENTED BY WORK IN PROGRESS IN DIFFERENT PROJECTS. THEREFORE, WE DISMISS THE D EPARTMENTAL APPEAL ON THIS GROUND. GROUND NO.2 5. GROUND NO 2 IS RELATING TO EXCLUSION OF OTHER IN COME OF RS.3,48,310/- BY THE AO BEFORE COMPUTING THE DEDUCT ION U/S 80IB(10) . THE ASSESSEE HAS CHALLENGED THE AO'S ACT ION IN REDUCING THE DEDUCTION U/S.80IB(10) IN RESPECT OF THE PROJEC TS 'LAV KUSH', 'BLUE BELL' AND 'SAI DEEP', BY OTHER INCOME IN THE FORM OF CAR PARKING CHARGES, DEVELOPMENT CHARGE, ELECTRIC METER CHARGES , EXTRA WORK CHARGES, GRILL CHARGES, INTEREST RECEIVED, LEGAL CH ARGES, WATER METER CHARGES, ETC. THE AO HELD THAT THE ABOVE ITEMS OF I NCOME ARE IN THE NATURE OF OTHER INCOME WHICH IS NOT DERIVED FRO M THE CONSTRUCTION ACTIVITY AND THEREBY DEDUCTION U/S.80I B SHOULD BE REDUCED BY THIS AMOUNT. 6. MATTER CARRIED TO THE LD. CIT(A) AND THE LD. CIT (A) HAS ALLOWED THE CLAIM BY OBSERVING AS UNDER: 18. RESPECTFULLY FOLLOWING THE FINDING OF MY LD. P REDECESSOR, I HOLD THAT THE EXPENDITURE IN NATURE OF ELECTRIC METER CHARGES AND WATER METER CHARGES ARE PART AND PARCEL OF COMPLETED AND HABITA BLE FLAT AND IS THEREFORE PART OF THE CONSTRUCTION ACTIVITY OF THE ASSESSEE. CONSEQUENTLY THE APPELLANT IS ELIGIBLE FOR DEDUCTIO N U/S 80IB(10) IN RESPECT OF SUCH EXPENSES. I ALSO WOULD LIKE TO ADD THAT THESE EXPENSES ARE SLIGHTLY ON DIFFERENT FOOTING FROM WATER EXPENS ES AND ELECTRICITY EXPENSES AS CONSIDERED IN THE CASE OF M/S TOLARAM AN D COMPANY, AS FOLLOWED BY THE ASSESSEE. THIS LEAVES 'OTHER INCOME ' ONLY FROM LEGAL ITA NO.5153/M/2015 M/S. KUKREJA CONSTRUCTION CO. 5 CHARGES AND GAS CHARGES, AMOUNTING TO RS.37,500/- A ND RS.2500/- RESPECTIVELY WHICH ARE HELD TO BE NOT RELATING TO B USINESS AND THEREFORE I HOLD THAT THE ASSESSEE IS NOT ELIGIBLE FOR DEDUCTION U/S 80IB(10) IN RESPECT OF SUCH OTHER INCOME. ACCOR DINGLY DISALLOWANCE MADE BY THE AO IN THIS REGARD IS CONFI RMED TO THE EXTENT OF RS.40,000/- AND REMAINING AMOUNT IS DIRECTED TO B E DELETED. THIS GROUND OF APPEAL IS THEREFORE PARTLY ALLOWED 7. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE P ARTIES. WE FIND THAT THE ISSUE IN CONTROVERSY IS COVERED BY TH E DECISION OF TRIBUNAL IN THE CASE OF ASSESSEES SISTER CONCERN N AMELY TOLA RAM & CO. WHEREIN THE SIMILAR ISSUE HAS BEEN CONSIDERED B Y THE LD. CIT(A) AND THE APPEAL HAS BEEN ALLOWED. NO CONTRARY DECIS ION WAS BROUGHT BY THE LD. D.R. THEREFORE, RESPECTFULLY FOLLOWING THE SAME, WE DISMISS THE DEPARTMENTAL APPEAL. 8. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 20.09.2017. SD/- SD/- (G. MANJUNATHA ) (D.T. GARASIA) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 20.09.2017. * KISHORE, SR. P.S. COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT (A) CONCERNED, MUMBAI THE DR CONCERNED BENCH //TRUE COPY// [ BY ORD ER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.