M/S. PATEL BUILDERS & DEVELOPERS PVT LTD, MUMBAI V. ITO 10(2)(2), MUMBAI

ITA 572/MUM/2011

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 75216 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 11 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-01-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 21-08-2013
• Assessment Year: 2007-2008
• Appeal Filed On: 20-01-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: LEARNED ASSESSING OFFICE R; HENCE BUSINESS EXP
• Keywords: Business income; Depreciation; Business expenditure

Judgement Text

C IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, MUMBAI .. , ; BEFORE SHRI P.M. JAGTAP, AM AND SHRI VIVEK VARMA, J M ITA NO.572/MUM/2011 ( / ASSESSMENT YEAR : 2007-08) M/S. PATEL BUILDERS & DEVELOPERS PVT. LTD.,23, KAILAS NAGAR, M.G. ROAD, GHATKOPAR (E), MUMBAI 400 077 / VS. ITO(10(2)(2) AAYAKAR BHAVAN, MUMBAI . / PAN : AAACP3406E (APPLICANT) .. RESPONDENT ) APPELLANT B Y : DR. K. SHIVRAM RESPONDENT B Y : SHRI SANJEEV JAIN # % / DATE OF HEARING : 25-11-2013 # % / DATE OF PRONOUNCEMENT : 03-01-2014 / O R D E R PER P.M. JAGTAP, A.M . : THIS APPEAL, FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER OF LEARNED CIT(A) 22, MUMBAI DATED 26.11.2010 AND THE GROUNDS RAISED THEREIN( AS REVISED) READ AS UNDER : 1) THE LEARNED CIT(A) ERRED IN CONFIRMING ORDER O F ASSESSING OFFICER NOT ALLOWING BUSINESS EXPENSES OF RS.17,58, 462/- WHILE COMPUTING BUSINESS PROFITS AGAINST THE ADDITIONAL I NCOME OF RS.50,00,000/- DECLARED DURING THE COURSE OF SURVEY WITHOUT APPRECIATING THAT THE EXPENSES OF RS.17,58,462/- AR E ALLOWABLE BUSINESS EXPENSES REPRESENTING EXPENSES INCURRED AF TER DATE OF ITA NO.572/MUM/2011 2 SURVEY AND EXPENSES ACCOUNTED AFTER DATE OF SURVEY AND SAME HAD BEEN ALLOWED IN EARLIER AS WELL AS LATER YEARS AND THE STATEMENT OF THE DIRECTOR TAKEN ON OATH DURING THE COURSE OF SURVEY WAS WRONGLY INTERPRETED BY THE LEARNED ASSESSING OFFICE R AND HENCE THE BUSINESS EXPENSES OF RS.17,58,462/- MAY BE ALLO WED TO BE DEDUCTED FOR COMPUTING THE BUSINESS PROFITS. 2) WITHOUT PREJUDICE TO ABOVE, THE LEARNED CIT(A) E RRED IN NOT ADJUDICATING THE ALTERNATE SUBMISSION OF THE ASSESS EE THAT THE DEDUCTION OF BUSINESS EXPENSES OF RS.17,58,462/- NO T ALLOWED BY THE LEARNED A.O. SHOULD BE CAPITALIZED AS PART OF W ORK IN PROGRESS AND HENCE IF THE BUSINESS EXPENSES OF RS.1 7,58,462/- ARE NOT ALLOWED AS A DEDUCTION FOR COMPUTING BUSINE SS PROFITS, THE SAME MAY BE CAPITALIZED AS PART OF WIP. 2. THE ASSSESSEE IN THE PRESENT CASE IS A COMPANY W HICH IS ENGAGED IN THE BUSINESS OF DEVELOPMENT AND CONSTRUC TION OF REAL ESTATE. A SURVEY ACTION U/S.133A WAS CARRIED OUT IN THE CASE OF THE ASSESSEE DURING THE COURSE OF WHICH INCOME FOR THE YEAR UNDER CONSIDERA TION OF THE ASSESSEE COMPANY WAS DECLARED BY ITS DIRECTOR IN THE STATEME NT RECORDED ON ESTIMATED BASIS AT RS.50 LACS. SUBSEQUENTLY, THE RETURN OF IN COME FOR THE YEAR UNDER CONSIDERATION WAS FILED BY THE ASSESSEE ON 31.10.20 07 DECLARING TOTAL INCOME OF RS.16,49,811/- AFTER DEDUCTING BUSINESS E XPENSES OF RS. 17,58,462/- FROM THE INCOME OF RS.50 LACS, DECLARE D DURING THE COURSE OF SURVEY AND THEREAFTER ADJUSTING BROUGHT FORWARD LOS SES OF THE EARLIER YEARS AMOUNTING TO RS.15,62,960/-. IN THE ASSESSMENT COMP LETED U/S.143(3) OF THE INCOME TAX ACT, 1961 VIDE ORDER DATED 16.12.2009, T HE CLAIM OF THE ASSESSEE FOR SET OFF OF BROUGHT FORWARD LOSSES OF T HE EARLIER YEARS AGAINST THE INCOME OF RS.50 LACS DECLARED DURING THE COURSE OF SURVEY WAS ALLOWED BY THE AO. THE CLAIM OF THE ASSESSEE FOR DEDUCTION ON ACCOUNT OF BUSINESS ITA NO.572/MUM/2011 3 EXPENSES, HOWEVER, WAS DISALLOWED BY THE AO ON THE GROUND THAT THE PROFIT OF RS.50 LACS DECLARED BY THE ASSESSEE DURING THE C OURSE OF SURVEY WAS ARRIVED AT AFTER ACCOUNTING FOR ALL THE EXPENSES WH ICH HAD REMAINED TO BE ENTERED INTO BOOKS OF ACCOUNT AS ON THE DATE OF SUR VEY. HE HELD THAT THE EXPENSES ACCOUNTED FOR IN THE BOOKS OF ACCOUNT AFTE R THE DATE OF SURVEY THUS WERE CLEARLY NOT ALLOWABLE TO THE ASSESSEE. ON APPE AL, THE LEARNED CIT(A) CONFIRMED THIS DISALLOWANCE MADE BY THE AO FOR THE SAME REASONS AS GIVEN BY THE AO. HE ALSO HELD THAT THE PROVISION FOR EXPE NSES MADE BY THE ASSESSEE IN THE BOOKS OF ACCOUNT ON ACCOUNT OF INTE REST ETC. WAS NOTHING BUT ACCOUNTING JUGGLERY MADE WITH AN INTENTION TO REDUC E THE TAXABLE INCOME OFFERED DURING THE COURSE OF SURVEY. AGRIEVED BY TH E ORDER OF LEARNED CIT(A), THE ASSESSEE HAS REFERRED THIS APPEAL BEFOR E THE TRIBUNAL. 3. WE HAVE HEARD THE ARGUMENTS OF BOTH SIDES AND AL SO PERUSED THE RELEVANT MATERIAL ON RECORD. AS SUBMITTED BY TH E LEARNED COUNSEL FOR THE ASSESSEE, A SIMILAR ISSUE HAS BEEN DECIDED BY THE T RIBUNAL IN THE CASE OF M/S. SHREESHAY ENGG. PVT. LTD. VS. ACIT VIDE ORDER DATED 20.06.2013 PASSED IN ITA NO.670/M/2011 VIDE PARAGRAPH NO.6 WHI CH READS AS UNDER: 6. WE HAVE HEARD THE ARGUMENTS OF BOTH SIDES AND A LSO PERUSED THE RELEVANT MATERIAL ON RECORD. THE LD. COUNSEL FOR T HE ASSESSEE HAS INVITED OUT ATTENTION TO THE STATEMENT OF ESTIMATED PROFIT PREPARED FOR THE PURPOSE OF ADVANCE TAX AS ON 15.03.2007 GIVEN ON PAGE NO. 7 3 OF HIS PAPER-BOOK TO SHOW ABOVE THE BASIS OF THE SAID ESTIMATE. IN THE SAID STATEMENT, PROFIT AS PER TRIAL BALANCE WAS TAKEN AT 1.58,00,000/- AND AF TER DEDUCTING PROVISION FOR INTEREST ON UNSECURED LOAN OF RS.16,00,000/- MA DE ON ESTIMATED BASIS, NET PROFIT ON RS.1,42,00,000/- WAS WORKED OUT FOR T HE PURPOSE OF ADVANCE TAX. THE LD. COUNSEL OF THE ASSESSEE HAS ALSO INVI TED OUT ATTENTION TO THE STATEMENT PLACED AT PAGE NO. 99 OF HIS PAPER-BOOK G IVING THE DETAILS OF EXPENSES INCURRED PRIOR TO SURVEY AND EXPENSES INCU RRED AFTER SURVEY. A ITA NO.572/MUM/2011 4 PERUSAL OF THE SAID DETAILS SHOWS THAT THE IMPUGNED EXPENSES OF RS.8,17,7462/- COMPRISED OF EXPENSES INCURRED DURI NG THE POST SURVEY PERIOD UNDER VARIOUS ROUTINE HEADS INCLUDING THE MA JOR AMOUNT OF INTEREST ON UNSECURED LOANS FOR WHICH PROVISION OF RS.16,00, 000/- WAS MADE BY THE ASSESSEE ON ESTIMATED BASIS WHILE COMPUTATING PROFI T FOR THE PURPOSE OF ADVANCE TAX ON AS 15.03.2007. A COPY OF PROFIT & L OSS ACCOUNT OF THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION IS PLACED AT PAGE NO. 72 OF THE PAPER-BOOK WHICH SHOWS THAT THE INCOME OF RS.15,00, 000/- SURRENDERED BY THE ASSESSEE DURING THE COURSE OF SEPARATELY DECLAR ED AS INCOME AND THE ENTIRE ROUTINE EXPENSES INCLUDING THE EXPENSES IN QUESTION INCURRED DURING THE POST SURVEY PERIOD WERE DEBITED THE PROFIT AND LOSS ACCOUNT. IN OUR OPINION, ALL THESE FACTS AND FIGURES APPEARING IN T HE RELEVANT FINANCIAL STATEMENTS CLEARLY SHOW THAT THE AMOUNT EXPENSES OF RS. 8,17,7462/- WERE CLAIMED BY THE ASSESSEE AS REGULAR BUSINESS EXPENSE S INCURRED DURING THE POST SURVEY PERIOD AGAINST REGULAR BUSINESS INCOME WHICH RESULTED IN REDUCTION OF ITS REGULAR BUSINESS INCOME WHICH WAS ESTIMATED AT RS.1,42,00,000/- AS ON 15.03.2007 FOR ADVANCE TAX P URPOSE TO THAT EXTENT. IT APPEARS THAT THE AO AND THE LD. CIT(A), HOWEVER, MISCONCEIVED THE CLAIM OF THE ASSESSEE FOR THE SAID EXPENSES AS THAT OF AGAINST THE ADDITIONAL INCOME OF RS.15,00,000/- DECLARED DURING THE COURSE OF SURVEY AND MADE DISALLOWANCE OF THE SAID EXPENSES ON THE BASIS OF T HIS MISCONCEPTION WITHOUT CONSIDERING OR EXAMINING THE SAID CLAIM ON MERIT BEING THE CLAIM FOR REGULAR BUSINESS EXPENSES OF POST SURVEY PERIOD AGAINST REGULAR BUSINESS INCOME. WE, THEREFORE, SET-ASIDE THEIR OR DERS ON THIS ISSUE AND RESTORE THE MATTER TO THE FILE OF THE AO WITH A DIR ECTION TO CONSIDER AND ALLOW THE CLAIM OF THE ASSESSEE FOR THE IMPUGNED EX PENSES AS REGULAR BUSINESS EXPENSES ON MERIT AFTER THE NECESSARY VER IFICATION GROUND NO. 1 AND 2 OF THE ASSESSEES APPEAL ARE ACCORDINGLY TREA TED AS ALLOWED FOR STATISTICAL PURPOSE. ITA NO.572/MUM/2011 5 4. IN THE PRESENT CASE, THE FACTS INVOLVED ARE SIMI LAR TO THE FACTS INVOLVED IN THE CASE OF M/S. SHREESHAY ENGG. PVT. L TD. VS. ACIT(SUPRA) AS IS EVIDENT FROM THE RELEVANT PORTION OF THE TRIBUNA LS ORDER PASSED IN THAT CASE AND THIS POSITION IS NOT DISPUTED EVEN BY THE LEARNED DR. AS IN THE CASE OF M/S. SHREESHAY ENGG. PVT. LTD., THE ASSESSEE IN THE PRESENT CASE HAS ALSO FURNISHED THE RELEVANT DETAILS OF EXPENSES INCURRE D PRIOR TO SURVEY AND AFTER THE SURVEY AT PAGE NO.81 OF HIS PAPER BOOK WHICH C LEARLY SHOWS THAT THE EXPENSES INCURRED DURING THE POST SURVEY PERIOD ARE REGULAR BUSINESS EXPENDITURE WHICH MAINLY INCLUDES PROVISION MADE FO R DEPRECIATION AND INTEREST ON THE LAST DATE OF THE PREVIOUS YEAR. THE ASSESSEE HAS ALSO FILED THE PROFIT AND LOSS ACCOUNT FOR THE YEAR UNDER CONSIDER ATION AT PAGE 26 OF THE PAPER BOOK WHICH CLEARLY SHOWS THAT THE INCOME OF R S.50 LACS SURRENDERED DURING THE COURSE OF SURVEY WAS SEPARATELY DECLARED AS ITS INCOME BY THE ASSESSEE AND THE ROUTINE BUSINESS EXPENSES INCLUDIN G THE EXPENSES IN QUESTION INCURRED DURING THE POST SURVEY PERIOD WE RE DEBITED TO PROFIT AND LOSS ACCOUNT. THE ISSUE INVOLVED IN THE PRESENT CAS E AS WELL AS ALL THE MATERIAL FACTS RELEVANT THERETO THUS ARE SIMILAR TO THE CASE OF M/S. SHREESHAY ENGG. PVT. LTD. (SUPRA) AND RESPECTFULLY FOLLOWING THE DECISION OF THE CO- ORDINATE BENCH OF THIS TRIBUNAL RENDERED IN THE SAI D CASE, WE SET ASIDE THE IMPUGNED ORDER OF THE LEARNED CIT(A) ON THIS ISSUE AND RESTORE THE MATTER TO THE FILE OF THE AO WITH A DIRECTION CONSIDERED AND ALLOW THE CLAIM OF THE ASSESSEE FOR THE IMPUGNED EXPENSES AS REGULAR BUSIN ESS EXPENSES ON MERIT AFTER NECESSARY VERIFICATION. ITA NO.572/MUM/2011 6 5. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS TRE ATED AS ALLOWED AS INDICATED ABOVE. ORDER PRONOUNCED IN THE OPEN COURT ON 03-01-2014 . # , - 03-01-2014 # SD/- SD/- (VIVEK VARMA) ( P.M. JAGTAP ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI ; - DATED 03-01-2014 .../ A.K.PATEL , PS ' #%& '& / COPY OF THE ORDER FORWARDED TO : 1. 7 / THE APPELLANT 2. 897 / THE RESPONDENT. 3. : () / THE CIT(A)- MUMBAI CONCERNED 4. : / CIT MUMBAI CONCERNED 5. 8> , % > , / DR, ITAT, MUMBAI G BENCH 6. / GUARD FILE. / BY ORDER, 9 8 //TRUE COPY// / ( DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI